Each organization implements and adapts to a strategy unique to its business and expects to develop itself in the medium and long terms. Thereby in analyzing any such business enterprise it is highlighted that identifying and investigating on the particular business strategy and studying whether the organizational activities are aligned with that strategy is vital. Furthermore, apart from activities the organizational structure also has its role to play in strategy implementation and therefore in the process of analyzing an organization one should consider exploring on the appropriateness of the organizational structure and systems, its assistance to the business activities, cost, efficiency etc.
Every organization is directed by a leader and therefore in modern business concepts leadership has become a main consideration. Hence, in analyzing a strategy of an organization considering the leadership of that particular organization would assist to present an effective and well informed analysis.
Accordingly in analyzing the case "Ryanair - the low-fares airline" the following report includes evaluating the organization's business strategy based on Porter's generic strategies and justification through value chain activities, evaluation of organizational structure and systems and leadership style used in strategy implementation and finally presented with suitable recommendations for the betterment of Ryanair.
2.0 Ryanair current Strategy
2.1 Porter's Generic Strategies
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According to Porter (1980), there are three main techniques which organizations could follow to be more successful than their competitors which are Cost leadership, Differentiation and Focus which could be paired with both cost and differentiation.
Based on the generic strategies the relevant strategy practiced by Ryanair would be Cost Leadership. As the European low cost airline market leader, Ryanair is at a constant attempt to reduce its operational and other costs and thereby provide its customers with the lowest fares and most economical airline service compared to competitors such as easyJet, Lufthansa, Air Berlin/Niki etc. Accordingly it tries to increase passenger traffic while controlling costs and increasing efficient operations (Ryanair, n.d). Therefore its strategies include,
Low fares -
In order to reduce costs Ryanair which caters to a price conscious audience primarily issues tickets on one-way basis removing the minimum need of remaining in airports during all scheduled services. Also it is flexible in price changes which are determined according to the demand and time period remaining to departure. One-way pricing policy increases its revenues mainly in its largest passenger route Dublin to London. Furthermore, as a business in an industry competing on price, Ryanair launches fare promotions such as 1 million seats free of fares, large discounts for bookings done for particular time periods (40% off June bookings done from May 10th-13th, 2010) etc. (Ryanair, n.d).
Point-to-point flights on short haul routes -
Compared to other airlines, Ryanair schedules short haul flights which permit them to avoid costs of frill services, costs of connecting passengers including transit passengers and luggage transfers. Most significantly Ryanair utilizes regional and secondary airports in close proximity to populated and travel destinations which are less congested allowing on-time departures, taking less time at gate loading unloading passengers (turnaround time) allowing maximum aircraft usage, reduce terminal delays and low airport charges which are important aspects for an airline stressing on low costs (Ryanair, n.d).
Low operating expenditure -
Ryanair management believes in control and reduction of four important cost structures including aircraft equipment costs, customer service costs, personnel productivity costs and airport charges. Initially Ryanair purchased second hand planes of a single type. However now purchasing new Boeing 737-800s and are profited as it's a single manufacturer and thereby reduce purchase and storing of spare parts costs, maintenance, training costs etc (Ryanair, n.d). Also these aircrafts have higher seat capacity and daily aircraft utilization (Brophy & George, n.d). Furthermore, the contracts between Ryanair and Boeing are also considered favourable for the airline.
Ryanair possesses a highly productive staff which is improved constantly in aim of reducing labour costs. For instance, passenger bookings per employee in 2004 saw an increase of 21% compared to 2003 (Ryanair, n.d) and accordingly compensation is based on productivity which includes commissions for on-board sales, payments for pilots and cabin crew based on hours or sectors flown under a maximum working hour standard.
Always on Time
Marked to Standard
Ryanair has gone to the extent of outsourcing activities such as passenger and luggage handling, ticketing etc. in some airports to reduce such costs. Also through both their website and telephone reservations which accounted for 96% and 4% of the entire bookings respectively, which eliminated commissions for travel agents (Ryanair, n.d).
3.1 Value chain activities
This framework would assist the business to understand its cost structure and identify means which would aid for business strategy implementation and understand how internal operations add value to their business and which areas actually create value for the business and which do not (Hitt, Ireland & Hoskisson, 2009).
Inbound logistics - Ryanair has its headquarters at the Dublin airport which reduces the cost of functioning a large and costly corporate HQ. It provides low cost and quality training for its employees where in most situations employees pay for their own training. The internet has been a major means to assist their strategy along with the agreements with secondary and regional airports and contracts with their suppliers mainly Boeing for discounted aircrafts.
Operations - All operations are structured based on their low cost, no frill strategy through limited staff members, ex. 58.5 million passengers handled by 6,370 employees in 2008 (Ryanair, n.d). Also the official website "http://www.ryanair.com/en" provides complete up-to-date information on the airline and its activities. Ryanair successfully acquired Buzz, a small Dutch budget carrier at a bargain purchase price which opened new slots at Stansted airport and also attempted to further acquire Aer Lingus to increase profits and face competition.
Outbound logistics - it depends on low turnaround time and a smooth process due to the point-to-point flight policy. The management control over employees is high which leads to high labour turnover and reducing absenteeism (Bain, 2008). Furthermore, through outsourcing its services and integrating its IT systems Ryanair adds value to its service.
Marketing and sales - Ryanair management follows a unique marketing strategy where it depends on controversial publicity stunts such as rumors of taking over large airlines, calendars with exposed cabin crew etc which is low cost and extremely effective. They utilize their website and adverts to increase sales. HR advertising is done in-house.
Service - Ryanair focuses on providing a basic no frill low cost air travel service with high productivity. Also based on low cost the resources utilized are limited mainly time and money. The website provides efficient easy access services for customer. They use ancillary services such as hotel, car rental, in-flight sales services and also adhere to rules and regulations imposed by EU which standardizes the service.
4.0 Organizational structure & systems
4.1 Organizational structure
The organizational structure or the manner in which the organizational activities are arranged within Ryanair takes a form of an infinitely flat structure under the knowledge organizational structures along with an influence of network structure.
Infinitely flat knowledge structure (APPENDIX C) - this explains that information flows from a central position to other nodes which then operate independently (Quigg, 2007). The central point at Ryanair is Michael O'Leary and the Board of directors where the involvement of O'Leary is extremely high Eg. Marketing strategies implemented are his ideas in most situations and responsibility is provided to the many airports they operate from. Knowledge lies with the Board (Locus of intellect is central), the solutions are provided by the airport mainly with the use of the website (Locus of customization), knowledge flows from the Board to other sections and advantage is gained through multiplying the low cost strategy throughout (method of leverage) [Hubbard, Rice & Beamish, 2008].
Network structure - in some occasions Ryanair has outsourced its activities such as ticketing, luggage handling which rationalizes the organization's activities and adapt to the network structure.
As an airline adapting to the infinitely flat structure is appropriate as the HQ is geographically away from other airports and to maintain standardization among services. This is also assisted by outsourcing non-value adding activities which would contribute to effective strategy implementation.
4.2 Organizational systems
Operating systems at Ryanair include mainly their website which handles 96% of their total bookings, safety management system which include safety training procedures, utilization of safety-related equipment and practice of internal confidential reporting system (Ryanair, n.d), call centre which provide customer opportunity to book tickets and forward other inquiries and their ancillary revenue methods including hotel, travel insurance, car rental etc. and on-line gambling and in-flight mobile phone service.
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Information systems which plays a significant role at Ryanair would include their reservation system named SQL Server 2005 under Navitaire by Microsoft (Microsoft SQL Server, n.d), Flightwatch system which collects and displays passenger information, airport information, weather conditions etc. (R systems, n.d), Work order and Flight Log system which support planning schedules and operations and employees to access and forward important details regarding Ryanair (Capterra, n.d), Numara Footprints which enables streamlined ITIL tools, workforce automation and customization (QMS software Ltd., (2008).
Control systems - Ryanair values its customer satisfaction which controls the employees to provide a better service, low cost perception is mainly adopted as the organization is at a continuous attempt to be the largest low cost airline within Europe, innovation is encouraged mainly to reduce costs and maximize efficiency (Dhalla, n.d). Also it benchmarks Southwest airlines USA and developed standards based on it.
Decision making system - main governing body is the Board of Directors including CEO. IT systems acts as a decision support system to the top and middle management in determining schedules and make other significant decisions which is also influenced by organizational culture.
Reward system - Vroom's expectancy theory explains that an effective reward system would lead to motivation and thereby behaviour (Isaac, Zerbe & Pitt, 2001). The reward system of Ryanair could be considered ineffective which has lead to high staff turnover. As one cabin crew member mentions, it attempts to take the most out of its employees with low consideration. Also since there is no union action lack of collective bargaining has reduced employees' wages and performance is not rewarded immediately which has lead to de-motivation (Amble, 2005).
5.0 Appropriateness of Leadership style
Leadership, as Robbins, Judge and Sanghi (2009) explains, "is the ability to influence a group toward the achievement of a vision or set of goals". The role of leadership in the strategic management process is clearly described in figure 1 (APPENDIX E).
With regard to Ryanair since the restructuring of the airline in 1992, Michael O'Leary has climbed the corporate ladder commencing as the leader of the management team to being the CEO at present. He is worldwide recognized and his behaviour has lead to many controversies. For instance, dressing as the Pope to promote Ryanair's new route to Italy, charging £18 for a wheelchair from a patient suffering from cerebral palsy etc
According to Carayol (2004) O'Leary's main approach is innovation, including aggressiveness, fast and unremorseful. Accordingly O'Leary could be considered as mainly a transformational and charismatic leader who has been able to successfully transform a small airline into what Ryanair is today, the largest low budget carrier in Europe through contextualizing. Also he could be considered a balance of both task and people orientation where he constantly attempts to reduce costs and increase productivity and as per a former employee states, is a genius at motivating and energizing his staff (O'Higgins, 2007). Also according to Collin's five levels of leadership capabilities O'Leary would be considered at level 5 executives who build enduring greatness (Hubbard, Rice & Beamish, 2008).
The statements he make has lead to gaining publicity for Ryanair and its staff. In most occasions the credit of Ryanair's success is solely presented to O'Leary along with popularity and the rest of the team is disregarded. Ex. "he was credited with single-handedly transforming European air transport" (O'Higgins, 2007). However he has personally disagreed stating "â€¦but I am not Herb Kelleher (the legendary founder Southwest airlines in US). He was a genius and I am not" and has behaved appropriately during a recent press release (Freeman, 2009).
Michael O'Leary is an effective CEO although he is considered differently by those receiving his rude comments and publicity activities. He has successfully proven himself as a leader who has been able to achieve a vision with influencing his followers. Hence due to current situations with the aftermath of the recession, O'Leary continuing at Ryanair would benefit the organization to gain effective results through strategy implementation.
Accordingly Ryanair could be recommended with the following suggestions based on both the analysis of the first and second parts of the case "Ryanair - the low fares airline".
Ethical behaviour within the industry - currently Ryanair depends on controversy publicity as a method of communication and has faced distinctive remarks from customers, employees and government. Therefore it could harm the brand name in the long run. Hence the business should consider other methods of publicity such as event sponsorships, CSR activities etc and expand to other means of communication including corporate design and viral communication.
Internal considerations - customer satisfaction would depend on employee motivation and satisfaction as the core business is a service. Therefore Ryanair management should be further considerate about its staff members especifically cabin crew and pilots who work for long hours and the entire service depends on their efficiency. Hence the organization needs to initiate an efficient reward system where performance is rewarded immediately afterwards and include both financial and non financial methods such as recognition and making work enjoyable.
The concerns on Michael O'Leary - as the CEO and leader of Ryanair O'Leary has a great responsibility to restrain his need for publicity and follow best practices for the benefit of the business. However it is definite that he is an effective leader and his style aligns with organizational strategy and therefore his presence would add value to the business.
Customer satisfaction - currently according to various surveys customer satisfaction is at a low level where Ryanair is rated as a 2 star airline (airlinequality.com, n.d). Therefore the organization is required proper service standards and effective training for staff to treat customers well. Furthermore, ethics decision making should be practiced especially concerning customers.
Adapting to effective hedging - as instability of oil prices would affect Ryanair greatly, it should adapt to effective hedging to compete with other airlines based on price.
This report was prepared to basically identify and analyse the strategy implementation and related areas regarding Ryanair airline. Based on Porter's Generic strategies it was identified that the organization has adapted to the cost leadership strategy where the entire business is formulated to reduce cost and increase productivity. Furthermore the value chain mechanism was followed as a tool of justification through analyzing mainly the primary activities and determining how they add value to the service.