ASSIGNMENT CASE: You are required to submit an analysis of the modus operandi of a Manager of your choice. The selected person must be real and can be found in any of the business world.
The unprecedented and unique success of Ryanair, in a sector where survival rates are relatively low, has attracted a great deal of attention and scrutiny. In the financially-plagued year of 2008, when several airlines have already filed for bankruptcy (such as UK-Canada based Zoom) and others are continuously operating at catastrophic losses (such as Italy’s Alitalia), Ryanair has successfully managed to continuously ‘deliver record profits and traffic volume’ (www.ryanair.com 2008) and, therefore, maintain and indeed reinforce its position as the most profitable airline in the world (www.ryanair.com 2008).
What transformed a twenty-four year old ‘Mickey Mouse Irish airline’ (Allied Academies International Conference 2005) into the most profitable air carrier with consistency over several years has often been attributed to the unique effectiveness of its top management and, in particular, of CEO Michael O’Leary. In this essay I will broadly analyse his modus operandi and identify which elements he has borrowed from older, classical management thinking and which approaches seem, on the other hand, to depart from it. I seek to highlight if and how his management role differs from established competitors’ in the same industry and utilise the proven connection to Fayol’s classical school of management thought to better highlight such differences; I will therefore conclude that O’Leary’s effectiveness amidst a long-standing, severe international airline crisis is in part owed to his adherence to some areas of Fayol’s approach, which may have been dismissed as outdated by contemporary businesses. At the same time, I will seek to determine which, if any, are the potential challenges and weaknesses in O’Leary’s approach and argue that these, in the long run, may also derive from such very adherence. Moreover, through the analysis of his modus operandi, I will derive a description of the job O’Leary is performing.
Forced to restructure after a twenty-million pound loss in 1990, the Ryan family brought in former tax accountant Michael O’Leary to manage a much-needed turnaround. This was to be achieved through the study and, potentially, the adoption of the only successful business model in aviation at the time, namely that of low-cost, no-frills Texas-based Southwest Airlines. However, what could have simply been a systematic copy of the American carrier’s approach, quickly evolved into a full-blown, unprecedented low-cost leadership strategy in this industry (Allied Academies International Conference 2005).
The first and foremost task O’Leary embraced was that of establishing Ryanair’s well defined goal and direction, which was that of becoming the low-cost world leader by 2009 (AAIC, 2005). One could argue that this initial, defining step resonates with classical management thinking such as Fayol’s, according to whom ‘forecasting and planning’, namely understanding the future and ‘drawing up plans of action’ is the first and foremost of five principles of successful management (Fayol 1949, p3). It can be argued that the identification of such a goal after thorough understanding of the current industry, as well as the specifics in which such a goal was to be implemented, already marked a distancing from traditional flagships’ approaches: these, perhaps in an effort to depart from older, stricter management criteria and adopt a more flexible, almost renaissance-like approach. They all seem to function under a generic business model based on fulfilling customer service for the highest return, whilst ensuring set parameters of employee satisfaction, mostly revolving around higher-than average, experience-based salary (AAIC, 2005).
Furthemore, Fayol’s first core managerial activities of ‘foreseeing the future and drawing up a plan of action’ (Fayol 1949, p3) can also be seen in the way Ryanair’s CEO implemented the newly-established goal. Low-cost performance dictated every element of the service; O’Leary’s management of such implementation was (and still is) a clearly-defined-from-the-top, completely, almost militaristically controlled operation, with the one-size-fits-all managerial aim of achieving low-cost, high volume and high returns. This clearly transpires in his strict adherence to low-cost in every element of the value chain and of operation, to quick gate turnarounds, to strictly non-union operations, to largely performance-based incentive compensation plans, to the aircraft standardisation, to the systematic use of secondary airports. It could be argued that O’Leary’s ‘pile them high and sell them low, Walmart-style approach’ shares similarities with the old high-output-low-cost, factory-based approach, much favoured in Fayol’s era and, at times, still adopted in manufacturing today.
The implementation of the low-cost strategy to his management of human resources also breaks away from all other competitors and seems to return to Fayol’s second management recommendation, namely that a manager must ‘build and organise the structure, material and human, of the [initial, basic] undertaking’ (Fayol 1946). Categorically refusing to embrace the generally-adopted pro-union philosophy, with the frequent consequences of battling it out in the national and European legal arena (AAIC 205), O’Leary’s orientation towards labour, whose remuneration is significantly based on performance and efficiency (measured, for example, through number of flight segments flown or the amount of revenue generated from sales in-flight magazine), partly resonates with Fayol’s management recommendation that labour and its roles should be clearly defined and controlled in order to ‘focus on efficiency’ and to ensure that the company’s interests supersedes the individual interest’ (Fayol 1949). Moreover, Fayol’s ‘fair remuneration of staff’ tenet is arguably what O’Leary guarantees by implementing a performance-based remuneration scheme: the more one contributes to the company’s financial success, the better remunerated.
One of the ways in which O’Leary’s managerial role seems to be unique, at least in the airline industry, lies in how, through the implementation of such strictly defined goals, he arguably exercises what Fayol describes as the ‘unity of command […] to prevent tensions and dilemmas’ (Fayol, 1949): although O’Leary is clearly not the only ‘supervisor’ in the organisation (unlike Fayol’s turn-of-the-century, factory-based structures) and the various sections of staff in such a large airline cannot feasibly directly report to him, Ryanair staff work in unison towards the same low-cost/high-performance goals. The implementation of easily-monitored, performance-based procedures, all geared towards the complete fulfilment of ‘unity of direction’ arguably facilitates the ‘unity of command’, which is Fayol’s third principle of sound management. Again, easily-monitored performance-based human resources management, where performance is judged on the strict adherence to the company low-cost/high-volume goal, allows for the ‘harmonising (coordination) of all efforts’, which is Fayol’s fourth principle, and for the ‘conformity with established rule and expressed command’ (Fayol 1949). Finally, the above management approach enables O’Leary to receive immediate, quantity-based feedback (namely the above-mentioned quantifiable performance) and allows for quick implementation of the necessary adjustments, thus ensuring him total control over the airline performance; this also resonates with Fayol’s key managerial role, namely that based on control (fifth key, Fayol, 1949).
The above analysis of O’Leary’s modus operandi, which turned a struggling small airline into an international, case-study success, arguably shows how O’Leary’s management shares important elements of the five key managerial roles recommended by Fayol.
From the above analysis it is easy to summarise O’Leary’s job description. In this section I will keep to the key roles most relevant to the themes in this essay:
1) providing strong and tight leadership to position Ryanair at the forefront of the industry. This entails the creation of the company’s mission and objectives (ultimately to promote revenue, profitability and growth) and the development of its strategic implementation.
2) planning, developing and implementing revenue/resources generation strategies throughout the operations and throughout the value chain. Further evidence of how strongly this features in O’Leary’s managerial style lies in his drastic yet simple low-cost business model: a) the use of new, one-type-only aircraft, b) the abolition of all ‘free’ in-flight amenities and all reclining seatbacks, c) the implementation of a forty-five minute turnaround, d) the heavy promotion of in-flight duty-free sales and e) the drastic reduction of minimum baggage allowances (AAIC 2005).
3) overseeing Ryanair’s operations to ensure efficiency and cost-effectiveness.
4) reviewing activity and financial reports as feedback to determine progress in attaining objectives; evaluating performance and compliance with established policies and objectives.
The effectiveness of O’Leary’s management has been easily quantifiable over the years: by the end of 2004, Ryanair was the largest low-cost airline in Europe, flying almost 25 million passengers with a staff of only 2,288 (AAIC 205); in June 2008, amongst dramatic rises in oil costs, Ryanair still managed a 20% increase in after-tax profits and a traffic expansion of 20%, whilst overall fares decreased by 1% (Ryanair.com 2008) which, in this industry at this particular time, is unparalleled.
Thus, O’Leary’s chosen role arguably finds part of its strength in the adaptation of Fayol’s classical model. However, one could argue that, though uniquely successful so far, it may ultimately fail to cover the variables in the outside environment in which an airline is forced to operate. If its revenues heavily rely on maintaining a non-union structure, for example, governments and international bodies may eventually find a way to force Ryanair to implement a very different, less flexible salary scheme, which would immediately disrupt the ability to manage and control costs. This would, in turn, eventually cripple the whole company’s business model.
Once could therefore argue that O’Leary’s management should, at some point, become less based on strict, top-to-bottom, one-fits-all cost cuts. O’Leary is perfectly aware of this. In his Guardian interview of November 2005, he states that his managerial role and style may one become the company’s weaknesses. He explains that; whilst Ryanair needed to restructure and to grow, pugilistic, strict approaches as well as top-to-bottom management control and implementation of strictly defined measures were all uniquely effective and indeed most suitable. However, when a business has become big, it may well need to establish itself differently with government and regulators, requiring a more flexible and more embracing management role (Mammon, The Guardian 2005).
So far O’Leary is still with Ryanair and is sticking to his approach; moreover, it’s still successful. In fact, from the above analysis it is clear that O’Leary’s management style has been the only truly winning formula in its industry to date, despite the few weaknesses highlighted above.
However, cost-effectiveness and mere volume/traffic expansion alone cannot secure ever-lasting success. The market is not infinite and, eventually, remaining competitors are bound to learn and successfully implement the same or a similar business model. Furthermore, operational costs will increase to reflect oil costs and, even if oil prices drop or alternative energy is found, maintenance of no-longer-brand-new aircraft will increase; it may also no longer be possible to secure a low-cost human resources operation, as mentioned in earlier paragraphs. Thus, new revenue strategies, those which are far less dependent on the low-cost/high-volume modus operandi, will eventually become necessary.
The above potential challenges highlight an area where Fayol’s classical management approach no longer serves today’s market, businesses and societies. However, it is in the understanding of such future challenges that Michael O’Leary’s leadership emerges at the forefront. On one hand, he has consistently continued to identify straight-forward expansion opportunities, such as in the acquisition of former competitor, Dutch-based Buzz airline in 2003 (AAIC 205); or the negotiation of lucrative airport contracts with new, previously unchartered routes. On the other hand, he has aggressively and singularly identified new revenue opportunities outside the traditional airline service, such as the creation of ancillary revenues from outside-industry products and services as car-hire, travel insurance, hotel bookings, credit cards, altogether already accounting for 13 per cent of the total income the airline generates (CLARK 2005).
This is where O’Leary clearly departs from the classical management school of thought and embraces a forefront leadership role. The manager is no longer static, no longer just ensuring that clearly-defined objectives are adhered to and maintained through a well-controlled, semi-monolithic managerial style. Here management becomes leadership, embracing and indeed creating changes to not only adapt to but also precede and indeed create new market and industry trends. In this case O’Leary clearly transcends the role of manager, traditionally seen as risk-adverse, and adopts elements of the leader’s role; the leader is indeed typically defined as ‘comfortable with problems, hurdles and even risks and will see routes that others avoid as potential opportunities for advantage’; he or she is even ‘happy to break rules in order to get things done’ (Changing Minds 2008).
The analysis of O’Leary’s modus operandi, especially that which transformed and elevated Ryanair to its current unrivalled status, seems to suggest that he has borrowed useful elements of traditional management thinking and incorporated them into his unique personal approach. Whilst competitors seem to be stuck with unchallenged business practices, O’Leary arguably went ‘back to basics’ and formulated a well structured and clearly defined business model, favouring tight control and ‘monolithic command’ to ensure the maximum and most successful implementation of the low-cost/high-volume objective; in this respect too he seem to resonate older, classical management thinking. This approach has proven best fit to succeed and has yielded unparalleled success in the industry.
I have also argued that this formula may, in the future, need to be adjusted to meet potential challenges-in-waiting, mostly due to the difficulty in controlling outside influences which may eventually manage to interfere with a low-cost/high-volume agenda. I have identified how O’Leary seems to have already factored in these potential future problems and, in a step clearly differentiating him from earlier management models, begun the development of ancillary products and services as new, more flexible sources of revenue. This ‘risk-taking’ element of his role breaks away from the concept of management altogether and moves closer to a leadership approach.
In summary, the flexible and successful application of business and management models best suited to serve company goals and its outside environment, ranging from classical to revolutionary thinking, has typified O’Leary’s unparalleled achievements. If this flexible, effective and creative approach is maintained, there is no reason why his management, and at times leadership, would ever cease to be highly successful.
REFERENCES:
HENRY FAYOL, General and Industrial Management, Pitman Paperbacks, Second Paperback Edition, 1969, pp 3-
RYANAIR 2008
http://www.ryanair.com/site/about/invest/docs/2008/q4_2008_doc.pdf
ALLIED ACADEMIES INTERANTIONAL CONFERENCE, Ryanair: successful low-cost leadership, Las Vegas Conference 2005 Manual, pp. 9-,
ANDREW CLARK, The Guardian Profile: Michael O’Leary, 24 June 2005.
http://www.guardian.co.uk/environment/2005/jun/24/theairlineindustry.travelnews
MAMMON, Has O’Leary mellowed? Don’t you even begin to believe it. The Guardian 2005.
http://www.guardian.co.uk/business/2005/nov/13/theairlineindustry.shopping
Changingminds.com, Leadership vs. Management.
http://changingminds.org/disciplines/leadership/articles/manager_leader.htm