STRATEGIC MANAGEMENT ANALYSIS
- Introduction and Overview
The concept of strategic management is not new as its origin stems back to when it was first mentioned in the Old Testament (Bracker, 1985) but it is worth mentioning the urgency of its study and analysis to businesses and its stakeholders has become even more crucial with the changing time pace in the business and entire macro environment recently than ever. Strategic Management can be interpreted ….” …understanding the strategic position, strategic choices for the future and translating strategy into action” (Johnson & Scholes, p. 32)
The advent of globalisation has arguably made the recent business world more robust than ever. Such a healthy business climate where businesses make profits and experience growth among other opportunities through tactical and strategic designs is not void of major challenges or burdens such as increased rate competition pressures on Companies especially in the same Industries. The need for good strategies then in business has become more crucial than ever as a high level of new entrants and rivalry within companies in order to be able to secure competitive advantage or have an edge over others in the market. The travel industry for example and more especially Holiday Package Company sector of this industry is a typical example in recent times. Examples of such companies include Easy Jet , Jet 2, First Choice and Ryan air just to name a few. Competition among these types and with major airline companies such as Air France, American airlines, and Delta airways, domestically and internationally, is rather a necessity and not just a matter of discretion. Ryan air is our company under study in this article.
1.2 Overview of article
This study is based on critical analysis of strategic management of Ryan air Holiday Package Company which includes long term future plans, decisions, control and monitoring strides from the managerial or leadership level to the operational level of the company. Micheal Porter’s five forces model are form part of the analysis as ideas from his chain value model and generic strategies models. Also inspiration from PESTLE tool model are useful the analysis of Ryanair strategic management. These tools help to spot Ryan air’s strategic position in industry given its organisational capabilities and understand the different layers of business environment surrounding it .Such understanding can be said to be the reason why Ryan- air leadership made certain strategic choice to settle in the market it is today as low cost air line . It is obvious among high competition brought about by globalisation earlier mentioned, E-commerce, failure to address strategic position, strategic drift, continuous learning and knowledge are challenges that are likely to confront Ryan air for them to succeed so it worth knowing how they have addressed these issues. If Ryan air is a success it is worth mentioning those critical factors that sustain its success. Johnson, G and Sholes, K (2001) adapted strategic management process model which mirrors out the elements of strategic management process is the guide to be used for this analysis.
Here is how the article is presented:
Section A – is based on some key definitions in the article and as applied to the case of Ryanair Company because a clear understanding of such terms is believed to be helpful to better appreciate the analysis.
Section B – Brief Management History Ryan air and Overview of Ryan air Company.
Section C – Discussion and Conclusion of Strategic Management analysis of Ryan air Company.
SECTION A :.
Definitions of Relevant Terms/Concepts for the strategic management analysis of Ryanair Company
- Organisational Capabilities:
Helfat (2003, p.1) defines it as ”…. Organisational ability to perform a coordinated task, using organisational resources for purpose of achieving a particular end result”. The concept resource endowment is vital strength in a competititive marketplace such resources may be human or technological .The learning cultural set up in Ryan air and its uniqueness in resource skill or ability stand as bedrock which has engineered innovation in the company for a good competitive dominance in the market.Ryanair has well achieved this for its business design shifting all cost to customers. It limits all booking online however there are a hassle people not being able to book where there is no internet network.
- Strategic Position:
Johnson & Scholes (2001, p17) defines it as “concerned with the impact on strategy of the external environment, internal resources and competences and expectations and influence on stakeholders”.
- Strategic Choices: Johnson& Scholes (2001, p.19) defines it as “…involve understanding the underlying bases for future strategy at both the corporate level and business level unit and options for developing strategy in terms of both the direction and methods of development”.
- Strategy into action: Johnson & Scholes (2001, p. 21) defines it as “… Concerned with measuring that strategies are into practice”.
Brief History, Overview and Strategic management plan of Ryanair Company
- Overview of Ryan air Ryan air Holdings Plc is the parent company for Ryan air limited (Ryan air). The company is engaged in the operation of a low fares, scheduled passenger airline which serves short-haul, point-to-point routes in Europe and Morocco (Google Finance, 2009). Its main bases include Dublin, London (Stansted and Luton), Glasgow (Prestwick), Brussels (Charleroi), Frankfurt (Hahn) Milan (Bergamo), Stockholm (Skvasta), Rome (Ciampino), Barcelona (Gerona), Nottingham East Midlands, Liverpool, Shannon, Pisa, Cork, Marseille, Madrid, Bremen, Dusseldorf (Weeze), Bristol, Alicante, Belfast, Bournemouth, Birmingham, Kerry, Edinburgh, Reus, Alghero, Cagliari, Trapani, Bologna and Pescara airports. During the six months ending 30th June 2009, Ryan air offered its passengers approximately 1,200 scheduled short-haul flights per day serving 145 locations throughout Europe and Morocco, with an operating fleet of 196 aircraft flying approximately 845 routes. Ryanair has a 29.8% equity stake in its main competitor Aer Lingus Group Plc, which is also an Irish based carrier (Google Finance, 2009).
- Overview of Strategic Management Plan. Mintzberg (2008: 8) following Ackoff (1970: 1) define planning as “… the designs of the desired future and of effective ways of bringing it about”. Planning is important for the coordination of the activities of the organisation (Mintzberg, 2000). Decisions taken at the same time formally in a single process will ensure the efforts of the organisation are properly coordinated. Through management planning the organization is able to take into account issues that are likely to affect it in future. In addition, planning enables organizations to be rational as well as have control over issues affecting the organization (Mintzberg, 2000). Johnson et al. (2008: 402) define strategic planning as a “systemized step-by-step, chronological procedures to develop or coordinate an organization’s strategy. The strategic management process starts with the initial guidelines. According to Johnson et al. (2008) the strategic management planning process begins as a set of guidelines as or believes about the organization’s external environment including factors such as price levels, supply and demand conditions as well as the priorities, guidelines and expectations of the corporate centre. After the initial guidelines phase, the next phase is the business level planning phase. During this phase strategic plans are prepared by business units or divisions with the aim of presenting them to the corporate centre. These plans are deliberated upon by corporate level executives in face-to-face meetings. Revisions are made to the plans and further deliberation is made over the revised strategic plans (Johnson et al., 2008) he next phase is the corporate level planning phase. During this phase different business plans are brought together and the corporate plan is approved by the corporate board. The final and one of the most important phases of the strategic planning process is the financial and strategic targets phase. During this phase, a number of financial targets are set and a performance monitoring system is put in place to monitor the actual results against targets (Johnson et al., 2008)Strategic management is important for the success of the business. Miller and Cardinal (1994) suggest that there is a positive relationship between strategic planning and corporate performance. This means that firms that plan strategically are more likely to succeed than those that fail to plan strategically.
- Strategic Management History of Ryan air Ltd
The company was founded in July, 1985 by Cathal and Declan Ryan after receiving financial support from their father, Tony Ryan. The elder of the two Ryans was former leasing manager of Aer Lingus, which is Ireland’s national airline with a huge government stake. He was also the founder of Guinness Peat Aviation, which is one of the largest global aircraft leasing companies (Box and Byus, 2005). The company began operations in 1985 with a staff of 25 and a single 15-seat Bandeirante turbo-prop, which flew between Waterford and London. By 1986, the company began flying the Dublin-London route with two 46-seat BAE748 turbo-props following permission from the regulatory authorities (Box and Byus, 2005). The company therefore began competing with British Airways which was a high cost monopoly as well as Aer Lingus. Ryan air set its air fares at half the market price which stood at £209 per passenger (Box and Byus, 2005). The company’s initial strategy was to provide passengers with simple, low cost fares and exceptional customer services. Following a full year’s operation in 1986, Ryanair had flown a total of 82,000 passengers. As a result the airline began negotiations to buy its first aircraft and to increase its flight destinations (Box and Byus, 2005). Until 1991, Ryan air was a conventional carrier (Leavy, 2003). It continued competing with British Airways, and Aer Lingus during the later part of the 1980s, adding additional aircrafts and routes. By the end of 1989, the airline had six BAC-111 jets and three ATR 42 turbos. Following a £20million loss in 1990, Ryanair was left with no option than to restructure its operations. Michael O’Leary was appointed as the new CEO to ensure that the restructuring was successful.
The company copied the positioning approach to strategy from the U.S based airline – Southwest Airlines. (Leavy, 2003). Southwest Airlines invented the “low cost carrier concept in the beginning of the 1970s (Keynes, 2009). As a matter of fact, the Ryan family invested an additional £10million in 1991 and the new CEO Michael O’Leary following a suggestion from Tony Ryan, paid a visit to Southwest Airlines in Dallas, TX with the objective of understanding the dynamics of low cost leadership in the airline industry. This is because, Southwest airlines was one of the most profitable American airliners and had a business model that was quite different from those of conventional carriers (Box and Byus, 2005). Motivated by the success of Southwest Airlines, Ryan air decided to change its business strategy in 1991 and adopted the market positioning strategy of Southwest Airlines. The year 1993 was particularly important for Ryan air because the third deregulation package, which deregulated the international air services within the European Union. This facilitated the development of low cost carriers. Ryanair capitalized on this opportunity as well as on low labour costs and on the prospects of a growing London market (Burghouwt and Huys, 2003). The positioning approach to strategy was developed by Michael Porter. Companies that use this framework focus their attention on understanding the structure of the industry, identifying opportunities and looking for ways to turn these opportunities into profit (Leavy, 2003). In addition, the strategy focuses on identifying the weaknesses of competitors and transforming these weaknesses into profit opportunities and gaining competitive advantage.
The objective of the positioning approach strategy is to create a barrier in the industry that prevents competitors from entering the market. According to Michael Porter cited in Leavy (2003: 30), there are six principles of positioning. These include:
– The company must have the right goals in place; that is, it must focus its attention on long-term creation of shareholder value;
– The company must have a unique selling proposition (USP)
– It must have a distinctive value chain; that is, activities should be differentiated;
– Trade-offs; the company must not try to be all things to all customers;
– The company must have an activity chain alignment;
– There must be a continuity of direction.
Ryan air’s current strategy is a clear example of a market positioning approach strategy. Ryan air has a clear “no frills” value proposition, which is supported by a distinctive activity chain of highly aligned and reinforcing elements (Leavy, 2003). Ryanair uses only secondary airports which are less expensive in terms of land tax and handling fees as opposed to larger airports (Leavy, 2003; Box and Byus, 2005; Keynes, 2009). The company also employs point-to-point flight routes enabling it to reduce the number of connections and thus reduce operating costs. In addition the core business is conducted on board through the sale of a variety of articles including snacks and beverages on board at very high prices. The company uses standardised aircrafts. For example, it uses only Boeing 737 which enables it to keep maintenance costs low. There are no ticket sales; all tickets are booked online.
SECTION C: DISCUSSIONS
- Outcomes of Analysis
Ryanair’s initial strategy of offering simple, low cost fares and exemplary customer services was not successful. The strategy was not successful because the company joined the flag ship of conventional carriers such as British Airways and Aer Lingus which already had a significant proportion of the market share. This strategy did not offer anything new to passengers and as such was unlikely to succeed. It is well known that for a company to succeed in today’s technologically- and customer-driven business environment, the company must be innovative and creative. That is, it should be able to offer innovative products that meet customers’ current taste at prices that are lower than those offered by competitors.
Ryan air has been very successful with its business model Design. Despite low airline traffic in January 1991 following the Gulf War, Ryan air realized a profit of £293,000 for the year and carried approximately 651,000 passengers with a total workforce of 477 people. Its core competencies of going to several destinations in continental Europe has given it a bigger market share with sustainable competitive advantage over its competitors like easy jet and Jet2 air companies. Ryan air has also gain substantial value given its resource based strategy and positioning view in the market. Appendix 1 below shows the passenger growth of the three largest low cost carriers over the period 1998 to 2002. It can be observed that Ryan air and Easy jet have the highest market share followed by Virgin Airline. It charged extra for every little thing extra. With airports placed at the far off airports, some people may find it difficult to access the airport on time and as such decide to board a conventional airline which comes with all the benefits of flying. Ryan air not care about the well-being of its employees. Pilots were paid very low and flight attendants were paid peanuts. All these factors may have contributed to the company’s failure. Ryan air’s success can be attributed to its good customer service during its early years of operation. Despite its success, Ryan air, is currently facing a lot of criticisms with respect to surcharges on items other than the air fare and disregard for customer satisfaction. Passengers end up paying more today by flying with Ryan air than the case would be if they did not use Ryan air. The company and its CEO have been criticized for poor business practices. The company is said to have a poor human resource management department. It is a non-union, airline. Ryan air has also been on one occasion criticized for refusing to supply wheel chairs for disabled passengers (Box and Byus, 2005).
Porters Five force Model
Figure 2: Michel Porter Five force Model representation adapted from Johnson & Scholes (2001, p.113).
Porter (1980) brought forth these five forces to challenge SWOT analysis in 1979 intention to better analyse industry and business strategy development. However these only form part of his entire strategic models as he put forth the generic strategies and chain value as well. It is preferred here because it reveals the competitive strategy of Ryan air Company.
The five forces represent a series of threats which are either external or internal threats. Three of the forces are from the external environment (horizontal competition) including substitute of product threats, rival threats and new entrant threats. These external threats are tied to customer’s ability to buy which in turn yields profit to the company. The fact the Holiday Package airline sector became buoyant attracted so many new entrants like Skybus company and that influx eventually decreased profitability and such less competitive airlines hard moments unlike Ryan air whose competitive ability is much stronger
Any changes in such threats require a reassessment of the market place and somehow Ryan air has achieved this by opening up more routes around Europe and Morocco at considerable low cost (See Strategic management overview of Ryanair). Market reassessment also helped the leadership to change their strategy from competing with major airlines like Air France; however, the problems of concerns about airport delays and waiting times between flights connections over the years still stands.
Based on the foregoing analysis and discussion, it can be concluded that strategic management planning is highly important for the success of an organization. Ryan air been successful because its strategic management plan has a perfect fit with its environment. It occupies a better market share and competitive advantage over its rivals like Skybus and virgin Holiday Package Companies. However, some hurdles are still to be overcome given its recent criticisms from customers by its services, and the complaint response feedback team of the organization needs proper consideration of such critics for the leadership to take appropraiate measures for enhanced services and better satisfaction of their customers.
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Appendix 1: Passenger growth of three largest low-cost carriers.