Critical Evaluation of the Business Strategy Adopted by Ryanair - Essay Example

Table of Contents Page Introduction 1. Background to the Ryanair................................................................................. 2 1.2. Low cost airline industry competitors & their impact on the Ryanair................ 2 2. Corporate HR Strategies..................................................................................... 3 2.1. HR challenges in the low cost airline industry................................................... 3 2.2. HR strengths of Ryanair...................................................................................... 4 2.3. HR weaknesses of Ryanair................................................................................ 4 3. Current & possible changes in the corporate HR strategies.................................. 5 3.1. HR Strategies of the low cost airline industry competitors.................................... 5 3.2. Needs & aspirations of airline employees.............................................................. 5 3.3. Possible changes in the corporate HR strategies..................................................... 5 4. Strategic HR developments in the airline industry.............................................. 6 4.1. Future plans for development of HR system........................................................... 6 5. Conclusion................................................................................................................. 7 6. Recommendation...................................................................................................... 8 7. References................................................................................................................ 10 8. Appendices............................................................................................................... 12 Critical evaluation of the business strategy adopted by Ryanair 1. Introduction 1.1 Background to the Ryanair Ryanair is an Irish low cost airline which is located in Ireland and other regions including Dublin and London. It is the Europe’s largest “no frill” airline company with operating approximately 230 Boeing 737-800 aircraft on 1,100 routes with 147 locations throughout Europe and Morocco (www.ryanair.com). It is specializes in low-cost, low-fee airline service to the worldwide customers. Its overall business strategy encompasses a series of in-flight operations. Ryanair has adopted a functionality-based approach to business strategy and decision making in the larger context of corporate expansion, both within the Europe market and other regions. 1.2. Low cost airline industry competitors & their impact on the Ryanair During the last few years the low cost airline industry has notices a variety of landmark deals including those high profile acquisitions and mergers. The Ryanair airline has increasingly been becoming disconcerted about the growing threat from number of low cost no-frills airlines including Easy Jet, BMIbaby, Aer Lingus, DFDS Seaways. Against this backdrop of ever increasing competition, it’s imperative for Ryanair to initiate some far reaching changes in its HRM sphere (Simon, 2002). Cutting into existing niche market segments in the European Union has become too fashionable today because many of those airlines that venture into new market segments do so without paying much attention to the consequences of the unfolding scenario of competition. While Ryanair is not alone in the budget airline market segment in Europe, there are formidable constraints faced by its rivals in the evolving strategic regulatory and competitive environments. For instance Ryanair’s own formidable marketing machine has not been able to overcome some of the very difficult issues such as the market/customer orientation strategy of rivals. Above all the competitor orientation strategy of rivals has forced Ryanair to bring down prices below a certain minimum. 2. Corporate HR Strategies 2.1. HR challenges in the low cost airline industry The current market-centric performance of the Ryanair is determined by their internal and external environments. Thus Ryanair being an Irish low cost airline just focused on serving a niche market segment in Europe could have done still better to manage its HR function in the light of its strategically advantageous position. HRM involves such tasks as recruitment, training & development (T&D) of skills, employee relations, retention and motivation strategies, workplace culture and delegation of power, authority and responsibility. Effective HRM practices must be aligned with organizational outcomes such as internal value chain enhancement and motivation parameters. Ryanair didn’t have this kind of alignment either in strategy or policy. HRM is a functional strategy that needs a freer organizational environment to develop into a code-based framework or model of convergence (Newell, & Scarbrough, 2002). In other words, the convergence in various HRM related variables was missing at Ryanair. 2.2. HR strengths of Ryanair The Ryanair is operating in a relatively competition-free and regulation-free domestic market then. However, with the ever increasing threat of competition the Ryanair was oriented towards employing more employees on airline services (Barbazette, 2006). Thus it can be regarded as an internal strength of Ryanair which would deserve them to the success of the company. Especially Ryanair possess experienced, dedicated, knowledgeable and talented employees offering continuous long hour service to the customers. For instance Ryanair’s own formidable HR resources have been able to overcome some of the very difficult issues such as the market/customer orientation strategy of rivals. The Southwest Airline of the US has been a very good business model. Ryanair in Europe adopted this low cost leadership model of not offering connecting flights and service on board (Box, & Byus, 2005). Value creation efforts across a number of market-centric variables including external value chain management by Ryanair would enable it to achieve low operating costs. 2.3. HR weaknesses of Ryanair Organizational outcomes or/and corporate goals need to be clearly defined in order to achieve at least some of them in the long term. Managements’ inability to come to terms with employee motivation and performance evaluation interconnect would have been one of the biggest issues at Ryanair despite the shorter and flatter management and organizational structure. In other words the HRM practices at Ryanair weren’t paid attention to by its management. In the first place Ryanair’s HRM practices were purely based on the textbook theory. Secondly motivation related HRM practices ignored productivity (Ulrich, 2009). In other words these HRM practices at Ryanair were poor growth drivers. For instance paying low salaries, working long hours without any breaks, paying for training/uniforms, undervalue the employees won’t produce efficiently simply because they are not satisfied with their works and it will leads to poor productivity, absenteeism and high rates of staff turnover. 3. Current & possible changes in the corporate HR strategies 3.1. HR Strategies of the low cost airline industry competitors HR strategies keep on changing with time and circumstances. Thus it’s very rare to see organizations being run strictly in accordance with the textbook theory. Low cost airline organizations which have successfully created global value brands such as Easy Jet, Aer Lingus, BMIbaby and DFDS Seaways have all one thing in common, viz (Pate, & Beaumont, 2006). they all strive hard to create value to the customer by focusing on service quality plus cost cutting measures. Rivalry or competition in the budget airline market segment is almost intense because existing scale economies of individual competitors would serve as the stepping stone to a price cutting war. BMIbaby, Easy Jet, Aer Lingus and DFDS Seaways all have excess capacity and thus the slightest hint of cost and productivity benefits associated with the probable winning over of market shares of rivals would compel them to act quickly and decisively. Competitors in the “no frills” airline industry indeed adopted some far reaching HRM practices to achieve organizational goals (Boyd, 2001). Next the competitor airlines encouraged team work so that time waste in coordinating work effort could be reduced and employees would be motivated by team spirit. In addition to these employee friendly work practices and motivators a number of others were also adopted. On-the-job Training and Development of skills at competitive airlines are one of the highest in quality and the scheme has produced some of the finest people in the industry. An efficient staff reduces costs. 3.2. Needs & aspirations of airline employees A demotivated workforce at Ryanair might underperform and then cause absenteeism and turnover in the workplace. This is apparent in Ryanair where persistently underperforming staff come to be treated as a liability by the management. Such friction between the manger and employees in culturally diverse organizational settings would be regarded as one of the most negative factors in falling productivity in organizations where mangers tend to be autocratic and diverge from norms. In other words human potentials have to be recognized before they are rewarded (Kearns, 2003). Often employees at lower levels complain about company policies in giving promotions and increasing wages. In fact most of the lower level employees have received much less training and are unhappy about the organization’s approach to staff policies, particularly the skills training and development strategy which is basically determined by skills requirements rather than motivation. In fact staff motivation strategy at Ryanair lacks the kind of direction and purpose inherent in such strategies. Further employee motivation, skills development and training strategies at Ryanair and labor turnover figures are interconnected in such a way that staff members have particularly been affected by a lack of concern for their negative experiences while dealing with customers (Siobhán, 2007). This study has clearly identified a positive set of outcomes related to HRM practices and motivation at Ryanair airline. 3.3. Possible changes in the corporate HR strategies HRM function is much facilitated when scale of operations expands beyond a certain minimum level. New recruits at Ryanair could be trained and put on the full-time workforce with the added advantage of having a continuous supply of skilled labor for future growth. Training & Development of skills have been emphasized by management experts with a view to making use of extra space in a new setting. Environmental benefits apart a new setting would allow the management to employ new training methods, friendly working environment, proper compensation and employee relations (Walker, 1999). The relationship between the Ryanair management and the subordinate has been brought into sharper focus here owing to the very important decisions involving HRM strategies. This is none so well borne out than by the fact that where there are international culturally diverse HRM practices in Ryanair there is a precise tendency to define HRM strategy in keeping with long term organizational goals. 4. Strategic HR developments of the Ryanair 4.1. Future plans for HR system development Thus overall this paper would focus on the HRM strategy and initiative related issues to bring about a more comprehensive theoretical and conceptual framework of reference so that employee motivation and retention strategies of Ryanair can be examined under relation to the following three perspectives (Holden, 2003). These perspectives have been suggested in the light of recent accusations that the Ryanair’ service isn’t the same everywhere now. (a). Ryanair s’ strategic HRM practices (b). Organizational structure and leadership style (c). Labor turnover issues at Ryanair airlines In fact employee relations in general and motivation in particular at Ryanair have to be examined with reference to its HRM related initiatives such as education and employee welfare. It has adopted a very liberal employee relations policy of encouraging employees to be independent with a degree of freedom given to ensure operational independence. In fact the top management encourages greater participation in the decision making process of the company for the employees. Better positive employee motivation can also be attributed to good pay. Monetary and non-monetary benefits both lead to better performance and especially performance related pay can be adopt at Ryanair would have a good impact on employee motivation. According to recent research this type of strategy in managing labor relations cannot be ignored and it’s perhaps one of the most desirable policies to achieve organizational goals in the long run (Walker, & Reif, 1999). The degree of support among employees at has been consistent enough for the management to initiate changes at every level of the organization. The empirical a priori and a posteriori evidence prevalent at Ryanair airline concerning HRM related policies and initiatives including employee retention and labor relations strategies, is basically determined by a complex and diverse set of variables. The underlying theoretical constructs of labour relations can be used to adequately explain the general and particular characteristics of the airline industry (http://news.bbc.co.uk/2/hi/business/3489761.stm). SHRM function of the manager in modern organization will be much wider in scope and would spread out into the domains of quality, productivity and retention strategies. In fact managers functions are much complex in today’s strategic environment and it is no more simple than the early periods. 5. Conclusion Business organizations in the world are characterized by a highly strategic policy oriented environment of competition. Against this backdrop current HRM practices are essentially influenced by the organization’s restructuring programs as undertaken by Ryanair. It is determined to bring about a real change with a global identity tag and needs to prioritize the work ethics at the organization for this change. International HRM practices in culturally diverse and complex organizational setting as that of modern organizations’ requires a fair degree of restructuring based on motivating the employee to achieve predefined targets. International HRM strategies have acquired such a significant place in the modern context that now its impact on the whole work environment of the Ryanair tends to create some ripple effects elsewhere as well. SHRM is a concept with many connotations and denotations that can be seen in organizational leadership/management styles, cultural diversity programs, communication strategy, employee motivation and employee relations programs, organizational orientation programs, sustainability, community outreach and public relations. Human Resource Management (HRM) practices adopted at Ryanair are in fewer conformances with the organization’s requirements. This is in fact the case with largest low cost organizations like Ryanair because they need to have a well motivated staff to perform on the lines of international norms in creating brand related values to the customer (Martin, & Hetrick, 2006). The customer’s positive perception of brand equity is perhaps the best barometer of organizational success in a highly competitive airline industry in Europe. With a very high concentration ratio the European airline industry has been marked by a higher degree of on-and-off seasonal competition. 6. Recommendations Ryanair’s current operational strategy is determined by the competitive environment in which low-cost, no-frills airlines compete on the basis of market fundamentals such as profit margins to repeat customers and integrated service provision which includes packages. This strategy has failed to produce convincing financial results. Therefore the airline ought to introduce customer value creation strategies based on value enhancement and seamless service integration through strategic HRM practices. SHRM practices require low cost airlines to identify existing vacuums in service provision from the time of booking the seat to the time of disembarkation. Ryanair’s current practice of integrating service related functions through strategic HRM has not been successful enough because complains about service are categorized but not dealt with the same degree of diversity at the management level. Ryanair’s excessive dependence on a core group of well trained staff has led to many complications at the operation level. For example airport owners have not been happy with Ryanair’s practice of dealing with the ground staff at airports. In fact Ryanair has been successfully trying to experiment with one-to-one coordination at each level of operation while many other low cost air lines depend on strategic HRM based cluster coordination. International business practices in culturally diverse and complex organizational setting as that of Ryanair requires a fair degree of restructuring based on motivating the employee to achieve predefined targets. Leadership style of Ryanair might need to be changed in accordance with this requirement. But nevertheless the current business operations at Ryanair have many shortcomings as highlighted above. The entrepreneurial spirit of Ryanair is characterized by the need to survive rather than focus on strategic elements of growth and continuity. At least right now this seems to be the more appropriate strategy given the evolving circumstances against the global financial crisis. The current developments show that rising demands by employees for higher salaries and the unmotivated and tired employees have been the main cause of rising costs. Right now unfortunately it seems neither is happening at Ryanair and most probably this is partially due to the economic downturn. Finally its critical success factors such as corporate governance capabilities, financial management, planning and control procedures and processes and corporate strategy are all well managed and coordinated though some shortcomings still persist. These shortcomings have to be removed sooner. For example its staff motivation strategies lack the zing that is essential for retention of the trained staff. 7. References 1. Box, TM & Byus, K 2005, ‘Ryanair 2005 Successful Low Cost Leadership’, Allied Academies International Conference, vol. 12, no. 2, pp. 9-13. 2. Barbazette, J 2006, Training Needs Assessment: Methods, Tools, and Techniques (Skilled Trainer), › Visit Amazons Jean Barbazette PageFind all the books, read about the author, and more. See search results for this author Are you an author? Learn about Author Central Pfeiffer, California. 3. Boyd, C 2001, ‘HRM in the airline industry: strategies and outcomes’, Personnel Review, vol. 30, no. 4, pp. 438-453. 4. Holden, P 2003, HR and its implications for Corporate Strategy, Spiro Press, Warriewood. 5. Kearns, P 2003, HR Strategy: Business Focused Individually Centered, Butterworth-Heinemann, Oxford. 6. Martin, G & Hetrick, S 2006, Corporate Reputations, Branding and People Management: A Strategic Approach to HR, Butterworth-Heinemann, Oxford. 7. Newell, H & Scarbrough, H 2002, Human Resource Management in Context: A Case Study Approach, Palgrave Macmillan, Hampshire. 8. Pate, JM & Beaumont, PB 2006, ‘The European Low Cost Airline Industry: The Interplay of Business Strategy and Human Resources’, Strategic Human Resource evaluation. Journal, vol. 24, no. 5, pp. 322-329. 9. Ryanair to cut frills further 2004, retrieved from http://news.bbc.co.uk/2/hi/business/3489761.stm on April 21, 2010. 10. Ryanair Annual Report 2009, retrieved from www.ryanair.com on April 21, 2010. 11. Ulrich, D 2009, Whats Next: The Challenges of Turning HR into a Business Partner, Harvard Business School Press, Massachusetts. 12. Walker, JW 1999, ‘What Makes a Great Human Resource Strategy?’, Human Resource Planning, vol. 22, no. 1, pp. 11-13. 13. Walker, WJ & Reif, WE 1999, ‘Human Resource Leaders: Capability Strengths and Gaps,’ Human Resource Planning, vol. 22, no. 4, pp. 21-32. 14. Siobhán, C 2007, Ryanair: The full story of the controversial low-cost airline, Aurum, London. 15. Simon, C 2002, No Frills: The Truth behind the Low Cost Revolution in the Skies, Virgin Books, London. 8. Appendices Appendix I Source: http://www.wikinvest.com/ Appendix II Source: http://www.wikinvest.com/ Appendix III Source: http://www.wikinvest.com/ Read More