What Is Business Strategy - Case Study Example

1. General and competitive environment Ryanair operates in a highly competitive environment which is the reason they had to change their strategy from being a conventional airline to a low-cost model in the 1990s. Ever since their decision to operate as budget airline, they have been leaders in the chosen field. Corporate strategies are aligned with the organizational mission, vision and values. Ryanair’s vision was to be market leaders in the low-cost sector and the world’s favourite airline in terms of flying the highest number of passengers. According to Porter generic strategies, a firm can attain competitive advantage either through three different strategies - cost leadership, differentiation and focus (Allen & Helms, 2006). Ryanair, in order to attain low-cost leadership, adopted the low-cost strategy. To achieve this goal, they had a large market share and their intention of acquiring Aer Lingus was also based on this vision. The intention of acquiring Aer Lingus was based on a long-term strategy as mergers and acquisition have become a popular form of corporate development. While it may appear to others as a ‘hostile and anti-competitive’ approach, Ryanair had a long-term strategic orientation instead of a one-time business tactic for short-term goals (Lin, Hung & Li, 2006). This acquisition would have enabled the airline to make its competitive environment easier to deal with. PESTEL analysis The political factor has low impact on Ryanair’s operations as it operates within Europe and Europe has political stability. Even economically, Europe is stable with stable consumers. Technologically, they are at an advantage because Ryanair has invested in the latest aircrafts and keep making such investments which ultimately helps them to keep costs reduced. However, as consumer tastes and preferences keep changing, they need to understand the customer requirements. The legal factors have a high impact on Ryanair’s operations because they have several litigation cases over landing charges. Environmental concerns are plenty at Ryanair as they have been branded as ‘the irresponsible face of capitalism’ because of their contribution to carbon emissions as they have frequent take-offs and landings and short-haul flights. Porter’s Five forces The competitive environment can be determined by Porter’s five forces analysis (Figure I): Supplier’s power The supplier power is low as the airline has its own fleet of aircrafts and Ryanair does not have to depend on leased aircrafts. Because of their growth and expansion, they have the power to renew their contracts with the airports even when the airport charges rise. Buyer’s power The buyer’s or the passengers at Ryanair have no power as the price is the lowest in the industry. However, they have been voted as the world’s least favourite airline in 2006 as Ryanair has not been paying heed to factors such as comfort, security and value-addition. Their low-cost image is affecting customer perception. Threat of new entrants The market share of low-cost carriers had gone up and the European market was considered healthy with huge growth potential. However, not all have been able to sustain competition and some have even gone bankrupt. Rising fuel prices is a deterrent for new entrants. Substitutes The threat of substitutes has medium impact because several traditional carriers have tried to enter the low-cost segment but have not been able to sustain. Competitive Rivalry The main competitors of Ryanair are easy-jet but 65% of their passengers are UK based. Others have been withdrawing from routes where they clash with Ryanair. Ryanair has standardized its products (routes) and does not have competition in most routes. However, BA plans to enter the leisure market and serve those customers that are unable to pay a premium price for short-haul flights (SD, 2007). Thus most forces are weak and Ryanair has been able to secure its leadership position. However, the market is based on consumer demand and the buyer power is increasing. While there is no threat from substitutes and new entrants, Ryanair has to enhance its tarnished image. Past performance is no guarantee of future success and even well established brands have to sustain their position (SD, 2007). 2a. Ryanair delivers low fares Since the EU regulations have imposed a ceiling on pilot flying hours, Ryanair has tailored its rosters and maximized productivity, which reduces their overall staff costs. However, the industrial relations are bad as they do not recognize unions and the working conditions poor. They have introduced web-based check-in and priority boarding which is being availed of by half the passengers. This has helped them to reduce costs in check-in staff, on airport facilities and save time. In addition, they introduced charges for check-in baggage which has deterred passengers from carrying heavy baggage. This results in cost savings and increases speed but in the long-run this might be detrimental to the airline’s interest. Ryanair flies point-to-point and avoids congested main airports. They use the secondary and regional airports destinations which attract lower charges. However, their advertisements have been misleading the passengers into incorrect identification of the airports. This is unethical business practices for which they have been rebuked by the authorities. Ryanair has absorbed the hike in fuel prices instead of passing it on to the passengers. However, this has exerted pressure on the airline to find cost savings in other spheres. There are allegations that the airline is trying to recover costs through insurance surcharge. Hence, the determination to not increase prices can ultimately have a detrimental effect on the profitability. Besides, they appear to be trading customer service for low cost pricing, which is not a long-term strategy. 2b. Value to its customers Ryanair has the fifth largest travel website in Europe and they offer value-added services to their customers like hotel and car rental services apart from insurance and excess baggage charges. These save the passengers’ time in hunting for the allied services from different websites while it generates ancillary revenue for the airline. They also offer on-board and online gambling and in-flight mobile service. Their web-based check-in facility is another advantage that passengers enjoy at Ryanair. They have also tried to introduce on-board sales but they have not attained much success in this area. All of these are strategies that can be duplicated by rivals and competitive advantage is at best, temporary, contends Porter (1996). Product positioning is not important in today’s dynamic market. Ryanair is focusing on productivity, speed and quality but they have been unable to translate theses into sustainable profitability. They have to cut corners in other areas simply because they want to pursue the lowest price strategy. The airline is trying to outperform its rivals through its cost leadership but it has not been able to create value for its customers. Operational effectiveness is not a strategy. 3. Ryanair’s strengths and weaknesses Ryanair has several unique characteristics that are its strength providing it leverage in the sector. Its processes are standardized as it has fixed, short-haul routes originating from smaller regional airports. It has its pilots’ roster well planned which maximizes productivity thereby reducing overall costs. They have their own fleet and not leased aircrafts which ensure low dependency. Moreover, they keep investing in new aircrafts from time to time. They hedge fuel to save on costs and they have added several ancillary services to generate revenue from different sources. They focus on the ever-decreasing cost as their mantra and while all airlines have increased their prices, Ryanair did not. They use technology to enhance services such as web check-in and excess baggage payments. Their market leadership in the low-cost segment provides them competitive advantage. The company is financially sound and has resources. They are able to attract flight attendants and pilots despite having volatile industrial relations. They operate in Europe where the economic and the political conditions are stable. However, despite its strengths, the airline has not been able to leverage benefits because of certain weaknesses. The airline does not recognize trade unions and it has volatile employee relations. Even though they claim to offer the best wage structure in the industry, the employees are far from happy. Another area which has tarnished their image is lack of customer relationship. They do not employ technology to enhance their customer relations. They have several lawsuits pending against them filed by passengers claiming compensation, by pilots for their compensation plans. The sector being vulnerable, Ryanair has been affected by terrorist episodes and alerts. They are also burdened with the environmental taxes as they contribute to global warming. They do not have any marketing initiative which is evident from the attitude of the CEO who says, “If you want a quiet flight, use another airline” when passengers objected to in-flight mobile phone services. This demonstrates arrogance on the part of the airline and they have been rightly labeled as world’s least favourite airline. The company lacks the initiative to implement change and the organization is solely dependent on the current CEO with no succession plan. The cost-reduction methods can be easily duplicated leaving them with no differentiation in their strategy. Revenues can be enhanced by increasing the spend-per-customer (Vandermerwe, 2000) but Ryanair has not been able to improve in this field. 4. Strategic options The main area that Ryanair needs to focus on is in maintaining customer relationships. They are trying to thrive on low prices but they do not have a customer-focused approach. Cost advantage appears only up to a certain point (Vandermerwe, 2000). Even though the figures demonstrate growth in terms of passengers traveled, the customer perception of the airline is very poor. Customers’ online experience influences consumer perception of a product’s brand (Fink, 2006) and hence they should strive to focus on the needs of the customers rather than pursue the cost leadership strategy. They should use technology to maintain e-relationships with customers as it adds value to the relationship that is difficult to imitate (O’Toole, 2003). Its cost saving technique does not add value to the service of the customer. Some of their service/product offerings to generate ancillary revenue have not been well accepted by the passengers. They should conduct a survey and try to find out what the customer would want or appreciate on-board. The airline has received adverse publicity due to several lawsuits and hostile industrial relations. Thus, Ryanair needs to invest in marketing its product and services to restore its tarnished image. Airlines in the low budget sector have to continue to invest in the core business (Campbell, 2005). The strategy of Ryanair lacks in dynamism as they are not prepared to change with the changed business environment. Effectiveness is not strategy. What matters is to choose to perform activities differently (Porter, 1996). Towards this strategy, the management has to swing the power from the company to the customer (Vandermerwe, 2000). To swing the power from the company to the customers, they should encourage the customers to give a feedback to the fellow customers that would be keen to travel Ryanair. Their experiences would be totally transparent and technology today provides platforms such as customer blogs, airlines’ feedback mechanism and other social networking websites such as FaceBook. Ryanair can have a special area on their website offering passengers convenience of posting their feedback that can be read by millions. The same platforms can be used to enhance relationship with their employees. This is an urgent need to sustain competition and its strategic position. Today they may have a strategic position but it cannot be sustainable unless they have trade-offs with other positions. The airline needs to achieve customer lock-in because of the superior value they provide. Customer focus can lead to increasing returns (Vandermerwe, 2000). Today Ryanair may not have competitors and the customers may remain locked-in but the moment the customers are confronted with an alternative, they would not hesitate to switch. They must find ways to increase fares without losing the existing customers. Ryanair has a large market share and this can inhibit growth and expansion. Complacency and set in and new growth oppurtunities may be ignored. They are focusing on the low cost segment but this technique needs to be reviewed. Reference: Allen, R.S. and Helms, M.M. (2006) Linking strategic practices and organizational performance to Porters generic strategies. Business Process Management Journal. 12 (4), pp433-454. Source: Emerald Full text [online]. Campbell, A. (2005) Discovering significant and viable new businesses: have faith in strategic planning basics. Strategy & Leadership, 33 (1), pp25-31. Source: Emerald Full text [online]. Fink, G. (2006). Value decomposition of e-commerce performance. Benchmarking: An International Journal, 13 (1/2), pp81-92. Source: Emerald Full text [online]. Lin, B. Hung, S. and Li, P. (2006) Mergers and acquisitions as a human resource strategy Evidence from US banking firms. International Journal of Manpower, 27 (2), pp126-142. Source: Emerald Full text [online]. OToole, T. (2003) E-relationships - emergence and the small firm. Marketing Intelligence & Planning, 21 (2), pp115-122. Source: Emerald Full text [online]. Porter, M.E. (1996). What Is Strategy? Harvard Business Review. SD. (2007). Building and managing a successful brand with the three Cs. Strategic Direction. 23 (1), pp19-22. Source: Emerald Full text [online]. Vanvermerwe, S. (2000). How increasing value to customers improves business results. Sloan Management Review. Fall 2000 Read More