Entrepreneurship and Innovation in Ryanair - Literature review Example

Disruptive Innovation Number Department Introduction It is a fact that businesses are getting increasingly competitive and that this competition has compelled businesses to gain a more innovative streak. Disruptive, sustaining, directional and incremental innovations are some of the most dominant forms of innovation in the business world. A leading authority on business and entrepreneurial innovation and professor of Business Administration at the Harvard Business School, Clayton Christensen in his 1997 book, The Innovator’s Dilemma discusses disruptive innovation as being prevalent in steel, excavator, disk-drive and automobile industry. By simple definition, disruptive innovation is a form of innovation which assists in creating a new market and value network and disrupts an existing value network and existing market and also displaces an earlier technology. Others give simpler definitions of the same by stating that disruptive innovations are products and services which enter the market cheaper and better than the ones being replaced. Others such as Birton and Hadi (2013, pp. 358 - 371) describe disruptive innovation as an innovation which creates a new value network or a new market and eventually disrupts an existing network or market. An organisation in the United Kingdom [UK] that offers the most apt case study and fitting description of disruptive innovation/ technology is Ryanair Ltd. Ryanair Ltd. is a low-cost airline with its headquarter in County Dublin, Ireland. Ryanair Ltd. has its primary operations based at Dublin Airport and the famous London Stansted Airports. That the commercial airline has grown over time is a matter that is underscored by it operating 297 Boeing 737-800 aircraft. Ryanair Ltd. has also realised rapid expansion, and this expansion has been attributed to: the continued deregulation of the aviation industry; and the success of Ryanair Limited’s business model. A salient feature of Ryanair Limited’s business model is its use of disruptive innovation. Ryanair Limited’s penchant for using disruptive innovation is underscored by Michael O’Leary, the organisation’s chief executive officer [CEO] in 2010 stating that it is only by continuously challenging accepted conventions and questioning costs that Ryanair Ltd. can continue to abate expenses and fares, while improving the business’ customer service. The statement also emphasises the primary focus which drives Ryanair Limited’s business strategy. Specifically, Ryanair’s use of disruptive innovation is exemplified by it developing its innovative cost structure, as a way of facilitating its operations in the air transport industry. Prior to the advent of Ryanair Limited and other low cost airline businesses, the cost of traveling was remarkably high and accessing such services was widely perceived as a preserve for those who were at the top of the market’s pyramid. The disruption that Ryanair Limited’s business strategy causes is seen in the effect of the cheap structure that Ryanair adopted and the closely related fact of increasing mounting pressure on competition by increasing and surpassing quality levels. One can cogently argue that Ryanair Limited’s market is not the bottom of the [market’s] pyramid [BOP]. This is specifically the case when one considers the fact that Ryanair Ltd. serves mainly, Europe. Nevertheless, the idea of Ryanair targeting the undeserved is also tenable for the organisation. In addition, BOP is not representative of all the geographical locations that Ryanair operates in. If one should consider every region or country as making a pyramid, there will always be a BOP to represent the bottom of the specific pyramid. It is against the backdrop of the development above that one can correctly infer that through its business and organisational strategy, Ryanair created an opportunity for students and people with low budget. These groups of clients would have in normal circumstances been constrained by the high cost of flying. Because of this, it is right to observe that this group benefits greatly from the advantage of air travel, not only in Europe, but also throughout the United Kingdom. By extension, one can through keen observation see that the same principles serve as the very defining characteristics of the general BOP. A critical analyst can also observe that the Ryanair example also serves as a prototype of the kind of innovations that may start from the core BOP. Principles of disruptive technology According to Chandra and Yang (2012, pp. 23-50), apart from the facts outlined in the BOP, there are principles which characterise Ryanair’s strategies as disruptive innovation. One of the specific principles of disruptive innovation is that at the formative stages of innovation, the technology or innovation is deemed by existing commercial establishments as unsuitable and unfit for mainstream clients, and the innovation also disrupts the business model of such business establishments. In light of the above, a service or product may initially begin with simplistic applications at the base of the market, before gradually but strongly surging up-market. The product then develops the potential to displace previously established competitors. This is consistent with Ryanair’s case since its innovative cost structure totally extended student-friendlier air fare and thus compelled competitors and well established airliners such as British Airways and Lufthansa Airlines to considerably review their pricing (Peter and Jorge, 2011, pp. 5-11). It is also intriguing that disruptive innovation usually begins by focusing on an undeserved and unprioritised market and Ryanair totally fulfills this principle. At the time Ryanair was crafting its innovative cost structure for students and the financially distressed, most airliners were using conventional systems of billing. At the time, the mainstream airline industry had only made bifurcations of passengers into business and economy class. Again, giants in the industry such as British Airways, Virgin Airlines, Lufthansa Airlines, American Airlines, Delta Air Lines, International Airlines Group and United Continental Holdings manly considered the feedback of main clients, in lieu of Ryanair which listened to “lowly” customers and went on to form its innovative cost structure as a form of disruptive innovation. According to Jay and Ralph (2004, p. 75), this development above indicates that the potentials the innovations aiming at the BOP will remain high, though at the outset, they may be disregarded. Again, it is true that disruptive innovations promote services or products whose impact on the market is not easily predictable. This is because, large existing companies or organisations are more predisposed to focus on their main market with incremental and sustaining innovations which leave aspiring new entrants possessing unexplored BOP market to experience with. Theories of innovation There are several theories that underscore the plausibility of Ryanair’s innovative cost structure being a form of disruptive innovation. The theory holds that there are three main characteristics which distinguish disruptive innovations from other innovations or discoveries. For one, at the onset of the innovation, there is cheapness which characterise the services that disruptive innovation offers or provides. In this case, Ryanair’s innovative cost structure ensured that the services it was according students came in subsidised prices. Another characteristic of the same is that the service that the disruptive technology or innovation seeks to offer has to have been ignored. Because mainstream and full-fledged competitors such as British Airways and Lufthansa Airlines are used to making profit, there was very little need to introduce innovative cost structure, if at all. On the contrary, Ryanair adopted this strategy as a way of enhancing customer satisfaction. Conversely, Druehl and Schmidt (2008, pp. 347-350) contend that it is also true that the innovation that passes on as a disruptive one has to be non-mainstream. It is this quality of being non-mainstream that gives disruptive innovation unique streak. The non-mainstream quality has its underpinnings in the fact that well established business organisations and entities are usually too established to think of non-traditional ways of doing things differently. Similarly, these established organisations have already penetrated the market to the point of not seeing the need to introduce any innovation in the market. These full-fledged organisations are similarly firmly grounded in the market and are thus the pace and trend-setters therein, so that their organisational culture easily taken on a mainstream mien. The corollary to this is that fledgelings such as Ryanair Ltd are neither mainstream, nor are innovations made by them considered mainstream. It is against the backdrop of the immediately foregoing that when Ryanair was introducing its innovative cost structure, such a move was neither mainstream nor significant enough to warrant attention from renowned and well-established market players. It was only a matter of time before Ryanair Limited’s innovative cost structure redrew and re-shaped cost structures in the airline industry. All airliners presently accord students and categories that are deemed less economically endowed with special rates. References Birton, J. Cowden and Hadi, S. Alhorr, 2013, “Disruptive innovation in multinational enterprises” Multinational Business Review, 21 (4), pp. 358 - 371 Chandra, Yanto and Yang, Shu-jung Sunng, 2012, “Managing disruptive innovation: entrepreneurial strategies and tournaments for corporate longevity” Journal of general management, 37 (2), pp. 23 - 50 Druehl, Cheryl T and Schmidt, Glen M., 2008, “When is a disruptive innovation disruptive?” The journal of product innovation management, 25 (4), pp. 347 – 369 Jay, Paap and Ralph, Katz, 2004, “Anticipating Disruptive Innovation” Research-Technology Management, 47 (5), p. 13. Peter, Skarzynski and Jorge, Rufat-Latre, 2011, “Lessons to jumpstart disruptive innovation” Strategy & Leadership, 39 (1), pp. 5 – 10 Read More