Operational Strategies of Ryanair and British Airways - Essay Example

? Critical analysis of the operational strategies and objectives of Ryanair and British Airways BY YOU YOUR SCHOOL INFO HERE HERE Critical analysis of the operational strategies and objectives of Ryanair and British Airways Introduction Ryanair is a low-cost, no-frills airline company offering few amenities (e.g. food and beverages) for the majority of its short-haul flights into a variety of European locations. Ryanair competes primarily on pricing as compared to competition, accomplished through significant cost reductions along the entire value network, especially in areas of procurement and outsourcing. In opposite accord, British Airways is a full service airline model able to provide higher cost ticketing to consumers due to the strength of its brand under a premiumisation model in marketing. British Airways is able to maintain its competitive edge through operational structuring with emphasis on technology support, dependability, and high quality especially as it pertains to employee engagement with revenue-building consumers. Both airlines have significantly different operational strategies, giving each a unique competitive advantage stemming from operational strategy development and implementation. This report illustrates the unique strategic operational return on investments for both companies that continue to sustain these airline models. The operational strategies of Ryanair and BA For companies that maintain a broad and diverse supply chain network in order to provide products and services, such as British Airways, holding costs for warehousing and inventory management are significant. These costs include space, labour support, utilities, and even taxation (Heizer and Render 2004). For diverse procurement models, these costs are unavoidable as facility management requires expenditures for support labour and technology support on receivables and deliverables (Heizer and Render 2004). British Airways, in order to provide diversity of product and services under its full-service model, spends on average ?4 billion annually on procurement, dispersed between 14,000 different domestic and international suppliers (Anderson and Day 2009). British Airways, in its 2010 annual report, highlights the risks associated with significantly-fluctuating consumer demand in this industry that affect strategic planning and operational procurement (British Airways 2010; Anderson and Day 2009). Coupled with vendor-supplied materials needed to carry out its full-service model, it was no longer efficient for British Airways to maintain decentralised procurement strategies with products deliverable from over 80 different countries. The costs of procurement and warehousing were adding unavoidable, variable costs into the business model that continued to seize competitive cost advantages from British Airways. Low-cost, no-frills carriers were emerging in multiple consumer sectors that were able to negate high inventory holding costs and distribution costs associated with a diverse supply chain network. As it pertains to the costs of procurement, British Airways faced a trade-off situation: Continue to absorb costs by operating under a decentralised supply chain strategy to avoid change or to sustain and allocate capital resources to centralise supply chain strategies and eliminate redundancies. There were multitudes of opportunity costs associated with the existing supply network, therefore the business determined that implementation of appropriate procurement planning software (in this case SAP) were necessary to radically alter the supply network. The business changed its procurement strategy to include development of more strategic alliances with vendors, including involving suppliers during the early stages of product and service development, taking advantage of supplier expertise to assist in creating a mutually-rewarding procurement network. These are significantly important operational strategies for cost controls in supply chain strategies (Copacino 1996; Ragatz 1997). British Airways began to benchmark practices associated with lean procurement modelling, which focuses on eliminating waste and the costs associated with excess inventories (Shah and Ward, 2003; Cua, McKone and Schroeder 2001; Sanchez and Perez 2001). As previously identified, Ryanair did not maintain these fixed and variable cost burdens associated with a geographically-dispersed supply network due to its commitment to providing per-ticket value to consumers by avoiding introduction of comparable amenities, necessary for British Airways, allowing Ryanair to allocate expenditures to more critical dimensions necessary for revenue production including service transformations. British Airways also maintained difficulty in establishing standardisation in the business model, defined as “producing the maximum variety of products and/or services using a minimum of materials, systems and tools” (Kumar and Suresh 2009, p.183). British Airways, maintaining a full-service model, catered to multiple market demographics and lifestyle characteristics which required diversification of procurement (e.g. in foods variety) to satisfy cultural preferences with a host of diverse international markets. Ryanair, on the other hand, achieved ease with standardisation by setting a singular product model enforceable throughout the business model with no deviation, which was achievable by focusing less on cross-cultural procurement to satisfy diverse consumers and remaining properly positioned (through marketing prowess) on price advantages and price value to consumers. British Airways was able to overcome these inefficiencies in procurement by aligning operations with strategic management accounting that began to examine cost structures in operations to develop a more holistic and homogenised product and service strategy. This strategy gave the business much more cost advantages as it relates to procurement and supply strategy and finding balance between operational cost drivers and their relative importance to revenue drivers (Wu 2007). Again, this is an industry in which operational planning is quite difficult due to fluctuating consumer demand and fluctuating pricing structures associated with vital commodities such as fuel and oil. In the airline industry, the main strategic goal is to maximise sales revenues per flight in an industry where most short-term costs are fixed (Malighetti, Paleari and Redondi 2009). British Airways utilises a price discrimination strategy for this pursuit, basing this on customer loyalty, different fare class options, and even overbooking strategies (Malighetti et al. 2009). Ryanair, in opposite accord, uses dynamic pricing to gain market attention from price-sensitive consumers in multiple demographic segments. It is, however, the methodology of operations that determines whether dynamic pricing or price discrimination strategies can be aligned with more effective and streamlined operations. As an example, British Airways must understand the tangible, statistical productivity in its many operating markets domestic and international, utilising the formula of output divided by the volume of resources consumed (Jain and Daga 2009). Following its lean, benchmarked strategy, gaining competitive advantages in productivity involved restructuring operations pertaining to labour contribution to achieve reliability, speed, and high quality services that are absolutely vital to revenue maximisation. Most of these changes are incremental in the business model, such as providing pilots with iPads to improve facilitation of communication between support service personnel and various ground crews (British Airways 2012). Output increases through efficient communications systems whilst also maintaining a lean system of operations that require sustainable resources. Ryanair, in opposite accord, improves productivity by aligning operations with a human resources, organisational culture development strategy utilising motivational remuneration packages and development of a cohesive culture (Ryanair 2011). Efficiency in resource utilisation at Ryanair can be witnessed in terms of more effective customer service methodologies (Ryanair 2011). Ryanair realised that its most critical resource to achieve competitive advantage was improving labour relationships and developing a knowledge management system. Interaction with others holding tacit knowledge, rather than isolated business segment expertise, was necessary in an open culture strategy (Stover 2004). Products and services, in this industry, can be easily replicated by emerging competition and even existing competition, such as British Airways with its low-frills subsidiary operating to gain price-sensitive market attention. For Ryanair, maintaining a powerful brand image is the only real asset that cannot be imitated by competition (Nandan 2005; Bennett and Rundle-Thiele 2004). Ryanair needed to align its operational strategies with knowledge management systems as part of organisational culture development, thus improving interactivity with various experts in multiple business divisions. The outputs associated with this strategy included better consumer brand loyalty, as new operational strategies improved service development, quality, speed, and dependability created by knowledge management practices. British Airways, unable to align operations with these communities of practice, have been forced, instead, to focus on statistical productivity measurements that often fluctuate with changing staff motivations and deviating customer demand in domestic and international markets. British Airways, however, has managed to reduce costs associated with technology by 30 percent and has improved quality of service by 50 percent since implementing a well-developed self-service website (SCC 2012). British Airways, prior to development of this self-service philosophy, required substantial labour to support interactive ticketing and booking processes. This gave British Airways a more effective statistical model by which to measure total productivity by considering the administration of customer ordering as order line inputs, new customer engagements, and express ordering. Thus, the business shifted to activity-based costing processes, rather than product costing methodologies that gave the business a much clearer picture of what was actually driving operational efficiencies and redundancies. Value chain management under activity costing can now introduce time to ensure speed, quality and dependability (Kaplan and Anderson 2007). Conclusion Both Ryanair and British Airways, as identified by the research findings, operate differently and maintain competitive advantages by having unique operational strategies and evaluation tools to measure how to achieve the most effective and profitable competitive advantages. Procurement strategies, technology utilisation, equational modelling for statistical controls in operations, standardisation and the linkage between labour and productivity mark the disparate strategies that allow both companies to achieve sustainable profitability. In an industry where predicting demand grows ever-more difficult, both companies are well positioned for achieving long-term operational gains. References Anderson, J. and Day, M. (2009). British Airways: A journey in procurement transformation, European School of Management and Technology. [online] Available at: http://www.esmt.org/fm/479/ESMT-606-0062-1M.pdf Bennett, R. and Rundle-Thiele, S. (2004). 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