Strategic Management - Ryanair - Research Paper Example

 1. Introduction One of the main characteristics of modern market is the rapid development of all industrial sectors under the influence of the technological innovations and the strong competition among firms that operate in all industrial areas. In this context, managers in modern organizations should focus on the increase of the effectiveness of strategic plans referring to all industrial activities taking into account the resources available but also the market trends (as indicated in the customer needs within a particular market or in the international market). In accordance with Steyn (2004, 615) ‘successful organisations are knowledge-creating organisations, which produce, disseminate and embody new knowledge in new products and services’. The above study refers to a specific part of organizational activity, the administration of knowledge available in various organizational departments. However, a series of other factors should be also taken into consideration when developing a firm’s strategic framework. Moreover, it is noticed by Neely (2002, 295) that ‘the key benefit in the process of deciding what to measure appears to lie in the fact that the process forces management teams to be explicit about their priorities’. It should be noticed that the strategic decisions taken by a firm’s managers are expected to be depended also on the firm’s ability to respond to the relevant cost. In other words, non-financial as well as financial sectors have to be taken into consideration by managers of modern organizations when the identification and the implementation of an appropriate strategic plan (in terms of the firm’s needs and the market’s trends) is required. On the other hand, Schuler et al. (1998) made clear that managers in modern organizations should pay particular attention on the following issues: ‘a) the business structure, b) the legislative and employment relationship context, c) the patterns of HRM competence and decision-making and d) the national culture’ (Schuler et al., 1998, 159). The above issues should carefully examined by managers worldwide when the development (or the implementation) of a specific strategic plan is attempted. In any case, the relevant initiative (design and application of strategic plan) should follow a specific procedure which can present common characteristics among firms that operate in various industrial sectors. An indicative plan developed from Baker et al. (20005) includes the following parts: ‘1. Layout analysis; 2. Routing analysis; 3. Bottleneck identification; 4. Bottleneck management and 5. Work-in-process (WIP) management’ (Baker et al., 2005, 44). A different pattern of strategic plan has been developed by Gomez et al. (2002) who focused on the following parts of organizational activity: ‘inputs (materials, energy, information, management, technology, facilities and labor), transformation (or conversion process) and disposition (marketing and sales)’ (Gomez et al., 2002, Ch. 15). In practice, different strategic plans can be developed by managers in modern firms in accordance with the nature of organizational activities, the resources/ funds available and the needs of the market. Current paper examines the effectiveness of strategic management in relation with a specific firm operating in the international market: Ryanair. An extensive strategic management analysis has been developed referring to the various operational activities of the above firm at the level that they influence the performance of the firm in the international market. 2. Company Overview In accordance with the corporate website the firm was established approximately in 1985. Since its establishment, the firm faced a significant growth which has been the result of a specific strategic plan: the provision of low-cost airline trips – towards specific destinations. Through the years, the performance of the firm has been studied by many theorists and researchers. In accordance with a relevant report, the firm’s daily operational activities can be related with a series of facts/ referring to a specific period of study (2003): ‘a) Passengers exhibited a high socio-economic profile, with 78% of passengers in the top ABC1 grouping, b) around 90% of passengers described the cost of the flight as an "important" or "very important" reason for taking the trip’; the average spend per person per trip for visitors to Scotland was £215’ (Scottish Enterprise, 2003). In other words, by keeping the price of air trips at low levels, Ryanair managed to increase its performance gaining a significant advantage against its competitors – the latter have only partially reduced the fares of their services. Referring to the performance of the firm in 2006 a report published by BBC News in 2007 includes the following details: ‘pre-tax profits at the Irish budget airline rose 23% to 459.5m euros (£319.7m; $665m) in the six months to the end of September; passenger numbers rose 20% to 26.6 million while Ryanair absorbed a 5% rise in unit costs stemming from higher fuel and airport landing costs’ (BBC News, 2007). The continuous increase in the firm’s performance could be possibly explained through an appropriately customized strategic analysis in which a series of well known strategic analysis tools (like the SWOT analysis and the Porter’s five forces model) have been used. 3. Strategic analysis 3a. PEST (Political, Economic, Social, Technological) or PESTEL (PEST plus Environmental and Legal) Analysis PESTEL analysis is based on the examination of five major aspects of the environment in which a firm operates. These factors are going to be examined in relation with the particular firm, Ryanair. In this context, the following issues should be highlighted regarding the performance of Ryanair within the international market: a) Political environment Ryanair mainly operates in the European airline industry; political environment in Europe is relatively stable; there is no case of severe political turbulences in the specific geographical area (at least referring to the current political environment). b) Economic environment Europe is an area that has its particular economic, political and legal framework (mutual up to a level for all member states). Moreover, the existence of a common currency increases the stability in the particular region. In this case, the operation of all firms in the specific region is not expected to face any particular turbulence. As noticed above, Ryanair operates mainly in Europe, i.e. in a region that has a strong and stable economy; only the international financial turbulences could affect the firm’s performance (as of all firms’ internationally). c) Social environment It is already explained that Europe is a region with a common social and political framework. The cultures of the member states continue to affect the performance of firms operating in the greater European area; however, no severe social and cultural differences exist among the European populations. In other words, the social environment in which Ryanair operates is also characterized by a significant stability. d) Technological environment Around the world, the development of technology has led to the increase of competitiveness among firms worldwide. In order for firms to manage to survive in the international market they need to continuously update the technology used in their various activities. In Europe, technology in all commercial and social activities is also highly developed; Ryanair seems to be ready to face the challenges set by its competitors worldwide; its systems have been proved to be effective; no specific problem has been reported regarding the performance of the firm’s IS; instead the quality of customer services could be characterized as high taking into account the firm’s performance as presented in the previous section. e) Environmental Environmental challenges not only in Europe but in all regions internationally are continuously developed. Environmental friendly practices and technology are implemented in most firms worldwide trying to reduce the effects of corporate activity on the environment. Ryanair have to follow the practices imposed by the relevant authorities making sure that its activities do not have an adverse effect on the environment. f) Legal environment Under the European legal framework, specific principles accepted by all member states regulate all issues related with the various activities of individuals in the European territory. The legal principles of the member states continue to have a priority over the European law but up to a level and under the terms that these principles do not violate fundamental aspects of the European law. 3b. SWOT (Strengths, Weaknesses, Opportunities, Threats) Analysis SWOT analysis highlights the firm’s strengths and weaknesses especially regarding the application of specific organizational strategies: Strengths The firm is among the strongest competitors in the global airline industry; its customer base is extended while its financial strength to respond to the needs of any required strategic plan is significant. Weaknesses Global airline industry faces severe turbulences especially after the event of the September the 11th. Ryanair is expected to have been influenced – normally – by the effects of the specific event on the financial performance of all firms that operate in the airline industry worldwide. Opportunities Customers of firms that operate in the airline industry seek for services in low cost; on the other hand, the European market has been expanded the last decade and the firm’s customer base is expected to be further increased through the addition of destinations. Threats The continuous financial crisis – as a result of the severe energy crisis – that creates turbulences in all industrial sectors worldwide is expected to influence the performance of Ryanair; competitors would be difficult to appear in the particular market; however, economies around the world face a decline in their performance and firms in all industrial sectors should take the appropriate measures in order to avoid the development of an situation that will not be reversible in the future. 3c. Michael Porter’s Five Forces Model (1979) The specific model is presented in the Appendix section (see Figure 1). The performance of Ryanair is expected to be influenced – in accordance with the specific model from the following factors/ forces: competitors (no specific firm that operates in the global market follow a similar strategic plan, low cost fares in all airline trips), customers (the firm’s customer base is extended), the suppliers (there is no dependency on specific suppliers; the most appropriate in terms of the firm’s financial strength and the quality of the products offered are chosen), new entrants (no such risk has been proved to exist under current market conditions) and substitute products (pressure by this force/ sector would be expected under the fact that specific competitors have already decreased their fares – but only towards specific destinations). 3d. Michael Porter’s Generic Strategies (1985) In accordance with the specific theoretical model (Appendix, Figure 2), the following aspects can be used in order to evaluate a firm’s performance within a specific market: the firm’s competitive advantage (referring to other firms operating in the same industry) and the competitive scope (referring to the measures used for the achievement of the above target, acquisition of competitive advantage). The issues of cost and differentiation are of high importance for the specific model. Both these issues are highlighted in the firm’s strategic plans. More specifically, the cost of the firm’s services is kept at low levels (effective cost control is assumed to exist in all organizational activities) while its differentiation can be also highlighted – referring to its unique strategy – keeping the fares in its services low despite the global financial turbulences. 3e. Boston Consulting Group’s Matrix The particular model is the result of a relevant study of the Boston Consulting Group; this Group created the specific model in order to relate the performance of a firm with the share of the firm within the market involved. In accordance with the above model (see Appendix, Figure 3) the performance of the firm is expected to be high when its share in the market involved is significant. Moreover, the ability of the firm to generate cash can be higher in firms that have a significant share in a particular market – if compared with the firms that have a low share in the specific market. It should be noticed that in the above model, each of the factors that influence organizational performance is represented through a relevant symbol. Moreover, under this model, the firm’s units are considered to be strategic units – at the extension that they can have a significant influence on the development of the firm’s performance. The effectiveness of this model has been examined in the literature and the empirical research – many different aspects have been stated. In accordance with Anantachart (2005) ‘advertising, public relations, sales promotion, and direct marketing are defined as crucial elements for the core scheme; alternative strategies for brands in different stages are identified from the product portfolio analysis’ (Anantachart, 2005, 101). It is clear from the above study that the BCG matrix can be explained using many different criteria – referring to different organizational activities. On the other hand, Morrison et al. (1991) supported that ‘its development and adoption however indicate yet again the power of simple and effective presentation particularly when it both addresses some of the concerns of the audience and is supported by both some theory and some evidence’ (Morrison et al., 1991, 105). Both these studies refer to different characteristics of the above matrix. In the case of Ryanair the BCG matrix could be used in order to represent the effectiveness of the firm’s strategies taking into account its position in the market. In this case, the firm’s performance could be expected to be significant – as its share in the airline industry can indicate. 4. Implementation and control of selected strategy All strategic analysis tools used above lead to the assumption that the performance of Ryanair in the European market – in which mainly operates – as well as in the international market is depended on a series of factors. The role of its managers to the success of the firm’s various strategic plans is clear. In accordance with Shay et al. (1999, 559) ‘strategic managers face a myriad of challenges due to the rapid nature of change and increasing complexity of today’s competitive environment’. In any case, the firm’s managers – as in most firms worldwide – are free to choose among the organizational plans that are most appropriate for the increase of the firm’s performance; the role of employee motivation in the success of strategic plans implemented in modern organizations has been proved to be crucial. In this context, it is supported that ‘an organization could increase productivity simply by increasing the happiness and satisfaction of its employees, and both organizations and employees would benefit’ (Landy, 1989, R. Wright, 2000 in Barrick et al., 2003, 30). From a similar point of view, it is noticed by Robertson et al. (1995, 547) that ‘because private sector organizations are driven primarily by market or consumer preferences, organizational effectiveness is more readily measured in terms of efficiency and profitability’. In other words, the effectiveness of organizational strategies can be appropriately evaluated only if careful examining the context in which the specific strategies are developed – referring to both the internal and the external organizational environment as described above through the strategic analysis tools presented above. On the other hand, it seems that not all managers are able to evaluate appropriately a firm’s resources towards the realization of a specific strategic plan. In this context, it is mentioned by Gelade et al. (2003, 383) that ‘in most cases, the performance of an organization is determined by the productivity and efficiency of such higher-level organizational entities as departments, retail outlets, plants, or teams’. In other words, employees have to be given the appropriate incentives in order to keep their performance at high levels; however, it is necessary that all organizational departments are given the same attention – referring to the implementation of organizational strategies in various organizational departments. Human resource management is a valuable part of the organizational activity; however its development has to be followed by the simultaneous development of all other organizational departments/ sectors. Towards this direction, it is noticed by Boselie et al. (2005, 11) that ‘culture management, strategic decision-making, fast change, and market driven connectivity – together comprise the HR competency domain of Strategic Contribution’. If all the above issues are not taken into consideration when implementing a strategy, then it is very likely that the specific strategy will be led to a failure. The specific issue is highlighted by Rand (1999, 97) who noticed that ‘businesses fail because management does not have effective control of the business as management is too far removed from revenue-producing processes’. The control mentioned above refers to all parts of organizational activity; both the resources available as well as the conditions in the internal organizational environment – as presented above. In accordance with the above before implementing any strategy, managers in modern organizations should proceed to the following initiatives: careful examination of the conditions in the internal and the external organizational environment – using one or more of the strategic analysis tools presented above, identification of the firm’s ability to respond to the cost of any relevant plan and develop a relevant control mechanism that can ensure the precise application of all the rules related with the implementation of the specific strategic plan. 5. Key factors that impact the development of the strategy As noticed above, there can be many reasons for the success of corporate activities in markets worldwide. The balance in the internal and external organizational environment and the development of communication among employees in all organizational sectors are indicative factors for the effectiveness of all strategic plans in modern organizations. In this context, managers in firms worldwide should align their practices with current market trends and their firms’ mission/ culture. The above assumption refers to the activities of managers in all organizational departments. Referring especially to a firm’s marketing department Aufreiter et al. (2000, 53) supported that ‘when traditional marketers think of organization, they mean structure: distinct product, channel, and customer groups focusing on specific functional tasks’. On the other hand, it has been noticed by Cook et al. (2001) that the success of the plans developed by managers in all organizations worldwide could be secured if the following priorities were set: ‘making and keeping relationships, implementing new technology in the supply channel, the use of forecasting to increase supply chain effectiveness, outsourcing to increase efficiency, and cost management as a strategic weapon’ (Cook et al., 2001, 14). In any case, innovation should be applied on all organizational activities – as possible – making sure that all relevant plans are effectively supported even in case of a potential failure. In fact, it is made clear in the literature that innovation would be related with specific organizational sectors/ activities: ‘1. Finance, 2. Process, 3. Offering and 4. Delivery’ (Kesler, 2000, 26). Technology used in various organizational activities should be also continuously updated – as possible. Regarding this issue, it is noticed by Megginson et al. (1972, 75) that ‘while technology can increase productivity and give major emphasis to social and economic development, the other factors are equally important’. On the other hand, the organizational culture should be also taken into consideration by managers in modern organizations; especially when plans of changes are to be applied on a specific organization. The specific issue has been examined by Newman et al. (1996, 753) who noticed that ‘work units that are managed consistent with national cultural expectations will be better performing than work units whose management practices do not fit the national culture’. In the above study the organizational culture is in fact related with the national culture – ethics applied on a specific society should be also respected by all firms operating in the particular territory. In this context, if the strategic plans developed by the firms established in a specific country are in accordance with the local culture/ ethics then the performance of the particular firm is expected to be high. 6. Conclusion In order to understand the effectiveness of strategic decisions of managers in Ryanair, an extensive strategic analysis has been presented taking into account the internal and external environmental conditions. Moreover, the particular aspects of the specific industrial sector have been also presented trying to justify the performance of the firm through the years. In accordance with Pritsker (1997, 32) ‘industry analysis typically focuses on a company's external dimensions such as its markets, customers, and competitors’. However, it has been made clear that in order for all these efforts to be effective it is necessary that they are appropriately customized/ aligned with the social and commercial environment as well as the firm’s ability to respond to the relevant cost. The role of the managers’ skills to perform such a task is also of crucial importance for the evaluation of the effectiveness of the relevant schemes. In accordance with Sias (2005, 385) ‘practitioners in troubled organizations (e.g., those with high levels of turnover, low levels of performance and morale) might examine the quality of the supervisor-subordinate relationships in their organizations to determine how that might be detracting from the dispersion of quality information throughout the organization’. In other words, managers in modern organizations are primarily free to choose among the strategies available for the increase of their firm’s performance. However, appropriate measures should be taken in advance making sure that the application of a particular strategy will not cause problems to existing firm’s practices. The specific assumption is also in accordance with the view of Parnell (2003, 16) who noticed that ‘in many respects, the evidence for the existence of a strategy can permeate an organization’. In any case, managers of modern organizations should ensure the effectiveness of strategic plans in the long term. In accordance with Wright (2001) if modern organizations wish ‘develop truly sustainable competitive advantage in the knowledge economy, they need to capture, catalog, transfer, and institutionalize knowledge that precludes people's daily actions’ (Wright, 2001, 15). The effectiveness of the above initiatives will be evaluated in accordance with the achieved targets. Regarding this issue, Walker (2000, 5) supported that ‘the measure of performance is not compliance with rules and procedures, but the achievement of real results’. In other words, the evaluation of the performance of firms that operate in the modern market cannot be based on theoretical schemes – although these schemes can be valuable in order to understand the reasons for the increase/ decrease of organizational performance or even the prospects for a specific firm in the future – like in the case of Ryanair (referring to the theoretical models developed above). On the other hand, the effects of change (especially when attempted for the first time on a specific organization) should be taken into consideration. Indeed, Poole (1998, 45) noticed that ‘when change is needed in an organization it is likely the culture or identity of the organization will be targeted for change’. In order to avoid the development of strong resistance by a firm’s employees to an attempted change, a particular firm ‘can remain flexible so that it does not become committed to products, technology, or market approaches that may become outdated’ (Parnell, 2003, 16). In the case of Ryanair, the firm’s managers have managed to develop an effective strategic plan by keeping the prices in the firm’s services low – compared to all the competitors. It is for this reason that the development of the firm’s performance through the years has been continuous – as the analysis of the internal and external organizational environment using the appropriate models has proved. References/ Bibliography Anantachart, S. (2005) Integrated Marketing Communications and Market Planning Their Implications to Brand Equity Building. Journal of Promotion Management, 11(1): 101-125 Aufreiter, N., Lawyer, T., Lun, C. (2000). A New Way to Market. The McKinsey Quarterly, 53-58 Baker, G., Maddux, H. (2005). 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Journal of Managerial Issues, 10(1): 45-47 Porter, Michael E. (1985) Competitive Advantage. The Free Press. New York. Porter, M. (1998) On Competition. Harvard Business School Press Pritsker, K.D. (1997). Strategic Reengineering: An Internal Industry Analysis Framework. SAM Advanced Management Journal, 62(4): 32-43 Rand, T. (1999). Why Businesses Fail: an Organizational Perspective. Emergence, 1(4): 97 Robertson, P. J., Seneviratne, S. J. (1995). Outcomes of Planned Organizational Change in the Public Sector: A Meta-Analytic Comparison to the Private Sector. Public Administration Review, 55(6): 547-558 Schuller, R., Rogovsky, N. (1998) Understanding compensation practices across firms: the impact of national culture’, Journal of International Business Studies, 29(1): 159-172 Scottish Enterprise (2003) Ryanair flights prove just the ticket for Scottish economy, 6 November 2003, [online], available at http://www.scottish-enterprise.com/sedotcom_home/news-verity/news-fullarticle-verity.htm?articleid=34108 Shay, J., Rothaermel, F. (1999) Dynamic competitive strategy: towards a multi-perspective conceptual framework. Long Range Planning, 32(6): 559-572 Steyn, G. (2004). Harnessing the Power of Knowledge in Higher Education. Education, 124(4): 615-623 Walker, D. (2000) Strategic Human Capital Management: The Critical Link. The Public Manager, 29(1), p. 5-9 Wright, D. (2001). Using technology to derive value from knowledge communities. KnowledgeNets, May 15-17: 1-5 Appendix Figure 1 - Industry Competition, five forces (Porter, 1998, 22) Figure 2 – Porter, Generic Strategies (source: University of Campbridge, http://www.ifm.eng.cam.ac.uk/dstools/paradigm/genstrat.html) Figure 3 – The BCG growth/ share matrix (source: http://www.valuebasedmanagement.net/methods_bcgmatrix.html) Read More