Ryan Air, Lilley, and Aga Business Strategy Analysis - Essay Example

Unit Business Strategy Assessment Ryan Air, Lilley and Aga Part 1. The primary objective of Ryan Air was to provide cheapest airfares to the consumers and one of ways adopted by them to fulfill this objective was cost minimization. Numerous strategies and policies were devised and implemented by the company to reduce cost effectively and efficiently. A series of such initiatives are as follows: a) Ryan Air started acquiring second-hand aircrafts at low prices. With this the company could project a higher operatic cost through increase in depreciation cost. This further helped the company to clash down the tax payment significantly. (Clark P. 2007) b) Ryan Air decided to buy aircrafts of the model Boeing 731 only. This reduced the company's inventory volume as less stock of spare parts was required to store. The pressure on crew training was also less and the maintenance staff could easily repair the aircrafts resulting into quick service. c) In order to reduce the landing costs, the company used airports like, Alghero (Sardinia) and Dinard (Brittany), which are not at all popular airports. These airports were looking forward to grow their business and thus offered competitive landing charges to Ryan Air. d) The company reduced the cost of outsourcing its services to third parties like travel agents for booking their flights. This helped the company to reduce cost by 10%-15%. So far the company facilitates only its official website and its own call center service for booking of the flights. e) Advertising is a vital part of growing business. Ryan Air reduced this cost as well by writing its low airfare captions on the aircraft body and relied more on the word-of-mouth advertising of the customers. f) The company also exhaustively used its staff as the airline flew 24 million passengers with only 2000 staff. The above strategies of Ryan Air helped them to offer dream airfares to their consumers, making them rush to avail the flights. 2. According to Michael Porter there are two basic kinds of competitive advantage- Cost advantage, where a firm delivers the same benefits as that of its competitors but at a lower cost, and differentiation advantage, where the competitive advantage of a firm lies in providing benefits that exceed those of the competitors. Among the positional advantages Ryan Air focused on cost advantage for reaping higher profits. Ryan Air's rival firms were British Airways and Ager Lingus and both airlines possessed higher financial position than Ryan Air. Moreover the company went into a rapid loss that called for its restructuring during 1991. Hence, focusing on differentiation advantage for increasing the firm's profit would have been a major mistake by Ryan Air. The company used its capability of rigorous cost minimization and introduced the surprisingly low airfares in the market. Thus the various measures of cost minimization by the company formed its distinctive competencies and helped the firm make a better place for itself in the industry. (Competitive Advantage, n.d.) Part 2 1. The decision tree above shows expected long-run profits of Lynne taking into account its decisions (square boxes) and the uncertainties (circles) in the economy. Lynee has two options before it: Staying in the present location Relocating to cheaper premises Hence both the decisions have a probability of .5. In both the situation it is faced with three different conditions of the economy and they have their respective probabilities of occurrence. In the aforementioned case, there are 6 distinct situations Lynne can face, Situation 1. Lynne stays in its present location and there is a downturn in the economy. Situation 2. Lynne stays in its present location and there is an upturn in the economy. Situation 3. Lynne stays in her present location and the economy remains the same. Situation 4. Lynne moves into a cheaper premise and there is a downturn in the economy. Situation 5. Lynne moves into a cheaper premise and there is an upturn in the economy. Situation 6. Lynne moves into a cheaper premise and the economy remains the same. The random variable X in this case is the long-term profit earned by Lynne. In situation 1, X= .5*.3*(- 10000) = - 1500 In situation 2 X= .5*.3*( 40000) = 6000. In situation 3, X= .5*.4*( 30000) = 6000. In situation 4, X= .5*1/3*( 5000) = 833 In situation 5, X=.5*1/3*( 50000) = 8333 In situation 6, X= .5*1/3*( 35000) = 5833. 2. A look into the decision tree shows that Lynne will be better off only if she moves into a different location. In long-run Lynne can incur considerable amount of loss if it remains in her current stage i.e. 1500. Whereas if she moves in a different premise the least profit she will earn is 833, but wont incur any loss. 3. The situation Lynne faced is a complex investment decision problem. In case of any multistage decision problem, decision tree is always effective as it is the most systematic tool in the theory of decision-making. A decision tree in this case helped Lynne to visualize the decision it has to take, the external events that produced uncertainty and the possible outcomes, in a single frame. The sequential structure of Lynne's decision tree branches helps her to check the conditions and execute the actions immediately. Part 3 1. A rise in the interest will affect significantly the goods market in an economy. And thus it will affect the sales of any commodity. Hence, the rise in interest rates will cause an adverse effect on the Aga Foodservice Group. The company is a huge brand and has a huge consumer pool. The consumer base consists of both retail clients and institutional clients. Hence, a rise in interest rates will affect both kinds of customers and finally it will have an impact on the net sales of the company. A rise in the interest rates will increase the opportunity cost of holding money. As a result future consumption or savings becomes cheaper for the individuals compared to present consumption. This will certainly pull down the retail sales of the Aga Foodservice Group. The institutional clients (Whitbread) of Aga Foodservice Group will also be affected by the rise in interest rates. These clients run their business, and use the future income to pay for their present consumption. Hence a rise in interest rates will make the borrowing more expensive for the institutional clients making them to borrow lesser than before. This will reduce the sales of Aga Foodservice Group. Thus it is clear that the net sales of Aga Foodservice Group will experience a downfall in case the interest rates rise. (Bryant W.K. and Zick C.D., 2006) 2. Aga Foodservice Group's acceptance of the corporate social responsibility has the following effect on their business. By using environment friendly processes of manufacturing the company is providing greater energy efficiency. The waste reduction and effective use of energy has a positive effect on the environment and also on the company. The company can easily cut the utility bills arising from the waste disposal and experience an instant cash benefit. By accepting the social responsibilities, the company can build up a strong reputation. This will have an effect on the company's sales as consumers generally prefer to buy goods form reputable companies. There are customers who insist on purchasing environment-friendly goods. And from this angle also Aga Food Service will benefit, since it is making food products in a healthier way (using less oil). Recruitment of new employees in a reputable company is a lot easier and the employees tend to remain in job for a long period. This will help the company to reduce costs arising form the recruitment and training of new employees. (Corporate Social Responsibility, n.d.) Apart from gaining by taking up the social responsibility there can be considerable disadvantages on the company as well. While concentrating on the issue on building reputation through socially responsible means, the company may lose focus from its core business goals. This will make the company bear the cost burden for corporate social responsibility and engage in profit sacrificing activities. The other disadvantage that Aga Food Services can encounter is getting the useful resources diverted to social responsibility programs, which will eventually lead to comparative disadvantages for the company. 3. Aga Food Service aimed at creating a brand name for itself. And for this purpose it expanded itself through a series of acquisitions. Acquisition of firms is associated with increase in market share and cost efficiency through economies of scale. Most of the acquisitions done by Aga Food Service proved to be cost efficient. Aga Food Service possessed a strong market presence and it acquired weak firms, which resulted in financial benefits for the weaker firm and higher market share for Aga Food Service. The acquisition also helped Aga Food Service to offer a considerable threat to its rival firms as it created a horizontal range of products. (Benefits of Mergers and Acquisitions, n.d.) On the contrary, massive acquisition can prove unhealthy for Aga Food Service if the business becomes too bulky. This will lead to diseconomies of scale and there will be an increase in the unit cost of production. (Business Organization, n.d.) To reduce its reliance on the UK market, the company used the strategy of venturing into new market area. This will help the company to expand its client base and grow the business considerably. Venturing into a new market area especially in a foreign land can prove disastrous if there isn't any prior market study. Aga Food Service in this case has tied up with Domain, which is a US based company. This will help Aga Food Services to waive off the risks of venturing into a new market. The company readily involved itself in taking up the corporate social responsibilities. This will help Aga Food Service to make a good reputation and will attract more retail customers. Its introduction of "environment-friendly" products is also a remarkable effort to attract more customers. Such efforts of taking up social responsibilities can also be beneficial in reducing the recruitment and training costs since the employees will tend to stick to the job of a reputable company. There are also risks attached with such efforts and it is advisable that the firm keeps a balance between its involvement in the social responsibility programs and its business. References Benefits of Mergers and Acquisitions, n.d., Mergers and Acquisitions-Maps of World Finance, [Online] Available: http://finance.mapsofworld.com/merger-acquisition/benefits.html [15 April, 2009] Business Organization, n.d., Tutor2u, [Online] Available: http://tutor2u.net/business/gcse/organisation_growing_a_business.htm [15 April, 2009] Bryant W.K. and Zick C.D., 2006, The economic organization of the household,Published by Cambridge University Press , SBN 0521801419, 9780521801416, [Online] Available: http://books.google.co.in/booksid=-wuxELliCi0C&pg=PA113&lpg=PA113&dq=rise+in+interest+rate+affects+consumption&source=bl&ots=OZ59oGj2UO&sig=QmxGHYBKAlbK9GJJ33GxKeQtzQ0&hl=en&ei=smzlSa6cCM2IkQWwgJHbCw&sa=X&oi=book_result&ct=result&resnum=10#PPA113,M1 [15 April, 2009] Clark P. 2007, Buying The Big Jets, ISBN 0754670910, 9780754670919, Published by Ashgate Publishing, Ltd., [Online] Available: http://books.google.co.in/booksid=AY2Ad3aUWmUC&pg=PA185&lpg=PA185&dq=buying+"second+hand+aircraft"+and+depreciation+cost&source=bl&ots=V75XMGT2Dt&sig=8FrJrG1JFIOgz5uIFYBwCBkhJ7A&hl=en&ei=yEfkSafmK8-HkAW91PzfCw&sa=X&oi=book_result&ct=result&resnum=1#PPA185,M1 [15 April, 2009] Competitive Advantage, n.d., Strategic Management- Quick MBA, [Online] Available: http://www.quickmba.com/strategy/competitive-advantage/ [15 April, 2009] Corporate Social Responsibility, n.d., Practical Advice for Business-Business Link, [Online] Available: http://www.businesslink.gov.uk/bdotg/action/detailtype=RESOURCES&itemId=1075408491 [15 April, 2009] Read More