Strategic Management of Ryanair - Essay Example

Introduction The of the aviation industry suggests that the operations of the high fare/high cost airlines have severe constraints and it is demonstrated by the fact that in these airlines there are a huge number of bankruptcies and frequent reorganizations. There is a certain instability that constantly looms over the industry. As against this the low fare / low cost carriers are better off as they work within their means and concentrate on delivering their two main promises to the customers of low fares and frequent services without any frills. Since the expectations are low, the customer is generally more satisfied. Ryanair is an affordable air travel service provider that gives customers the option of using a high quality air flight service for medium and short-haul across many locations across European destinations. It commenced service as a normal airliner operating out of Ireland competing with Aer Lingus in 1985.However by 1990, having suffered heavy losses and changing five chief executives. The sixth and the current incumbent Michael O’Leary decided to follow the pattern for low cost flyers set by Southwest Airlines of USA. He was right in his assessment of the market and diagnosed correctly that this was the way to survive and succeed. Ever since its inception in 1971 Southwest Airlines has been a star. It has never suffered a loss, even during the turbulent years when almost 40% of the US Airlines either applied for bankruptcy for survival or became defunct. It is a low cost/low fare carrier that depends on its low fares, short hauls and the shortest turnaround times. The fares are at least 30% below its competition, maximum flight time is 60-90 minutes between two points, and shortest ground time that is routinely 24-27 minutes between landings and takes off of an aircraft. The Strategies of Ryanair Fundamentally the change brought about by O’Leary has transformed the company and put it in an aggressive mode. It has not only made the competition sit up but to emulate its practices. Ryanair successfully applied all the criteria that were innovatively designed and adopted by Southwest and O’Leary has no hesitation in stating that they are his ideals too. However, Ryanair has fallen short on imitating Southwest specially in the Human Relations department where they still face some issues now and then unlike Southwest where this department is handled in an exemplary manner and where the employee is King. Current Problems and Issues at Ryanair Ryanair appears to have a confrontist attitude and is in always some conflict or the other be it with authorities; competitors or its own workforce. While it can be said that it has a rightist view of issues and points out the shortcomings of others it is not the correct way of solving problems. It is for this reason it is involved with many a litigation or arbitration. This sometimes results in bitterness although by and large it has been able to ride out the issues. It may have a policy to compensate the workforce in terms of performance but it does not keep a very happy workforce and often there are accusations and confrontations between the management and its workers, specially the pilots. Strategies It is well established that companies devise strategies for competitive advantage (Porter M.E. 1985). The usual exercise begins with diagnosis. Postma and Kok (1999) describe diagnosis as a research into the functions of an organisation that eventually lead to improvements. A look at Strengths and Weaknesses reveals internal possibilities and Opportunities and Threats show the external environments. The situational analysis leads towards strategic formulations. But this is too simplistic and strategies based on these methods undergo quick changes. Current complex social, business and political environments need more deft handling and indeed the old Machiavellian theories of the state are as relevant to modern industry as they were 500 years ago. Whereas the earlier playing field was politics, government and fiefdom, the current stage is one of business and industry. The new science of management is no different from the old art of governance. Smirchich and Stubbart (1985:729) also confirm that unconnected outsiders, who are unaware of rules of industry or business, contribute to a number of new and exciting strategic ploys. There runs a common thread among the old an new and the name is Power. It is really the quest for power that powers strategy. Mintzberg (1998) has described that rational process of analysis and planning takes a backseat and hard bargaining is the ploy used by corporate elites for obtaining strategic and tactical advantages. It is exercise of raw power that moves and prevails on decisions. Indeed the icons of industry are becoming cult figures and are aggrandized as the new architects of strategy. These leaders and managers who engage in strategy are closely involved in directing resources towards organisational goals that they have set. They use innovative technologies and make impact on society and its norms. Even the institutions are affected and at times they even change the physical landscape. Strategy was always considered to be fundamental for competitive advantage. When a firm becomes different by offering value, quality and some attributes through which it offers some uniqueness then it will become an above average performer in its industry. Porter M.E., (1996) redefined strategy to be a combination of differently performed activities. While the activities remain the same, the approach taken to perform or enact them is the strategic decision that pays off. This brings about strategic positions that are unique by themselves and set the organisation apart from its rivals. Globalisation This is the age of globalization and firms are moving on to improve their competitiveness in the global markets. The central idea is to retain their competitive edge or to gain new competitive advantage they seek this through various motives. These are categorized as market seeking, resource seeking, efficiency seeking and strategic resource seeking motives. Market and Resource seeking motives have been the two most recognized categories (Dunning 2000). These two are the main reasons for most first time internationalization attempts by firms. Yet, efficiency seeking and strategic asset seeking motives increase in importance and are more common as motives for those companies who are already engaged in multinational activity. Dunning also confirms that closer relations with customers and durable relations with suppliers were equally important motives. Besides, he suggests that internationalization was driven by opportunities abroad rather than threats at home. In 2003 Dunning pointed out that global capitalism has realized that institutions, particularly regulatory ones, create constraints that effect the their profits that accrue to them due to cross-border markets and production systems. This results in tempering down their ambitions to reflect their concern for local realities and to cater to local communities. The fallout of the quest for competitive advantage now has to build benefits for local communities and markets as well. Dunning however does not end his pursuit of finding motives and reasons for competitive advantage through his eclectic paradigm. With time the corporations have realized that their aim is not just profits and that the consumer at large expects them to contribute to society as well. There are further pressures that are added by governments that also expect the corporations to aid and abate in their efforts to eradicate poverty, observe and assist in protecting human rights and raise the general standards of the population. He stated (Dunning 2006) that the role of institutions in international business activity needs to be incorporated into the OLI paradigm and created a new one which he calls as the New Paradigm of Development (NPD). Competitive Advantage It is thus observed that whether in domestic markets or in international markets, being competitive is the goal of all business. Strategies differ according to environments but the objective remains same. Different practitioners have adopted a variety of approaches for this edge or advantage and have explained the complexities that arise due to local, internal and external factors, yet the underlined aim is to become or remain competitive. Companies need strategies to remain competitive in the market. This is a continuing exercise which brings in changes. These changes lead to strategic issues and managers deal with them in a duality of theory and practice. The theories recommend cold reason and logic wile the practice is overwhelmed by culture and politics of management. The culture of the organization, whether sponsored or patronized by management or developed by customs and practices, often becomes a barrier in implementing strategic management policies. Glaser, Zamanou and Hacker (1987) measured organizational culture by using a triangular approach. This is a combination of quantitative data, interpretation of idiosyncrasies and complex perceptions of qualitative analysis. This provided a detailed analysis of the culture of an organization. Other researchers agree that organizational change implies cultural change and the challenge lies in its implementation. (Lundberg 1985; Thackeray 1986). Many companies like Southwest Airline and McDonalds have tried this approach with dramatic results of improved employee motivation and increased productivity. Long-Term Objectives Ryanair’s long-term objectives are to be the leading and fastest developing airline in the industry and to provide its customers the best service across Europe. Its Strategies / Tactics in this direction are: No Frills, Low Cost Approach; Point-to-point Short Haul Flights and use of Regional and Secondary Airports. The most famous strategy is however the often repeated declaration by O’Leary himself “Ryanair guarantees NO fuel surcharges, not today, not tomorrow, not ever.” This one statement has stood the test of times and raised the approval rate of the airline amongst customers. The most coveted objective of O’Leary is really revolutionary. He envisages offering free flight to his customers. This is an amazing desire but one that is possible by clever engineering of the environmental factors. He expects to cover costs through roping in advertisers, sponsors, regional tourist boards and councils and regional holiday providers like Disneyland to support and pay for providing totally free rides. This is true genius at work. Leadership Leaders play a vital role in the success of a company an in Ryanair this role has been very ably played by O’Leary. Leadership has a dual role. First it devises corporate strategy, sets goals; and second it provides guidance to carry out the objectives. There are some typical leadership behaviour patterns that are very critical. Jerry Porras and Susan Hoffer (1986) opine that open communication meaning sharing of intentions; listening and collaborating through making team decisions were most relevant for success in organisational development efforts. Similar conclusion was drawn by Teresa Covin and Ralph Kilmann (1990) when they surveyed several individuals. They noted two more traits of leaders. One, that they demonstrated discernible and unfailing support for the change programs, and secondly, they related the change to business needs. This calls for building of teams towards the effort and communicating the expected results in terms of profits, productivity, quality, performance, quality of work life etc. Transactional - Transformational Leadership An interesting proposition about effective leadership was made by Burns (1978) and was further developed by Bass (1985). He made a distinction between transactional and transformational types of leadership. He stated that transactional leadership was the traditional leadership which involves the leadership-subordinate roles where the subordinate is rewarded for compliance with the leader’s wishes (Doherty and Danylchuk, 1996). As against it in case of transformational leadership the subordinate is encouraged or motivated by the leader to improve him, raise his bar in order to serve the organisation better. (Doherty and Danylchuk, 1996; Soucie, 1994; Yukl, 1989). Bass (1985) offered a differentiation between transactional and transformational leadership. The transformational leader influences the sub-ordinate to do more than they were originally expected to do, whereas the case of transactional leadership this influence does not exist. These are two different dimensions and cannot be said to be at the two extreme ends of the same continuum. (Doherty and Danylchuk, 1996). But Bass maintained that leaders have both qualities at the same time as some rewards are given to sub-ordinates even by transformational leaders. Obviously transformational leadership is what can bring about changes in the organisation as it is the dynamism of the leader that will both motivate and reward the employees to adapt to changes. Characteristics of Transformational Leaders According to Armstrong (2001) the four main characteristics are ethical behaviour, sharing a vision and goals, improving performance through charismatic leadership, and leading by example. However, Bass (1990) had a more comprehensive description, his four Characteristics are: Intellectual stimulation which refers to the leaders capability to inspire followers to be more inquisitive and inventive in thinking and problem solving Individual consideration revolves around interaction between leaders and followers on two dimensions. First is developmental orientation wherein tasks are assigned to enhance an individuals potential, abilities, and motivation; second is individual orientation where the leader accentuates shared understanding and experience through one-on-one dealings and two-way communications. Inspirational leadership, refers to the idea that leaders inspire and encourage subordinates to create greater emotional attachments to leaders and greater identification with leaders visions of organisational goals Idealized influence refers to the fact that the charismatic traits of a leader will be idealized by followers through their commitment and will tap their full potential. The other side of leadership is to use his insight in evolving innovative strategies and making partners out of his supply chain to deliver exceptional value to his customers. This is built on the bonds of trust that he can create within this network. Organisational Culture A successful leader understands that the continuing success of his organisation depends on the organisation’s culture that he will help to formulate. It is this common approach and spirit that gives internal strength to the company. Shared views, aims, ideals and practices are the basis of cognitive behaviour. These are the ingredients that form the culture of an organization. Having laid down the way behaviours will form and determine Organizational Culture the next step is to implement these practices and policies throughout the organization. Both the management and staff/workers have to be guided into these activities as a regular routine and custom. It is important as the system of hierarchy will now be replaced by participation and motivated by self actualization. Empowerment is a welcome aspect but that it brings responsibilities and discipline in its wake is equally important. The whole attitude towards superiors and subordinates will have to undergo a sea change and people need to be trained for the new beginning or change as the case may be. Conclusions Ryanair is finally coming into a league of its own and is becoming comparable as leader alongside Southwest. It strategies have stood the test of times and the future appears to be as exciting as its past. However its greatest strength is also its greatest weakness. O’Leary is a visionary and transformational leader. He intends to step down in 2008. While this may or may not happen, but it points to a big gap in the company hierarchy. He has not yet developed a replacement for himself and in the case of his stepping down the company will not be able to fill this void. This may result in a decline. It will be prudent for O’Leary to cultivate and develop an heir who is as dynamic as him. One who can not only take forward the strategies of the past but is also able to evolve his own strategies for a future that is more challenging for the aviation industry. It is incumbent on a leader to nurture a successor who can maintain continuity in strategy and implementation and in time to devise new strategies commensurate with evolving and changing situations. However this does not appear to be case in case of Ryanair. Recommendations Evolution is important for a company and as it is said that change is the only constant, a company has to be continuously evolving in nature either to conform to the environment it works in or in contradiction to take advantage of the situation. Fuel costs are going up and will not come down and as these constitute the major expense, the company has to find other means of generating revenues in order to compensate for keeping its promise on not passing on fuel surcharges to customers. New area of revenue generations are to be found. One such are has been flirted with but needs to be pursued vigorously and that is in-flight online gaming and gambling. This is a favourite pastime of the internet savvy generation and will be eagerly taken up by passengers. Along with it facility for on-line shopping in flight will also be a good addition. Additional catering in-flight services can also prove to be profitable. On the ground it will be wise to develop partnership with budget hotels for holiday makers for catering to both tourists and business travellers. Arrangements for ground transportation with cab companies and onward transportation with rail companies for destinations not covered by the airline will be another measure to generate revenues. Apart from this the idea of free flights should be developed seriously. One way could be to arrange charters paid for by holiday booking agents or conference flights booked by large companies. The main idea behind these recommendations is to generate other revenue without increasing fares. But there are other areas that do not generate revenues but are equally important for maintaining the competitive advantage that the company developed over last two decades. The most important issue is of succession. There seems to be no plan in place for this and it can cause a vacuum that could affect not only investor confidence but the customer perception too. By and large Ryanair is too dependant on its charismatic CEO and this can cause problems in the future. Another factor is the HR policy of the company. It faces confrontation and low morale quite frequently and needs to be re-modelled more in line with the Southwest policy which the company has ardently followed in other areas. People are a very important asset and this should be given more attention to avoid a sudden catastrophe. Lastly, Ryanair gets into confrontation with EU authorities very frequently. As suggested by Dunning (2006) it must realize that institutions play a serious role today and it should try to manoeuvre with them diplomatically to save its image. Ryanair needs to be mindful of the above suggestions and take steps to initiate and implement them in earnest. Bibliography Armstrong, S. (2001). Are you a "transformational" coach? Journal of Physical Education, Recreation and Dance, 72(3), 44-47. Bass, B. M. (1985). Leadership and performance beyond expectations. New York: Free. Bass, B. M. (1990). Bass and Stogdills Handbook of Leadership: Theory, Research and Managerial Applications. New York: Free Press. Burns, J.M. (1978). Leadership. New York: Harper & Row. Covin T.J.and Kilmann, R.H. "Participant Perceptions of Positive and Negative Influences on Large-Scale Change," Group and Organization Studies, 15 (1990): 233-248. Doherty, A. J., & Danylchuk, K.E. (1996). Transformational and transactional leadership in interuniversity athletics management. Journal of Sport Management, 10(3), 292-309. Dunning, J (2000) Regions, Globalization and the Knowledge-based Economy. Oxford: Oxford University Press. Dunning, J.H., (2003), eds., Making Globalization Good – The Moral Challenges of Global Capitalism, Oxford University Press; Dunning, J.H., (2006), Towards a new paradigm of development; implications for the determinants of international business, Transnational Corporations, Vol. 15, No. 1 (April 2006) Glaser, S.R., Zamanou, S., and Hacker, K. (1987), Measuring and Interpreting Organizational Culture, Management Communication Quarterly, 1(2), 173-198. Lunderberg, C.C. (1985). On the feasibility of Cultural Intervention in Organizations. In P.J.Frost, L.F.Moore, M.R.Louis, C.C.Lundberg, & J.Martins (Eds), Organizational Culture,pp 169-186, Beverly Hills, CA: Sage. Mintzberg, H. (1994). The Rise and Fall of Strategic Planning. New York: Free Press Porter, M. E. (1985). Competitive Strategy. New York: The Free Press Porter M.E., (1996), What is Strategy, Harvard Business Review Porras J.I. and Hoffer, S.J., (1986),"Common Behavior Changes in Successful Organization Development Efforts," Journal of Applied Behavioral Science, 22: 477-494. Postma, T. & Kok, R. (1999). Organizational Diagnosis in Practice; A Cross-Classification Analysis Using the DEL-Technique. European Management Journal, 17 (6), pp. 584-97. Smircich, L. & Stubbart, C. (1985). Strategic management in an enacted world. 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