The multidivisional structure is the third type being described. This structure consists of separate divisions that can be based on products, services or geographical areas. Advantages of this kind of structure are the concentration on the business area, facilitation of measurement of the unit performance, ease of addition and divestment of units, facilitation of senior's management attention to strategy and this structure encourages management development. According to Johnson and Scholes disadvantages are possible confusion over locus of responsibility (centralisation/ devolution confusion), conflict between divisions, basis of intertrading, costly, divisions grow too large and complexity of co-operation if too many divisions.
Other organisation structures are the holding company structure. This structure can be characterised by an investment company that consists of shareholdings in a variety of separate business operations. These businesses operate independently and may retain their original company name. The role of the parent company seems to be limited regarding decisions about buying and selling of subsidiaries. Another limitation are the processes and relationships between the parent company and the separate businesses, which only are based on financial issues (investment, financial performance). By operating independently the business might be able to perform to their best, and since they are part of a holding structure, they can benefit from their membership of the whole group (cheaper finance for investment).
The matrix structure combines the divisional and functional organisational structures into one matrix. Advantages of such kind of structure are the quality of decision making where interest's conflict, direct contact replaces bureaucracy, increases managerial motivation and development of managers through increased involvement in decisions. Disadvantages of such structure are length of time of taking decisions, unclear job and task responsibilities, high degrees of conflict, dilution of priorities and creeping bureaucracy.
Team based, project-based and intermediate structures are three organisational structures that also occur.
Ryanair Holdings Plc. has a holding structure, which consists of several subsidiaries . The airline operator is named Ryanair Limited, the second subsidiary is Darley Investments Ltd, which is an investment company, thirdly Ryanair.com Ltd, which business is dealing with international data processing services and fourthly Buzz Stansted Ltd., which nature of business is aircraft trading and leasing. The board of directors are responsible for the strategic view and the formulation of Ryanair Holdings Plc. The board is led by chairman D. Bonderman and M. O'Leary who is the executive director. Other directors who are responsible for a variety of activities have a seat in one of the committees. The following subcommittees operates within the board, which are the audit, executive, remuneration, nomination and the air safety committee.
Ryanair Plc
Ryanair Ltd.
Darley Investments Ltd.
Ryanair.com Ltd.
Buzz Stansted Ltd.
Ryanair Plc
D.
Bonder-man
Chairman
M. O'Leary
Executive director
E. Faber
Director
M.Horgan
Director
K. Kirch-berger
Director
R. Mac- Sharry
Director
K. McLaughlin
Director
J. Os-borne
Director
P. Pietro-grande
Director
T.A. Ryan
Director
Strategy Development.
How strategy has developed.
When talking about how strategy has developed there are three strategic lenses that can be seen including strategy as design, strategy as experience, and strategy as ideas. It is not possible to have more than one lens at a time.
The following will be the explanation of strategic lenses then according to the theory, opinions regarding which lens fits best in the Ryanair's formulation of strategy will be included.
The design lens.
The design lens views strategy development as the deliberate positioning of the organization through a rational, analytic, structured and directive process.
This means that strategy is formulated by top management through careful analysis and planning and implemented down through the organization.
The experience lens.
The experience lens views strategy development as the outcome of individual and collective experience of individuals and the taken-for-granted assumptions.
This means that strategic decisions are made and strategies developed as the outcome of people's experience and cultural processes in and around organizations. Strategies evolve and inform strategic decisions, which in turn consolidate strategic direction.
The ideas lens.
The ideas lens sees strategy as the emergence of order and innovation from the variety and diversity which exist in and around organizations.
This means that the ideas lens is about how quit new strategy's can be explained, why some organizations are more innovative than others and why and how some organizations seem to cope with a fast-changing environment better than others.
(Johnson and Scholes, Exploring Corporate Strategy, sixth edition, p 38-61)
The application of strategic lenses to the Ryan air.
When looking at the Ryanair, the design lens fits best.
This is because the whole strategy of Ryanair is based on the financial part, this is very analytical. Everything they decide has to do with having their costs as low as possible to be the low-fares airline.
The heart of the strategy of Ryanair is based on providing a no-frills service with low fares designed to stimulate demand, particularly from budget-conscious leisure and business travelers, who might otherwise have used alternative forms of transportation, or who might not have traveled at all.
From this you can also conclude that they have every part of their strategy is based on their unique costs cutting policy and their way of making profit while being a low cost airline company.
The strategic development processes.
There are several strategy development processes evident in organizations. These processes include: strategic planning systems, strategic leadership, organizational politics, logical incrementalism, the idea of the learning organization and that the strategy might be imposed on organizations.
There are three important points when looking at different lenses and the different strategic development processes.
- There is no right way to be recognized in which strategies are developed.
- It is likely that the way in which strategies are developed will be seen differently by different people.
- Multiple explanations of strategy development are usually evident in organizations.
The strategic processes will be explained below and when possible apply them to Ryanair.
-Strategic planning systems.
This system fits the design strategy best. This is because it is a very formalized and analytical planning.
-Strategic Leadership
A strategic leader is an individual upon whom strategy development and change are seen to be dependent. In the Ryanair case Michael O' Learry can be seen as the strategic leader, he desides a lot about the strategy that Ryanair is following.
-Organizational politics
The political view of organizations is, then, that strategies develop as the outcome of processes of bargaining and negotiation among powerful internal or external interest groups (or stakeholders). Ryanair had very good contacts and because of this they had possibilities that other airline company's did not have.
-Logical Incrementalism
Logical incrementalism can be thought of as the deliberate development of strategy by 'learning through doing' or the 'crafting' of strategy. They take little bits in pieces and develop their strategy this way. Ryanair does this in a way because a lot of things that they do haven't been done by a simulair company before. They have to invend things themselves and learn from that.
-The learning organization
The learning organization is capable of continual regeneration from the variety of knowledge, experience and skills of individuals within a culture which encourages mutual questioning and challenge around a shared purpose or vision. Because Ryanair has very few people working their, you can not really say it is a learning organisation.
-Imposed strategy
Situations in which managers face what they see as the imposition of strategy by agencies or forces external to the organization. For Ryanair this means that they have influences from outside, for example the EU regulation and they have to deal with that.
(Johnson and Scholes, Exploring Corporate Strategy, sixth edition, 61-74, 871)
Chapter 3: Gathering and analysing the facts.
PESTEL framework
The PESTEL framework categorises environmental influences into six main types: political, economic, social, technological, environmental and legal. PESTEL is used to look at the future impact of these factors on an organization with regard to macro level. (Johnson and Scholes, Exploring corporate strategy, p 102)
With regard to the Ryanair case, PESTEL analysis is applied as follows:
Political
Taxation: the Irish government is currently collecting the following taxes. Namely income tax, pay relates social insurance, corporation tax, capital gains tax, capital Acquisitions tax and value added tax.
Tax free sale abolition: the abolition of the tax free sale causes the air industry's revenue down.
Economic factors
Unemployment: Ireland had an unemployment rate of 5.8% at the end of 2003.
Ireland's unemployment rate has been steadily increasing, from 3.8% in April 2001 to 5.5% two years later. Ireland's economy had been growing at a blistering pace during the last half of the 1990s, causing employers to search worldwide for workers. Experts hope that a worldwide rebound in 2004 will bring back strong economic growth and demand for foreign workers.
The integration of the European countries brought new demanding and supplying.
The European's central bank lowered investment interest to encourage the investment.
Social cultural factors
Population demographics: population: 3.8 millions and 1.7 million in Northern-Ireland. Age structure: Over 50% of Ireland's population is under 25 years old. The birth rate in Ireland is of the highest in Europe, with 14.6 births per thousand. The demographic compositions of Ireland is often described as generally mono-racial however due to recent prosperity immigration to Ireland is growing.
Travelling expense is increasing despite of the slow down of the economy.
The air travel is more and more affordable and popular among all people.
Technological factors
Government spending on research: The spending has increased by 23% over the last decade. It is spent on scientific and technical services, training and information, technology transfer and R&D activity.
The development of internet is helping air companies to build connection with all kinds of other services and help Ryanair and other air companies themselves to developing internet business.
Environmental factors
Environmental protection laws: minimum work place standards regarding health and safety: (1) carry out a risk assessment; (2) provide clean toilets and sanitation facilities; (3) meet fire safety requirements; (4) ensure employees use IT systems safely; (5) report any accidents in the workplace to the relevant authorities.
The fuel prices increases all the time thus bought Ryanair itself 5 years' fuel oil in advance.
Legal
Monopolies legislation: Irish law dictates healthy competition, and therefore bans anti-competitive agreements to fix high prices, and mergers between businesses can be prevented if they reduce competition.
Porter's five forces.
Porter's five forces are used to determine the source of competition in an industry or company. The five forces framework consists of 5 aspects. They are threat of entrants, buyer and supplier power, threat of substitute and competitive rivalry.
With regard to the Ryanair case, the threat of entrants of Ryanair could be the high capital requirement and lack of experience.
And the buyer power are high, because they have options to switch their choices in different air companies all with the same bases since they always look for the best price and services.
The supplier power is also high to the Ryanair, because the services, facilities, and products suppliers offered are all related directly to the customer's experience and thus relate to the priorities, reliable and finally profit of the company.
The high-speed train connection in Europe could be the substitution of the Ryanair since it is fast and cheap as well.
The competitors for the Ryanair are other low-cost based air companies, like Easy Jet and Virgin Express.
Competitive Position
Position the product to be competitive needs to consider the factors like
Distribution channels, how the company sell their product.
Product quality, that's the internal factor.
Product performance, the operation of the company
Product features, that's the points to differentiate the other products in the same line.
Relative pricing, how much the customer has to pay for the product.
And the company also needs to exam itself as
How strongly firm holds present competitive position
Whether firm position can be expected to improve or deteriorate if present strategy is continued or changed
How firm ranks relative to the key competitor on each important measure of competitive strength
Whether firm has a sustainable competitive advantage or is it at a disadvantage stage.
Applying to the Ryanair, the competitive position is the distribution as they sell the ticket through internet; promote their product through radio and newspaper which could be much cheaper than the travel agency for instant.
The quality of their product however is the punctuality, short turnaround time, and high percentage of safety record offers to customers.
Product features of the Ryanair could be no frill service and short-haul, points-to-points drives.
And finally comes to their pricing that made their competitive is the low-cost, low-fare.
Industry and convergence.
An industry is a group of companies which produce the same principal products/ services or with close substitutes for each other (Johnson and Scholes, Exploring corporate strategy, p 110). Examples from the Ryanair case are the competitors: Aer Lingus, Easy Jet, Go, Virgin Express etc.
Convergence is where previously separately industries begin to overlap in terms of activities, technologies, products and customers. (Johnson and Scholes, Exploring corporate strategy, p 110). In case of Ryanair, it has its own website and Ryanair Direct Limited to substitute the travel agency and their commission. Besides, Ryanair has also car rental, travel insurance and connecting rail services which can also be seen as convergence.
Strategic groups.
Organizations in strategic groups are those who are within an industry, have similar strategic characteristics, follow similar strategies or compete on similar bases (Johnson and Scholes, Exploring corporate strategy, p 122). In the Ryanair case this would be KLM that competes on the level of modest and luxurious, however as well on the level of budget airlines as in Buzz.
Markets.
Markets discuss the fact who is the customers of an organization's products or services. Therefore, according to Johnson and Scholes, market segmentation is very useful in identifying similarities and differences between groups of customers or users (p 126). In the case of Ryanair its market aims at attracting customers who travel with low cost fares with punctuality and quick turnaround time.
SWOT Analysis.
A SWOT analysis summarises the key issues from the business environment and strategic capability of an organization that influence on strategy development. (Johnson and Scholes, Exploring corporate strategy, p 134). Strengths and weaknesses are internal factors of organizations while opportunities and threats are external environmental factors in the business environment, internal and external factors do have a great impact on the development of a business' strategy.
A SWOT analysis is applied for Ryanair as follows:
Strengths:
One of the fastest growing and profitable carriers in Europe.
Since flotation the company has enjoyed a premium price/ earnings ratio compared with other airline.
Europe's leading low-fares airline.
Provide frequent departures, advance reservations, baggage handling and consistent on-time services.
Cost efficiency strategy.
Strong competitive position.
Provide ancillary services in conjunction with its core airline business.
Financial healthy.
The average age of the new aircraft of Ryanair was considerably higher than the competitors' fleet.
First European airline to cut commission rates to travel agents.
Launch of website.
Employees are happy to work for the company.
Weaknesses:
No free-service on board.
Less conveniently located airports.
No extras as advance seat assignments, in-flight meals, multi-class seating, access to a frequent programme, complimentary drinks and other amenities.
Booking possibilities for flights is limited in travel agencies.
No links with other flights provides by different airlines.
Opportunities:
Enter markets outside Europe.
Growth in air travel in the European market is one and a half times that of the more mature American market.
Shift the focus of its next phase of growth to continental Europe.
Threats:
Low-cost competitors trying to meet and beat the standards of performance of Ryanair.
Vertically integrated groups of tour operators and travel agencies which use in-house charter airlines.
High speed rail travel and the construction of major tunnels and bridges provide quicker and viable transport alternatives.
UK's delayed entry into the European Monetary Union has been problematic for Ryanair, with so much UK based business.
Fuel prices in US dollars have been an especially sensitive issue.
Strategic capability.
The resources and competences of the organization make up its strategic capability. It is important to have a strategic capability to perform at the level that is required for success.
Strategic capability is about providing products or services to customers that are valued - or might be valued in the future. The organization needs the resources and competences to provide products/services that meet these customer requirements.
Furthermore it is important at how organizations might develop the strategic capability to succeed.
(Johnson and Scholes, p 18, 147, 150)
Critical Success Factor's (CSF's).
A starting point for understanding strategic capability is understanding what customers value. When the company has some features that distinguish them from other organizations they are more likely to have success. These features are known as Critical success factors. CSF's are those product features that are particularly valued by a group of customers and, therefore, where the organization must excel to outperform competition.
For Ryanair the Critical Success Factor's are:
Innovation; They were the first airline company that offered low-fare flights at some places where it was not served before. Furthermore innovation can be seen in the following points.
Low-fare tickets; Ryanair is a low fares airline which is valued by its customers. Customers want to fly for very low prices and don't mind getting no-frills service and secondary and regional airports.
Punctuality; The turnaround time of Ryanair is very short. Because Ryanair has a no-frills service they can focus on the punctuality.
The website; The website helps Ryanair to achieve the already mentioned points.
(Johnson and Scholes, p 151, handout from cbl)
Resources.
From the strategic perspective an organization's resources include both those that are owned by the organization and those that can be accessed to support its strategies. Resources can be grouped under the following headings: Physical resources, Human resources, Financial recourses and Intellectual capital.
The resource audit from Ryanair.
Physical resources.
Boeing 737 - 200s
Boeing 737 - 800s
Ryanair direct limited (Dublin)
Headquarter in Dublin
Human resources.
Michael O' Leary
Ryan family
David Bonderman
Employees
Financial resources.
Fixed assets
Current assets
Current liabilities
Long-term debt
Shareholders' funds
Intellectual resources.
Website Ryanair.
Limited commission to travel agents.
Longer-term contracts at fixed prices for ground handling.
Lower access fees at secondary and regional airports.
Providing no-frills and ancillary services.
Performance related pay structure for employees.
Threshold resources are needed to exist as a provider to any market segment. With threshold resources is meant the basic requirements, for example for Ryanair they need space otherwise their airplanes can not fly or land anywhere.
Threshold resources change over time so it is important to continually improve this resource just to stay in business.
For Ryanair examples of threshold services are the airplanes, the use of airports.
Unique resources are those resources which critically underpin competitive advantage they can be used to meet the critical success factors.
For Ryanair a unique resource is Michael O' Leary, and the unique cost cutting policy.
(Johnson and Scholes, p 152 - 154, handout from cbl)
Competencies.
Competence is created when resources are 'deployed' into the separate activities of the organization and into the processes through which these activities are linked together.
The main competence of Ryanair is that they provide flights at a low price. They do this for example by having a no-frills and ancillary service, fleet commonality, contracting services out, using secondary and regionally airports.
Core competences.
Core competences are those competences that underpin the organization's ability to outperform competition by meeting the critical success factors better than competitors.
As Critical Success factors we named Innovation, Low-fare tickets, Punctuality and the website.
For Ryanair their main core competence is their unique cost cutting policy.
(Johnson and Scholes, p 149, handout from cbl)
Performing better than competitors.
An organizations strategic capability is a relative issue since it concerns the ability to meet and beat the performance of competitors. Managers need to understand performance standards; this means that they need to understand lies behind good and poor performance. For this understanding benchmarking is used.
There are three ways of benchmarking: Historical comparison, Industry norms/standards and Best-in-class benchmarking.
Historical comparison looks at the performance of an organization in relation to previous years in order to identify any significant changes.
Ryanair started their business as being a full-service conventional airline. They changed this over time because they found out that being a low budget airline was better for Ryanair.
Industry norms/standards compares the performance of organizations in the same industry or sector against a set of agreed performance indicators.
When comparing Ryanair with other low budget airlines, it can be seen that Ryanair is the number one in the industry.
Best-in-class benchmarking compares an organizations performance against 'best in class' performance wherever that is found. Ryanair is the best-in-class performer so when they want to compare themselves they have to compare with another best-in-class performer, in low budget, in another sector.
(Johnson and Scholes, p 171-174)
Robustness.
An important consideration about the core competences is the extend to which they are robust. Robust means difficult for competitors to imitate.
Imitation can be difficult for several reasons:
Rarity; Robustness could be related to the nature of an organizations resources or competences, which may be rare or unique.
For Ryanair that they started a low-budget airline was rare, especially in the places where they started it.
Complexity; Competence in managing linkages that assist knowledge sharing.
For Ryanair the website is an example of this.
Casual ambiguity; High levels of uncertainty exist on how to imitate a successful strategy.
For Ryanair it can be very difficult to see why they are doing so well, especially when for some reason Michael O' Leary is not able to be in the company anymore.
Culture; Managers within an organization do not explicitly understand the cause-and-effect themselves, this because most of the times this knowledge and these competences are embedded in the culture and are not explicit.
Managers from Ryanair learn from experience in the company itself, because Ryanair is innovative they start up a lot by themselves and they don't have examples from other company's in the same business. Because of this they might not understand the company, they do not know how things had happened if they made different choices.
(Johnson and Scholes, p 174-179)
Strengths and weaknesses.
One way of thinking about the strategic capability of an organization is to consider its strengths and weaknesses.
The strengths of Ryanair:
Ryanair is still growing and they are profitable.
They are the first and the leading low-fares airline.
They are the best-in-class leading company in their business.
Their cost-efficient strategy.
The weaknesses of Ryanair.
No extra frills, ancillary products.
Secondary and regional airports.
Opportunities for Ryanair.
Entering new (geographical) markets.
The European market is still growing.
Threats for Ryanair.
The entering of new low-budget airlines.
The possibility of traveling with other facilities.
(Johnson and Scholes, p 18, handout from cbl)
Governance chain
Why should we use a governance chain? The answer is because of two reasons. Firstly we want to separate ownership and management control of the organisation.
The governance chain has to do with all those groups that influences the organisation its purposes positively. Secondly to make the organisation more visible to the shareholders and other stakeholders. Since the expectations and interests will vary between the different holders, it is logical that conflicts will occur. Therefore it is necessary to find a certain balance. The board of directors should be responsible to the shareholders and responsible for the relationship with other stakeholders, furthermore they should take the interests of this last group into account. If we have a look at the share- and stakeholders of Ryanair we will see, that they have all different expectations in the company. Some of them have a positive influence on the company, some less or even none. In the book of Johnson and Scholes the following chain has been mentioned, which can also be applied to Ryanair.
Reports received
Beneficiaries
Limited reports
Trustees
Limited investments
Performance reports
Investmanagers
Accounts
Analysts' reports
Company briefings
Board
Budgets/ qualitative reporting
Executive Directors
Budgets/ qualitative reporting
Senior Executives
Budgets/ other operating reports
Managers
Corporate Governance
Corporate governance deals with the issues, whom are we going to serve and how the purposes should be determined. The board of members deals with the strategic issues, policy and control. According to Johnson and Scholes the primary statutory responsibility of the governing body, which is in this case the board, is to ensure that the shareholders its wishes and purposes will be satisfied. That means within Ryanair there are shareholders like the Ryans, O'Leary and Bonderman who wants to assure that the company will be profitable in the future, therefore they should consider the expectations and interests of the different other stakeholders, in what way they are influencing or may influence the strategic view of the board. Within Ryanair the board consists of several subcommittees which have to deal with issues regarding the board. Most important subcommittee is the executive committee, with T. Ryan, O'Leary and Bonderman. The role of the principal shareholders (Ryans, O'Leary and Irish Air) are quite dominant.
If we look at the rights of creditors and lenders, we see that Irish Air has provided a major loan to Ryanair. In return they received shares and have a huge influence on the strategy and decisions that will be made by the board. There power is really high.
Relationships with customers and clients
Legal frameworks have been setup by governments or the EU in order to protect the consumer but also relevant third parties. Some of these regulations have a great impact on the developed strategy, for example the duty free sales act, or the legislation that prevents airports from offering differential deals to different airlines companies. Customer expectations should be noted by the airline about performance standards. These standards should be a guideline and assure customers a certain level of performance, if the airline company fails, then this might have consequences.
Forms of Ownership
The ownership should be consistent with the chosen strategy purposes of the organisation. Building up an airline company was one thing, in the case of Ryanair, become a major player could only be done, when they changed their structure. Growth could only be established by major investments. The share structure provided Ryanair with the necessary capital to build up this company.
Expectations, interest and power of stakeholders.
Stakeholder mapping: the power/intrest matrix
LEVEL OF INTEREST
POWER
Stakeholders
1) The Ryans
2) Michael O'Leary
3) David Bonderman
4) Irish Air
5) Travel Agencies
6) Trade unions
7) Employees
8) EU
9) Airports
Ryans
The founder of Ryanair is the family Ryan, who build up the airline company from a small full- service carrier to the largest budget carrier nowadays. Obviously there expectations lie in maintaining their position as the largest low-fare airline company, but also keeping the costs under control. Since they changed their formula of transferring passengers on a low budget basis, they have been successful, not only in offering low fares, but also in lowering their costs and developing other activities like the ancillary services, which are quite profitable. Off cause the interest and power of the family is high.
Michael O'Leary
Who is head of the management team, has also shares in the airline company. Therefore he is interested in a company that succeeds in making profits and continue to grow in order to maintain their position as the largest budget carrier. Selling shares will be profitable if the share will be high, which can only be achieved if Ryanair is profitable. Michael O'Leary has a high influence on policy within the company and is therefore considered to have a high power.
David Bonderman
Is the chairman of Ryanair and leader of the Irish Air, which has a share in Ryan Air. As the leader of Irish Air he has certain expectations and interests in Ryanair. He wants the airline company to be successful, and therefore is interested in the profitability of the company. The power of David Bonderman may be considered less high than Michael O'Leary.
Irish Air
This company provided equity and a loan to Ryanair in return for that, they received shares. Of cause this company has certain expectations about the company. They want the company to be profitable and make money out of the shares.
Travel Agencies
Travel agencies are not quite important to Ryanair, since they sell most of the tickets through there own distribution channel. Although for opening up new routes, it is necessary, or it might be good idea to use the travel agencies, so that new potential customers might see the (new) destinations of Ryanair. Another reason why those travel agencies are important is the potential of their own distribution channel, due to system breakdowns, or whatever. Travel agencies itself are not that interested in Ryanair, because of the low profits, especially since they cut in the commission rates of travel agencies. So the expectations and interests of travel agencies are low and the power is quite low, since Ryanair still wants to use this form of distribution.
Trade Unions
These unions are not recognised by Ryanair, which caused some stress between Ryanair and the government of Ireland and also the EU. If employees feel they are not treated well or are not satisfied with policies regarding any issues of Ryanair, then they should join Trade Unions. In the case of Ryanair every employee or at least the majority is satisfied with the employer. This means Trade Unions might be interested in Ryanair, but certainly has no power.
Employees
Employees do have power, since Ryanair is well aware of the importance of employees. They need to be satisfied, otherwise they will not perform effectively. In order to keep them satisfied, they will have to seek for opportunities and solutions, to do so.
EU
The EU is quite important for Ryanair, since they are able to influence strategic decisions made by the carrier. This has to do with policy, which has a direct impact on the operating activities. Duty free shopping and the legislation in order to prevent airports from offering differential deals to different airline companies are two decisions that illustrates the power of the EU. Their interest in the company seems to be quite low, they don't have any expectations of the company.
Airports
Airports are interested in Ryanair, since they will bring lots of passengers to the airport and thus revenue. The airline company is well aware of that fact, and thus will be negotiating to pay low access fees. This was possible till the EU prepared a legislation that airports prevents to offer different deals to different airline carriers. This will result in less negotiating. From the point of view of Ryanair it is clear, that airports don't have much power.
The different ethical stances.
The ethical stance is the extend to which an organization will exceed its minimum obligations to stakeholders and society at large.
Different organizations take very different stances and there is likely to be a strong relationship between the ethical stance and the character of an organization.
There are four stereotypes to illustrate these differences. They represent a progressively more inclusive 'list' of stakeholders' interests and a greater breadth of success criteria. It is possible to have more stances at a time and companies can switch between the stances.
Four possible ethical stances.
1.Short-term shareholder interests.
Organizations which have taken the narrow view that the only responsibility of business is the short-term interests of shareholders.
2.Longer-term shareholder interests.
Recognition of the long-term financial benefit to the shareholder of well-managed relationships with other stakeholders.
3.Multiple stakeholder obligations.
Stakeholder interests and expectations (wider than just shareholders) should be more explicitly incorporated in the organization's purposes and strategies, and usually they will go beyond the minimum obligations of regulation and corporate governance.
4.Shaper of society.
The final group represents the ideological end of the spectrum. They have purposes that are concerned with shaping society, and the financial considerations are regarded as of secondary importance or a constraint.
(Johnsen and Scholes, p 216 - 219)
Ryanair uses the second category. They see their shareholders as very important. This because they can take advantage from good relationships with shareholders.
For example they tried to get the shareholder satisfied by ordering in advance and with this they had the advantage of paying a lower price.
However, we think Ryanair would not be prepared to bear reductions in profitability for the social good, also a part of this category, this because they have a cost reduction strategy.
(Johnsen and Scholes, p 875, 876)
Long term business and a high ethical stance combined.
When a business exists for some time, and they have met their shareholders and stakeholders, they will try to become a shaper of society. This because they have succeeded to reach the stakeholders and shareholders and they could get extra benefits when they go even further and become a shaper of society.
It is easier for them when they are already excising for some time because they have more experience then and they know their stakeholders expectations better.
Ryanair has a high ethical stance, they want to be the best in the corebusiness they provide and they have managed to get this position. They are the best-in-class.
Corporate social responsibility.
Corporate social responsibility is concerned with the ways in witch an organization exceeds the minimum obligation to stakeholders specified through regulation and corporate governance. This includes considerations as to how the conflicting demands of different contractual and community stakeholders can be reconciled.
In the next table some issues are outlined that provides a checklist against which an organization's actions on corporate social responsibility can be assessed.
Should organizations be responsible for....
Internal AspectsExternal Aspects
Employee welfare
Working conditions
Job design
Intellectual property
Green issues
Products
Markets and marketing
Suppliers
Employment
Community activity
The internal aspects of Ryanair.
Ryanair does not have a lot of employees because they have contracted out a lot. The employees they have are satisfied with working for Ryanair, what this means in terms of working conditions, job design, intellectual property is not clear, the case does not mention more about this.
The external aspects of Ryanair.
Ryanair does not take the green issues into account; they think that making everything with as low cost as possible is of higher importance.
With there products this is the same but having an airplane that is not safe is a high risk for them so it is unlikely to happen. By this danger from using one of their services is not likely to be dangerous.
With markets and marketing it is important for Ryanair that their marketing does not cost to much, their advertising will be very limited.
Ryanair chooses their market; they mainly attract people that find it important that they do not pay much.
The suppliers of Ryanair are very important to them; they negotiate with them and find agreement that way.
About the last two, employment and community activity the Ryanair case does not say much. Ryanair will probably not sponsor local activity's this will probably cost to much.
A conclusion can not be made because there is not enough information.
(Johnsen and Scholes, p 220, 221)
Identify the influence of culture on different stakeholders and hence their influences in the organization.
There are a variety of cultural frames of reference which might influence on individuals in an organization. The cultural frames of reference include national and regional cultures, the organizational field, organizational culture and functional and divisional cultures.
National and regional cultures.
The national cultural context influences the expectations of stakeholders directly through attitudes to work, authority, equality and a number of other important factors which are different from one location to another. It is very important to understand these influences since values of society change and adjust over time. Besides, when a company operates internationally, it has to face problems such as different standards and expectations of the various countries in which they operate.
The regional cultures refer to some aspects of employment, supplier relationships and consumer preferences which differ at a regional level.
Since it is quite hard to get information concerning Irish culture and its influence on different stakeholders, therefore the application of national and regional culture regarding Ryanair case is not included.
The organizational field.
An organizational field is a community of organizations that partake of a common meaning system and whose participants interact more frequently with one another then with those outside the field. (Johnson and Scholes, Exploring corporate strategy, p 223). Organizations within a field work towards common norms and values. Each organization in the field has different type of influence. Organizations in the field adhere to assumptions which are held in common about organizational purposes and "a share wisdom" on how to manage organizations. This is called "recipe". An organizational field will be influenced some time because of the different cultures from different organizations. This may cause important changes to an organizational field.
With regard to Ryanair business the organizational field includes car rental, travel insurance, travel agents and additional services such as in-flight television advertising services, advertising outside the aircraft, internet services on flights and satellite television. Besides that, Ryanair had contracted aircraft handling, ticketing, baggage handling and other functions to third parties which can be seen as organizational field.
Organizational culture.
The culture of an organization consists of the three layers:
Values are statements about the organization's mission, objectives or strategies.
Beliefs are issues which people can surface and talk about.
Taken for granted assumptions are aspects of organization life which people find difficult to identify and explain. It is evidenced by the way people in an organization actually behave.
With regard to Ryanair, its objective is to maintain its position as Europe's leading low fares airline, operating frequent point to point flights on short haul flights mainly out of regional and secondary airports. The heart of its strategy is based on providing a no frills service with low fares designed to stimulated demand.
Functional and divisional cultures
There are important sub cultures that also have influence on an organization. These sub cultures may appear in a number of ways such as unions or professions, or the structure of the organization. Different divisions may be pursuing different types of strategy and different market positioning requires different cultures. Notably, combining strategic positioning and organizational culture is a critical feature of successful organizations.
Ryanair has been a newsworthy and controversial company in Ireland with respect to its employment practices, especially in its refusal to recognize any trade unions. It will only recognize trade unions when a majority of workers opt to join. This causes stress between Ryanair and the government of Ireland and also the EU, therefore it might have influence on them.
Cultural web.
The cultural web is a representation of the taken for granted assumptions or paradigm of an organization and the physical manifestations of organizational culture. (Johnson and Scholes, Exploring corporate strategy, p 230)
Culture can be analyzed by observing the way in which the organization behaves and the culture artifacts including routines, rituals, stories, structures, systems...
The routine refers to ways that members of the organization behave toward each other and towards those outside the organization. It focuses on the working of the organization, and provides a distinctive and beneficial organizational competence. It represents a taken for granted ness about how things should happen.
Ryanair carries out routine maintenance, repair services and checks on aircraft by using its own engineers to save costs.
The rituals are the special events through which the organization emphasizes what is particularly important and reinforces the way of doing things.
Despite of a growth in passenger volumes, by the end of 1990 the company had flown through a great deal of turbulence, disposing of five chief executives and accumulating losses of IR 20 millions.
In May 1998, Ryanair announced an employee share option scheme worth up to 5 percent of the shares of the company. In 2001, Ryanair pilots and in flight employees received an generous five year pay, productivity and share options package with other employees expected to receive a similar package.
The stories which are told by members of the organization to each other, to outsiders, to new recruit, embed the present in its organizational history and also flag up important events and personalities. They include successes, disasters, heroes, villains and mavericks that deviate the norm.
At first, Ryanair's successful growth was based on a perception that it was an Irish ethnic airline, relying on reciprocal visits between the large Irish population in the UK and their relatives and friends in Ireland, availing of low fares to travel more often.
In 1997, Ryanair was one of the first European airlines to cut its rate of commission to travel agents. This led to a dispute with travel agencies in Ireland and the UK which threatened a boycott on handling reservations for Ryanair flights.
Ryanair subsequently won the baking of the Competition Authority in Ireland against the boycott.
IN 1999 and 2000, Ryanair won the prestigious Best Managed Airline Award organized by US Aviation Week and Space technology Magazines.
The symbols include logos, offices, cars and titles or the type of language and terminology used.
Low fare airline: clear picture of Ryanair.
Uniforms for pilots and attendants.
Logo of the company.
A flying billboard
Terminology: passengers, no frill service, ticketing, ground and baggage handling, in flight service, etc.
Power structures are likely associated with the key assumptions. The most powerful groupings within the organization are likely to be associated with the set of core assumptions and beliefs.
In ryanair, Michael O'Leary is head of the management team. He has a high influence on policy within the company and is therefore considered to have a high power. Power is spread through from the director to managers and operational employees.
The control systems refer to measurements and reward systems which emphasize what it is important to monitor in the organization and to focus attention and activity upon.
Ryanair controls employee compensation through a performance related pay structure.
Ryanair announced an employee share option scheme.
Contract work is carried out under the supervision and planning of Ryanair engineering staff, enabling the company retain control of quality and safety.
Ryanair Direct enables management control over customer service quality and consistency and increased sales of ancillary services such as travel insurance, car rental, and connecting rail services.
Organizational structure reflects power structure and creates important relationships and emphasizes what is important in the organization.
Ryanair is organized in a hierarchical structure. The structure is fragmented from the director to managers and operational employees.
The paradigm of the organization encapsulates and reinforces the behaviors observed in the other elements of the cultural web.
Ryanair provides a no frills service with low fares designed to stimulate demand, on time performance and less time of baggage handling and quick turnaround time.
Characterizing an organization's culture.
It is very important to characterize culture because via that way judgments can be made about the ease and difficulty the organization would experience in pursuing different kinds of strategy. There are three different ways of characterizing culture including the graphic descriptor, miles and snow and handy. (Johnson and Scholes, Exploring corporate strategy, p 236).
The graphic descriptor: this can help get people to understand that culture drives strategies through the essence of an organization's culture in a simple graphic descriptor.
Miles and snow:
There are three basic types in miles and snow including defender, prospector and analyzer.
A defender organization tend to desire for a secure and stable niche in market. It prefers specialization, cost efficient production; marketing emphasizes price and service to defend current business and vertical integration.
A prospector organization thrives on change, favoring strategies of product and market development through a creative and flexible management style.
A analyzer organization desires to match new ventures to present shape of business and favors steady growth through market penetration, exploitation of applied research.
Handy:
Handy characterizes culture with regard to the relationship between the organization and individuals also the importance of power and hierarchy. There are four types of culture including role culture, task culture, power culture and personal culture. Different cultures will behave differently.
A role culture has a well sorted arrangement for interdepartmental meetings and a schedule of tasks against time scales to ensure the development and launch goes smoothly.
A task culture prefers to create an ad hoc project team to see the project through
A power culture supports the strategy by the chief executive personally and actively issuing instructions indicating who does what and by when.
A personal culture relies on the personal motivation and inventiveness of individuals.
Ryanair is matched to a defender organization and it has a role culture. Ryanair aims at specialization with no frill service and low cost carrier, cost efficient production through its costs and operations including fleet commonality, contracting out services, airport charges, staff costs and productivity and marketing emphasizes price and service to defend current business.
Business Economics Analysis
Business economics Analyses of Ryanair and Easy Jet
The following analysis has been based on figures of Ryanair and Easy Jet of the balancesheet of 2001/2002. By analysing the available financial data, we will be able to gain more insight in the position of these two companies. The method of analysing will be by making use of a variety of ratios.
Current ratio
Cash + short-term investment + accounts receivable =
Accounts payable + short-term loans
937.766.000
Ryanair= = 3,0428 times
308.192.000
523.899.000
Easyjet= = 2,0102 times
260.614.000
This means that Ryanair has three times more assets than liabilities. Easy Jet has two times more assets than liabilities. Which means the current ratio of Ryanair is better than the of Easy Jet, although according to the literature, a current ratio of 2 is already fine.
Return on Ordinary Shareholder Funds
The Return on Ordinary Shareholder Funds(ROSF) ratio will be used to calculate the amount of money of the profits that will be available for the shareholders. The result of these ratios are being rated in a percentage.
Net. Profit after tax and preference dividend(if any)
ROSF = x 100
Ordinary share capital plus reserves
159.375.000
Ryanair = x 100 = 15,0034%
1.002.274.000
49.009.000
Easy Jet = x 100 = 6,7347%
727.704.000
According to the results of these ratios, the position of the shareholders for Ryanair is much more better than Easy Jet.
Return On Capital Employed
This ratio calculates what amount of money will be employed.
Net. Profit before tax and interest
ROCE =x 100
Share capital + Reserves + long term loans
191.983.000
Ryanair = x 100 = 12,6807 %
1.153.977.000
76.805.000
Easy Jet = x 100 = 9,8937 %
776.304.000
Ryanair has invested more capital, than in comparison with Easy Jet.
Net Profit Margin
The net profit margin is a ratio that displays the margin of the net profit. The ratio shows the percentage of sales in comparison with the net profit.
Net profit before interest and taxation
Net. Profit margin = x 100
Sales
191.983.000
Ryanair = x 100= 30,7640 %
624.050.000
76.805.000
Easy Jet = x 100= 13,9179%
551.844.000
Ryanair its relationship between the sales and the profit is much more better than Easy Jet.
Gross Profit Margin
The Gross Profit Margin describes the relationship between the gross profits and the sales.
Gross profit
Gross profit margin =x 100
sales
162.933.000
Ryanair =x 100 = 26,1090%
624.050.000
138.635.000
Easy Jet =x 100 = 25,1221%
551.844.000
The percentage of Ryanair and Easy Jet are almost the same, they have both a well balanced gross profit margin.
Debt To Total Assets
This ratio tell us how many times the liabilities can be paid in relation to the total assets.
Total liabilities
Dept to total assets = = times
Total assets
887.298.000
Ryanair = = 0,4696 times
1.889.572.000
337.602.000
Easyjet = = 0,3169 times
1.065.306.000
The current financial situation of Ryanair is quite good, especially after the comparison. Many ratios are better those of Easy Jet. This means they will have a financial basis to become more competitive. Shareholders will be increasingly satisfied with those numbers, since they will buy shares and wants to be part of a healthy company that knows that the financial part of a company is the foundation of a succesfull company.
Prisoners dilemma and Equilibrium.
Game theories are being used to predict the action of competitors. Two core assumptions form the basis for this theory, namely the assumption that competitors respond rationally and wants to win and secondly the inderdependent relationship between them and the other competitors, which means that they are affected by the actions and the following responses of the other competitors. So the choices which are being made, are based on the outcome others. According to Johnson and Scholes the key principle of game theorists is that they are able to put themselves in the position of the competitor and rationalise the information and choose the best action.
The prisoner's dilemma is a simultaneous game, which deals with the question, whether to cooperate with a competitor or not. As an example two companies dominate the market, and want to gain marketshare, by heavily spending on marketing. As a consequence, they might gain extra market share, but they are not for sure. That means it would be more wise to maintain their position, this results in a low expenditure of marketing. The compitors will have a mutual benefit. The payoff for both competitors is similar. Though in competitors will always try to have a certrain advantage above the otherone. That means the competitors knows that if one of them spends more money, they will have relatively a higher payoff, then the other competitor. As a consequence, the other compitor will have a low payoff. The dominant strategy describes the strategy that results in outperforming all other choosen strategies of the competitor. This would be the case if only one party will choose to heavily spend money on marketing.
The equilibrium is a situation during a game theory in which every "competitor contrives to get the best possible strategic solutiuon for itself given the response from the other" . This situation will most likely happen, if there seems to be no dominant or dominated strategy.
Ryanair was founded in 1985 as a family business that originally provided full service conventional scheduled airline services between Ireland and the UK. The airline started to compete within the confines of the existing industry by trying to steal customers from their rivals, especially the state monopoly carrier Air Lingus, outlined by Chan Kim and Renée Mauborgne (2004) as Bloody or Red Ocean Strategy . Ryanair seemed to follow a me-too strategy ; according to Osborne, K. (2005), they tried to be all things to all people . Even they started restructuring; their strategy was not enough differentiated and their cost advantage was too low to be profitable.
Ryanair then created a competitive advantage through the alignment of the three components of business systems;
1)Creating superior value for their customers (outside perspective)
2)Supplying their superior value-adding activities in an effective and efficient manner (which jointly form the Value Chain )
3)Possessing over the resource base required to perform the value-adding activities, (inside perspective)
According to Porter (1987), corporate strategy is what makes the corporate whole add up to more than the sum of its business unit parts. It is seen to be concerned with the overall purpose and scope of the organisation and to meet the expectations of major stakeholders. All aspects of Ryanair s value chain are important to the company and their shareholders as Ryanair s decisions add value to both.
The following report outlines the three perspectives of shaping Ryanair s business system. The value creation dimension of Ryanair s business model will be outlined, considering the theories of Porter and the more recent authors Kim and Mauborgne (2004). Further, the linkages in the airline s value chain and their resource base will be analysed, considering Hamel and Prahalad s (1990) core competency model (inside-out approach).
In section 2, the future challenges of the airline are considered. Ryanair s strengths and weaknesses will be analysed, internal value creating factors such as assets, skills or resources, to consider how the airline can create alignment to its opportunities and threats, external factors. An stronger outside in approach for Ryanair s future corporate strategy will be considered, applying Porter s five forces model, placing the market, the competition, and the customer at the starting point of the strategy process.
References
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