Critically evaluate the macro and micro-competitive environments facing airline companies using module and framework?
For the micro-competitive environment, I will be analysing Ryanair against The Five Forces Framework. Under this framework, the competitive rivalry is linked to threats from potential entrants, bargaining power of buyers, threat from substitutes, and bargaining power of suppliers. The threat from potential entrants is relative less due to the nature of the aviation industry. The major reason being the capital required to start a new airlines. Any new entrant will have a well thought of strategy to take on Ryanair. From the case study it seems they have most of the things correct. Any new entrant, besides the capital requirement, will have difficulty devising an alternative strategy. Looking it from the aspect of bargaining power of the supplier, which is Boeing, they seem to have a bit of a disadvantage. As all they current and future aircraft are sourced from Boeing, they have less of a bargaining power. But, this helps them in another way, which is terms of commonality of spares and trained workforce. I would also presume that Boeing must be offering them competitive deal for their loyalty. Thirdly, coming to the threats of substitutes, they have a formidable challenge from European rail network. With Eurotunnel fully functional, they have competition from railways between UK and continental Europe. However, this threat is expected to be more on leisure market than business. They would do well to set their airfares less than business class train ticket. Lastly, coming to bargaining power from buyers, I don’t foresee much of any major threat. They promote online booking, and have done away with travel agents. Only problem is the perception among those who haven’t yet travelled, which is reflected in their low Skytrax 2 ratings. However, their joining a major alliance and operating from major airports will be beneficial to them.
The key drivers that are increasingly making some industries global would be: market globalization, cost globalization, government policies, and competition . In terms of market globalization, Ryanair is well established to expand its network all over EU. European Union is a unified market and with near uniform trade policies. The needs and preferences of the customers are also very similar. They will be able to develop uniform marketing policies, establish their brand and identity, and advertising across the Europe. In terms of cost structure, it would be wise to expand with EU, before they go overseas. The fact that economies of EU nations are so linked together and distance are short, allows Ryanair to optimise economies of scale. Because of this reason, they can take advantage of country specific costs and still have EU wide operations. The unified Europe also offers them the advantage of near uniform policies. Because of this very reason, they are unlikely to be affected by regime change in one of my European nations. As any change in EU wide policies will need the ratification of all the nations. This provides a long term political stability to the business environment. In context of globalization of competition, the uniformness of EU market is bound to spur competitors with similar market and outlook. This no doubt will encourage the competitors to replicate Ryanair’s model, but will also allow Ryanair to develop greater understanding of their former’s perspective.
A major departure from their traditional model, CEO O’Leary said that Ryanair’s trans-Atlantic operations will have business-class cabin. More recently, they have been granted permission to fly to Russia.
Critically evaluate Ryanair’s positioning strategy. How appropriate is this from a resource and strategic capability perspective?
The strategic capability is defined “as the adequacy and suitability of the resources and competences of an organization for it to survive and proper” .
Talking about resources – tangible and intangible-, Ryanair is very well placed. We will be evaluating its resources in terms of: physical resources, financial resources, human resources, and intellectual capital. Ryanair has over 33 bases and over 850 routes across 26 countries and a total of 147 destinations. It operates a fleet of 199 modern B737-800 aircrafts, and has placed a firm orders for another 112 of them. Evaluating the financial resources, their modern aircraft produce 50% less emission, burn 45% less fuel and have 45% lower noise emissions. To keep themselves as financially sound, they have pioneered cost-cutting measures. Such as priority boarding and web-based check-in, thereby saving check-in staff, airport facilities and time. Other measures that improve their bottom-lines are, charging for check-in luggage and providing only point-to-point connectivity.
They have managed to keep their human resources cost low. Even though they plan to hire 1200 new employees services their new aircrafts, their number of passengers per employee is still expected to rise. This they have managed due to economies of scale from new routes. To cut down on airport charges, they operate form airports that offer bargain deals to them.
What strategies would you recommend for the future growth of the business based on the issues discussed in answer to Question 1? What strategic recommendations would you make to the airline company competing in today’s global industry and how would you evaluate your strategic choice?
I would believe that Ryanair in general is firmly on path to success. They are consistent with their aim of keeping the cost structure low. They need to take necessary steps to provide cushion against the fluctuations in global oil prices. Being based out of Europe they can take advantage of price difference across nations, and have refuelling arrangements wherever the prices are lower. They can consider imposing fuel surcharge on passengers on temporary basis to tide over crisis. They should continue fighting legal battles with EU, especially those that affect their bottom-lines. On a cautionary note, I would recommend that they comply with the European requirement of providing support to passengers in case of any cancellation. They have not taken any step in that direction for past four years. As a strategic imperative they should comply at the earliest, as there could be a possibility of penalty from EU. Finally, they should reconsider their decision to operate from secondary airports. Unlike their competitors, like easyjet, they are unable to get connecting passengers.
Critically evaluate the value chain of an organisation of your choice. Explain which elements of the value chain contribute to the organisations competitive advantage.
As an example, I would like to take up the case of another low-cost carrier from Europe, the Norwegian Air Shuttle . It is now Europe’s fourth largest discount airlines, which till recently, was little known beyond the Scandinavian countries. As recently as 2012, it made the largest order in European history of 222 jets from Boeing and Airbus. Among the orders were two fuel efficient, wide bodies, long range B787 Dreamliners. They are using these very efficiently on long distance international flights to place in North America and Asia. In one such example, their ticket between Oslo and New York cost 10% of established players. They are aiming to be global version of Southwest.
They are also taking other measures to add value to their clients. They have made online booking compulsory and have ensured a turnaround time of 20 minutes. Further, they decided to replace their old fleet for new ones to keep the oil prices down. This is something that will directly impact their ticket prices. In spite of their success, they need to do something about keeping their personnel costs down.
Define what is meant by the tree levels of strategy in an organisation. Using module concepts and examples from an organisation with which you are familiar, explain these different strategies are applied.
While formulating strategy , there are some frameworks that help us develop understanding of relative suitability of different strategic options. One among them would be the Decision Trees. Like other methods, it assesses strategic options against all factors. As we add the requirements that need to be met, the preferred options progressively emerge. It is an excellent tool to help you choose between different courses of actions . It “provides a highly effective structure within which you can lay out options and investigate the possible outcomes of choosing those options. They also help you to form a balanced picture of the risks and rewards associated with each possible course of action.”
Taking the case of a law firm, where the work is related to the house conveyancing. They wanted to consider a range of strategic options, and the use of strategic decision tree has helped them eliminate options using key criteria. Such key criteria that will be part of future developments would include growth, investment, and diversification. The decision tree helps us analyse that partners considered growth to be the important aspect. Further, they considered the low-investment to be higher than the high-investment. The partners of the law firm were aware of the fact that with each branch the choices become simplistic. They had choice of only Yes and No, when evaluating diversification. There could have been many choices in between, which they couldn’t examine.
On the other hand the partners don’t have much information, and so it would be premature to expect them to come up with in-depth analysis. Therefore, it is a very useful framework for starting an evaluation process. The facilitators can try to reverse the sequence of parameters, and see if the same options emerge.
When expanding overseas, what factors should a company consider when selecting a location for the manufacture of goods or the provision of services? What are the key drivers of overseas expansions? Your answer should refer to module concepts and examples?
Taking the example of case study of Allied Irish Banks , we will evaluate the key drivers of overseas expansion. The companies should examine if the changes occurring in global environment are in line with the domestic. If so, it makes their strategic moves predictable. While expanding globally, companies should take advantage of ethnic market, as provides them ready clientele, and they able to establish footprints. They can also consider minority stake in foreign firm. This will give them access to intellectual capital, which is already trained on that market.
There are different ways of breaking into international market. And the best possible approaches change as businesses grow in scale. The choice of location depends on the needs of the clients, detailed analysis of each of the market. The companies who are expanding also take into account whether those regions or market offer advantage to their particular sector. Also, it is important to take into account whether the foreign market complements the domestic or not. And, to explore whether the legislation and regulation in foreign market are similar to that of domestic market or not . Businesses in general recognize the importance of being well informed about various risks in the region of expansion. As a result, they prefer to expand in regions which are similar due to legal, cultural and geographical advantages. Once such familiar regions are saturated, it necessitates expanding into markets that are different. It is here that due diligence is required to avoid various kinds of risks. Most of the businesses prefer to have direct presence in the new market. Some prefer to build it ground up, while others prefer to acquire a local partner.
For those in small business sector, the key driver of overseas expansion would be: market identification, knowing the rules; finding logistics agent; financing; and utilizing free resources .
What is the role of structure, culture and systems in successful strategy implementations? To what extent do these supports or block successful strategic change? Your answer should refer to module concepts and examples.
For organizing a company for success, it is very important to reconfigure the organization. This is built upon three interrelated factors: structures, processes or system, and culture or relationships . The structures can be divided into various types: functional, divisional, and matrix. Each of which has its own strengths and weaknesses, and responds differently to control, change, knowledge and globalization.
Relationships are also important for success of the strategy. In the internal context, the key issues are centralization versus devolution and the strategy style. In external context, the available choices are around outsourcing, alliances, and networks that may facilitate or impede the success. These factors must come together to a coherent configuration of the organization. For example, Mintzberg’s stereotypical configuration reflects a common relationship between organization’s situation and the three factors of structure, system and culture.
It needs to be emphasised that managers should pay more stress on strategy implementation over formulation . Strategy formulation, which is more of an intellectual process, does not guarantee successful strategy implementation. On the other hand, strategy implementation is more of an operational process, and requires coordinated organization-wide team effort.
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