Every business is subject to factors that affect its function as a whole. These factors are the ones attributed for the success or even the failure of a business (Oliver, 1997). In the light of this, there are certain ways or techniques that can be considered in order to emerge and continue to be competitive within the global market place. The effective implementation of strategic management strategies is among these. On this case, the first low-cost, no-frills European airline – the independent Irish airline Ryanair* is taken into scrutiny particularly on its strategic management and implementations.
SWOT ANALYSIS
Strengths
Ryanair has been known as Europe’s first low-cost, no-frills airline brand (Doganis 2001). This fact alone credits is the company’s strongest selling point. Ryanair started in year 1985 with only 57 staff members and with one 15-seater turboprop plane from the south of east of Ireland to London-Gatwick which carried 5000 passengers on one route (Harrison 2002). In 1986, inspired from the story of David and Goliath the company go after the big guys for a slice of the action and end up smashing the Aer Lingus or British Airways high fare cartel on the Dublin-London route. From therein, Ryanair’s lower fares offering increased their market share rapidly resulting to the establishment of low-cost subsidiaries of established airline companies such as British Airlines and KLM (Doganis 2001).
The ‘low-cost, no-frills’ strategy resulted to a rapid increase of customers and expansion of their operations, wherein the staff increased from mere 57 to 3, 400 staff members and almost 35 million passengers. In terms of operations, the EU air transport deregulation allowed the airline for the first time to open up new routes to Continental Europe with over 3 million passengers on 18 routes carried in 1997. Ryanair also launched services to Stockholm, Oslo, Paris and Brussels and took time out to float Ryanair Holdings plc on Dublin and NASDAQ Stock exchanges. The company was awarded as Airline of the Year in 1999 by the Irish Air Transport Users Committee. In 2001, while almost all traditional airline companies suffered from losses and stiff competition, Ryanair, being a low-cost airline became more than merely profitable by recording 26 percent in operating margins – results that the former only dreams about (Binggeli and Pompeo 2002). In June of the following year, Ryanair made a market capitalization amounting to 4.9 billion euro (.82 billion), breaking the records of 45 percent more than the mighty British Airways that has 20 times larger in terms of revenue.
Ryanair possesses the sophisticated and able technology that can cater to the fast changing global marketing management trends. It has core competence in its use of information technology that can support its management and marketing operations. Thus, adding to its innovations in service providing among the wide range of clientele. Its IT supports competent procurement of services (e.g. bookings and ticketing) in e-marketing or online aspect. After establishing its website in January 2000, it became one of the busiest sites in the country with 14 million impressions a month. The booking in their web accounts have increased to 94% which has probably has something to do with opening another 26 routes. In year 2003, the company is characterized by rapid expansion and the start the year by announcing that the company has ordered an additional 100 new Boeing 737-800 series aircraft to facilitate the rapid European growth plans (Binggeli and Pompeo 2002). The company is named as the most popular airline on the web in 2004 by Google. The company has also passed out British Airways to become the UK’s favorite airline in United Kingdom and throughout Europe (Binggeli and Pompeo 2002). In sum, Ryanair’s strengths rest on the company’s commitment to low fares, deep-seated management, and willingness to address managerial challenges and marketing trends (e.g. competition, expansion, and IT solutions).
Weaknesses
Despite of the increase of passengers, the company is not so good in managing cost that the company has lose its money. At the moment, there have been urgent and deliberate mechanisms that were implemented to address such weakness. Such cost reduction strategy relies on five main aspects like fleet commonality, contracting out services, airport charges and route policies, managed staff costs and productivity and managed marketing costs. Ryanair, in spite of its strategies has other problems that serve as weaknesses too. One of the problems is in terms of handling customers or target market. Reports say that Ryanair accumulates ‘hidden’ taxes and other fees, restricted customer services, and deceiving advertisements. In addition, another problem is assuring quality service. According to the result of poll conducted by BBC involving air travelers in 2003, 56 percent of respondents claimed that the airline caused them ‘the biggest headaches’ in terms of services and customers. Also, Ireland’s Commission for Aviation Regulation recorded a total of 60 percent of all complaints accumulated by the commission (M&C 2007). There has been significant number of bad publicity for the company, thus, creating a negative impression to the airline brand. The company is faced with different unsolved issues because of lack of strategic decision making in several areas of human resources particularly in relation to trade union policies (Harper 2006).
Opportunities
With the management system of the company and the strengths that it has, Ryanair has bigger opportunities to still dominate and catch up with the competition in the European airline industry in terms of providing more quality service standard and at the same time preserving it low-cost no-frills strategy to its clients or even have an opportunity to be the number one airline company in the whole region after its eventual application of its proposed plans in the future. Another opportunity that can be attached to the company is it would gain more customers if they would be able to determine the latest trends in airline management and marketing to meet the demands of their target market. The continuous initiatives of the company in diversification of its revenue resources also open new opportunities to make the business become stronger to outgrow all its rival companies. Such opportunities will include e-business development by strategic alliances as well as suppliers, leveraging the company’s investment in the World Class Customer Satisfaction Systems, and other business opportunities in both non-core and core areas.
Threats
Operating in the most competitive marketplace especially European airline industry, Ryanair is faced with the inevitable threat of stiff competition. For a company to succeed in global competition there is a continuous plan to develop new products with higher quality than its competitors. Kay (1993) analyzes that new product and new business development must be highly effective and efficient, however that alone will not ensure its competitiveness. The expansion of its operations to other areas means adjusting to the trade policies and political problems of the locality. The dynamic needs and demands of customers served to be a challenge to the management. Furthermore, consumer behavior and satisfaction with regards to the product/service procurement is also a risk. If the company will continue to be a vertically integrated corporation, the company may fail in terms of management ability. The division of the company may tend to have internal complexity. Additionally, fast paced technological advancement may be a threat to Ryanair as a whole. In terms of the competitors, the company should be able to provide unique and more technologically advanced services to be able to survive in the competition in the world airline industry.
OPTIONS FOR FUTURE DEVELOPMENT
Ø Generic Strategy
Aside from it cost-reduction strategy, Ryanair has also been able to use Porter’s generic strategies to position itself in the marketplace. Accordingly, a company positions itself by leveraging its strengths. Today, more and more people and organization are striving to be recognized in the business arena. With this objective, these organizations had been able to competently and effectively adapt to the situation in the market place by using generic strategies that enhanced their competitiveness. There are five different generic strategies that a business can choose.
These include cost leadership, differentiation, focused cost leadership and integrated cost leadership/differentiation. Each generic strategy helps the company to establish and exploit a competitive advantage within a particular competitive scope (Hitt, Ireland and Hoskisson 2003). By applying these strengths, three generic strategies are resulted: cost leadership, differentiation and focus (Johnson and Scholes 1997). The strategies used by the company include cost leadership, differentiation strategy and focused differentiation.
Cost leadership strategy is based upon a business organizing and managing its value-adding activities so as to be the lowest cost producer of a product within an industry (Campbell 2002). Cost advantage may achieve in terms of how product or services is designed or in terms of its quality. Differentiation strategy is based upon persuading customers that a product is superior to that offered by competitors (Campbell 2002). The value added by the uniqueness of the product or services may allow the company to charge a premium price for it. However, the danger associated with differentiation may include imitation by competitors and changes in customer tastes.
Focus-differentiation strategy is aimed at a segment of the market fro a product rather than at the whole market or many markets (Campbell 2002). The successful way using focus strategy is to tailor a broad of product or service development strengths to a relatively narrow market segment that they know very well. The risk may include imitation and changes in the target segments. In the case of Ryanair, these three generic strategies had been utilized. First, the company offers the lowest cost of fare than its competitors in the airline. On the other hand, Ryanair has also become a focuser because it concentrated on a narrow customer segment which include Irish and UK business people or travelers who could not afro to fly major airlines.
The main goal of the company is to provide a no-frills service with low fares designed to stimulate demand. At the time, it did not aim to offer the lowest fare on the market. However, the company expanded to continental Europe and had to focus on critical success factors to survive. Nowadays, it can be said that Ryanair has shifted generic strategies to become more of a cost-leader not only in terms of passenger volumes but being the lowest cost operator in the airline industry. Ryanair has restyled itself and shifted from a full service conventional airline to the first European low-fares, no-frills carrier. In 1985, it provided scheduled passenger airline services between Ireland and the UK. By the end of 1990 and despite a growth in passenger volume, the company had experienced some trouble and had to dispose of five chief executives, recording losses of IR£20 million. Ryanair had to fight to survive and the new management team, headed by Michael O’Leary, decides to restyle the company on the model of successful American Southwest Airlines.
Indeed, when one considers Porter’s original framework, Ryanair’s generic strategy used to be unclear as it situated itself somewhere between a cost leader and a focuser, although we can consider it was closer to a focuser. The problem with such niche strategies is that they involve a number of risks, the most obvious being that the niche can get saturated and competitors invade the segment. As long as Ryanair was the only European no-frills airline, it did not have to distinctly define its strategic position. It used to try and mix focus and cost leadership and was muzzy about which one it wanted. But as soon as competitors started blooming, it had to decide which strategy
it would stick to. This was the very strategy of Michael O’Leary as he decided to ruthlessly pursue cost leadership. This strategy was a success and by 1997, Ryanair was floated on the Dublin Stock Exchange and on NASDAQ.
Expansion strategy is another factor that enables Ryanair to position itself in the marketplace. The company has been known to be an airline which launches new routes since its operation begins. In addition, under the expansion strategy, company acquires Buzz in February 26, 2003. Such acquisition enables Ryanair to gain immediate access to11 new French regional airports and makes the company the largest airline operating at London Stansted Airport. It also continues to expand by opening two new Continental European bases with low-fare flights from Milan, Bergamo and Stockholm. Ryanair launched 73 new routes and carry over 2 million passengers in one month (July) of 2003. In addition, the company website has been able to make the company position itself in the global market.
Ø Ansoff’s product-market matrix
The major service offered by Ryanair is low-cost, no-frills air travel services. This service of Ryanair has been recognized because of its strategic market penetration which includes branding and the use focus differentiation and diversification. With this, the company has been able to have a new market segment from different customer segments. In order Ryanair to enter in this marketing arena, the company used the concentric diversification. Concentric diversification is the expansion of a certain industry through diversification into a related industry (Hunger and Wheelen 1996). The market segmentation of the company includes those clients form residential, commercial, and industrial and other potential customers. The summary of the analysis of Ryanair using Ansoff’s Matrix can be seen in the Appendix section.
EVALUATION
The industrial competitions in airline industry worldwide are at brisk, making companies in this field across the globe search for extensive strategic management procedures that would keep them in on the business world. The tasks of crafting, implementing, and executing company strategies are the heart and soul of managing business enterprise. A company’s strategy serves as the game plan management and is use to stake out a market position, conduct its operations, attract and please customers, compete successfully, and achieve organizational objectives. In terms of suitability, the opportunities of Ryanair are definitely directed to growth. This is based on the company’s on-going strategic planning and management efforts. Further, by exhausting the company’s research and development (R&D) efforts, the potential future strategies are feasible. By looking on the financial framework of Ryanair, it could be deemed that the company is able to carry out such strategies, while maximizing returns, enhancing profitability and minimizing risks. Lastly, the acceptability of such strategies meets the expectations of the stakeholders as proven by the deliberate support coming from all areas of the management. The belligerence of corporate efforts towards development indicates a high level of acceptability in all areas concerned.
RECOMMENDATION
The Critical Success Factors (CSFs) of Ryanair relies on the strategic focus of having the lowest prices, reliability, comfort and service, and frequency. It is recommended that the company must be able to use or impose a strategic management system that will help them enhance their operations. Also, Ryanair must not only focus on its strengths but must try to also pay attention on weaknesses and find solution to solve issues and maintain a competitive business operation and performances.
The Impact of Effective Corporate Governance Systems and Processes on Company Conduct and Performance
The conditions of the global marketplace as well as economy require organizations to evaluate all aspects of their operations. More often than not, the ability of a business to stay long in the industry where it belongs is the measurement of its success. This is synonymous to survival as a necessity and ability to compete using appropriate marketing and management strategies so as to overcome business challenges. This idea continues to direct the activities of business into the 21st century (Paley 1999). The trust, honesty, responsibility, integrity and accountability between transacting business firms and organizations are values which serve as the key foundation of gaining credibility and good position in the international arena. Hence, standardization of the code of ethics in the corporate world was realized and enacted through the legalization and enforcement of laws and policies that will protect the interests of business establishments. Such legal move resulted to the proper attitude and behavior among business organizations with business transactions thereby decreasing the number of business-related cases filed.
Meanwhile, significant changes in the perception, management, and impacts of corporate governance on businesses have been developed in the earlier years. The term corporate governance was coined in the 1980’s (Kay and Silberston 1995). At present, a significant body of literature provided by business authors and policy-makers recognize corporate governance and its impacts on businesses in a purposeful standpoint which requires suitable interventions in designing of alternative organizational coping measures. Corporate governance has become one of the main components in the operations of organizations. With the proliferation of worldwide companies on the notion of effective corporate governance, it is then important to illuminate on the impacts of effective corporate governance systems and processes on company conduct and performance.
Basic definitions
According to Stapledon (1996) and Cadbury (1992), corporate governance is briefly defined as a system that is used to direct and control companies. It is a set of established policies that directs the ways in which an organization or company is managed, governed or operated. This reinforces the claims made in the introduction of this paper regarding corporate governance as a main component in the operations in a corporation. Looking at the definition of Stapledon and Cadbury, it appears that the commission of corporate governance is given to the top level management employees of an organization. Similarly, Zingales (1998) made the definition of the term even broader by stating that corporate governance pertains to anything that has affects the previous post bargaining power over the generated value for the firm. By providing this definition Zingales recognized that conflicts between the large shareholder, small shareholder and management can arise brought about by unforeseen factors before the creation of the contract. As such, corporate governance constitutes the rights entitled to certain parties for the resolution of the disputes. Shleifer and Vishny (1997) considered corporate governance as an institutional arrangement. In addition, it is being assumed that that corporation’s suppliers of finance guarantee themselves that proper return of investments are viable. For Shleifer and Vishny, they view corporate management as a means of protecting the interests of a company’s shareholders. Given the directing and controlling attributes of governance, it is basically given to the directors and executives of the firm. Aside from the effectual execution of the organizational processes that are necessary in satisfying customers, employees, and management itself, corporate governance is centered on the careful administration of the processes involved particularly on the relationships among all the stakeholders (Bhattacharya 2000). Normally, the structure is composed of a board of directors, which is similarly made up of executives and non-executive members of the firm (Detomasi 2002).
Role of executive and non-executive directors
The executives of the firm include those who are involved in the daily operations of the organization. However, there is still a question why such activities have to exist in an organization. Detomasi (2002) noted that the function of the board of directors in corporate governance is to fundamentally examine the strategy of the company in general. This could be carried out through probing for weak points in the organizational functions and operations and by retrospectively studying the previous decisions made by the company. In so doing, corporate governance ensures that the company still possesses their competitive position in their respective industry (Detomasi 2002). Meanwhile, the role of non-executive directors is inherent to the specific functions of identified areas of the organization. They provide continuous feedback in relation to company performance. The direction and control of the company is specified by the distribution of responsibilities as well as rights among the parties involved (OECD 1999), which includes managers, board members and other stakeholders.
The focus on the narrow application of corporate governance on the structure and functions of the board as well as the prerogatives and rights of the shareholders in participating in the decision making process was proposed by Blair (1995). However, in order for this to be effective, several elements should be present in a setting of the company. Detomasi (2002) indicated that a strong public policy regarding governance should be established in a specific setting. This means that laws and legislations with respect to reporting, auditing and other financial activities should be specified in the legal system. Another element identified is the existence of a sturdy and well-built regime for practicing internal governance among the companies themselves. This means that in order for corporate governance be effective, the top level management personnel should be knowledgeable and well-trained in such a way that their actions are still in the bounds of the established legislation of the land. Lastly, Detomasi (2002) indicated the need of a network of independent auditors that would serve as the needed link and check of corporate governance in general. This means that an independent body is required in order to monitor whether the actions of the top level management of companies do complement what the legislators have created, particularly the regime governing corporate governance as a whole.
Relation of Corporate Governance to Corporate Purpose and Business Ethics
Corporate governance best explain and provide understanding of the relevance of maintaining good business relationship especially among global corporations where cultural orientation and political standpoint provide distinctions among participating bodies. The concept of corporate governance enhances the confidence of foreign investors, thus promoting competitive market play and improving economic conditions. It primarily deals with the roles and responsibilities shouldered by board members and directors in efficient and effective business management and accountability. The challenges that corporate governance presents deal with sustaining balanced relationship between transacting businesses, maintaining stability upon legislative and regulatory reforms while accounting its impact on the international business relationships in order to enhance business activity and competitiveness as well as stimulate investment flows.
According to Oman and Blume (2005), a country’s system of corporate governance comprises the formal and informal rules, accepted practices and enforcement mechanisms, public and private, which together govern the relationships between people who effectively control corporations on one hand, and all other who may invest resources in companies located in the country, on the other. Well-governed companies with actively traded shares should be able to raise funds from non-controlling investors at significantly lower cost than poorly governed companies because of the greater risk premium such potential investors can be expected to demand for investing – if they accept to invest at all – in less governed companies.
Much of the recent emphasis on corporate governance has arisen from high-profile corporate scandals, globalization and increased investor activism. Recent new legislative and self-regulatory corporate governance requirements have helped to instill global market confidence. The Institute of Chartered Accountants in England and Wales (2005) includes improved integrity and oversight of management, scrutiny over board composition and independence, effective use of internal and external audit functions, higher levels of disclosure and transparency and greater engagement with investors. Corporate governance looks at the institutional and policy framework for corporations – from their very beginnings, in entrepreneurship, through their governance structures, company law, privatization, to market exit and insolvency. The integrity of corporations, financial institutions and markets is particularly central to the health of the economies and their stability (Oman and Blume 2005).
Corporate governance must be seen in the context of product competition, market factors and macroeconomic policies. As such, corporate governance is also dependent upon institutional, legal and regulatory environments (Roe 2000). This being the case, factors such as the ethics, societal and environmental awareness can affect the long-term success of a company (Chen and Cheng 2007). The concept of corporate governance summarizes the need to maintain good business operations while considering the significance of improving the relations between companies and shareholders, establishing long-term business transactions in ensuring that the interests of all stakeholders are protected.
Reasons for the growth of interest in the subject
The need to have a solid management body armed with the most effective governing skills that adopts in the emerging business trend is one of the most compelling reasons in which corporate governance is widely accepted. With the goring importance of honest and ethical corporate structure, more and more business are attracted to the idea of systematic and humanistic system of administration. Since corporate governance covers the issues of interest especially the resolution of conflicting ones, corporate governance it related to the over-all performance of a company. With the resolution or impediment of internal conflicts, smoother decision-making and decision implementation can be secure. This means that interests of the stakeholders are the same, they will be able to work as one body in order to achieve their objectives and thus uphold their respective interests within the organization.
How Governance operates in an organization
Provided that corporate governance protects the injection of self-interest among stakeholders, governance operates within an organization by serving as among the main mechanisms in directing and controlling processes. It is seen on the definitions provided in the previous discussions. Through corporate governance, the set of organizational objectives is pursued and sustained, thus resulting to increased productivity and performance.
Why it is of interest to diverse stakeholder groups
The need to provide sufficient knowledge on the search and experimentation of the most effective strategies to be implemented within an organization requires diverse stakeholder groups to pay particular attention on the idea of corporate governance. Aside from the fair and ethical protection of individual rights, it reflects on the maximum application of valuable corporate resources. Jobber (1998) reports that corporate governance systems are being implemented within diverse stakeholder groups for the purposes of determining the most valuable ways to manage essential business resources through the utilization of methodical methods as result of empirical studied taken among various fields of application.
Examples of good practice
Good corporate governance can be observed when the proper incentives are provided to the Board and the management in order to ensure the pursuant of the organizations’ objectives and upholding the interest of the company and its shareholders. In addition, good corporate governance also sees to the efficient use of resources. These criteria of good corporate governance entail the prevention of damage to the interest of the parties involved. Logically, corporate governance is associated with the performance of the organization.
Even though, the definitions and criteria presented above are concerned with businesses. It is evident that the most of the definition and conditions of corporate governance is applicable to other forms of organizations. This is the case since the organizational structure used in most of the definitions is nonspecific in a sense. The presence of the Board and other stakeholders can also be observed in other organizations such as educational institutions, for example.
The premise of governance is based on the manner of operation, may it be an organization or society. From the Latin root of the word governance itself, which is steering, it can be stipulated that governance is generic regardless of the nature of the organization since the main objective of governance is to serve as a guide. All organizations, profit or non-profit, need guidance in order to achieve their objectives.
However, variations may be seen depending on the set objectives that need to be attained. Differences in the kind of governance being implemented can vary based on what the organizations holds as its top priority (IFC and OECD 2005). Stapledon (1996) also indicated in his work that there are several corporate sectors that provide a generalization of specific types of corporate governance feasible. The corporate sectors of the U.K. and U.S. as well as Germany and Japan as among the countries that share notable features which is similarly comparable to other countries. This means that their considerations will also vary and thus the variations on the kinds of governance implemented. Nevertheless, the aim of governance, which is to lessen the cost of conflict between stakeholders holds true for any type of organization since all organizations are composed of stakeholders.
Examples of bad practice
The absence of good corporate governance can lead to the worsening of conflicting interests. Each of the stakeholders has the tendency of agreeing with decisions they think will be beneficial to them, even though, it does not equivalent to the welfare of other stakeholders. This means that various corporate players can assert their own views and perspectives. As such, the organization will no longer function as one instead selfishly directed.
The stench of distrust and irresponsibility reeks from companies with poor corporate governance. These characteristics lead to companies paying a higher price than they expected. One of the business organizations that were unfortunate to experience this scenario is ENRON, U.S.’s largest bankruptcy and stock collapse (Fox 2003). The collapse of ENRON was being attributed to poor corporate governance. This is the case since the fall of ENRON was due to illegal practices such as inside trading. When the story of ENRON’s illegal activities were made public, investors became wary and as such, the inflow of capital stopped.
It is due to corporate scandals like that of ENRON that shareholder activism increased (Ariff 2005). They were demanding for changes in management as well as aggressive enforcement of laws and regulations. These moves by shareholders were supported by national governments by introducing more strict laws and regulation that calls for better corporate governance such as Thailand SET Guidelines 2001, Singapore Rules 1998, Japan Code 1998, Indonesia Code 1999, Malaysia Code 1999, Korea SE Act and Commercial Code 2000, and Hong Kong Code 1993 (Ariff 2005).
All in all, corporate governance mainly works on the most effectual control and management of organizational operations. Aside from protecting stakeholders’ rights, it also focuses on the guaranteed achievement of organizational objectives leading to outstanding corporate performance and profitability. Thus, the emerging culture of effective corporate governance among modern companies is directed to a competitive company conduct and performance.
Credit:ivythesis.typepad.com
0 comments:
Post a Comment