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Introduction:
The airline industry in the UK has been constantly changing since the deregulations within Europe in 1993. The short-haul flights for the UK market accounts for the 72.5% of sales in 2006, worth 6.3 billion. This dynamic sector of short-haul flights has achieved a growth of 14.54% over the year 2004-2006 (Datamonitor, 2007). RyanAir has emerged as the major low cost, no-frills airline in the European airline industry, whose origins are from Ireland. The company started operating in 1985 and entered the UK market in 1993 when it reinvented and re-launched itself as a low-fare carrier after rationalizing its route networks and aircraft fleet.
The current report has been aimed at analyzing RyanAir from system's perspective and proposing cultural change for the company in the light of external business environment. In order to achieve the aim of this report, the basic objectives are to create system's diagram for RyanAir and highlight advantages and disadvantages of using system's perspective; to examine RyanAir's control over its environment; and lastly to analyze and recommend cultural change in the company to become more effective.
Organizational Context:
RyanAir is provider of low-fare, no-frills, and point-to-point scheduled passenger services on short-haul routs between the UK, Ireland and mainland Europe. Drawing upon Euromonitor (2007), it should be noted that the airline currently serves 487 European destinations with the help of an impressive fleet of more than 120 Boeing 737-800. It has also been highlighted by RyanAir (2007) that the currently the company carries approximately 42.5 million passengers across these routes through 20 European bases. The core competencies of the company involve lean business model, cost cutting, e-ticketing, and outsourcing peripheral tasks. These competencies have lead to a competitive advantage to the company that has resulted in revenues of E2,236.9 million during the 2006-07 fiscal year, an increase of 32.2% over last year (Datamonitor, 2007). The revenue increase has also been reflected in net profit that has increased 42% since last year to become E435.6 million during 2006-07 fiscal year (Datamonitor, 2007).
Systems Perspective:
The literature has highlighted that system thinking is an approach that considers the adaptive whole, i.e. the whole entity that survives and adapt in a turbulent environment (David, 1995). It should be noted that it is an epistemological concept, which has its roots in reductionism (Ho & Sculli, 1994). Reisman & Oral (2005) have defined systems as ?an organized, unitary whole composed of two or more independent parts, components or subsystems and delineated by identifiable boundaries from its environmental subsystems? (p. 165). Literature has suggested that systems perspective of organizations addresses the difficulties associated with sustainable strategic management by directly involving people and their perceptions of systems into the process. Systems perspective of organizations can be explained with the help of following illustration:
RyanAir from System's Perspective:
The company reinvented its business in 1993 with the concept of eliminating travel agents and removing peripheral services. According to Tarry (2004), the concept was radical and untested at that time, but proved to be successful with the help of digital technology and the effective use of the growing mediums like internet and mobiles. The company challenged the traditional business models by following the concept of reaching the consumers directly with a cost containment manner i.e. through internet. This allowed the management to offer airline tickets at the cheapest possible fares and in an elastic industry like airline the model found a fit with the huge demand for cheap point-to-point travel. This, according to Pender & Baum (2005) was coupled with the favourable macro environment conditions like deregulations of the European Airline industry and expansion of EU, helping in standardization of procedures.
In order to illustrate RyanAir from a system's perspective, researcher has used tools like rich pictures (Checkland, 1981) and value chain (Porter, 1980). The use of rich pictures in conceptualization of the Ryanair is the first step towards understanding of ?messy' and complex internal situation. Value chain has been described by Porter (1980) as the link between the values of activities of an organization with its main functional parts. It is a strong tool recommended by researchers as it attempts to make an assessment of the contribution that each part makes to the overall added value of the business. The following illustration highlights the core business aspect of RyanAir from system's perspective.
The systems diagram highlights the e-commerce strategy of the company that has its roots in the year 2000 when the company sold its first ticket online at ryanair.com and the management introduced the cost cutting initiatives like reverse auctions, check in kiosks, real time pricing and fuel hedging. These steps show the high inclination of the company's promotional and marketing mix towards using the expanding medium of internet to eliminate travel agents. The company's business model can be defined as three pronged i.e. customer focused, owning markets and cost reduction. These three characteristics are exhibited by the company with the following features:
* low fares;
* high frequency flights;
* point to point service;
* no free meals or drinks on board;
* no seat assignment;
* short-haul flights; and
* flights to secondary airports
The use of internet has a high penetration within EU and especially within the UK. According to the latest official figures from the Office of National Statistics (ONS) (2007) indicate that subscriptions to the internet has grown more than 50% from 15 million in 2000 to 35 million in 2006. It has also been estimated that 60% of the population in UK use internet in their daily lives. This shows the growing importance of the medium and therefore e-commerce was found to be a strategically aligned phenomenon for RyanAir to use for reservation and distribution of its tickets. Over 90% of all seats on RyanAir flights are sold through ryanair.com and affiliate websites, making the airline one of Europe's biggest internet retailers.
Ticket-less travel has also helped the company to reduce its costs. RyanAir passengers receive emails containing their travel details when they book seats on the company's flights online. Ticket-less travel helps to reduce RyanAir's costs as it eliminates the cost of issuing, distributing, processing and reconciling millions of tickets each year. Other ways in which RyanAir reduces costs include not serving meals to passengers on its flights and undertaking paperless back-office operations due to the company's state of the art ERP system.
Advantages of Systems Perspective:
The use of rich pictures in conceptualization of the situation has been the first step towards understanding of ?messy' situation. In the light of analysis of RyanAirs based on systems thinking and methodology, it can be reflected that ?rich pictures' were found to be better medium than linear expressions in order to conceptualize the complexity of multiple interactions of systems within the organization. It has been noted that the use of systems perspective can facilitate the task towards developing a new outlook by incorporating characteristics and factors ignored by other strategic management methodologies and frameworks. Drawing upon Jacobs (2004), it can be highlighted that recommendations developed in the light of systems perspective challenged prevailing attitudes and assumptions of many industries.
It has been suggested by Waring (1999), that strategists usually ignore some important interrelations, contexts and vulnerabilities within organizations and their macro environment, while dealing with planning related issues. Christis (2005) has also indicated that having simply holistic view is not enough to create a sustainable competitive advantage for organizations. The analysis drawn for RyanAir has highlighted that systems perspective provides a way to conceptualize complex problems through interplay of external and internal players, thus overcoming these limitations of traditional ?reductionist' approach where problems are tightly defined as cause and effect analysis.
It can also be inferred from the analysis of RyanAir that systems perspective provides an opportunity to accommodate turbulent environment with the help of a range of solutions. Bergvall-Kareborn (2001) has suggested that the flexible approach of systems perspective towards ideal solutions depend upon who is judging the system, which therefore provides an opportunity to accommodate the needs of multiple stakeholders. Mingers (1990) has also agreed and further indicated that this methodology creates multiple satisfying alternatives to same situation, along with emphasising changing nature of systems and their environments.
Limitations of System's Perspective:
Flood & Jackson (1991) have critically analyzed the basic assumptions on which systems perspective have been developed. They have highlighted that the interpretive theory on which systems perspective is based in fundamentally restrictive in nature. Grundy (1990) has agreed by suggesting that this gap in systems perspective has led to the development of critical system theory (CST) which is based on more participatory action research. Flood & Jacson (1991) have also criticized the conclusions drawn through systems perspective, which suggest aiming for changing people's world view in order to create a social change. On the contrary, the research and application of systems perspective on RyanAir has revealed that it is open and in a never ending flux between interrelations and perspectives thus underpinning multiple paradigms. It has also been found that systems thinking did not impose any restrictions to limit the recommended transformations only at the level of world view.
Another criticism stems from the fact that systems perspective preaches involvement of all stakeholders in defining problems and therefore suggests that solutions resulting from the methodology should satisfy all the actors (Basden & Wood-Harper, 2006; p. 64). Jackson (1990) has also highlighted this point and stated that the only justification of using systems perspective is when the recommendations are agreed upon by all stakeholders involved and affected. Bergvall-Kareborn (2002) has therefore raised concerns that in a social and complex situation reaching an agreement by all actors can be problematic due to conflicting interests and power distribution factors, therefore reaching a solution through systems perspective can be unattainable. The critics have therefore argued that participation from key actors and stakeholders can change the outcome from methodology. Winter (2000) has suggested that systems perspective will serve those with power in case of restricted participation of all the actors involved in a transformation. These power-related criticisms can not be judged through the case of RyanAir, but Woodhill (1993) has highlighted the challenges faced during implementation of transformations resulted through systems perspective in a network of different organizations with no single power authority. Thus it should be noted that the analysis presented in this report as a result of the application of systems perspective on RyanAir might be confronted with power related issues if undertaken by different members of the organization.
Prisoner or Master of Business Environment:
The airline industry in the Europe has been constantly changing since the deregulations within Europe during 1993. The European airline industry is considered mature and it has been established that the top 10 companies dominate the market. The leading players, according to Mintel (2006) include Air France KLM, British Airways, Iberia, Lufthansa, SAS, RyanAir and EasyJet. Since the deregulation, budget airlines have started consolidating their growth across different routes across Europe. It can be suggested that growth of budget airlines have been fuelled by factors such as use of out of town airports, no-frills service, ?lean' structures, single class cabins, use of single aircraft types, high-frequency operation, direct selling, simple form of distribution and ticket less services. The strength of budget airlines has been the revolutionary operational use of internet in direct selling of tickets, online bookings and e-tickets. The use of internet has created a competitive advantage in the form of abolishing commission from travel agents and live updates on air fares according to particular flight bookings.
It has been seen that over the period of last decade, the firms competing in the industry have adopted defensive or offensive strategies in order to create a defendable position against these budget airlines. The literature has shown three major channels of profitability in any industry, i.e. the price of the products sold; the volume of the sales; and the cost of products sold (Lynch, 2003). It can be summarized that the three main concerns for the traditional airliners are: price reductions due to harmonization of European market; rise in oil prices; and increase in price conscious consumers. These have impacted on lowering revenues of traditional carriers while budget airlines have managed to survive and flourish in these conditions, which can be depicted as follows:
According to Porter (1985), a firm can gain competitive advantage if it is able to create value for its buyers. Companies can provide this superior value by offering products / services that are lower in prices than that of their competitors, or by offering benefits that are so unique that consumers are willing to pay a higher price for them. The former generic strategy is called the strategy of ?cost leadership? while the latter is labelled the strategy of ?differentiation?. RyanAir has shaped its strategic position originally as a low cost point-to-point airline, offering reduced fares in comparison with full-line airlines with minimal peripheral service. Therefore it can be suggested that this low-cost leadership corporate strategy of the company made it the master of its business environment as it was proactive and shaped the current industry structure. Although currently it maintains a low-price stance, its competitive advantage is deteriorating from main-line competitors that have adopted focused cost-leadership and differentiation strategy by mixing the best of both worlds. However, the company is being reactive to the current market conditions and tactically adjusting its low-cost leadership strategy and hence becoming the prisoner of the business environment. The corporate strategy of RyanAir can be represented with the help of Porter (1985) generic strategies categories as follows:
RyanAir's Organizational Culture:
There has been many competing definitions for organizational culture in the management literature, however the one that is most commonly quoted is that ?it is a complex set of values, beliefs, assumptions symbols and styles that define the way in which a firm conducts its business? (Barney, 1986). Chorn (2001) has highlighted that there is a strong correlation between organizational culture, management style prevalent in the organization and employee behaviour towards achieving strategic goals. Moreover, it has also been highlighted by Lynch (2003) that management style is one of the key ingredients towards achieving strategic aims and objectives of any organization. Therefore, it can be concluded that the shared values and culture are significant players in motivating employees to achieve the strategic direction set forth by top management.
In case of RyanAir, the company has its roots in the Irish culture and its corporate culture has evolved but the core values are still influenced by the regional culture. This geographical association of the airline can be analyzed under the dimensions discussed by Hofstede (1980) in his studies. The lines have been drawn as a subjective analysis for the Irish cultural impact:
The company has, however updated its values a number of times with changing business environment to reaffirm its strategic position to all its key stakeholders. The organizational culture that has stemmed out of this unique combination of Irish culture and RyanAir values can be suggested in the light of categories presented by Handy (1993) as ?power' culture. The power culture can be seen as inducing standardization of operations across the RyanAir's bases, which has resulted in benefits through economies of scale. Drawing upon Chorn (2001), it has been highlighted that organizational culture has a significant impact on management style that result in four broad categories of behaviour within employees i.e. innovative, entrepreneurship, administrative, or integrative. The current ?role' culture has been translated into an administrative yet performance oriented behaviour of the employees in the company and can be represented through ?Gottarna Cultural Map? (Chorn, 2001) as follows:
Ryanair's Current Culture Quantified
Proposed Cultural Change:
The ?power' culture that is the dominated form of corporate culture at Ryanair has resulted in a number of issues for the company in recent years. Drawing upon Datamonitor (2007), one of the main issues arising from such administrative and restrictive culture is that there have been a number of union disputes. In 2006, there were strikes of RyanAir staff at Girona airport backed by Spanish CCOO trade union, which was aimed at highlighting the working conditions of ground staff (Euromonitor, 2007). There was another incident at Brussels Charleroi airport with potential strike by the security staff working for RyanAir that resulted in cancelling and re-routing of many flights (Euromonitor, 2007). Such incidents highlight that the current restrictive culture is having its toll on employees and can be source of major disadvantage for the company in the long-run as skilled staff will have a high turnover.
Another reason for the cultural change at RyanAir can be seen from the fact that company has become reactive to the changes in current business environment. Drawing upon Chorn (2001), in order to have a competitive advantage that can be sustainable for longer period of time, the companies should have a strategic alignment between their external and internal environment. The most important external player can be seen as the market environment, while the internal players can be seen as strategy, culture and leadership style. According to the ?best fit' approach (Handy, 1994) and ?strategic alignment' (Chorn, 2001) approach, these external and internal characteristics need to be aligned. The changes in business environment show that RyanAir's corporate culture does not have a ?best fit' with it and therefore is resulting in deterioration of competitive advantage of low-cost leadership gained over a number of years. It is therefore proposed that in order to have effective and proactive business strategy that is aligned with the current turbulent business environment; the company should adopt ?role' culture (Handy, 1993). The role culture will translate into inducing a sense of responsibility among employees along with a degree of creativity towards achieving efficiency and effectiveness in their role. This proposed change in the corporate culture can be illustrated as follows:
Ryanair's Proposed Culture Quantified
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