Internal Audit of Ryanair Essays

Internal Audit of Ryanair Essays Internal Audit of Ryanair Paper Internal Audit of Ryanair Paper This paper is to examine the key potential drivers within the present internal environment. Several models would be applied to support the answer and they are Stakeholder Power/Interest Matrix, Cultural Web, Resource audit, Value Chain, and threshold and core competences. With using Ryanair as an industrial example, this essay would talk about how important strengths and weaknesses are to be used in designing strategy. Ryanair was founded in 1985 by Tony Ryan who already died in 2007. It was originally a full service airline and turned into a low-cost carrier in 1990s. Ryanair used a series of cost-cutting policies to attain to the target as its mission statement (Ryanair Annual Report, 1999): â€Å"Ryanair will become Europe’s most profitable, lowest cost scheduled airline by providing its low fares/no frills service in all markets in which it operates to the benefits of our passengers, people and shareholders† Ryanair is now the largest low-cost carrier in Europe and is controlled mainly by the chief executive officer, Michael O’Leary. The following would be the further explanation of the key potential drivers within its current internal environment. Figure [ 1 ] Stakeholder power/interest matrix adapted from Mendelow (1986) Stakeholder mapping help identify stakeholder expectations and power and help in understanding political priorities. (Mendelow, 1986 cited in Johnson et al, 2011) The mapping shows Michael O’Leary and David Bonderman are the main facilitators of the strategies. Their power and interest in Ryanair is so large to be the key player to influence the strategies. EU and BAA this kind of official authority could possibly be the blocker of the strategies as they are the rule setter. Ryanair’s strategies should follow their regulations. In addition, customers’ expectation should be most considered since they have highest expectation on Ryanair’s performance. Manager could thus realize which internal or external stakeholders are needed to be more considered when they carry out a new strategy. Meanwhile, the purpose of a new strategy should be designed to satisfy the stakeholders. Figure [ 2 ] Cultural web adapted from Johnson et al (2011) Cultural web shows the behavioral, physical and symbolic manifestations of a culture. Johnson et al, 2011) It centers the paradigm associated with six surrounding components which are story, symbol, power structures, organizational structures, control system, and rituals and routine. The cultural shows all the historical culture of Ryanair and managers can thus realize the current environment. It is mainly reflecting its reliance on the top level as well as that Ryanair target so much on â€Å"low cost† and â€Å"high efficiency†. The paradigm largely remind the managers of the missions of Ryanair when they are thinking of a new strategy. Organization culture Figure [ 3 ] Value chain adapted from Porter (1985) The value chain describes the categories of activities within an organization which, together, create a product or service. (Johnson et al, 2011) It helps the manager understand that its best value would be found in the operatio. Basically customers who usually fly with Ryanair would mostly be interested in its low-fare ticket so, as a low-cost carrier, Ryanair mainly add value to its product through packaging in the cheapest way. Simultaneously, Ryanair keeps other primary activities common to its competitors so it will not be outperformed easily. Additionally, human resource and procurement would be th e most value-adding supporting activities of Ryanair. Through long-term outsourcing some of the operations such as baggage handling, car hiring, insurance and etc. to the third parties, and contracting with suppliers so as to get certain discounted price, Ryanair could lower the cost of its operation and supported hardware. Constantly, Ryanair further cut its operational cost by recruiting limited staff and offering low-cost training. These kinds of cost-cutting policies would be able to add value to its products and could hardly be imitated or duplicated by its competitors. Hence, the value chain could clearly show that Ryanair’s competitive position is highly related to its low-fare products. Resources are the assets that organizations have or can call upon (e. g. from partners or suppliers); competences are the ways those assets are used or deployed effectively. Johnson et al, 2011) For the physical resources, Ryanair currently has 272 Boeing 737-800 in operation. It is headquartered and owns Ryanair Direct limited in Dublin. Current assets could be considered one of financial resources and the rest would be current liabilities, long-term debt and shareholders’ funds. Human resources include over 8,000 people working around the world, Michael O’ Leary, who is the chief executive officer and David Bonderman, who is the chairman of Ryanair. Intellectual resources of Ryanair would be its own webpage. Threshold competences are those needed for an organization to meet the necessary requirements to compete in a given market and achieve parity with competitors in that market. (Johnson et al, 2011) 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 service out, using secondary and regionally airports. Core competences are the linked set of skills, activities and resources that, together, deliver customer value, differentiate a business from its competitors and, potentially, can be extended and developed. (Johnson et al, 2011) A core competence must fulfill the following three criteria, a core competence gives a company the opportunity to enter different markets; a core competence must provide a significant contribution to the advantages a customer has with a given product; a core competence must be difficult for a competitor to imitate. Hamel Prahalad, 1994) Quick turnaround time is one of the aforementioned targets Ryanair is focusing on. It lets passengers walk straight out through the front and back exit or entrance, and does not use the air bridges. Simultaneously it does not offer any pre-assigned seats so more possibly passengers are ready at the gate before the boarding time to choose their preferred seats. These are all arranged in order to quicken the procedures that fli ghts get ready to disembark or embark the passengers. Additionally, it does not serve free food and drink on-board so as to speed up the cleaning process as the cabin crews could finish the cleaning more quickly during stops and complete cleaning would only be done at nights. This could not be achieved by full service airlines because of more debris and possibly trade union resistance. (Shaw, 2004) A unique cost cutting policy would be the main core competence of Ryanair. It refuses to provide any meal vouchers or hotel accommodation for flights which are delayed or cancelled for reasons beyong Ryanair’s control in order to reduce the operating cost. Ryanair, 2011) Meanwhile, Ryanair is using LFA business model to design the size of its flights’ seats which are 30-inch tall while an economy class seat of a full service airline usually has a seat pitch of 32 inches. (Doganis, 2001) For instance, Ryanair fits 189 seats into its Boeing 737-800 (Ryanair, 2011) while KLM fits 171 seats (KLM, 2011) and Qantas fits 168 seats into their Boeing 737-800. (Qantas, 2011) Higher seat density could thus generate a potential cost advantage. Strengths and weaknesses could be summarized from the above key internal drivers. By understanding the strengths and the weaknesses, managers could think about the strategic capability of Ryanair so as to overcome the business environment and thus design the future strategies to outperform its competitors. (Bladwin, 2008; Johnson et al, 2011, p. 106) Strengths of Ryanair could be high efficiency of its service, quick turnaround time, low-fare ticket, comprehensive internet service and ancillary services. However, low-class service would be a weakness of Ryanair as it provides no in-flight meals, entertainment, multi-class seating and other amenities. In addition, Ryanair’s service is mainly offered in less conveniently located airports. Booking possibility for flights is limited in travel agencies. Simultaneously, Ryanair has no links with other flights provided by different airlines. Existing strategy of Ryanair would be of the direction of market penetration (Ansoff, 1957). Ryanair would consolidate to defend its market share in the face of the intense competition of the airline industry since there are three recent large airline mergers, BA-Iberia, KLM-Air France and Lufthansa-BMI. Ryanair is trying to cut out the less profitable routes, reduce unprofitable winter capacity at high-cost airports such as Dublin and London’s Stansted. Constantly, Ryanair focused more on the more profitable routes by flying more frequently and charged more by its unique cost-cutting policies. According to the PIMS (Profit Impact on Market Strategy) findings, high volume and particularly high market share can lead to lower overall costs and higher profitability (Russel Gale, 1987)