MANAGEMENT1 Question 1) Ryanair’s distinctive resources & capabilities and VRIO Framework Introduction Ryanair is one of the Europe largest airline group founded in 1984 and currently having its presence in more than 40 nations on a fleet of over 470 aircraft. With a team of more than 19,000 highly skilled aviation professionals, Ryanair entitles itself as Europe preferred airline and the world’s prime international carrier in terms of passengers (corporate.ryanair.com, 2019). Ryanair annual revenue raised at nearly 7.7 billion euros in its 2018-19 fiscal year and this growth has been reflected due to rise in the number of passengers and this makes Ryanair 5thin relation with largest airline groups by passengers number globally and also the foremost carrier in Europe (statista.com, 2019). In relation with VRIO framework, it is one of the tools used by organisation for the purpose of internal analysis and uncovers their resources and capabilities that presents them a long term competitive gain. This context mostly used by organisations after creating long term vision statement, however, prior to the strategic planning process (Grunig & Kuhn, 2015). For case, this framework is applied well on Ryanair identifying its competitive advantage in the industry. VRIO Framework and Ryan Case Ryanair Resources/Capability ValuableRare Difficultto Imitate Exploitedby the organisation Competitive advantage Brand NameYesYesYesYes Long-term competitive advantage Managementby Michael O’Leary YesYesYesYes Long-term competitive advantage No Frills Low CostYesNoNoYesCompetitive
MANAGEMENT2 StrategyParity New FleetYesNoNoYes Competitive Parity Low Cost CultureYesNoYesYes Unused Competitive advantage Physical ResourcesYesNoNoNo Competitive disadvantage To progress a successful strategy, Ryanair internal strategic capabilities must be identified built on the above resources, Ryanair builds its core competence, on which competitive advantage is possible. Furthermore, it is explained below critically how VRIO helped Ryanair to gain competitive advantage in the industry. Valuable– The brand name of Ryanair is valuable as the company have transformed business of commercial carriers with bringing of innovative low fare business models. It can be further evidenced by its 2015 full-year post-tax profits identfied to almost 867 million euros (investor.ryanair.com, 2015). Management by Michael O’Leary is also a valuable capability for Ryanair as his predictions were gone right for the company and he also pledges to drive out rivals recently in 2019 statement to the press (Spero, 2019). The heart of company no-frill strategy relies upon offering no- frill services with low fares designed to stimulate demand. Ryanair also have a valuable low cost culture as the company is known for using several cost saving measures and management practices also presenting a competitive edge to the airline. It also benefits to maintain its physical resources effectively and hence, all these valuable resources and competencies help Ryanair to respond to environmental opportunities. Rare– In terms of rarity, it’s no frills low cost strategy and culture cannot be count as other carriers such as EasyJet, Flybe and Wizz Air business model also based on such competencies. In addition, physical resources including carriers can also not be count as rare because Ryanair fleets include its aircraft from Boeing 737-800 series and it is also held by EasyJet airlines and other carriers. However, the management approach
MANAGEMENT3 of its CEO Michael O’Leary is unique for the brand as its shows future strategic direction to the company and he is also praised by CEO of British Airways and later CEO of the International Airlines Group (IAG). Though, company low cost culture may not be beneficial in extending its maturity phase in the product life cycle, it is recommended to Ryanair to adopt differentiation strategy for the future direction and vision as it will offer strategic advantage to the airline from long term perspectives. Imitability– Definitely, CEO approaches to the company as well as the brand name cannot be imitated, however, Ryanair low cost strategy can easily be imitated as any new entrant in the industry or premium competitors. For instance, British Airways and Southwest Airlines can present tough competition to Ryanair if they come up with a low cost strategic approach. As Boeing and Airbus are the main suppliers to various airways carriers, the physical resources can also imitate easily with buying or leasing many aircraft and fleets (Sabat, 2015). Similarly, its low cost culture, as well as physician resources, are also already adopted by the other airlines such as EasyJet and this creates a competitive disadvantage to Ryanair to attain competitive position for long time period. Overall, resources and capabilities are not much challenging and costly for rivals to obtain and imitate. Organisational Support– In relation with the case and company annual report, Ryanair marks good use of its numerous resources and capabilities to deliver the lowest cost business model and price. The company has robust management team, low cost strategic approach and effective CEO to gain competitive gain in the airline sector (investor.ryanair.com, 2019). However, Ryanair has not exploited its physical resources completely as in comparison with other competitors, it only owns Boeing 737-800 series and not any other fleets like from Airbus (investor.ryanair.com, 2019). The low cost culture is also well exploited by the Ryanair as reflected from its low cost strategic approach and less superior services. Hence, it can be said that Ryanair has suitably organised to exploit the resources and capabilities.
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MANAGEMENT4 Conclusion In the limelight of above discussion, Ryanair successfully exploits its resources and capabilities to hold the cost leadership and offer the lowermost prices to its passengers, which is also a competitive gain. As company is especially known for its price competition, cost leadership is one of its major competitive advantages enables Ryanair to drive its prices down and intensify the financial pain on higher cost rivals. Considering the VRIO framework, Ryanair has gained long term competitive environment in terms of brand name and Michael O’Leary leadership. However, there is competitive parity to company low cost strategy and newfleetswhereasunusedcompetitiveadvantageinrelationwithlowcostculture. Ultimately, Ryanair also has a competitive disadvantage for its physical resources as it is neither rare nor difficult to imitate. Question 2) Evaluation of VRIO framework and its limitation Introduction VRIO Framework is one of the strategic planning tool used by companies to make effective business decisions and help in identification and assessment of its resources in an enterprise considering the four criteria’s – i.e. - value, rarity, imitability and organisation. Once an organisation knows and identifies its resources, it will help them to better understand their competitive advantage or weaknesses (Johnson et al, 2017). When business passes through all four dimensions, it is labelled a having a sustained competitive advantage. With implementing this framework positively, a firm can understand its business unique advantage, stay ahead of competitors and increased its growth above the strategic decisions. This section will further critically evaluate the framework including its limitations and benefits and identify any other framework that may be better in certain situations where VRIO not. Evaluation of the VRIO Framework
MANAGEMENT5 According to the VRIO framework, an organisation can gain sustainable competitive advantage when one of its resources are valuable, rare, imitable and organised. Assessment of resources and capabilities often recognised to be as the resourced-based view (RBV) and its works on the notion that resources and capabilities are important to superior performance of the firm (Coder, Peake & Spiller, 2017). There are several benefits of this model like it is easy to implement this model and identified firm unused competitive advantages which can be tackle strategically and transform into sustained competitive advantage. However, there are several limitations like there are many challenges to apply this model on smaller firms and start ups and they might not have enough resources and capabilities so that one can identify any sort of sustained competitive advantage (Kozlenkova, Samaha & Palmatier, 2014). This model also does not consider all internal factors such as how marketplace demand is changing and shifting. Furthermore, applying VRIO framework can be sometime considered as time consuming and it also relies lot upon subjective judgement. Taking case of Ryanair and applying VRIO framework, it cannot be identified or assessed that how demand is shifting and changing in the European airline industry and what strategies are adopted by the company to match its supply in the services and carriers. In relation with other frameworks that may be better in certain situations, BCG Growth-Share Matrix is designed to assist organisations in relation with their growth opportunities by studying their portfolio of products or business units so as to decide where to divest and where to invest. The matrix is divided into four quadrants relying upon two factors i.e. market growth and relative market share. These four quadrants are being named in terms of business units i.e. Cash Cows, Dogs, Question Marks and Stars (Rynca, 2016). The business units in Cash Cow segment are represented as leaders in the marketplace as they make more cash than they consume and they also have higher market share, however, low growth prospect. In other words, Cash Cow business units help business to generate comparatively stable cash flow and therefore, an organisation should develop the strategy to “milked” such business units and extracts the incomes while investing as little cash as possible (Madsen, 2017). In the star quadrant of BCG matrix, it includes the products or business units that holds significantly a greater market share and generate most of the cash for the whole business and organisation. However, on the other side, they also consume greater amount of cash due to the bigger rate of growth. From long term perspectives, it is recommended to the company that they should significantly invest due to high future potential and attractiveness.
MANAGEMENT6 The next quadrant is question mark where companies can plan to invest or discard depending upon their chances of becoming stars since these business units are growing rapidly showcasing their potentiality to turn into the stars. Furthermore, it also has a low market share but high growth prospect. At last, the dogs categorised business units have low market share and growth rate and due to this, organisation can liquidate, divest or reposition them. Business units in this category also have cash traps as the money tied up in the various divisions while also no such good return. Considering all, any business organisation must have enough stars to secure the future high growth and also have enough cash cows to offer the funding for this future growth. When comparing BCG matrix to VRIO framework, it can be effectively applied to smaller firms as well as can also include other internal factors such as changing or shifting demand and ultimately, substituting the weakness of VRIO framework. In addition, it also presents a higher level approach to see the opportunities for each product portfolio and enables organisations to think about how to distribute the limited resources to the different business units effectively in order to maximise profit over long term period. BCG matrix also ensures to check that where there is a substantial balance in its different portfolio like taking example of Ryanair, if the company has too few products in its portfolio then it can be a challenging situation for the company while having all eggs in one basket. Ultimately, it also not focus solely on internal analysis and therefore, benefits organisation on much a greater scale.
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MANAGEMENT7 Conclusion In the limelight of above discussion, VRIO framework help business to identify their unused competitive advantage by effectively applying its context on their resources and capabilities. However, it also has several limitations and drawbacks which makes out it less promising to the organisation for its application like it does not count all internal environmental factors presents in the business environment such as change or shift in demand. Furthermore, smaller firms or start-ups companies cannot apply this model as due to their incapacity of having all resources and capabilities in the market. Hence, a firm should not rely upon one model or framework considering its strategic development process as framework or theory has its own benefits and limitation and to achieve competitive edge in the respective industry, proactive strategic plan is the only approach to be successful.
MANAGEMENT8 References Coder, L., Peake, W. O., & Spiller, M. S. (2017). Do high performance work systems pay for small firms? An intellectual capital building perspective.Journal of Small Business Strategy,27(2), 13-35. corporate.ryanair.com. (2019).History of Ryanair. Retrieved from https://corporate.ryanair.com/about-us/history-of-ryanair/ Grunig, R., & Kuhn, R. (2015). Strategy Planning Process. InThe Strategy Planning Process(pp. 41-52). Berlin: Heidelberg. investor.ryanair.com. (2015).Ryanair 2015 Annual Report. Retrieved from https://investor.ryanair.com/wp-content/uploads/2015/07/Annual-Report-2015.pdf investor.ryanair.com. (2019).Ryanair 2019 Annual Report. Retrieved from https://investor.ryanair.com/wp-content/uploads/2019/07/Ryanair-2019-Annual- Report.pdf Johnson, G., Whittington, R., & Scholes, K. (2017).EXPLORING STRATEGY 11/E.UK: Pearson Education. Kozlenkova, I. V., Samaha, S. A., & Palmatier, R. W. (2014). Resource-based theory in marketing.Journal of the Academy of Marketing Science,42(1), 1-21. Madsen, D. O. (2017). Not dead yet: the rise, fall and persistence of the BCG Matrix.Problems and Perspectives in Management,15(1), 19-34. Rynca, R. (2016). Using the idea of the boston consulting group matrix in managing a university.Journal of Positive Management,7(1), 70-86. Sabat, K. C. (2015). Boeing's Global Supply Chain for 787 Dreamliner: A Sustainable Competitive Advantage or Lack of Oversight?.FIIB Business Review,4(1), 32-43. Spero, J. (2019).Ryanair chief Michael O’Leary pledges to drive out rivals. Retrieved from https://www.ft.com/content/e63b5a38-7aa9-11e9-81d2-f785092ab560 statista.com. (2019).Annual revenue of Ryanair from 2013 to 2019. Retrieved from https://www.statista.com/statistics/756060/ryanair-annual-revenue/