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Consulting in Consulting in ContextContext

2010 2010

Lecture 6a Lecture 6a

ASSESSMENT: An ASSESSMENT: An Overview of Overview of

RequirementsRequirements

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The Assessment Brief The Assessment Brief (Details of Marking Scheme and (Details of Marking Scheme and

Assessment Criteria now on X-Stream)Assessment Criteria now on X-Stream)

Candidates will produce Candidates will produce an an individual written assignmentindividual written assignment in in the form of a consultancy report of the form of a consultancy report of 3500 - 4000 words that examines 3500 - 4000 words that examines the internal and external contextual the internal and external contextual factors for an organisation and the factors for an organisation and the implications for individuals implications for individuals supplying specialist services to supplying specialist services to such.such.Consultancy in Context Module Handbook for Semester 1, 2007/2008

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Consultancy Report StructureConsultancy Report Structure (Mark weighting per section shown in (Mark weighting per section shown in

red)red) Background/environmental analysis of chosen industry/sector Background/environmental analysis of chosen industry/sector

(weighting 10%)(weighting 10%)

Identify an organisation to research within your chosen industry/sector Identify an organisation to research within your chosen industry/sector and further contextualise external analysis for that chosen organisation and further contextualise external analysis for that chosen organisation (weighting 10%)(weighting 10%)

Analysis of internal capabilities of the chosen organisation. Analysis of internal capabilities of the chosen organisation. (weighting (weighting 20%)20%)

Identify a specific strategic issue/problem facing the organisation which Identify a specific strategic issue/problem facing the organisation which a consultant could assist with a consultant could assist with (weighting 20%)(weighting 20%)

Analyse identified issue/problem facing the organisation and provide Analyse identified issue/problem facing the organisation and provide recommendations for action recommendations for action (weighting 30%)(weighting 30%)

Report style should be appropriate for client communication hence Report style should be appropriate for client communication hence language used should reflect this, with clear and simple presentation of language used should reflect this, with clear and simple presentation of analysis and recommendations. Appendices should be used as analysis and recommendations. Appendices should be used as appropriate for detailed explanations/analysis and other supporting appropriate for detailed explanations/analysis and other supporting data. Report should be clearly referenceddata. Report should be clearly referenced.. (weighting 10%)(weighting 10%)

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Consulting in Consulting in ContextContext 2010/11 2010/11

Lecture 6b Lecture 6b

CONTEXT EXAMPLE: CONTEXT EXAMPLE: The Private Sector - The Private Sector -

RyanAirRyanAirNB: This example is NOT an acceptable NB: This example is NOT an acceptable

topic topic for student assessment submissionfor student assessment submission

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Learning Objectives Learning Objectives

Key learning points in this lecture are:Key learning points in this lecture are:

• Exploration of one specific private sector Exploration of one specific private sector context through the example of RyanAir context through the example of RyanAir and the budget airline industryand the budget airline industry

• How to apply analytical tools, concepts How to apply analytical tools, concepts and theories to and theories to examine the internal and examine the internal and external contextual factors for RyanAir external contextual factors for RyanAir

• The implications for individuals supplying The implications for individuals supplying consultancy/specialist services to RyanAir consultancy/specialist services to RyanAir

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External contextual External contextual factors for factors for RyanAir RyanAir

operating in the operating in the European Airline European Airline

IndustryIndustry

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PPoliticalolitical• Expansion of EU (in 2004 there were 75 million new Expansion of EU (in 2004 there were 75 million new

customers from 10 new EU member states)customers from 10 new EU member states)• Regional airport development in UKRegional airport development in UK

EEconomicconomic• Growing European employment market (as EU expands)Growing European employment market (as EU expands)

SSocio-Culturalocio-Cultural• People are taking more holidays and spending more People are taking more holidays and spending more

money whilst they are away money whilst they are away

TTechnologyechnology• Customers have more choice and access to information Customers have more choice and access to information

due to rapid rise in internet usagedue to rapid rise in internet usage

LLegalegal• Deregulation in European Airline industryDeregulation in European Airline industry

Opportunities Opportunities from Macro-from Macro-EnvironmentEnvironment

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ThreatsThreats from Macro-Environmentfrom Macro-EnvironmentPPoliticalolitical• Expansion of EU (in 2004 airlines from 10 new member Expansion of EU (in 2004 airlines from 10 new member

states can now access wider European market)states can now access wider European market)• Regional airports subject to EU constraintsRegional airports subject to EU constraints• Security concerns at airports e.g. hand baggage Security concerns at airports e.g. hand baggage

restrictionsrestrictions

EEconomicconomic• Economic downturn in US, Interest Rises in UK Economic downturn in US, Interest Rises in UK • Rising fuel costs Rising fuel costs • Removal of intra-European duty freeRemoval of intra-European duty free

SSocio-Culturalocio-Cultural• Attitudes to flying changing due to concerns re security, Attitudes to flying changing due to concerns re security,

delays at airports and raised environmental awarenessdelays at airports and raised environmental awareness

EEnvironmentalnvironmental• New taxes and impending EU emissions legislationNew taxes and impending EU emissions legislation• Noise concerns restrict airport developmentNoise concerns restrict airport development

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European Airline Industry European Airline Industry StructureStructure

COMPETITIVE RIVALRY

Threat: HIGH

POTENTIAL ENTRANTS

Threat: MEDIUM

POTENTIAL SUBSTITUTES

Threat: MEDIUM

BUYER POWER

Threat: MEDIUM

SUPPLIER POWER

Threat: LOW

More More competitors on competitors on routes creating routes creating over capacityover capacity

Over supply of Over supply of aircraft and aircraft and Boeing/Airbus Boeing/Airbus rivalryrivalry

Deregulation increases threat Deregulation increases threat but reserved/scarce landing but reserved/scarce landing slots a barrier plus cost of slots a barrier plus cost of entryentry

Passenger Passenger numbers and numbers and choice growingchoice growing

Faster rail travel Faster rail travel and popularity of and popularity of car usecar use

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Strategic Group AnalysisStrategic Group AnalysisEuropean Airline IndustryEuropean Airline Industry

Long Haul

Schedule

Carriers

Budget

Schedule

Carriers

Broad

Narrow

Ex

ten

t o

f R

ou

te S

yste

m

Services

Basic Many Added

Charter Airlines

(Package Holidays)

Seats on scheduled Seats on scheduled flights are sold by flights are sold by the airline and the airline and often through often through travel agents as travel agents as well, whereas well, whereas charter seats are charter seats are never sold by the never sold by the airline - they are airline - they are always sold by always sold by travel firms (almost travel firms (almost always tour always tour operators) who operators) who have allocations of have allocations of seats on the flight. seats on the flight. The operator may The operator may also sell through also sell through travel agents. travel agents.

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Strategic Group AnalysisStrategic Group AnalysisEuropean Airline IndustryEuropean Airline Industry

A strategic space made more favourable by recent security issues but is it sustainable as a growth area?

Long Haul

Schedule

Carriers

Budget

Schedule

Carriers

Broad

Narrow

Ex

ten

t o

f R

ou

te S

yste

m

Services

Basic Many Added

Charter Airlines

(Package Holidays)

Private Charter

Flights

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Budget Airline Industry Budget Airline Industry StructureStructure

COMPETITIVE RIVALRY

Threat: HIGH

POTENTIAL ENTRANTS

Threat: HIGH

POTENTIAL SUBSTITUTES

Threat: LOW

BUYER POWER

Threat: HIGH

SUPPLIER POWER

Threat: MEDIUM

Growing Growing competition on competition on routes squeezing routes squeezing capacity capacity utilisationutilisation

Perceived Perceived customer demand customer demand attracts new attracts new entrantsentrants

Passenger choice Passenger choice leads to price leads to price pressurepressure

Rises in fuel costs Rises in fuel costs hit price sensitive hit price sensitive market. Nearly new market. Nearly new aircraft market aircraft market buoyant after 9/11buoyant after 9/11

Hard for rail to compete Hard for rail to compete on price but rail/car more on price but rail/car more viable for shorter routesviable for shorter routes

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Consumer attitudes to Consumer attitudes to budget airlines?budget airlines?

• Does increased choice also give rise to Does increased choice also give rise to greater service expectations? (as a greater service expectations? (as a qualifier rather than an order winner?)qualifier rather than an order winner?)

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Budget SectorBudget Sector Lifecycle Lifecycle AnalysisAnalysis

Stage

Embryonic Growing Shakeout Mature Decline

Users/Buyers

Few: trial of early users

Growing adopters: trial of product/service

Growingselectivity ofpurchase

Saturation ofusers: Repeatpurchasereliance

Drop-off inusage

CompetitiveConditions

Few competitors

Entry of competitors

Attempt to achieve trial.

Fight for share.

Undifferentiated product/service.

May be many.

Likely price cutting for volume.

Shakeout of weakest competitors.

Fight to maintain share.

Difficult to gain/take share.

Emphasis on efficiency and low cost

Exit of some competitors.

Selective distribution.

G Johnson, K Scholes and R Whittington, “Exploring Corporate Strategy”, 7th Edition, Pearson, 2005, p86

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Strategic Group AnalysisStrategic Group Analysis

Buzz

Go VirginExpress

Air One

KLMuk

easyJet

Ryanair

Broad

Narrow

Ext

ent

of

Ro

ute

Sys

tem

Services

Basic Many Added

European Airline Industry (Budget Sector) in 2001G Johnson and K Scholes, “Exploring Corporate Strategy”, 6th Edition, Pearson, 2002, p870

Other “axis” Other “axis” options could be options could be flight frequencies, flight frequencies, profitability, profitability, ownership by ownership by another airline another airline etcetc

circle size indicates relative market share A lucrative

strategic space? Or is this cluster losing out to the mainstream carriers at the top end and the more budget carriers at the lower end?

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Strategic Group AnalysisStrategic Group Analysis

easyJet

Ryanair

Broad

Narrow

Ex

ten

t o

f R

ou

te S

yste

m

Services

Basic Many Added

European Airline Industry (Budget Sector) in 2004G Johnson, K Scholes and R Whittington, “Exploring Corporate Strategy”, 7th Edition, Pearson, 2005, p8322005, p832

Can small carriers ever get enough critical mass to effectively compete head on with Ryanair?

Aer Lingus

VirginExpress

My TravelLiteGermanwings

bmibabyflybe

Should Ryanair worry about Aer Lingus - an Irish mainstream airline moving into budget routes?

17Adapted from M E Porter “Competitive Advantage: Creating and Competitive Advantage: Creating and Sustaining Superior PerformanceSustaining Superior Performance”, Free Press, 1985

Porter’s Generic StrategiesPorter’s Generic Strategies

Broad Target 1. Cost Leadership 2. Differentiation

Narrow Target 3A, Cost Focus 3B. Differentiation

Focus

Ryanair Easyjet

Aer Lingus

My TravelLite

bmibaby flybe

Virgin Express

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OpportunitiesOpportunities• Growing European market for air travel Growing European market for air travel • Growing European employment marketGrowing European employment market• Increasing internet accessIncreasing internet access

ThreatsThreats• Rising fuel costs and taxesRising fuel costs and taxes• Further legislation on Emissions and consumer Further legislation on Emissions and consumer

attitudes re environmental issuesattitudes re environmental issues• Increasing competitive rivalry in budget sectorIncreasing competitive rivalry in budget sector• Increased passenger choice leads to price pressure Increased passenger choice leads to price pressure

and service expectationsand service expectations

Summary of keySummary of key Opportunities Opportunities andand ThreatsThreats

from Macro from Macro andand Micro Environment Micro Environment

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Internal contextual Internal contextual factors for factors for RyanAirRyanAir

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Goals Hierarchy• VisionVision (overall future intention)(overall future intention)

– ““to destroy the airline business as to destroy the airline business as

we know it”we know it”

• Mission Mission (statement of key values)(statement of key values)

– ““lowest cost always wins”lowest cost always wins”

• GoalsGoals (specific statements of intent)(specific statements of intent)

– Double Profits and Traffic by 2012Double Profits and Traffic by 2012

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Value Chain Analysis for Value Chain Analysis for RyanAirRyanAir

InboundLogistics

Operations OutboundLogistics

Marketing& Sales

Service

ProcurementTechnology Development

Human Resource Management

Organisation InfrastructureM

argin

Mar

gin

Primary Activities

SupportActivities

InboundLogistics

Operations OutboundLogistics

Marketing& Sales

Service

ProcurementTechnology Development

Human Resource Management

Organisation InfrastructureM

argin

Mar

gin

Primary ActivitiesPrimary Activities

SupportActivities

Adapted from M E Porter ““Competitive Advantage: Creating and Competitive Advantage: Creating and Sustaining Superior PerformanceSustaining Superior Performance”,”, Free Press, 1985

Web Booking

& Check-In

Role of PR?

Employees pay for training

XX

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Focus on Cost ReductionFocus on Cost Reduction

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““Every frill or fancy or frippery or finery or frivolity that Every frill or fancy or frippery or finery or frivolity that airline passengers formerly enjoyed on national flag airline passengers formerly enjoyed on national flag carriers has either been excised completely or treated carriers has either been excised completely or treated as a revenue-generating optional extra. In-flight as a revenue-generating optional extra. In-flight catering, first-class cabins, frequent-flyer programs, free catering, first-class cabins, frequent-flyer programs, free on-board magazines, generous baggage allowances, on-board magazines, generous baggage allowances, lavish departure lounges, plentiful cabin crew and lavish departure lounges, plentiful cabin crew and adequate leg room have all been abolished or adequate leg room have all been abolished or unbundled, as have paper tickets, assigned seating, unbundled, as have paper tickets, assigned seating, covered jetways and compensation payments for covered jetways and compensation payments for delayed or cancelled flights. Reclinable seats, window delayed or cancelled flights. Reclinable seats, window blinds, liveried headrests, backseat pockets, hold-blinds, liveried headrests, backseat pockets, hold-stowed baggage and, believe it or not, courtesy sick stowed baggage and, believe it or not, courtesy sick bags are also on their way out. So single-minded is bags are also on their way out. So single-minded is Ryanair’s pursuit of low costs that wheelchairs are Ryanair’s pursuit of low costs that wheelchairs are regarded as optional extras, which must be paid for by regarded as optional extras, which must be paid for by their users.”their users.”

Focus on Cost ReductionFocus on Cost Reduction

B Boru “Ryanair: the Cu´ Chulainn of civil aviation”,“Ryanair: the Cu´ Chulainn of civil aviation”, Journal of Strategic Marketing, Vol 14, March 2006, p48

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RyanAir’sRyanAir’s Strengths Strengths from consideration of Value Chain and from consideration of Value Chain and

Core Competencies Core Competencies • Market leader with first mover advantages Market leader with first mover advantages

including most developed route systemincluding most developed route system

• Strong leadership and clear consistent Strong leadership and clear consistent strategic direction/scope from Michael O’Leary strategic direction/scope from Michael O’Leary

• Aggressive/pro-active re external threatsAggressive/pro-active re external threats

• Focus on cost reduction in all aspects of Focus on cost reduction in all aspects of business business – ““Outsourcing” functions to customers and suppliersOutsourcing” functions to customers and suppliers

– Cutting Travel Agents/”middle men” out of the Cutting Travel Agents/”middle men” out of the value systemvalue system

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RyanAir’sRyanAir’s WeaknessesWeaknesses from consideration of Value Chain from consideration of Value Chain

and and Core Competencies Core Competencies

• Cost structure vulnerable in places (eg. utilisation Cost structure vulnerable in places (eg. utilisation of aircraft lower than Easyjet in 2004) with the of aircraft lower than Easyjet in 2004) with the need to focus more on ancillary revenue sourcesneed to focus more on ancillary revenue sources

• Is “basic” service meeting customer minimal Is “basic” service meeting customer minimal requirements? requirements?

• Staff Issues – industrial relations issues, question Staff Issues – industrial relations issues, question marks over staff loyalty/commitment hence staff marks over staff loyalty/commitment hence staff turnoverturnover

• Reputation? – antagonistic approach to external Reputation? – antagonistic approach to external agencies (eg. national governments) and high agencies (eg. national governments) and high profile of Michael O’Leary profile of Michael O’Leary

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Matching S-W to O-T Matching S-W to O-T and Strategic Positioningand Strategic Positioning

1.1. Rising costs and increasing price pressure Rising costs and increasing price pressure means that Ryanair needs to keep its strong means that Ryanair needs to keep its strong focus on this and address any weaknesses in focus on this and address any weaknesses in cost structurecost structure

2.2. Service expectations (how basic is basic and Service expectations (how basic is basic and how willing are customers to pay for how willing are customers to pay for ancillaries?) could be an issue as competition ancillaries?) could be an issue as competition increasesincreases

3.3. Increasing threat from legislation. Aggressive Increasing threat from legislation. Aggressive approach to challenging legislation (largely approach to challenging legislation (largely through PR) mainly successful to date and through PR) mainly successful to date and hence continued focus on this is required.hence continued focus on this is required.

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What would you advise as a What would you advise as a consultant to Michael consultant to Michael

O’Leary?O’Leary?• Focus on consolidation and penetration (eg. in Focus on consolidation and penetration (eg. in considering mergers & acquisitions) considering mergers & acquisitions) (relating to (relating to Issue 1)Issue 1)

• Address issues with cost structure and staff issues Address issues with cost structure and staff issues by recruiting more staff from “wider” EU by recruiting more staff from “wider” EU

OLD NEW

Divestment Product DevelopmentEfficiency ImprovementsMarket ConsolidationMarket Penetration

Market Development Diversification

NEW

MA

RK

ET

S

PRODUCTS

Ryanair

Adapted from H I Ansoff “Corporate Strategy”, Penguin, 1987

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Further support forFurther support for Lecture 6b Lecture 6b

• Background ReadingBackground Reading– E R E O’Higgins “Ryanair” E R E O’Higgins “Ryanair” in G Johnson, K Scholes and R G Johnson, K Scholes and R

Whittington,Whittington, “Exploring Corporate Strategy”, 7 “Exploring Corporate Strategy”, 7th Edition, th Edition, Pearson, 2005, p832Pearson, 2005, p832

– G A Stockport “Chaos in the skies - the airline industry pre- G A Stockport “Chaos in the skies - the airline industry pre- and post-9/11” and post-9/11” in G Johnson, K Scholes and R Whittington, G Johnson, K Scholes and R Whittington, “Exploring Corporate Strategy”, 7“Exploring Corporate Strategy”, 7th Edition, Pearson, 2005, th Edition, Pearson, 2005, p637p637

– M PorterM Porter” What is Strategy?” ” What is Strategy?” in H Mintzberg, J Lampel, J B H Mintzberg, J Lampel, J B Quinn and S Ghoshal “TQuinn and S Ghoshal “The Strategy Process: Concepts, he Strategy Process: Concepts, Contexts, Cases”, Contexts, Cases”, 4th Edition, Prentice Hall, 2003, p164th Edition, Prentice Hall, 2003, p16

– J B BarneyJ B Barney” Looking inside for competitive advantage” ” Looking inside for competitive advantage” in H H Mintzberg, J Lampel, J B Quinn and S Ghoshal “TMintzberg, J Lampel, J B Quinn and S Ghoshal “The he Strategy Process: Concepts, Contexts, Cases”, Strategy Process: Concepts, Contexts, Cases”, 4th Edition, 4th Edition, Prentice Hall, 2003, p102Prentice Hall, 2003, p102

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Further support forFurther support for Lecture 6b Lecture 6b

• X-Stream ResourcesX-Stream Resources– Short Readings:Short Readings:

• Further Reading 1Further Reading 1 - “Ryanair: the Cu´ Chulainn of civil - “Ryanair: the Cu´ Chulainn of civil aviationaviation”,”, by B Boru (Journal of Strategic Marketing, Vol by B Boru (Journal of Strategic Marketing, Vol 14, March 2006) 14, March 2006)

• Web Links of Interest:Web Links of Interest:• http://www.ryanair.comhttp://www.ryanair.com

• http://www.elfaa.comhttp://www.elfaa.com• http://whichbudget.comhttp://whichbudget.com