Consulting in

Context
2010

Lecture 6a

ASSESSMENT: An
Overview of 1
 The Assessment Brief
(Details of Marking Scheme and
Assessment Criteria now on X-Stream)

Candidates will produce an

individual written assignment in
the form of a consultancy report of
3500 - 4000 words that examines the
internal and external contextual
factors for an organisation and the
implications for individuals supplying
specialist services to such.
Consultancy in Context Module Handbook for Semester 1, 2007/2008
2
 Consultancy Report Structure
(Mark weighting per section shown in
red)
• Background/environmental analysis of chosen industry/sector (weighting
10%)
• Identify an organisation to research within your chosen industry/sector and
further contextualise external analysis for that chosen organisation
(weighting 10%)
• Analysis of internal capabilities of the chosen organisation. (weighting
20%)
• Identify a specific strategic issue/problem facing the organisation which a
consultant could assist with (weighting 20%)
• Analyse identified issue/problem facing the organisation and provide
recommendations for action (weighting 30%)
• Report style should be appropriate for client communication hence
language used should reflect this, with clear and simple presentation of
analysis and recommendations. Appendices should be used as appropriate
for detailed explanations/analysis and other supporting data. Report should
be clearly referenced. (weighting 10%) 3
 Consulting in
Context
2010/11
Lecture 6b
CONTEXT EXAMPLE:
The Private Sector -
RyanAir
4

NB: This example is NOT an acceptable

 Learning Objectives
Key learning points in this lecture are:
• Exploration of one specific private sector
context through the example of RyanAir
and the budget airline industry

• How to apply analytical tools, concepts

and theories to examine the internal and
external contextual factors for RyanAir
• The implications for individuals supplying
consultancy/specialist services to RyanAir5
External contextual
factors for RyanAir
operating in the
European Airline
Industry

6
 Opportunities from Macro-
Environment
Political
• Expansion of EU (in 2004 there were 75 million new
customers from 10 new EU member states)
• Regional airport development in UK
Economic
• Growing European employment market (as EU expands)
Socio-Cultural
• People are taking more holidays and spending more
money whilst they are away
Technology
• Customers have more choice and access to information
due to rapid rise in internet usage
Legal 7

• Deregulation in European Airline industry

Threats from Macro-Environment
Political
• Expansion of EU (in 2004 airlines from 10 new member
states can now access wider European market)
• Regional airports subject to EU constraints
• Security concerns at airports e.g. hand baggage restrictions
Economic
• Economic downturn in US, Interest Rises in UK
• Rising fuel costs
• Removal of intra-European duty free
Socio-Cultural
• Attitudes to flying changing due to concerns re security,
delays at airports and raised environmental awareness
Environmental
• New taxes and impending EU emissions legislation
• Noise concerns restrict airport development
8
 European Airline Industry
Structure
POTENTIAL ENTRANTS
Deregulation increases threat
but reserved/scarce landing
slots a barrier plus cost of
entry
Threat: MEDIUM

SUPPLIER POWER COMPETITIVE RIVALRY BUYER POWER

Over supply of More Passenger
aircraft and competitors on numbers and
Boeing/Airbus routes creating choice growing
rivalry over capacity Threat: MEDIUM
Threat: LOW Threat: HIGH

POTENTIAL
SUBSTITUTES
Faster rail travel
and popularity of
car use
Threat: MEDIUM 9
 Strategic Group Analysis
European Airline Industry

Broad Seats on scheduled

flights are sold by
the airline and
Extent of Route System

Long Haul
Schedule often through
Carriers
travel agents as
well, whereas
charter seats are
never sold by the
airline - they are
always sold by
Budget Charter Airlines travel firms (almost
Schedule
Carriers
(Package Holidays)
always tour
operators) who
have allocations of
Narrow
seats on the flight. 10
Basic Many Added
The operator may
Services also sell through
 Strategic Group Analysis
European Airline Industry

Broad
Extent of Route System

Long Haul
Schedule
Carriers

Private Charter
Flights

A strategic space
Budget Charter Airlines made more
Schedule
Carriers
(Package Holidays)
favourable by
recent security
issues but is it
Narrow
sustainable as a 11
Basic Many Added
growth area?
Services
 Budget Airline Industry
Structure
POTENTIAL ENTRANTS
Perceived
customer demand
attracts new
entrants
Threat: HIGH

SUPPLIER POWER
Rises in fuel costs COMPETITIVE RIVALRY
Growing BUYER POWER
hit price sensitive Passenger choice
competition on
market. Nearly new leads to price
routes squeezing
aircraft market pressure
capacity Threat: HIGH
buoyantThreat:
after MEDIUM
9/11 utilisation
Threat: HIGH

POTENTIAL
SUBSTITUTES
Hard for rail to compete
on price but rail/car more
viable for shorter routes
Threat: LOW
12
 Consumer attitudes to
budget airlines?

• Does increased choice also give rise to

greater service expectations? (as a
qualifier rather than an order winner?) 13
 Budget Sector Lifecycle
Analysis
Embryonic Growing Shakeout Mature Decline

Stage

Few: trial of Growing Growing Saturation of Drop-off in

Users/ early users adopters: trial selectivity of users: Repeat usage
Buyers of product/ purchase purchase
service reliance
Few Entry of May be many. Fight to Exit of some
Competitive competitors competitors maintain share. competitors.
Likely price
Conditions cutting for Difficult to Selective
Attempt to
achieve trial. volume. gain/take share. distribution.
Fight for share. Shakeout of Emphasis on
weakest efficiency and
Undifferentiated
competitors. low cost
product/service
G Johnson, K Scholes and. R Whittington, “Exploring Corporate 14
Strategy”,
 Strategic Group Analysis
European Airline Industry (Budget Sector) in
2001
G Johnson and K Scholes, “Exploring Corporate Strategy”, 6th Edition,
Pearson, 2002, p870

Other “axis”
options could be
flight frequencies,
Broad circle size profitability,
indicates ownership by
relative
market another airline
A lucrative
share Ryanair
etc
strategic space?
Or is this cluster
stem

losing out to the

mainstream
carriers at the
top end and the
more budget easyJe 15
carriers at the
 Strategic Group Analysis
European Airline Industry (Budget Sector) in
2004
G Johnson, K Scholes and R Whittington, “Exploring Corporate Strategy”,
7th Edition, Pearson, 2005, p832
Broad

Ryanair
Should Ryanair
worry about Aer
Extent of Route System

Lingus - an Irish
easyJet
mainstream
airline moving
into budget
Aer Lingus
routes?

Virgin
Express
Can small carriers
ever get enough
critical mass to
Germanwings
My TravelLite
bmibaby
flybe effectively
Narrow compete head on
Basic Many Added with Ryanair? 16

Services
 Porter’s Generic Strategies

Ryanair Easyjet
Broad Target 1. Cost Leadership 2. Differentiation
Aer
Lingus

My TravelLite Virgin Express

Narrow Target 3A, Cost Focus 3B. Differentiation
bmibaby flybe
Focus

17
Adapted from M E Porter “Competitive Advantage: Creating and
Sustaining Superior Performance”,
Performance Free Press, 1985
 Summary of key
Opportunities and Threats
from Macro and Micro Environment
Opportunities
• Growing European market for air travel
• Growing European employment market
• Increasing internet access
Threats
• Rising fuel costs and taxes
• Further legislation on Emissions and consumer attitudes
re environmental issues
• Increasing competitive rivalry in budget sector
• Increased passenger choice leads to price pressure and
service expectations 18
Internal contextual
factors for RyanAir

19
 Goals Hierarchy
• Vision (overall future intention)
– “to destroy the airline business as
we know it”

• Mission (statement of key values)

– “lowest cost always wins”

• Goals (specific statements of intent)

20
– Double Profits and Traffic by 2012
 Value Chain Analysis for
RyanAir
Employees pay for training

X
Web
Booking
& Organ
Role of PR?
Check-In

Support Human
Adapted from M E Porter “Competitive Advantage: Creating and
Sustaining Superior Performance”, Free Press, 1985
21
Focus on Cost Reduction

22
 Focus on Cost Reduction
“Every frill or fancy or frippery or finery or frivolity that
airline passengers formerly enjoyed on national flag
carriers has either been excised completely or treated
as a revenue-generating optional extra. In-flight
catering, first-class cabins, frequent-flyer programs, free
on-board magazines, generous baggage allowances,
lavish departure lounges, plentiful cabin crew and
adequate leg room have all been abolished or
unbundled, as have paper tickets, assigned seating,
covered jetways and compensation payments for
delayed or cancelled flights. Reclinable seats, window
blinds, liveried headrests, backseat pockets, hold-
stowed baggage and, believe it or not, courtesy sick
bags are also on their way out. So single-minded is
Ryanair’s pursuit
B Boru “Ryanair: of low
the Cu´ costs
Chulainn thataviation”,
of civil wheelchairs
Journalare
of 23
regarded as optional
Strategic Marketing, extras,
Vol 14, which
March 2006, p48must be paid for by
 RyanAir’s Strengths
from consideration of Value Chain and

Core Competencies
• Market leader with first mover advantages including
most developed route system

• Strong leadership and clear consistent strategic

direction/scope from Michael O’Leary

• Aggressive/pro-active re external threats

• Focus on cost reduction in all aspects of business
– “Outsourcing” functions to customers and suppliers
– Cutting Travel Agents/”middle men” out of the value
system

24
 RyanAir’s Weaknesses
from consideration of Value Chain
and
Core Competencies
• Cost structure vulnerable in places (eg. utilisation of
Cost structure vulnerable in places (eg. utilisation of
aircraft lower than Easyjet in 2004) with the need to
focus more on ancillary revenue sources
• Is “basic” service meeting customer minimal
requirements?
• Staff Issues – industrial relations issues, question
marks over staff loyalty/commitment hence staff
turnover
• Reputation? – antagonistic approach to external
agencies (eg. national governments) and high profile
of Michael O’Leary
25
 Matching S-W to O-T
and Strategic Positioning
1. Rising costs and increasing price pressure means
that Ryanair needs to keep its strong focus on
this and address any weaknesses in cost
structure
2. Service expectations (how basic is basic and how
willing are customers to pay for ancillaries?)
could be an issue as competition increases
3. Increasing threat from legislation. Aggressive
approach to challenging legislation (largely
through PR) mainly successful to date and hence
continued focus on this is required.
26
 What would you advise as a
consultant to Michael
• Focus on
O’Leary?
consolidation and penetration (eg. in
considering mergers & acquisitions) (relating to Issue 1)
PRODUCTS
OLD NEW

Ryanair Divestment Product Development

MARKETS

Efficiency Improvements
Market Consolidation
Market Penetration

Market Development Diversification

NEW
Adapted from H I Ansoff “Corporate Strategy”, Penguin, 1987
• Address issues with cost structure and staff issues by
recruiting more staff from “wider” EU
27
Further support for Lecture 6b
• Background Reading
– E R E O’Higgins “Ryanair” in G Johnson, K Scholes and R
Whittington, “Exploring Corporate Strategy”, 7th Edition,
Pearson, 2005, p832
– G A Stockport “Chaos in the skies - the airline industry pre-
and post-9/11” in G Johnson, K Scholes and R Whittington,
“Exploring Corporate Strategy”, 7th Edition, Pearson, 2005,
p637
– M Porter” What is Strategy?” in H Mintzberg, J Lampel, J B
Quinn and S Ghoshal “The Strategy Process: Concepts,
Contexts, Cases”, 4th Edition, Prentice Hall, 2003, p16
– J B Barney” Looking inside for competitive advantage” in H
Mintzberg, J Lampel, J B Quinn and S Ghoshal “The Strategy
Process: Concepts, Contexts, Cases”, 4th Edition, Prentice
Hall, 2003, p102 28
 Further support for Lecture 6b
• X-Stream Resources
– Short Readings:
• Further Reading 1 - “Ryanair: the Cu´ Chulainn of civil
aviation”, by B Boru (Journal of Strategic Marketing, Vol
14, March 2006)

• Web Links of Interest:

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

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