Operations Management – JS MT Assignment Title: For a firm of your choosing (but not one of the firms studied in class, describe all of the elements of the strategic Service Vision (SSV) and assess the degree of ‘fit’ between the SSV and the firm’s Strategy/Environment. What would you change in the operations strategy or service system to increase the potential profitability and/or value to the customer? Company (Service Provider) Chosen: Ryanair Word Count: 3327 Words (not including Cover Page and Bibliography) [pic] Ryanair is an Irish low fares airline (or LCC – Low Cost Carrier) that was founded by Dr.
Tony Ryan in 1985 to compete in the Ireland/U. K. travel market. The firm has gone from strength to strength, particularly under the leadership of C. E. O Michael O’Leary (since 1994) and is now the second largest airline in Europe in terms of passenger numbers. The airline’s business model is based on the model of Southwest Airlines in the United States, which Michael O’Leary was sent to America to study after Tony Ryan hired him in 1987. Ryanair operates a low fares service from several bases around Europe and from its humble beginnings – carrying 5,000 passengers in 1985 – it expects to carry 73. million passengers in 2011. Ryanair has been at the forefront of the evolution of the airline industry in Europe over the past two decades. Over the past 20 years, “the industry has evolved from a system of long established state-owned carriers operating in a regulated market to a dynamic, free-market industry” (Tinbergen Institute Discussion Paper, 2004). Many other airlines in Europe have now copied aspects of the low-cost model that Ryanair operates and in the East, Airasia has copied the Ryanair model almost completely for its’ operation.
The Strategic Service Vision: “The need of most service organizations to plan as well as direct marketing and operations as one function has led to the formation in leading companies of what I call a strategic service vision. Its elements consist of identification of a target market segment, development of a service concept to address targeted customers’ needs, codification of an operating strategy to support the service concept, and design of a service delivery system to support the operating strategy” (Heskett; March 1, 1987).
At its simplest level, Ryanair’s primary market is ‘people who are looking for the cheapest possible flight to a particular destination’. These people are concerned about the price of the flight and thus are more often than not, tourists of some kind. Compared with leisure travellers, business travellers are usually less concerned about the cost of the flight and more concerned about the comfort and quality of the service.
For this reason Ryanair carries far more leisure travellers than business travellers, however, with the global financial crisis causing a decline in demand for business class services, this attitude is beginning to change. The lack of interest from business travellers in Ryanair in the past is evident from the airline’s attempt to start a business class service and a frequent flyer club in 1988 – neither of which were successful. (Ryanair. com) As Ryanair operates across Europe and Morocco, the vast majority of its’ customers will be European.
It should also be noted that 99% of Ryanair’s customers originate from Web bookings rather than from telephone bookings or airport ticket desk sales because the only way to get cheap fares from Ryanair is to book your flight online. Ryanair’s customers are also concerned about the quality of the service in terms of dependability, safety and choice of routes and Ryanair has managed to develop its’ service to the stage where it satisfies these particular criteria better than any other European airline. The Operations Strategy in terms of value creation is, simply put, ‘the basic choice between standardisation and customisation, and the role of employees in delivering on this strategy”. This decision should align with the business strategy the firm is pursuing. Ryanair would typically be seen as a service firm with a low-level of customisation and a high-level of standardisation. However, if you take into account all of the additional extras that Ryanair (or Ryanair in co-operation with its’ partners) offers o passengers such as Insurance, Baggage ; Sports Equipment, Car Hire ; Hotels, the service no longer appears to have such a low level of customisation. Customers are often willing to trade-off customisation for standardisation, if the price is lower. In Ryanair’s case, I think that customers are not really forgoing any customisation as they still get to choose exactly which flight they want from a vast range of options, where they want to go from an ever growing selection of routes and what additional paid services they want to choose.
Ryanair customers are instead trading quality, in terms of flexibility, helpfulness of staff, comfort and aesthetics for a lower priced flight. A Core Competency is a key contributor to perceived customer value and it is defined as ‘a capability of the firm that can provide access to a wide variety of markets through product/service platforms’. Ryanair’s Core Competency is in their ability to continuously provide the lowest fares on average in the marketplace and still remain highly profitable.
Many other airlines have tried to imitate Ryanair in this area but have failed because their costs are usually too high. And this has led to a number of recent high-profile mergers within the European Airline Market because two firms may feel that it is easier to compete with Ryanair’s low fare model if they merge their companies, cut costs through staff reduction (enabled by the duplication of roles after the merger), reduce advertising costs ; gain greater economies of scale through pooling their resources and expertise.
A core competency should provide sustainable competitive advantage and in Ryanair’s case it certainly has. “The Service Package (Concept) is a bundle of explicit and implicit benefits performed with a supporting facility and using facilitated goods” (Brown; September 25, 2007). The concept can also be described as “the foundation upon which the components of the service delivery system are built” (Goldstein et al; 2002). In the case of Ryanair, the supporting facility would be the airport and the aircraft itself would be an example of a dominant facilitating good.
Evidently, the flight is the service provided by Ryanair with Explicit and Implicit benefits. The fourth and final element of the Strategic Service Vision (SSV) is concerned with the design Service System. This is the most detailed element of the SSV and a service system should only be designed after the first three elements have been thought out because they will have constant influence on the system design chosen. The Service System is made up of Structural Elements and Managerial Elements and both are of equal importance to the efficient and effective operation of the firm.
The first step in designing the Service System is the development of the ‘Service Blueprint’ as it helps to translate the service concept into the service reality. The service blueprint illustrates the detailed steps required to deliver the service, it shows the Front Office and Back Office processes, it incorporates control (quality) checkpoints, it highlights customer waiting time and it enables detailed planning of the service encounter. The service blueprint allows firms to choose the most efficient layout for delivery and task order.
Grouping and geography will affect the speed and experience of the service. It also provides the basis for designing the service encounter, including the customer contact points, line of visibility and facility considerations. Ryanair aims to run a very efficient operation where it gets the maximum possible return from its’ assets (i. e. aircraft). The service blueprint would be very important to Ryanair as planning aircraft routes, stopovers, connections, timing, etc. is essential in trying to create optimum efficiency for the firm. pic] Above: Service Blueprint Example Ryanair’s Delivery System is the first structural element of the Service System design and it consists of the Front Office and Back Office. The Front Office consists of the Cabin Crew, Internal Airport Staff (e. g. Ticket Counter Clerks, Boarding Gate Staff, Bag Drop Staff) and pilots and the Back Office consists of maintenance staff, engineers, ground crew and office workers. Facility design is the next element of the SSV and it is quite important in Ryanair’s service system design.
In the airport terminal, Ryanair now employs the minimum number of staff possible and it achieves this by selling “99%” of tickets online which allows the airline to have only one ticket sales desk. Ryanair charges a €40 fee to check-in at the airport thus reducing the frequency of this happening to well below 1% of passengers through negative reinforcement. Ryanair has also achieved staff reductions by utilising their cabin crew at the boarding gate as well as on the plane itself. Inside the aircraft, Ryanair has artificial leather seats in their standard blue and yellow colours.
The seats do not recline, they have the safety cards printed on the seatbacks and they do not have pouches for holding magazines, papers, etc. This allows for faster cleaning of the plane after landing, which allows for faster turn-around times and overall causes more efficient utilisation of the aircraft available and higher profits in the long run. Capacity Planning is very important to Ryanair as they are a low fares airline and need to ensure they are reaching capacity as much as possible on their flights to maintain their profits. Ryanair has 275 Boeing 737-800 jets that each have a capacity of 189 passengers.
Ryanair operate 1400 flights per. day. Therefore their total daily capacity is 264,600 passengers (www. ryanair. com). As the capacity quantity is fixed, Ryanair must focus its efforts on demand management. Ryanair uses its’ online booking system to achieve optimum passenger levels by continually changing the prices of their flights to attract customers when necessary. The final structural element of the Service System design is ‘Location’. Ryanair operate its’ service in 160 different locations as this is the number of destinations they fly to/from.
However they have 44 bases, the biggest of which are at Dublin ; London Stansted Airports; their headquarters is located at Dublin Airport. Managerial Elements of the Service System Design include: Service Encounter, Information and Quality. The Service Encounter in Ryanair consists of Front-Line-Staff (other than pilots) that have minimal interaction with customers other than providing basic services in-flight and where monetary fines are being charged. Ryanair believes that it is providing a flight from A to B, it is not providing any additional services such as baggage, insurance, etc. nless you choose to pay for them and it is certainly not interested in providing an “experience” for customers in terms of comfort or quality of in-flight services. However Ryanair does outperform other airlines in terms of quality of service (service being the actual flight). Ryanair has the newest, quietest and cleanest fleet of aircraft (on average) of any airline in Europe with an average age of 3. 6 years. (www. planespotters. net). They also lose the least amount of bags (per. 1000) of any airline in the world and have the most on-time flights and least amount of cancelled flights of any European airline.
Thus it can be seen that while Ryanair does not offer a high-quality service in terms of luxury fit-out, attentive service, etc, it does offer a high quality basic flight service, which is exactly what it sets out to do. When looking at the Strategic Service Vision (SSV) of any firm, we must also consider the firm’s strategic focus and the environment within which the firm operates. This is due to the fact that firm strategy drives SSV decisions and relevant features of the Environment affect SSV decisions too. The Strategic Focus of Ryanair seems to be based on a combination of cost and quality.
In terms of cost, Ryanair would appear to focus their strategy on achieving the Lowest Total Cost. However they are also focusing their strategy on achieving operational excellence and a high quality service (in terms of the basic flight – timing, dependability, safety, bag handling). There are three features of the environment that Ryanair operates in that are relevant to the SSV design of the firm. These are: Entry/Exit Barriers, Competitor Benchmarks and Demand/Supply Variability. There are numerous barriers to entry and exit in the airline business. The most significant barrier to entry in the airline business is the start-up costs.
Whether you lease or purchase the planes and other assets that the firm would require, the capital required to start even a relatively small airline would be very significant. In the airline industry control of resources could be thought of as a barrier to entry with respect to the ownership of landing slots as these can be difficult to obtain for certain airports and thus can be very valuable. It was recently reported in The Guardian that ‘the most valuable part of Aer Lingus today, is in the landing slots that it owns at London Heathrow International Airport’ (The Guardian, November 2011).
Economies of Scale and customer loyalty (of existing firms) can also act as barriers to entry for new firms. The exit barriers that exist for airlines such as Ryanair would be disposal of assets, in their case 275 planes and also the buildings and machinery that they own. The vast amount of staff in the company would need to be ‘let go’ in accordance with regulations and existing bookings for future flights would need to be fully refunded. Competing firms in the industry establish Competitor Benchmarks. Three critical types of performance benchmarks are: Service Qualifiers, Service Losers and Service Winners.
Service Qualifiers are ‘What is required to compete in the industry in the first place’, and in the case of the airline industry these would include: planes which meet minimum safety standards, trained staff, booking system, contracts with maintenance firms, fuel suppliers, etc. Service Winners are ‘What will win the firm customers’ and in the airline industry this would include: Lower Prices (for the same service) than other competing firms, higher quality of service/experience, newer/safer planes than competitors, better record of on-time flights, less cancellations than competitors and a wider choice of destinations than competitors.
Service Losers are ‘What will lose the firm customers’ and these would essentially be the opposite of Service Winners, thus a lower quality of service/experience than competitors, older/less safe planes, poor record of on-time flights and cancellations and a poor choice of destinations. In the early days of Ryanair, the fact that they were using second hand Lufthansa planes that were not in the best mechanical condition would have acted as a Service Loser for the firm because many potential customers would have flown with another airline purely from a safety point of view.
Ryanair now has the youngest fleet on average in Europe and so has managed to turn its’ fleet (with respect to age and safety) from a Service Loser into a Service Winner. Low airfares are now and have always been a Service Winner for Ryanair. The third environmental feature that influences the SSV Design is Demand/Supply Variability. Ryanair has a fixed capacity due to only having a specific number of aircraft and a maximum possible number of flights per. day.
For this reason Ryanair should focus on Demand Management (as can be seen in the table below), as they have a high supply constraint and a high level of demand fluctuation. [pic] [pic] Ryanair has a highly advanced and automated online booking system, which is constantly tracking the number of bookings for a particular flight/route, the flights/routes that people are browsing online and the prices and available flights of competing airlines. Using this data the Ryanair booking system can automatically adjust the price on a constant basis to try to fill the plane as close to capacity as possible with the best return possible.
The fact that Ryanair’s passengers browse all of their options on the website, book their flights online and enter extensive personal information into the website, allows Ryanair to collect and analyse a large quantity of data on its’ customers (and potential customers) and thus adjust and develop their service accordingly. In conclusion, it seems clear to me, after analysing the Strategic Service Vision (SSV), Strategy and Environmental Factors of Ryanair that there is a very desirable and highly successful ‘fit’ between the SSV and strategy in the firm.
The strategy of the firm is, in short, to achieve operational excellence and the lowest total cost to provide their customers with the lowest possible fares. The Strategic Service Vision has been designed with this strategy very much in mind, and as the success of the airline proves, the SSV design works! Ryanair designed their model based on Southwest Airlines in the United States. Now this process has repeated itself, with many airlines in Europe copying parts of the Ryanair model, and with AirAsia creating a near identical model to Ryanair.
Ryanair is an extremely well managed and efficient operation and therefore it is difficult to find issues with their Service System Design or their Strategy. Datamonitor have been conducting a SWOT Analysis of Ryanair since 2008, and for each of the last three years the Strengths have been made up of: Robust Route Network, Strong Fleet Operations and Firm Operating Strategy. They complement Ryanair’s strategy of choosing only one aircraft type and say that it “enables Ryanair to limit the costs associated with personnel training, the purchase and storage of spare parts and training.
Furthermore this strategy affords the company greater flexibility in the scheduling of crews and equipment. ” Ryanair provides a point-to-point service, rather than the more traditional hub-and-spoke service usually found in the airline industry. This strategy allows them to eliminate the costs associated with providing additional services to connecting passengers such as transit and baggage transfer. Flying short-haul routes to secondary and regional airports allows for faster turn-around times, less costly airport fees and it also means that Ryanair does not need to provide additional “frills” such as in-flight-movies.
Datamonitor’s SWOT analysis indicates that some of the weaknesses of Ryanair’s operation include: ongoing legal proceedings related to day-to-day business (with passengers) and also to issues with airport bases. Another weakness identified by the SWOT analysis was the poor performance of Ryanair over the past year in two of its key geographic locations – Ireland and the UK. However this isn’t overly concerning considering the current economic situation in the region. Michael O’Leary may have rowed back slightly on his ambitious expansion plans, but he has other plans for the airline.
His pricing strategy over the years has been very clear – to be the cheapest airline in Europe, however he has more extreme plans: “Free tickets. In a decade or so, airlines will pay travellers to distribute people around Europe. The airline industry is Tesco, is Ikea-marketing-plan/” class=”ilgen”>Ikea, is network TV in the way viewers watch for free and advertisers pay for access to them, is the internet in the same way that websites earn money for delivering click-through traffic for other sites”. (Michael 0’Leary, C. E. O of Ryanair).
This may or may not have been humour from the notorious businessman, however it does give a clear picture of the way in which he (and the company) think about their business model. One aspect that I would consider changing in the Service System Design of Ryanair is the airline’s in-flight services. Although Ryanair is an LCC and thus has specifically chosen not to provide in-flight entertainment as part of its “no-frills” strategy, I feel that on-board entertainment systems, that incorporate screens and control systems in each seat, could be turned into a profitable feature on all Ryanair flights.
The system could incorporate movies (for the longer short-haul flights), TV shows (for all flights), games, Internet and email, and Ryanair could charge either a flat-fee or a usage-based fee for using the system. The system could also be used for ordering and paying for in-flight shopping and in-flight food and beverage items. I feel that this ordering and payment system could make the in-flight service more efficient for the company. Overall, the system would clearly be expensive to design and install, and there would obviously be on-going maintenance costs involved.
However I think if you take into account the possible revenue streams/profit from the entertainment/business side of the system and also the possible efficiency improvements from the ordering system, I believe in the long-run it could be a viable project and it would certainly be worth consideration. Bibliography: Alderighi et al; The Entry of Low-Cost Airlines; Tinbergen Institute Discussion Paper; September 8, 2004. Bowley, Graham; Financial Times; Quote from Michael O’Leary, Chief Executive Officer of Ryanair, regarding future pricing policy for the airline.
Brown, Douglas Robert; The Restaurant Manager’s Handbook: How to Set Up, Operate, and Manage a Financially Successful Food Service Operation 4th Edition; September 25, 2011. Datamonitor; Ryanair Holding PLC, Company Profile – SWOT Analysis, 11th March 2011. Fitzsimmons, James A. & Fitzsimmons, Mona J; Service Management: Operations, Strategy and Information Technology (7th Edition – Int’l Edition), London: McGraw-Hill; 2011. Goldstein et al; The service concept: the missing link in service design research? ; Journal of Operations Management; 2002.
Heskett, James; Lessons in the Service Sector; Harvard Business Review; March 1, 1987. History & About Us Section of Ryanair Website; www. ryanair. com PlaneSpotters Statistics; www. planspotters. net Refererence for Business; http://www. referenceforbusiness. com/management/Sc-Str/Service-Operations. html Rhodes, Dr. Mary-Lee; Operations Management JS Lecture Slides, Trinity College Dublin; 2011. The Guardian; Article referring to Aer Lingus landing slots at London Heathrow International Airport; November 2011