Comparison and Contrast of Boston Consulting Group Matrix and Competitive Advantage Model

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The complexity and uncertainty of the business operating environment continue to increase each day. Businesses have to confront these changes by making changes that align resources to the strategic decisions of the business to achieve optimal levels of performance. Human resource is a crucial component in business performance and has received a lot of attention by researchers with the aim to provide a direct link with strategic business decisions for efficiency and competitive advantage. Two models that attempt to link human resource management (HRM) in an organization to the overall strategy are Boston Consulting Group Matrix (BCG) and competitive advantage model. This essay provides a comparison and contrasts of the BCG and competitive advantage models, offers a review of the low-cost airline's sector in the United Kingdom, assesses the strategic organization of Ryan air and how the company differentiates itself from the completion. Lastly, the essay provides a link to Ryan air’s human resource approach to the company’s strategic positioning both general and using specific examples.

Comparison and contrast of BCG and Competitive Advantage matrix and competitive advantage model

The BCG matrix was developed by the Bolton Consulting Group and seeks to analyze business marketing and growth (Rudnicki & Vagner, 2014, p. 79). According to Croitoru & Robescu (2014, p. 142), the “BCG matrix represents the method allowing for an excellent integration of the financial with the strategic aspects”. The similarities in the two models include that they both seek to ensure the business achieves better strategic positioning and improved profitability both in the short run and the long run. The other similarity between the two models is the utilization of comparative advantage in the resources and portfolio to make strategic choices of positioning the business. The focus is ensuring the company’s strengths are utilized to achieve the best strategic position that delivers the most result in both models.

The main difference between BCG model and Porter’s competitive advantage model is on the strategic direction of each model. The BCG model focuses on the experience of the business in the market as a basis for reduced costs and increased profitability while the competitive advantage model relies on the ability of a business to sustain its competitive advantage. In the competitive advantage model, a business can either pursue a low-cost strategy or a differentiation strategy to achieve better market positioning. The other focus of competitive advantage theory is the creation of value for the consumer while the BCG matrix focuses on the allocation of resources to areas that will deliver the greatest profits (Werther Jr & Chandler, 2010, p. 122). Whether Jr and Chandler (2010, p. 122) provide an example of Wal-Mart following a cost leadership position while McDonald's following a low costs and differentiation (fast service strategy) showing the application of the theory.

Analysis of the Low-Cost Airline Sector in the United Kingdom

A low-cost airline is defined as an airline that carries passengers by offering low-cost fares in exchange for eliminating certain traditional services to them. The growth of the airline industry has implied that there is an increase in demand for budget airlines around the world to meet the demand from customers. As such, airlines around the world are coming up with packages that are quite pocket-friendly to the clients. It is prudent to note that with the rise in demand, there have been some definite changes in the sector of low-cost airlines top among them being the fact that low-cost carriers now go longer routes than they did before. The United Kingdom has not been spared in the sport of low-cost carriers in the airline industry. In the country, the last ten years have seen the sector of low-cost airlines become one of the fastest growing sectors with surges of up to 61%. There are various major players that seemed to have stirred the growth through increased investment with distinct market shares. Nevertheless, it is quite judicious to state that despite the fact that the sector has seen such tremendous growth since its inception, it has not been spared its fair shares of challenges including the assertion that the market is too crowded to allow for growth in the industry.

All around the world, low-cost airlines are becoming an essential part of the contemporary traveling style. The International Air Transport Association had predicted the growth of the sector and as such, there has been the visible growth of up to 16-18% in Europe alone (O’Leary, 2002, p. 246). In the UK the pioneers of the industry took it by storm and as such half of the air journeys in the country are in budget airlines. It is prudent to note that initially; the air transport sector in the UK was dominated by the British Airlines and with the aspect of deregulation coming into effect forcing an environment of optimal models of operation, low-cost operations came into effect. Among the pioneers of this industry was Ryanair that was founded by the Ryan family as a conventional airline in 1985. In the midst of financial crunches, the airline transformed itself to be the first no-frills low fare carrier in the country. It is noteworthy that being the first low-fare carrier implied that it bought into the disruption of over-regulation and lack of competition to tap into the virgin market. Soon there were entrants into the industry with companies such as Easy Jet, Jet2, Monarch, Flybe, and Thompson among others. It is prudent to note that Jet2 currently ranks as the top low-cost airline in the United Kingdom according to Trip Advisors having overtaken the pioneers.

However, despite the apparent growth witnessed in the industry, it is prudent to note that there have been distinct challenges that have faced the industry. One of the major challenges that the industry has faced in the recent times is the regulations that are put into place both domestically and by the regional body of European Union. It is judicious to state that the European airline industry is incessantly subject to regulations that often seek to protect the national airlines. The EU, therefore, introduced the competition laws that seek to ensure that no airline dominates the industry and takes advantage of the dominant position. The domination of charter carriers and franchises have also played a role in challenging the growth of low-cost flights in the UK. For instance, charter flights take up to 25% of the market share. Besides, small operators also tend to be franchised to large air carriers. This aspect deals a blow to low-cost airlines that cannot operate competitively on short-haul trips. It is also prudent to state that the fact that low-cost airlines do not offer the traditional services and frills that are offered in traditional airlines implies that the bargains are placed on the quality of service. This fact implies that the airlines are forced to invest in other complementary services such as the regulation of the luggage fee. Perhaps the biggest challenge is the fact that the market has matured with an influx of low-cost airlines thus putting into jeopardy the long-term balance between legacy airlines and the low-costs. In the recent times, the biggest challenge to the aviation industry as a whole is the exit of Britain from the United Kingdom that saw the passenger growth decline by almost 50% (Miller, 2016, n.d.).

Despite the fact that the low-cost airline industry seems to be facing a substantial amount of challenges in its growth, it is quite apparent that there still exist windows of opportunity to realize more maturation within. It is anticipated that the aviation industry in the world is likely to face a doubling of demand and freight aircraft within the next two decades. The implication of this aspect will not only be felt by the chartered and conventional airlines, but the low-cost airlines still bear the prospects of buying in into the new markets. In addition to that, it is pretty ostensible that despite the fact that the exit of Britain from the European Union seems to have adversely affected air travel by nearly fifty percent, it is prudent to also note that the nation is seeking to open new routes that may require an increase in freights. For instance, the Transport Secretary, in his maiden speech to the aviation industry stated that the Asian markets are quickly opening to be new markets for the British airline industry (Gov.uk, 2016, n.d.). In this regards, it is prudent to assert that there still exists a gap for the growth of the industry despite the Brexit setback.

PEST Analysis

PEST entails the political, economic, social, and technological factors that affect a business allowing for the identification of strategic risk (Sammut‐Bonnici & Galea, 2015, n.d.). Ryanair’s PEST is analyzed in this section to identify the company’s threats and opportunities.

Political:

opportunities in the political landscape include liberalization of the airline industry and facilitation of travel and tourism by government improving demand for airline services. Rules and regulations and the imposition of taxes reduce company profitability. The company received government support as the National Carrier in Ireland improving its viability and international presence.

Economic factors:

positive economic factors include economic recovery increasing demand for the low-cost-airline and alignment of pricing to customer needs during tough economic times.

Low demand from the recession, increased oil prices, rising handling and airport fees, and the threat of substitutes including rail are the negative effects on Ryanair’s competitive position in the market.

Social factors:

increased travel, population growth, and improved consumer purchasing power have been beneficial for Ryanair. However, customer tastes and preferences require more dedication to customer service and provision of associated products, losing some customers owing to low-cost no-frills model.

Technological:

improved planes that consume low fuel and internet usage for marketing and booking have been a positive contributor to Ryanair’s business. Technology has made it much more competitive with customers having easier information access requiring companies like Ryanair to put more effort in service delivery and offer lower prices to succeed in the market.

PEST analysis reveals the increased competition in the market with companies in the low-cost industry seeking to provide more value to consumers. The improved economic conditions and better political, social, and technological environment have been beneficial for the businesses.

Porter’s Five Forces Analysis

Porter’s five forces analysis is “a powerful management tool for analyzing the current industry profitability and attractiveness” (Dalken, 2014, p. 1). Dobb (2014, p. 32) provides a clear exposition on the application of Porter’s five forces in the analysis for effective conclusions. The effectiveness of the model on highlighting the structural features of an industry is cleared captured by Renko, Sustic & Butigan (2011, p. 376). The application of the model to Ryanair is provided in the following section.

Buyer’s bargaining power:

High. The business cannot increase prices without losing customers to competitors

Supplier power:

High. There is high supplier switching costs and only two major airplane suppliers, Airbus and Boeing.

The threat of new entrants:

Low. High capital requirements, the need for strong brand recognition, and economies of scale deter new entrants.

The threat of substitutes:

High. This is due to zero switching costs and availability of low-cost competition.

Competitive rivalry:

High. Competitors include Virgin Express, Easy Jet, Fly Bee, and BMI Baby among others keeping profit margins.

In a nutshell, the increased demand for air transport globally seems to have opened doors for the aviation industry globally. However, passengers also demand affordable transport and as such, there has been a demand for a shift in dynamics to cater to their needs. The introduction of low-cost flights seemed to have filled in the gap especially after the reduction in regulation in the transport industry. The pioneers in the low-cost air transport in the UK testify of growth due to the lack of competition. Ryanair, which was a pioneer in the industry registered large numbers of passengers before the entrance of other major players such as Jet2, Easy Jet, and Monarch among others. Nevertheless, despite the growth in trends and stocks in the low-cost carriers, there has been a myriad of challenges that have been witnessed including competition from large freights and charter planes. However, there still exists windows of opportunities for the growth of the low-cost aviation sector in the United Kingdom that seeks to create more avenues for even more growth based on the anticipated rise in air travel.

Ryanir Organization strategy

Ryanair is an Irish airline company with its headquarters in Dublin and operates in 729 routes across Europe and North Africa. The company has grown over the years since it was established in 1982 and serves the low-cost market with a passenger volume of 130 million annually making it the third largest European airline (Elmers, 2009, p. 2). The company is the “largest and longest established low-cost airline in Europe” (Barret, 2009, p. xiv). Elmers (2009, p. 2) cites the deregulation of the European air industry and the low –cost/no frills concept as major helping points for the company’s exponential growth between 1999 and 2008. Ryanair’s vision is “Saving you, your business and your family even more money than ever before” (Ryanair). The company’s mission is to achieve number to be in coverage, traffic, and customer service not only in Europe but the whole world i.e. “To Ryan air mission statement is to offer low fares that generate increased passenger traffic while maintaining operation. Ryanair’s objective is to firmly establish itself as Europe’s leading low-fares scheduled passenger airline (Ryanair).

Ryanair attempts to differentiate itself from the competition through following a low-cost strategy. Ryanair seeks to provide the customers the lowers fare possible to the different destinations in its routes. This strategic position aligns with the consumer’s preference for low-cost travel opportunities in line with tough economic conditions. The company provides high discounting rates hence a low-cost competitive advantage over other players in the low-cost airline sector. The achievement of low-cost has also been through fuel hedging, which helps the company overcome increased fuel prices and offer a competitive advantage over competitors. The company has also explored plan capacity expansion and maximum fleet utilization reducing the overall costs hence keep the lower pricing while still making a profit. The company seeks to utilize these strategies to become the world’s favorite airline in fear years as outlined in its website (Alvine, Uslay, Dixit, & Sheth, 2007, p. 221).

SWOT Analysis

SWOT analysis is a “framework for helping the researchers to identify and prioritize the business goals, and to further identify the strategies for achieving them” (Ommani, 2011, p. 9448). The following table shows the SWOT analysis for Ryanair.

Strengths

First entry to the low-cost airline market

Operation in low cost routes

Low-operation costs

Innovation for efficiency

Weaknesses

Sensitivity to increased prices and taxes imposed

Reducing margins

Irregular cash flows

Opportunities

Expanding airline industry in Europe and globally

Expand routs through acquisitions and mergers (Acquisition of Buzz in 2003 was very effective, Hisrich & Kearney, 2013, p. 136)

The open-skies agreement promotes flights to new routes and destinations

Lease out planes when demand is low

Threats

Slow economic recovery in Europe

High competition and discounts reducing margins

Lowered costs by competitors could negatively affect the business

The possibility of highly prices contracts for new routes

Conclusion: Ryanair has strengths and available opportunities to overcome weaknesses and threats. The opportunities are many but require strategic alignment to remain as competitive as ever. Low cost policy and excellent focus on costs reduction are great selling points for the company to continue succeeding in the low-cost airline sector and overcoming competition while expanding beyond Europe to new routes and destinations.

Summary of Ryanair strategic positioning

Low Fare:

low fares to attract many customers and beat the competition through controlling costs and augmenting efficiency

Customer service:

better service delivery compared to competitors including low cancelation, punctuality, and luggage accountability.

Minimize personnel cost:

continuous improvement and highly motivated and productive workforce reducing turnover rates

Minimum operating costs:

internet booking, efficient operations, and no-frills reduce total expenditure

Route choices:

fly routes that have convenient access to many customers and require least handling costs

Safety: committed to ensuring safety for all through adequate training and effective personnel management

Human Resource Link to Strategy

Ryanair takes several approaches to human resources take ensures the company’s strategic position is maintained currently and in the future. The strategic human resources decisions seek to help the company provide low-priced fares, keep operation costs low, promote efficiency, and offer excellent customer service. The HRM strategies implemented at Ryanair include:

Negotiation:

the company negotiates directly with employees and does not consider Unions in negotiations reducing human resource costs (Bratton & Gold, 2017, p. 339). The anti-union stance by the company gives little room for negotiations and the company even requires employees to buy their own uniforms and charge their phones before going to work as efforts to reduce the costs (Carbery & Cross, 2013, p. 14).

Training: offers training for pilots, crew, and customer service personnel to ensure efficiency of operations and provide quality excellent service delivery in line with its strategic goal of being the best in service provision.

Low-costs strategy:

Ryanair’s HRM is consistent with its low-cost strategy with training, hiring, and payment of entitlements to employees outsourced to achieve efficiency and reduce the costs for the company (Gilmore & Kenny, 2015, p. 258). Cabin staff crew are employed on short-term contracts reducing the total costs (Williams, 2017, p. 157).

The company ensures adherence to industry standards and regulations on working conditions and working hours.

The human resource management decisions at Ryanair follows the competitive advantage model through a low-cost strategy by taking measures to ensure the least costs are spent on human resource including low employee compensation and outsourcing some functions such as training. The company also aligns its human resource functions to competitive advantage strategy using the BCG matrix by seeking to ensure the employees provide competitive advantage through excellent service delivery. The company achieves this by ensuring employees are well-trained and motivated to provide the best service creating competitive advantage.

Conclusions and make recommendations

The analysis shows the success of Ryanair in following a low-cost strategy to achieve a market leadership position. The company should continue pursuing the low-cost strategy with improvements in efficiency and better customer service to cement its position at the top of the low-cost airline sector. Aggressive hedging, technology utilization, improved efficiency, and contract negotiations for cheaper routes are strategic recommendations for the business to pursue to keep its position and maintain customers going forward. These strategies will ensure the business can ensure low cost of operation is maintained while accessing new routes to take advantage of opportunities to expand beyond the United Kingdom.

References

Barrett, S., 2009. Deregulation and the airline business in Europe: selected readings. Routledge.

Bratton, J. and Gold, J., 2017. Human resource management: theory and practice. Palgrave.

Croitoru, G. and Robescu, O., 2014. The Rise And Fall Of BCG Model. In Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE (Vol. 8, No. 1, pp. 143-152). Faculty of Management, Academy of Economic Studies, Bucharest, Romania.

Dälken, F., 2014. Are porter’s five competitive forces still applicable? a critical examination concerning the relevance for today’s business (Bachelor's thesis, University of Twente).

Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp. 32-45.

Elmers, S., 2009. Ryanair voted least favorite airline for third year running.

Gilmore, S. and Kenny, K., 2015. Work-worlds colliding: Self-reflexivity, power and emotion in organizational ethnography. Human Relations, 68(1), pp. 55-78.

Growing opportunities for UK Aviation. 21 November, 2016. Accessed 25/03/2018. https://www.gov.uk/government/speeches/growing-opportunities-for-uk-aviation

Hisrich, R. & Kearney, C. 2013. Managing innovation and entrepreneurship. Sage Pubications.

Ionescu, F.T., 2011. Boston Consulting Group II–A Business Portfolio Analysis Matrix. International Journal of Economic Practices and Theories, 1(2), pp. 65-70.

Miller, V. 2016. "Brexit: impact across policy areas."

O'Leary, M. 2002. "The British Airways human factors reporting programme." Reliability Engineering & System Safety 75(2), p/. 245-255.

Ommani, A.R., 2011. Strengths, weaknesses, opportunities and threats (SWOT) analysis for farming system businesses management: Case of wheat farmers of Shadervan District, Shoushtar Township, Iran. African journal of business management, 5(22), p. 9448.

Renko, N., Sustic, I. And Butigan, R., 2011. Designing marketing strategy using the five competitive forces model by Michael E. Porter-Case of Small Bakery in Croatia. International journal of management cases, 13(3), pp. 376-385.

Rudnicki, W. and Vagner, I., 2014. Methods of strategic analysis and proposal method of measuring productivity of a company. Zeszyty Naukowe Małopolskiej Wyższej Szkoły Ekonomicznej w Tarnowie, (2 (25), pp. 175-184.

Ryanair. History of Ryanair. Ryanair Corporate Website. https://corporate.ryanair.com/about- us/history-of-ryanair/

Sammut‐Bonnici, T. and Galea, D., 2015. PEST Analysis. Wiley Encyclopedia of Management.

Werther Jr, W.B. and Chandler, D., 2010. Strategic corporate social responsibility: Stakeholders in a global environment. Sage publications.

Williams, S., 2017. Introducing Employment Relations. Oxford University Press.

January 19, 2024
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