Competitive Advantage: Virgin Atlantic and Ryanair

Keywords: virgin atlantic competitive advantage, ryanair competitive advantage

This report analyses how organisations can be strategically guided towards success. The report uses the strategic frameworks; the cultural web, the VRIO framework, the value chain and the ‘the three levels of culture’ to identify how organisations achieve competitive advantage. Virgin Atlantic and Ryanairs strategies are then subject to scrutiny under these frameworks to identify, in reality, how this is achieved.

Competitive Advantage and distinctive resources;

The purpose of strategy is competitive advantage. Competitive advantage emerges when an organisation enforces a strategy that creates value that is not being achieved by its competitors (Henry, 2008). The advantage becomes sustainable when competitors cannot mirror the value creation of the strategy. A distinctive resource of an organisation can be defined as a resource that cannot be imitated by other organisations (Henry 2008).

Strategic Planning; Vision, Values & Mission

A distinct characteristic of a successful organisation is clarity over what is to be achieved. A clear purpose can enthuse employees, managers and senior managers due to the similar values they may share (Scott & Jaff, 1993). A vision is the desired state the organisation aspires to accomplish, values are the core principles of an organisation and the mission gives reason to why an organisation exists (Kaplan et al, 2008). They need to be clear and concise and easily understood by all levels of the firm.

Carpenter and Porras (1996) emphasised why clarity of vision and mission hold importance they suggested employees who have a better understanding of the mission and vision are able to have a greater awareness of the organisations strategy and how it is implemented. Secondly an explanation is given to staff of how strategy helps achieve the vision and mission of the organisation. Finally they offer guidance to strategy development as they guide the strategy which guides the organisation.

Values create the foundations of an organisation; what the company promotes within their working culture can greatly influence decisions on every level thus a company’s strategy for the future will be formed around these core concepts and beliefs. They allow the formation of the organisation’s purpose; the fundamental reason for existence.

Case Example: Ryanair & Virgin Atlantic

Virgin Atlantic and Ryanair are successful airline companies who achieve competitive advantage in different ways.

Ryanair is a concentrated low cost airline who offers a no frills service to customers. The strategy of Ryanair is to be a cost leader. The purpose of Ryanair is therefore to provide a cheap, no frills flight service that is profitable.

Vision, Value and mission of Ryanair

Vision

To offer low fares that generate increased passenger traffic while maintaining a continuous focus on cost-containment and operating efficiencies.

Values

Cost efficient = low fares & low costs.

Mission

To firmly establish itself as Europe’s leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low-fares service.

Source: http://www.ryanair.com/doc/investor/Strategy.pdf (2013).

Ryanair measures its success through profit. Ryanair recorded a jump in profits towards the end of 2012 which indicates that Ryanair is achieving its purpose (http://www.bbc.co.uk/news/business-20202579).

Virgin Atlantic is a leisure airline who is able to diversify into unusual leisure routes and serve different demographic locations to Ryanair. The overall purpose of Virgin Atlantic is therefore to grow a profitable airline that focusses on business and leisure markets and the quality of service offered whilst empowering staff.

Vision, Value and Mission of Virgin Atlantic

Vision

The success of our three year strategy requires us to build on these foundations by focussing on the business and leisure markets and driving efficiency and effectiveness.

Values

Caring, honest, value, fun, innovation.

Mission

To grow a profitable airline where people love to fly and people love to work.

Source: Virgin Atlantic (2013)

Virgin Atlantic measures it success through feedback from both staff and customers through effective feedback systems including 360 degree feedback. The feedback received is often positive and shows Virgin Atlantic is achieving its purpose of providing an airline where people love to fly and staff love to work (Virgin Atlantic, 2013).

The above examples demonstrate how vision, values and mission statement underlie the purpose of an organisation and how combining the three together form the foundation of strategy.

Ryanair

The first organisation to be looked at is Ryanair and how it achieves its cost leader status by looking at its culture in terms of the three levels of culture framework and by applying the value chain to analyse how they integrate the flow of activities to achieve competitive advantage

Culture and its connection to strategy

Schein (1988) defined organisational culture as a pattern of basic assumptions a given group has created by learning to handle problems of internal integration and external adaptation. Culture is created through the actions of upper level management in relation to what they take precedence to, what they focus on and what behaviours they punish or reward. Hall (1993) suggested culture can be viewed as an intangible resource that can be classified as an asset or competency contributing to an organisations sustainable competitive advantage as culture can hinder a strategy or make a strategy excel.

Scheins (1988): three levels of culture

Hatch (1993) described the model as a conceptual framework for intervening with and analysing internal organisational culture. Schein (1988) described culture as three levels categorised into:

Artifacts

Espoused Values

Basic Underlying Assumptions.

They show how deeply values and beliefs are embedded into an organisation. The model shows the degree to which culture is visible to an organisation and brings about an understanding of the way business process are carried out and what can be done to assist change in an organisation. It is used to diagnose cultural characteristics of an organisation which can then be used to develop or maintain Strategy and the strategic advantage that ensues. The table below summarises each level of culture;

Three Levels of Culture

Artifacts

The most observable level of culture and can include business process, aesthetics of the organisation or organisational structures for example. All are visible indicators of culture but are difficult to interpret.

Espoused Values

They underlie behaviour and can, to some extent, determine behaviour. They are not directly observable and can include strategies, goals & objectives or philosophies for example.

Basic Underlying assumptions

These assumptions are unconscious and often stem from values until they are taken for granted and transfer to the unconscious.

Source: Williams (2012).

Ryanair 3 levels of culture;

The culture of Ryanair is cost efficiency which is reflected in their values, vision and mission where they create their main competitive advantage of being a low cost, frill free airline.

Using the framework a diagnosis can be made of the culture of Ryanair and how this creates competitive advantage;

Ryanair; Three levels of Culture

Artifacts

No complementary services are offered at Ryanair; this reflects cost efficient culture as instead they sell secondary services on flight.

Head office staff supply own pens and are not allowed to charge their phones at work in the office, reflective of low cost culture.

Employees pay for their own training and uniforms.

Ryanair use subsidiaries to make fares cheaper, they are obtained from using local airports so the savings can be passed onto customers.

Espoused Values

The policies enforced by Ryanair’s senior management, e.g. the policy of having to buy own uniform/ stationary equipment, reflects cost efficient nature.

Basic Underlying assumptions

Embedded guidelines in Ryanair; staff & employees deliver a cost efficient service to passengers and they know that they are getting a frills free flight where the expectation of other airlines is to receive complimentary services.

Source: Ryanair (2013).

The three levels of culture demonstrate how the strategy of cost leadership is built into the culture of Ryanair culture so it becomes an unconscious process from staff and an expectation of customers.

The Value chain.

The value chain was first characterised by Porter (1985) and is a chain of activities that group together the main value adding activities of an organisation and can be used as a strategic planning tool. Porter (2007) described an organisation as a compilation of individually distinct, interrelated, economic activities which include both primary and secondary activities. The value chain serves as a guide for identifying the key activities within an organisation which make up the value chain that have the potential to create a sustainable competitive advantage. The competitive advantage emerges from the ability of the organisation to perform identified activities in the value chain in a superior way to competitors.

Source: Williams (2013).

The value chain is divided into primary activities and secondary activities which need to linked together strategically across the organisation so resources can be optimised and coordinated in a way to sustain competitive advantage. Primary activities are activities classified as products or marketing related activities. Support activities assist the primary activities and include infrastructure, human resource management, procurement and technological development.

Value Chain of Ryanair

The Value chain of Ryanair is a demonstration of how they integrate both primary and support activities together to create competitive advantage;

Table of support Activities which add value to Ryanair;

Support Activity

Description

Infrastructure

Ryanair’s Head Offices are minimal

Human resource Management

Management control, limited training, Low number of staff

Technology development

Internet booking system, Low tech marketing, Internet sales, Integration of systems

Procurement

Outsourcing, low costs & alliances

The support activities defined show how they can accommodate the primary activities in a way that is cost effective. For example, Ryanair’s point of sale is internet based, cutting out the middle person so flight bookings go directly to Ryanair themselves.

Table of Primary Activities which add value;

Primary Activity

Description

Inbound logistics

Quality training, Low cost suppliers, Airport agreements

Operations

No added frills (low cost.)

Outbound logistics

Fast turnaround times of aircraft, reliable service

Marketing & Sales

Low cost promotions, Free publicity, Internet sales, controversial

Services

Limited resources and very basic

Throughout the value chain, each activity is based around cost efficiency. Money is saved through;

Providing a basic service to customers

Using the internet as a point of sale which incurs lower costs as less human capital is needed

Instilling a cost efficient mind set in staff through managing staff in a cost efficient manner by lowering overheads on training, uniform and fancy offices

Ensuring there technology and logistics are built around time efficiency ensuring maximum usage of craft and ensuring services they offer are reliable.

Source; Ryanair (2013).

Virgin Atlantic

Virgin Atlantic has a reputation of quality, whether it is quality in terms of service, treatment of staff or the design of the actual aircraft. The cultural web will be used to identify how culture contributes to competitive advantage of Virgin Atlantic and how its resources are distinctive to those of its competitors.

Cultural Web & Strategy

Corporate culture and reputation are significant, intangible resources of an organisation that can create sustainable competitive advantage. The cultural web is a diagnostic tool that looks at the internal environment of an organisation aligning strategy with culture Johnson (2000). Seel (2000) describes the cultural web as six interrelated elements centred round the paradigm (the organisations core belief) which constitutes as the work environment. The paradigm is structured on collective experiences and informs what people in the organisation do and has influence over how change should be responded to. Stories, symbols, power structures, organisational structures, control system and ritual & routines are the six elements that make up the web and are the focus of strategic change. Each of the elements must be examined in order to gain understanding of an organisations culture (Johnson, 1992). Organisational culture needs to inspire innovation meaning that although culture needs to be embedded in an organisation it needs to also be flexible in order to achieve sustainable competitive advantage.

Cultural web of Virgin Atlantic

The paradigm of Virgin Atlantic is reflected in their mission statement; to grow a profitable airline where people love to work and people love to fly. The core belief of Virgin is delivering quality experience.

Stories; Most stories involve Richard Branson (the founder of the virgin brand) and often relate to his personality or management style and portray him as an anti-corporate, innovative hero.

Rituals; Virgin Atlantics headquarters are spacious, have a relaxed atmosphere and when staff reach training milestones they and their families are invited to an event which is often attended by Branson himself.

Power Structures; Most decisions and visions are controlled by a driven, close knit group of senior executives

The VRIO framework

Barney (1997) described strategic resources as; valuable, rare, inimitable and organisable. The VRIO framework is a tool an organisation can use to examine its internal environment and views organisations as bundles of resources. If these resources are correctly used then an organisation can gain competitive advantage over competitors depending on the four characteristics identified by Barney (1997) and determines whether the advantage is temporary or sustainable.

O’riordian (2006) described four questions that need to be asked when identifying an organisations resources and capabilities;

How valuable is the resource?

How rare is the resource?

Can the resource be imitated?

Is the resource organised in an efficient manner?

If the answer is ‘yes’ to the above questions then the resource offers a competitive advantage over competitors.

When analysing an organisations resources one of the following answers occur (Barney 1997);

If an organisations resource is not valuable then the firm can expect to be at competitive disadvantage

If the resource is valuable but not rare competitive parity is reached

If the resource is valuable but not rare a competitive advantage is reached but it may only be temporary.

If a firms resources are rare, valuable but not costly to imitate then temporary competitive advantage results.

If the resources of an organisation are valuable rare and costly then a sustained competitive advantage will result if the resources are organised properly.

VRIO framework of Virgin Atlantic

Virgin Atlantic has a number of resources that help sustain its competitive advantage over competitors. Its brand and reputation are indisputably its strongest resource whereas its customer service, geographic location (in terms of flight destinations) and human resources are a competitive advantage now, but have the risk of being imitated in the future.

VRIO Framework of Virgin Atlantic

Resource

Value

Rarity

Inimitability

Organised

Competitive Implications

Virgin Brand

Sustained competitive advantage

Finance

Sustained competitive advantage

Reputation