A chain of activities

Published Date: 23 Mar 2015

A value chain is a chain of activities carried out within the boundary of a firm. Products pass through all activities of the chain and at each activity the product gains some value. Value chain analysis illustrates how various activities, capabilities and resources fit together to give competitive advantage. The VC breaks down the whole production process to show the contribution made by each part which result in highlighting problems such as high cost or inefficient areas. Competitive advantage arises from a value creating proposition, possibly by managing the strategy for competition or by managing the firm's value creating activities. Competitive advantage could be achieved either through low-cost leadership or through differentiation.

When the strategy of RyanAir is considered, it is clear that their strategy is to attain competitive advantage through low cost leadership. The following sections of the answer intend to illustrate some of the strategies of RyanAir which enabled them to gain low cost leadership through using value chain analysis.

1. FIRM INFRASTRUCTURE

(General Management * Planning * Accounting * Finance * Legal)

Strategy of Low-cost Leadership - Centralised cost controls

RyanAir - Management, planning, accounting and finance mainly focus on lowering cost in numerous ways. The winning the international award for 'Best Managed Airline' as well as number of awards received by the CEO O'Leary are testimonies of their excellence in management and planning based on low-cost model. The focus on short-haul route enabled RyanAir to maintain centrality in fleet maintenance.

2. HUMAN RESOURCES MANAGEMENT

(Recruitment * Training * Motivation * Evaluation)

Strategy of Low-cost Leadership - Intensive training to emphasise cost saving means; encourage employees to look for new ways to improve methods.

RyanAir - The airline continued its policy of fleet commonality to keep staff training and aircraft training as low as possible. The introduction of tailoring rosters maximised the productivity of carrier and maximized the time off for crew members which enabled them to comply with EU regulations which resulted in minimizing the cost. New aircrafts with larger seat capacity minimized the need of crew per seat. CEO is considered as an inspirational leader who is the main human resource which enabled the airline to maintain their low cost strategy.

3. TECHNOLOGY DEVELOPMENT

(Products * Processes * Promotion Methods * Servicing Methods)

Strategy of Low-cost Leadership - Economies of scale or R&D and technology development; learning and experience amortised over large volume

RyanAir - Usage of technology related to web based check-in which minimises the cost of checking staff and airport facilities. The use of a newer fleet that is fuel efficient is a result of keeping tabs on R&D regarding fuel efficiencies and latest technologies.

4. OPERATIONS

(Machining * Assembly * Packaging * Maintenance * Testing)

Strategy of Low-cost Leadership - Economies of scale in plants: experience effects

RyanAir - New aircrafts also minimize maintenance cost. Winglet modification programme on the fleet resulted in achieving better aircraft performance and reducing fuel consumption of fleet. Charging for check-in bags which encouraged customers to travel with fewer checkin bags saved costs. Choosing secondary and regional airports through avoiding congested main airports given them a major cost saving.

5. OUTBOUND LOGISTICS

(Order Processing * Scheduling * Dispatching * Vehicles Operations * Warehousing)

Strategy of Low-cost Leadership - Bulk or large order shipment

RyanAir - The usage of web based check-in which minimises the cost of checking staff and airport facilities.

6. MARKETING & SALES

(Pricing * Promoting * Advertising * Selling * Channel Management * Quoting)

Strategy of Low-cost Leadership - Mass marketing: mass distribution: national and campaigns

RyanAir - Low cost pricing model - Most developed route system with frequent departures on many routes and reasonable punctuality at a comparatively lower price