This report explores Ryanair’s domain in relation to the external environment and outlines the concerns for the company within these sectors. The environmental uncertainty of Ryanair is dealt with and ways in which it can adapt to this uncertainty are outlined. This report also explores possible strategies for minimizing environmental uncertainty for the organisation. 1. Ryanair’s domain in relation to the external environment and sectors of concern for the company An organisation like Ryanair’s domain is the chosen environmental field of action. It is the territory the organisation stakes out for itself with respect to products, services, and markets served” (Daft, 2007 p50).
Ryanair’s goal is to provide a no frills service with low fares designed to stimulate demand. Ryanair’s domain defines the external sectors with which the organisation will interact to accomplish its goals. These external sectors are elements that exist outside the boundary of the organisation and have the potential to affect all or part of the organisation. They can be divided into the task environment and the general environment.
Ryanair’s task environment “includes sectors with which it interacts directly and that have a direct impact on its ability to achieve its goals” (Daft, 2007 p50). These include the airline industry itself, the raw materials Ryanair needs in order to offer its service, the market sector and the human resources sector. Ryanair has a strong industry position as Europe’s largest low-fares airline. This year it can expect to carry close to 67 million passengers on over 830 low fare routes across 26 European countries (www. ryanair. com).
However, the airline industry itself is set to face its worst revenue environment in 50 years. The IATA (International Air Transport Association) predicted in March that there will be losses of US$4. 7 billion in 2009. Giovanni Bisignani, IATA’s Director General and CEO, commented “The state of the airline industry today is grim. Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago. Our loss forecast for 2009 is now US$4. 7 billion. Combined with an industry debt of US$170 billion, the pressure on the industry balance sheet is extreme”.
Passenger traffic is set to decline rapidly by 5. 7%. This downturn in the industry puts huge pressure on all airline companies. Ryanair must battle with competitors such as Aer Lingus, British Airways and Easyjet to remain profitable. On the positive side whilst the industry faces tough times and stiff competition Ryanair still managed to increase its March traffic by 5% this year. As Ryanair doesn’t make its own aircraft, the organisations main material sector concerns are that of oil and the availability of aircraft.
The company has had little to worry about in previous months with fuel prices falling but it is only a matter of time before oil prices soar once again. The fall in the price of oil has helped to curb the declining demand and decreasing revenue faced by Ryanair. In 2009, with an expected fuel price of US$50 per barrel (Brent oil), the industry’s fuel bill is expected to drop to 25% of operating costs (compared to 32% in 2008 when oil averaged US$99 per barrel). Combined with lower demand, total expenditure on fuel will fall to US$116 billion, compared to US$168 billion in 2008 (IATA).
Ryanair has little aircraft worries as it currently operates a fleet of 181 new Boeing 737-800NG aircraft with firm orders for a further 111 new aircraft (all net of planned disposals), which will be delivered over the next 3 years (www. ryanair. com). In the market sector Ryanair must try to satisfy all of its target markets ever changing requirements. It needs to maintain its low fares while continuing to prioritise features which are important to consumers such as frequent departures, advance reservations, baggage handling and consistent on-time services.
This is difficult as people are always looking for the best possible service for their money and expect frills even with low fares so Ryanair has to work hard to find the right balance to attract as many customers as possible. The human resources sector is of significant concern to every business. Ryanair currently employs a team of 6,000 people, comprising of over 25 different nationalities (www. ryanair. com). In the current economic climate Ryanair has to make sure it is remains profitable and is able to pay employee wages.
Planning ahead Ryanair must ensure its future human resource needs are meet and not exceeded. “The general environment includes those sectors that might not have a direct impact on the daily operations of a firm but will indirectly influence it” (Daft, 2007 p52). Ryanair’s general environment includes government, sociocultural, economic conditions, technology, and financial sectors. In the government sector Ryanair has the advantage of having most of its operations in Europe.
This is a politically stable region with common flight regulations which makes it easy for Ryanair to be familiar with them. The sociocultural environment is a sector which greatly impacts on Ryanair. This environment is categorised by changing consumer demographics and fluctuating consumer preferences, most of which are completely uncontrollable from the perspective of Ryanair. Consumer behaviours are becoming harder to predict as consumers tend to shift loyalties from one brand to another due to price differences or even lack of basic consumer consistency.
The firm must come to understand its intended markets in order to remain successful as increased competition with carriers offering lower-cost fares is impacting the consumer mentality regarding which carrier to choose when travelling within European destinations. The current economic climate is a huge concern for Ryanair. The organisation faces huge reductions in revenue and passenger numbers as the industry suffers at the hands of the recession. In such hard times consumers are increasingly unlikely to travel or take holidays.
However Ryanair remains in a leading position and provided the industry improves should recover high profits in a few years. The technological environment does not appear to significantly impact Ryanair in a negative capacity. The firm appears to be in a position that it is still able to sustain the purchase of new jets to remain competitive despite the airline industry being in an unhealthy position. New technology has offered Ryanair the opportunity to further cut costs by taking advantage of new services such as self check in kiosks at airports and online check in.
The current financial climate is a threat to all firms but Ryanair has managed to accumulate huge profits over the last number of years which put it in a good position to ride out the current climate and return to high profitability in the next few years. 2. The organisational structure of Ryanair and environmental uncertainty There are two vital ways in which the environment influences organisations, they are: “the need for information about the environment and the need for resources from the environment” (Daft, 2007 p55).
This makes environmental uncertainty something that organisations want to greatly minimise. “Uncertainty means that decision makers do not have sufficient information about environmental factors, and they have a difficult time predicting external changes. Uncertainty increases the risk of failure for organisational responses and makes it difficult to compute costs and probabilities associated with decision alternatives” (Daft, 2007 p55). To assess uncertainty, each sector of the organisations task environment can be analysed along dimensions such as stability or instability and the degree of complexity. The simple-complex dimension concerns environmental complexity which refers to the number and dissimilarity of external elements relevant to an organisation’s operations” (Daft, 2007 p55). There will be greater complexity the more external factors that there are regularly influencing the organisation and the greater number of other companies in an organisation’s domain. “The stable-unstable dimension involves whether elements in the environment are dynamic. An environmental domain is stable if it remains the same over a period of months or years.
Under unstable conditions, environmental elements shift abruptly” (Daft, 2007 p56). The simple-complex and stable-unstable dimensions are combined to form a framework for assessing environmental uncertainty. The greatest uncertainty for an organisation occurs in the complex, unstable environment such as that of the airline industry. A large number of elements affect Ryanair, and they shift frequently or react strongly to organisational initiatives. When several sectors change simultaneously, the environment becomes turbulent.
Examples of these affects on the airline industry are when “in just a few years they were confronted with an air-traffic controller shortage, price cuts from low-cost carriers…, soaring fuel prices, the entry of new competitors…, a series of major air-traffic disasters, and a drastic decline in customer demand following the 2001 terrorist attacks” (Daft, 2007 p58). Therefore limiting environmental uncertainty is of great importance to Ryanair in order to maintain their success.
Ryanair can adapt to environmental uncertainty by modifying: positions and departments, buffering and boundary spanning, differentiation and integration, organic versus mechanistic. Ryanair could expanding its positions and departments in order to deal with the complexity and uncertainty in the external environment. This would further increase internal complexity so that each sector of the external environment has an employee or department to deal with it directly. Ryanair could also consider additional boundary spanning.
This exposes the technical core to the uncertain environment under the belief that being well connected to the external environment is more important than internal efficiency. Boundary spanning is concerned with “the exchange of information to detect and bring into the organisation information about changes in the environment and send information into the environment that presents the organisation in a favourable light” (Daft, 2007 p60). Ryanair could achieve this through the approaches of business intelligence and competitive intelligence (CI).
Another response to environmental uncertainty is the amount of differentiation and integration among departments. “Organizational differentiation is the differences in cognitive and emotional orientations among managers in different functional departments, and the difference in formal structure among these departments” (Daft, 2007 p61). This allows highly specialised departments to handle the uncertainty in their external sector. However, high differentiation can result in difficulties in coordination among departments. Integration is the quality of collaboration among departments. Formal integrators are often required to coordinate departments” (Daft, 2007 p62). Lawrence and Lorsch (cited in Daft, 2007) found that organisations perform better when levels of differentiation and integration match the level of uncertainty in the environment. An additional approach Ryanair can take to adapt to environmental uncertainty is to vary the amount of formal structure and control imposed on employees.
Tom Burns and G. M. Stalker (cited in Daft, 2007) observed that when the external environment was stable, the internal organisation was controlled by rules, procedures, and a clear hierarchy of authority. Burns and Stalker called this a mechanistic organisation system. However, in changing environments “the internal organization was much looser, free-flowing, and adaptive. Rules and regulations often were not written down or, if written down, were ignored…The hierarchy of authority was not clear. Decision-making authority was decentralized” (Daft, 2007 p63).
This was termed an organic management structure. As uncertainty increases, organisations tend to become more organic. This makes them adaptable to constant changes in the external environment. Another very important strategy Ryanair should invest in, so as to adapt to the uncertainty in their environment, is that of planning and environmental forecasting. This actually becomes more important where there is a high level of uncertainty as it keeps the organisation geared for a coordinated, speedy response. 3. Minimising environmental uncertainty
The environment is the source of scarce and valued resources essential to organisational survival. Organisations like Ryanair are extremely dependent on these resources. “Resource dependence means that organisations depend on the environment but strive to acquire control over resources to minimize their dependence” (Daft, 2007 p66). Organisations must do this so as not to become dependent on other companies which may in turn affect their performance and independence. “Interorganizational relationships thus represent a trade-off between resources and autonomy.
To maintain autonomy, organizations that already have abundant resources will tend not to establish new linkages. Organizations that need resources will give up independence to acquire those resources” (Daft, 2007 p67). Organisations must try to maintain a balance between relationships with other organisations and their own independence. This can be done by “attempts to modify, manipulate, or control other organizations…Two strategies can be adopted to manage resources in the external environment: establish favourable linkages with key elements in the organisation and shape the environmental domain” (Daft, 2007 p68). Favourable linkages” can be obtained by many methods such as ownership, formal strategic alliances, cooptation, interlocking directorates, executive recruitment, advertising and public relations. Ryanair uses a few of these strategies currently but need to further employ them at this period of great uncertainty in order to develop more “favourable linkages” with other organisations. This will make the organisation even more secure as Europe’s leading low fares airline. Ryanair can use ownership to establish linkages when they buy a part of or a controlling interest in another company.
The organisation successfully applied this strategy when they acquired Buzz in 2003. “This acquisition gives Ryanair immediate access to 11 new French regional airports as well as making Ryanair by far and away the largest airline operating at London Stansted Airport” (www. ryanair. com/site/IE/about. php). Ryanair have also tried to acquire Aer Lingus in recent years but has been unsuccessful to date. Another technique available to Ryanair is that of a formal strategic alliance. When there is a high level of complementarity between the business lines, geographical positions, or skills of two companies, the firms often go the route of a strategic alliance rather than ownership through merger or acquisition. Such alliances are formed through contracts and joint ventures” (Daft, 2007 p69). Ryanair have avoided many strategic alliances in the past. Former CEO P. J. McGoldrick had wanted to partner with a U. S. airline with sights on Europe in the early 1990’s; however O’Leary did not want to enter a strategic alliance for fear of losing control over costs.
Ryanair should definitely consider strategic alliances with other organisations in today’s climate. This would help reduce uncertainty through a legal and binding relationship with another firm. An additional method Ryanair could use to create linkages is that of cooptation and/or interlocking directorates. “Cooptation occurs when leaders from important sectors in the environment are made part of an organization…These influential people are thus introduced to the needs of the company and are more likely to include the company’s interests in their decision making” (Daft, 2007 p70).
An interlocking directorate occurs when a member of a board of directors of one company sits on another company’s board also. This increases communication between the companies involved and provides them with a favourable linkage. Another option is that of executive recruitment which involves transferring or exchanging executives. This can give an organisation greater influence and increased communication with other companies. Finally, a traditional way of establishing favourable relationships is through advertising and public relations.
Ryanair is a strong, sometimes controversial advertiser. The company seems firmly of the belief that all publicity is good publicity. Perhaps Ryanair should concentrate in the future on advertising which will not cause negative publicity for the company. Advertising aims to change consumer tastes in favour of the company and is extremely valuable in highly competitive environments such as the airline industry. Public relations also aims to create a favourable image for an organisation but stories are often free and aimed at public opinion (Daft, 2007).
A second strategic option to manage resources in the external environment is to change the environment itself. There are four techniques which may be used to influence or change a firm’s environmental domain. These include: changing the domain, political activity, regulation, trade associations and illegitimate activities. The organisation can always change its domain as it “decides which business it is in, the market to enter, and the suppliers, banks, employees, and location to use” (Daft, 2007 p71).
These sectors are not fixed and can be altered if the organisation wishes. Ryanair could also use political activity to influence government legislation and regulation. This can create barriers for new competitors trying to enter the industry and eliminate existing barriers which limit Ryanair. Trade associations are another attractive technique for altering the environmental domain. They involve organisations of similar interests working together to achieve common aims.
Finally, each organisation faces the temptation of illegitimate activities to control their environmental domain. Conditions such as: “low profits, pressure from senior managers, or scarce environmental resources” (Daft, 2007 p72) make this an attractive option. Conclusion Ryanair operates in a highly competitive, deteriorating industry where consumer tastes, oil prices and security are constant concerns. Despite this Ryanair remains a strong force in the airline industry and shows no signs of fading as Europe’s largest low fares carrier regardless of the economic climate.
A large number of elements affect Ryanair, and they shift frequently or react strongly to organisational initiatives and this results in a great amount of environmental uncertainty for the company. To combat some of this uncertainty Ryanair should have a large amount of departments, but still remain organic. They should place emphasis on coordination and integration, and the organisation should use boundary spanning, planning and forecasting to ensure high speed reactions to changes. In the airline industry high competitiveness results in scarce materials and financial resources. The more dependent an organization is on other organizations for those resources, the more important it is to either establish favourable linkages with those organizations or control entry into the domain” (Daft, 2007 p73).
Bibliography
• Airline News Resource. (Airline Industry News). [Online]. Available from: [Accessed 7 April 2009]. • Creaton, Siobhan. 2004. Ryanair: how a small Irish airline conquered Europe. London: Aurum. • Daft, Richard L. 2007. Understanding the theory and design of organizations. Mason, OH: Thomson South-Western. Ryanair – About Us. [Online]. Available from: [Accessed 6 April 2009]. • The Airline Industry. [Online]. Available from: [Accessed 7 April 2009]. • The International Air Transport Association (IATA). (Press Releases). [Online]. Available from: < http://www. iata. org/pressroom/pr/2009-03-24-01. htm> [Accessed 6 April 2009]. • The post. ie. (The Sunday Business Post Online). Available from: [Accessed 7 April 2009]. • Thinking Made Easy. (Ryanair Case Study Analysis). [Online]. Available from: [Accessed 8 April 2009].
