Corporate Strategy - Strategy Analysis - Josemtejedor 6j1351

Corporate Strategy Assignment

José Miguel Tejedor Fernández

Brand expansion Real Madrid has been worldwide-known as one of the best football club in the world. But it has been since 2000 with the arrival of president Florentino Perez, a successful businessman in the building sector, until the club started year after year to build a global brand linked to success. The ultimate goal of any top football club is the sporting success and win as many titles as possible.But this cannot be done without being financially healthy and having adequate resources to carry out. To achieve sustainable growth, Real Madrid needed to extent its brand to gain profits worldwide. Core of the new strategy • Restructuring the internal organization as the multinational companies are organized. • Expand brand image. • Asset Recovery. • Development of new business lines by setting up new channels of communication and partnership with retailers, broadcasters and franchisees. Obviously, before the year 2000 the Real Madrid possessed important strenghts which eased the goal to become the richest and most-known football club around the world. Otherwise, those goals are unreachable in such a short period of time. The next SWOT analysis illustrate how the situation was prior 2000.

Strengths



Known global brand name



Excellent, global brand presence and high quality merchandising

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Santiago Bernabéu stadium in Madrid can accommodate around 80,000 spectators

Weakness



Associated sponsors included names like Adidas, Siemens,Coca Cola



History tied to success



Lesser popular league as compared to English Premier league.



The main rival in domestic competition, Barcelona FC, was overtaking them quickly.

Opportunity

Threats



Large debt.



Old organizational structure.



Tapping global fan bases like India, China, USA



More and brand visibility would help build on.



Other top clubs buying out good players



Financial debts incurred due to expensive player transfers.

Table 1. Real Madrid SWOT analysis.

Corporate Strategy Assignment

José Miguel Tejedor Fernández

The content of the new strategy lied on three sides: • Sport Strategy • Social Strategy • Marketing Strategy The players transfer policy is especially important in the fundamental business strategy of Real Madrid and valued at more than 530 million Euros in recent years. There were eleven investments above EUR 30 million each in accordance with Table 2. In the last past 10 years Real Madrid has spent more than 1,000 million Euros on players.

Cristiano Ronaldo

96 million Euros

Zinedine Zidane

75

Kaká

67

Luis Figo

60

Ronaldo Luiz Nazario de Lima

45

Arjen Robben

36

David Beckham

35

Karim Benzema

35

Xavi Alonso

30

Pepe

30

Fabio Coentrao

30

Table 2. Real Madrid most expensive football players The consecration of this business strategy has become the Real Madrid the world leader in revenue as shown in table 3. And this fact seems more surprising when compared with the results obtained in the field. Last three seasons Real Madrid has only been able to win a Spanish cup title in domestic competition and none internationally. However Real Madrid has been crowned the most income team and it has been able to generate a turnover of more than 1,200 million Euros. The 2008/09 season, 401 million Euros, the 2009/10 to 438 million Euros and the last 2010/11 with outstanding 480 million Euros. Bearing in mind these figures, not necessarily spending more on g means economic disaster for the a football club.

Corporate Strategy Assignment

José Miguel Tejedor Fernández

Chart 3. Revenue Growth of Leading Clubs

This is the business model followed by Real Madrid where the best players in the world are able to generate the most revenue through greater brand impact, and these, in turn, allow you to re-sign new and emerging stars. According to the marketing expert Gerrd Costa, professor at ESADE Business School "It's a circle is proven to work." The combinatorial formula from a large global player and Real Madrid is highly profitable in view of Costa and is "a good business transaction", as demonstrated by previous signed players like David Beckham, with whom, in four seasons, merchandising sales grew by 137%. The sum of the social impact generated by the Real Madrid team and the impact generated by the last Portuguese star, Cristiano Ronaldo, resulted a transfer "more affordable". Although the number of transfer was the highest in the history, 96 million Euros, Real Madrid club noticed immediately higher revenues on advertising, marketing and exhibition games. Moreover, renewal of contracts with business partners, as Gerardo Costa says: "It's not just a business strategy. It has made the global economic leader. I predict that Real Madrid will not only make returns to the players. Now Real Madrid have more negotiation power to bring new advertising contracts with partners and increase prices with partners. The one who has to innovate and break the market is the leader. More in depth, its annual balance sheet for last season shows the three main lines of income income exceeding the sum of 150 million Euros each, following the rule of third contribution of each revenue (subscriptions, TV and commercial). See the chart 4 below.

Corporate Strategy Assignment

José Miguel Tejedor Fernández

Chart 4. Real Madrid revenue mix Meanwhile, on the expenditures side, the most representative item is the wages of the players, which surprisingly represent just the 45% of total revenues. Undoubtedly the best figure among the top ten of European clubs. It's amazing to see how it will multiply the impact of a mark attached to the other.

References

http://www.webershandwick.co.uk/homepage-sections/what-we-think/opinions-archive/198 http://swissramble.blogspot.com/2011/06/real-madrid-and-financial-fair-play.html

Corporate Strategy Assignment

José Miguel Tejedor Fernández

Innovating the Cost Leadership Ryanair was set up in 1985 to operate low-cost flights from Ireland to London. In its initial years, it struggled financially. And it was not until Michael O'Leary, the financial controller at that time and now Chief Executive, took the control and reverted the situation. O'Leary implemented a strategy influenced by Southwest Airlines, the world's first low-cost carrier in the United States, and not only reverted Ryanair's losses, but turned it into a huge success -as show in chart 1-: its profit after tax for the year 2011 is 401 million Euros, a 26% increase on 2010. Its operations have also expanded massively in geographical coverage: operating more than 1000 routes across 28 countries within three continents and plans to expand during the next years. Not only in of revenues and geographical coverage is Ryanair the low-cost carrier leader in Europe but also the Europe’s number one for international engers with more than 72 million last year as can be viewed in the chart 2.

Revenue

€ 3.629 billion – 2011

Operating income

€ 488.2 million – 2011

Net income

€ 374.6 million – 2011

Total assets

€ 8.596 billion – 2011

Total equity

€ 2.953 billion – 2011

Chart 1. Ryanair revenues vs operating cost

Table 1. Ryanair financial figures, 2011

Chart 2. Ryanair number of engers growth.

Corporate Strategy Assignment

José Miguel Tejedor Fernández

According to the Porter’s Generic Strategies Ryanair's strategy is clearly cost-focused. Although, business analyst argument Ryanair has a mixed strategy which tries to bring a differentiated product, from my point of view is more a cost leadership orientated strategy. Porter argues that mixing strategies is a mistake. Ryanair attempted to introduce elements of differentiation on several occasions, with a Business Class and a frequent flyer program both abandoned in 1989.

Figure 1. Porter's Generic Model

In order to establish as a low cost leader the company is following the next strategies: - low fares - industry-leading customer service - frequent flights on short-haul routes - low operating costs, addressing aircraft and equipment, no-frills, personnel productivity, customer service costs and airport access fees. - taking advantage of the internet and new technologies. - commitment to safety and quality maintenance. The company operates a policy of offering the lowest fares available from any carrier and this is possible because Ryanair maintains lower operational cost per kilometer than competitor as shown in chart 3.

Corporate Strategy Assignment

José Miguel Tejedor Fernández

Chart 3. Operational cost for a seat per kilometer Maintaining the lowest operational cost has been achieved through several innovative measures to cut unnecessary cost. The most important points are briefly mentioned below. Ryanair uses small regional airports, less costly than the large airports, for its operations as a result Ryanair has a better negotiating power demanding very low landing and handling fees. It often implies one cabin bag only, no boarding and disembarking engers through gateways telescope and limited use of agents. Not only cost decrease but also means less traffic congestion for engers travelling to the airports and less chance of delays. By contrast, those regional airports usually allocates far away from the customers’ final destinations implying a time and money consuming trip to reach the journey’s end. No-frills policy which means no “Free” food/drinks, no seat assignment, limited engers amenities, synthetic leather seats, no seat-back pockets, safety cards stuck on the back of seats, and life jackets stowed overhead.

The airline’s human resources policy is quite controversial for its ban on staff charging mobile phones on the premises and also require the flight assistants to pay for uniforms and for the training course expenses (GPD 1400), highly unusual within the industry. Ryanair is also well known for offering the lowest wages.

Corporate Strategy Assignment

José Miguel Tejedor Fernández

Direct booking through the Internet let the company remove the commissions of agents. And also abolished airport check-in, engers required to check-in online and print their own boarding mean a clear example by cutting costs to a minimum wherever possible is the key of success. The carrier is always innovating in order to find new ways of slashing cost. For example, the company considered about eliminating two toilets to add six more seats and recently Ryanair made a poll among customers to evaluate their willingness to allow standing engers for the short flights.

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On the other side, Ryanair has created new resources of revenues as a result of innovating new ways such as buy on-board program by offering drinks, food, cigarettes, perfumes, etc. Ryanair also surprisingly ran an online-casino on its website and the company charges every additional service like printing board (EUR 40). Another important aspect is the subsidies the company are given by local governments and airports in order to bring tourist. This line of revenue represents the 22 percent of its total as shown in the chart below.

Chart 4. Ryanair’s revenues distribution Last but not less important, Ryanair’s promotional strategy has proven as very effective among customers and many times controversial too. Aircraft industry did not promote as intense as other sectors such as automobile, clothing, food, etc . However, the eruption of Ryanair made promotion a key point within its strategy and ads stress Ryanair has the lowest fares.

Corporate Strategy Assignment

José Miguel Tejedor Fernández

From the discussion above, Ryanair's strategy has several differences from its competitors, and these differences directly and indirectly contribute to its competitive advantage. To sum up, some of the most important factors of competitive advantage are the following: •

Unique aircraft type with lower maintenance costs/crew training costs

•

High density to increase profitability

•

Every additional service is charged

•

Online services only

•

Small regional airports with direct access to planes/lower airport fees

•

Routes through secondary and smaller airports

•

Corporate parthnership

•

No cargoservice

•

Reduced turnaround trips

•

One class travel

•

No refund policy

•

Outsourcing services at International airports

•

Bargain power

•

Short turnaround and maximum utilization of aircrafts

•

Continuous innovative measures to increase ancillary revenues

•

Non-unionized labour force

Chart 5. Ryanair's innovation key points

Corporate Strategy Assignment

José Miguel Tejedor Fernández

Overall, the Ryanair rapid grow and success is due to one concept: Innovation. 

Low cost airline business model that restructured European aviation industry.



Pioneer innovative cost reductions plans.



Creative alternative revenues generation.

Finally, I would like to conclude indicating Ryanair’s future plans and they only go through one concept: innovation. In Michael O’Really words: “Free tickets. In a decade or so, airlines will pay travelers to distribute people around Europe. The airline industry is Tesco, is Ikea, is network TV ain the way viewer watch for free and rs pay for access to them, is the internet in the way that websites way money for delivering click-through traffic or other sites.”

References

http://www.youtube.com/watch?v=S5BLkBeLj_o http://www.slideshare.net/airobserver/ryanair-business-modelenoteairobserver http://www.slideshare.net/unimiel/presentacin1-7574250 http://www.centreforaviation.com/ http://es.idoub.com/doc/18152552/RyanAir-Case