BUSINESS OPINION: THERE IS an ongoing national discourse about innovation and how by embracing it we can nurse our small open economy back to health.
The thinking is that, notwithstanding the post-bubble drop in costs, we are still an expensive place to do business. Vodafone is just the latest player to ship jobs offshore – this time to India and Egypt. By embracing new business models and methods before other countries, we can capture foreign investment without having to compete on cost alone.
In this newspaper last Thursday, Martin Curley, a senior executive with Intel and industry director of the Innovation Value Institute at NUI Maynooth, wrote a well-argued piece about the need for Ireland to practise “open and disruptive innovation”. Curley made some good points in a debate that can become quite divisive given the limited resources available to the country.
He concedes that we should not “reduce Irish society to a business model” but says that if we have one that works it underpins the wider society. He also stresses the need for lateral thinking rather than the linear approach that has been the hallmark of official responses to date.
Where I part company with Curley is when he suggests budget airline Ryanair is a “sublime example” of a disruptive business model that is instructive for the country as a whole.
As in the official history published on its website, Curley notes that Ryanair applied the tried and tested model of a no-frills airline invented by Southwest Airlines in the US. While Southwest pioneered using a single aircraft type, fast turnarounds and flying point-to-point rather than the traditional hub and spoke model, Ryanair has gone much further in its ruthless drive to cut costs out of the business.
Southwest still flies customers’ bags for free. It has also developed a system for boarding its free-seating aircraft that doesn’t involve Olympian feats of heroism by families hoping to sit together. And Southwest crew still seem to believe in customer service and a pleasurable in-flight experience.
Those who have worked with him will tell you that O’Leary didn’t launch Ryanair on the web because he is a believer in disruptive innovation. It was simply a cheaper way to sell tickets.
O’Leary would probably be the first to admit he has no interest in innovation but instead simply wants to make the difference between his costs and revenues as large as possible. So while Ryanair makes sure you pay for any baggage that goes in the hold, it will give away, after taxes and charges, the last few seats on a flight.
After all, if you are not on the plane you haven’t any chance to purchase any of the varied products and services that make up the “ancillary revenues”, which came to €802 million last year.
In fact, while online sales have been a huge success for Ryanair, it is only in recent months that the airline has invested in a website that has the ease of use you would expect from a brand that claims to be “the world’s favourite airline”. Ryanair believes it is the world’s favourite because it will carry 73.5 million passengers this year rather than any feelings of affection on the part of its passengers.
As a passenger you certainly don’t see the “targeted investment in information technology” that Curley refers to.
Take ticketing as an example. Ryanair has simply transferred the need for technology at its check-in desks to the need for its customers to have access to a printer to print their own boarding passes. What would truly be innovative would be to allow passengers to show a boarding pass on the screen.
But Ryanair is focused on cost control not innovation that benefits the customer.
True innovators like Steve Jobs at Apple intensely love their own products and are passionate about the experience their customers have while using it. In contrast O’Leary’s attitude to customer service is “you paid a fiver so what do you expect?”. And while I don’t know what his current travel arrangements are, about eight years ago I sat across from O’Leary on a Cityjet flight from Paris to Dublin. Perhaps he didn’t fancy the trip out to Beauvais, the town 80kms north of the French capital from where Ryanair’s flights operate.
I have little doubt that O’Leary or his communications team will be in touch to address the glaring inaccuracies in this column and to remind me of the rude financial health of the airline.
Although it warned that profits during the 2012 financial year would be “static”, Ryanair last month announced an impressive set of annual results. Despite the airline’s annoyance at what it saw as European authorities’ over-reaction to last year’s Icelandic ash cloud and winter weather playing havoc at airports, after-tax profit came in at €401 million in the year to the end of last March, up from €319 million the year before.
His strategy clearly works for O’Leary and his shareholders, who have enjoyed €846 million in dividends in the last three years. But there are good reasons. Ryanair has few peers in the Irish corporate world, with perhaps only CRH enjoying a similar strength in its sector. Its business model makes little use of the nation’s strongest suits such as our reputation for hospitality or our ability to solve complex problems.
There are many positives to what O’Leary and Ryanair have achieved but it would be a wrong move to adopt the Ryanair business model or culture for the nation as a whole.
