Analysis of The Importance of Human Resource Management on The Example of Ryanair

Abstract

The paper evaluated the role of Human Resource Management (HRM) within the firm and its evolving role from being administrative and operational to strategic. It charted the transformation of HRM from personnel management to the current position whereby it is pivotal to overall firm strategy. The firm in focus is one of Europe’s largest carriers, Ryanair considered as the largest Low-Cost Carrier (LCC) in the continent. It underscored the impact of HRM mistakes on the firm’s strategy. There were financial costs related pilot strikes in fiscal 2017 and they are still ongoing implying that in fiscal 2018, profit will be substantially impacted.

The airline has not treated its employees particularly the critical staff, pilots and cabin crew like rivals. They are offered comparatively lower remuneration and fewer benefits. The strikes that commenced in late 2017 are a culmination of efforts by employees to gain better recognition but with their efforts being rebuffed by the airline. Therefore, the strikes have impacted strategy including rescheduling, fewer flights, unpredictability of flights, and profitability. HRM has to be aligned with target strategy in order to attain corporate objectives. Disconnection between these aspects results in failure or subpar performance in strategy execution.

The paper assesses the strategic importance of human resources management. It charts the historical evolution and background of human resources management along with specific from the selected organization (Ryanair). The importance of human resource management transformation from administrative/operational role to strategic role is emphasized.

According to Armstrong & Taylor (2017), Human Resource Management (HRM) is the coherent and strategic approach to a firm’s most valued assets, its employees. These are people working individually but collectively contribute to a firm’s attainment of its objectives (Tubey, Rotich, & Kurgat, 2015). Employee management is critical to the strategic objectives of the firm.

Prior to the 1990s, HRM was considered as an auxiliary function providing job activities such as scheduling vacations, planning retirement parties, enrolling employees for healthcare coverage, and planning company picnics (DeCenzo, Robbins, & Verhulst, 2016). It is a product of changes made in the early 20th century (Tubey, Rotich, & Kurgat, 2015).

The changes in human relations were geared towards creating business value via strategic management of employees and the workforce (Tubey, Rotich, & Kurgat, 2015). Initially, human resources functions were primarily transactional. With the institution of laws and regulations governing industrial relations in different countries, the nature of human resources changed.

In United States, “federal and state laws have placed many new requirements on employers concerning hiring and employment” (DeCenzo, Robbins, & Verhulst, 2016, p.30). As a result, jobs have changed. The changes in job descriptions trending towards technical aspects have meant that greater skills are required and boundaries have been increasingly blurred.

Elsewhere, countries like United Kingdom and Australia began to examine work systems along with nature of work and instituted different regulations (Tubey, Rotich, & Kurgat, 2015). Some of these laws and regulations covered areas such as: minimum wage, employee protection from hazardous working conditions, regulation of working hours, and discrimination.

The precursor to the current HRM practices was in effect personnel management. There are some marked differences between the two approaches. Personnel management was short-term focused and undertaken on ad-hoc basis while HRM is strategic, proactive, and long-term in perspective (Tubey, Rotich, & Kurgat, 2015). The time orientation shifted markedly.

The psychological contract also shifted from compliance to real commitment. Roles were also integrated into line management in HRM from being highly specialized in personnel management (Tubey, Rotich, & Kurgat, 2015). Furthermore, HRM shifted to human resource accounting (cost maximization) from cost minimization integral in personnel management.

There was centralization and bureaucracy along with pluralist approach to employee relations in personnel management (Tubey, Rotich, & Kurgat, 2015). In addition to regulations that were specifically geared at improving the workplace, growth of employee unions and the globalization of the workforce meant that the personnel relations had changed.

As Boxall & Purcell (2015) noted, the approaches adopted in United States and European nations varied. In United States, the implicit approach to change in HRM focused on benefits that could be accrued primarily to the shareholders (Boxall & Purcell, 2015). In Europe, there was emphasis on context and essentially a holistic approach (Boxall & Purcell, 2015).

Human resource practices at ryanair

The organization in focus in regard to human resources practices is Ryanair. It is one of the leading carriers in Europe and preeminent low-cost carrier. It is highly regarded for the low cost operational model that is adopted as central to its strategy. The same approach has also been adopted in the airline’s approach to employee relations (Carberry & Cross, 2013).

The airline’s founder who has been pivotal to its strategic success has been against unions and has resisted employee efforts to join unions (Carberry & Cross, 2013). In the airline industry, pilots are critical to operations. Less than 50% of its employees belong to recognized unions with most in the United Kingdom (UK); non-UK unions are not recognized (Figure 1, Appendix).

It has in the past dissuaded employees even within the UK from joining unions such as BALPA (Carberry & Cross, 2013). In addition to actively dissuading employees from joining unions, Ryanair has employed its cabin crew on short-term contracts mostly through agencies rather than through the airline itself (Carberry & Cross, 2013).

As a result, it offers some of the lowest benefits by industry standards in respect to benefits such holiday entitlements and pensions (Carberry & Cross, 2013). In some cases, the airline has mandate employees purchase their own uniform and expect employees to charge their phones prior to arriving at work as it does not allow the use of mobile chargers.

These efforts are part of the low-cost strategic approach with internet use discouraged (Carberry & Cross, 2013). Ryanair offers wages that are barely above minimum in its country of domiciliation. Newly employed cabin crew staffs are offered monthly pay of between £900 and £1,100 and pay up to £2,700 for their training (Carberry & Cross, 2013).

Considering that the low level of unionization, employees have little negotiation scope and have to work with whatever conditions are offered by the airline (Carberry & Cross, 2013). It has led to angst from employees who periodically vent online. The airline has even gone to the extent of seeking court injunctions to uncover their identities (Carberry & Cross, 2013).

Furthermore, the concern for working conditions at Ryanair has caught the attention of the International Transport Workers’ Federation (ITWF) that has urged travelers to consider working conditions at the airline prior to purchasing tickets (Carberry & Cross, 2013). It has already been impacted the inflexibility in its approach to employee relations.

Resistance to unionization of pilots led to cancellation of more than 2,100 flights in late 2007 (Hollinger & Khan, 2017). The airline has not factored pilots flying times properly and with its lower than industry standard wages, it lost 140 pilots to smaller rival, Norwegian Air over 2017 representing about 5% of its pilots (Hollinger & Khan, 2017).

In addition to losing pilots mostly the experienced ones to rivals, the flight cancellations meant that it flew fewer aircraft between November and April, 2018. During that period, it flew 25 fewer aircraft as well as 10 fewer aircraft from April, 2018 (Samson, 2017). The few flights are likely to impact revenues especially in fiscal 2018.

Furthermore, it faced significant reputational damage and faced about €25 million in costs related to the cancellation comprising of €20 million in compensation payments to stranded customers and €5 million hit on profits (Hollinger & Khan, 2017). It also reconsidered its bid for struggling Italian carrier, Alitalia as it looks to end the debacle (Samson, 2017).

The HRM mistakes made by Ryanair highlight the impact of employee relations on the firm’s overall strategy. Flight changes that were made after the cancellations were projected to reduce full-year traffic in fiscal 2017 from 131 million to 129 million (Samson, 2017). About 400,000 Ryanair customers were impacted by flight cancellations (Samson, 2017).

Importance of human resource management in strategy

According to Boxall & Purcell (2015), HRM extends beyond recruitment of qualified personnel but also engages in developing the social capital and fostering required performance. It involves creating the network of relationships that combine the individual talents of employees into collective outcomes of the firm’s overall strategy (Boxall & Purcell, 2015).

The major functions of HRM have been expanded to include: staffing (recruitment, selection, and socialization), appraising, compensation, training & development, and union relations management (Noe et al., 2018). HRM has evolved from being an auxiliary function to be an ancillary function with integral role in development and execution of strategy.

Despite mishaps with handling employee relations, Ryanair actually has a senior ranking HR officer with title, Chief People Person (CPP). The position ranks at similar levels as Chief Financial Officer (CFO) and Chief Technology Officer (CTO). The role of Chief Executive Officer (CEO) has far significant interest as the airline’s largest individual shareholder.

The CEO has approximately 4.0% stake in Ryanair and is the third-largest shareholder behind the leading institutional investors, HSBC and Fidelity Investments (Faurschou, 2017). It creates some conflict in principal-agent relationship. The agency theory captures the relationship between shareholders (principals) and management (agents), (Hill & Jones, 2013).

The expectation in the principal-agent relationship is that agents will always act with the best interests of principals (Hill & Jones, 2013). In the case of Ryanair, the concern is not about the agency problem of information asymmetry. Considering the CEO is both a principal and an agent, he actually pursues the principal-agent relationship to the extreme.

Shareholders as the principals are rewarded for the aggressive cost efficiency within the airline. However, every other strategic aspect is considered only for cost implications including the employees. Efforts have not been made to view the employees from a human capital theory perspective as productive wealth embodied by labor (Nafukho, Hairston, & Brooks, 2004).

Development of labor has to be considered from the beneficial perspectives in terms of productive wealth generated from skills and stock of knowledge (Nafukho, Hairston, & Brooks, 2004). In the modern firm, HRM has more significant role through policies that attract and keep talent within the firm and maintaining competitive advantage.

According to DeCenzo, Robbins, & Verhulst (2016), strategic HR has to align with the firm’s strategy. The administrative nature of personnel management has been transformed over the years by regulatory changes and the significance of talent in garnering competitive edge. It needs to be tailored to the strategic focus that is adopted by the specific firm.

Firms that pursue cost differentiation emphasize on streamlined processes, low-cost materials, maximization of efficiencies, and reduction of waster (DeCenzo, Robbins, & Verhulst, 2016). The implication for HRM is that jobs have to be structured through knowledge sharing and maximization of cross training (DeCenzo, Robbins, & Verhulst, 2016).

Compensation programs need to be designed to reward efficiency and enhance cost savings. Therefore, the firm needs to select the most versatile employees in terms of skills set (DeCenzo, Robbins, & Verhulst, 2016). Firm that pursue differentiation emphasize creativity and innovation along with providing multiple choices for customers.

Strategically, compensation systems are designed to reward innovation and creativity (DeCenzo, Robbins, & Verhulst, 2016). Employees need to be educated to create products with differentiating features. Firms that thrive on strong customer relations require employees that have strong customer relation skills (DeCenzo, Robbins, & Verhulst, 2016).

Firms that target specific segments require employees with strong market research skills and good understanding of the target market (DeCenzo, Robbins, & Verhulst, 2016). Ryanair’s strategy is premised on being a Low-Cost Carrier (LCC). The emphasis is on having the lowest cost structure in order to maximize returns and is also service-oriented.

In service-oriented firms, the emphasis is on the people providing the service. Ryanair suffered from reputational damage following the massive cancellations occasioned by the pilots’ strikes. In addition, it lost at least 5% of its most vital human resource, pilots to the rival. The implication is that such significant loss impacts the quality of service offered by the airline.

The airline also lost financially with refunds to customers and profit loss. Strategically, it has implications since the airline cannot offer guaranteed quality of service. Lacking pilots has implications on future scheduling and the impact has been loss of at least 40 flights daily. That will have financial implications going forward far outweighing original cost implications.

Essentially, the airline would be in a better position had chosen to engage employees with better employment terms. However, there will be further loss of pilots as some would reconsider their futures at the airline. It is important that contingency plans that are being drawn in regard to rescheduling of flights in 2018 going forward make assumption of no pilot attrition.

However, airlines and other firms need to control absence costs that could spiral out of control. In airline industry, fuel and employee costs constitute the largest component costs. Fuel costs can be controlled through hedging. Absence costs occasioned by events such as strikes are incalculable and are handled on ongoing basis. Therefore, they could increase substantially.

As DeCenzo, Robbins, & Verhulst (2016), firms that have low cost strategy design compensation systems around cost savings and rewarding efficiency. However, HRM in business critical areas require matching compensation to industry rates. It is unlikely that Ryanair would be able to attract experienced pilots from rival airlines with current compensation levels.

Therefore, the risks of increased compensation costs would translate into rescheduling in the future which would further negative impact its reputation as well as reducing turnover. Thus, the strategic implications of HRM mishaps are significant cost wise over long time periods. HRM has key functions that have to be handled in order to create balance across the firm.

These functions are: staffing, training & development, motivation, and maintenance (DeCenzo, Robbins, & Verhulst, 2016). It is inevitable that employees would gravitate towards unions that offer them protection. In order to avoid issues, the firm needs to provide industry-level compensation across the board and/or offer competitive alternatives.

It is impractical to cut costs across the board by focusing on few stakeholders primarily customers and shareholders while employees are integral in providing the required service. The firm has to allow employees to join unions but continue to engage with them through periodic appraisals that reinforce their position and value to the entire organizations.

The airline would still be able to attract pilots but at the standard it requires. Therefore, the restrictions on employees joining unions also impede future recruitments. The strategic goals that the firm aspires to attain have to be communicated with employees and their input weighed in order to avoid resistance to the efforts and potential sabotage to future plans.

Conclusion

In the case of Ryanair, the inability of the firm to take cognizance of the pivotal role of HRM from a strategic perspective has impacted their performance. In addition to foregone costs related to strikes in fiscal 2017, there is massive rescheduling challenge for fiscal 2018 and the strikes that commenced in fiscal 2017 are ongoing presenting operating challenges.

The airline is likely to experience significant profit decline in fiscal 2018 and even efforts to revamp the workforce through retrenchment and improving employee relations are unlikely to provide short-term stability. The challenge with HRM issues is that they are always bubbling and without proper handling, they can burst to the surface and create real strategic problems.

Therefore, HRM has to work in concert with overall strategy development and execution structure in order to continually align their objectives. Employees have to be appraised of issues such as financial challenges within the firm and efforts the firm is making to improve them. They would be willing to provide financial leeway for the firm against future promises.

The malleability of HRM in-line with strategic changes within the firms is critical in the ability to adapt to competitive changes. Labor challenges facing Ryanair illustrate the impact of lack of alignment between HR policies and corporate strategy. In due time, something has to give and both employees and the firm are usually left in worse-off situations.