Part A About the theory
The behavioural theory indicates the firm as a coalition of participants but not as a holistic entity, each of whom receives inducements from the firm and makes contributions to it in return (Douma & Schreuder,2017). Participants in the firm include employees, investors, suppliers and so on. Every participant will choose to continue to contribute unless it receives equal or more inducements than its contributions (Douma & Schreuder,2017). In this concept, inducements offered to employees are not only the monetary payments, but also various non-monetary benefits e.g. vocational training programs and job security and stability. The behavioural theory also assumes that every employee has an aspiration level concerning their terms of employment. The employee will be content with the job as long as the inducement received is equal or higher than this asperation level (Douma & Schreuder,2017). The aspiration level will be adjusted by other companies which wish to pay more for the same work. While the gap between the employee’s aspiration level and the inducement received will be large enough after some time, and the information about other non-monetary benefits in another company is hard to obtain, the process of adjusting aspiration level will take an amount of time. Differences in levels of pay and other working inducements can exist for a long time because employees lack the information of the inducements offered and the contributions needed by other companies.
However, the behavioural theory focuses not on the competition between the companies, but on the process of decision-making within the firm (Douma & Schreuder,2017). Each participant in the firm has his own goals which generally not coincide. As a consequence, the firm will generally have several goals and the overall goals of it need to be translated into operational sub goals and each of them goes an aspiration level. This is usually a complicated process, even if most firms have only one goal, like profit maximization (Douma & Schreuder,2017). Behavioural theory assumes that firms have to make decisions on a proposal without knowing other possible alternatives which will turn up the next day. Otherwise, they can choose to devote resources into searching for alternatives before deciding on the present proposal (Douma & Schreuder,2017). In addition, because human decision makers are simply unable to make all the calculations necessary to compare all the alternatives, behavioural theory, therefore, assumes bounded rationality. Human decision makers are intendedly rational, but only limitedly so (Simon & March). Behavioural theory shows that the context in which decisions are taken must be considered as a significant relevance to the limits to full rationality, which sometimes lead to dramatically different outcomes (Douma & Schreuder,2017).
Part B Application to Ryanair’s case
Up to 117 Ryanair pilots based in Ireland have called a one-day strike a week before Christmas, potentially disrupting flights for this Europe’s biggest airline on its home territory (The guardian, 2017). It seems that Ryanair’s difficulties with pilots are not over after the initial cancellation of thousands of flights due to the limited pilot’s rosters (The independent,2017). However, these series of problems faced by Ryanair can be linked to its deeper managerial issues and the behavioural theory can give some possible solutions.
At first, as the behavioural theory assumed, the firm-Ryanair, is a coalition of participants. The pilots make contributions to Ryanair as a return of their inducements, including both monetary and non-monetary ones. However, Ryanair has focussed its strategy as ‘low cost’, that Legge (1995, p.67) acknowledged this kind of company which see employees treated as ‘a variable input and a cost to be minimised’. It can be found the manifest in Ryanair where unfavourable contracts were made, resulting in pilots’ lack of non-monetary inducements, such as vocational training, job security and career progression. Their contribution offered thus cannot match the inducements received.
In addition, the aspiration level has changed since the pilots became aware of the better contracts provided by other airlines with a higher salary for the same work. Although the process of adjusting aspiration level generally takes a long time due to employees’ lack of information about other firms, Ryanair failed to recognise that the gap between pilots’ aspiration level and their unfavourable inducements was getting larger, which has led Ryanair’s loss of pilots to rival airlines (Collinson, 2017).
According to James March (1994), Ryanair’s decision makers have failed to consider all consequences of their alternatives. Ryanair’s overall goal is absolutely profit maximize. The use of third-party contracts, a lack of communication and neglectful management created a negative relationship between managers and pilots all based on the strategy to increase revenue (Davies, 2017). While the sub goals of decision makers were incomplete and inconsistent, they tried to find an action which is ‘good enough’, but not the ‘best possible one’.
To solve these managerial issues, Ryanair can establish a monitoring department to aid discussion between pilot representatives and management. This department can help for evaluating the content of contracts, monitoring the behaviour of managers and employees. Furthermore, Ryanair needs to invest time in researching employees’ aspiration levels and non-monetary motivators, thus to take relevant actions to better attract and retain employees. Otherwise, the existence of pilot unions or representative groups formed by pilots should be recognised, which can be helpful with the communication between employees and managers.
The application of behavioural theory to identify and solve this Ryanair’s issues has its limitations. One is the assumption that “information cannot be transmitted without cost” (Douma & Schreuder,2017 p.151). It can be argued that the recognition of existed pilot unions or representative groups is free. Another critique can be argued is that, in this case, rationality is irrelevant to the predictions made by economic theory.
In a summary, the use of behavioural theory can analyse and propose solutions to Ryanair’s managerial problem in an effective way. The multiple variables assumed by the behavioural theory help to better interpret real life scenarios.