Management Abilities in Airline Industries - Case Study Example

GLOBAL BUSINESS (Degree for which this dissertation is being submitted) Submitted in part fulfillment of the Date of Submission "Alliances are a big part of this game[of global competition]They are critical to win on a global basis the least attractive way to try to win on a global basis is to think you can take on the world by yourself." -Jack Welch CEO, General Electric Corporation (Taken FromWarren J Keegam, 2006, p262) Abstract Organizations are products not only of their strategy, structure, and capabilities, but also of their culture, their history, and the economic, social, technological, and political forces which impact upon them. In an era of increasingly intense competition, global markets, changing technology, and regulatory reform, there has been a good deal of attention given to how firms act in times of fast-changing environmental conditions. Over the last two decades there has been a profound shift in thinking about the role that people play in the success of the business, with a growing view that the management of people is a key organizational capability and one, which should be highly integrated with the strategic aims of the business. A cornerstone of this notion of International human resource management is the creation of linkage or integration between the overall strategic aims of the business and the human resource strategy and implementation. The aviation industry as a whole has faced the most challenging problems and competition in the global business (Thehindubusinessline.com.) Despite new and increasing challenges, the airline industry facilitates economic growth, global trade, and international tourism and continues to restructure, develop and adapt to counter them. 1. Introduction The entry of multinationals has also brought in fundamental changes in the work culture, work ethics and remunerating patterns in many countries, all of which have a clear bearing on the career growth path of individuals. Added to this are the rapid changes taking place on the technological front, flattening hierarchies and making people come together more than ever before. Multinational companies such as telecommunications, Mobile phones Steel magnets, automobiles industries, oil companies, are driving and adjusting to globalization and innovation of change by applying many strategies, partnering with or acquiring others mergers and buyouts. The airline industry is going through a period of intense transformation. The airline industry is facing three transforming phenomena. The main reasons are: The decrease of soaring demand for air travel The appearance of a new fleet of low-cost carriers; The increased transparency of alternative airline offerings Internet and other technologies reduces the expensive itineraries (Warren, 2006, 262) 2. Structure of the Industry The changing business environment forcing airline companies to constantly innovate their strategies, as per customer's needs and demands to remain alive in the competition Six elements that define organization; Strategy Policies and Procedures Structure Systems Climate Culture (Source: Yvonne, 2000, p-5) The structure of an organization is defined as: The established pattern of relationships between the component parts of an organization, outlining both communication, control and authority patterns. Structure distinguishes the parts of an organization and delineates the relationship between them. (Wilson and Rosenfeld, 1990) Structure describes the hierarchy of authority and accountability in an organization. These formal relationships are frequently diagrammed in organization charts. Most companies use some mi of structures to accomplish their goals The advantages of a good structure in airline industries are Supports business aims & objectives Efficiency Profitability Cost allocation Supports strategy Enhances communication Reflects organizational culture (Source: Warren, 2006, p-262) The presence of significant external pressures has brought an imperative for the Leading Edge Airline organizations all around the globe to adapt to the new environment. Their administrative heritages ensured that each organization had unique constraints on the process of adaptation, but nevertheless there were several general responses which were common to many of the companies. These were: (1) Downsizing, (2) restructuring and re-engineering, (3) partnerships, and (4) mergers and acquisitions (Yvonne, 2000, p-17) The organizational strategies in airline industries in this changing environment are increasingly predicated on an array of mergers and alliances. (i) Downsizing The most widespread response to the recession in Airline Industries was to effect large-scale redundancies--euphemistically referred to as downsizing or 'right-sizing'. (ii) Restructuring and re-engineering In order to remain competitive, Airline firms have had to increase performance dramatically whilst heavily reducing costs. There were a number of common initiatives which were widely used and which quickly became known by standard terms in the management jargon. (iii) Partnerships and alliances The formation of partnerships has become widespread in recent years, particularly in technology-related industries, and is now seen as an important element in the competitive strategies of firms The reasons behind the increasing rate of formation of partnerships include the need to spread the costs and risks of innovation, the chance to acquire new skills or technical capabilities from a partner firm, access to new markets, and strategic coordination amongst competitors to increase market power (Thehindubusinessline.com) (iv) Mergers and acquisitions The recent merger of Continental and United Airlines merger; and a consortium led by Macquarie bank, acquiring the Australian flag carrier, Qantas are recent mergers in strategy to copying with the changing environment. It is clear that increased size, market dominance, and technological capability are major drivers in reducing strategic uncertainty and increasing competitive advantage (Yvonne, 2000, p-25) 3. Industry Characteristics 3.1 Market Environment No organization exists in isolation. Every organization exists in an environment where it interacts with, and is influenced by, the general public, specific groups (whether they be customers, clients, suppliers, pressure groups, etc) and/or various government bodies. The organization is also affected by the economic, political, legal, social, technological and international variables of the times. The demand in airline industry is seasonal and in peak months the air traffic is almost twice. The airline environment is characterized by high overhead and operating costs, and increases or decreases in small traffic can result in dramatic increases in profits or losses of the airline companies (Thehindubusinessline.com). 3.2 Cost Structures Costs in the airline industries are affected by many factors (Source: Yvonne, 2000, p-29) 3.3 CROSS-BORDER Affiliates and International Alliances The airline industry is pivoted toward mergers and international alliances. Two important factors that account for this growth are (i) Consumer preference and (ii) Profitability Customers favor large carriers to smaller carriers which can take them nearly anywhere in the country, unlike the small carriers, which have geographical limitations (Electronic-Economist.Com). This led to creation of international alliances among the major national carriers and helps make them more profitable using their domestic network and international services (Warren, 2006, 264). 4. Elements of Human Resource Organization in Airline Industries The Airline organizations have a complex, formal and relatively un-stable structure. The objectives of long life organization are dynamic and changes in environment will bring a change in its objectives. The environment determines the range of organization's activities. The environment evaluates and determines the future resources and the constraint that will be placed on the Airline organization. Following are the various fundamental elements of an organization in Airline industries. People Physical resources Market condition Economic and market conditions Attitude Legal constraints People: The very first element of an Airline organization is its people. Unless people of the organization interact and do the assigned job, there would be no organization. Physical resources: The Airline organization must have the Physical resources to make their services moving. Climate: The climate affects the location and operations of an airline organization. Economic and market conditions: The governmental monetary and fiscal policies are of profound effects. Some environments emphasize individual capitalism or socialism or communism. During the depression periods the business may be hard pressed just to survive. Similarly change in the tastes of consumer affects the supply and services of the goods (Yvonne, 2000, p-39) Attitude: At times its importance is not realized because of its intangible nature. The social, religious, political and cultural attitudes are of significant importance in an Airline organizational environment. Legal constraints: Laws are the rules under which an organization must operate. Laws are more in the background but they do influence directly the Airline organizational activities. Environment analysis: It is a process by which the corporate management assisted by specialists tries to identify the opportunities and risk in the environment in which an organization operates. The identification always helps the management in planning alternatives for corporate planning. The environment is the pattern of all internal and external conditions that affect the survival and development of an organization. Because of the growth of science, technology, research and development activities, the organizational environments of the Airline firms are rapidly changing. PHYSICAL RESOURCES MARKET CONDITIONS ATTITUDES ECONOMIC CLIMATE OF PEOPLE (ORGANISATION) PEOPLE OF THE ORGANISATION OPPORTUNITIES ORGANISATION DETERMINES KEEP EXISTINGING/ THE SUCCESS GROWING OF AN ORGANISATION FEEDBACK THE ENVIRONMENT REACTS TO THE OUTPUT AND DETERMINE THE FUTURE INPUTS OF THE ORGANISATION SOCIAL LEGAL FACTORS FACTORS (Source: Yvonne, 2000, p-62) 5. The Airline Restructuring Airlines offer an excellent example of global strategic premierships. United Airlines, the largest commercial airline in the world, has agreement with fourteen airlines: Air Canada, Air New Zealand, All Nippon, Ansett Australia, Austria, British Midland, Luada Air, Lufthansa, Mexican, SAS Singapore, Thai, Tyrolean, and Varig airlines. This alliance is known as the Star Alliance, whose motto is "The Airline Network for Earth." (Warren, 2006, 266). The market environments for airline industries are described by trade liberalization and private enterprise which are mostly regulated and fragmented by national boundaries. The restructuring of the airline industry has integrated air route networks and the opening up of cross-border and international markets and opens many opportunities for growth. There has been tremendous success in airline restructurings that have followed sine 1999 all around the World (Electronic-Economist.Com). There are some noticeable key essentials to an airline restructuring: Renegotiating labor deals and government policies Dropping aircraft and cutting lease, additional expenses and finance costs Addition of fresh and strategic investment Reducing the burden of pension deficit repayments Restructuring the business plan to more effectively compete with low cost carriers and cross border competition (Warren, 2006, 268) 6. Managing Strategic Change: Restructuring In an Organization The measures for change in external environment includes level of maturity of the industry; nature and extent of the competition, intensity of competitive pressure; environmental restrictiveness; extent and rapidity of technological change; perceived turbulence, hostility, and complexity; type, extent, and predictability of change. The research measures: organizational-specific environment: Management style and philosophy: level of individualistic decision-making; importance of participative decision-making; importance of management by objectives; Employee climate: trust, commitment, risk-taking, morale, team working; level of criticism vs. level of praise; perceptions of senior management; perceptions of success of the organization; pride; Administrative heritage: vision of founder; major successes/failures that are legendary in organization; leadership style of founders; philosophy, values; Structure: extent of formal definition, centralization, and formal communication; use of informal structures such as project teams; extent of horizontal processes (Yvonne, 2000, p-71). The main feature of Restructuring in an Organization against environmental factors includes: Turnaround managing by rapid strategy reconstruction Challenging the taken for granted Changing organizational routines Communicating and monitoring change Change planning and tactics Turnaround strategy (1) In an Airline organization, turnaround strategy emphasis on speed of change, rapid cost reduction and on revenue generation It includes prioritization of things giving quick and significant improvements including crisis stabilization, management changes and gaining stakeholder support (Thehindubusinessline.com). Turnaround strategy (2) Turnaround strategy includes clarifying the target market, ensuring re-focusing, financial restructuring and prioritization of critical improvement areas. Focus on getting the business right, not look for new markets in different countries and regions. 7. Contextual features that impact human resource strategy process in Airline Industries The significance of environmental and contextual factors has been long acknowledged in shaping human resource strategy, and in the ability of the Airline Companies to realize these strategies. The growth of the concept of a strategic approach to managing people can be attributed to rapid environmental changes that have taken place over the last two decades. These environmental influences operate at a general level, and at a more specialized level concerned with the Airline organization's own significant environment. The more general influences operate in four main areas: at the societal level, particularly changes in demographics and the shape and education of the workforce; changes in technology, for example the profound impact of information technology on the way in which people work; changes in the structure of the economy, for example changes in the balance between the public and private sector, inflation, or the shift from manufacturing to service industries; and at the political and legal level, changes in employment legislation can also impact on human resource strategies (Baird, & Meshoulam, 1998, 118) It is through the mediation of the 'organizational environment', however, that broader environmental changes are made meaningful to individual organizations. It is these 'experienced relevant business conditions', which impact on the formulation and enactment of human resource strategy. These business conditions include 'stakeholders' in the Airline organization, who can influence the strategy depending on their power (Boyaztis, 1982, 10). These stakeholders can include the organization's competitors and suppliers, the government, the media, environmentalists, local community organizations, and consumer advocates. What elements internal to the Airline organization may exert an influence on strategy formulation and implementation These 'levers' form the inner context and include such aspects as technology, culture, management philosophy and style, structure, and the 'dominant coalition' Culture involves a set of taken-for-granted assumptions or rules for being in the world. Internal stakeholders play a significant role as levers. These include employees, managers, professional staff, the HR department itself, and owners, who hold a stake in the way human resources, are managed in the organization. These 'strategic constituents' can have different and often conflicting needs. Related to these constituents are the dominant coalitions or management groups that exercise the most power in the Airline organization (Emerald Group, 34) 8. Conclusion Airline organizations operate in increasingly fast-changing International environments, their reliance on bureaucratic, formal systems as a basis for human resource management gives way to an emphasis on informal, social mechanisms, which allow for flexibility, reliability, and a greater voice for employees. The interpersonal context within which performance management takes place is therefore crucial for its effectiveness. Such a shift places a strong emphasis on managerial commitment to the evaluation and development of colleagues and subordinates and demands of employees a tolerance of ambiguity, which can be both daunting and challenging (Emerald Group, 36) The growing globalization of markets that gives rise to standardization must be balanced with the continuing need to access all market for those differences that might require adaptation for successful acceptance. The premise that global communications and other worldwide socializing forces have fostered a homogenization of tastes, needs and values in a significant sector of the population across all cultures is difficult to den. However, "In spite of the forces of homogenization, consumer also sees the world of global symbols, company images, and product choice through the lens of their own local culture and its stage of development and market sophistication." (Jeanne, 2004) The world is becoming increasingly economically interdependent. Thus strategic planning on a global scale has become a timely concern. The possibility of globalization depends on the classification of the industry in which a business operates. Business growth and expansion in different parts of the world will increasingly have to be based on alliances, partnerships, joint ventures and all kinds of relations with organizations located in other political jurisdiction. The airline industry has advanced along the path towards globalization and consolidation, through the establishment of alliances and partnerships between airlines, linking their networks to expand access to their customers (Warren, 2006, 269). Hundreds of airlines have entered into mergers, alliances, ranging from marketing agreements to franchises and equity transfers. References Baird, L., and Meshoulam, I. (1998). "'Managing Human Resource Management in Airline Industries'", Academy of management Review, 13/ 1: 116-28. Boyaztis, R. (1982). The Competent Manager. A Model for Effective Performance. New York: John Wiley & Sons, p-10-11 Jeanne Binstock van, (2004) Trends, Symbols, and Brand Power in Global market "The future of the airline industry": Going into free-fall or climbing steadily Emerald Group Publishing Limited, 2006 Volume: 22 Issue: 6 Page: 33 - 36 The airline industry: Turbulence: Electronic-Economist.Com [Online] Mergers & Acquisitions, Thehindubusinessline.com, [Online] Tsui, A. (1988). "'Activities and Effectiveness of the Human Resource Department: A Multiple Consultancy Approach'", in R. S. Schuler, A. A. Youngblood, and V. L. Huber (eds.), Readings in Personnel and Human Resource Management. St Paul, Minn.: West. Warren J Keegam,(2006) Airline Industries: Global marketing management, Patience Hall of India Private Limited. 262-269 Wilson, D.C. and Rosenfeld, R.H. (1991) Managing Organisations, Text, Readings and Cases .Instructors Resource Book. Maidenhead: McGraw-Hill. Yvonne Mc Laughhlin (2000), Business Management: A Practical guide for Managers, Supervisors and Administrators. Business Information Books. Pp 5-149 Read More