Once a Leader in the Airline Industry - Term Paper Example

Case Analysis on Sabena Belgian World Airlines BY YOU YOUR ACADEMIC ORGANIZATION HERE January 2, 2008 CONTENTS EXECUTIVE SUMMARY…………………………………………………………… 3 PROBLEM IDENTIFICATION……………………………………………………… 4 ENVIRONMENTAL ANALYSIS……………………………………………………. 5 ORGANIZATIONAL ANALYSIS……………………………………………………. 6 PREVIOUS INITIATIVES AND INTERVENTIONS………………………………. 7 ALTERNATIVES…………………………………………………………………….. 7 ACTION PLAN AND IMPLEMENTATION………………………………………… 9 EXECUTIVE SUMMARY Sabena Belgian World Airlines is in need of sweeping changes in order to prevent total loss of profitability and eventual bankruptcy. Once a leader in the airline industry, Sabena is currently facing high fixed costs, incompetent leadership, and a culture of negative political influence which constantly undermines any initiatives for improvement and growth. Strong union influence, in addition, exerts significant pressure on senior level leadership to abandon many of its cost savings interventions. In order to emerge successful in a difficult economic climate, Sabena requires new leadership methodologies and new investment strategies as it is no longer going to be supported by the Belgian government (as had always historically been the case). This project identifies a series of measures which will assist Sabena in becoming a strong presence in the competitive airline market. Case Analysis on Sabena Belgian World Airlines Problem Identification: Sabena Belgian World Airlines (SWA) was established in 1923, making it one of the world’s longest-standing airline operations in the world. Throughout its long history of operations, the company experienced tremendous financial losses stemming from poor leadership competency, a strong (and somewhat negative) political structure and affiliation, and fluctuating market economic conditions. SWA financial woes and poor management philosophy became increasingly crucial in 1990 when its only truly knowledgeable leader (Carlos Van Rafelghem) suffered a stroke which left him unable to oversee the business and its external and internal operations. Coupled with years of unprecedented financial losses, 1990 reflected a year where dramatic change and new investment ideas needed to be considered so as to prevent the bankruptcy of Sabena. The problems with Sabena consisted of managerial deficiencies, majority ownership of SWA by the Belgian state (which gave the government significant control over the firm’s operational objectives), and strong union influence which used its political ties to undermine Sabena leadership attempts to cut costs in the form of labor reduction. Because governmental and union influence so strongly dictated the employment objectives of Sabena, workers were often unproductive and over-paid by industry standards. Essentially, SWA became a ticking time-bomb of impending financial ruin due to a number of uncontrollable factors; and further issues which could have been controlled or appropriately managed if coordinated by competent senior leadership. In addition to the aforementioned difficulties, environmental issues such as the Persian Gulf War, which drove up the cost of jet fuel, and indeterminate changes in the structure of European economies served to radically increase both fixed and variable costs of running the airline. The growth of competition in this region, coupled with a customer base who tended to avoid travelling to SWA key destinations due to international problems of political stability served to seriously undermine Sabena profitability. The main problem within Sabena was the process of determining a successor for the ill-fated Van Rafelghem, locating someone with practical experience in the airline industry who could make sweeping changes who would return Sabena to profitability and ensure the airline’s longevity as a leader in the industry. The company finally appointed Pierre Godfroid as the head of Sabena, however questions about his lack of experience with airline operations made both investors and the Belgian government leery about the future of Sabena. Environmental Analysis: As previously described, the state of affairs in the Persian Gulf region, as well as its long-standing, profitable connections with a troubled Africa, served to erode a large portion of its customers as they worried about regional stability and their own personal safety. Fixed costs, such as rising jet fuel prices, created issues with turning an acceptable profit when the company was under considerable tension in trying to fill seats on their planes. In 1990, as connections between Africa began to further erode, the company appeared to be unable to offset higher fixed costs with revenues from customer patronage. Historically, the Belgian government provided supplemental financial support in the event of losses within Sabena, but as Belgium began to experience high debt ratios, such funding was no longer a viable option for sustaining Sabena during difficult economic times. Hence, the largest threats for SWA, from an environmental perspective, were unforeseen and unprecedented international and governmental instability creating a failure to provide a contingency plan for joint-venture operations or expansion to new destinations to improve profitability. Potential opportunities, at the same time, existed for Sabena in relation to the impending evolution of the European Union. Projected new market opportunities due to open borders could have given Sabena the opportunity to open new destination territories to boost diminished revenues from customers who were not frequenting African or Gulf territory destinations. However, internal leadership failures and incompetencies in addition to diminishing equity (for a variety of reasons) likely did not allow Sabena the opportunity to explore these new EU market opportunities. Advertising and marketing costs designed to appeal to the new, potential EU passenger would have likely been a costly investment for engraining SWA into the cultural mindset of the EU customer; something a desperately-unprofitable Sabena could not afford. Organizational Analysis: In the open systems model of the Competing Values Framework, flexibility, growth and resource acquisition are the primary aspects of leadership focus for increasing business potential. However, such elements were drastically missing from the mix of Sabena senior level management, as many executives at SWA were hired for political or cultural reasons, not for their strength in leadership and strategic competency. Hence, for all intents and purposes, the entire senior-level leadership team was ill-equipped to consider opportunities for growth and expansion initiatives as most of them did not even understand the basic fundamentals of how the business operates. In addition, Sabena, due to strong political affiliations within the leadership team, had virtually no system of rational goals, including planning and productivity. The Competing Values Framework tends to suggest that different objectives within a company create a paradox of conflicting messages, however in the case of Sabena, virtually all aspects associated with contemporary business practices for growth and development were non-existent due to self-serving aspirations and a climate of corrupt political maneuvers. Thus, it would be a fair assessment to offer that Sabena, from an organizational perspective, maintained no formal system of checks and balances which ensured that the company was headed toward a positive operational future. Previous Initiatives and Interventions: Another significant weakness within Sabena occurred due to the high magnitude of influence that local unions carried in Belgium. Nearly all employees were represented by some sort of union division, which constantly served to stop efforts at boosting productivity or reducing costly payroll through lay-offs. In addition, the Belgian government somewhat turned a blind eye to lost profits stemming from high payroll as Sabena represented stability due to the high number of jobs the company provided for Belgian workers. The union would use its strong political connections to appeal to the Belgian government to exert pressure on virtually all attempts made by SWA leadership for cost-reduction initiatives related to labor and productivity. Hence, almost all of Sabena’s interventions to improve economic stability were undermined by external influences, leaving Sabena with no measureable successes or improvements in this area. Alternatives: The culture at Sabena was largely mechanistic, with all decisions being made from the top-down, allowing for virtually no employee feedback whatsoever in the decision-making process. This created significant motivational issues for employees who were not given ample rewards or positive accolades for performance. Internally, Sabena was a mess of unproductive workers, conflicting management philosophies with self-preservation as top priority, and very little emphasis on using positive human resources initiatives to boost motivation. There was virtually zero communication, from a personal level, between management and the subordinate employee. Hence, the assignment of Godfroid as the new head of Sabena was designed to facilitate a new methodology for improving internal cohesion and cooperation. As a viable alternative measure, Godfroid could have easily revamped administrative policy to include radical changes to the human resources factor at SWA. As the primary authority within the company, Godfroid maintained access to ample volumes of staff (who were often being paid for not performing work due to the organizational structure) and could have easily initiated a cross-training methodology so as to provide higher competencies to existing staff members. As the head of Sabena, Godfroid could have easily demanded a higher level of performance from his senior and middle-management leadership teams, offering a series of radical training methods on human resource management principles which identified the value of the human contribution. Such an initiative would not have represented tremendous cost to the business, as the staff necessary to accomplish these goals were already in place. By modeling his own behaviours as a leader who firmly believed in the value of workers, Godfried himself, as a low cost HR initiative, could have radically changed the entire organizational culture from the top-down. The ultimate result would likely have been a more satisfied subordinate population willing to adopt a new teamwork methodology due to new managerial policies offering positive feedback and development training for career growth. This would have satisfied the internal conflict which reduced profitability and productivity as related to management and subordinate interaction. Senior level resistance to these new HR policies, which would have represented an entirely different method of management (involving active participation in the business) would be a likely detriment to this alternative plan. In addition, another viable alternative would have been for Godfried to make one final appeal to the Belgian government to provide funding to assist in the development of the European hub. Though the local government was facing its own budget crises, a well-developed business proposal highlighting the potential employment opportunities and long-term profitability projections would have likely granted Sabena a final governmental payout to assist in keeping SWA afloat. Of course, the most obvious drawback to this plan could have been refusal to provide the necessary government funding, leaving Sabena back in the position of trying to establish joint-ventures or other private investments for this large-scale European hub project. Action Plan and Implementation: In order to function as a productive, cohesive organization, a competent plan of action regarding restructuring of the management philosophy at Sabena is required. As without a competent set of leadership or a well-defined set of job responsibilities, regardless of investment opportunities, a company cannot sustain itself. Thus, the first priority would be to develop a radical change to the organization from an internal perspective, making it ready for expansion and profitability. This would require a two-tier program, which if handled aggressively and with strong senior-level conviction, could be completed within six months: Tier one involves Godfried demanding new levels of performance from his management team. Despite the political culture which runs rampant at SWA, Godfried is, indeed, the highest level of authority. With a proactive appeal to the Belgian government highlighting his plans to reduce dependency on government funding, he would likely receive adequate support for performance mandates. Using an HR consultant firm, as internal capabilities for HR were virtually non-existent, a rapid series of training programs should be scheduled with mandatory guidelines for completion. Similar employee training on diversity and development would be part of this initiative. Godfried himself, as well as managers who were competent and proven contributors, would take ownership over the training program completion in order to ensure 100 percent compliance. Many senior level managers would likely resist the programs, as it represents taking an active role in the operations, thus many would likely appeal to their political connections to avoid complying with the mandates. However, the proactive appeal to the Belgian government which represented significant cost-savings for Belgium budget, would likely make these negative appeals ineffective. In a worst case scenario, threats of job loss at the senior level would be a likely outcome in the event of non-compliance. Tier two relies on supplemental, ongoing training sessions which reinforce the importance of cross-divisional communications. Since no such methods were currently in place at SWA, this would involve a series of hands-on meetings between divisions, with Godfried as the moderator, to ensure that all management teams attend and actively participate. This would offer the opportunity to open a diverse set of ideas on how best to improve communications technologies, with Sabena identifying budget capabilities to implement a better system of cross-divisional support and discussion. Tier two involves a four-month commitment to identifying room for improvement in divisional cohesion, allocating a long-term budget to purchase or adopt new communications technologies. Though the company requires many external strategies to become a profitable business, its internal competencies are seriously lacking. It must be the focus of Godfried, before pursuing growth and expansion, to whip the organization into shape to take its place within the competitive industry environment. Regardless of whether the European hub project takes shape and is realized, if internal strengths are not developed, Sabena will likely crumble into obscurity. Read More