The Realities of Internal and External Culture: Air France KLM - Case Study Example

 Air France – KLM: The Realities of Internal and External Culture: Air France – KLM 1. Introduction The recent merger between Air France and KLM airlines created, by revenues, the world’s largest air carrier serving many different international destinations (Done & Sullivan, 2004). With this merger comes new realities in blending different human resources models, adapting to largely different internal cultures developed at the social and regional cultural levels, and a renewed focus on cooperation in order to make the combination of different human relations model work effectively. French culture and Dutch culture are very different in terms of philosophy of management and their relationship with employees in all levels of the business. This requires joint efforts from both business entities to develop a single organisational structure that supports both beliefs without sacrificing the brand identities that had been built by both airlines. This report identifies the cultural changes promoted by external and internal cultures to make the Air France – KLM merger successful. 2. Different management models The basic French management model is typically one with a focus on line management, through transactional leadership, that focuses on performance outcomes in exchange for reward for completing organisational tasks and meeting corporate objectives (Buyck, 2004). Transactional leadership models know what employees want from their individual work efforts and then works toward meeting those needs so long as performance deserves some level of reward (Den Hartog, House, Hanges & Quintanilla, 1999). Line management in French culture usually demands that the level of management reward is equal to the level of contribution as a means of spreading positive employee thoughts of justice. Employees in French companies usually respond well to this model of management as a cultural norm. Dutch companies, such as KLM, build their cultural models on group beliefs, with more focus on team-based projects and setting justice policies through group involvement and group contribution. Under Hofstede’s Cultural Dimensions Model, power distance represents the level to which superiors hold a professional or social distance with employees in matters of governance and job role status. In France, there is much power distance between higher ranking administration and the employee population. In Dutch companies, the level of power distance is often quite small, leaving more opportunities and demand for active involvement both socially and in terms of status to reach joint consensus. With power distance comes a major clash of cultural norms, therefore the merger between Air France and KLM required adopting a new human resources model that would allow for both groups to have their own HR policies that continued to work within these cultural norms. It was decided by Air France-KLM that holding existing ideals on management and employee relationships would better serve the company without having to alter human relations or human resources policies. Any changes that use a blend of philosophies required the newly merged business to work toward slow integration to make the merger less visible to employees used to operating in totally different work environments. Further, under Hofstede’s model, French companies tend to have much uncertainty avoidance in business decision making, which is the level to which companies will make rapid decisions based on the perceived level of risk. The opposite is true in Dutch companies where more risky investments in areas of organisation or business cooperations are part of the regular model. Again, this required a slow integration of cultural styles and HR leadership to see these differences, especially when it was likely that the Dutch KLM would oppose decisions relating to employee relations that had any perceived element of risk. In order to make sure that leadership was given opportunity to avoid certain combining practices, the two distinct cultures were allowed to operate under existing norms without having to undertake a very large redesign of work or HR processes. So far, this has served the merger and its goals well in holding employee satisfaction and management perception of merger quality toward meeting their cultural needs. 3. Leadership outcomes Air France relies on its personnel as resource capital to ensure useful customer service programmes and service delivery as well as having a competitive edge for in-flight services. To make this happen, the company invests 8.7 percent of its entire payroll budget to training development and operation, much more than current law demands (corporate.airfrance.com, 2010). Training is developed in areas of quality, industrial relations for collective bargaining with different union profiles, and generic strategies for improving the skills and knowledge of in-flight and ground crews to build competitive edge. These are usually the primary focuses of transactional leadership philosophy that is grounded in the Air France organisational design. This focus on training is most beneficial for the KLM division of the business and is part of a transformational leadership model that builds a better culture using ideas of integrity, charisma, building employee growth, coaching, setting a vision and then gaining collaborative support, and then modelling these behaviours to build inter-organisational trust (Adams & Adams, 2009). A transformational leadership design looks for opportunities to expand knowledge through informational exchanges in functional structures and then inspires new direction after gaining employee support for reaching goals. In order to respond to the realities of externally-driven culture, such as the need to have social knowledge about passengers from many different international locations, a transformational attitude is necessary for all leadership with the KLM culture. This is to slowly build synergies with Air France to help them adopt these same service- and employee-focused beliefs on development. Traditional line management has served Air France well, however in order to come up with a new brand image that links both beliefs and provides better value to international customers (with varying cultural demands and ideals), it is necessary to slowly combine areas of leadership and place them over the current Air France human relations model to remake it into more of a human resources model over time. This is done successfully due to Air France’s ongoing pledge to providing excellence and budget toward training that can now include some elements from KLM philosophy to better add to their employee relations focus. To bridge any externally-driven demands from passengers or other international partners, and hold a positive brand image post-merger, the development of an ethical management system was necessary in terms of satisfying corporate social responsibility. Ethical leadership means “the leader openly and explicitly talks about ethics and empowers employees to be just and to actively seek justice through proactive efforts and belief in ethical behaviour” (Toor & Ofori, 2009, p.535). Grouping of the two organisational values requires stronger focus on ethics, especially now that the passenger load includes heavier volumes of international travellers with exact demands and needs in relation to their views on CSR and the role of airlines in satisfying their social needs. Under older line management processes commonly found in Air France, such beliefs will not serve a wide and diverse customer population without a renewed stress on ethical behaviour and the company’s role in corporate social responsibility. This is another example where slowly developed synergies allow Air France to adopt some of KLM’s more transformational leadership principles to identify with new ethical demands from international clients. The realities of a merger oftentimes cause problems with redesigning the organisation to eliminate double job roles and improve the organisational design to make it more efficient and effective. Barnard (2009) identifies that Air France needed to cut its cargo capacity by 15 percent, leading to job losses of approximately 1500. The typical industrial relations model at Air France focused on better collective bargaining strategies and negotiation under these conditions. However, this is another example where developed synergies can enhance Air France’s industrial relations model and remake it into a HR model that deals with better motivational strategies when employees are concerned about issues of belonging or job security. These are elements that are stronger within the KLM group than Air France, however with merging being slowly considered and developed, new HR leadership policies that allow the Air France division to better handle employee issues is a strength that will build a better competitive model in areas of employee relations. There are also leadership areas found within Air France that will help the KLM division where weaknesses existed, mostly in areas of distributive justice theory. This theory describes organisational justice as employee’s perceptions of fairness (Monin, Noorderhaven, Vaara & Kroon, 2008), especially in areas of role responsibilities, resource allocation, and practice involved with controls or disciplinary policy. Air France’s transactional leadership beliefs offer fair rewards equal to the measure of employee outputs or performance, whereas KLM’s consensus-based leadership design looks first to satisfy employee needs through strong reinforcement of human resources. The line management values of equal reward or equal punishment for failing to meet performance expectations can serve the KLM group in helping to shore up any weaknesses in performance or efficiency directly related to employees. A better system of controls and justice systems based largely on individual or group performance can give leaders a better control over internal business practice and slowly get Air France employees to become accustomed to having more management presence. This should happen at least short-term, to make sure that new performance guidelines are met equal or better to higher customer volumes and increased job role demands provided by the merger. 4. Similarities at the cultural level Both Air France and KLM had one thing in common that was directly related to the demands of the international and domestic passenger: A loyalty programme. The goal of the Air France-KLM merger was to reduce visual awareness about these activities to avoid causing any problems with the company’s two brands and ensure that customer loyalty was retained. Blending their existing loyalty programmes acted as a common cultural symbol to further discuss building better customer satisfaction and to have a means to show the benefit of the merger to all of their new and existing customers (slideshare.net, 2009). This programme used elements from both company’s loyalty programme and blended it into what is now referred to as the Flying Blue frequent flyer programme that has managed to increase its membership from 10 million to 15.4 million in just three years (Air France-KLM, 2009). This is due to the blended focus on service and support along with the marketing and promotion needed to show customers how the new Air France-KLM merger can continue to provide higher benefits over other competing airlines. The newly formed company needed to blend elements from both business models in order to avoid customers choosing new businesses to fly with or perceptions of potentially reduced service strength. This is another example of how slowly developed synergies are bringing value to the new Air France-KLM business model by blending successful, culturally-driven programmes together to maintain a strong focus on excellence in service delivery. 5. Dominating business practice Cultural changes that occur as a result of the merger will either develop an alliance of team-focused people or there will be a strong effort to resist change practices. In relation to change, the most noticeable factor of resistance lies in employees related to their perceptions of belonging or simply wanting to remain with their beliefs that have driven both groups’ business practices pre-merger. “A strategic conception of power offers the opportunity for subordinate groups to develop coalitions capable of challenging dominant groups and attempting to effect change at the corporate, industry or issue level” (Alvesson & Willmott, 2003, p.6). Resistance to change is often an expected outcome from employees when new business principles are blended into a tried-and-tested model that employees have found comfort working within. To adjust to this reality, Air France and KLM divisions have clearly indicated to employees that they are expected to adopt change practices and be prepared for movement within the organisational or a redevelopment of organisational structure or job role re-skilling (EMCC, 2008). It is necessary to change to this cultural dimension or change in areas of resistance by reinforcing these demands for obeying new policies to avoid resistance and to try to avoid adopting either Air France or KLM principles or beliefs. 6. New cooperative opportunities With the new merger came new capacity availability, by blending fleets, to be able to serve many more international customers and destinations. Within all of Europe, there are not enough new hotels available to satisfy travelling customers (Targett, 2001). In Germany, there is an over-supply of hotels which leads to price drops in order to fill them. In Italy, most hotels are “Mama and Papa” types with limited capacity or few features of more modern facilities (Targett, 2001, p.28). The availability and variety of external hotels will create demand issues that could either enhance or limit the revenues experienced by the new Air France-KLM business that can now serve many European destinations rapidly and with more capacity for seating for interested travellers. As part of the cooperative strategy of slowly blending areas of service and capacity, Air France-KLM has a major opportunity to use some of its consensus-based strategy leadership to ally with different hotels to change their facilities reputation in a way that provides value and a strong brand that is no longer just Air France and just KLM, but a blend of both. Value-based business models are what are now driving the Air France-KLM merger and, through promotion and strategic-level cooperation, this type of alliance can offer on-board promotion about different European locations to show customers how the newly merged company can provide ongoing value and inform them about the benefits of travelling to specific destinations. This could be accomplished by working with the commerce or political divisions of specific European countries that need more travellers to support economic growth and also fill seats (with the new capacity availability) for interested customers to experience destinations they might have originally not considered. This would be a great opportunity to expand the development of merger synergies and blend a better promotional system to show customers value, improve revenues, and also build better social relationships with international country leadership who might be needed in the future to help support different goals set by Air France-KLM. Adjusting to changes in culture and trends in buying behaviour based on perceptions about different European destinations is part of a new focus on service delivery and excellence. At the employee level, filling seats on flights to destinations that do not always have a great deal of non-professional travel would build more motivation to adopt different leadership values through discussion of job security, offer new opportunities for employee profit-sharing or other reward policies that fit both the transactional and transformational leadership styles, and overall strengthen their competitive position and reputation in international governments. 7. Conclusion Both the Air France and KLM division have their own strengths and weaknesses in adapting to cultural changes or adopting new beliefs related to the employee and to the external passenger cultures. Renewed focus on human resources and slow merging of blended policies related to culture and organisational structure allows employees and managers to get familiar with their new strategic business partners and develop a completely new Air France-KLM focused on better service delivery and improved capacity in all areas of the business. By removing unnecessary business activities from the client view, the newly merged company is prepared to compete successfully. References Adams, W. & Adams, C. 2009, Transform or reform?, Leadership Excellence, 26(11), p.17. Air France-KLM. 2009, Air France Annual Report 2008-09. http://www.airfranceklm-finance.com/flash/rapport09EN/pdf/Annual_report/data/document.pdf (viewed April 1, 2010). Alvesson, M. & Willmott, H. 2003, Studying Management Critically, London: Sage, p.6. Barnard, B. 2009, Air France to cut jobs, capacity, Journal of Commerce, September 8. Buyck, C. 2004, Mariage de Raison, Air Transport World, 41(1), p.24. Corporate.airfrance.com. 2010, Men and women. http://corporate.airfrance.com/en/the-airline/men-and-women/ (viewed April 1, 2010). Den Hartog, D., House, R., Hanges, P. & Quintanilla, S. 1999, Culture specific and cross-culturally generalizable implicit leadership theories: Are attributes of charismatic and transformational leadership universally endorsed?, Leadership Quarterly, 10(2), pp.219-251. Done, K. & Sullivan, R. 2004, Integrating KLM and Air France cultures, Financial Times, London. Dec 1, p.20. Monin, P., Noorderhaven, N., Vaara, E. & Kroon, D. 2008, Production and consumption of norms of distributive justice: A sensemaking perspective on the Air France-KLM Merger. http://portale.unibocconi.it/wps/allegatiCTP/Monin-Noorderhaven-Vaara-Kroon.pdf (viewed April 1, 2010). Slideshare.net. 2009, Reorganization of the sales processes in the Gulf for Air France-KLM. http://www.slideshare.net/dblo/airline (viewed April 2, 2010). Targett, S. 2001, European togetherness spells rich pickings from travellers: Mark Pignatelli of Schroders is investing in transport, hotels and other Euro-commuter businesses, Financial Times, London. Jun 1, p.28. Toor, S.R. & Ofori, G. 2009, Ethical leadership: examining the relationships with full range leadership model, employee outcomes, and organizational culture, Journal of Busienss Ethics, Vol. 90, pp.533-545. Appendix A: Hofstede’s Cultural Dimensions Model – Highlighting France and Netherlands Cultural Attitudes in Multiple Dimensions Read More