Organizational Diagnosis - Essay Example

Organizational Diagnosis Any organizations in any sector particularly in airlines sector cannot exist like an ‘island’ without being influenced by the external environment or without influencing the external environment. External environment that surrounds an organization will have a lot of factors or catalysts, which directly or indirectly will impact various aspects of organizational functioning. These external factors will change or reorient the organisation’s functioning in a particular way. That is, when organisation undergoes changes according to the external environment, it will maximize the collective advantages; it could have regarding opportunities, thereby maximizing its profit as well as its share in the market. In the external environment, the factors which will normally influence the organizations are factors like political, economic, cultural, etc. These factors will have impact an organization in different ways, both in the positive sense as well as in the negative sense. These factors, which will be initiated and run by ‘factors’ or individuals unrelated to the organizations, could impact the organization in one way or other. So, it is of utmost importance to study these external environment factors in an in-depth way by the organization, so they can come with strategies accordingly. If an organization comes up with both external strategies like marketing strategies and importantly internal strategies like operational, Human Resources and various other strategies, after studying its external environment, it will aid the organization to function optimally. So, this paper will first analyse the external environment of the organization, British Airways (BA), which is United Kingdom. Then, the paper will analyse the major strategies that are available to BA because of the factors or issues or changes in the external environment of UK, finally coming up with an optimum strategy that can be implemented by BA. External Environment A business is often influenced by both macro and micro environmental factors prevailing in the region or country where the business operates. On those lines, the business of Airlines particularly BA could also be controlled by those macro factors, which are not in their control. Only if the political situation is safe, with safe environment for the firms, the firms can develop their infrastructure and carry out their operations. This is quite applicable to the Airlines industry and the organizations like BA operating in that industry sector. From that perspective, UK has been having a safe political climate, with no major terrorist or even war threat. Likewise, the ruling government has to be stable and that is also favourable for businesses. The coalition government of Conservative and Liberal Democrats headed by David Cameron is welcome news, as Business wants to see a stable Government. (telegraph.co.uk 2010). In this globalization era, governments should have open policy to allow as well as facilitate organization’s functioning through tax and other benefits. If the government enforces tariffs and business restrictions, it may impede the country from having a complete or relative benefit to having a difficulty in its business activities with various countries. (Dowling, 2007). The impact of the environmental factor of politics on BA is far more profound because BA was established and operated by the British Government for close to 15 years. As government ownership gave way to privatisation, British Airways emphasis evolved from flag carrier to profit turner with the management under Lord King and Sir Colin Marshall going for greater efficiency, customer service and the promotion of brand values. (BBC 2010). Although, direct political influence was over, BA is indirectly influenced by the political government in various ways. For example, the government’s decision to increase the Air Passenger Duty this year has negatively impacted or impacting the airlines sector on the whole including BA. It has inflated the prices of air tickets and has made air travel even more expensive. “From Monday a family of four will have to spend £240 in tax to fly to Florida - up 33 per cent.” (Walsh cited in The Sun 2010). In addition, this tax will also affect the inbound visitors from foreign countries, fears Airline companies. “Its making it more expensive for everyone to come to the UK - as they have to pay this duty to fly back out again.” (Walsh cited in The Sun 2010). Because of this tax, the airline companies opine that whatever advantage they got because of the positive signs of economic recovery, has been nullified. The other political based decision in the external environment which impacted all airlines including BA is the closing of the airspace and grounding of flights in the aftermath of the Eyjafjallajokull volcano eruption in Iceland. Although, it occurred in an environment which was more than 1,000 km away from UK, the toxic plume containing ash spread over UK and also much of Europe, posing serious problem for any air travel. Because of this issue, British government closed the countrys entire airspace, grounding all flights at five airports, including the flights whose journeys originated elsewhere in Europe, North America and beyond and who would have only passed through Heathrow. (Walsh 2010). However, various airlines including BA, Ryanair were against this decision of the British government and added that the sky was safe. BA and other airlines conducted tests over the airspace using test flights and came to the conclusion that aircraft engines did not suffer any damage from the plume of ash. “The analysis we have done so far, alongside that from other airlines trial flights, provides fresh evidence that the current blanket restrictions on airspace are unnecessary,” (Walsh cited in Arnott 2010). So, even at the peak of the Icelandic volcano issue, BA protested against the government, but has to follow the government guidelines, again validating how external environmental factors will impact BA, as BA and other airlines suffered to losses close to $200m every day In the current times, the one economic factor that is impacting every business and is impacting the Airline industry as well is the recession. Positively, this year, there has been good news on the economy front, as the British economy is showing signs of recovery. “The British economy has been buoyed by growth, soothing fears of a double-dip recession. The growth of 0.8 of 1 per cent between July and September is double market expectations.” (Brown 2010). This was further validated by Chancellor George Osborne, who opined that UKs economic recovery is on the right track based on the financial results and growth forecast put forward by the Office for Budget Responsibility (OBR). “In the report, the OBR said has said that gross domestic product would grow more slowly than expected in 2011 and 2012. However it also revealed that the economy is growing faster than expected this year.” (BBC 2010). On other hand, International Air Transport Association has been cautious in predicting the recovery and has taken cautious approach regarding economic impact on Airlines sector including BA. IATA confirmed that effects of recession on the airline industry has been somewhat minimized, reporting that compared to the same month a year ago international passenger demand was up 9.2%, with freight demand showing a 22.7% increase, however IATA’s director general and chief executive, Giovanni Bisignani added that pace would slow towards the end of the year. (iata.org 2010). So, the recovery has to be sustained for a long time for airline business particularly for BA’s business to tap and flourish. Available Strategies British Airways, the national carrier of United Kingdom, is the largest airline in UK both on the basis of destinations as well as fleet size, as it operates to more than169 destinations spanning around 75 countries. However, this strength did not translate into profits because BA suffered sizable financial losses last year and in the early part of this year, and thereby lost its position as the UKs largest airline on the basis of passenger traffic. With clear drop in passenger numbers and drop in profits, BA was ‘diagnosed’ as a ‘sick’, struggling and loss making entity. "British Airways is on course for its worst ever year after plunging another £50million into the red. The airline, in the thick of a row with cabin crew…its losses for the first nine months (2009) is a whopping £342m - almost five times the £70m deficit in 2008." (Hiscott 2010). However, as pointed earlier, with UK economy showing good recovery and with the spending power of customers increasing, it has started achieving profits in the second part of 2010 ending with September. “BA beat analysts forecasts with a pre-tax profit of £158 million ($219 million) for the six months to the end of September. During the same period last year it slumped to a loss of £292 million ($466 million)” (Whiteman 2010). So, it is clear that BA has recovered from the heavy losses, but to retain this success, it has to try out various options. That is, based on the happenings in the external environment, BA has to take some constructive as well as bold steps to keep on growing. These constructive steps have to be taken mostly in its internal environment, so BA can become more efficient in its functioning in the external environment. The fact is, BA cannot change any of the above mentioned external environment factors, so what it can do is to change its internal processes accordingly, and thereby coming up with apt and optimum operational strategies. One of the change management approaches that could be adopted by BA is to simply remove all frills and extras from its products or service. That is, with the profits of BA still not getting consistent, it has to bring in more customers to sustain its growth. Customers can come in and choose BA only if they offer competitive prices. Extra services only inflate the cost of operations, and the extra costs have to be passed on to the passengers in the form higher ticket prices. So, BA can provide essentially air transportation service, without or even minimizing augmented services like variety food on board, various in flight entertainment options, lounge services in many flights, limousine drop off, etc, etc. When these changes are carried out, the cost savings can be transferred directly to the passengers in the form of reduced price. This way, BA can offer ticket prices less than or equal to the prices offered by its competitors, especially the low cost airlines like, Ryanair, Easyjet, Virgin Airlines, etc. These changes can bring in more passengers, profits and thereby efficient functioning. However, there could be resistance to this strategy because with BA being a full service airline, any attempts to reconfigure it on the lines of a low frills airline could evoke opposition or may not find favour from certain sections of the customer. This is because the current and the past customers of BA as well as prospective customers already have image and expectation of BA as a full service airline. So, if those existing facilities are changed or minimized, it could negatively impact the customer’s preferences. More than this issue, there a lot of players in the already crowded low-cost market. As BAs competitors from Ryanair to Easyjet focus on the low-cost market, it would not be feasible for BA to jump into this market. "For all their negative publicity, no-frills airlines are masters of their trade. If the flag carrier chooses to do battle on their home-ground, it could find itself hopelessly out of its depth." (riverscrap.typepad.com 2009). Thus, BA can go for minimal changes, modifying or reorienting its current model in a minimal manner, by removing only few frills or extra products, which are not popular among the clients. During change management process, one of the options, the organizations and its management could adopt is removing expendable workers and also cutting down the salaries. That is, as BA tries to cut costs in maximum points of its operations, salaries for expendable employees is a major point. One of the major variable cost that can be controlled is the wage bill, which is done by BA by retrenching the employees, reducing the employees in the flights and also by reducing or freezing the salaries. BA’s downsizing processes involved giving 1,000 cabin crew members voluntary retirement and also turning around 3,000 of them into part-time employees. In addition, two-year pay freeze from 2010 is in the anvil. However, these strategies have elicited a lot of resistance from the employees and could act as an impediment for the change management. So, in the early part of this year as well as now, BA cabin crew members have initiated strike action and are abstaining from work, leading to disruption of activities. On the part of the pilots, they have agreed to pay cuts, but still there are a lot of resistance forces brewing up against this management strategy. The other option that is available for BA to cut down its losses particularly the losses it faced because of the Icelandic Volcano explosion is requesting compensation from the British government. Already, many European airlines have started requesting their respective governments to compensate for the grounding of the flights and the resultant losses, and BA also joined this bandwagon. “British Airways (BA) is adding its voice to European airlines calls for government compensation for the financial impact of the volcanic ash cloud.” (Arnott 2010). BA is favouring this option on the basis of the European Commission rules which allows its member countries to compensate any commercial organization, which faced both infrastructural and financial damage due any natural catastrophes. BA and other airlines are expecting some positive response from the government as there was a precedent set by the US government during the 9/11 terrorist attacks. This was pointed out by Willie Walsh, BAs chief executive, “There is a precedent for this to happen as compensation was paid after the closure of US airspace following the terrorist events of 9/11, and clearly the impact of the current situation is more considerable,” (Arnott 2010). Although, this does not come under internal process of BA, it is a natural extension or change strategy for the things that happened in its external environment. Optimum strategy and conclusion Apart from these strategies, the one strategy that BA can implement without any many opposition, and thereby importantly nullify any negative impacts from the external environment, is cutting costs in various segments of its operations through new applications. That is, going for the mass removal of any of its service oriented features and thus turning into a low cost airline, it would be feasible and effective for BA to mainly focus on cutting costs in certain segments. Normally, organisations can achieve low cost opportunities in the form of low cost labour, automation of processes, going for inexpensive but at the same time quality equipments, importantly maximizing the functioning of the employees. On these same lines, BA can adopt lean management processes as part of its change management. Lean thinking or Lean management is considered a multi-dimensional philosophy, with the primary focus on reduction of waste and optimization of quality. The lean philosophy according to Womack was defined as: “Pursuing perfection to meet or exceed internal and external customer requirements by focusing on the entire value stream and a dedication to continuous improvement, learning, and waste reduction.” (Czabke, Hansen and Doolen 2008). As far as business strategy is concerned, mass production strategy mainly focuses on exploiting the economies of scale of stable product designs and non-unique technologies. On the other hand, lean strategy mainly focuses on identifying and exploiting shifting competitive advantage. (mamtc.com). Paul Coby, chief information officer at British Airways has this to say, "We need smart innovation and smart change leveraged by technology. Lean and Agile methods are becoming key enablers." (King 2009). That is, as part of the change management, BA can incorporate lean aspects in many of its operational processes and thereby make the employees’ functioning effective, reduce the losses, etc. The incorporation of lean incorporation can be witnessed in BAs storage warehouses, where crucial operations has to be carried out but had “poor flow and general confusion”. “The introduction of Lean development brought about a new layout with clearer processes, and a more integrated team.” (King 2009). Thus BA, while planning the change management strategies needs to focus on the factors that could resist and impede the change. This way, they can come up with strategies, which can overcome these resistance factors. So, by removing the resisting things, and importantly by implementing optimum change management strategies, BA can surmount the recession caused losses and emerge successful. When this change is implemented and started to show positive results, organizations can extricate from any tough situations and pilot on the path of success, achieving long term goals. 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