Some Issues in Strategic Change Management and Their Relevance in Airline Industry - Assignment Example

Strategic Change Management Table of Contents Table of Contents 2 Question 4 McKinseys 7S 4 Hard Factors 4 Soft factors 5 Kotter’s Change Model 5 Increase Urgency 5 Build the Guiding Team 5 Formulation Proper Vision 6 Communication 6 Empowering Actions 6 Development of Short Term Goals 6 Consolidating Enhancement 6 Institutionalizing the Changes 6 Kubler-Ross Five Stages Transition (Grief) Cycle 7 Kurt Lewins Change Management Model 7 Unfreezing 7 Change 8 Refreezing 8 Comparison 9 Question 2 9 Question 3 11 Question 4 13 Question 5 15 Question 6 16 Reference 18 Question 1 McKinseys 7S McKinseys 7S model gives importance on hard and soft factors of business with the intention of analyzing potentiality of market development strategy of particular organization (Collins, 2007, p. 27). Hard Factors Strategy Organizations deploy resources to achieve various business objectives such as increasing market penetration, decreasing power of competitor and product diversification. Structure Structure defines the systematic linkage such as centralised, vertical or horizontal connection of organizational departments with each other. Systems System defines the procedure to do important organizational tasks and it is complemented by various functional units such as financial system, human resource system, marketing system and human resource system. Soft factors Shared Values Shared value defines central belief and attitude of the organization. Staff Human resource pool of the company contributes staff factor of 7S model. Skill Skill defines capabilities of the organization in terms of resource deployment and personnel strategy. Style Style defines how key managers perform in order to achieve organizational objective. Style is guided by theory Z model proposed by various research scholars (Montana and Charnov, 2008, p. 34). Kotter’s Change Model John Kotter has created an eight stage framework of change management and the model can be explained in the following manner. Increase Urgency In this stage organizations identify requirement for change and urgency can be realised by analyzing industry best practices. Build the Guiding Team In this stage organization create an effective team to guide change agents to work together. Formulation Proper Vision A proper vision must be developed in order to ensure changes take place with ease. Communication Organization leaders need to communicate objective of the change to all the team members in order to continue further steps. Empowering Actions In this stage organizations give power to change agents to take critical decisions during contingency period. Development of Short Term Goals In this stage short terms goals such as monthly performance target or quarterly financial targets are created to drive the change. Consolidating Enhancement In this stage organizations create reward system for change agents with an intention of consolidating positive aspects of change management process. Institutionalizing the Changes In this stage management designs link between organizational culture, employee perception and organizational success in order to institutionalize change (Kotter, 1996, p. 35-42). Kubler-Ross Five Stages Transition (Grief) Cycle In 1969, physician Elisabeth Kubler Ross proposed a five stage model in order to define characteristics of organizational change. The five stage model can be explained in the following manner. Stages Characteristics Denial Denial is the natural defence mechanism which employees use to refuse need of change management process. Anger Employees show anger in inward or outward manner as a part of defence mechanism. Bargaining People compromise with others in order to avoid greater loss. Depression This is ‘preparatory grieving’ stage and people accept sadness of change situation. Acceptance It reflects emotional detachment of person from the view point of objectivity of situation. (Source: Cantore and Passmore, 2012, pp. 50-51) Kurt Lewins Change Management Model In 1958, Kurt Lewin has suggested a three stage change management model in order to create a map for change process. Three steps can be explained in the following manner. Unfreezing In this stage organizations destabilize the balance of existing system in order to decrease resistance to change. Identifying existing dissatisfaction regarding change Creating additional forces such as budget constraint, schedule to fillip scope of change process Developing employee knowledge about market condition and competitor activities among staff in order to clarify need of change Change Establishing new reporting techniques Creating reward system for change agents Replacing rigid managerial style by flexible one Refreezing Consolidating positive aspects change management process and institutionalizing every member of organization with newly implemented system Concept of theory Z will be used in order to sustain positive effect of change management process in order to sustain the benefit of change management process (Simms, 2005, p. 124) Comparison McKinseys 7S Model Kotter’s Change Model Kubler-Ross Five Stages Transition (Grief) Cycle Kurt Lewins Change Management Model The model interlinks strategic objective of the organization and change management process The model deals with eight step framework for change management process The model deals with psychological impact of change management process The model deals with reducing resistance to change from employees of the organizations It is a strategic choice for organization It is a tactical choice for organization It is psychological choice for organization It is a tactical choice for organization The model reflects overall business strategy of organization The model contributes significantly to overall business strategy of organization Low impact on overall business strategy of organization Moderate impact on overall business strategy of organization Question 2 Relevance in Airline Industry Strategy Shared Value Structure System Style Staff Skill McKinseys 7S Model Airline companies can decide overall strategic goal Customer service training program should be designed to enhance shared value Many companies use de-centralized model in order to expand business in industry Implementation of new IT systems such as ERP, EDMS or RFID is common in Airline industry Many companies adopt profit oriented management style in order to decrease service delivery cost Companies do staff reduction in order to decrease overall operational cost Specialized marketing skill is required to attract business class customers Kotter’s Change Model Scandinavian Airlines has already adopted Kotter’s change model in order to shift their focus from targeting economy class people to frequent business travellers. The strategy not only helped them to achieve high margin and potential business growth (Kotter, 1990) Kubler-Ross Five Stages Transition (Grief) Cycle Hochschild’s research shows that in airline industry behaviour of airline staff is guided by Kubler-Ross Five Stages Transition (Grief) Cycle. High attrition rate and staff downsizing strategy of Airline company’s crates impact on defence mechanism of Airline staff. Kurt Lewins Change Management Model Southwest Airlines has applied clarity system as a part of Kurt Lewins Change Management Model to decrease resistance about newly implemented software system. The company has changed existing Microsoft Excel reporting pattern by implementing Hyperion Essbase model of financial budgeting. The company did the change in order to decrease overall reporting cost. Question 3 Strategic Intervention Model Value Effectiveness Game Play Three player sequential move game can provide optimal timing for strategic intervention Strategist use (i-j-k) notion to represent effectiveness in terms of moving sequence game. In this game player i makes first move while player k delivers last move [i, j, k=1,2,3, i ≠ j ≠ k] Contingency theory Contingency theory synchronizes organizational change with internal situation of organization. It helps the management to cope with external contingent situation and change organizational structure in accordance to requirement of situation (Tsukamoto, 2003, p. 162) Proactive and Reactive These models are complemented by reinforcement, extinction and punishment in order to decrease change resistance behaviour of staff Ignoring or punishing change resistance behaviour of few employees can help organizations to extinct scope of generating resistance against proposed change management model Creating Synergy Organizations can combine multi level interventions by a common synergic model. The logic model of synergy theory describes sustainable change as participation multi level actors (local and global, top level, mid level and ground level management). This model not only increases communication scope but decreases change resistance also. HR Management Interventions Total quality management can be used as a part of Organizational Intervention TQM helps the management to not only decrease error in production but help the to develop organizational culture also British Airways used Kurt Lewin’s change management model in order to create positive impact on their business policy. In the unfreeze stage they downsized the workforce in order to decrease hierarchical levels. In the change phase British Airways altered internal system and provided incentives to absorb the shock effect. In the refreeze stage BA integrated customer satisfaction with individual objective of key members of organizational hierarchy. They refurbished uniform of staff and aircraft design as a part of change management process. Question 4 Strategic Change Drivers Assessment Change in Market The market demand for Airline industry has been dented due to sovereign debt crisis and economic recession. Airline industry has lost more than $25bn (£16bn) in last ten years (Milmo, Topham, and Roberts, 2012). Economic Downturn National Airline and Olympic Airline are undertaken by Greece government in order to help them to fight against economic downturn caused by Sovereign debt crisis (Lynn, 2010, pp. 41-42) Change in Global Market Aviation industry contributes 35% of global trade in terms of value and the contribution will further increase by 5% within next five years (Association of Asia Pacific Airline, 2011). Customer Expectation Customer expectation has increased in recent times because companies are competing with each other to provide quality service to them. Competitive Edge Companies are competing with each other in order to achieve competitive edge such as low cost service delivery, fast service delivery, expanded destination service, fleet size and many others. For example, Southwest Airlines has achieved the competitive edge of lowest fare in comparison to other players in the market. Budget Pressure Revenue from ticket price has reduced from 42% to 12% in last ten years for Airline industry. Such critical condition has increased pressure on corporate budget of Airline companies. Legislation In many countries foreign airlines are restricted to invest not more than 49% of equity along with voting rights. US law allows 49% FDI in Airlines industry whereas few countries allow only 25% FDI. Merger & Acquisition (M&A) M&A activity is quite common in Airline industry. Recently British Airways merged with Iberia Airways in order to gain better coverage in Latin American routes. TQM Nigerian Airlines used TQM in order to create market focused strategy and increasing service delivery efficiency while Southwest airlines used TQM as cost cutting driver. Technology Airline companies are using cloud computing and web ERP model in order to achieve cost advantage in hypercompetitive market Question 5 In 2011, Airways and Iberia merged together and listed their shares as International Airlines Group (IAG). Strategic change drivers for the merger activity can be explained in the following manner: Drivers Assessment Market Capitalization The new airline group formed by the merger is the sixth largest airline service in the world in terms of revenue (read EUR14, 000 million). The merger has helped British Airways to achieve market capitalization of USD5.4 billion. Strategic Synergy British Airways is expecting to achieve annual synergies worth more than EUR400 million (60% via cost saving while 40% through long term revenue) within next five year as a result of the merger. Network Merger decision will provide facilities to Iberia to expand reach in Asian market while British Airways can expand footstep in Latin America skies. FFP Merger between two airlines will help passengers to access 120 VIP lounges while frequent fliers will get the benefit of BAs Executive Club and Iberia Plus. Ownership British Airways hold 55% of ownership while Iberia has remaining 45%. Shares Stock valuation of the merger was GBP6.1 billion and industry insiders believe the value will rise at a rate of 1.22% for next one year. (Source: CAPA, 2011) Question 6 Failure Type Consequence British Airways fail consolidate IAG further BA will lose the opportunity to enter in new market by using series of M&A activities. The company will not be able to achieve forecasted target of 12% return on capital hence objective of the merger decision will fail. BA fails to give training to staff to cope with demand of Latin American passengers BA will become dependent on Iberia to provide customer service to Latin American passengers and negative word mouth will be created about them. BA fails to deploy capital resources to superior forward and backward integration Economists have forecasted that BA might lose approx £160million/annum caused by poor execution of forward as well as backward integration. BA fails to change pricing policy in accordance situational demand They will lose the customers accustomed with competitive pricing scheme of Iberia hence market penetration will not increase for British Airways. Reference Association of Asia Pacific Airline., 2011. Future Growth of the Airline Industry: How will global competition drive change? [pdf] Available at: [Accessed 27 November 2012]. Cantore, S. and Passmore, S., 2012. Top Business Psychology Models: 50 Transforming Ideas for Leaders, Consultants and Coaches. London: Kogan Page Publishers. CAPA., 2011. British Airways and Iberia merger completed; plan to add more airlines to group. [online] Available at: [Accessed 27 November 2012]. Collins, D., 2007. Narrating the Management Guru: In Search of Tom Peters. London: Routledge. Kotter, J. P., 1990. What Leaders Really do. [pdf] Available at: [Accessed 27 November 2012]. Kotter, J. P., 1996. Leading Changes. Boston: Harvard Business Press. Milmo, D., Topham, G. and Roberts, M., 2012. BAs Spanish marriage flies into financial difficulties. [online] Available at: [Accessed 27 November 2012]. Montana, P.J. and Charnov, B.H., 2008. Management. Hauppauge, New York: Barrons Educational Series. Simms, H., 2005. Organisational Behaviour and Change Management. Cambridge: Cambridge University Press. Tsukamoto, S. W., 2003. Human Nature and Organization Theory: On the Economic Approach to Institutional Organization. Cheltenham: Edward Elgar Publishing. Read More