Change Management of British Airways - Case Study Example

Introduction During the 1980s, British Airways underwent a major organizational change that turned around its fortunes. The organizational change was focused at cutting costs, improving services by inducing competitiveness, and increasing the market share of the company. Before 1983, British Airways was a government supported organization. The governmental support was slowly withdrawn and the company was made to fend for itself in the free market capitalism. In the company’s history, it is known as the ‘privatization project.’ When the company was privatized in 1987, it was neck-deep in financial troubles. The company not only waded through tough times, but also shed its slothful, military origin bureaucratic structure, to become a slick business machine with ‘customer first’ motto. The story of British Airways presents an inspiring account of change management. British Airways Today Based at Heathrow International Airport, London, British Airways is one of the biggest air carriers in the world. Gatwick Airport is the second hub of the flag carrier of the United Kingdom. British Airways was formed in 1974, with the merger of British Overseas Air Corporation (BOAC) that operated on long routes and British European Airways that generally operated on smaller European routes. It has 50,060 employees, who help service 95 million passengers a year, using 441 airports in 86 countries with more than 1000 planes. The geographical areas covered by the British Airways include North America, Central and Latin America, Western Europe, North and Eastern Europe, Africa and Asia. BA’s operations yield sales revenue of ₤ 7.177 billion a year (Funding Universe). It partners with USAir in the United States, Qantas in Australia and TAT European Airlines in France (Anon, n.d.). Other alliance partners of British Airways include Finnair, Iberia, Swiss and Cathay Pacific. The company is listed at the London Stock Exchange. In 2002, British Airways floated 360 aircraft to 270 destinations in 97 countries, ferrying 40 million passengers. British Airways in History The history of British Airways dates back to the era of World War I and World War II. In 1924 small airline services like Handley Page, Instone, AT &T, and British Air Marine Navigation were merged to form Imperial Airlines. These airlines used the bombers used in World War I to ferry passengers. Another group of small airlines were merged in 1935 to form the British Airways Ltd. In 1939, the government merged these entities to form the public sector enterprise British Overseas Air Corporation (BOAC). At the end of the World War II, BOAC had a fleet of 160 aircraft that flew in an aerial network of 54 000 miles (Funding Universe). In 1949, BOAC was again separated into two companies; the British European Airways for the local, and the BOAC for global flights. In wake of spiraling fuel and operational costs the two airlines were merged to form the British Airways. A committee headed by Sir Ronald Edwards had recommended that the two airlines BOAC and British European Airways be merged. The merger process was completed in 1974. The company was made a public limited enterprise in 1985, with all its shares vesting with the government. It was finally disinvested in 1987, when its 720.2million shares were sold for one billion pounds (Anon, n.d.). In the heady days of restructuring and reform the company had to pay £610,000 as damages to Richard Branson and his Virgin Airlines, for launching the infamous slur campaign against its chief competitor in the UK, at the injunction of a court. The Change Story The British Airways story of change begins when it was performing disastrously on all fronts (Grugulis and Wilkinson, 2001). Its pathetic condition in 1970s and 1980s can be gauged from the fact that it was running losses of to the tune of ₤ 140 per minute in 1981(Grugulis and Wilkinson, 2001). The loss making airlines with an old feet (Grugulis and Wilkinson, 2001), plagued by employee discontent (Grugulis and Wilkinson, 2001), high levels of customer dissatisfaction (Grugulis and Wilkinson, 2001), lagged far behind its international rivals (Warhurst, 1995 cited at Grugulis and Wilkinson, 2001). The company was not at all ‘market savvy’ and ‘customer-centric’ (Lundy and Cowling, 1996). The biggest obstacle in way of privatization was the debt it had accrued in the 1970s. The airlines had £1 Billion of debts and government didn’t want to bail it out of financial mess with public money. (Raktabutr, 2006). The company enjoyed near monopolistic conditions in UK till 1987. It controlled 60 percent of the routes in UK but faced competition in only 9 percent of the routes. (Monopolies and Merger Commission cited by Grugulis and Wilkinson, 2001). Due to the monopolistic conditions British Airways charged whatever it liked. In a survey conducted in 1981, the International Airline Passengers’ Association put BA at the topmost position in a list of Airlines to be avoided at all costs. So bad was the reputation of the company that Beatles cast sarcasm on BA’s sloppy performance and lethargic service in their song “Back in the USSR” The company’s work culture, before restructuring, can be best described as awkward, inefficient and bureaucratic (Raktabatur, 2006). Part of BA’s organizational problems lay in its military history. The company’s culture was strongly influenced by the hangover from the Royal Air force Days (Lundy and Cowling, 1996). The company’s hierarchical structure was bureaucratic and authoritarian. The attitude of the senior staff towards the juniors was authoritative, formal and non-participatory. According to Raktabutr (2006), the relationship between the seniors and juniors was ‘impersonal’ and decision making was non-participatory. On the other hand, other players were highly competitive and customer-focused. The problems of British Airways were compounded by an aging fleet. The cultural and structural organizational change was necessitated by the decision of the Thatcher government to disinvest the British Airways. All of a sudden British Airways faced the daunting task of surviving on its own in the global free market capitalism (Burke, 2002). The company knew that it had to change dramatically and drastically to survive in the coming times (Burke, 2002). The restructuring process of British Airways began with the appointment of Lord King as the chairman of the company in 1980. After his appointment, Lord King began an aggressive marketing campaign (Anon, n.d.). Within a few years, Lord King helped the British Airways to stage a turnaround in its fortunes. The turnaround in British Airways was fostered by a combination of process and strategy (Doyle cited by Grugulis and Wilkinson, 2001). A massive cost reduction campaign was also initiated in which unprofitable routes were discontinued. Programmes like “Putting People First”, “Managing People” were initiated to accustom the line managers and employees to the changing market needs. Performance metrics were directly linked to customer satisfaction. (Raktabutr, 2006). The company operated under a new slogan of “The World’s Favorite Airline.” Change in British Airways was not a sweet affair for all. It began with a massive downsizing program. Between 1981 and 1983, 40 percent of the staff was removed though with generous termination allowances (Grugulis and Wilkinson, 2001). Besides replacing half their fleet, British Airlines invested heavily in terminal facilities and aircraft (Grugulis and Wilkinson, 2001). The Marshall Plan Lord King was helped in his organizational change program by Colin Marshall, the Chief Executive Officer. Marshall invigorated the company with a strategy that had customer as the ‘focus.’ Colin Marshall, the new CEO ushered the much needed organizational culture that focused on the market and customer service (Raktabutr, 2006). The Marshall Plan began with the appointment of a new top management team. The personnel department was made the Human Resource Management. Training and development was made a regular feature for all the employees. A performance appraisal system was introduced and rewards and promotions were directly linked to performance. A consultancy firm was hired as an external change agent to assess the views of the customer towards the BA’s services. A second parallel audit was conducted to ascertain the ideas and perceptions of the staff that came directly in touch with the customers (Lundy and Cowling, 1996). The plan also consisted of a slew of measures aimed at making cultural and structural changes in the British Airways. The new strategy included empowering front line employees to handle situations arising at the point of contact between the customer and the staff members (Lundy and Cowling, 1996). “The Putting People First” training program was aimed at changing the attitudes of the front line staff that came in direct contact with the customer. The organizational structure was flattened by removing redundant layers in the hierarchy (Lundy and Cowling, 1996). Many managers were forced to work in the front and deal with the customers. The change was an open ended one (Lundy and Cowling, 1996) with room for continuous improvement. It required reviewing and changing in the wake of ever-changing marketplace needs. A large number of jobs were made part time or sub-contracted (Grugulis and Wilkinson, 2001). Years of insularity gave way to a focus on marketplace and dismantling of bureaucratic approach. (Burke, 2002). Both cultural and structural factors played an important role in organizational change of British Airways (Grugulis and Wilkinson, 2001). A major structural change was to overhaul the recruitment policy. The recruitment policy was changed to support diversity, equality and upholding the right of the people to fit into the new system (Raktabutr, 2006). Two external consultancy firms acted as change agents. The managers were motivated to bring their behavior in line with that of the change managers. The Menu of Practices handed down to staff had a number of guidelines clubbed under 1) Clarity and Helpfulness 2) Promoting Achievement 3) Influencing through Personal Excellence and Team Working 4) Care and Trust (Grugulis and Wilkinson, 2001). Other motivational programs included Winning for Customers, A Day in the Life, To be the Best, Leading in Service, Business and Leadership 2000. The staff was put in cross-functional groups to diversify their experience (Grugulis and Wilkinson, 2001). Central to the Marshall’s plan was to change the behavior of the staff members. The staff was motivated to bear positive attitude and work was judged on the way it was performed. (Georgiades and MacDonnel, 1998, cited at Grugulis and Wilkinson, 2001).One of the most interesting facets of the cultural change was the bonus reward system. Bonus was calculated in 50:50 ratios on the exhibited behavior and achieving quantifiable goals (Grugulis and Wilkinson, 2001). Managers started interacting with customers often helping them with their luggage. So strong was the ‘customer first’ sentiment that once the CEO of the company was asked to disembark from an overbooked flight (Carr, Hard, Trahant, 1996). Later BA could withstand the competitive times, made tougher by the recession due to Gulf War, and deregulation of the industry in the US (Lundy and Cowling, 1996). By 1996 the matters had turned around and BA had become the most profitable airlines in the world and the second-most admired company in Europe (Financial Times 9th July 1997 and Financial Times 18th March, 2000 cited by Grugulis and Wilkinson, 2001). It showed to the world that Great Britain could produce world class companies, who were very the very best in their league (Doyle cited by Grugulis and Wilkinson, 2001). Organizational performance was improved with the help of new training programs and appraisal systems. (Raktabutr, 2006) The strategic turnaround in BA’s history occurred largely due to the leadership of Lord King and Colin Marshall. Marshall was highly successful as a change agent in turning around the fortunes of British Airways (Burke, 2002). Conclusion The organizational change in the British Airways was preceded by major cultural and structural changes. Whether cultural and structural changes played the major role is a subject matter of discussion. However, organizational change ushered in a major change in the fortunes of the company that today sets benchmark standards in the airlines industry. What role does culture play in organizational change? Organizational culture is the common set of beliefs and values; basic assumptions, values, and artifacts nurtured by the employees and management of a company (Schein, 2004). According to Schein (2002) cited at Green (2007) basic assumptions are borne out of joint learning process. Culture is the very ‘being’ of the organization and is ensconced in the collective consciousness of the organization. Green (2007) describes it as the behavior of the organization as differentiated from other companies. Overall, culture is viewed as opposing change, as it is the result of stability and continuity (Lawrence, 2002). There has always existed antagonism between change and culture. This is because of conceptions of culture are continuity and stability with full organizational membership (Lawrence, 2002). Culture keeps the organizational machinery well-oiled. The employees, the managers and the top-management comply with the procedures and norms in a matter-of-fact way. Culture has a discerning impact on the evolutions of thoughts, ideas and decision-making processes. As soon as a new culture is applied, the employees resist it as an unwanted, extraneous distraction fraught with uncertainties (McKenna 2000). Resistance to change, according to Burke (1982) quoted at McKenna (2000), is sometimes not directed at change itself but towards supposed impending personal loss. While initiating a change process it is important to understand whether the culture would impede or help in the change process (Green, 2007). The dynamics of organizational change need to augmented with education and training. The role of the line manager is pivotal in ushering in, and stabilization of, change process, as the manager provides the crucial interface for the employees and the management. The present culture has the ability to influence thoughts, ideas, and decision-making process (Green, 2007). A firm view has emerged that change weakens the corporate culture (Lawrence, 2002). In contrast to popular discourses, Lawrence (2002) develops the hypothetical model of positive organizational culture, which appreciates impermanence, change and different levels of organizational membership. The members are mobile over the organizational boundary as one-time members become non-members and vice-versa. (Lawrence, 2002). What are external and internal change agents? What is their role? Change is a response to some stimulus (Newton, 2007), which is generally external in nature. (Newton, 2007). The external stimulus could be variations in competition, price wars, adoption of new technologies, changing demands, or new legislations and environmental concerns. (Newton, 2007). Though it may seem paradoxical, but most of the internal changes are driven by changes in the external environment. (Lawrence, 2002). The need for change can also be created by a systematic review of strategy or a change in the leadership (Green, 2007).In case of British Airways the stimulus for change was increased competition, better services of competitors, and deregulation of the industry. Change agents are those individuals or teams that instigate, plan, catalyze and execute the change process. Change agents are visionaries, who have the knack for converting theoretical strategy into reality. According to Lippit (1959) cited at Ulster Business School, change agent initiates organizational development process within an organizations through a relationship that is both voluntary and temporary. Internal change agents are members of the organization, generally belonging to the top managerial level. The top managerial level change agents usher in top-down change. When the change agent is located at lower hierarchy, the initiative is called the bottom-up change (Newton, 2007). External change agents are consultants, or guides specially hired for carrying out the change management process. Internal change agents score over external change agents, as they are better informed about organization’s culture and structure (Ulster Business School). The internal change agents are also less costly than the external consultants (Ulster Business School). The external change agents work on the consultant model wherein they share specialized information with the organization in a collaboration set-up with equal powers. On the other hand, the previous information of the environment may stand in way of a change agent’s objective view of the situation. Internal change agent may be part of the problems or be too sensitive to the wishes of the seniors (Ulster Business School). In case of British Airways Colin Marshall and Lord King were the chief internal change agents of organizational change. Two consultancy firms acted as the external agents in the organizational change of British Airways. How does a flat organization support organizational change? One of the most telling pictures of change is the breaking down of hierarchical organizational structure into a more flat organization. A flat organization can both be cause and effect of organizational change. The idea for change can emanate from any level in the organization. Change is an effect of sum total of experiences, thoughts and ideas and incidents (Green, 2007) that develop into the collective consciousness of the organization (Newton, 2007). A non hierarchical organization is more creative and open to innovation and change (Klenke, 2006). Flat organizations have their focus on customers, external opportunities, and are better networked with horizontal networks (Klenke, 2006). Flat organizations are better oriented to adjust to the changing economic landscape of globalized world (Klenke, 2006), as good change management needs an atmosphere of openness, transparency with cross-sharing of ideas and thoughts. In a flat organization, a greater number of employees come in contact with the customer or external environment, thus helping the change process. On the other hand, the closed looped decision making structure of hierarchical organization impedes growth and change and also gives rise to needless fears and suspicions, characteristic of an organization undergoing change. The hierarchical structure gives rise to bureaucracies that can easily result in drowning of fresh ideas in the din of day to day activities. A flat organization is more open to the stimulus of external and internal change agents. It is easier to implement change either in a ‘top down’ or ‘bottom up’ approach in a flat organization. It is also possible to integrate the two approaches and achieve quicker results (Green, 2007) in a flat organization. The executives over functional units are empowered to implement change in a flat organization. An enlarged core change team can be spread out over more functional units. This effectively means more employee involvement in the change process. The change process is easier to implement in the flat organization. One of first decisions Lord King made was to do away unnecessary bureaucratic structures in the British Airways. It also entailed downsizing the staff by 40 percent. How is communication important in organizational change? Communication is a key element in effecting organizational change. According to Daft quoted at Green (2007) communication is the process by which information is exchanged and understood by two or more people, usually with the intent to influence behavior. (Green, 180, 2007). The role of information management, often overlooked at the time of managing change, is of critical importance in the change management (Carr, Hard, Trahant, 1996). Prior to change initiation, communication channels, formal and informal, are to be set up the overarching vision for change. Communication helps to affix the responsibilities and elicit the attitudes of the stakeholders towards change. It is necessary to communicate the change, the implementation proposals, progress, and schedule adjustments in time. (Rye, 2001) Communication is the vital link that facilitates data exchange between individuals and teams. It helps develop shared notions and common perspectives over change management issues (Rye, 2001). Strong communication channels act as adhesives amongst the change management team members. Effective communication channels are used to convey feedback on vital issues to the change agents. Often communication assumes the form of dialogue between variously placed stakeholders (Green, 2007). Frahm (2003) quoted at Green (2007) creates two constructs of ‘monologic’ and ‘dialogic’ communication. ‘Monologic’ communication, viewed as a management function, is linear one way communication and occurs in top down fashion and is directed at target groups (Green, 2007). On the other hand ‘dialogic’ communication can be expensive and can result in too much of talk and little action. Without effective communication there are high chances that a change management project is a failure (Frahm (2003) quoted at Green (2007)). Arnsetein (1969) cited at Green (2007) creates eight rungs in ladder of participation. The Arsentein’s ladder is a practical guide to effective communication in change process. The first two rungs of manipulation and therapy entail one-way communication. Dialogue and participation begin at the third rung, of ‘informing’. Consultation, the fourth rung, requires two-way information flow of information. In the ‘placation’ stage, communication is used to placate stakeholders like addressing issues before the employee representatives. In partnership stage, communication is required to enter into dialogue with stakeholders for redistribution of power. Delegated power, the eighth rung vests the stakeholders with responsibilities. Communication is used to clearly delineate the roles and responsibilities in changed scenario. Citizen Control, the eight rungs of the ladder entrusts responsibility to the stakeholders most affected by change. Finally, it is important to understand. Communication is not only important in the change initiation but is equally important in the maintenance of change (Witherspoon and Wolhert quoted at Green, 2007) References Anonymous (n.d.), British Airways PLC, The Funding Universe Website, www.fundinguniverse.com, Retrieved December 14th 2008, Burke, W, W, (2002) Organization Change, Sage Publishers (UK). Carr, D,K., Hard, K, J, Trahant, W, J, (1996), Managing the Change Process, Mac-Graw Hill Professional (US) Green, M, (2007), Change Management Master Class, Kogan Page Limited, London, UK. Grugulis, I and Wilkinson, A (2001) British Airways: Culture and Structure Paper 2001: 4 Ream Paper No.10 Loughborough University Website, http://www.lboro.ac.uk Retrieved December 18th 2008 Klenke, K, (2006), Keeping Control in Non-hierarchical Organizations, Business: The Ultimate Source, 2nd Edition, 2006, pgs. 231-232, Retrieved 16th December, 2008, http://www.aom-iaom.org/article_kk.pdf Lawrence, P., (2002), The Change Game, Kogan Page Limited, London, UK. Lundy, O, and Cowling, A, (1996) Strategic Human Resource Management, Routledge Publishers, Taylor and Francis Group, US. McKenna, E, F, (2000) Business Psychology and Organizational Behavior, Psychology Press, Taylor and Francis Group, UK. Newton, R (2007), Managing Change Step by Step, Pearson Education Limited, Harlow, UK. Raktabutr, T, (2006) Analysis of Organization: British Airways, Thanabut Website, http://thanabut.blogspot.com, Accessed December 6th, 2008, http://thanabut.blogspot.com/2007/05/1-introduction-this-report-is-written.html Rye, C, (2001) Change Management, Kogan Page Limited, London, UK. Schein, E, H, (2004) Organizational Culture and Leadership, Wiley Publishers, John Wiley and Sons, Inc, US. Ulster Business School, Change Agents, The Ulster Business School Website, www.business.ulster.ac.uk, Retrieved November 22nd 2008, http://www.business.ulster.ac.uk/businst/pub_service_mgt/bmg383/Change%20Agents.pdf Read More