Managing Employee Relations - British Airways - Case Study Example

Managing employee relations: The case of British Airways BY YOU YOUR SCHOOL INFO HERE HERE Introduction Employee relations at British Airways have undergone significant changes, due to a variety of different factors both internal and external. Changing legal systems, higher volumes of airline competition, and generic social attitudes have driven these changes. After airline deregulation, British Airways has struggled to maintain a competitive identity and hold solid ground with employees as competitive entities began adopting value-added business models where employees are considered paramount resources to sustained competitive advantage. This has given competition new opportunities to offer competitive employment packages and adopt a much stronger human resources model with issues of employee satisfaction and customer service in mind. This paper identifies the contextual factors that have acted as a driver for today’s employee relations policies at BA as well as an identification of what has driven changes to the company’s current management models and philosophies. Factors shaping employee relations British Airways has not always had the most efficient model of business operations, most noticeable in the 1980s when the business was highly regulated. BA faced ongoing customer complaints, rising competition and general employee dissatisfaction during this period (Payne 2006). In this period, British Airways was operating under a much more traditional business model with high levels of controls and significant bureaucracy that was common in businesses prior to deregulation. After privatisation, British Airways realised that it would need to involve employees much more heavily in operations and decision-making in order to thrive in a customer-driven business environment. This led to transformations in the company’s overall employee relations policies and management principles. As more businesses began to find success with a people-focused human resources model, other companies noticed the revenue gains that were being achieved by business both in and out of the airline industry. Benchmarking of existing employee relations and human resources models began to develop, therefore impeding innovation and competitive advantage because of these efforts. In many ways, it is growth in competition and the presence of more airline carriers adopting similar human-focused models that led to BA’s adoption of current employment relations policies. Upchurch (2009) describes the emergence of low cost airline carriers, such as RyanAir, that had the ability to provide similar service with a much cheaper operational model. With such growth comes the ability for employees to defect, therefore issues of retention become a primary concern in order to avoid the high costs of turnover and training associated with high departure rates. In order to remain competitive, BA had to change its traditional politically-minded management system and build employee talents and growth in order to satisfy needs. There was also the emergence of a cultural phenomenon where employees from all different industries began to become accustomed to more liberal, progressive systems and therefore demand British Airways to sustain similar developmental and employee relations systems. Holbeche (2005) offers a radical situation that BA undertook which involved its Waterside development, a place where employees can socialize. It became a social hub for informal meetings and as a sign that BA is willing to devote the resources necessary to improve the working conditions for its employee populations. Much of this is based on the social, cultural trends that exist in the current employee population that reinforces ongoing value in employee groups under a satisfaction model. As training needs become more costly and there are more demands for better human resources packages, British Airways has been forced by circumstance to ensure a more detailed and committed HR model. BA created what is referred to as HR Business Partners, a committed division that works toward responsible industrial relations whilst its traditional industrial relations teams were shuffled to a more strategic role (britishairways.com 2009). The contextual factors behind this were employee demands for more people-focused policies that were occurring as a natural business evolution in multiple industry markets. At the same time, the company was trying to stay competitive with low-cost carriers and ensure less operational costs by improving training and development whilst ensuring better employee satisfaction. There was a shift in the neoliberal perspective that had once driven British Airway’s employee relations model, consisting of a philosophy the focuses on what is missing at the company rather than setting broader goals that move simply beyond legal compliance (Weyzig 2009). This neoliberal view was replaced with social and business demands for better corporate social responsibility, essentially an effort to ensure that businesses consider the needs of all stakeholders when determining new business strategies and forward policy creation. Where employee involvement was once considered unimportant, it became a focus in order to remain competitive and essentially satisfy the social demands being placed on the company from all angles of society. Today, pressures from a variety of sources including corporate philanthropy, cause marketing and community investment had to be included in the model since BA was now under the microscope of business stakeholders and society. British Airways realised this and invested, far too heavily, in trying to make employee relations changes that were ineffective as it tested the water of corporate social responsibility. Salaman, Storey & Billsberry (2005) offer that growth in competition, as well, during this time led to BA looking for committed employees rather than just those who were compliant to policies. It led to budget over-runs toward ineffective training and development schemes as well as culture change principles. In this case, British Airways appears to have learned a new method of employee relations through trial and error after testing the proverbial waters with massive commitment schemes that eventually failed. While this was occurring, in more recent years, operational costs began to increase in a variety of areas. Cost-cutting as a means to create a leaner business model opened the door to outsourcing as a regular business activity. However, labour unions are often a part of this philosophy, leaving BA to act as an ongoing negotiator in the event of employee issues or demands for further liberties or salary improvements. A recent situation occurred where BA was nearly brought to a halt in operations by an outsourced labour union representing Gate Gourmet (spun off by BA) that provided catering services to the business. Gate Gourmet employees walked out of the business in protest. The reason: “They felt that overly generous labour policies they inherited from the airline made it difficult for them to run their company efficiently” (McDougall 2005, p.1). In this case, Gate Gourmet was in a position where cost-monitoring was a reality and the lingering overly-generous policies from previous years regarding compensation was putting them into a difficult position. Again, British Airways had to negotiate a new labour agreement in order to resume operations normally after the strike. The contextual factors were British Airways’ over-indulgence in commitment philosophies and working with other companies looking for new cost-cutting opportunities to stay competitive themselves. British Airways, due to higher operating costs, has had problems with financial pension deficits that have sparked controversy with different labour unions representing BA employees. British Airways proposed that employees in the GMB union, representing about 4500 employees, increase their own pension contribution to satisfy this deficit (Veysey 2004). What was occurring was a more powerful labour union presence that was able to assert its agenda on BA, forcing ongoing labour negotiations. This was not much of a difference from previous years as BA was consistently put in the position of having business potentially disrupted by union-represented employees. Even though there was less unionisation than in previous years, their authority in demanding employee rights were being backed by government and union leadership that put BA in a difficult employee relations situation. “BA uses the rhetoric of partnerships with unions, with employee commitment and engagement, but in reality it accommodates rather than partners with unions” (Bamber, Gittell, Kochan & von Nordenflycht 2008, p.5). This seems to be a product of lingering efforts to adopt a radical human-focused business model during the 1990s that gave labour unions much more bargaining power and the ability to ensure their agendas superseded British Airways’ needs. Essentially, British Airways set the stage where complying with labour needs was conducted to improve its employee satisfaction model and employees and their union representatives became accustomed to this and seemed to be more daring in asserting their agenda over BA. Mirroring UK trends and management changes Replacing traditional neoliberal attitudes as routine business practices, as previously identified, involved progression to a human resources-minded business model with social responsibility demanded from multiple sources. More and more companies began to realise the marketing possibilities by exploiting human capital that helped gain a competitive edge. This led to higher interactive involvement from a variety of in-house employees, growing more common in the UK in recent years. To compensate, British Airways developed what is known as the Speak Up! opinion survey in order to identify concerns addressed by employees. The results are communicated throughout the organisation and leaders then develop action plans by which to address all of these concerns (britishairways.com, 2008). Again, this was a human resources movement that was occurring in up-and-coming competitive entities and was becoming the standard industry norm to involve employees much more heavily in policy creation. Employee relations, once referred to as industrial relations, were being phased out by human resource-minded business models and BA was forced to adapt. Shifting employment laws in recent years has imposed changes on the business (Crofts 2007). Both large and small-scale, new legislation has also adjusted the employee relations model that is in use today that can be compared to current UK trends. Family-friendly mandates imposed at the governmental level shifted how BA transformed its employee relations model, becoming engrained in the company’s culture. However, BA seems to have again over-compensated in these areas in an attempt to satisfy employees and ensure higher retention. For instance, it has developed a bonus system of £1,000 when staff takes fewer than 16 sick days over a two year period (Hall 2005). This is highly competitive and not necessarily part of the norm, however it was imposed by family-friendly legislation and the need to secure lower turnover rates. Governmental pressure to include family-oriented policies into the business model led to these changes that have continued into recent years. British Airways operates in a customer-driven market, where potential customers can defect to other carriers as more competition emerges in the market. This has been the norm in the UK in this industry where employees have significant bargaining power that can impact revenue creation. BA had already experienced public relations blunders in previous years as it attempted to phase in an HR-focused culture and put industrial relations to the strategic level of importance. However, the amount of time and cost put into new employee development programmes tapped even further into the company’s operational budget, leading to more cost-cutting efforts that ultimately impacted employees throughout the organisation. “Whilst cost-cutting can bring immediate benefits, unless the financial model is underpinned by a human-asset model, the organisation is left with imbalances in aims and objectives that will reach a crisis point” (Ledwidge 2007, p.7). The norm in the UK was devotion to employee-centric policies in an effort to avoid intensive labour presence. In order to remain competitive, BA had to follow this model to remain competitive. With the pressures of cost-cutting due to falling revenues a real reality, employees were resistant to losing the generous packages provided by BA and called upon union negotiators to prevent cost-cutting in employee benefits packages. The presence of UK trends that demanded more employee-centred industrial relations policies, along with the firm’s over-compensating efforts during this period, put it in a difficult position. The current employee relations models used by BA were strongly higher than industry norms, though right in line with corporate and societal expectations for quality corporate social responsibility. However, because of the presence of labour unions, when it came time to plan cost-cutting measures, BA was essentially left having to bargain since employees had become accustomed to very generous employment packages. BA’s total benefit obligations were approximately £372 million in 2009 (britishairways.com 2009). This is much higher than industry standards, even though it mirrored a higher emphasis on offering these packages to ensure less union interference and a more satisfied workforce that would remain committed without causing turnover problems. BA, again, was in a difficult position where previous efforts to build a better bonus package prevented reduction in these areas when union representatives gained knowledge that such plans were potentially upcoming. The current management style at BA is very human focused, with over 215,000 hours of training provided annually (britishairways.com 2009). This was both for ground support and cabin crew in areas of customer service knowledge transfer. This was a transformational model for British Airways that ensured employees were trained and developed to provide superior service, something considerably important amidst an environment with lower revenues and more customer complaints. At the same time, public relations spectacles were occurring that were casting a negative brand image at a time where this was undesirable with growth in low-cost airlines with the ability to radically undercut BA’s position. For instance, Crofts (2007) identifies a scenario that occurred where a BA employee was instructed to remove a cross from her uniform since it violated employee dress codes. However, the employee argued that it was the right of religious expression. This gained considerable publicity, even though the employee eventually lost the argument in the court system. It was situations like this that added more pressure for a transformational model with high customer service focus and building committed employees when revenues were impacted by negative press. Consequences of changes imposed on BA As previously identified, the industry in which BA operates is strongly dictated by the marketing image perceived by a variety of customer demographics. The demands that mirror current UK law and expectation for people-centric business models put the company in a difficult position where finding new areas for cost-reduction becomes more difficult. Union representation prevents shrinking current employee benefit packages and ongoing layoffs impact the company’s image in an environment where customers have enormous buying power and the ability to defect to other carriers. BA is much more ahead of industry norms in employee bonus offerings than other airline companies, once developed as a means to improve retention and satisfy pressures from society stakeholders regarding responsible business practices. The consequences of moving too quickly with an over-generous compensation package has limited the organisation from carrying out some of its strategic budgeting plans during periods when sales have declined. Rising costs in training are also a consequence since the market is pressured by more demanding consumers that expect value-added service provision at a lower cost. Conclusion British Airways’ current employee relations philosophy is driven by many changes that were undertaken in the 1990s after privatisation. Quick movement to adopt high compensation packages and a strong HR model for retention has acted as somewhat of a long-term detriment to the firm. Even though there is less union presence than in previous years, concerns over employee compensation have more power than in previous years due to regulatory changes and social pressures for CSR. It has significantly impacted the method by which BA handles employee relations: somewhat stuck in a position where employees have gained an upper hand in bargaining. References Bamber, G., Gittell, J., Kochan, T. & von Nordenflycht, A. (2008). [internet] Employment relations in airlines in European varieties of capitalism: comparative perspectives. [accessed on 2.11.2010] [available from http://www.buseco.monash.edu.au/mgt/research/acrew/bamber-paper.pdf] Britishairways.com. (2008). [internet] British Airways 2007/2008 annual report and accounts. [accessed on 2.11. 2010] [available from http://www.britishairways.com/cms/global/microsites/ba_reports/pdfs/14_CR_Workplace.pdf] Britishairways.com. (2009). [internet]. The way we run our business – 2008/2009 annual report and accounts, p.40. [accessed on 1.11.2010] [available from http://www.britishairways.com/cms/global/microsites/ba_reports0809/pdfs/Workplace.pdf] Crofts, P. (2007). Bringing law to your door, People Management vol.13, Iss.6, p.53. Hall, L. (2005). Why the gimmicks don’t work, Occupational Health. Jan 2005, pp.13-17. Holbeche, L. (2005). The High Performance Organization: Creating Dynamic Stability and Sustainable Success. Oxford: Elsevier. Ledwidge, J. (2007). British Airways: the case for a human makeover; new approach would leave the airline less prone to disruptions and PR blunders, Human Resource Management International Digest vol.15, Iss. 5, p.7. McDougall, P. (2005). [internet]. Heathrow strike shows hidden outsourcing risk. [accessed on 2.11.2010] [available from http://www.informationweek.com/news/showArticle.jhtml?articleID=170100147] Payne, A. (2006). Handbook of CRM: Achieving Excellence in Customer Management. Oxford: Elsevier. Salaman, G., Storey, J. & Billsberry, J. (2005). [internet] Strategic human resource management: defining the field. [accessed on 2.11.2010] [available from http://www.sagepub.com/upm-data/9919_040313Intro.pdf] Upchurch, M. (2009). [internet] Creating a sustainable work environment in British Airways: Implications of the 2010 Cabin Crew Dispute, p.3. [accessed on 1.11.2010] [available from http://www.mdx.ac.uk/assets/britishairwaysfinal.pdf] Veysey, S. (2004). British Airways among U.K. employers seeking ways to ease pension funding Business Insurance. 38,5, pp.25-28. Weyzig, F. (2009). Political and economic arguments for corporate social responsibility: analysis and a proposition regarding the CSR agenda, Journal of Business Ethics vol.87, pp.417-428. Read More