HRM at Qantas Airways - Case Study Example

Name) (Institution) (Course) (Instructor) (Date of submission) Introduction Qantas Airways, the largest Australian airliner operating in the domestic and international market and owned by the Qantas group, was embroiled in labour disputes late last year. The employees, who number 35000 as of June this year, through their unions raised several issues to their employer. Some of the demands raised were halting of pending lay-offs, better pay and favourable working conditions. Lack of agreement saw a huge percentage of the employees participating in a labour strike that forced the firm to ground operations for two days affecting over 680 000 passengers worldwide. The government through the Fair Work Australia (FWA) and Prime Minister Gillard intervened. On 31st October, the FWA ordered the termination of all industrial actions by the Qantas management and labour unions and ordered the involved parties to negotiate amicably within 21 days. With the firm back in operations, the mark left behind by this industrial action affected the organisation significantly. In fact, the strike did not help ease the pressures of a decreasing market share and rising costs. The firm thus opted for ‘low-road strategies’ resulting to more lay-offs and decreased benefits with little efforts geared towards increasing employee productivity. Employees were perceived as expendable costs that should be controlled. It must be noted here that although Qantas offered to increase employee wages by 3% annually, the CPI index has been growing on an average of 3.5% thus an actual fall in real wages for employees. This paper will thus use relevant theory from current literature to explain what is missing at Qantas HR strategy which is specifically affected by the recent downsizing and the presence of trade unions. Discussion and analysis In the face of increased global competition, higher costs and a declining market, the world’s second oldest airline, Qantas Airlines has adopted a hard HRM strategy informed by Theory X which postulates that workers dislike work and need to be controlled as a short-term solution (Week 2). This theory also views workers as an expendable cost. For Qantas, wages and salaries constitute a significant percentage of the firm’s costs hence a move to lower such costs is highly encouraged owing to environmental pressures. However, Qantas is not alone, Cameron (1994) reckons since the mid 1980’s, there was a shift in organizational thinking. Previously, organizations subscribed to big is better, unending growth, organizational stability and consistency. The new approach to management focuses on smaller as well as bigger is better, downsizing and market decline, tight coupling and non-redundancy and conflict and inconsistency as well as congruence and consistency are indicative of organizational effectiveness. According to Ross and Bamber (2009), resource dependence and contingency theories insists that firms should develop strategies that best fit the changing external conditions, in the case of Qantas, declining market and increased costs. Under the utilitarian theory, the firm is required to act ethical by downsizing in order to maximize the returns on investment for all shareholders (Week 2). However, this theory fundamentally contradicts a number of HRM theories which insist on improved efficiency and productivity of employees as opposed to downsizing (Morgan & Zeffane 2003). The deontological and stakeholder approach to business ethics emphasize greater importance to employee wellbeing (Week 2), job security and trust (Hiltrop 1996; Boxall & Purcell 2000). Improving employee efficiency is largely delegated to the human resource department while employee well being is largely delegated to labour unions and collective bargaining units under pluralist employment relations regimes (Ross & Bamber 2009). Many a times, organizational management is guided by economic rationality in effecting decisions such as downsizing. However, unions tend to avoid economic rational decision making and go for political populist decision making which have both negative and positive effects (Verma2005). There are two major approaches to labour unions, pluralist and unitarist. The pluralist approach implies that the management does not mind employees diverting allegiance to collective bargaining units while a unitarist approach means that the management does not approve members paying allegiance to other third parties and prefer direct negotiations with employees (Ross & Bamber 2009). Positive impacts of labour unions on organisations include low employee turnover, seniority-based rewards and better job production standards (Verma 2005). An empirical research by Slichter, Healy, and Livernash cited in Verma (2005) concluded that labour unions improve organizational performance by “putting pressure on management to tighten job production standards and accountability in order to preserve profits in the face of higher wages” (p. 415). Chew and Horwitz (2004) however, indicate that this is not always the case as trade unions are keen on maximizing the benefits of each individual nominally. On the other hand, costing practices are bent on maximizing output from per unit cost. With employees viewed as costs or resources under the resource based view of the firm, organisations must squeeze the most from their employees. The move by Qantas Airways to downsize in not an isolated incident. Earlier studies on downsizing such as by Cameron (1994) shows that downsizing is a common practice in large organizations. In fact, more than 85% of the fortune 500 companies had downsized between 1989 and 1994 (Cameron 1994). Recent studies by Datta et al (2010) and Guthrie and Datta (2008) state that downsizing is a popular strategy by majority of firms as a response to business environmental changes. For instance, the recent global recession saw a number of firms based in the most affected countries such as the UK and US downsize. In the US alone, 6.5 million employees were laid off between 2007 and 2009 (Datta et al 2010). Guthrie and Datta (2008) claim that many firms copy downsizing activities from their competitors. They compare this to the use of popular management strategies such as the Toyota way. This could imply that Qantas airways downsized as an industry trend. During the same period, a number of international air operators downsized as a way of cutting costs amid rising fuel prices. The choice for a pluralist approach in Qantas is similar to the common situation in many Anglophone countries. In the study of Australia’s Telstra, Guthrie and Datta (2008) observed that the move for a pluralist approach is motivated by the need for the top management of organizations to understand the deeper emotion well being of their employees. The research on Telstra noted that during the unitarist error of the firm, mid-level managers were very critical of the firm though they could not do it publicly. This however changed with the introduction of pluralism. However, pluralism is vehemently opposed to downsizing as it degrades employee’s long term welfare. Furthermore, trade unions are created with an aim of improving the welfare of all employees. Modern trade unions have far reaching impact on senior management decisions in nearly all levels of management. Verma (2005) however, indicates that trade unions are at times a cost to the employees in that they provide an additional burden in terms of loyalty. On management levels, trade unions are unnecessary as organizations perform optimally without unions thus unions have no role in enhancing organizational output and performance. This strongly contradicts the conclusion of the Slichter, Healy, and Livernash cited in Verma (2005) that trade unions pressure management to enhance output. In the current scenario, it would mean that the performance of Qantas Airways is being negatively affected by the presence of trade unions and in effect being forced to downsize. By extension therefore, Qantas air would not have downsized or faced a declined performance had there been no trade unions. Downsizing negatively affects the psychological contract between the employer and the employee thus affecting performance and output. Many firms are keen on cutting costs by laying some employees overlooking the impact it has on remaining employees. Guthrie and Datta (2008) capture Chadwick et al (2004) conclusion on the issue: Despite the popularity of downsizing as a strategic initiative, however, the general consensus among researchers over the past two decades is that organizational performance is as likely to suffer as it is to improve after downsizing, even in the short term, and that the long-term prospects associated with downsizing are decidedly negative when compared to alternatives such as targeting growth …..(2008, p, 110). Parker, Chmiel and Wall (1997) strongly oppose this view to say that downsizing in a strategic manner has positive long lasting effects on the organization. The authors discredit the populist view on downsizing as put forward by MacErlean (1995) that after downsizing, the remaining employees “will lose trust in the organization, will feel less loyalty, will enjoy work less . . . and will perform worse at work” (p. 289). Downsizing is a violation of psychological contract which result in mistrust, disengagement and negative attitudes towards work and the employer. A number of scholars (Hiltrop 1996; Guthrie and Datta 2008; Parker, Chmiel, & Wall 1997) claim that downswing not only breaks the contractual agreement between employer and employee but has far reaching consequences on the employee productivity over the long term. Cameron (1994) talks about strategic downsizing where organizations lay-off employees based on structural work roles changes. The author argues that well explained and economically justified lay-offs are necessary for firms to remain relevant and afloat. Pfeffer (2007) believes that downsizing causes negative attitude towards work, he says that “waves of downsizings and restructurings have made employees at almost all levels feel less secure.” Strategic downsizing, as Cameron (1994) calls it refers to the planned shedding of excess labour in search of better skill sets that match existing work demands improves organizational performance. This kind of downsizing if however, not essential connected to the economic environment as in the case with Qantas but rather with technological changes. Some organizations as Richard and Johnson (2001) put it prefers to hire, poach or even head hunt experienced hands from the industry as opposed to training their own in preparation for new work processes. The theory of human resource development insists on the need for training and increasing employee skills. Training existing employees on new technology does not help organizations especially where training is very expensive or takes long. Hiring already experienced and informed employee on the new technology saves times and money and allows organizations to be best responsive to new changes in the market and technology. Downsizing erodes organization tacit knowledge resources. Employees’ tacit knowledge is often a great source of competitive advantage and one of the most valuable resources (Massingahm 2008). When organizations such as Qantas Airways downsize, they lose a great deal of tacit knowledge possessed by the laid-off employees. Smith captures this by saying that; When organizations merge, downsize, reorganize, or organizational culture changes, priceless knowledge is lost or buried under new information. Employees who leave take their valuable knowledge, resources, skills and experiences with them. Those who stay may be assigned new jobs and never use their wealth of accumulated knowledge (Smith 2001, p. 312). Walzarck (2005) however says this not the greatest threat to HRM. He claims that tacit knowledge in an organization can always be created through effective training and creating and knowledge sharing culture. Smith (2001) disputes this by saying that 90% of workplace knowledge in embedded in the minds of employees and can only be transferred under the right conditions. Boxall and Purcell (2000) argue that under SHRM, organizations tend to lay off semi-skilled workers and go for better skilled workers to enhance effectiveness. This means that strategic downsizing targeting redundant positions in the organizational structure or under performing employees is healthy for an organization such as Qantas. However, for organizations that have not developed knowledge sharing culture, they are bound to loose large chunks of their human capital taken way by the laid-off employees. Recommendations Qantas Airways should employ knowledge management models to fight the effects of future downsizing on knowledge resources. Massingahm (2008) Smith (2001) strongly recommends knowledge sharing to avert loosing knowledge Qantas airways should develop a stronger organizational culture based on knowledge sharing and trust. The high involvement of trade unions and their far reaching effects on the organization are evidence of mistrust between employees and management which has been worsened by downsizing. Verma (2005) says that trade unions are almost irrelevant where employers and employees have a clear understating. Downsizing process should be done in a more humane manner, Downsizing should be very procedural and employees must be made to understand the necessity of such moves. This way, the laid-off and remaining employees will be more willing to trust the employers (Guthrie & Datta 2008) Qantas should intensify training the suppliers of their outsourcing services in order to maintain similar of not better services to their market. Richard and Johnson (2001) and Cameron (1994) say that outsourcing as a way of downsizing should be allowed to disrupt work processes or quality. The firm should strive for a better personalised relationship based on trust to win back loyalty lost to trade unions. Verma (2005) says loyal and trusting employees are bound to perform better. Conclusions From the discussion, it is obvious that Qantas Airways is in a very precarious position. The presence of trade unions complicates the choice of HRM strategies and the recent downsizing complicates the issue further. As it stands, trade unions are opposed to lay offs and are keen on getting the highest possible termination benefits for the laid-off employees while at the same time discouraging downsizing. The firm is loosing a lot of knowledge and is not in a position to replenish knowledge as suggested by literature in this field. There is need for further research into Qantas Airways to understand the extent of knowledge sharing and the impact of downsizing. References Boxall P. & Purcell, J. (2000). Strategic human resource management: where we have come from and where should we be going? Cameron, K. (1994). Strategies for organizational downsizing. Human resource management, 33(2, )189-211 Chew, I. & Horwitz, F. (2004). Human resource management strategies in practice: case-study findings. Asia Pacific Journal of Human Resources. 42(1), 32-56. Guthrie, J. & Datta, D. (2008). Dumb and dumber: the impact of downsizing on firm performance as moderated by industry conditions. 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