Problem Solution: Classic Airlines - Case Study Example

Problem Solution: ic Airlines Chimaobi Chijioke MBA 570 Sustainable Relationships Prof. Scott Hample of Phoenix Problem Solution: Classic Airlines In order to create the right problem statement to address issues that an organization is facing, the first step is to describe the situation. It is important that the framer of the problem clearly understands the situation, issues, and opportunities that are presented by a situation before trying to identify the problem. The reason for this is if one is to jump to conclusions about a given situation they may identify the wrong problem and therefore, solve the wrong problem and forego receiving optimal results. (University of Phoenix,2008) Classic Airlines has experienced a decrease in their stock prices, decline in employee morale, and a noticeable decrease in the number of flights taken by their Classic Rewards members. These decreases have been accompanied by rising operational costs that have forced the company to find ways to cut costs by 15 percent over the next 18 months. These cost cutting measures are necessary in order for them to remain financially sound. While cutting costs the company must also find a way to attract new customers, produce a higher level of satisfaction for their current flyers, as well as bring their once loyal customers back as frequent flyers with their airline. In the wake of financial crisis any marketing efforts cannot involve airfare price reductions; therefore the company is challenged with finding ways to improve the perceived value of flying with them. The organization's focus must be centered on the needs and wants of their consumer while being conscious of costs. Describe the Situation Issue and Opportunity Identification While there are many issues facing Classic Airlines, the most relevant to this analysis are contained in the communication threads of emails and meeting excerpts. Of these, there were three primary indicators or events that prompted the issues listed in Table 1. First, the relational dynamic among the members of the management team is unhealthy. The fact that the individuals do not necessarily agree on the processes that will best contribute to the overall success of Classic Airlines is not the issue. The problem lies in the way management is polarizing into an "us vs. them" mentality. As can be seen from the informal meetings and emails, the CEO and CFO have a general lack of respect for the value of marketing to enhance shareholder value, and view it as a necessary expense of operations. Further, the CEO's reference to "Boyle and friends" suggests a suspiciousness of motive. The CFO's personal comments about Mr. Boyle demonstrate an outright hostility. Management of a company that is having profitability issues must resist the tendency to polarize. In fact, the CEO and CFO are presenting a classical example of "push down" responsibility, where "because they are often unfamiliar with entangling details, top management tends to expect successful results without complications." (Pulhamus, 1991, 86) The marketing team, in a similar fashion, is closing ranks and taking an adversarial view of the CEO and CFO. This dynamic must be adjusted to bring balance and respect in the communication of conflicting ideas. Secondly, the CEO and CFO are focused on a singular model to attain profitability, i.e., cost leadership in the market and operational efficiencies. While cost management is a valid tool, it is not exclusive. The CEO views marketing primarily as an operational expense and not a component of the business model that will add value to the company. The CFO is so focused on the fuel hedging tactic that she has taken a defensive position around it to protect it from encroachment; this territorial view of a single method precludes the introduction of new, and more effective, methods of containing costs and increasing profitability. Finally, the CEO has specifically stated that the company does not need an alliance. Even a cursory glance at industry trends, however, demonstrates the value of such alliances as investment in a customer-driven business model; almost all major airlines engage in such practice. The stand-alone mentality is counterproductive in the post-deregulatory airline market. Accordingly, when taken in combination, these events point to the identification of issues presented herein. Stakeholder Perspectives/Ethical Dilemmas The solution proposed here addresses all stakeholder perspective issues identified in Table 2. Once implemented, the executive management, marketing department, and customer service departments will be aligned in terms of the overall strategic focus as well as the tactical elements. There will be no need for the employees to feel threatened by cost cutting as their involvement in the solution will provide both added revenues to the company and increase their own moral by including them in the resolution scenario. Both the operational and marketing divisions will accept and respect the role the other plays in achieving internal harmony, external customer satisfaction and retention, as well as overall profitability. Frame the "Right" Problem Classic Airlines will become a preferred airline among consumers thereby increasing their profits and customer retention rates by remaining focused on the needs and wants of their customers. The leaders have been more focused on operations and numbers than people, and this will be the major change they will need to implement to reach their goals. Describe the "End-State" Vision Once the organizational conflicts have been addressed and the solution implemented, it is the end-state vision that Classic Airlines will enjoy higher profits, increased share prices, high employee morale, and a high rate of customer satisfaction. Profits will be measured against current numbers and share prices. In order to determine that employee training and morale goals have been reached, the company will need to perform employee surveys, random interviews, training programs, and performance reviews. Customer satisfaction will be measured by the increase in overall customers, the number of Classic Rewards members added and the number of flights that they take, as well as customer feedback surveys. By responding to the changes in customer preferences, Classic Airlines has the opportunity to become flexible and open to new ideas and concepts. Simply stated, the vision statement for Classic Airlines is to be a premier airline that values the input of its employees and customers while it provides an excellent flight experience all the way from booking to baggage claim. Success is demonstrated by their customers' perception that Classic Airlines is the only way to travel. Identify the Alternatives and Benchmarking Validation In conducting the generic benchmark research related to the issues faced by Classic Airlines, four specific issues have been identified which, if employed, would provide the necessary internal and external drivers for success. The elements and their industry benchmark precedents are provided below: Making Customer Needs a Priority There is no question that the airline industry is competitive. The primary driver for Classic Airlines should be the needs and desires of its customers. While executive management is rightly concerned with the bottom line, the notion of customer satisfaction cannot be separated from profitability; these are not opposing concepts, they are complimentary. In fact, it can be confidently stated "while operating efficiency helps reduce costs, customer satisfaction is the key to market leadership and sustained profitability in the long term." (IBM, 2008, p. 1) Other research sources concur, and identify the need for management to focus on its customers through effective CRM solutions. As Binggeli, Gupta, & Poomes (2002) point out: A survey of 17 major airlines around the world reveals that even the most sophisticated among them have only a rudimentary understanding of who their most valuable customers are or could be, which factors affect the behavior of these customer, and which CRM levers are most effective in ensuring loyalty. Airlines fell behind best practice in CRM because they were complacent, attached little importance to nonoperational and noncritical systems, or didn't grasp the financial implications of getting things right. The result: today, airlines know only marginally more about the people who fly on their planes than they did ten years ago. Given the troubled condition of many airlines, they urgently need to make better use of CRM. Effective implementation of such a program can increase an airline's revenue by as much as 2.4 percent a year, representing a bottom-line annual impact of $100 million to $250 million for a large carrier. (p. 6) The relevance of this area of research is clear; by refusing to include a customer service management system that provides data on customer preferences, Classic Airlines is ignoring one of the most important aspects of the industry. Accordingly, the company should immediately deploy a "best practices" CRM system on existing IT infrastructure to maximize customer preference monitoring at minimal cost. Partner for Progress In its efforts to increase competitiveness, add value to services, and achieve profitability, the airline industry players have recognized the value of partner alliances. While there are several different ways for companies to partner, the majority include "seamless travel with attendant better connections, sharing of airport lounges, cross-use of frequent flier programs (provided a passenger stays within the alliance partners), and, above all, lower average fares." (Donaldson & O'toole, 2002, p. 22) The opportunity to partner with Skyways represents a significant potential for customer growth and increased customer satisfaction. Accordingly, Classic Airlines should immediately initiate a partner alliance with Skyways Airlines. Alignment and Performance Measurement There is absolute consensus on the destructive nature of internal managerial conflict; if managers do not operate from the same set of strategic and tactical plans, the company will lose its profitability and sustainability. In this regard, the marketing team has accurately perceived that customer input is necessary, and that Classic Airlines must "become more responsive to customers and incorporate customer insight into their strategies and implementations." (Schmitt, 2003, p. 46) They have also correctly noted that senior executives are not properly valuing that aspect of operations. One way to assist management with understanding the impact of a customer-centered focus is to establish appropriate performance measures. Child, et al. (1995) note the significance of emphasizing the customer dimension in marketing and that the "introduction of new performance measures" related to customer retention is vital. (p. 117) The application to Classic Airlines could not be more clear. Accordingly, the company must align management on the value of customer input and establish new performance measures. Employee Representation While there is no doubt that controlling costs like labor is "crucial for airline managers," (Doganis, 2001, p. 101), Classic Airlines has not effectively used its labor force to assist with its customer satisfaction goals. At a time when some stakeholders are looking to cut personnel costs, they should be focusing upon training front-line employees in customer service. Thus, it is necessary for Classic Airlines to enlist employees as primary agents in positive customer experience. Evaluate the Alternatives The goals have been ranked in consideration of company viability, board directives, and the perceived need for operational tuning. As the board has mandated the profitability of operations and a 15% budget reduction, it is ranked as a top priority. Similarly, increasing customer participation in the Classic Rewards program is very important; executive management is looking at that metric as a benchmark for performance. Only slightly less important is the need for the company to utilize its CRM system to its fullest advantage. Finally, while important, forming alliances does not rise to the highest priority facing management at this point; although it is a part of the overall solution. Identify and Assess Risks The risks associated with implementing the solution proposed herein lie mainly in executive management's ability to be open to an alternative model. In light of the company's fiscal position, the marketing team should have sufficient evidence to demonstrate the superiority of customer-centered operations and the adoption of that concept by the major players in the industry. There are real risk limitations in this solution; not implementing the plan will simply leave the company on its current path to more difficulty. The risk and mitigation techniques recommended here are so fundamental that they should be universally recognized and respected by executive management. Make the Decision The solution to this problem is a concerted and coordinated effort by management to place customers at the center of their operational focus. By combining internal operations change and employee training with external alliances, Classic Airlines will accomplish its overall vision of superior market share and brand confidence. Specifically, it is recommended that management utilize its current resources by optimizing the CSM system, engage in a partner alliance with Skyways, realign management's strategic and tactical focus, and train its front-line employees to be customer service oriented. Develop and Implement the Solution Implementation of this solution is relatively straightforward and included in Table 6. The primary barrier to development in this scenario will be for the top executives to "buy in" to the solution. It is axiomatic that "most companies have entrenched beliefs and approaches that create obstacles(and that one solution is to) make senior leaders the champions of change." (Child, et al., 1995, p. 117) Once the executive team has fully invested in the solution, both the CEO and the CFO should facilitate the development, evaluation, training, and other milestones by supporting other members of the management team with resources, availability, and a willingness to work together to bring this solution to reality. Evaluate the Results The successful implementation of this solution will be supported by a variety of metrics noted within this report. Management will be able to track the effectiveness of its CRM platform implementation through customer satisfaction surveys. These can be mailed, emailed, offered to Classic Rewards members, and offered through other distribution points to assist managers and employees in achieving the stated goal. Management cohesion will be the easiest metric to observe; the players are either working together, or the CEO and CFO have retrenched and the CMO is likely gone. The partner alliance is equally measured through the acquisition of additional customers. As marketing will be putting its limited budget toward this initiative, conclusions from customer response can be reasonably associated with the effort. Finally, employee training will yield its efficacy through additional employee skills and overall morale. Using interviews, questionnaires, and performance audits, management will be able to quantify the impact of its newly-trained workforce. Accordingly, the metrics established lend themselves to ease of understanding and guidance for adjustment. Conclusion Classic Airlines is in a very serious position. If executive management continues to utilize an outdated operational focus on costs vs. a customer-centered modality, the company will continue to see profits drop off. If general management remains polarized, there will be stagnation and retreat that will squander the opportunity presented to the company. The morale of the employees will continue to be low, and the decision to not pursue any partner alliances will eventually hurt the company. By implementing the solution proposed herein, these negative consequences can be avoided and the company restored to profitability and stabilized human resources. Further, Classic Airlines will expand its market share and customer base through a partnering alliance and having front-line employees who know how to make their customers happy. In this way, the company will realize its vision and truly become the premier airline in the industry. References Binggeli, U., Gupta, S., & Poomes, C. (2002). CRM in the air. The McKinsey Quarterly, 2, 6-9. Child, P., Dennis, R. J., Gokey, T. C., McGuire, T.I, Sherman, M., & Singer, M. (1995). Can marketing regain the personal touch. The McKinsey Quarterly, 3, 112-121. Doganis, R. (2001). The airline business in the twenty-first century. London: Routledge. Donaldson, B. & O'toole, T. (2002). Strategic marketing relationships: From strategy to Implementation. New York: John Wiley & Sons. IBM Corporation. (2008). Customer focused airline: a vision for airline CRM. IBM Travel and Transportation. Retrieved January 11, 2008, from http://www-935.ibm.com/services/ in/igs/pdf/ may27_ customer_focused_airline.pdf McShane, S. L., & Von Glinow, M. (2004). Organizational Behavior: Emerging Realities for the Workplace. New York: McGraw-Hill Pulhamus, A.R. (1991). Conflict handling-a common sense approach to appraising supervisory performance. Public Personnel Management, 20(4), 86-91. Schmitt, B. H. (2003). Customer experience management: A revolutionary approach to connection with your customers. Hoboken, NJ: John Wiley & Sons. University of Phoenix. (2008). Problem Solving-Based Scenarios: An Approach to Identify Opportunities to Create Value for the Business. Retrieved November24, 2008, from University of Phoenix, Week Three, MGT/521 - Management and the MBA. Table 1 Issues and Opportunities Identification Concept Application of Concept in Scenario or Simulation Reference to Specific Course Concept (Include citation) Personal Experience at your Organization Classic Airlines non-customer service executives are out of touch with the values of the customers. Business is down, profits are off and stock prices have declined. It is evident that many of Classic Airline's customers have decided to use other airlines, due to the lack of perceived value when flying with them. The customers' past experiences with the airline have not compelled them to come back. The airline has the opportunity to change this perception, win customers back, and attract new clients. People make buying decisions based upon different criteria, of which perceived value plays a very important part. Consumers perceive value through their own experiences, the experiences of others and the image and messages that the company sends out to them (Kerin, 2006, ch. 5, p. 8). Verizon Wireless customers stay with Verizon even though we are very expensive because of our outstanding customer service. Executives (CEO & CFO) do not understand the value of marketing and its effects on an organization. It has been suggested that rather than gambling on marketing, the company would be better served to put their money to use in other areas by the CFO and that the CEO has little time for marketing. The importance and value of marketing needs to be understood by these key decision makers. The marketing department will have to achieve this in order to capitalize on the opportunities that a marketing campaign based on identifying and meeting the needs of consumers. Marketing is an essential activity for an organization as it is the way that an organization creates, communicates, and offers value to customers (Kerin, 2006, ch. 1 p. 8). Verizon Wireless spends millions on marketing for the successful launch and sale of its products, e.g., The Storm (the new Blackberry) Key decision maker is closed minded to options that may improve the airline's standing, such as a marketing alliance. Many others in the industry have utilized marketing alliances that have helped them to increase profits and improve customer satisfaction. It is important for a leader to be open minded to new ideas and so that they can remain flexible in their decision making process. Doing so can help them to make the most of opportunities that are presented to them. The business environment today calls for businesses to be innovative and willing to consider and employee new concepts and ideas. The "fast-paced domestic and global markets have caused massive restructuring of many American industries and businesses" (Kerin, 2006, ch.1 p. 15). Therefore if a business wants to be successful they must be flexible and willing to implement major changes in many cases. Verizon Wireless recognizes the need for mergers and acquisitions for the continued dominance in the market. Table 2 Stakeholder Perspectives and Ethical Dilemmas Stakeholder Perspectives and Ethical Dilemmas Stakeholder Groups with Competing Values List: Group X versus Group Y The Interests, Rights, and Values of Each Group Course Concept Customer Service Department vs. CFO & CEO The customer service department is deeply concerned with the level of customer service at the airline. The "higher-ups" in the organization are more concerned with operational issues and cutting costs. Both are important parts of business. The dilemma that has occurred due to these conflicting values is that the customer service manager has to fight to get the concerns of the customers on the table for discussion. Customers are the core of a business and everything done within an organization should revolve around keeping them happy. Gaining loyal customers requires that an organization creates a perception that the customer is valued as well as offer them an end product that his valued by them (Kerin, 2006, ch. 1. p., 15). General Counsel vs. Union Members General counsel has been suggesting compromising their union relationship in order to cut costs. The union representative has spent years building a good relationship with the union. There is a conflict here because one side is thinking of the future of the organization and one is thinking of the how union members will be affected. Making profits is a major concern for a for profit organization. However they should also be concerned with the wellbeing of their workforce, because they are the internal customers of the organization and like the external customers the organization would not be able to function without them. Employee welfare is of critical importance to an organization (Kerin, 2006, ch. 2, p. 34). Marketing vs. Executive decision makers The marketing department values the marketing process and realizes its importance. While the executive decision makers are more concerned with the bottom line and operational issues. This is causing a conflict between the two departments and there is noticeable tension between them. Marketing is an essential activity for an organization as it is the way that an organization creates, communicates, a gives value to customers (Kerin, 2006, ch. 1 p. 8). Table 3 Analysis of Alternative Solutions Table 4 Risk Assessment and Mitigation Risk Assessment and Mitigation Alternative Risks and Probability Consequence and Severity Mitigation Techniques and Strategies Deploy a best practices CRM system on existing IT infrastructure There may be some expense associated with implementing the focused CRM. (P=Low) There may be a lag between implementation and measurable results. (P=High) The re-tooled platform may have initial bugs that will need resolution (P=Medium) If the CRM enhancements do not show results in a reasonable time, executive management (particularly the CEO who is already negatively disposed towards marketing strategy) will reject the changes and revert to an operations-centered model. The consequence to the company will be polarization within management and loss of profits. The marketing team should consult with IT to ensure smooth implementation. To mitigate any lag in customer participation, marketing should use a portion of current marketing budget to announce the customer-centered change The marketing team should demonstrate a positive ROI for any minor IT investments in the solution. Align management on the value of customer input and establish new performance measures Operations management will not understand the value of input (P=Medium) Operations management will not accept new performance measures (P=Medium) New performance measures will be ineffective (P=Low) If the CEO and CFO do not understand the value of a customer-driven model, the airline will continue to lose market share. If they do not accept the proposed performance measures as valid, they will incur significant opportunity costs. The consequence to Classic Airlines will be continued low margins as a result of their cost leadership strategy and the company's shareholders will suffer. The marketing team must demonstrate the value and potential revenue of pursuing this strategy by showing how the new performance measures increase the bottom line. The marketing team should reinforce the competitive advantage that will be lost if customer input is not brought into the value chain. The marketing team should blend the bottom line concerns of executive management with the proposed solution by emphasizing the revenue potential of customer-centered focus. Initiate a partner alliance with Skyways Airlines Operations management will not understand the value of the strategic alliance platform (P=Medium) Operations management will not understand the need to adjust its current business model (P=Medium) Measureable performance will take time to reflect on the company's bottom line (P=High) If the CEO and CFO do not understand the value of airline alliances, in spite of evidence to the contrary, the airline will sacrifice potential revenue. If they do not adjust their model to include alliances, the company will incur significant opportunity costs. The consequence to Classic Airlines will be the negative effects of stagnation and archaic business practice. The marketing team must demonstrate the value and potential revenue of pursuing this strategy by showing how the new performance measures increase the bottom line. The marketing team should reinforce the competitive advantage that will be lost if customer input is not brought into the value chain. The marketing team should blend the bottom line concerns of executive management with the proposed solution by emphasizing the revenue potential of customer-centered focus. Enlist employees as primary agents in positive customer experience Employees will require training (P=High) Employees will require evaluation on customer service performance (P=High) If management refuses to train and monitor its employees' customer service enhancement performance, there will be a negative impact on customer relations and no data available for additional employee support or training. This will cause the company to lose the opportunity to increase its market share. The marketing team must demonstrate the value of training and using employees as customer service points across all operations, pointing out that this is preferable to a conflict with the union over concessions. Management should design a training program to ensure employee compliance, as well as a performance measure matrix to adjust training to accomplish corporate goals. Table 5 Pros and Cons of Alternative Solutions Alternative Pros Cons Deploy a best practices CRM system on existing IT infrastructure Brings efficiency to the customer experience. Increases likelihood of customer retention. Established competitive advantage within the market space Executive management will have to be convinced of the value of this effort. There may be a small infrastructure investment required. Align management on the value of customer input and establish new performance measures Enhances revenues for the company. Modernizes the business model. Establishes benchmark measurements to determine ROI Eliminates polarization on the management team. Executive management may resist what it perceives as a territorial infringement by marketing on operations. Initiate a partner alliance with Skyways Airlines Increases overall customer experience by providing more options. Increases market share by including partner's customer base in Classic Airlines' service. Modernizes the current insular business model to reflect current industry trends. Executive management is anticipated to resist this major change in its operations model. Requires retooling of some operations processes to enable code sharing and reciprocal benefits for premium customers similar in structure to Classic Rewards. Enlist employees as primary agents in positive customer experience Provides customer preference information directly into operational processes. Improves employee moral and corporate culture as front-line employees see value in their efforts. Requires training and monitoring which, while it may not require significant cash outlay, will require increased labor costs as employees are rotated through the training. Requires construction of evaluation tools. Table 6 Optimal Solution Implementation Plan Action Item Deliverable Timeline Who is Responsible Retool IT systems to provide positive CRM process Three months Marketing and IT Departments Deploy new CRM system One month (Concurrent) IT Department Align management to new model and performance standards One month (Concurrent) Executive Management Marketing Department Initiate alliance negotiations with Airways One month Executive Management Marketing Department Implement IT changes regarding alliance requirements, e.g., code share compatibility. Three months IT Department Deploy and market benefits of alliance Three months Marketing Department Evaluate data from new performance standards and market share increases One month (Concurrent) Executive Management Develop employee training plan and internally support new culture of customer service Three months HR Department Implement initial training sessions One month HR Department Implement continued training session, rotating employees through the system One month (Concurrent) HR Department Create evaluation matrix for employee performance One month (Concurrent) HR Department Evaluate effectiveness of overall solution Six months Executive Management Marketing Department IT Department HR Department Table 7 Evaluation of Results End-State Goals Metrics Target Effective CRM platform Customer satisfaction surveys 90%+ positive responses Management cohesion Adoption of business model changes and non-polarized management team 100% cooperation and teamwork in a non-hostile management structure Partner alliance with Skyways Increased customer base and Classic Rewards participation 20% increase in customers overall, 90% retention rate of Classic Rewards members, 30% increase in Classic Rewards members Employee training in customer-centered service Employee skills and effectiveness audit scores 100% employee execution of customer service plan Read More