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It has been incredible. I recall the dark days of the oil hike and of the Gulf war, but what we are experiencing just now, and I'm afraid what is likely to continue for some time ahead, dwarfs anything I have ever experienced.[1]
There are clearly tough times ahead and experience has shown us that conserving cash is critical at these times.[2]
Rod Eddington, Chief Executive Officer, British Airways
British Airways: Leadership and Change
Introduction
On February 11, 2003 Rod Eddington, the Chief Executive of British Airways (BA) woke up in his hotel room in New York. Switching on the news channel, he was delighted to see that the channel was covering the airline's recent quarterly results, announced the previous day in London. It was then that he saw the tanks at the Heathrow airport. On his return to London, Eddington saw first hand the troops and police roadblocks put in place at dawn by the government, worried that terrorists might try to shoot down an aircraft. The same day Eddington received a note from his management group predicting a gloomy picture of zero revenue growth for the following 12 months, as the prospect of a war in the Gulf and weak economic conditions would deter international travelers. Eddington wondered when the good times would return again for the airline industry, which had been going through a crisis since September 11, 2001. He also wondered how to boost the low staff morale, and rejuvenate the culture that BA had built painstakingly over the years.
Background Note
BA was one of the leading airways in the world. In 2002, BA recorded revenues of £8,340 million and a loss of £110 million and carried 40 million passengers.[3] BA operated a fleet of 360 aircraft to nearly 270 destinations in some 97 countries. It owned minority stakes in Australia’s Qantas and Spain's Iberia. BA was part of the Oneworld global marketing alliance, which also included American Airlines, Cathay Pacific Airways, Finnair, Qantas, and Iberia.
BA had been formed in 1974, as a result of the merger of the state run British Overseas Airways Corporation (BOAC), which handled long haul international routes, and British European Airways (BEA) that mainly covered destinations in continental Europe. Right from its inception, BA was a loss making company, slow and lethargic in its operations and insensitive to customer needs. BOAC and BEA staff could not agree on administrative and operational matters and service deteriorated rapidly. BA’s poor service became highly publicized when the Beatles detailed a horrific BOAC flight to Miami Beach in their famous song “Back in the USSR.”
After the merger, the expected integration of the two organizations did not materialize on account of cultural factors. The people at BOAC believed they belonged to a gentleman’s airline and equated BEA with a trade man’s airline. BEA people on the other hand considered themselves true competitors and their colleagues at BOAC to be snobs. Each group served different categories of passengers with different requirements. The only common feature seemed to be inefficiency. Both groups blamed each other and passed the buck. Service grew worse as there was little or no accountability. People regularly joked that the “BA” sign stood not for British Airways but for “Bloody Awful”. The situation became so bad that in 1980, BA was voted as the airline to be avoided at all costs[4].
In 1981, Lord King was appointed the Chairman of BA. King’s mandate was to restructure BA, make it profitable, and prepare it for privatization. King was quick to realize that internal politics was seriously undermining the organizational efficiency. He immediately reduced the staff strength from 58,000 to 38,000 and replaced existing directors by professionals with rich experience in various industries. One of the most important decisions King took was the appointment of Colin Marshall, as the CEO in 1982.
King and Marshall quickly attempted to resolve the differences between the BOAC and BEA staff. Together they turned around BA by emphasizing both customer service and employee welfare through a number of initiatives. They encouraged employees to look beyond their narrow functional and cultural boundaries. They devised a number of unique and innovative measures to promote cross-functional coordination and better utilization of assets. Various employee development programs were launched to boost employee morale. A strong management team was put in place, in preparation for the privatization of the airline in 1987. BA also took various measures to improve its image prior to privatization. The airline used aggressive advertising topromote its brand name and corporate image worldwide. BA also invested in modernizing the fleet, ground facilities and IT upgradation.
By 1986, BA had been transformed from a loss-making airline with a reputation for poor customer service into the industry’s benchmark for innovation, service and profitability. The airline restructured itself completely including its fleet, pricing schedules and advertising. In 1986, BA developed a new corporate mission statement to guide its activities.
Exhibit: I
Mission
To be the undisputed leader in world travel.Values
Safe and secureHonest and Responsible
Innovative and team spirited.
Global and caring.
A good neighbor.
Goals
Customer’s choice - Airline of first choice in key markets.Strong profitability-Meeting investor’s expectations and securing the future.
Truly global-Global network, global outlook, recognized everywhere for superior value in world travel.
Inspired people Building on success and delighting customers.
Source:
When BA was privatized in 1987, 95% of BA staff received shares. In both 1988 and 89, BA won the world’s best airline award for two years consecutively.[5]
In February 1993, Lord King stepped down as Chairman. Following his retirement, Sir Collin Marshall took full executive management responsibility.
In January 1996, BA appointed Bob Ayling as the new CEO. Ayling, who joined the airline in 1985 from the Department of Trade, had looked after the legal matters relating to BA’s privatization in 1987 and its acquisition of the British Caledonian in 1988. Ayling carried forward the reforms initiated by his predecessors and significantly improved the efficiency of operations. But his aggressive style of management and efforts to cut costs and jobs backfired. He was forced to resign in March 2000.
In May 2000, Ayling was succeeded by Rod Eddington, an Australian who had earlier been running Cathay Pacific and Ansset. Eddington seemed to win the confidence of his staff quickly. He continued to shrink capacity created two years earlier and concentrated on premium customers by flying ‘point to point’ rather than filling Jumbo jets with low fare transfer passengers. Unlike his predecessor, he took care not to dismiss budget travelers out of hand.
During 2000-2001, the aviation industry continued to be under pressure due to global recession culminating in the September 11 terrorist attack. As many airlines filed for bankruptcy, BAdownsized substantially during 2002. Between August 2001 and March 2004, BA had plans to cut the workforce by 23 per cent or 13,000 jobs.[6]
In 2003, the outlook for BA remained bleak due to the imminent war between USA and Iraq. The Middle East sector formed one of the most profitable, full capacity routes for BA. The airline’s passenger traffic fell by 5.6% in February 2003, but its premium traffic plunged by 14.3% year-on-year - in part because of the growing threat of war and terrorism.
However, Eddington believed BA could weather the storm. He told the Financial Times[7]:
"We will need to respond [to the war in Iraq], but we are well prepared financially and operationally."
BA had liquid reserves of £2.2 billion of which £1.8 billion was in cash. Though it had a net debt of £5.2 billion, there was no big repayment due in the near future.
Change Management at BA
King and Marshall
Before the arrival of Colin Marshall, BA had been inward focused, operations oriented, with little emphasis laid on customer service. This attitude had obviously led to several customer related problems. There was a total absence of a market orientation and little focus on profitability.
In King’s words[8]:
“ BA was an organization that did not really understand the word profit, that was very fearful of moving into the private sector. It was also obvious to me that the organization was extremely introverted, had really no grasp of what the market place wanted, what the customer wanted…We couldn’t get away from the fact that we were running an operation. The operation was everything, the customers were just an unfortunate add on. ”
BA had a highly hierarchical bureaucratic structure. Managers were respected for their position and status within the organization. Their behavior was often inflexible and the level of initiative required by managers was very low. They were expected to behave with a minimum of freedom as the rules of the game were well written in manuals.
Serious communication gaps existed across the organization. BA employees had few opportunities to express their own views regarding working practices or any other issues. The management style was authoritarian. Decisions were made in isolation, without involving other areas affected by the issue to be decided. People were selected or promoted primarily on political considerations. Appraisal and reward systems were unrelated to performance. Clear goals were often not set. The reward system was linked to the length of service. A cross-functional perspective was really missing.
After becoming chairman in Feb 1981, Lord King announced[9]:
“ My endeavors will be concentrated on doing all I can to see that BA has all the resources it requires to maintain and to improve its standing as one of the greatest carriers in the world. ”
In September 1981, King launched the Survival Plan with ‘tough, unpalatable and immediate measures’ to stem the spiraling losses and save the airline from bankruptcy. The radical steps included reducing staff strength from 52,000 to 43,000, in just nine months, freezing pay increases for a year, and closing 16 routes, eight online stations, and two engineering bases. It also involved halting cargo-only services and selling the fleet, and inflicting massive cuts upon offices, administrative services and staff clubs. The Survival Plan eventually brought the total employee strength down to nearly 35,000 through voluntary measures offering generous severance, which totaled up to some £150 million.
Sir Colin Marshall who joined as CEO in February 1983 made customer service a personal crusade from the day he entered BA. He set up a core marketing team of four young internally promoted managers. Marshall announced[10] :
“From the customer’s perspective, the quality and value of the product are determined to a great extent by the people delivering the service. We therefore have to “design” our people and their service attitude, just as we design our seat, an in-flight entertainment program or an airport lounge to meet the needs and preferences of our customers. ”
In July 1983, Marshall launched a sweeping reorganization, splitting the operations into eleven profit centers. The new structure aimed at reducing layers of management, allowing more efficient communication across functions and ensuring coherence between operations, short-term budgeting and long term strategic management. These profit centers were entrusted to young managers who were promoted three to four levels overnight. Simultaneously, Marshall removed many executives deemed unlikely to adapt to the new customer focus in the company. In November 1993, Marshall introduced a profit sharing program for employees, a practice rarely seen in the UK.
Training became an integral part of BA’s efforts to build a new corporate culture. Every employee underwent intensive management training programs like Putting People First (1983-86) and Managing People First (1985-88). Marshall explained[11]:
“ The title is significant. It deliberately refers to putting people first. We want to remind our staff that their colleagues are people, and the way employees treat each other is just as important as their treatment of customers.”
Putting People First (PPF)
PPF conducted by the Danish firm Time Manager International lasted two days and included 150 participants and consisted of presentations, exercises and group discussions.
The key message[12] was
“If you feel OK about yourself you are more likely to feel OK about dealing with others.”
PPF was so warmly received that non-frontline employees also wanted to be included. A one day
“PPF II” program facilitated the participation of all BA employees through June 1985.
Approximately 40,000 BA employees went through the PPF program. The program urged the participants to reflect on their interactions with other people, including family, friends and, by association, customers. The program made a tremendous impact, due to the honesty of its message, excellence of its delivery, and the strong top management support. PPF emphasized positive relations with people in general. Implied in the positive relationship message was an emphasis on customer service. But the program was careful to put the employees as individuals first.
Staff going through PPF reviewed their personal experience of dealing with people at home, and at the work place. They were introduced to the concepts of goal setting and of taking responsibility for getting what they wanted out of life. Simple techniques were explained to help employees deal with stressful and unpleasant situations and to develop a more positive attitude.
Employees were sent personal invitations, thousands were flown in from around the world, and a strong effort was made to treat everyone with respect. Grade differences became irrelevant during PPF. Managers and staff members interacted freely. A senior director came at the end of every single PPF session and took part in a question and answer session. Marshall himself frequently attended the closing sessions andattempted to address employee concerns in a transparent manner. The overall staff response seemed to be very positive.
Managing People First (MPF) Program
Despite all these efforts, BA continued to suffer from turf wars especially at the middle management level. Besides, some managers felt they were not cared for. So they found it difficult to care for others. BA made a number of efforts to change the mindset of senior managers.
Among the significant efforts to build a new breed of leadership was the executive training process, Managing People First (MPF), a five-day residential program (launched in 1985) developed specifically for the 1400 BA managers under the human resource director, Nick Georgegettes. MPF stressed the importance of trust, leadership, vision and feedback. It also sought to operationalise the process of change within BA. MPF was an intensive, twelve-hour-a-day learning process, that represented a departure from past practices. It attempted to implement the philosophy of “emotional labor” by changing the historical impersonal culture into a culture, which reinforced “the business of caring and trust”.
MPF provided participants with plenty of individual feedback about their managerial behaviour. They were obliged to communicate better with their peers and subordinates. MPF impressed upon the participants the need to motivate the staff, and to avoid “emotional burnout”. The program was intended to prepare people for change. The program generated responses like, “ It was almost as if we were touched on the head… We don’t think we even considered culture before MPF”. It initiated regular meetings with staff every two weeks, in contrast to before the program when he met with staff members only as problems arose.”
In late April 1986, a group of New York based managers, who attended MPF, submitted a proposal to recover lost traffic due to terrorist threats. They received head office approval for their $ 7 million public relations, advertising and sales promotion campaign. By September, traffic was back to normal levels.
But some senior line managers did not actively involve themselves in the implementation of MPF. There were also rumours that the board of directors did not support the initiative. Some employees perceived it as an HR initiative to change the management style of BA. Some managers felt MPF was far removed from the changes occurring in other areas of the organization. The emphasis on “trust” sounded hypocritical at a time when job security had reduced considerably.
There were comments like[13]:
“People can now lose jobs if something goes wrong…. We don’t have security anymore. Perhaps we are here only for today. Trust is based on security.”
While these programs enjoyed some success, not many employees felt “ Touched on the Head “ by programs following PPF and MPF.
An external research report identified some of the key obstacles that remained on the way to organizational changes. (Exhibit: II).
Exhibit: II
Obstacles To Change As Perceived By BA Managers
mentions / RankCoping with competing value systems
BEA versus BOAC, cost Versus Service, Operations versus Marketing
Managing Across Hierarchical Lines-
compartmentalization makes interdepartmental cooperation difficult
Continual cost containment / Downsizing -
no chance to regroup
Inadequate Staff-people in wrong jobs, not customer-oriented.
/17%
12%
12%
10% /
1
2
2
4
Source: Forum Corporation Research Report, 1986.