In this essay, Organizational failure is measured by role of Leader and the Leadership, to understand failure, evidences drawn from various academic journals and books have been adopted. Theoretical perspectives, which can be roughly grouped into externally and Internal Factors are considered, externally driven approaches examine how certain environmental conditions or situational factors like industry dynamic pressure lead to organizational failure. Where as Internal approach considers of the role of top management teams, strategic decision such as succession, Leader Follower motives and outcomes. Leadership leading to failure is analysed by real time analysis of Thomas Cook AG Pioneer of Tourism Industry, the company that announced its liquidation recently on 23 Sep 2019.
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Brief Background of Thomas Cook's Leader
Thomas cook, is a domestic name in almost every household for more than 178 years. The Company was established as a family business as a tour planner in mid 18th Century and went on to define the tourism industry, (Shengnan and Nedelea, 2019). Things started to flip away since the start of 21st century. But disaster was a decade later. The Company was serving more than 2 billion customers with strong employee base, self-operated flight, owned hotels and various customised travel plans all under one roof. What went wrong in the firm is the board's failure to motivate the employees or the Company's failure to perform in the growing globalisation.
Impact of Globalisation
With Second Industrial Revolution, the role of Management played dominant role. Where Management Principles were defined in 1912, Alford published an article titled "The Principles of Management", which presented the foundation for their views with three basic principles of management. Each principle was to be measured and analysed by leadership in conjunction with the workgroups. With the evolution of Management Principles, leadership and management were used interchangeably, (Euske and Zander, 2005).
However, with the growing competition and globalisation in in early 1990's the management faced challenges of short-term financial measures to face the difficult times. In this measures Performance was shifted from Finance to Non-Finance Measures. As identified in journal "In Relevance Regained(1992), Johnson, focusing on the global marketplace, argued that if an organization is to be successful, it is essential to capitalize on the potential of the employees and to eliminate any performance measures or other management information that do not support behaviour congruent with the imperatives of global competitiveness". Which laid the basics of changing dynamics in the global market. (Euske and Zander, 2005).
21st Century: Digital Era
In 1997, Thomas Cook becomes the first UK retail, travel agency to offer customers a way to buy holidays over the internet(Group, 2007). With the successive change in the management with mergers until 2007. Thomas Group AG had multiple levels of business fragments defined as Mainstream, distributors and independent business.(Group, 2007). With new companies from around the world, even small firm with presence in Internet acted as competition for Thomas Cook AG, (Rodger, 2020). Tourism industry underwent a tremendous change as people were no more dependent on the travel planners for their travel and they were able to make their travel planning themselves from their living room. This seemed to be a threat for the business Giant like Thomas Cook, as the board were believing on the traditional high street business, (ICS Learn, 2020).
The process of decline in the travel business of Thomas cook AG shrinking and deterioration of resources of less customer centred approach and failing to understand the demands of the digital market lead to lose legitimacy and ability to self-govern ((Amankwah-Amoah, 2016, Hager et al., 2004). According to Weitzel and Jonsson (1989, p. 94), "organizations enter the state of decline when they fail to anticipate, recognize, avoid, neutralize or adapt to external or internal pressures that threaten the organization's long-term survival."
Snapshot of Thomas Cook 2008-09
Thomas Cook had number of businesses and products which have been either developed internally or have come under their ownership as a result of previous mergers and acquisitions. These businesses have varying degrees of connectedness to Thomas Cook's mainstream business, largely run by intrapreneurs who have taken over the role of running the business. Having worked their way up from more junior roles within the business, they hold the role of Managing Director for each of these products/brands, (Smith, Rees and Murray, 2016) .Which led to conflict of intrest amongst the different verticals.
The Leadership team decided on its merger, which affected their liquidity and spending heavily on the Operations during the period of less return. Though the management went on to claim "Strong Service Provider" the services were depleting,(Group, 2007). The management, failing to be responsive for global changes and with series of bad decision by the leaders at the Board, Thomas cook recorded negative operations in their Annual returns For FY 2007-2008. The Board claimed partially mitigated by cost initiatives in accommodation purchasing, airline operations and general overheads, (Group, 2009).
Leadership and Interaction with Employees
According to research conducted by (Shengnan and Nedelea, 2019), they reaffired the quote of Lynch. R (2015) identified leadership is the ability to share the company's decisions and continues to deliver high value, not only for the individual but also by inspiring and managing other employees in the industry. The incident of 2012 economic recession led tourist number to turn down sharply. It made Thomas Cook close to the verge of bankruptcy.
In that case, Thomas Cook implemented strategic change: turnaround strategy (Slater and Lovett,1999) and introduced urgent measures to prevent the occurrence of a financial disaster. Cathode, P (2006) indicates that the hospitality industry holds a high rate of business failure base on its instantly perishable products, however, some companies achieved successful revitalisation with a turnaround concept. Harriet Green is the legendary person in Thomas Cook, emailed all the 35,000 employees to ask their opinions on how to change company situation, with a collaborative effort, she made the solution way is to cut the physical stores and create more Internet tourism service. Within 2 years' effort, Thomas Cook achieved vibrant for its business (Will, S.2013) (Shengnan and Nedelea, 2019).
In addition, Thomas Cook chairman Frank Meysman made governance statement to put the customer at the heart of their culture value, spending more time to understanding customers, colleagues and holidays relationship to offer more closely tourism package (Thomas Cook. 2017).
Thomas Cook Group AG was lacking in their strategy to streamline the loss and the company claimed UK Political and unfavourable business climate as a reason for their loss, (Group, 2009). Thomas Cook main competition substitutes agency (Owlet, 2018) are TUI Travel (the biggest tourism industry in the UK), Jet2 and Expedia. For airline part, the major substitutes could be low-cost carriers, or British Airways, Virgin Atlantic and Titan Airways (mbaskool, 2018). Thomas Cook's another weakness comparing with other tourism industries is the limited destination (Shengnan and Nedelea, 2019).
Though they started their internet ticket booking 1997, the company's innovative strategy to keep up with the technological advancements were lacking. Ambiguous and tedious ticketing system with customisation made the customers decision to be difficult. The physical stores between the various verticals were competing within instead of competing with the external competition, (Collinson, 2020).
Failure of Resources to Perform Together
In a study conducted with the various managers of the Thomas Cook AG, the managers of different verticals (Amankwah-Amoah, 2016), were elevated to the Board Level. Thus, organisational failure may stem from a lack of or declining financial and human capital to sustain a firm's operation (D'Aveni, 1990, 1989a, 1989b; Hambrick & D'Aveni, 1992). However, firms with inferior resources and capabilities are also more likely to lose their ability to compete and eventually exit the market (D'Aveni, 1989a, 1989b; Knott & Posen, 2005). Another line of research has attributed failure to factors such as limited prior experience, mismanagement and loss of key personnel (Burger & Owens,2013; Hager et al., 2004). Thornhill and Amit (2003) suggested that firmspecific failure determinants such as managerial deficiencies may trigger bankruptcy.
The review indicates that firm characteristics such as lack of quality resources and distinctive competencies are major contributory factors to failure (Carter & Van Auken, 2006; Headd, 2003). This also rests on the premise that talented executives enable their firms to phase out outdated skills and upgrade the expertise of workers in a timely manner to mitigate decline. Another interesting line of research has identified factors such as inability to mobilise scarce human resources and lack of legitimacy (Burger & Owens, 2013; Fafchamps & Owens, 2009), depleted financial resources (Fernandez, 2008; Hager, Galaskiewicz, & Larson, 2004), lack of access to grants (Burger & Owens, 2013) and lack of connections to other organisations (Fernandez, 2008) as common reasons for organisational failure.
Lack of Integration
According to (Amankwah-Amoah, 2016), the lack of integration has not only failed to stimulate cross-fertilisation but also obscured the past accomplishments made in addressing the fundamental. He Continues to explore the definition of Marks& Vansteenkiste, 2008, p. 810 that organisational failure refers to "the actual demise of the organization when an entire company goes out of business … the organization completely ceases to exist".
The disadvantage of Thomas Cook could be too many brands have led to confusing customer's mind (Figure 13), it is hard to promote specific marketed (Thomas Cook, 2018) (Shengnan and Nedelea, 2019).
With change of Board in 2012, things did not turn better for the leisure company. sudden increase in natural disasters, unexpected tax hikes, a drastic shrinkage in the customer population and downswings in the business cycle, may shrink the economic opportunities for the population of firms within an economic niche (Bradley, Aldrich, Shepherd, & Wiklund, 2011; Covin & Slevin,1989). Scholars in this area have uncovered that such adverse business conditions are more likely to lead to business failure (El Hennawy & Morris, 1983; Platt, 1989). It has been suggested that market forces through measures such as technological change, deregulation liberalisation enable more efficient firms to drive out their less efficient competitors (Silverman, Nickerson, & Freeman, 1997; Tirole, 1988).
Unfavourable environmental factors
Failing to take right decision, unclear vision from Management, the research conducted (Amankwah-Amoah, 2016), suggests that failure stems from the actions and inactions of decision-makers (Nutt,2002; Sheppard, 1994a, 1994b). The organisational antecedent perspective suggests that firm-specific factors to a greater extent are the primary causes of organisational failure (Mellahi & Wilkinson, 2010).
This section articulates the various streams of research on firm-level.
The Management was not flexible to the changes, the failed to learn from competition, (Collinson, 2020). (EUSKE and ZANDER, 2005) has quoted, Johnson that the imperatives for a globally competitive organization create an environment that allows employees to use their skills and talents to the fullest. Whereas in case of Thomas cook the lack of focus in the management level clearly identified as reason for lack of performance from employees. Leadership was restricted to the top management.
The globally competitive organization creates an environment such that employees can then begin to understand how the entire organization impacts the way that customers view performance, and to understand their individual responsibilities to meet those customer needs.
In the Journal By Bill George, (George, 2020), He recommends that the hierarchical model simply wasn't working. To lead in this new century, we need authentic leaders who align people around mission and values, empower leaders at all levels, focus on serving customers, and collaborate throughout the organization, in order to achieve superior performance.
As Analysed in the Journal Management studies by Thomas Cook was having strong identity as global leader in tourism industry, being constraint from adapting to the changing environment, suppressing the innovation. The Organisation turned into rigid follower that subsequently depletes its resources base until its failure in 2019. Which refers to Laggard archetype(Habersang et al., 2017).
Even though the research work from (e.g.: Amankwah-Amoah, 2016, Smith, Rees and Murray, 2016), (Shengnan and Nedelea, 2019) adopt a purely conceptual approach (e.g.,), thus limiting the generalizability and empirical support. Second, previous process models remain rather descriptive (Amankwah-Amoah, 2016).They do not specify the underlying mechanisms, i.e., processes that bring about or prevent change in explaining the failure process. The more direct problem is that without specifying the underlying mechanisms, it is difficult to properly differentiate processes of organizational failure (e.g., Van De Ven and Poole, 1995) were greatly emphasising on the internal factors and ignored the external factors. Strong reputation among customers and a leading market position. Previous success created a distinct but also a pure corporate identity that reflects well established standards of quality and excellence acts as a source of corporate pride.
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Continuous market success until 20th Century, made Thomas Cook management believed in their way of doing business. Not surprisingly, this way of thinking becomes a breeding ground for overconfidence, arrogance, and managerial hubris that subsequently penetrates the corporate culture, where the management vision was to serve the shareholders until 2008 (Group,2008), the recipes for past success become increasingly institutionalized in organizational strategies, structures, and practices and reflect a dominant logic of how to do business, refrained Thomas Cook from getting rid of their non-performing assets and High street Shops. With new entrants in the market and lack of innovation to rapidly changing environment with changing consumer preferences disrupt the market and increase industry dynamism, the organization is pushed into an adaptation conflict. This misfit emerges when the firm responds to changing industry dynamics with its repertoire of tried-and-true strategies that succeeded in the past but are bound to fail under these new market conditions.
When the company realized that it no longer holds the industry's leading position and is on the brink of a crisis, the members started to question the focal strategy, technology, and culture. For eg: When Ms. Harret Green, defined the restructuring of the firm by selling no performing business, the attempt to prepare the company for the digital age collided with other Board Members, resulting in vacating her office.
In Thomas Group, the management promoted the culture of intrapreneurs, "I think what drives entrepreneurs and maybe intrapreneurs sometimes is failure". This culture of risk taking must be encouraged so as to foster entrepreneurial thinking (Burgess, 2013). Connecting them together would assist learning and development for both groups, harnessing the power of this group, the wider organisation could benefit from the group's output, rather than simply the individual's own area benefiting from the individual alone.
Amankwah-Amoah, J. (2016). An integrative process model of organisational failure. Journal of Business Research, 69(9), pp.3388-3397.
Collinson, P. (2020). Why did Thomas Cook collapse after 178 years in business?. [online] the Guardian. Available at: https://www.theguardian.com/business/2019/sep/23/thomas-cook-as-theworld-turned-the-sun-ceased-to-shine-on-venerable-tour-operator [Accessed 19 Jan. 2020].
EUSKE, K. and ZANDER, L. (2005). History of Business Performance Measurement. Encyclopedia of Social Measuremen, 2, pp.227-232.
George, B. (2020). The New Leaders: Collaborative, Not Commanding. [online] WSJ. Available at: https://www.wsj.com/articles/SB10001424052748703580904575131783515866878 [Accessed 19 Jan. 2020].
Group, T. (2009). Annual Report. [online] London. Available at: https://www.thomascookgroup.com/investors/reports_presentations?year=2009 [Accessed 19 Jan. 2020].
Group, T. (2007). Annual Report. London: Thomas Cook Group, p.2.
Habersang, S., Küberling, J., Reihlen, M. and Seckler, C. (2017). A Process Perspective on Organizational Failure: A Qualitative Meta-Analysis. Academy of Management Proceedings, 2017(1), p.13860.
Rodger, J. (2020). The eight reasons Thomas Cook went bust as travel operator collapses. [online] birminghammail. Available at: https://www.birminghammail.co.uk/news/uk-news/eight-reasonsthomas-cook-went-16968220 [Accessed 19 Jan. 2020].
Shengnan, Y. and Nedelea, A. (2019). THOMAS COOK UK TOURISM INDUSTRY, THE 2ND LARGEST TRAVEL AGENCY IN EUROPE. EcoForum, 8 (Issue 2 (19)).
Smith, L., Rees, P. and Murray, N. (2016). Turning entrepreneurs into intrapreneurs: Thomas Cook, a case-study. Tourism Management, 56, pp.191-204.
ICS Learn. (2020). What Can Leaders Learn from the Thomas Cook Collapse?. [online] Available at: https://www.icslearn.co.uk/blog/posts/2019/september/what-can-leaders-learn-from-the-thomascook-collapse/ [Accessed 19 Jan. 2020].
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