Managing change in the British Airways

Contemporary business firms face unique opportunities and challenges in their search for survival and growth. British Airways, the UK’s flag carrier airline, has constantly had to deal with numerous external and internal challenges, ever since its formation in 1974. BA has suffered harsh financial losses during 2009 and 2010; its cumulative net losses for the two years amount to around 800 million GBP. The organisational management recognises the need to bring in a significant strategic change in order to grow and improve its market share and competitive advantage.

The company’s change initiatives, however, face numerous obstacles. This report examines the need for strategic change at British Airways. This is followed by discussions on the requisites for successful organisational change, the barriers faced by the corporation in bringing about such change, and recommendations on the way forward.

1.1. Overview

Modern day organisations face unprecedented opportunities and challenges in their quest for business success and competitive advantage. Environmental change of astonishing and global dimensions has changed the landscape of contemporary business (Hughes, 2006, p 14). Such environmental change, which commenced in earnest after the Second World War with the decolonisation of huge populations, accelerated in later years with the growth and subsequent collapse of the Soviet bloc, the reunification of Germany, the formation of the European Union, economic liberalisation across developing countries, the emergence of China and India as economic and political powers, astonishing developments in technology, and of course globalisation (Hughes, 2006, p 14). Whilst changes in global environmental conditions and advances in science and technology opened up numerous opportunities to business organisations, they also resulted in the creation of numerous challenges that threatened the operations and the very existence of established business firms (Hughes, 2006, p 14).

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Much of the modern day challenges to business organisations come from intensified competition, the emergence of numerous new products and substitutes, the development of equal quality but low-cost production and service centres in the emerging economies and from technological advances (Henry, 2008, p 44). The Japanese focus on fuel efficient small cars, pulled the rug from beneath the feet of huge automobile makers like General Motors and Ford, dethroning them from their positions of undisputed global leaders of the automobile sector (Henry, 2008, p 44). Low cost mining of Rare Earth Metals in China led to the closing of mines of such metals in the US and other countries and to concentration of 97% of global production of Rare Earth Metals in China (Areddy, 2010, p 11). Liberalisation of travel and free movement of people across the world for purposes of business and travel resulted in the emergence of low cost airlines like Ryan Air and Easy Jet in the UK and others in different parts of the world, causing body blows to established airline giants like British Airways, Air France, and Swiss Air, some of which, (like Swiss Air), closed shop (Lynch, 2006, p 52).

British Airways, the flag carrier airline of the UK has constantly faced external and internal challenges, ever since its inception in the early 1970s (British Airways, 2011, p 1). Formed by the coming together of BOAC, BEA, Cambrian Airways and North East Airlines in 1974, the organisation worked as a public sector corporation for 13 years until it was privatised by UK’s Conservative government in 1987 (British Airways, 2011, History). British Airways (BA) has had to face numerous environmental challenges in its history, both as a public and as a private sector carrier. Such challenges have occurred on account of reasons like intense competition from other airlines in its domestic and global operations, erosion of market share on account of entry of low cost airlines, global terrorism, pandemics like SARS and Bird Flu, and natural calamities (British Airways, 2011, Annual Reports). The terrorist strikes of September 11, 2001, resulted in a huge downturn in local and international travel, resulting in the collapse of numerous airlines and in significant financial losses (approximately 200 million GBP in 2002) for British Airways, which lost (British Airways, 2011, Annual Report 2002).

The volcanic explosion in Iceland, which resulted in ash filled skies and disruption of flights in early 2010, also resulted in significant revenue losses (Milmo, 2010, p 1). The last two years, 2009 (losses of 400 million GBP before taxes) and 2010 (losses of 530 million GBP before taxes) have been truly alarming for the organisation (Milmo, 2010, p 1). It also needs to be realised that whilst thousands of shareholders enthusiastically subscribed to the company’s shares at the time of its privatisation, they have gained very little, by way of dividends or market value appreciation, in the last 24 years (Hosking, 2009, p 1).

The management of British Airways recognises the need for the Airline to change significantly in response to various environmental challenges in order to grow and enhance market share and competitive advantage. A number of change initiatives have also been introduced by the company in various strategic and operational areas with varying degrees of success.

1.2. Objective

This report examines the need for strategic change at British Airways. Such examination is followed by discussions on the requisites for successful organisational change and the barriers faced by the corporation in bringing about such change. The report closes with a section on recommendations and conclusions.

2. Strategic Change at British Airways

Modern day organisations, as discussed in the preceding section, need to change on account of various internal and external environmental reasons, in order to achieve organisational growth, enhance productivity and profitability, and enhance competitive advantage (Cameron & Green, 2004, p 31). Such strategic change could be needed to exploit new opportunities as well to obtain protection from threats. Such strategic change could also be necessary to break out from existing conditions of financial distress or operational or strategic deficiencies (Cameron & Green, 2004, p 31). The importance of bringing about strategic change has been emphasised by numerous management academics and experts, who have repeatedly addressed its importance for modern day organisations (Cameron & Green, 2004, p 31). Peter Drucker in fact drives the point home by stating that it is the responsibility of every responsible manager to constantly search for ways in which he or she can beneficially contribute to the process of strategic change (Stein, 2010, p 7).

Whilst organisations clearly have to engage in strategic change, if not out of choice than out of necessity, their track record of success in its realisation is poor (Balogun, 2001, p 2). Many senior managements fail to understand that implementation of strategic change, i.e. the conversion of plans to reality, constitutes the most difficult part of the change process (Balogun, 2001, p 2). Such change can become possible only when individuals working in organisations change their behavioural ways and patterns and align them with new strategic objectives (Balogun, 2001, p 2).

Strategic change is not new to BA. Numerous case studies detail BA’s success in change management. The organisation engaged in strategic downsizing by practically 40% in 1981 and 1983 (Docshare, 2009, pp 27 to 30). Privatisation in 1987 called for the bringing about of significant cultural change. The adoption of the Putting People First programme in the 1980s aimed to align organisational working with new competitive realities and modify the behaviour of customers, who were deserting the airline in droves (Docshare, 2009, p 36).

Recent years have also witnessed a number of change initiatives, primarily in response to intense competition by low cost carriers like Ryan Air and Easy Jet and altered customer expectations. The commissioning of Terminal 5 at Heathrow, which encountered significant negative publicity in account of opening day operational goof-ups, is one such example. The company is currently operating with a multi-pronged business strategy that includes (a) up gradation of customer experience, (b) modernisation of aircraft fleet, (c) offering new services, (d) managing its cost base and (e) increasing corporate social responsibility in areas of environment (British Airways, 2011, Annual Report 2008, Chairman’s Speech).Whilst this report does not deal with an elaborate strategic analysis of the company, the most important factors about its internal and external environment, as well as its current performance are bulleted below.

The organisation operates in an environment of intense regulation and heightened security because of terrorist threats.

Its sales revenues and profitability are under threat because of the global economic crisis, slow projected global economic growth, the weakening of the pound, and oil prices, which have started soaring again.

With the population of its home market ageing steadily, the organisation will be under stress to achieve the same amount of revenues from existing customers.

With passengers becoming increasingly aware and vocal about their rights and expected service levels, BA continues to be under pressure on account of underperformance in areas of cancelled flights and poor baggage handling.

The management and the cabin crew union are in direct confrontation with each other.

The organisation has suffered severe financial losses during the last two years; with cumulative net losses for 2009 and 2010 near 800 million GBP.

The organisation’s biggest threat, now and in the coming years is in the area of revenues, sales, costs and profits. With competition likely to intensify and global economic growth forecasted to be low, the company urgently needs to engage in activities for improving its financial viability (Milmo, 2010, p 1). Cost management and reduction is a critical element of organisational strategy. Whilst all airlines are equally affected by fluctuations in fuel costs, large economic and passenger movement trends, terrorism and global political instability, BA’s labour and workforce costs are significantly higher than its competitors (Carley, 2009, p 1). It is relevant to note in this context that BA employees earn more than 2 times the remuneration earned by Virgin Air workers (Robertson, 2009, p 1).

BA has adopted a strategy of cost management and reduction to overcome these financial challenges. Whilst the organisation is still financially strong, further periods of poor performance could well strain its financial resources (Carley, 2009, p 1). The major area of cost reduction relates to remuneration and employment terms of its employees, especially its cabin crew.

3. Change Management Strategies

Whilst BAs immediate and imperative change strategy focuses on the critical area of financial viability, the route is extremely challenging because of its need for considerable employee sacrifice. It needs to be appreciated that the organisation has initiated a number of other strategic changes to improve customer satisfaction and satisfaction, including the commissioning of terminal 5 at Heathrow, (McGinn, 2009, p 2), and the need to achieve financial viability has now assumed important dimensions.

Change management theories focus on three important dimensions, namely (a) the planning and implementation of the change process, (b) the involvement of the organisation in the proposed strategic change, and (c) the role of leadership in the change process for bringing about of successful strategic change (Hayes, 2006, p 71). Both Lewin and Kotter stress upon the need to implement change in a planned process that takes the organisation from its current stage to its desired state through clearly demarcated phases. Lewin states that change management can be best achieved through the planned application of three phases, namely unfreezing, implementing of change and refreezing the organisation in its new state through institutionalisation of implemented changes (Lewin, 2005, p 9). Kotter, whilst basically following Lewin’s theory, feels that the process can be better achieved through the implementation of change in 7 stages (Kotter, 1996, p 7).

Change management experts secondly call for the committed involvement of organisational staff for the successful implementation of strategic change proposals (Bovey & Hede, 2001, p 373). Many proposed strategic changes can result in resistance from organisational employees on account of causes like (a) incomplete knowledge of the proposed change, (b) ignorance about change objectives and benefits, (c) lack of belief in change benefits, and (d) change associated threats to the individual and collective wellbeing of organisational employees (Bovey & Hede, 2001, p 373). Whilst ignorance about the nature and objectives of change can be set right through appropriately designed and powerful communication, tackling change related threat perceptions of employees is totally another matter (Bovey & Hede, 2001, p 373). Such threat perceptions could arise because of apprehensions about (a) change in working condition, (b) change in terms of employment, (c) change in location, (d) requirement to take up new functions, (e) need to learn new skills, (f) loss of remuneration, and (g) loss of employment (Bovey & Hede, 2001, p 373).

The third critical factor in bringing about successful strategic change concerns the role of organisational leaderships (Hayes, 2006, p 78). Organisational leaders must clearly outline the proposed strategic changes, communicate the change objectives and the reasons for such change to organisational members, and bring about intense involvement of organisational employees in the change process (Hayes, 2006, p 78). Such involvement is essentially done by leading from the front and through visible commitment to the change process. Effective leaders identify and encourage change champions throughout the organisation to support the change process, engage in constant and transparent communication about the benefits of change and obtain he support of the overwhelming majority of organisational employees to the change process (Hayes, 2006, p 78).

4. Barriers to Change at British Airways

BA has asked individual employees to accept temporary earning reductions and has engaged in negotiations with unions for pay cuts, alterations in employment terms, and reduction in its workforce. The company’s management asked employees in June 2009 to work without basic pay for a maximum period of 4 weeks over six months, take a year of unpaid leave, and change from fulltime to part time employment for a period that could stretch up to a year.

It is proving to be difficult to bring about strategic changes for effecting reduction in employee costs at the airline because of intense opposition by well organised and united cabin crew members to proposed changes (Carley, 2009, p 1). Whilst BA’s pilots have agreed to some reduction in remuneration, the cabin crew has strongly opposed the changes and has constantly threatened to take industrial action if such changes are implemented (Carley, 2009, p 1).

Effective strategic change, it is accepted, is difficult to implement without employee involvement and participation. Organisational leaderships try to bring about such involvement through communication, creation of awareness and training. The involvement and agreement of even a significant proportion of employees in the change process, along with constructive empathy for employees likely to be adversely affected by the change process, helps organisations to implement change processes that include termination, salary reduction and downsizing.

It is necessary to understand that BA’s cabin crew, whose agreement and involvement is important for effecting strategic change, are strongly united in their opposition to organisational plans and strategies (Neilcaff, 2011, p 1). The strength of their unity has been evidenced in the past when their strikes have resulted in significant stoppages and financial losses (Neilcaff, 2011, p 1). The last two years have been marked by intense confrontation between the management and the cabin crew on this issue, with no constructive result. The first half of the current year has been spent in the shadow of a proposed strike during the Easter holidays (Neilcaff, 2011, p 1).

Some part of this problem can also be attributed to the current organisational leadership at British Airways. The leadership style of Willie Walsh, the existing CEO could also be a barrier to the change process. Walsh’s autocratic and uncompromising style is not encouraging employee stakeholders to acknowledge and embrace the required change. Other leaders, like Schultz at Starbucks, have been more successful at driving change programmes.

5. Recommendations and Conclusions

The course of urgently required strategic change at British Airways is being thwarted by constant stand-offs between the management and employee unions, even as the organisation continues to be buffeted by a difficult competitive environment, soaring fuel prices and intense competition. It is relevant to note that the principal owners of the organisation, i.e. the shareholders, have received little benefits over the years, even as two sets of agents, the management and the employees, have obtained significant financial benefits and continue to wrangle over their individual interests and egos.

It would appear to be opportune for shareholder organisations and even the government to step in, appoint neutral experts, obtain suggestions for strategic change, and push such measures through, even at the risk of industrial action and financial losses. The failure to take firm action and drive change forward could well have catastrophic repercussions for the company.