British Airways "Flying into a Storm"
British Airways
"Flying into a Storm"
Oct2002
Summary
Introduction 3
. A brand new company management 4
.1- Major evolutions in the corporate strategy 4
a) Several breaking points in the policy statement 4
b) Actions implemented 5
.2- A less "people-oriented" leadership 7
a) Before Ayling: a severe but participative management 7
b) After Ayling's coming: a management centred on administrative and financial objectives 7
2. A failure due to the negligence of three key factors: culture, leadership and structure 9
2.1- An unsuitable management to BA's culture and identity 9
2.2- Bob Ayling : an ambitious but self-centred leader 11
2.3- A structure which does not square enough with the company 12
3. What should be Eddington's main concerns for the future? 14
3.1- Increase the level of service thanks to structure and culture 14
3.2- Maintain and improve internal cohesion through a better communication 15
3.3- Go on improving rentability through organization and new values 15
Conclusion 16
Introduction
London, March 2000. The reign of Bob Ayling as chief executive of the airline British Airways (BA) is over. The crisis reflects the economic difficulties the company has been experiencing for the last three years.
In order to set the outlines of our study, let us define in a few words BA's field of activity. As airline, BA's basic function is to carry passengers. This is a customer service industry, which implies that BA also supplies in-flight services/products (various cabin classes, meal supplies, entertainment facilities...) and out-flight-services (luggage retrieval, e-sale of tickets...). This field of activity is characterized by a tough concurrence, a real sensitivity to economic cycles, thin margins available as well as increasingly demanding clients.
In such a context, Bob Ayling didn't manage to reach his strategic objectives. As one of Ayling's predecessors puts it: "the airline's strategy remained the right one but Mr Ayling was the wrong man to execute it." This comes down to say that Ayling did not implement the strategy the right way. To which extent do we agree with this statement?
We will first examine the major changes that were operated in BA's strategy with Ayling. Then we will try to understand why he didn't manage to implement completely his strategy and thus why he didn't target his objectives. To end with, we will look into what Rod Eddington should do after Bob Ayling's dismissal to implement the strategy of the company.
. A brand new company management
.1- Major evolutions in the corporate strategy
a) Several breaking points in the policy statement
Since Sir John King came over BA in 1981, strategic speeches followed each other, translating the leader priorities in a given environment. Nevertheless, we can easily notice a change in communication of the corporate strategy with Ayling's arrival.
At the beginning of the 1980's, Lord King's first preoccupation was to make as long as he could BA a customer service oriented company, with high standards of quality. He had to take the company out of its public sector approach. All along his reign as the company's leader, and later within Lord Marshall too, the policy statement kept a focus on the customers without changing the priorities for 15 years.
During Bob Ayling's four years mandate as chief executive, yet really shorter than his predecessors, we can distinguish three very different phases in the announced strategic choices.
His first concern when he came to power in 1996 was to make costs cuts. He introduced the Business Efficiency Programme in 1996, requiring the company to take heavy structural decisions that were -according to him- vital to ensure BA competitiveness for the future. Costs reduction has always been a concern for BA's managers, but to put it on the top of the agenda was a new kind of strategic vision.
After that one-year quite painful period, he decided the company had to combine customer service excellence with cost competitiveness, with a target of doubling its operating margin during the next five years. This mix policy included concentrating on four key issues:
* Customers, by providing the highest levels of service and innovative products
* People, with an ambitious target: becoming the best managed company in the UK
* Costs efficiency, by keeping a high level of profitability
* New alliances (particularly with American Airlines), by using the potential of a global airline industry.
This policy had the disadvantage to divide the attention on several problems in opposition to King and Marshall management that kept focused on one main objective.
Soon after, Bob Ayling was confronted to a phenomenon of large strikes, and he decided to put people back on BA top agenda. His predecessors used human resources as a means to achieve their target of a high customer service but Bob Ayling was obliged to take it as a whole stake.
Finally, we can observe that Bob Ayling's policy statement changed quite often under the pressure of the environment; such a thing had never happened for the 15 years before his arrival.
b) Actions implemented
Audacious actions to assert BA as a leader
Soon after he had been nominated chief executive, Bob Ayling started to implement a large panel of audacious actions to assert BA as a world leader company.
First of all, he dared to cut the top executive team from 25 to 14, to improve its efficiency and limit its cost.
One of his first concerns was an alliance with American Airlines, to ensure the two companies to control 60 % of flights between the UK and the US, the world's most lucrative airline's routes.
In 1997, he decided to make an identity change because the airline, carrying 60% of foreign passengers, had to show off as a "citizen of the world" rather than a national company. The challenge of the new visual identity consisted in weakening the British nature of the company and modernising it. He chose 50 ethnic designs from artists across the world.
Bob Ayling also decided the acquisition of 43 new aircrafts, as well as the building of a new head office.
In 1998, to face the emergence of low costs airlines and the increased competition ...
This is a preview of the whole essay
In 1997, he decided to make an identity change because the airline, carrying 60% of foreign passengers, had to show off as a "citizen of the world" rather than a national company. The challenge of the new visual identity consisted in weakening the British nature of the company and modernising it. He chose 50 ethnic designs from artists across the world.
Bob Ayling also decided the acquisition of 43 new aircrafts, as well as the building of a new head office.
In 1998, to face the emergence of low costs airlines and the increased competition on short haul routes, Bob Ayling decided to launch Go, its own budget airline.
Later in 1999, he innovated again with the concept of the "Lounges in the sky", a high-standard new service, and some investment in e-commerce.
Whatever are the results, we must concede that Bob Ayling did a lot on a short period to put BA as a world leader.
An anticipative approach of cost competitiveness
Cost cut is a very unpopular practice. Consequently, managers usually do it only when it becomes an emergency. Bob Ayling did not take it like that. He anticipated the future and he kept an unwavering stance to impose the BEP measures while a record profit was announced for the year: he sold sensible activities, relocated the accounting department...
He asked for volunteers to leave the firm not because he could not afford to pay them, but to replace them with flexible people having more appropriate skills.
At last he decided to concentrate BA strategy on high margins activities, and implemented a rationalisation program, paring down unprofitable routes and cutting excess capacity.
This anticipative approach triggered the admiration of financial analysts, but the consequences inside the company were not so positive.
A changing concern on HR
Unlike his predecessors, he did not invest a lot in human resources programs at the beginning of his mandate as far as he was too much involved in cost competitiveness. Eventually, people were affected by this low concern on them. The consequences were a decrease in the customer service level, and a strong mobilisation for a strike.
After those events, Bob Ayling was strained to re-involve the company in people matters. He promoted an intensive drive to lift staff morale, actions to involve people in the company. He even decided, as a pendant to the construction of the head office, to build a hotel in Heathrow just for the staff.
Bob Ayling set up many changes in the corporate strategy, but let us now see how his management style was different from his predecessors.
.2- A less "people-oriented" leadership
a) Before Ayling: a severe but participative management
Lord King decided to restart from scratch in 1981, when he became the chief executive of BA, and he transformed the airline with Lord Marshall in fifteen years into one of the best carriers in the world.
The two leaders helped their employees to turn the corner of privatisation in 1987; they achieved to manage the change slowly. They started to instil a customer service culture into the staff with two large training programs, and always involved their people in the improvement of the airline. Those participative management methods made people proud to work for BA.
Thus, Lord Marshall created a new human resources system, a kind of competency-based management, built on the promotion for the best employees. Therefore, they had a real willing to do always better, and their chief executive progressively replaced the State as a strict but kindly father in their collective mind.
Lord King and Lord Marshall always did what they said; they were regarded as strong leaders, but they knew how to inspire the whole staff with confidence and how to command their respect. With
that support they could explain that drastic - maybe painful - measures were the only means to improve BA's results and reputation.
b) After Ayling's coming: a management centred on administrative and financial objectives
Everyone expected Robert Ayling to follow the footsteps of his predecessors. However, just before his taking over as chief executive, he clearly announced he would "throw off for all time the attributes and attitudes of public sector". That simple first sentence is the symbol of the big change in BA's management in 1996: Bob Ayling thought that people were ready to accept all the constraints of a private company, in terms of adaptability and competitiveness.
First we can notice that Bob Ayling didn't take so many precautions in his declarations: for example he directly announced in September 1996 that BA would replace 5000 employees by new recruits, supposed to be more efficient and flexible. He thought that internal training was not enough; competences were out of the firm. Eventually some people felt afraid by this new vision.
Then, Bob Ayling decided an unexpected relooking of the aircrafts. That was an important symbol of what he intended to do: make BA forget its British identity, to become an international carrier. At the same time, one of the parts of Ayling's Business Efficiency Plan concerned the freezing of wages. As he took that kind of decisions without consulting the employees and their unions, cabin staff, which had the habit of being well treated, felt deceived and went on strike.
During his reign, Bob Ayling was the only leader, he was supposed to have the right solutions, he looked forward and his employees had to follow. He did not listen to them and seemed to believe that nobody could understand his long-term vision anyway.
This new leadership did not include the human resources and the culture in the decisions; it was an economic management.
These major changes in BA's management had unexpected impacts ; let us explain the reasons of Ayling's failure.
2. A failure due to the negligence of three key factors: culture, leadership and structure
2.1- An unsuitable management to BA's culture and identity
There is no denying that culture is often neglected in the field of firms and business in general. However, culture has to be considered as a real success key in so far as people need to feel all right and involved to be efficient. If the gap between the firm's culture (that is to say employee's culture) and the top-manager's vision is too deep, it leads to huge damages for either the firm, managers and employees as we are going to discover it in the case of BA.
In the mid 1980's, BA was considered as a state-owned company with a dire reputation for customer service. Ayling's two predecessors succeeded in turning it into a high-quality and cost-efficient company, voted from 1989 to 1996 "world's best airline" in the independent "Business Traveller" survey (voted "airline to be avoided at all costs" in 1980...). Focusing on marketing and innovation / technology, both King and Marshall still put emphasis on human resources. They took care of people in the first place, involving and training employees ("Putting People First" and "Managing People First"), encouraging "brains trusts" and putting customers first. People were of course aware of that attention and were confident, loyal and devoted.
In 1996, Bob Ayling stepped up as chief executive with challenging and radical changes in mind. The sentence mentioned above he pronounced in one of his first speeches meant that the very first thing Ayling did was to attack the firm culture and identity, thus disturbing and chocking people unwillingly.
In June 1997, Ayling praised a striking new visual identity supposed to be based on market research but that generated emotionally charged controversy. The change was radical; symbols were simply scrapped (new design, new colours, new motto, denial of the psychological national belonging) as if it was possible to start from scratch with new company identity and culture.
As strikes immediately showed it, BA's culture was still one of a public sector company. Instead of trying to negotiate, Ayling harshly condemned strikers without taking in account this public sector company background. In spite of Ayling's desire to eradicate "Britishness" from BA, employees and people in general (customers, the press, Margaret Thatcher) were not ready to accept it. Strikes were also the result of incomprehension from employees: were the new salary scheme (part and parcel of the efforts to reduce area costs) and the £60 million identity change coherent? Was it possible for employees to stay motivated and involved in BA under those conditions? Furthermore, 160 planes stayed with the Union flag instead of the new design in 1999 because BA lacked time to repaint it. The identity change was as a consequence first of all badly accepted and in addition badly implemented.
However, Ayling began to understand after the strikes the high necessity of human resources as part of cultural background in a customer-facing business. He launched a campaign to raise staff moral in October 1997 and started to think about focusing on people on the front-line through interviews and speeches praising communication between management and staff. He built a hotel and developed a new concept for BA's headquarter (no permanent desk-space). Again, in 1999, an opinion survey was sent to all employees, results were alarming, and Ayling introduced training and motivational programmes.
We can not say if the improvement of BA's results in 1999-2000 was linked to those efforts from Ayling concerning people but there is no denying that it was a little late anyway...
People had indeed a hard time with him, describing his management as a "macho-management that's destroying people's feeling for the airline", "threatening and intimidating". His vision of change was so ambitious (doing better and better, never enough for him) that he broke the firm culture and identity, introducing fear into staff's feelings and breaking confidence that staff had always shown to management, in cutting jobs and financial bonus with no evident reason (for employees) or restructuring top-management. He questioned and modified too much symbols, values, norms, he disturbed employees in destroying their marks. Ayling justified himself in saying that he had a long-term vision and staff a day-to-day one, but he should at least have better explained and communicated around his decisions.
It is however striking and surprising to notice that BA's culture and identity was about the same from BA's beginning to the start of Bob Ayling's reign. Privatisation, higher competitiveness, globalisation do not seem to have modified anything. This can also explain why the gap between BA's culture and what Ayling wanted was so deep.
His new identity implementation may not have been irrelevant but just inadequate.
2.2- Bob Ayling : an ambitious but self-centred leader
Lord Marshall explained in March 2000 that "the airline's strategy remained the right one but that Mr Ayling was the wrong man to execute it". We are going to study why below.
Bob Ayling first dealt with BA in the early 1980's. He began working for the firm in 1985 as legal director, became group managing director in 1993 and chief executive in January 1996. He was "well-waited" and had a rather good reputation. Following King and Marshall was quite challenging but he seemed to have strengths on his own such as strategic understanding, sharp mind, diplomatic skills or legal training.
However, his first official act was to slim down the company's top executive team of 25 to 14. Again, in September 1999 this executive team was reduced from 14 to 6. Those measures were aimed at "getting to a degree of unanimity quite fast". It can also be noticed that at the end of Ayling's reign, there is no realistic successor to him. Those two facts mean above all in our mind that Ayling can be considered as a narcissistic and authoritarian leader who wants to keep as much power and decision's liberty as possible.
It seems that he does and decides what he wants to without really thinking of all it involves and implies. As a consequence, he needs to change his mind often, and he forgets to focus on important things, he is distracted from the real job of keeping passengers on seats (his attention is for example consumed by trips between the UK, Europe and America to settle an alliance with American Airlines) which is not a good thing at all for his credibility.
His credibility seems also to be affected by the gap between his speeches and his actions. He described for example his second objective for BA as "improving customer service in a more demanding environment". Few months after this announcement, the Marketplace Performance Unit (responsible for generating information on customer preferences and perceptions) was scrapped. In 1997, a task group was created and responsible for missions including that of "getting the basics of customer service right"; but basics are supposed to be mastered if customer service belongs to the four main objectives specified one year ago. The same illogical thing can be noticed concerning putting people first or not. Ayling pretends to put people first and a little bit later states he is going to put people first now.
His credibility can also be damaged when he promises staff, concerning the value of their BA's share, "we are never going back to that price again" and when three months later the share loses 14p. He should not make promises on something he does not master.
A leader needs of course to make decisions but needs also to listen to people and especially staff. Ayling thinks he takes employees in account in building a new hotel, create an open concept in the new headquarter but is it really what employees want and need? Several opinion surveys are mentioned but analysis or corrective measures do not seem to be done and taken, which means that those surveys did not match their targets and resulted in losing time, money, frustrating staff and enabling managers to have good conscience.
Ayling also wants people to do exactly what he wants them to: "People have got to be... they've got to do...". "Often worn thin, revealing an intensely ambitious and stubborn individual who is only happy when he gets his way". He is excessively exigent maybe with himself but also with others, he seems to be never satisfied and demands a "constant improvement". Even when a good news is announced (BA: "second most admired company in Europe" according to the Financial Time for example), Ayling's ambition looms (he asks on the same days 5000 volunteers to leave the company...), which reveals a huge lack of diplomatic skills.
As a conclusion, we could say that Bob Ayling did not take enough people in account and that his vision was blurred by his ambition.
2.3- A structure which does not square enough with the company
Firstly, actions on BA's structure did not correspond to Ayling's strategy.
Indeed, the second objective of Ayling for building on BA's existing success was to "improve customer service". However, his actions on the structure did not match with this objective. For example, Ayling sold BA's "in-flight catering operations", BA's "ground fleet services", which were both significant aspects of BA customer service. By selling them, Ayling loosed any possibility of controlling the quality of this customer services. It was only after the strike of June 1997 that Ayling decided to set up a task force to ensure the airline "gets the basics of customer service right". The words used clearly reflect a discrepancy with the initial objective. Thus, it appears that the structure did not emphasis enough the necessary development of customer service.
Secondly, BA's structure did not favour employee's effectiveness and involvement. As we already pointed it, BA's staff morale was at a time low. Employees needed to be motivated, to identify themselves to the company. The typically centralized structure of BA (the tasks of BA's board were not divided into many units) did not foster employees' motivation and employees' feeling of identification to the firm. Consequently, the structure did not seem adapted to BA's culture.
In the same way, the centralized structure of BA did not square with environment and activity's field: environment is characterized with an extreme sensitivity of airlines to economic cycles, which requires the necessity of reducing any risks the company could run, as well as a certain reactivity of the companies of this field. More and more demanding clients characterize the field of activity, what requires a non-negligible adaptability of the company to the market. In that context, BA's centralized structure did not facilitate the reduction of risks (compared to a more decentralized structure) and did not enable a great adaptability to the market. For these reasons, the structure did not match with the environment.
Having analysed the reasons of Ayling's management failure, we will now consider how Eddington should manage BA internal factors to implement the strategy.
3. What should be Eddington's main concerns for the future?
It seems that Bob Ayling often tried to reach many objectives, which were not completely compatible. For example, he could not at the same time improve the level of service and constantly reduce costs.
Now that he is gone, his successor has to focus on his strategy and on a few objectives, so that he can reach all of them before defining new ones. That means he probably will have to define some priorities between all his targets. He will also have to make sure they really are well matched so that they do not cancel each other.
Rod Eddington claims that he wants to concentrate on people in the front-line, and to work hard with each level of responsibility. He seems to be conscious that an airline is a very particular type of company, where quality of customer service is decisive.
Let us see how he can work and which tools he can use to meet his objectives.
3.1- Increase the level of service thanks to structure and culture
Improving quality of service means two things: employing an obliging staff and making new fitting-outs in aircrafts.
To achieve a high level of service, BA can use two main tools:
- First of all, he can act on structure and organisation. BA could create for instance a marketing department, which could play two roles: studying client's satisfaction and dealing with complains; and searching far in amount the likings of the customers to offer them what they expect. Thus, they will feel they really are BA's priority.
- Then, company culture could also help reaching objectives. If managers constantly praised the idea of the "client king", everyone and especially front-line employees will take as an evidence that clients must be treated as "stars". BA could also set up training programs so that everyone has the skills to deal with customers: for instance languages trainings for front-line employees who have to be able to answer any question asked by a client, wherever he may come from.
3.2- Maintain and improve internal cohesion through a better communication
As Human Resources represent a precious asset for a company providing services, and especially for airlines for which the prestation is barely differentiating, BA's managers have decided to focus on their staff. Therefore, they will have to enhance internal cohesion, thanks to structure.
Indeed, an internal communication department could be created in order to update and communicate to everyone decisions taken by the CEO and the executive committee. Thus, employees would maybe understand more easily where the company is going and would certainly feel more concerned with the objectives. We can not reach objectives that we are not aware of. Then BA's managers could use their speeches as a means to reach their objectives. If they let know while officially speaking (annual report, to journalists or directly to staff during trainings periods for example) that staff's well-being is on top of agenda, and if they prove to be themselves coherent in doing exactly what they promise, then they will probably enter a new era of social relationships.
3.3- Go on improving rentability through organization and new values
Since BA has to preserve its margins, it will have to go on saving money. But as one of Bob Ayling's former co-worker explains, all the easy savings are already achieved at the beginning of the year 2000: it means that there are not many possibilities to cut purely costs any more. Thus, the challenge consists in finding new ways of saving money that would not injure service quality.
- Here again, structure can be used: a new service could be created, that would immediately adapt tickets prices to demand: if many seats have been sold for a flight, then prices should maybe increase. However, if a little part of available seats has been sold, then the prices should decrease until all seats are sold. Such an initiative would avoid half-empty flights, and would eventually lead to savings.
- Then a work could be done on internal culture: an "economy-awareness" could be implemented, encouraging everyone in the company to make savings. For instance, managers could show the example in booking middle-class hotels instead of four-stars ones when they have to travel.
- At last, BA could go on focusing on rentable activities, providing higher margins, as for instance North Routes and First Class flights.
Conclusion
British Airways needed a charismatic leader; Bob Ayling was just an economic manager. He overestimated the ability of his people to change the way they considered their company and their implication in its evolution.
Although he had got indisputable skills to deal with external constraints and to anticipate the environment evolutions, he forgot to take in account the importance of internal factors, such as the firm history and what it involved.
Rod Eddington's first reaction as he came over was to express his respect and his will to make BA's employees happy. It is very likely that the new chief executive had drawn the lessons of his predecessor's experience, and that he wanted to start from new bases.
Maybe he is the "right" man for the job...
2
British Airways ICN 3
Etude de cas BA Introduction
Etude de cas BA 1. A brand new company management
2. A failure due to the negligence of three key factors
Etude de cas BA 3. What should be Eddington's main concerns for the future?
Etude de cas BA Conclusion
