Strategic and Change Management Assignment

8/2/2019 Strategic and Change Management Assignment

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ASSIGNMENT COVER SHEET

ASSIGNMENT MARK

MODULE NAME: STRATEGIC AND CHANGE MANAGEMENT

PROGRAMME: MASTER OF BUSINESS ADMINISTRATION

SURNAME: SAVVA

FIRST NAMES: CARMEN NATALIE

STUDENT NUMBER: MBA111119

E-MAIL: [email protected]

ALTERNATE E-MAIL ADDRESS: [email protected]

POSTAL ADDRESS: PO BOX 189

SONPARK, 1206

CONTACT NUMBERS: 013 759 0782 (WORK)

0825513100 (MOBILE)

I hereby confirm that the assignment submitted herein is my own original work.

Signature of Student: Carmen Savva Date: 30 August 2011

For office use only:

Date scanned and returned to student: _________________________________

REGENT Business School

mailto:[email protected]





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TABLE OF CONTENT

QUESTION PAGE

1.1 Describe the PEST factors effecting BA between the years 1995

– 2000

3

1.2 As a change consultant, what change interventions would you

have implemented to mitigate against the effect of the economic

factors?

6

2.1 The vision of Robert Ayling is an example of a vision gone

wrong. Drawing from the theory of the characteristics of a

vision, provide possible reasons why this vision was not

successful.

8

2.2 Can you design your own vision for BA for the period in

question, which is different from Robert Ayling? Justify your

answer.

9

3.1 Robert Ayling introduced a raft of changes that were extremely

unpopular with staff. Analyse the causes of staff resistance to his

initiatives.

11

3.2 Describe the steps you would have taken in introducing the same

changes in order to obtain minimal resistance to his initiatives.

13

4.1 Why is it important for a manager to understand his / her

organisations environment?

15

4.2 Refer to the sub-heading “Strategy” in the case study and analyse

BA’s strategy under the dimensions: domain sought, strategic

thrusts, differential advantages and the results expected.

17

Bibliography 20



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1.1

Introduction:

“PEST” is an acronym for the environmental scanning process of the external environment -

the variables and factors outside the firm that can impact on the overall performance of the

company.”PEST” refers to the Political, Economic, Socio-cultural and Technological factors

within the environment in which the company performs.

Political Environment (Legal):

BA is the flag (Union Jack) carrier airline of the United Kingdom. Once the most profitable

Western Airline, the gradual deregulation of the industry resulted in increased competition

particularly in the low-cost sector.

The “US – UK open skies” agreement placed pressure on BA who agreed to release some of

their regular routes to American carriers as part of their alliance with American Airways.

In 1996 Robert Ayling, the CEO of BA proposed a virtual merger with American Airlines to

pool flights, resources and revenues. This proposal was blocked by the Europe Competition

Commissioner in an attempt to maintain a competitive balance. In pursuit of their global

strategy BA formed the “OneWorld Alliance” with Canadian Airlines, Cathay Pacific and

Quantas Airlines in 1998.

The ongoing political conflict between countries could result in higher security and insurance

costs to combat the risk of terrorism. Obtaining immunity from antitrust legislation from the

US Government would be a good competitive advantage for BA.

Economic Environment:

The net profit of BA peaked during 1995 but declined rapidly resulting in a net loss by March

2000. This occurred despite various cost saving initiatives.



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Various factors affected the profitability of BA.

Financial:

o The strong pound, high inflation rate, general recessions and overcapacity

reduced the demand for air travel;

o The rising fuel price increased prices and lowered demand;

o The exposure to the Yen loan and the weak dollar revenues had an adverse

effect;

o Due to the Asian economic crisis the demand for flights in this region

decreased.

Wages:

o The increased staff compliment resulted in a high salary bill, placing pressure

on margins;

o BA attempted to reduce labour costs by recruiting newly hired employees at

lower salaries to replace existing staff;

o Strike action cost the company millions and affected employee morale.

Competition and alliances:

o The gradual deregulation resulted in an increased number of carriers;

o BA formed the “OneWorld” alliance to compete more effectively with their

rival “Star Alliance”.

Market capitalisation and Share prices:

o BA’s market capitalisation dropped from £7.6 billion to £3.2 billion;

o The share value dropped by almost 50% between May 1998 and January 1999;

o Return on Capital reduced from a staggering 8.04% in 1991 to 0.05% in 1999.



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Socio-cultural environment:

BA received negative publicity following the “dirty tricks” court case lost against Virgin

Airlines adversely affected their public image. The press focussed on their strained staff

relations resulting in a significant loss in clientele who went elsewhere.

According to Newton (2000) air travel has a major impact on the environment and BA

formed the Sustainable Business Unit with the aim of integrating environmental and social

issues into business decisions. The focus areas included: noise; emissions and fuel efficiency;

waste, water and materials; congestion; tourism and conservation.

Newton also refers to the re-launched Code of Conduct during 2000 addressing people

relationships; a fair deal for customers; impact on employment, working conditions and

human rights; Citizenship – to partner with the communities in which they work and not at

their expense.

Technological environment:

BA has to keep track of technological developments in the field of e-commerce and aircraft

manufacturing in order to maintain their competitive advantage. The implementation of the

smaller Boeing 777s on a reorganised route aimed to focus on their identified market niche

and reduce unnecessary capacity over a period.

A key issue would be the extent to which technological advancement such as the use of

internet for online ticket sales is implemented. Cost synergies from industry consolidation

(eg. virtual merger) can offset upward pressure on prices and costs.



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1.2

Introduction:

In 1996 Robert Ayling was appointed as CEO of BA. Things started deteriorating despite the

fact that he continued with many programs implemented successfully by his predecessors.

He had a sound vision and strategy for the company being that of long-term growth by

maximising profit, reducing costs and focussing on high profit market segments. BA’s

Chairman Marshall implied that Ayling was not the right man to execute it.

A change agent could facilitate some changes to help deal more effectively with the

economic challenges facing BA. It is not easy to implement changes and they are often met

with resistance by staff.

Leadership:

Ayling had a directive leadership style and followed a “top-down” approach. He didn’t have

the support of the staff and the deteriorating service was a direct reflection of the decrease in

staff morale. A Change Management Consultant should work with Ayling to improve

communication and adopt a more participating management style. Alternatively a

recommendation should be made to the Board to have him replaced by a person more suited

to that leadership style.

Workforce:

Many new competitors emerged using pricing strategies to gain market share. BA reacted by

sourcing new alliances and reducing labour costs by recruiting new staff at a lower salary to

replace existing staff. Remuneration packages were restructured and staff felt cheated and

insecure. Ayling focussed on cost saving, growth and profit but neglected to consider how

the staff felt resulting in a lot of resistance and the costly strike.



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Lewin’s model of change:

Change in an organisation occurs in three stages namely “unfreezing”, “movement” and

“refreezing”.

Unfreezing:

Ayling implemented “downsizing of the workforce” in an attempt to restructure the

organisation and reduce the number of staff. There were fewer hierarchical levels and

managers had more autonomy to make decisions which could lead to improved operational

efficiency. The focus moved to marketing and customer service. According to Goodstein and

Burke (1991:4-17) BA introduced training programs such as “Putting People First” and

“Managing People First” to help line workers and managers to understand the nature of the

airline industry services.

Movement:

BA must develop tactics and programs to filter Aylings’ vision throughout the company right

down to lower level employees. Some internal systems need to be addressed such as the

communication in general as well as training policies to educate staff to gain their support.

Bonus systems could also be implemented to motivate them. Focus on recruitment and

placement of suitable staff that will “fit” in to what BA want to achieve.

Refreezing Stage:

It is easy for staff to regress and fall back into old ways. Staff should be incentivised for

exceptional client service and innovative ideas to re-enforce this new behaviour and support

the culture.

The above changes will lead to improved client service and will in conjunction with a

thorough marketing strategy attract the passengers back to BA. Increased passenger numbers

will result in higher turnover and improved profits. Most economic indicators within the

control of BA will improve if the staff morale and customer service is addressed. Staff

commitment to quality service and cost control is as important as focussing on growth.

Employees can play a vital role in generating cost saving ideas and adjust their actions to be

more cost effective and efficient.



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2.1.

“Long -term growth by maximising profit, reducing costs and focussing on high profit

market segments.”

Bob Ayling, CEO of BA between 1996 and 2000 had great strategies and ideas for change.

He said: “We cannot afford to stand still. We have to maintain our lead through even greater

innovation, so we offer outstanding products and a quality of service that people will alter

their travel plans to enjoy.”(CAP Online: BA’s new identity). The manner in which he tried

to achieve these objectives did not enjoy the support of those around him inevitably leading

to failure. In 1997 BA launched a new corporate identity, involving a £6 billion

improvement programme and a new strategic direction. A clear vision will assist indifferentiating BA from its competitors.

A vision can only become a reality through action. Without the enthusiasm, buy in and

support of his staff, the vision of BA was merely a platitude and statement of the obvious. A

successful vision is dependent on tactics and programs being implemented to bring the vision

of the top management level to the bottom line employees throughout the organisation. The

vision defines the boundaries of the organisation.

At BA the employees did not share Aylings’ vision as what he wanted to achieve and how he

wanted to achieve it was never clearly communicated to them. An effective vision will help

employees to understand the bigger picture, create an understanding and build commitment

towards the achievement of a super ordinate goal. A vision statement has the potential to

motivate employees. Under Aylings’ tenure at BA this was not the case as he had an

authoritative, impersonal leadership style with little regard for how the staff felt. Judging by

the success of his predecessors, a more participative management style would have suited theorganisational culture better.

The insensitive top down approach followed by Ayling antagonised his employees. The

downsizing policy was one sided and not implemented with compassion.



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2.2

Every person important, every interaction a “moment of magic”, every year better.

The above vision statement would be ideal for BA during the 1995 – 2000 period. A vision

must tell a story and have the power to motivate the staff.

“Every person” includes all stakeholders such as staff, customers, suppliers and

shareholders. Everybody is important and contributes to the success of the company.

“Every interaction” refers to all activities between internal parties as well as external

parties. The activity the person is busy with should be what they are focussing on.

Strive to make this moment memorable.

“Every year better” refers to the company financial results in terms of market share

and profitability. If a company is successful, this is often passed on to the staff via

increases and bonuses. Staff will also have a sense of security being associated with a

successful company.

The airline industry is a service industry and only the customer service together with the

pricing strategy could differentiate BA from the many competitors. It is about customer

retention in a very competitive market. Staff have the sole responsibility for customer

service.

Client service is a core value built into any business in the service industry. If implemented

correctly, this vision could produce change in employee attitudes enhancing the purpose of

the “Putting people first” campaign launched by BA. This vision is uncomplicated and could

pull the entire organisation in the desired direction of growing the business. The vision

reflects the aspiration of all stakeholders:

Employees – most people have an inherent need to be appreciated and recognised and

therefore employees will strive to render the best possible service to the customer.

Nothing must be too much. Employees must strive to create the “moment of magic”

for every person that they deal with.

Customer – a customer enjoys the experience of being treated like the most important

person in the world. During the exchange, he / she should receive the undivided

attention of the employee.



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Shareholders - a happy customer will come back and often also tell friends and family

about the service received and this could lead to increased passenger levels.

The vision proposed above can have a positive effect on all key performance areas of BA.

Human Resources:

Staff will be working in a positive environment and strive to excel at service delivery.

Success in this area could result in lower absenteeism and fewer resignations. Staff are

generally more productive when they enjoy their job and this could have an effect on the

operational costs of the company as they would work smarter and focus on cost saving

initiatives.

Client Services:

Clients tend to be loyal to companies where they have a pleasant experience and they feel that

they are getting value for their money. These clients will return resulting in customer

retention if not growth.

Financial Impact:

This is the most important aspect as it is the reason that most companies exist. A stable

workforce and returning customers is what is needed to ensure success in this market.

The proposed vision is emotionally inspiring and easy to commit to. It should become part of

the company’s day-to-day activities and culture.



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3.1

Introduction:

According to Kotter and Cohen (2002): “Organizations change when their people change.”

The changes proposed and implemented by Robert Ayling were not unrealistic and had been

carried out with great success by his predecessor, Lord Marshall.

Despite the “Business Efficiency Program” introduced by Ayling, whereby the company was

saving millions due to cost saving initiatives, the financial position of the company continued

to deteriorate. Robert Ayling had no regard for any of the important interventions required to

reduce the resistance to change.

Some of the causes of the resistance to the proposed changes demonstrated by staff include:

Education and communication: Staff must be aware of the reasoning behind and

implications of the proposed changes. They must understand why it is happening and

what is expected of them.

Participation: Employees should be involved in identifying the problem as well as be

empowered to propose some solutions.

Facilitation and support: Supervisors and other role players should help employees to

come to terms with the proposed changes and guide them with the necessary adaption

in attitudes and behaviour that will support the end goal. Low level supervisors who

are in touch with ground level staff are often the best people to communicate and

facilitate change.

Negotiations: Discussions between all role players should occur to ensure that

everybody understands the situation and are on board to ensure the success of the

implementation.

Security: There were many structural changes at BA that were not communicated to

the staff. Staff were insecure about their jobs as the management team had been

streamlined and it was evident that Ayling was attempting to cut overheads. As salary

costs are one of the greatest expenses for a company it is an obvious deduction to

make that “they could be next”. The policy of restructuring, pay-freezes, job cuts and



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out-sourcing threatened the livelihood of the staff reducing staff morale and

commitment.

Economic factors: Staff would have been aware of the economic downturn facing the

country, as well as the increased competition in the airline industry.

Fear of the unknown: Ayling went out of his way to get the message across that the

“new” BA overhaul was a top-down process. He had a high-level streamlining

approach with little regard as to how it affected staff. This left staff in the dark.

Selective information processing: Not much official communication came down from

Ayling. The “grapevine” played a huge role and staff often received inaccurate

information, out of context, leading to incorrect deductions being made.

The staff had no trust in Aylings leadership. He had a strong financial focus on restoring the

profitability of the company. He paid no attention to providing what the customer wanted,

ensuring that the routes offered fit the market in the price and offering and lost a lot of

customers to competitors.

The declining staff morale lead to strikes and further loss in clientele due to poor service.

Ayling should have taken the time to explain the challenges facing the company to all staff.

This communication should have been open and candid leaving staff with the clearunderstanding of why there would be some retrenchments and changes to overall operations

in terms of routes and changes in the fleet. Staff could have been empowered to make

informed decisions regarding their careers and taken ownership of the problem. The

employee opinion survey proved that people were proud to work for the company and

therefore would probably have gone the “extra mile” to get the company through these

difficult times. There was no communication, so they were not on board and were detached.



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3.2.

To effect the changes proposed by Ayling a different approach could have been taken.

Continue building on the successful corporate culture that was in place during the reign of

Lord Marshall, whose customer service and training focus had a “feel good” approach.

Remain focussed on financial controls and strengthen relationships with employees, creditors

and suppliers. Take steps to improve performance by creating various incentive schemes to

motivate staff, control costs and increase earnings by focussing on lucrative routes and

eliminating less profitable flights.

The focus can’t just be on cost cutting init iatives. Staff, marketing, the actual product offered

as well as customer service are all focus areas. Concentrate on improved service such as on

time departures and arrivals, baggage security and staff going the extra mile for customers so

that people would want to fly BA. Amend the relationship with travel agents and re-establish

fair commissions so that they could actively market BA again.

The initiative of using various world images on the tail of the aircrafts could have been

implemented with great success given the fact that 80% of the BA passengers were foreign

travellers. A marketing campaign actively positioning BA as an international player in the

airline industry should have been launched. This is an initiative that all Europeans could

have been very proud of if the correct message was conveyed. Their National asset could

have conveyed the visual message that “we are global”.

Open and honest feedback to the staff regarding the financial challenges facing the company

in an attempt to get the staff to have a clear understanding of the reasoning behind what was

happening. Strive to get staff to understand the situation and gain their trust so that

everybody could work together as a team to get the company through these tough times.

Employees should be equipped and empowered to take initiative and responsibility to

perform their jobs effectively.

Performance incentives would be payable to all staff because in the words of Gordon Bethune

(1999) “everyone in the company is like part of a watch. All parts need to work together...”.

He also places emphasis on teamwork, keeping open lines of communication, promoting



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predictability and using measurement to help guide management since “what gets measured

is what gets managed”. (Gordon Bethune, chair man and CEO of Continental Airlines).



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4.1.

Introduction:

The organisation and the environment in which it operates are interdependent. Organisations

require resources from the environment in which they function.

The business environment refers to both the internal and the external factors that impact on

the operations of the organisation. According to Cronje, Du Toit, Marais and Motlala (2003:

87) there are three distinct environments.

Micro environment:

Variables such as corporate goals, functions of management and the resources of the

company are under the direct control of the management and make up the micro

environment. Managers must be abreast of changes and continually adapt to ensure they align

themselves with the changing environment and remain competitive.

Market environment:

This environment is encountered directly outside the organisation and determines the nature

and strength of the competition.

Managers must understand their market. Who their customers are and what they want. They

must always be one step ahead of their competitors. They must know who their competitors

are and be aware of any potential new entrants to ensure that they position themselves well.

They should focus on relationships with suppliers and intermediaries thereby ensuring they

always get the best deal and are regarded as the airline of choice.



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Macro environment:

There are six distinct sub environments within the macro-environment. (Cronje et al p 87).

Technological environment which continuously brings change and innovations;

Economic environment where inflation, exchange rates, recession and monetary and

fiscal policy play a role;

Social environment includes consumer lifestyle, habits and values. This is the market

served and preferences and demands must be catered for to ensure survival;

Physical environment refers to the infrastructure around the company (transportation

– roads, airports, harbours etc.) as well as natural resources including minerals, fauna

and flora;

Institutional environment with the government and its political and legislative

involvement as its main component;

International environment where local and foreign politics affect the business

environment as well as the market environment.

These all have an impact on the management of a company but are not under the control of

management.

A SWOT analysis can be used to isolate key issues and facilitate a strategic approach to

dealing with them. It assists in identifying internal Strengths and Weaknesses. It also helps

an organisation to identify opportunities and counteracting threats in the external

environment.

The PEST analysis where the Political (Legal), Economic, Socio-cultural and Technological

environment are analysed and the impact thereof is planned for is also helpful when makingdecisions as all of these factors could have an influence on the success of the company.



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4.2

Introduction:

The aviation industry is gradually evolving. The industry is in serious need of restructuring

and consolidation so that airlines can remain competitive and sustainable.

Domain sought:

Robert Ayling wanted to differentiate BA from other carriers, including low-cost, “no frills”

carriers, by focussing on the high profit niche market segments such as intercontinental routes

and premium passengers in business and first class.

Business travellers tend to be more demanding than leisure travellers who are generally not

too pressured for time. Costa (2002: 89) stated that trying to appeal to widely different

customer needs runs counter to the overall trend in service industries, in which distinctive

approaches, tailored to different customers, have generally come to dominate.

Strategic thrust:

Ayling reduced investment in local economy seats as the rising “no frills” airlines placed

pressure on these prices reducing the profitability in this market.

Between 1997 and 2000 BA planned to introduce 43 new aircrafts and announced a modified

premium travel strategy. They planned to use smaller planes on reorganised routes that

would cut capacity by 12% over three years. Their intention was to cut costs and maximise

the number of club and first class travellers, who were generally willing to pay a premium

ensuring increased passenger yields.

BA also ensured that they employed the right people and invested in their training to enhance

customer service, striving to make the flight as effortless and pleasant as possible. There

was a focus on improving convenience by increasing their online bookings from the less than

1%.



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BA has a large network and strongly unionised workforces resulting in many challenges.

Merger possibilities were limited by competition regulation. The ability of international

expansion is hindered by foreign ownership restrictions. According to Buckley (2002)

foreigners cannot own more than 49% of a national airline in Europe.

Differential advantages:

BA implemented numerous innovative ideas to set it apart from its competitors in the

industry. The focus was on the quality of the products offered with the view that these

differentiated value added services that customers preferred could be provided at premium

prices. Some of these initiatives include their Airport lounges where passengers have access

to drinks, internet and upmarket bathroom facilities including showers to freshen up in thearrival lounges.

Ayling introduced a number of customer focused schemes aimed at improved customer

service. To differentiate the brand he initiated the “Sustainable Business Unit” focussing on

the impact of aviation on the environment. This campaign appeals to customers who feel that

BA is acting responsibly by looking after the world we live in.

BA enhanced their in-flight comforts to distinguish between full-fare business travellers and

others preferring to fly on discounted fares. BA was the first airline to offer a completely flat

bed in business class on long haul routes. In certain classes in flight entertainment is

delivered by personal video screens and audio channels verses overhead screens in other

classes. Food quality, leg room and the inclination of the seats distinguished premium

passengers from low fare passengers. BA could provide for various niche markets on the

same flight improving economies of scale. This approach ensured that they could increase

their market share by catering for the different demands of travellers.

Expected results:

The differentiated product and service approach ensures customer satisfaction through a

sustainable competitive advantage. BA focussed on the value that could generate a

comparatively higher price and improved margins. Specific markets were targeted focussing

on diversified needs potentially generating a higher than average price.



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Innovations necessitate additional costs that are offset by the additional revenue generated by

sales. Ensure that the changes in the network and the fleet do not increase operating costs.

Word count: 4 067



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BIBLIOGRAPHY

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Authority. Retrieved 5 August 2011.

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Executing Strategy – The Quest for Competitive Advantage, Cases and

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Edition. McGraw-Hill Irvin.

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13. Wilkinson, A. & Grugulis, I. Managing Culture at BA: Hype, Hope and Reality,

Long Range Planning Journal, 35 (2002): pp 179 – 194



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Documents

Strategic and Change Management Assignment