Question 1.1

Describe the PEST factors affecting BA between the years 1995 – 2000?

Political

The political environment in which British Airways (BA) operates and has a significant

influence on how BA is regulated.

In 1996 a “virtual merger” between BA and American Airlines (AA) was blocked by the

European Competition Commission, as it adjudged BA too powerful an entity. The reasons given

was that BA operated primarily out of the popular London airport and that the United Kingdom

had the second largest airline market after the United States. This obstruction reduced BA’s

potential competitive power, as enjoyed by the members of the rival Star Alliance.

The European Competition Commission, under the European Union, of which the United

Kingdom is a member state, addresses competitive practices. Although mergers can expand

markets and bring benefits to the economy some mergers are deemed to reduce competition and

the mandate of the European Union is to stimulate growth and raise the standards of living

amongst the member states. As in the case of BA and AA, the merger was deemed to reduce

competition in the market whilst creating and strengthening BA as a dominant player.

(http://ec.europa.eu/competition/index_en.html)

BA achieved its objective for growth with alliances with a number of airlines in 1988. This was

done without regulatory clearance and by April 2000, the new CEO Eddington leveraged

immunity from antitrust legislation, furthered the affiliation between BA and AA.

Antitrust legislation is a law intended to promote free political competition by outlawing

monopolies. (http://ec.europa.eu/competition/antitrust/overview_en.html) Immunity from this

legislation enabled BA to form the alliance with AA.

Economic

The state of the trading economy during the periods 1995 – 2000 shaped how BA operated as an

airline. In the years prior to 1995, the economy was fraught by recession however in this climate

1

BA was the most profitable western airline in an industry. Even though the economy was

sluggish – a 2% fall in average yield for the industry by 1995, BA’s yield remained stable and

traffic grew by 7%.

A stronger pound in the first half of 1997 reduced BA’s profit by £128m. The strong pound

directly impacted on BA’s industry in that it was more costly for people to travel to the UK. This

would have reduced BA’s sales. Additionally exports would have been affected, i.e. UK goods

would have been more expensive. This would have affected BA in that air transport of goods

would have decreased.

Added economic factors include increased competition from low cost operators and increased

fuel prices. Increased competition meant more unsold seats and increased fuel costs translated

into greater operating costs, which resulted in job losses, pay freezes, outsourcing of work and

changes in staff working conditions.

The economic crisis in Asia in 1999 had a direct economic impact on BA. The economic crisis in

Asia meant decreased traffic in the region which then caused BA’s opposition to focus on other

routes, namely BA’s profitable transatlantic route.

With the pound being strong also meant that foreign investment would have cut back as it would

have been too costly to invest in the UK.

Social

The social and cultural influences on a business vary from country to country. Social influences

forms the identity of an organisation, in the country in which it operates. (www.project2061.org)

In 1997, BA understanding it had distanced itself from its consumers embarked on an overhaul –

to become the worlds leading airline. This was to be achieved by, improving and focusing on

customer service, innovation, business and first class and financial performance.

With thoughts of wanting to be open, friendly and cosmopolitan under Ayling, BA removed the

union jack off its aircraft tail fins and replaced it with various world images. This gesture

although received favorably by BA’s foreign travelers who represented 80% of BA’s customer

base, British citizens and BA shareholders were unenthuasitic. An advertising campaign termed

2

“Back to British,” in 1999 was introduced to offset Ayling’s decision and the Union Jack was

reintroduced. Further social interventions by BA, by using the likes of UK author P.J. O’ Rourke

and music, “I vow to Thee My Country,” elevated BA to be more socially acceptable as a

national carrier.

In 1996 and 1997, threats of strikes and strikes brought on by restructuring of employee pay

packages, outsourcing of catering services and closing the union representatives office at

Heathrow airport affected BA. So much so that in July 1997 70% of flights were cancelled

during a 3 day strike, costing BA £125m.

Technological

In 1996, Alying was newly appointed and he attempted to cut operating costs by £1 billion by

2000. Ayling proposed to achieve this primarily by molding BA into a virtual airline. Making it

convenient, easier and cheaper for BA’s customers to book tickets online as well as gather flight

information such as routes, seats and departure and arrival times.

BA opted for the smaller and more efficient Boeing 777’s in May 1999. These aircraft was

introduced to cut costs and maximize the proportion of club and first class passengers inline with

BA’s strategy and improving passenger yields.

Technology is vital for competitive advantage and is a principle driver of globalization and

technological advancements of the late 1990’s allowed BA to employing technology and

introduce effective and efficient systems.

3

Question 1.2.

As a change consultant, what change interventions would you have implemented to mitigate

against the effects of the economic factors?

As a change consultant, the change interventions I would have implemented to mitigate against

the effects of the economic factors would be based on the knowledge that BA’s competitive

success in a constantly changing market pivots on BA’s ability to experiment, adapt, reinvent

and regenerate as the market and competitive environment shifts. (www.media.wiley.com)

BA in the years prior to 1995 was the most profitable western airline, and in 1995 BA’s yield

was stable and traffic grew by 7%. BA was doing something right and it’s reactions to PEST

factors were correct.

However in 1997 when the strong pound reduced BA’s profit, anticipating the change in

economy would have aided BA’s and helped mitigate against its effect. I would have

implemented plans and procedures to deal with expected changes and instruct BA to follow the

plan as changes occur.

Anticipating calls for BA to predict and evaluate what will possibly occur and then make

provision and create an environment for the future. Analyzing buyer behavior buyer needs and

buyer expectations, BA would have had insight into how the market would change. This would

have given BA insight that competition from low cost operators would increase based on buyer

trends.

Anticipating change opens new opportunities and thus is a quality way to manage change rather

than just reacting to change. By anticipating the reaction of its competitors to the economic crisis

in Asia in 1999, BA would have been better prepared for it’s competitors focus on BA’s

profitable transatlantic route.

The increase in fuel prices is somewhat out of the control of BA. Fuel pricing has a direct impact

on BA’s operating costs. Better understanding the oil industry would have given BA valuable

information as to the trends in the oil industry, and rather than introducing the smaller and more

4

fuel efficient Boeing 777’s in May 1999, BA could have introduced these aircraft sooner to have

helped mitigate against the effect of the increased fuel costs.

5

Question 2.1.

The vision of Robert Ayling is an example of a vision gone wrong. Drawing from the theory on

characteristics of a vision, provide possible reasons why this vision was not successful?

The reason why Ayling’s vision was a vision that went wrong is that his vision failed in

establishing objectives which were needed to answer BA’s unmet needs whilst taking into

account the long and short term view of BA. The characteristics of Ayling’s vision was that it

was unclear and his arrogant management of staff made him uninspiring.

Under Robert Ayling BA’s mission was to become “the world’s leading airline.” This was to be

achieved by focusing and improving on customer service, innovation, business and first class

travel and financial performance. A noteworthy £6B was set aside to improve and enhance BA’s

corporate image, new services, routes, aircraft, facilities and training.

However the lack of communication of Ayling’s vision to members of staff led to staff

disillusionment. The development and implementation of a company’s vision is achieved with

the involvement of staff. To an extent there was not much wrong with Ayling’s vision, as this

was supported by Chairman Marshall, who announced on Ayling’s resignation that the

company’s strategy would remain the same, only with the right man to execute it.

Thompson, Strickland and Gamble (2005, p20) state that the characteristics of an effective vision

should be;

- Graphic: a painted picture of the kind a company that management is trying to create and

the market position the company is striving to stake out.

- Directional: the vision should say something about the company’s journey or destination

and signals the kinds of business and strategic changes that will be forthcoming.

- Focused: Vision should be specific enough to provide managers with guidance in making

decisions and allocating resources.

- Flexible: Vision may need to change as events unfold and circumstances change

6

- Feasible: the vision is in the realm of what the company can reasonably expect to achieve

in due time.

- Desirable: the vision needs to appeal to the long term interests of stakeholders.

- Easy to communicate: a vision must be easy to explain and be memorable.

Adapted from Thompson, Stickland and Gamble (2005, p20)

Ayling’s arrogance and lack of understanding of the industry was further shown and another

reason why his vision was unsuccessful when Ayling, replaced the traditional Union Jack, a

symbol of the UK. Being a national carrier, Ayling should have understood the importance of

national pride. Ayling favored world images as part of his vision and move to make BA a more

recognizable organisation. The £60m exercise was not only costly but was unpopular. Ayling

should have tested his idea first before re-branding BA. Ayling blantly failed in understanding

the sentiments and pride of the British people and shareholders. Not having the support of the

British people and shareholders was another reason for Ayling’s vision being unsuccessful.

Another reason why Ayling’s vision failed was that Ayling did not have a through understanding

of the environment in which BA operated and the human resource aspects of the business.

Ayling sacrificed BA’s market and staff moral in favor of cost cutting.

Ayling’s vision is an example of a vision gone wrong. The vision itself was not poorly

conceived, it was poorly executed as reasons listed above. Ayling was not the right man to

execute the strategy of BA and this was confirmed by BA’s Chairman.

7

Question 2.2

Can you design your own vision for BA for the period in question, which is different from

Robert Ayling? Justify your answer.

Ayling’s vision is an example of a vision gone wrong. The vision itself was not entirely poorly

conceived, it was poorly executed. Ayling was not the right man to execute the strategy of BA

and this was confirmed by BA’s Chairman. Hence in designing a vision, it would be difficult to

design a vision for BA which was that much different to that of Ayling. However in trying to

design a vision which improves that of Ayling the vision should be, complete, clear, stimulating,

distinctive and specific.

Adapted from South African Airways (www.flysaa.com)

Our Vision

British Airways Vision InformationBritish Airways MissionTo deliver continued profits and develop our market share through world-class service to our customers both international and domestic.

British Airways Vision A European airline with global reach

British Airways Core BusinessThe air transport of people and goods.

British Airways Corporate ValuesCustomer FocusedBe prepared and endeavor to acknowledge the individual needs of our customers (international and domestic) by adapting our interactions to their specific needs

AccountabilityShoulder responsibility for individual and team actions, decisions and results by instituting clear plans and goals and measuring our progress against them, while discerning a deeper purpose in one's everyday job.

IntegrityImplement the highest standards of ethical behavior in all our lines of work and maintaining credibility by making certain that our actions always match our words consistently.

8

SafetyAdopting a zero defect mentality and striving for zero accidents through proper training, work practices, risk management and adherence to safety regulations at all times

Excellence in PerformanceSetting goals beyond the best and reinforcing high quality performance standards and achieving excellence through implementing best practices

Valuing our PeopleCommitting to satisfaction, development and well-being through treating them with respect, dignity and fairness

Reference: www.flysaa.com

The above adaptation from South African Airways is a vision, which is complete, clear,

stimulating, distinctive and specific. The vision above is a road map showing the route BA

intends to take in developing and strengthening its business. It paints a picture of BA’s

destination and provides a rationale for going there. BA’s values are the beliefs, business

principles and practices that guide the conduct of it’s business, the pursuit of its strategic vision

and the behavior of it’s employees.

9

Question 3.1.

Robert Ayling introduced a raft of changes that were extremely unpopular with staff. Analyze

the causes of staff resistance to his initiatives?

There are several factors which cause staff resistance. BA’s staff resistance to Robert Ayling’s

initiatives lies in Ayling’s’ abrasive approach to management compounded by his lack of staff

considerations and his indifference to customer care. His indifferent approach to customer care

sent the wrong signals to staff, causing further staff resistance.

Being unclearly and unable to convincingly detail the outcome of change expected created a

sense of fear amongst BA’s staff. Fear of change is contagious. When people are afraid of

change, the fear is transferred and contagiously affecting other members of staff. This is evident

in the pilots solidarity when they threatened strike action in 1996.

(www.searchdatamanagement.techtarget.com)

Emphasis on cost cutting rather than productivity and staff satisfaction at BA was another cause

of staff resistance. Soon after his appointment as CEO, Ayling attempted to cut operating costs

by £1billion by the year 2000, by shedding overhead and loss making business. Ayling’s aim

was to slim BA into a “virtual airline” dealing with ticket sales and flight handling only. And as

BA’s 58000 employees accounted for 30% of the company’s costs, it was evident to staff that

Ayling was going to trim staff to achieve his goal.

Ayling’s decision to outsource catering i.e. a change in service was deemed by staff to result in

job losses. This was another cause of staff resistance as staff regarded this approach as being a

reason to cut back staff rather than viewing it as streamlining of BA’s business process and

concentrating on it core business of providing flights rather than meals on flights.

In April 1999 the employee opinion survey found that only 40% of BA’s staff believed that BA

would take appropriate action to address the problems identified by employees. BA staff did not

feel valued in the late 1990’s and even felt reluctant to deliver the best customer service as

expected from BA’s “Putting People First Again” campaign, which was run in 1999. The cause

of resistance here, is that the staff could have felt that although the initiative was good there was

10

no real effort by Ayling to address the major problem which beset BA. Ayling persisted with his

vision without much regard for the opinion of BA staff. Further cementing an opinion that

Ayling did not care about the staff’s opinion another source of resistance to change.

Ayling did not make it clear and detail how he intended to implement his vision and how that

vision was going to work for BA. This “gap” in the implementation was another cause of staff

resistance as staff did not know exactly how they were going to realize Ayling’s vision.

Most employees will be resistant to change and will resist change either consciously or

subconsciously. Even though the fear of change is unfounded. The pace of change is ever

increasing, especially in light of the internet, new development in technologies and social

networking as in how employees react to change. Ayling may have been unfortunate in that his

appointment as CEO was done under harsh economic conditions, but as CEO and the head of BA

it was his duty to get his staff believing in him and his vision to make resistance to change least

resistant as possible.

11

Question 3.2.

Describe the steps you would have taken in introducing the same changes in order to obtain

minimal resistance from staff?

British Airways is a large organisation. In 1999 it ran a customer care training day for all 64000

employees. Being such a large organisation BA faces internal and external pressures hence BA

needs to adapt to improve it’s performance and is done by continually adapting it’s corporate

culture, it’s values, beliefs, mission and vision. This change impacts on the organisation. And to

in order offset and facilitate any resistance to change organizational policy is vital. The

guidelines set out by the organisational policy will be the steps that would be followed to obtain

minimal resistance from staff.

(Adapted from John Kotter: 8 Step Process for Leading Change:

www.kotterinternational.com/kotterprinciples/changesteps)

Step 1

Create a sense of urgency and connect with staff. Urgency is necessary to get the cooperation

required to drive the change. Creating urgency would lead staff out of their comfort zone.

Connecting with staff in a way that connects to their values hence inspiring them rather than

discourage them which would result in resistance. Connecting with staff will make the change

“come alive” with human experience, engage the senses and create the message that the change

is essential.

Step 2

Form a team, and empower them to lead the change. No matter how competent, it is impossible

for one person to single handedly develop the right vision, communicate the vision to 64000

employees, whilst being faced with obstacles of change. Forming the right team of people to lead

the change initiative is vital to its success. The change team will have the right composition, a

significant level of trust as well as a shared objective. The change team will include, individuals

of power, experts, leaders to drive the change and managers who will control the change process.

12

Step 3

Develop a change vision, this will clarify how the future will be different from the past. A clear

vision simplifies elaborate decisions. It will also motivate staff to take action even if they do not

agree with the change initially. A clear change vision will help coordinate the actions of different

members of staff in a fast and efficient way. The vision will be strategically feasible. To be

effective the vision will take into account the macro and micro environment. The vision will be a

guide, it will be focused, flexible and easy to communicate.

Step 4

Communicate the change for buy-in, ensuring that as many people as possible understand and

accept the change. BA is a complex organisation, hence getting an understanding and

commitment to change is daunting task. Under communicating is a source of resistance. Further

communication by consistent behavior by senior management sends a powerful message to the

organisation which increases motivation, inspires confidence and will decrease cynicism to

change.

Step 5

Empower staff and remove barriers so that staff can work to their potential. By empowering staff

allows to participate in the change. Staff are then committed to implementing the change due to

their contribution.

Step 6

Create short term wins to keep staff motivated, the wins will be clearly related to the change.

Short term wins are evidence that efforts made for the change has value. Further this will

increase the sense of urgency creates a positiveness for the change, build momentum, turns

neutrals in supporters and reluctant supporters into active members in the change process.

13

Step 7

Consolidate and continue to lead the change. By consolidating change it gives an opportunity if

necessary to revaluate the change. Leadership here is important as succeeding in a rapidly

changing environment is challenging.

Step 8

Cement new approaches to BA’s culture. The change must be cemented in BA’s culture.

Because tradition is a powerful force, the change must be reinforced with new norms and values

with incentives and rewards. Further this will cement that the change is for the better.

Reference: www.kotterinternational.com

The 8 steps describe the steps to take to introduce change in order to obtain minimal resistance

from staff. However it still takes the majority of the organisation sincerely embracing the change

for there to be minimal resistance and long term success of the change.

14

Question 4.1.

Why is it important for a manager to understand his/her organization’s environment?

The role of a manager is to steer the organization towards it’s objectives. The environment in

which the organisation operates directly affects the organisation. The environment encompasses

internal and external factors that impact on the organisation both direct and indirectly. The

environment includes the economic system, current economic conditions, political system,

natural resources and the demographics of the population in which the organisation operate.

Further, cultural forces and value systems which shape the points of view and the decisions made

by managers.

Porter’s 5 forces model is a framework for industry analysis and business strategy which assists a

manager in steering his/her organisation towards its objectives. Understanding these forces

which influence the organisations micro-environment help the manager maintain the

organisations potential for profit.

- Supplier Power: is the power of suppliers to increase the price of inputs. Understanding

this force enables the manager to decide whether to source a different input or look at

another supplier.

- Buyer Power: is the power of customers to drive down prices. Understanding this force

enables the manager to decide whether the current market for his/her product will

produce the profit desired. With this information the manager can choose to target a

lesser influential market.

- Competitive Rivalry: is the strength of competition in the industry. Understanding this

force enables the manager to understand his/her competitors and the competitive

advantages he/she needs to employ to make competitors irrelevant.

- The Threat of Substitutes: is the extent to which different products and services can be

used to replace that of the organisations. Understanding this force enables the manager to

better adapt and continually research and redesign his/her product to meet the needs of

buyers.

15

- The Threat of New Entrants: is the ease at which new competitors can enter the market if

they see an organisation making a profit. This is an important force because a manager

does not want his/her organisation to operate in a perfect competition environment. Re-

inventing his/her organisation will offset the threat of new entrants.

Reference: www.businessballs.com

The macro or general environment is the external environment which affect the organisation.

Managers cannot control factors in the macro-environment. Hence a greater understanding of

theses factors which affect the organisation aides the manager in achieving his/her goals for the

organisation. Hofstedes’ 5 cultural dimensions show the value for the manager to understand

his/her macro-environment, as the values of people of different cultures have consequences for

how people in different cultures behave and how they react in the work environment. Further the

strategic framework for an organisation is based on the values of the organisation and people will

remain a vital part of every organisation.

- Power Distance: is the degree to which less powerful members are influenced.

Understanding this factor is vital for a manager as he/she will know to what extent he/she

will be able to influence his/her staff and if management style should be democratic or

autocratic.

- Uncertainty Avoidance: is the extent to which members of a culture feel threatened by

risky or unknown situations. Understanding this factor aides managers understand

reliance on expert opinion, intolerant and deviant behavior which is costly. Further

managers will be able to mould freethinking and innovation in a low uncertainty

environment. This gives the organisation a competitive advantage if managed correctly.

- Individualism: is the degree to which society expects people to take care of themselves

and their immediate family and the degree to which individuals believe they control their

destiny. For the manager this is important as employees in high individualism culture are

less likely to remain with an organisation so managers create a culture where employee

remain as replacing and training new employees is costly.

16

- Gender Orientation: extent to which society reinforces traditional norms of masculinity

versus femininity, The role of managers here to understand this factor is important as a

female manager in a high gender orientation society might not be well accepted, both

female and male subordinates might work counter productively to a female manager.

- Long-Term Orientation: is the extent to which a culture stresses that its members accept

delayed gratification of material, social and emotional needs. The importance for the

manager to understand this factor is how the manager translates work into reward. Should

the manager reward work, either good or bad work immediately or delay reward. This is

important as organisations invest resources into projects which tend to have long term

rewards, and a mangers ability to convey this to staff is important.

Solcum, Jackson, Hellriegel, 2008.

As listed above it is important for a manager to understand his/her environment as the

environment influences what the organisation does. Hence the manager needs to be aware of

the relevance of the organisation in the environment.

17

Question 4.2.

Refer to the sub-heading “Strategy” in the case study and analyze BA’s strategy under the

dimensions: domain sought, strategic thrusts, differential advantages and the results expected.

BA’s mission to become a global force was not an unsubstantiated one. The mission was based

on historical information of the late 1980’s. BA’s strategy consisted of the competitive steps and

business strategy, that Ayling put into practice to grow the business, woo and please customers,

compete successfully, conduct operations all whilst trying to achieve targeted levels of

organizational performance.

Domain Sought

BA’s mission was to be the world’s leading airline by focusing amongst others on business and

first class passengers. Yavitz and Newman (1982) state that the starting point in clarifying one’s

strategy is to define the market scope or domain for one’s product or services. This is precisely

what Ayling did. Ayling favored developing and focusing on the high profit market segments of

the market. Rather than competing against the low cost and no frills budget airlines which were

competing for the European market, Ayling sought the high end market and intercontinental

routes as a niche market for BA. As Yavitz et al state, the key issue is to identify a niche market

in the industry.

Strategic Thrust

Yavitz et al, take the position that a strategic thrust is a move of where a business is now to

where it wants to be. This is where Ayling failed. As Yavitz et al, reason that a strategic thrust

must be made clear and what sort of actions must be undertaken by the organisation to achieve

the thrust. BA was determined to be a global force in air passenger travel this was based on

predictions that the aviation industry would have been dominated by a few large airlines.

Ayling’s action to maximize profit by increasing passenger yield and cutting costs. Passenger

yields, is the measure of the average fare paid per mile, per passenger, Ayling’s thrust here was

an attempt to offset the impact of loss in profitability of economy seats which were threatened by

the budget airline competitors.

18

Differential Advantage

Arguably this is where BA failed. Replacing the European economy class and introducing an

improved World Traveler program was an attempt to differentiate BA from its competitors. In

concentrating the business and first class and intercontinental routes BA failed to seek an

advantage over it’s competitors who were already competing in this space. There was nothing

different from BA’s offering to that of the other airlines already flying these routes. Further in an

effort to maximize profits Ayling opted to increase passenger yields, i.e. BA was unable to

reduce prices to flyers but rather opted to maximize profits from flyers. This would have not

given BA any differential advantage over its competitors but would have rather have made BA

less competitive.

Target Results Expected

Yavitz et al, state that an organisations strategy must include a statement of anticipated results

and what financial or other criteria will the organisation use to measure it’s success and what

levels of achievements are expected. BA’s strategy was compliant here. BA wanted to maximize

profits by increasing passenger yields, cut costs and develop and focus on the high profit

segments of the intercontinental routes and premium passengers. However using passenger yield

as a financial measure is not useful for comparisons across markets and airlines as yields can

vary by stage length and does not consider aircraft load factor. (www.aviationglossary.com)

The four parts of the business strategy listed above are interdependent. Each are instrumental in

determining a clear strategy for the organisation. An analysis of BA’s strategy shows that BA’s

mission to become a global force was not unwarranted. BA’s under Ayling had a clear defined

strategy as to were BA was positioned, what it made BA different from its competitors and

where BA wanted to be. Unfortunately missing was the touch points of the person who was

leading the organisation, as under Ayling the strategy was not executed and this was reiterated by

BA’s Chairman Marshall who announced BA’s strategy would remain unchanged, with only

“the right man to execute it.”

19

20