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Balance Scorecard for Air India The Process of Turnaround
Introduction
Air India is the prime and oldest Airline of India. It is the State carrier which currently connects to rest of the
world such as the Americas, Asia, Europe, etc. It is headquartered at Nariman Point, Mumbai in the Air India
Building. It is the 16th largest Airline in Asia & serves out of two major Domestic hubs in India at the Indira Gandhi
International Airport, Delhi & CST Terminal, Mumbai. The airline started its journey with the Maiden flight from
Karachi Airport to Mumbai Airport via Ahmedabad in July 1932. It was founded by JRD Tata and later on acquired
by the State.
Air India has two subsidiaries and two affiliated carries. Together Air India, Air India Cargo, Air India
Express, Indian and Air India Regional form the National Aviation Company of India Limited. It currently serves 11
countries across the globe apart from the various domestic destinations.
Air India Cargo
It serves as the cargo operator for the airline serving in conjunction with on
ground truck-transportation systems and achieving synergies to increase returns.
The carrier also is allowed to carry dangerous (hazardous cargo) & animals under
IATA rules.
Air India Regional
The airline previously known as alliance air serves the interior small airports
domestically to serve the needs of such regions with smaller aircrafts. The hub
for this is at the IGI airport in Delhi.
Indian
It focuses on the domestic touch points for the airline. It serves various
destinations in the country with two major hubs at Delhi & Mumbai.
Air India Express
The airline subsidiary was formed in 2005 to serve the low cost space in the South
east Asia and the Gulf region. This is a no frills airline which focuses on the low
cost travel mind space for its consumers.
Tangible Assets
Fleet and Material Resources
Air India has continuously being trying to improve its Aircraft fleets. It has recently added 17 new aircrafts which
include B777s- Long range aircrafts and it has also procured some 15 new airbus aircrafts to serve its domestic
destinations. Currently the Air India fleet stands at a strong 136 aircrafts. Air India serves various international
destinations such as in the USA which includes Newark, JFK & Chicago with its non-stop Boeing Long range
aircrafts. The detailed aircraft distribution is as given in the table below:
Network
Air India operates from various cities across India like Ahmedabad, Amritsar, Bangalore, Chennai, Delhi, Goa,
Hyderabad, Kochi, Kolkata, Kozhikode, Lucknow, Jaipur, Varanasi, Tiruchirapalli, Gaya and Thiruvananthapuram
in totality 16 cities for its international location flights. The need of boarding flights from metros for international
locations has thus ceased thus providing better opportunities to other cities to develop economically and aid in the
countrys growth story. The various requirements in terms of customs, etc. are directly done in these cities.
Air India also has code sharing agreements with various airlines across the world providing better accessibility to
other locations.
International Hub: Air India has established its international hub at Frankfurt for better transfers and code shares
across the world. It has forged partnerships with Lufthansa and is currently vying for being a part of the Star
Alliance. These alliances has strengthened AIs network in the US and Europe to a large extent.
Indian Hub: Air India has its domestic hubs in Delhi IGI Airport and Mumbai CST Airport. The firm services 64
Indian cities domestically from these locations. Out of these locations seventeen service to International flights too
thereby providing seamless connectivity. The domestic locations are service by Airbus A321 aircrafts with all world
class services.
Star Alliance
Air India is currently in the process for vying to become a part of the International Alliance which will connect it to
916 cities in the world and have code share agreements with 17000 daily routes across the world. Air India club
members can enjoy the benefits of International lounges, code shares, loyalty programmes, etc across all the 21
top airlines across the world increasing the service levels to a new height. The alliance is pending at March, 2011.
Human Resources
Air India has a large base of human resources which makes it one of
the poorest in terms of the Human resources quality and
performance. The airline pays around 17 per cent of its expenditures
as salaries which is much higher than the global average of around
10 per cent. There are around 31000 employees which are serviced
by around 14 unions in Air India which creates a huge scope of non-
improvement of its current strength of employees. Post the merger
the unions have introduced their intent of cooperating with NACIL towards achieving a better way ahead for the
airline however issues pertaining to retrenchment and privatization are still serious concerns which the unions take
very seriously and are averse to compromise on.
The SBU structure which has been brought about in the organization further increases the woes of the Airline as
well as the management. The organization has been split into smaller units which are responsible for better
management of resources. However the reporting structure is a big catch. A Mumbai Airport Manager is reviewed
by the ED of west zone but reports to his SBU head which is in no way related to his performance appraisals. The
award of International postings is carried out by a third party who in no way is related to the current chain of
reporting and is a commercial director who sits in the HO at Mumbai.
Such an organizational structure calls for low performance and lack of accountability from the employees which
will lead to non-performance from the organization in the long term.
IT & Technology resources
IT is one of the most critical resources for the success of organizations in the modern times. The merger synergies
would have IT as a critical input. One of the major exercises is to have a common airline code which would also
help in the eligibility to the Star Alliance. As a measure the airline has contracted the IT serviceability to SITA
(Society International Telecommunications Aeronautics) which has had more than 50 years of experience with the
airline systems in Air India. The deal worth 845 crores is for a period of 10 years and is aimed at establishing
network connectivity at all domestic and international locations for Air India, fare management, baggage tracing
and reconciliation system, online booking engines, automated boarding control systems, check-in, air to ground
communications, etc. SITA will also provide its horizontal passenger service system.
Currently SITA provides its facilities to 140 airlines all over the world serving over 120 million passengers across
the world to provide seamless connectivity to Air India to International routes and carriers. It would help to
strengthen strategic partnerships for AI across the globe. Air India has also been invited to participate in the SITAs
horizon board in India which is a partnership between SITA and airlines to develop the next generation passenger
service systems across the globe. All these developments would help AI to establish itself as a brand in the PSS
system delivery across the globe. SITA in India works with its strategic partners Mindtree & NIIT to implement its
technological systems and has a workforce of more than one lac employees.
Low Cost Resources
Livery
The new livery which was launched after the merger has
characteristics of both the descendants namely AI and IA both. The
livery consists of the flying swan and the Konark chakra placed
inside it.
The Air India brand is mentioned on the tail of the Aircraft in hindi proudly depicting Indias national language. The
aircraft colour is ivory with streaks of red retaining Air Indias colour. Also the red and orange streaks presence on
doors signifies the merger of the two giants into one single entity.
Maharajah
Maharaja is the most reminiscent figure which is associated with the airline. It was designed by the duo of Bobby
Kooka, AI's Commercial Director and Umesh Rao, J.Walter Thompson Ltd. Way back in 1946 primarily as a memo
symbol; however it has translated into much more than that over the years.
The maharajah has won various awards around the globe for its uniqueness and antics. The first word customers
associate with AI is the puns and antics of the Maharajah. The maharajah is a unique brand proposition created
by the Airline which has served it as a brand ambassador across the world.
In- Flight Entertainment
Air India has a variety of channels which cater to both the audio and video entertainment of its passengers. The
customers have a variety of Indian channels such as popular music, ghazals, bhajans, etc. There is also a variety
of English music channels having various genres like rock, pop, jazz, alternative rock , classical , etc. There are
also a variety of regional channels available in Indian regional languages such as Malayalam, Tamil, etc. and also
movies in similar languages are available for flights connecting the South Indian regions to the Gulf and South
East Asia.
On Ground Facilities
Air India has its own exclusive lounges at Delhi, London, Hong Kong and New York in addition to the one in
Mumbai. At other international airports, Air India has tie-ups with other international airlines or local Airports
Authorities for lounge facility. There is a lounge for unaccompanied minors as well.
Online Booking
The quick, easy and convenient way to book AI tickets online through the Air India website. An e ticket will be
generated and the details with the e ticket link will be emailed to the passenger. Air India has extensive facilities
for Web check in and Tele check in for its passengers to provide ease of facilities.
Dining
Air India has a variety of menus to cater to a variety of tastes for its passengers. There is a choice of Indian,
Continental, Western and Asian cuisines. There are certain special cuisines available on some routes like
Japanese cuisine on the Tokyo route, etc. The special requirements of certain passengers also met with a variety
of more than twenty six dishes available. There is a large assortment of wines and drinks to choose from giving
the passenger a world class dining experience.
Balance Scorecard at Air India
The balanced scorecard is a holistic design of looking at an organization. It helps align the activities of the
business to the vision, mission and the strategy of the organization. It helps improve communication, both
internally and externally as well as measure the performance against said goals using proper metrics. Balanced
Scorecard concept was started by Dr. Kaplan and David Norton as a means of measuring performances of
organization. It was a measurement framework, which for the first time added non-financial metrics along with the
traditional metrics that gave managers a better view of the performance of the organization.
Over the years, balanced scorecards were refined to become a
complete planning and management system for strategy. It helps
operationalize vision and mission documents; progress on which
can be monitored daily.
The airline industry is cyclical in nature. Demand fluctuates
seasonally; while planning for capacity and investments have to be
done long term. This means that airlines usually go through sessions
when they are operating in the red financially. Hence, it makes
perfect sense to use a Balanced Scorecard to evaluate the performance of the organization. It gives a better
indication of the health of the organization as well as helps create proper milestones for evaluating the progress
towards strategic goals.
Air India has been facing turbulent times recently. A lot of reorganization, restructuring with regards to the
organization, finances and fleet have taken place. The company is deep in the red and there have been calls to
divest this white elephant. As Air India struggles through this mess, using a balanced scorecard will give clarity to
their goals and help them focus their efforts in achieving the said goals.
Balanced scorecard has been implemented in several airlines, the most documented one being the Balanced
scorecard implementation at Southwest Airlines.
Southwest Airline is a USA based low-cost airline company and is also the worlds largest no-frills airline. It is
headquartered in Dallas, Texas. Southwest has among the largest fleet of passenger aircraft among all of the
worlds commercial airlines, operating more than 3200 flights daily. Southwest is also a very profitable airline,
having posted profits for 37 consecutive years.
The balanced scorecard implementation at Southwest airlines has gone through a series of iterations and they are
currently in their 3rd generation.
We suggest a similar balanced scorecard for Air India. For the balanced scorecard we must have:
Vision
Mission
Core Goal
Activities and Outcomes
Vision statement is the picture of your company in the future. It forms the lynchpin around which strategy
formation takes place.
Mission statement is the fundamental purpose of the existence of the company. It clarifies Why do we exist?
Core Goal is the goal that is to be achieved by the balanced scorecard.
Activities refer to processes that take place inside the organization, that lead to desired outcomes.
Activities consists of
Internal Processes
Learning and Development
Outcomes consists of
Financial Performance
Customer Satisfaction
Activities are internal to the organization, while the outcomes in terms of financial outcomes and customer
outcomes are visible outside the organization.
Also internal processes, Learning and Development are long-term goals while financial and customer outcomes
are more short-term goals. However they act as leading indicators of the changes happening in internal
processes and Learning and Development.
These show that the activities that were internal to the organization has reached a point of maturity that they have
started impacting the customer and financial outcomes.
As shown in the balanced scorecard given below, activities and outcomes interact with other activities and
outcomes and hence no item can be looked at in isolation. The interactions between the strategic goals in each of
these four divisions (2 activities and 2 outcomes) have been identified and dwelled upon in the balanced
scorecard.
The internal processes which must be measured for the scorecard
that we identified were:
Faster Turnaround of flights
Increased Utilization of fleet
Adherence to Schedule
These will help rationalize workforce, fleets and bring in incremental
improvements in operational efficiencies, bringing down costs and making Air India more competitive vis--vis low
cost carriers.
Adherence to Schedule will help Air India rebuild customer confidence in the ability of the Airline to perform.
The Learning and Development initiatives that need to be taken up and measured are:
Alignment of employees with company goals
Cross Functional Training
Team work
Cross functional Training and teams will increase the efficiency of the organization allowing it to make decisions
faster and hence respond more quickly to changes. This is very important for Air-India as the general perception is
that the company is slow to change and lethargic in decision making.
The financial outcomes from these activities are:
Profitability
Lower Costs
Increased Revenue
Fewer Planes
The customer outcomes are:
Lower Prices
On-Time flights
Frequent flights
Friendly Service
Given below is the pictorial depiction of the balanced scorecard for Air India.
Resource Based Turnaround Strategy for Air India
This part of the report deals with understanding the reasons for the near collapse of Air India and proposing a
turnaround strategy for the airline. Since its establishment by the Tata Group and the subsequent takeover by the
Indian Government, Air India has seen a lot of issues emerging and changes in the competitive environment in
which it operates. These issues and changes have been intensified by uncertain economic conditions, various
crises and subsequent recoveries in the European and Asian economies, and a general lack of confidence in
professional fields. This has led to a general reduction in the average time available to the organization which
seeks to affect a successful turnaround. Also, the rising competition in the field it operates has compounded the
problems by making Air India fight for limited resources with players which quite often have people with greater
conviction at the top and therefore can allocate a greater part of important resources to the firms operations.
This challenge is primarily faced by organizations which operate in industries that have high technology
orientation and companies which typically have high gestation periods where an investment made in any
particular area or domain impacts the companys bottom line for a long period. Airlines business being one that is
fairly high technology is characterized by factors that include product and/or process sophistication, research and
development (R&D) intensity, and a large population of technical employees. High-tech firms often encounter
rapid changes in technology, demand, and a competition which is overlaid by sharp and unpredictable change.
Thus, the AI management must be equipped for change management in line with the changes in the airlines
industry environment. Unless this happens it will continue to struggle to remain profitable. This is precisely what
has been encountered in the case of Air India.
Within this high-velocity context, any turnaround strategy is faced with unique challenges. These have been
depicted in the figure below.
Business Decline
The framework that the group uses in analysing the reasons for Air
Indias failure and proposing the turnaround takes a new view of
turnarounds by integrating constructs drawn from existing
turnaround literature with others from the resource-based view of
the firm. It proposes that efficient business operations are based on
a combination of factors like key resource availability, germane
strategy, and appropriate implementation of that strategy through
adequate resource leveraging. In this case the financial and human resource would be the resources AI must look
to leverage.
Important resources within an enterprise can also act as the base for a turnaround strategy which would foster
sustainable competitive advantage. Such resources are often the products of historical strategy and
environmental action and are invariably capable to withstand rigorous tests of quality. A list of the key attributes of
these resources is provided below:
(Refer High-Velocity Environment Trims Time to Act ... Creating a Framework for High-Tech Turnarounds by
Rolph N.S. Balgobin, Naresh Pandit; Nov 1, 2002)
Turnaround Strategy
Turnaround attempts are often the result of existence-threatening decline, there exists a lot of uncertainty with the
origin of the points of change intervention and the role of the new top management. Frequently, a turnaround
attempt is initiated after pressure from a significant stakeholder, such as a parent company or strong shareholder
group. Air India has witnessed this quite a few times as with the ascent of every new government at the center of
Power in New Delhi, the attitude towards the airline has changed. Hence pressure often came from the private
players whose bids to take over the airline provided the fillip to the management of the airline to change the
scheme of things at Air India.
In most cases, the need for the change happens internally, usually started by the management who sees the
signals of an impending decline. Also in new age high-technology firms, turnaround need not always be a
management driven effort. However, the attitude of managers is just as necessary as having new leadership in
getting the turnaround efforts going.
The success of turnaround recovery plans are different from the unsuccessful ones in many ways (refer to the
points mentioned below). In the cases of turnarounds that are successful, analysis-led understanding of the
dynamics of the business is done using a diagnostic review. This provides a clear indication of the turnaround
opportunities that are available. These opportunities have to be pursued with the goal of creating a sustainable
competitive position in the market.
Successful turnaround Plan characteristics
Result from a diagnostic review (inductive rather than prescriptive)
Profitability is explicitly set as an objective
A single turnaround plan rather than competing initiatives or no plan at all
Communication with stakeholders to ensure alignment
A turnaround team develops and implements the plan
Causes of decline are appropriately addressed
The Process of Turnaround
The frameworks used to portray turnaround are often depicted as a sequential process, which starts with the
management initiating the attempt, then retrenchment, consolidating and then returning to a growth stage. But in
high tech turnaround process there are four distinct stages crisis development, management change,
transformation and stabilization, and return to growth.
In the case of Air India, the Crisis Development phase started in the
year 2008-2009 when the airline reported financial losses of 5000
crores. Due to this, the airline couldnt pay the salaries of its
employees leading to a massive announced by the employees in the
summer of 2009. This was one of the biggest human resource crises
in the history of Indian business with nearly 30000 Air India
employees going on strike. Immediately following this, the disastrous
incident of the crash of Air India Express Flight 812 leading to the
death of 158 people, happened.
The change phase, unlike in the more traditional sectors, change happens not at the top as turnaround starts
happening. There is often a change of problematic management, mostly purporting the point of view that a CEOs
knowledge and relationships are crucial to a successful recovery. The same happened in the case of Air India. The
entire top management of Air India was recast in a period of 30 days by the then aviation minister Mr. Praful Patel.
As part of the shakeup, several old time directors were asked to leave and a Professional Chief Operating Officer
was appointed under the CMD, Mr. Arvind Jadhav.
In the third phase, a lot of actions happen simultaneously; these include cost rationalization, asset rationalization,
revenue creation and product and market reorganization. In turnarounds that are successful, organizations should
be careful not to lose resources that may be useful to recovery. This happens when they concentrate on surviving
rather than on competitive leadership. Reflex cutbacks should not result in loss of key resources in firms
successful in turning around their organizations. Instead, the focus should be on reducing costs. Also Air India
disinvested some of the less efficient parts of its operations, while retaining the more important and useful ones.
After an early emphasis on cost reduction, the focus of Air India then shifted to Structural alterations, joint-venture
participation, investment, and the introduction of new products. There is a significant deviation in the experience of
firms operations in more stable industries, which suggests that it is the high-competitive environment that demand
that the changes occur simultaneously rather than sequentially.
But as the transformation takes place, the turnaround of the firm goes through an inflection point that causes a
shift in focus from cost and asset reduction to growth of the firm. In the case of Air India this has been
characterized by the commitment of the top management to the growth of top line and sales and a conscious effort
on the part of the airline to drive up volumes and occupancies of the airlines. The airline plans to reduce its price
up to 23% by the end of this year. Industry experts see this as a clear sign of conscious effort on the part of the
airline to drive up its volumes and occupancy rates.
The last phase of the turnaround is punctuated by the assumption that for survival the focus has to be on growth
and acquisition. In high competitive industries, this phase does not usually require that the CEO change or that the
management change. Our group expects the same to happen by the end of the nest fiscal year when the
economy would have recovered and new opportunities would arrive at the horizon for the troubled airline.
Influencing Factors
Literature study says that significant differences exist between
successful and not so successful cases when they are compared in
terms of their contextual and situational factors of turnaround
attempts. Factors related to macroeconomic improvement and
market growth appear to be assisting turnaround attempts. Though,
it also has been seen that these environmental changes are not
deterministic. With each organization being a unique collection of
resources, external events do not seem to be having a uniform impact. Thus, a rising tide seems to lift only the
seaworthy boats.
External influencing factors include:
Macroeconomic Improvement & Market Growth
Stakeholders attitude. Interaction of an organization with stakeholders such buyers, employees, suppliers, unions,
bankers, the government and the community play a major role in determining the success of the turnaround
efforts. When important stakeholders hold an active interest in the business viability of the firm, the chances of
success appear to be greater.
Internal Influencing factors include:
Mission institutionalization
Availability of financial resources
Power concentration, and
Perception of the permanence and controllability of decline.
Mission institutionalization, primarily driven by the internal and external expectations of the businesses the firm
should be in, can be a major abettor or inhibitor of positive change demanded by an intended turnaround. In cases
where the changes required put the firm in a new strategic domain (say that of the low cost carriers), mission
institutionalization can often hinder efforts of a swift shift in strategy if a firms constituents instinctively negate or
refute out courses of action that are seen to be inconsistent with the vision and mission of the firm or its founders.
This in Air Indias case can be explained by the reluctance of the airlines part to move into low cost carriers
strategic domain. While this remains a possible strategic domain for the future, the airline showed remarkable
reluctance in adopting this as a possible strategy. Maybe the Maharaja cant fly cheap after all.
Available financial resources are one of the important requirements for a turnaround attempt, especially if the firm
has considerable cash demands. Even then, availability of funds has still not been found to be one of the deciding
factors in the outcome of a full-fledged turnaround effort. This is a significant finding as it often is suggested that
firms in stress require only a steady input of cash until their products or services regain market acceptance. Also in
the case of Air India with the airline being heavily government funded, the opportunity to save money and possible
publicize it makes a great political success story and a PR opportunity.
Of greater impact on the success of a turnaround attempt is the concentration of power within the organization.
Firms with higher levels of power concentration are a lot freer to strategize, develop and also implement
successful turnaround plans, while the cases that fail are often constrained or reined in by parent companies,
powerful stakeholders like political parties, or internal politics. In non-turnaround cases, the management appears
to have far less power relative to that owned by the stakeholders. In the case of Air India, with the creation of a
new position of power of CEO, can potentially dilute the power vested in the top management. Yet considerations
of operational efficiencies far outweigh the concern for power dilution.
Similarly, with the entire airline industry showing signs of recovery with the economy firmly on the path of recovery,
the perception of the permanence and controllability of decline is that of impermanent and one that can be
managed by suitable strategy implementation.
Strategy Implementation
Successful firms reduce their resource base in those areas which are no longer core activities. Failed firms are
more far likely to dispose or sell off on otherwise lose valuable resources than those that might support a recovery
attempt. In the successful cases, the remaining resources are often realigned and augmented with the resources
which are "borrowed" through joint ventures, development agreements, or outright acquisitions. This is depicted in
the diagram as shown below.
Resource Leveraging diagram
As a rule, the successful turnaround cases concentrate a majority of their critical resources on a single and
consistent turnaround plan, emphasize on a few improvement areas at a time, and focus on a few critical
performance levers. They have a strong feedback mechanism to instill new learning deep into the organization. In
the case of Air India it would be taking the voice of customers very seriously and trying to create a culture which
cares for the people the firm serves.
Firms which go through very successful turnarounds are also in a position to blend and balance resources to bring
in products and services into the market, while unsuccessful firms often have seem to have an imbalance of skills,
which neutralizes capabilities that exist elsewhere in the organization. Finally, parsimonious and frugal resource
use and the useful ability to implement turnaround plans quickly also form one of the chief characteristics of
successful recoveries.
Thus, this is the comprehensive resource based turnaround strategy that we propose for Air India.
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