A Case Study of Successful Change in the Service Sector

CHANGE AT WORLD AIRLINES

At the beginning of the Millenium World Airlines (WA) faced the worse crisis in its history. It was heavily reliant on government subsidies(almost $600m in 2005) and in a special bulletin to WA staff, the Chief Executive, communicated the loss of money at the rate of $200 a minute, and stressed the need for decisive and urgent action before WA went out of business. WAs problems were due largely to its history and culture. It was formed in 1981 from Regional Airways (RA), and Transnational Airways Corporation (TAC). After World War II both RA and TAC pioneered civil aviation, opening up air transport in Europe and abroad and initiating the worlds first jet passenger service. Such innovation brought severe financial difficulties but success to most in RA and TAC had more to do with flying the national flag than with net income. Having inherited numerous war-time veterans, both airlines had been injected with a military mentality. This combined with a bureaucratic management style lead to an organisation that believed its job was simply to get an aircraft into the air on time and to get it down on time. Productivity, although strikingly bad, was not an issue, and a deceiving string of profitable years (due entirely to the growth in passenger traffic) made it easier for WA to neglect its increasing inefficiencies. In spite of the merger of RA and TAC the new organisation consisted more or less of separate airlines carrying the associated costs of such a structure. WA soon acquired a reputation for damaging industrial relations and poor customer service. These factors together with rising labour and fuel costs, reduced passenger traffic, and price wars arising from increased competition lead many to seriously doubt WAs ability to survive for much longer. The government sought to privatise the airline but first it was necessary to make it profitable. John Patton was appointed Chairman in 2005 and within 6 months a survival plan was launched. There was a drastic reduction in staff numbers from 59000 to 37000, achieved through voluntary severance and natural wastage. Pay increases were frozen for a year, unprofitable routes abandoned and surplus assets, particularly aircraft, were sold off. The next major change was the appointment of Jim Massey, an outsider to WA, as Chief Executive. He decided that WAs strategy should be to become the Worlds Premier Airline, but to do so required changing WAs bureaucratic and militaristic culture to a service-orientated and market driven culture. WAs business was redefined as service rather than transportation. Massey became exclusively focused on customer service, spending a great deal of time with staff to drive home the message but he was also careful to stress the preservation of WAs core values. In addition, a training programme (the first of many), Putting People First was introduced to all front line staff between December 2007 and June 2008. And it proved so popular that it was extended to all staff. WA then launched training programmes for senior and middle managers. Among them was Managing People First which emphasized the importance of trust, leadership, and an open, participative management style so as to foster employee commitment. The management hierarchy was reduced and extensive use was made of diagonal task forces composed of individuals from different functions and at different levels of responsibility to deal with various aspects of the change process. A new user friendly Management Information System was developed together with new staffing patterns and the introduction of a bottom-up less centralised budgeting process. WA recognised that the consistent provision of high levels of customer service placed great physical and emotional strains on staff. It therefore established staff support systems to prevent burnout and permanent psychological damage. Another important support mechanism was the retraining of traditional personnel staff to become internal change agents charged with helping and supporting line and staff managers. Other changes included:Peer support groups for managers. Introduction of a profit sharing scheme. Greater emphasis on open communications.

New performance appraisal system based on both behaviour and performance. Promotion of staff with new WA values. Orientation programmes for new staff. Off-site team building meetings. Commitment of top management. Development and use of cabin-crew teams. Data feedback on work-unit climate. Change was also encouraged in highly visible ways and great attention was given to changing the airlines image. The advertising account was changed to a well known advertising company after 36 years with the previous advertising agency. One of the biggest account changes in airline history, it was Pattons way of making a clear statement that the WA direction had changed. In December 2008 WA unveiled its new fleet livery to dignitaries , high ranking travel executives, and trade union representatives. It was a dramatic presentation with an aircraft moving through the fog and laser lights decorating the hangar turned theatre. A similar presentation continued four times a day for eight weeks for all staff to see. On its heels WA unveiled its new uniforms and coat of arms with the motto We fly to serve. Staff surveys and customer feedback suggest that these initiatives have had a considerable impact on the culture of the organisation and this impression is reinforced by impressive financial results. 2001 Turnover Operating profit Profit after tax $m $m $m
1250 96 35

2005
2060 (102) (145)

2006
2240 5 (545)

2007
2500 169 89

2008
3260 173 148

2009
5560 310 178