Patterns in Strategy Formation - Case Study Example

FINAL CASE STUDY REPORT: CHANGE MANAGEMENT ISSUES, INTERVENTIONS, PROCESSES AND STRATEGIES WITHIN AN ORGANIZATION INCLUDING SPECIFIC RECOMMEDATIONS FOR MANAGEMENT OF ONGOING CHANGE Name + ID Number: MMH356 Change Management Name of the Unit Chair & Tutor: Trimester+ Year of Submission: Date of Submission: TABLE OF CONTENTS List of illustrations iii Executive Summary iv Background 1 Introduction 2 Problem, opportunity or purpose 2 Scope 2 Background 2 Sources and methods 2 Definitions 2 Report structure 3 DISCUSSION 4 Problems driving change at Qantas Airlines 4 Airlines Deregulation 4 Evidence 4 Fluctuating fuel costs 5 Evidence 5 Increased competition 5 Evidence 5 Change of employment policies 6 Interventions 6 Deregulation 7 Increase its fleet and client base 7 Alliances and mergers 8 Cost reduction 9 Conclusions 11 Recommendations 12 References 13 List of illustrations Table 1 : Comparison of percentage effect of change drivers on Qantas Airlines and entire Australian aviation industry 6 Executive Summary This study concerns the effects of change and how it has been managed in the Australian aviation industry. The study focuses on Qantas Airlines that is not only the oldest, but also the biggest airline in Australia. Change results in either favorable or unfavorable outcomes. However, the way in which a company copes with change effects depends of the effective intervention measures put in place. Therefore, this study explores the case of Qantas by reviewing how it has undergone change from 1980’s to date and the intervention measures it has applied to overcome turbulent change demands. The study will look at change drivers experienced by Qantas including the effect of deregulation, fluctuating fuel prices, competition and laws. The report findings were that there are various drivers of organizational transformation in the airline industry. These drivers include; airline deregulation, the Gulf war, partial privatization of government shareholding, international oil politics, mergers and strategic alliances within the region and specific routes, recession and last but not the least increased international competition. In addition, Asian currency crisis have significantly impacted on the competitiveness of Qantas airlines. The recommendations made were that Qantas should consider hedging oil prices to avoid problems of price fluctuations. Further, as Qantas continues facing stiff competition from other industry players, it should consider entering into mergers with other airlines such as Singapore, American and British Airlines. The conclusions that were made were that change efforts need to be directed towards improving performance of the organizations, as well as, those people who serve there. Thus, the main drivers of change are essential as far as change management in Qantas Airlines is concerned. Background Qantas as an airlines venturing in both local and international market has not been in exception. In addition, for it to be where it is today, it has undergone remarkable transformations that required effective management for the company to remain relevant in the aviation industry. This paper explores various change drivers that Qantas has faced overtime and the interventions put in place to effectively deal with those changes. The study mainly cover Qantas group even though at some point it compares the effects of change drivers in Qantas with their overall impact in the Australian aviation industry. Further, the study focuses on the period between 1980 and 2010 which is when significant changes took place in the aviation industry. The study is restricted to change management in the aviation industry narrowing to Qantas group and goes further to discuss the interventions put in place to cope with such change demands. According to Australian Transport and Distribution Management (1990), discontinuous change is marked by rapid change in organization strategies or culture. Nevertheless, all these forms of change help an organization to adapt and survive in turbulent environments. Introduction Problem, opportunity or purpose The aviation industry is prone to change since it involves international business transactions that are influenced by many market factors. Scope This paper discuses change management under the guise of organizational reorientation, rejuvenation, strategic innovation, competition and in response to a dynamic market environment. In addition, the paper also explores organization’s change management after a company experiences a period of performance decline due to stiff competition. Background Though several studies about organizational change exist, little effort has gone into studying change in the aviation industry. This neglect has been there despite the fact organizations must undergo some significant changes in order for them to develop. An assessment of organizational change in the aviation industry is, therefore, overdue. Sources and methods Data analysis was conducted by compiling a list of change initiatives for this study. The parameters under consideration were compared to market performance in order to identify the common areas and difference with other major airlines in the industry. Based on this process, the research identified the key activities that drove change not only at Qantas, but in the entire airline industry. Further, using thematic analysis of these key change drivers, the research came up with key change interventions activities that enabled Qantas to undergo change period. However, comparison of data collected formed the framework of this research. Definitions Organizational change refers to the modification of an organization’s activities and processes that deal with environmental changes and arising problems. A research, which was done by Mintzberg (1978), suggested that organizational change is the modification of an organization’s processes and activities to deal with environmental changes and arising problems. Organizational leaders have the role of ensuring that change process is successfully accomplished. Report structure To expound more on organizational change, this study seeks to analyze Qantas Airlines. In addition, the study will reveal various drivers of organizational change such as fluctuating fuel costs, airline deregulation and change of employment policies among others. A recommendation and conclusion will be provided at the end of the study. DISCUSSION Problems driving change at Qantas Airlines Airlines Deregulation As mentioned above, Qantas Airways have over the years encountered a wide range of contextual pressures. In 1947, the Australian government fully owned the airline. However, in 1980’s Qantas started to experience not only significant but also complex change demands. In 1993, it acquired Australian Airlines making it an experienced market player as market pressures resulting from global competition became more intense. In addition, Qantas had to deal with numerous circumstances brought forward by government regulations and Airline deregulation both of which were part of the key factors that affected the Airline. Evidence The Australian government deregulated domestic airline industry by terminating two airline agreements. The motive behind deregulation was to put in place new measures that could promote increased but healthy competition and flexible pricing arrangements that could lead to improved economic efficiency across the industry for the benefit of service consumers. This change in policy led to increased competition from rivals including Ansett Airlines that had expanded its low-cost regional carrier Impulse. The other effect of government policy was the decision to off-load part of the government shareholding to strategic partners. In this vein, 25% stake was sold to British Airways in 1993 leading to inflow of $1.35 billion dollars. However, to cope with increased competition from rivals, Qantas increased its aircraft equipment capacity by acquiring larger capacity Boeing 767 aircraft’s that were assigned to domestic routes hence improving domestic market share. Further, the company substantially invested in highly improved passenger seats and cabin designs. In 1995, the government resolved to float Qantas at the stock market. This saw its shareholding being offered to both private and institutional investors. Nevertheless, full privatization became more apparent overtime as it seemed the only way to instill real organizational change that could help meet shareholders expectations. Fluctuating fuel costs Airlines across the world have been operating in turbulent economic times. Disappointingly, the increased fuel price fluctuations and recent global credit crisis have lead to collapse of a number of Airlines. Notably, with aircraft fuel costs comprising about 40% of the operating costs, Qantas have been experiencing reduced passenger numbers due to high travelling costs. In this regard, the airline is under mounting pressure to put in place labor relation and business strategies that will weather out these crises. Evidence Qantas CEO Geoff Dixon observed that volatility of fuel prices had significantly changed the way Qantas managed its operations. Therefore, Qantas reviewed both its employment relations and operational strategies in an attempt to control costs while at the same time enhancing efficiency and productivity. Increased competition Qantas have been facing increased domestic and global competition in the recent times. This is attributable to increase in new entrants and the effects of global market liberalizations. A subsidiary of Singapore Airlines, Tiger Airways have since 2007 been flying a number of Australian ports including Brisbane, Adelaide and Perth. In addition, the Airline is charging reduced passenger fares compared to those of Qantas. In the international market, Qantas faces stiff competition from Virgin Blue that operates under the brand name “V- Australia’. According to Kochan, McKersie and Cappelli (1984), Virgin Blue plans to dominate the lucrative trans-pacific route by offering daily flights from Brisbane and Sydney. Evidence Increased competition has led Qantas to suffer significant loses causing the management to re-think future viability of a number of Asian routes including Japan that is ranked third biggest source of inbound tourists. Nonetheless, Qantas must develop effective business strategies to ensure that this valuable route still remains viable. Change of employment policies Change in Australian labor relations laws has also led Qantas to reassess its employment relation strategies. The establishment of Federal Labor government in the year 2007 brought to end the work choice legislation that promoted individualization of work arrangements through nonunion collective agreements. Evidence This allowed employers to directly deal with workers thereby excluding trade unions in negotiations. Qantas had chosen non-unionized individual based employee agreements in order to keep a check on its employees. However, the federal government put in place more equitable and fairer systems that sought to strengthen the critical role played by trade unions. Table 1 : Comparison of percentage effect of change drivers on Qantas Airlines and entire Australian aviation industry Parameter Qantas Airlines (Effect in %) Industry effect (Effect in %) Deregulation 62 58 Fluctuating costs 86 75 Competition 76 74 Legal 57 60 Based on table 1 above, the four change drivers were found to exert almost the same effects on Qantas as it was in the entire industry. According to the data interrogated, Airlines deregulation was found to have caused the change by 62% in Qantas with a corresponding 58% industry wide. Similarly other change driver parameter that were under consideration such as costs fluctuation had resulted to change by 86% for Qantas and75% across the industry. Moreover, 76% and 57% of change experienced in Qantas was attributed to stiff competition and changes in laws particularly those governing employee relations. Interventions With the four parameters identified above as the key drivers of change in the airline industry, Qantas developed interventions in order to effectively manage resultant and inevitable change effects. The following are the key change –related interventions that this research seeks to critically analyze: Deregulation To enhance productivity, the government offloaded its shareholding and strategic partners were encouraged to invest in the airline. However, the commonwealth liberalization Act of 1985 limited the percentage of shareholding acquired by one foreign strategic partner to 25% shareholding and a group of foreign strategic partners to only 35% percent shareholding. This exclusion of the government and the main shareholder had a negative effect on the proposed radical changes. Evidence This saw several strategic partners including British Airways acquiring a stake in Qantas. The advantage of deregulation was an improvement of management standards as the new management strived to meet shareholders goals. Increase its fleet and client base Qantas group is committed to its fleet strategy that aims at providing long-term fleet renewal in order to realize simplified and disciplined growth. This is attributed to increased competition from competitors such as Singapore airlines and Emirates and more so due to deregulation of Australian international routes. The company has also banned pork from all its flights to accommodate the Muslim community. Qantas multi brand strategy enabled it to position itself domestically as the premium and business travel preferred choice through its subsidy Jet Star (Lee & Peetz, 1998). Evidence The Company plans to introduce budget airline called Jet star Japan. In addition, Qantas domestic domination was further reinforced by implementation of frequent flyer program that was supported by acquisition of Wishlist Airlines, launch of CBA diamond credit, development of epicure cards, Woolworth Qantas card and NAB business cards. In the last three years, domestic customer satisfaction has been on the rise. Interestingly, domination of the domestic market has seen forty eight corporate accounts opened and one hundred seventy one renewed thus making Qantas the preferred airline. Advantages Seven B747s aircrafts were upgraded to award-winning A380 whereas twelve A380 aircrafts were reconfigured by modifying their cabin and seat arrangement to better meet customer demands. According to 2012 financial report, Qantas recorded higher earnings before interest and tax which was attributed to domestic network advantage and its superior services. On the same front, the Airline focused on providing the best domestic experience through its continued investment in award winning services and products. According to Kochan and Verma (1992), smarter and faster check-in technology was rolled out in main ports, an initiative that endeared Qantas to many customers. Undeniably, Qantas Link to major towns significantly contributed to its domestic performance. It also led to seven percent capacity growth that was also supported by scheduled network services and investment in new aircrafts. The fleet renewal program made Qantas an internationally iconic business as it continued to operate modern fleets that have consistent award-winning product offering. Alliances and mergers First, the Airline obtained antitrust immunity for Joint Business with American Airlines, after which it enhanced networks by directly linking American Airlines stronghold in North and South America to Australia ports. Qantas ceased operating in routes such as London through Bangkok and Hong Kong. Evidence The airline instead entered in alliance with Emirates on March 2013 to Dubai and saw bookings increase significantly. In addition, the Airline broadened and deepened alliances with other airlines including American and British Airways. Advantages Qantas change program was intended to transform the cost base in order to improve the business and develop viable and strong business. This has been achieved by offering superior customer services, building on alliances, mergers and existing partnerships and more importantly, business improvement initiatives to reduce ever increasing costs. Disadvantages According to O'Connor (1989), Qantas also retired its six Boeing B747-400 aircrafts by exiting Singapore- Mumbai and Auckland-Los Angeles routes. Cost reduction Due to increased fuel prices, industrial disputes and intense competition, Qantas considered suspending its plans to acquire 35 new Boeing 787 Dream-liners as one way of cost cutting. Further, the company plans to lay-off some of its staff to maintain a lean and efficient workforce that is well motivated (Lee & Peetz 1998). According to Thornicroft (1989), employee relations and business strategies are more related. Qantas plans to cushion against souring fuel prices and high competition by putting in place strategies with capacity of delivering efficiency while at the same time cutting on costs. Further, such strategies will impact on employment relations strategies not only for Qantas, but also its subsidiaries. Traditionally, Qantas had been relying on ‘hub and spoke’ operational model that sought to maximize passenger numbers by offering a wide range of domestic and international destination connections that delivered high passenger yields. Due to rise in fuel prices, the operational model is no longer effective, and many routes that were previously profitable are now threatened. Evidence In response to increased competition and fluctuating fuel prices, Qantas took operational decision by deliberately transferring domestic routes to Jetstar in order to take advantage of the lower cost base. Jetstar uses point to point operational model that allows quick financial turnaround. According to Geoff Dixon, Jetstar contributed $ 113 million to Qantas group in 2008 which was attributed to growth in revenue and capacity. Nevertheless, Jetstar focuses in generating similar results even in the future as it continues to pursue low cost- high volume strategy which seeks to fly the same number of people using fewer planes. However, airport staff union argues that this strategy even though seeks to maximize revenues; it could lead to lower service standards. To capitalize on the success of low cost model, Jetstar now controls more than ten routes that were previously controlled by Qantas. It has also moved to some international routes although this move has ignited some serious challenges as domestic operational strategies that made it successful failed to work for international routes. Advantages Jetstar maintains aircrafts such as A330s and A230 that are fit for multiple aircraft operating model. In addition, strategic decision, to fly to peripheral ports in different cities at lower fees is another major factor that has sustained Jetstar lower operating costs. Nevertheless, with the increasing number of new entrants, Qantas keeps on positioning itself to ensure that these new entrants do not become a significant threat in its key destinations. Moreover, Jetstar plans to start operating in major cities that were previously strongholds for Qantas with a view of securing them. Qantas management undertook business re-engineering which comprised complete re-thinking of business processes to identify those that carried out duplicate work. This initiative was meant to save about $300 million in annual costs. As a result, Sydney component and Melbourne Heavy Maintenance facilities were closed while other several support activities were consolidated into the remaining maintenance facilities. Further, the management resolved to streamline engineering practices by implementing maintenance on demand in order to substantially cut on costs. Conclusions Change in the aviation industry is inevitable, and all airline companies had to adapt to increased change demands. This study discussed factors that elicited change in Qantas and also went ahead to review the interventions that the company employed to manage change. In this respect, the study has immensely contributed to the body of knowledge relating to the aviation industry by critically studying aviation industry change drivers and the appropriate intervention measures to cope with identified change demands. The research finding helps us to understand how change has contributed to transformation of the airline industry. In addition, the research through the case of Qantas has shed more light on the interventions that airline companies have been applying to cope with industry wide change demands. Recommendations According to this research, change is inevitable, and therefore, companies should put in place measures to ensure that they cope well with change demands. Qantas has overtime undergone turbulent times caused by fluctuating oil prices, stiff competition, changing laws among others, but it managed to withstand them due to effective intervention measures. With fuel price fluctuations, Qantas should consider hedging oil prices to avoid problems of price fluctuations. This will ensure that the company determines the fuel price in advance by entering to agreements with oil companies hence avoiding paying higher amounts. Further, as Qantas continues facing stiff competition from other industry players, it should consider entering into mergers with other airlines such as Singapore, American and British Airlines. This could help the company to continue earning by doing business together with its competitors rather than grounding its fleet. References Australian Transport and Distribution Management 1990, Qantas to shed 500 jobs, cut flying hours in efficiency plan’, 33.11, PP.15 Gialloreto, L. 1988, Strategic Airline Management, The Global War Begins, Pitman, London. Kochan, T.A. and Verma, A. 1992, A Comparative View of United States and Canadian Industrial Relations: A Strategic Choice Perspective in A. Gladstone, H. Wheeler, J. Rojot, F. 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