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Chapter case study The Competition

AIR NATIONAL In the middle of the 1980s, ANs


external environment was subjection
Air National (AN) 1998 Annual Report to two sells of significant change first
glowed with optimism Bradley Smith, in 1986, AN was
CEO, stated in his letter to
shareholders, As a newly privatized
company, we face the future with
enthusiasm, confident that we can
compete in a deregulated industry. By privatized by Britains conservative
April 2000, however, the tone had government. This potentially reduced
changed with a reported pre-tax loss the political influence of the old
of $ 93 million. The newly appointed corporation and exposed the new
CEO, Clive Warren, announced a major company to competitive forces.
change in the companys business Preparation for privatization required a
strategy that would lead to a transfer painful restructuring and downsizing
motion of business operations and HR `of assets and the work force, which
practices in Europes largest airline AN was able to deploy to secure
company. further stability in its key product
markets. It was this context, rather
than the stimulus of market
Background
competition, that gave senior
During the early 1980, civil aviation management the degree of stability
was a highly regulated market, and and security needed to plan and
competition was managed via close, if implement new business and HRM
not always harmonious, relationships strategies. The second set of pressure,
between airlines, their competitors potentially more decisive, was
and governments. National flag- generated by prolonged economic
carriers dominated the markets, and recession and the ongoing
market shares were determined not by deregulation of civil aviation in Europe
competition but by the skill of their and North America.
governments in negotiating bilateral
With these environmental force, AN
air service agreements. These
attempted to grow out of the recession
agreements established the volume
by adopting a low cost competitive
and distribution of air traffic and
strategy and joining the industry-wide
thereby revenue within these markets,
price war. Bradley smith, when he
A dominated other carriers, despite
address his senior management team,
the emergence of new entrants, ANs
started, this strategy required us to
share of the domestic market in the
be aggressive in the market place and
early 1980s, for example, increased by
to be diligent in our pursuit of cost
60 percent.
reductions and cost minimization in
areas like service, marketing and
advertising. The low-cost competitive began also to emphasize the added-
strategy failed. Passenger number value elements of ANs services. New
slumped by 7 percent during the gate brand names were developed, and
1980s, contributing to a pre-tax loss. new uniforms were developed, and
Following the appointment of the new new uniforms were introduced for the
CEO, and changed its competitive cabin crews and point-of service staff.
strategy and began to develop a
differentiation business strategy
(Porter,1980) or what is also referred
to as an added-value strategy.

In 2002 following the September 11


attacks in new York and Washington in CORPORATE
which four commercial planes were MANAGEMENT
hijacked and crashed, killing most
3000 people, international air travel
booking fell sharply, The catastrophes
caused the loss of more than 100000
airline jobs around the world. In Group 1 Group 2 Group 3
addition, early in 2002, new discount ANs
Northrestructuring also aimed to cut India
Pacific
airlines started operating in Europe, the companys cost base. Aircraft and
America
and there was a costly battle for buildings were sold and persistently
market share between AN, hop jet unprofitable routes either suspended
Airline and Tango Airline. or abandoned altogether. ANs overall
route portfolio was cut by 4 per cent
Air Nationals new competitive during 2001 alone. Labor costs offered
strategy the most significant potential savings,
and with 35000 employees ANs re-
Under the guidance of the newly
engineering included one of the
appointed CEO, Clive Warren, AN
biggest redundancy programmed in
prioritized high quality customer
British history. Once the recundancy
service, re-engineered the company
programmer was underway the
and launched a discount airline that
company was able to focus on pro
operated as a separate company. The
duct development, marketing,,
management structure was
customer service and HR
reorganized to provide a tighter focus
development. The companys
on operational issues beneath
sharpened focus on the new
corporate level. ANs operation were
customer- first programmed propter a
divided into route groups based on
major review of the management of
five major market (Exhibit 2.1). Each
employees and their interface with
group was to be headed by a general
customers.
manager who was given authority
over the development of the business, Air Nationals new human
with a particular emphasis on resources strategy
marketing. The companys advertising
The competitive and HR strategies As part of the new way of doing thing
pursued by AN mainline business in demarcation between craft group,
the wake of this restructuring process were remove, and staff were organized
are congruent with an HR strategy into teams of multiuse killed
that emphasizes employee operatives led by team leaders. Even
empowerment and commitment. As those middle manager who supported
Clive warren started in a television to managing their subordinates
interview, In an industry like ours, uncomfortable, as one maintenance
where there are no assembly lines or manager acknowledge; The hard part
robots, people are our most important is having to share power. 1 confess, I
asset and our long term survival like to be able to say yes or no without
depends upon how they work as part having to confer all the time and seek
of a team In the closing part of her consensus from the team,
presentation, Elizabeth Hoffman, ANs
director of human resources, outlined AN Institute a series of customer
the need for a new approach to service training seminars and invested
managing ANs mainline employees; in training and development. The
We must senior management also developed a
strategic partnership with the unions.
At the onset of the restructuring
process, Clive warren and Elizabeth
Hoffman undertook to open the
books to the union and established
team briefings and regular, format
consultation meeting with union
representatives. A profit-related pay
Group 4 Group 5 system was also launched, with the
Europe Domestic full support of the unions. In addition,
Emphasize to our manager that they
senior management held major
must give up control if our employees
training programmes,
are to improve their
performance(Exhibit 2.2).

CORPORATE
Differentiation competitive strategy Corporate values
LEVEL
recognizing the contribution of Air National employees
Effective voice for human resource at this strategy table

HUMAN
Priority given to security of employment Investment in
RESOURCES
workplace learning competitive and equitable pay
POLICY LEVEL
policies

Broad taskWORKPLACE
design and self-managed teams emphasis on
LEVEL
employee empowerment and self-accountability climate
of cooperation, commitment and trust
Designed and delivered by leading
business school academics, on the
importance of trust, motivation and
visionary leadership.

Running parallel to these Removed, which allows the planes to


developments was the companys carry an additional 20 passengers.
concurrent objective of cost reduction.
Between 1996 and 2000, AN shed 37 Go jet will be 20 per cent lower than
per cent of its workface, nearly 25 per those of ANs comparable mainline
cent leaving in 1998 job cuts were flights party because go jet employees
managed entirely through voluntary will be paid a lower wage than their
severance and redeployment. The counterparts at AN. Clive warren
requirement to sustain and improve considered that AN had been
performance in the face of such job transformed by
losses produced, however, a
preoccupation with productivity
levees, and attempts to after shift
pattern some time provoked conflict.

Assignment
Disputes
You aretoanjob
HRsecurity, training
consultant and by arrival national airline to investigate
employed
development ,and through senior
ANs competitive and HR strategy. Prepare a written report on the following
management
question. throwing money at the You are an HR consultant
problem employed a
1, What factors enabled ANs senior management to take a strategic
Go approach
jet competitive and human
to its business and to adopt an empowering development
resources
approachstrategy
to HRM?

AN 2alsoHow
launched
useful its go concept
is the jet product in
of strategic choice in understanding the
November 2002 to take advantage of
linkage between ANs competitive and HR strategies?
the dramatic shift by European and
3 What
North problems,
American if any, do
passengers you envisage with ANs HR strategy and go
towards
jets HR
discount strategy
airlines. Go? jet planes have
more sets because there is less room
between the seats and the business-
class section has been
that recognize realities of airline travel
in the 21st country ,said warren.

Re-engineering. Deep in debt in the


late 1980s,AN went into profit in the
first quarter of 1998 and than suffered
a loss in the last quarter of 2001 and
the first quarter of 2002. The company
aircraft were flying to 164 destination
in 75 countries from 16 UK airport. If
we are to maintain our market share in
domestic and international passenger
traffic we have to have business plan