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


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

  1. 1. 1Question 1.1Describe the PEST factors affecting BA between the years 1995 – 2000?PoliticalThe political environment in which British Airways (BA) operates and has a significantinfluence on how BA is regulated.In 1996 a “virtual merger” between BA and American Airlines (AA) was blocked by theEuropean Competition Commission, as it adjudged BA too powerful an entity. The reasons givenwas that BA operated primarily out of the popular London airport and that the United Kingdomhad the second largest airline market after the United States. This obstruction reduced BA’spotential competitive power, as enjoyed by the members of the rival Star Alliance.The European Competition Commission, under the European Union, of which the UnitedKingdom is a member state, addresses competitive practices. Although mergers can expandmarkets and bring benefits to the economy some mergers are deemed to reduce competition andthe mandate of the European Union is to stimulate growth and raise the standards of livingamongst the member states. As in the case of BA and AA, the merger was deemed to reducecompetition in the market whilst creating and strengthening BA as a dominant player.( achieved its objective for growth with alliances with a number of airlines in 1988. This wasdone without regulatory clearance and by April 2000, the new CEO Eddington leveragedimmunity from antitrust legislation, furthered the affiliation between BA and AA.Antitrust legislation is a law intended to promote free political competition by outlawingmonopolies. ( Immunity from thislegislation enabled BA to form the alliance with AA.EconomicThe state of the trading economy during the periods 1995 – 2000 shaped how BA operated as anairline. In the years prior to 1995, the economy was fraught by recession however in this climate
  2. 2. 2BA was the most profitable western airline in an industry. Even though the economy wassluggish – a 2% fall in average yield for the industry by 1995, BA’s yield remained stable andtraffic grew by 7%.A stronger pound in the first half of 1997 reduced BA’s profit by £128m. The strong pounddirectly impacted on BA’s industry in that it was more costly for people to travel to the UK. Thiswould have reduced BA’s sales. Additionally exports would have been affected, i.e. UK goodswould have been more expensive. This would have affected BA in that air transport of goodswould have decreased.Added economic factors include increased competition from low cost operators and increasedfuel prices. Increased competition meant more unsold seats and increased fuel costs translatedinto greater operating costs, which resulted in job losses, pay freezes, outsourcing of work andchanges in staff working conditions.The economic crisis in Asia in 1999 had a direct economic impact on BA. The economic crisis inAsia meant decreased traffic in the region which then caused BA’s opposition to focus on otherroutes, namely BA’s profitable transatlantic route.With the pound being strong also meant that foreign investment would have cut back as it wouldhave been too costly to invest in the UK.SocialThe social and cultural influences on a business vary from country to country. Social influencesforms the identity of an organisation, in the country in which it operates. ( 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 oncustomer service, innovation, business and first class and financial performance.With thoughts of wanting to be open, friendly and cosmopolitan under Ayling, BA removed theunion jack off its aircraft tail fins and replaced it with various world images. This gesturealthough received favorably by BA’s foreign travelers who represented 80% of BA’s customerbase, British citizens and BA shareholders were unenthuasitic. An advertising campaign termed
  3. 3. 3“Back to British,” in 1999 was introduced to offset Ayling’s decision and the Union Jack wasreintroduced. Further social interventions by BA, by using the likes of UK author P.J. O’ Rourkeand music, “I vow to Thee My Country,” elevated BA to be more socially acceptable as anational carrier.In 1996 and 1997, threats of strikes and strikes brought on by restructuring of employee paypackages, outsourcing of catering services and closing the union representatives office atHeathrow airport affected BA. So much so that in July 1997 70% of flights were cancelledduring a 3 day strike, costing BA £125m.TechnologicalIn 1996, Alying was newly appointed and he attempted to cut operating costs by £1 billion by2000. Ayling proposed to achieve this primarily by molding BA into a virtual airline. Making itconvenient, easier and cheaper for BA’s customers to book tickets online as well as gather flightinformation 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 wasintroduced to cut costs and maximize the proportion of club and first class passengers inline withBA’s strategy and improving passenger yields.Technology is vital for competitive advantage and is a principle driver of globalization andtechnological advancements of the late 1990’s allowed BA to employing technology andintroduce effective and efficient systems.
  4. 4. 4Question 1.2.As a change consultant, what change interventions would you have implemented to mitigateagainst the effects of the economic factors?As a change consultant, the change interventions I would have implemented to mitigate againstthe effects of the economic factors would be based on the knowledge that BA’s competitivesuccess in a constantly changing market pivots on BA’s ability to experiment, adapt, reinventand regenerate as the market and competitive environment shifts. ( in the years prior to 1995 was the most profitable western airline, and in 1995 BA’s yieldwas stable and traffic grew by 7%. BA was doing something right and it’s reactions to PESTfactors were correct.However in 1997 when the strong pound reduced BA’s profit, anticipating the change ineconomy would have aided BA’s and helped mitigate against its effect. I would haveimplemented plans and procedures to deal with expected changes and instruct BA to follow theplan as changes occur.Anticipating calls for BA to predict and evaluate what will possibly occur and then makeprovision and create an environment for the future. Analyzing buyer behavior buyer needs andbuyer expectations, BA would have had insight into how the market would change. This wouldhave given BA insight that competition from low cost operators would increase based on buyertrends.Anticipating change opens new opportunities and thus is a quality way to manage change ratherthan just reacting to change. By anticipating the reaction of its competitors to the economic crisisin Asia in 1999, BA would have been better prepared for it’s competitors focus on BA’sprofitable transatlantic route.The increase in fuel prices is somewhat out of the control of BA. Fuel pricing has a direct impacton BA’s operating costs. Better understanding the oil industry would have given BA valuableinformation as to the trends in the oil industry, and rather than introducing the smaller and more
  5. 5. 5fuel efficient Boeing 777’s in May 1999, BA could have introduced these aircraft sooner to havehelped mitigate against the effect of the increased fuel costs.
  6. 6. 6Question 2.1.The vision of Robert Ayling is an example of a vision gone wrong. Drawing from the theory oncharacteristics 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 inestablishing objectives which were needed to answer BA’s unmet needs whilst taking intoaccount the long and short term view of BA. The characteristics of Ayling’s vision was that itwas 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 beachieved by focusing and improving on customer service, innovation, business and first classtravel and financial performance. A noteworthy £6B was set aside to improve and enhance BA’scorporate image, new services, routes, aircraft, facilities and training.However the lack of communication of Ayling’s vision to members of staff led to staffdisillusionment. The development and implementation of a company’s vision is achieved withthe involvement of staff. To an extent there was not much wrong with Ayling’s vision, as thiswas supported by Chairman Marshall, who announced on Ayling’s resignation that thecompany’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 visionshould 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
  7. 7. 7 - 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 anotherreason why his vision was unsuccessful when Ayling, replaced the traditional Union Jack, asymbol of the UK. Being a national carrier, Ayling should have understood the importance ofnational pride. Ayling favored world images as part of his vision and move to make BA a morerecognizable organisation. The £60m exercise was not only costly but was unpopular. Aylingshould have tested his idea first before re-branding BA. Ayling blantly failed in understandingthe sentiments and pride of the British people and shareholders. Not having the support of theBritish 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 understandingof 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 poorlyconceived, it was poorly executed as reasons listed above. Ayling was not the right man toexecute the strategy of BA and this was confirmed by BA’s Chairman.
  8. 8. 8Question 2.2Can you design your own vision for BA for the period in question, which is different fromRobert Ayling? Justify your answer.Ayling’s vision is an example of a vision gone wrong. The vision itself was not entirely poorlyconceived, it was poorly executed. Ayling was not the right man to execute the strategy of BAand this was confirmed by BA’s Chairman. Hence in designing a vision, it would be difficult todesign a vision for BA which was that much different to that of Ayling. However in trying todesign a vision which improves that of Ayling the vision should be, complete, clear, stimulating,distinctive and specific.Adapted from South African Airways ( VisionBritish Airways Vision InformationBritish Airways MissionTo deliver continued profits and develop our market share through world-class service toour customers both international and domestic.British Airways VisionA European airline with global reachBritish 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 needsAccountabilityShoulder responsibility for individual and team actions, decisions and results by institutingclear plans and goals and measuring our progress against them, while discerning a deeperpurpose in ones everyday job.IntegrityImplement the highest standards of ethical behavior in all our lines of work and maintainingcredibility by making certain that our actions always match our words consistently.
  9. 9. 9SafetyAdopting a zero defect mentality and striving for zero accidents through proper training,work practices, risk management and adherence to safety regulations at all timesExcellence in PerformanceSetting goals beyond the best and reinforcing high quality performance standards andachieving excellence through implementing best practicesValuing our PeopleCommitting to satisfaction, development and well-being through treating them withrespect, dignity and fairnessReference: www.flysaa.comThe 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 BAintends to take in developing and strengthening its business. It paints a picture of BA’sdestination and provides a rationale for going there. BA’s values are the beliefs, businessprinciples and practices that guide the conduct of it’s business, the pursuit of its strategic visionand the behavior of it’s employees.
  10. 10. 10Question 3.1.Robert Ayling introduced a raft of changes that were extremely unpopular with staff. Analyzethe causes of staff resistance to his initiatives?There are several factors which cause staff resistance. BA’s staff resistance to Robert Ayling’sinitiatives lies in Ayling’s’ abrasive approach to management compounded by his lack of staffconsiderations and his indifference to customer care. His indifferent approach to customer caresent the wrong signals to staff, causing further staff resistance.Being unclearly and unable to convincingly detail the outcome of change expected created asense of fear amongst BA’s staff. Fear of change is contagious. When people are afraid ofchange, the fear is transferred and contagiously affecting other members of staff. This is evidentin the pilots solidarity when they threatened strike action in 1996.( on cost cutting rather than productivity and staff satisfaction at BA was another causeof staff resistance. Soon after his appointment as CEO, Ayling attempted to cut operating costsby £1billion by the year 2000, by shedding overhead and loss making business. Ayling’s aimwas to slim BA into a “virtual airline” dealing with ticket sales and flight handling only. And asBA’s 58000 employees accounted for 30% of the company’s costs, it was evident to staff thatAyling 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 injob losses. This was another cause of staff resistance as staff regarded this approach as being areason to cut back staff rather than viewing it as streamlining of BA’s business process andconcentrating 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 BAwould take appropriate action to address the problems identified by employees. BA staff did notfeel valued in the late 1990’s and even felt reluctant to deliver the best customer service asexpected from BA’s “Putting People First Again” campaign, which was run in 1999. The causeof resistance here, is that the staff could have felt that although the initiative was good there was
  11. 11. 11no real effort by Ayling to address the major problem which beset BA. Ayling persisted with hisvision without much regard for the opinion of BA staff. Further cementing an opinion thatAyling 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 thatvision was going to work for BA. This “gap” in the implementation was another cause of staffresistance 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 orsubconsciously. Even though the fear of change is unfounded. The pace of change is everincreasing, especially in light of the internet, new development in technologies and socialnetworking as in how employees react to change. Ayling may have been unfortunate in that hisappointment as CEO was done under harsh economic conditions, but as CEO and the head of BAit was his duty to get his staff believing in him and his vision to make resistance to change leastresistant as possible.
  12. 12. 12Question 3.2.Describe the steps you would have taken in introducing the same changes in order to obtainminimal resistance from staff?British Airways is a large organisation. In 1999 it ran a customer care training day for all 64000employees. Being such a large organisation BA faces internal and external pressures hence BAneeds to adapt to improve it’s performance and is done by continually adapting it’s corporateculture, it’s values, beliefs, mission and vision. This change impacts on the organisation. And toin order offset and facilitate any resistance to change organizational policy is vital. Theguidelines set out by the organisational policy will be the steps that would be followed to obtainminimal resistance from staff.(Adapted from John Kotter: 8 Step Process for Leading 1Create a sense of urgency and connect with staff. Urgency is necessary to get the cooperationrequired 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 thandiscourage 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 changeis essential.Step 2Form a team, and empower them to lead the change. No matter how competent, it is impossiblefor one person to single handedly develop the right vision, communicate the vision to 64000employees, whilst being faced with obstacles of change. Forming the right team of people to leadthe change initiative is vital to its success. The change team will have the right composition, asignificant level of trust as well as a shared objective. The change team will include, individualsof power, experts, leaders to drive the change and managers who will control the change process.
  13. 13. 13Step 3Develop a change vision, this will clarify how the future will be different from the past. A clearvision simplifies elaborate decisions. It will also motivate staff to take action even if they do notagree with the change initially. A clear change vision will help coordinate the actions of differentmembers of staff in a fast and efficient way. The vision will be strategically feasible. To beeffective the vision will take into account the macro and micro environment. The vision will be aguide, it will be focused, flexible and easy to communicate.Step 4Communicate the change for buy-in, ensuring that as many people as possible understand andaccept the change. BA is a complex organisation, hence getting an understanding andcommitment to change is daunting task. Under communicating is a source of resistance. Furthercommunication by consistent behavior by senior management sends a powerful message to theorganisation which increases motivation, inspires confidence and will decrease cynicism tochange.Step 5Empower staff and remove barriers so that staff can work to their potential. By empowering staffallows to participate in the change. Staff are then committed to implementing the change due totheir contribution.Step 6Create 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 willincrease the sense of urgency creates a positiveness for the change, build momentum, turnsneutrals in supporters and reluctant supporters into active members in the change process.
  14. 14. 14Step 7Consolidate and continue to lead the change. By consolidating change it gives an opportunity ifnecessary to revaluate the change. Leadership here is important as succeeding in a rapidlychanging environment is challenging.Step 8Cement 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 valueswith incentives and rewards. Further this will cement that the change is for the better.Reference: www.kotterinternational.comThe 8 steps describe the steps to take to introduce change in order to obtain minimal resistancefrom staff. However it still takes the majority of the organisation sincerely embracing the changefor there to be minimal resistance and long term success of the change.
  15. 15. 15Question 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 inwhich the organisation operates directly affects the organisation. The environment encompassesinternal and external factors that impact on the organisation both direct and indirectly. Theenvironment 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 madeby managers.Porter’s 5 forces model is a framework for industry analysis and business strategy which assists amanager in steering his/her organisation towards its objectives. Understanding these forceswhich influence the organisations micro-environment help the manager maintain theorganisations 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.
  16. 16. 16 - 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.comThe macro or general environment is the external environment which affect the organisation.Managers cannot control factors in the macro-environment. Hence a greater understanding oftheses factors which affect the organisation aides the manager in achieving his/her goals for theorganisation. Hofstedes’ 5 cultural dimensions show the value for the manager to understandhis/her macro-environment, as the values of people of different cultures have consequences forhow people in different cultures behave and how they react in the work environment. Further thestrategic framework for an organisation is based on the values of the organisation and people willremain 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.
  17. 17. 17- 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 theenvironment influences what the organisation does. Hence the manager needs to be aware ofthe relevance of the organisation in the environment.
  18. 18. 18Question 4.2.Refer to the sub-heading “Strategy” in the case study and analyze BA’s strategy under thedimensions: 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 basedon historical information of the late 1980’s. BA’s strategy consisted of the competitive steps andbusiness 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 oforganizational performance.Domain SoughtBA’s mission was to be the world’s leading airline by focusing amongst others on business andfirst class passengers. Yavitz and Newman (1982) state that the starting point in clarifying one’sstrategy is to define the market scope or domain for one’s product or services. This is preciselywhat Ayling did. Ayling favored developing and focusing on the high profit market segments ofthe market. Rather than competing against the low cost and no frills budget airlines which werecompeting for the European market, Ayling sought the high end market and intercontinentalroutes as a niche market for BA. As Yavitz et al state, the key issue is to identify a niche marketin the industry.Strategic ThrustYavitz et al, take the position that a strategic thrust is a move of where a business is now towhere it wants to be. This is where Ayling failed. As Yavitz et al, reason that a strategic thrustmust be made clear and what sort of actions must be undertaken by the organisation to achievethe thrust. BA was determined to be a global force in air passenger travel this was based onpredictions 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. Passengeryields, is the measure of the average fare paid per mile, per passenger, Ayling’s thrust here wasan attempt to offset the impact of loss in profitability of economy seats which were threatened bythe budget airline competitors.
  19. 19. 19Differential AdvantageArguably this is where BA failed. Replacing the European economy class and introducing animproved World Traveler program was an attempt to differentiate BA from its competitors. Inconcentrating the business and first class and intercontinental routes BA failed to seek anadvantage over it’s competitors who were already competing in this space. There was nothingdifferent from BA’s offering to that of the other airlines already flying these routes. Further in aneffort to maximize profits Ayling opted to increase passenger yields, i.e. BA was unable toreduce prices to flyers but rather opted to maximize profits from flyers. This would have notgiven BA any differential advantage over its competitors but would have rather have made BAless competitive.Target Results ExpectedYavitz et al, state that an organisations strategy must include a statement of anticipated resultsand what financial or other criteria will the organisation use to measure it’s success and whatlevels of achievements are expected. BA’s strategy was compliant here. BA wanted to maximizeprofits by increasing passenger yields, cut costs and develop and focus on the high profitsegments of the intercontinental routes and premium passengers. However using passenger yieldas a financial measure is not useful for comparisons across markets and airlines as yields canvary by stage length and does not consider aircraft load factor. ( four parts of the business strategy listed above are interdependent. Each are instrumental indetermining a clear strategy for the organisation. An analysis of BA’s strategy shows that BA’smission to become a global force was not unwarranted. BA’s under Ayling had a clear definedstrategy as to were BA was positioned, what it made BA different from its competitors andwhere BA wanted to be. Unfortunately missing was the touch points of the person who wasleading the organisation, as under Ayling the strategy was not executed and this was reiterated byBA’s Chairman Marshall who announced BA’s strategy would remain unchanged, with only“the right man to execute it.”
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