Airline Issues

Human Resource Management Strategy in the Global Airline Industr y A Focus on Organisational Development
a report by

S t e v e n H A p p e l b a u m and B r e n d a M F e w s t e r
Professor and Research Chair, John Molson School of Business, and Researcher Coordinator of Webster Library, Concordia University

Steven H Appelbaum

The commercial airline service industry is extremely competitive, safety-sensitive and high technology. People, employees and customers, not products and machines, must be the arena of an organisations core competence. The implications are vast and pervasive, affecting the organisations structure, strategy, culture and numerous operational activities. Completed by 13 respondents (executives), this audit presents a series of select findings of a human resource management (HRM) audit carried out in 20012 and contains extensive data on airlines from nine countries worldwide. The conclusion drawn from these three bodies of work is that, with the exception of a handful of high-performing airlines, the industry as a whole continues to function as per a traditional, topdown, highly divisionalised, industrial model of operations and governance. This model is manifestly inappropriate in such a highly knowledge-based service market as the airline industry. HRM expertise in general and organisational development in particular are required now, more than ever, to spearhead the strategic development of a customer-centric, learning-oriented workforce that is capable of adapting quickly to the strategic goals and change imperatives facing the airline industry.
Introduction

In such a safety-sensitive, customer service-centric environment, the traditional product-centred industrial model of corporate structures and industrial relations is inappropriate. HRM expertise is required now, more than ever, to spearhead internal marketing strategies in order to gain customer loyalty. The primary area of strategy focus is the manner in which the HR department aligns activities, policies and procedures with the organisational development strategic imperatives of the organisation. A series of select findings of an HRM audit carried out in 2001 is presented. The audit contains extensive data on 13 airlines from nine countries worldwide. The audit data was gathered by 13 students/aviation managers in the Global Aviation Master of Business Administration (GAMBA) programme at the John Molson School of Business, Concordia University, Montreal, Quebec.
Strategy Organisational Development

Brenda M Fewster Steven H Appelbaum is a professor and holds a Research Chair in Management at the John Molson School of Business of Concordia University, Montreal. He was elected as a member of the Board of Governors of Concordia University (19982004) and served as Dean of the Faculty of Commerce and Administration at Concordia University from 1983 to 1990. Professor Appelbaum has research interests in organisational stress, organisation development and human resource management. Brenda M Fewster is Researcher Coordinator of Webster Library at Concordia University. She is a former member of the Continuous Quality Improvement Council of Concordia University and has also served as Labour Relations, Training and Development, and Grievance Officer for Concordia University Library Employees Union (19922003). Ms Fewster is an MBA graduate of John Molson School of Business, Concordia University, Montreal, Quebec, and holds an MA in History from Concordia University, with a focus on strategic, political and economic matters in US foreign policy.

In an intensely competitive marketplace, where service innovations are replicated so easily, a key strategic variable that nobody can copy is an airlines culture.1 HRM functions as: a set of processes, which through the recruitment, training, motivation, appraisal, reward, and development of individuals, and through the effective handling of industrial relations translates strategy into action.1 Such a definition combines the notion of how an organisation selects, interacts with, evaluates, enriches and compensates employees with the culture that is created and how employees, in turn, provide service to the organisations customers. Alternatively, to paraphrase Seal and Kleiner (1999), it is the management style of the chief executive officer, good communications, good labourmanagement relations, respectful treatment of employees, incentive

Strategy in the aviation and airline industries is premised on two fundamental drivers that have been evolving since deregulation of the US airline industry in 1978: one, a growing global concern for safety; and two, ever-increasing consumer expectations of broad service choice and service excellence. Research has long shown that accidents and poor service quality are rooted primarily in sociotechnical human factors, not technology per se. Suboptimisation, or poor quality with regard to management, decision-making, teamwork, employee motivation or communication, can translate into loss of customers, loss of market share, loss of organisation assets and, above all, loss of life.

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1. S Holloway (1998), Changing Planes: A Strategic Management Perspective on an Industry in Transition: Volume One: Situation Analysis, Ashgate Publishing Ltd, Aldershot.
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Human Resource Management Strategy in the Global Airline Industr y

programmes and effective recruitment that are the keys to a healthy organisation.2 The airline industry, unfortunately, is not in good health. Operational and administrative functions, particularly in customer service organisations, are built on three essential critical success factors: management commitment, customer focus and employee involvement.3 These are not the norm in the airline industry, which is beset by communication problems. Holloway suggests that: communications need to encapsulate what an airline is doing in its markets, what value it is adding, and why it would be missed were it not in business.1 There is little empirical evidence that this sort of communication is yet widespread in the industry. Organisation communications are largely a product of an organisations structure. Old hierarchical command and control structures must give way to delayered organisations that improve communications and bring management closer to employees and customers. Jan Carlzon of Scandinavian Airline Systems (SAS) points out that hierarchies create environments where those higher up legitimate their roles only by issuing instructions, setting controls and carefully monitoring behaviour.4 This style of leadership discourages initiative among employees and ultimately translates into suboptimal performance and lower customer satisfaction. The movement towards the flattening of organisations is indicative of a shift in HRM from seeking control over employees to gaining commitment from employees. This is the foundation of organisational development. The latter is what occurs in high-performing organisations. Successful, well-run organisations are often cited in the literature for actively shaping their culture through their hiring practices, orientation programmes for new employees, treatment of employees as internal customers and for paying ongoing attention to the opinions of line staff. When performed sincerely and professionally, such efforts can define an organisations culture and translate into lower costs of labour, improved productivity and an increased sense of empowerment on the part of employees. The case of Duncan Aviation offers an excellent example. Duncan Aviation is a leader in US aviation service and maintenance and has received top ratings for the last 25 years in Professional Pilot magazines annual survey for avionics and maintenance.5 At Duncan, management took employee opinions seriously when the results of a survey given to Duncans employees provided important and revealing feedback to the HR specialist who conducted the research. The survey indicated: low morale and low job satisfaction ... across the company. Employees noted lack of communication, lack of respect, pay discrepancies, and distrust of management as areas of concern.5 The results of the study were used effectively by Duncan management to launch three HR initiatives as part of the companys reorganisation. One, the company created a viable company-wide pay schedule based on accurate job descriptions (after having the employees complete a job analysis questionnaire). Two, the vice-president in charge of implementing the structural changes was asked to resign when he failed to create strong teamwork at the senior management level (individuals were found to be scared and mistrustful of the vice-president). Three, formalised on-going employee-training programmes were implemented that improved skill levels and communication across the organisation and ameliorated the employees sense of empowerment.5 Southwest Airlines also monitors the perceptions of its employees and those of the unions closely. The attitude at Southwest, according to Libby Sartain, Vice-President of the People Department, is if were not getting feedback, we wont know whats going on.6 SWA constantly surveys its employees and unions to identify their perceptions and solicit ideas about how to run the company.7 As part of SWAs internal marketing strategy, employee focus groups are used to generate new ideas, and unions are encouraged to research problems and present solutions to SWA

2. J Seal and B H Kleiner, Managing Human Behaviour in the Airline Industry, Management Research News, vol. 22, no. 2/3 (1999), Lexis-Nexis, Reed Elsevier. 3. G P Laszlo, Southwest Airlines Living Total Quality in a Service Organization, Managing Service Quality, vol. 9, 2 (1999), pp. 15, Emerald, MCB UP Ltd. 4. J Eaton (2001), Globalization and Human Resource in the Airline Industry, 2nd ed., Ashgate Publishing Ltd., Aldershot, UK. 5. J Falter (2000), The Company as Family: Perceived Strengths of Duncan Aviation, PhD Dissertation, University of Nebraska, Lincoln, Nebraska. 6. K Ellis, Vice President of People, Southwest Airlines, Training (January 2001), pp. 4648, 50, ProQuest, ProQuest Information and Learning Company. 7. J Milliman, J Ferguson, D Tricket and B Condemi, Spirit and Community at Southwest Airlines: An Investigation of a Spiritual Values-Based Model, Journal of Organization Change Management, vol. 12, no. 3, pp. 221233, Emerald, MCB UP Ltd.

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Airline Issues

management.8 SWA is particularly noted for the spiritual/family-like, employee-centred values espoused and practised by management teams. According to Milliman (1999), SWAs strong set of values is a manifestation of spirituality. These spiritual values include the following: one, a strong emphasis on community, teamwork and serving others; two, employees feel that they are part of a cause (i.e. an airline that offers the lowest air fares, frequent flights and personable service); and three, employees feel empowered and can really make a change in their customers lives and at work.7 Treating employees well and empowering them is derived straight from the airlines mission statement: ...Above all, employees will be provided the same concern, respect, and caring attitude within the organization that they are expected to share externally with every Southwest customer. In simple terms, the underlying belief is that the better employees are treated, the better they will treat customers.8 Management at Duncan Aviation also shares the belief that the way that an employee is treated will dictate the quality of customer service: ... if our employees arent happy, our customers wont be either. We keep our employees happy through strong, caring and consistent leadership; developing, communicating, and staying true to our solid mission; a forward-focused vision which keeps our company strong and competitive; and high values that we live by on a daily basis.5 Attention to detail, collective decision-making and an open-mindedness to new ideas are typical hallmarks of successful airlines.9 Image is another dimension of an organisations culture that can unify a workforce. At Virgin Atlantic Airways, innovative in-flight services and young and enthusiastic customer contact staff help to communicate the entertainment-oriented and lighthearted corporate image. Cultural rifts within airlines are inherent to the global and multifaceted nature of the industry. Different groups in an organisation may act as different tribes and result in intertribal conflict. When the beliefs or behaviors of one group are not congruent with the thoughts or actions of a different group... intergroup hostility, rather than teamwork, is usually the outcome.10

Singapore Airlines countered this problem with its Operational Areas Seminar in Synergy (OASIS) programme. In a three-day seminar, Singapore brought pilots, cabin crew supervisors, ground engineers and station managers/traffic personnel together to reduce intergroup conflict and enhance intergroup cooperation and effectiveness between operational areas.10 This is what organisational development is intended to accomplish. The impact of an airlines culture on that organisations safety subculture is critical to airlines. Culture has long been recognized as a determinant of any carriers safety subculture.1 The decision process that led to the Space Shuttle Challenger disaster in 1986 has become the aviation worlds most dramatic example of decisionmaking gone wrong. Other recent examples include the Value Jet DC-9 crash in the Everglades of Florida in May 1996 and the loss of an F28 at Dryden in Canada in 1989.1 According to the official investigative report of the crash at Dryden, the informal culture at Air Ontario was a contributory factor.1 Finally, mergers and acquisitions, which are an everpresent theme in the airline industry, rarely take place with prior due diligence being given to HR factors. The result is that few mergers in global aviation are actually successful. In fact, two-thirds of mergers and acquisitions either destroy, or fail to create, shareholder value. The most oft-cited reason is the failure of the merging organisations to pay enough attention to people factors in their due diligence and the subsequent failure to integrate organisation cultures.11 There are many examples of failed consolidations. Deltas absorption of Pan Ams Atlantic Division, US Airs difficulties with Piedmont, and Northwests problems with Republic are striking as they represent takeovers of airlines within the same country.1 Other examples include Canadian Airlines takeover by Air Can (having failed for a decade after absorbing CPAir and numerous regional airlines) and American Airlines takeover of Reno Air. KLM and Alitalia were clearly incompatible; likewise, Boeing 737 operators Piedmont and Canadas Pacific Western had both operated as profitable companies until consolidating, after which they struggled to survive.12 Successful organisations such as Duncan Aviation, Southwest Airlines and Delta Airlines pay a great

8. A J Czaplewski, J M Fersuon and J F Milliman, Southwest Airlines: How Internal Marketing Pilots Success, Marketing Management (September/October 2001), pp.1417, ProQuest, ProQuest Information and Learning Company.

9. C Shifrin, Still Delivering, Airline Business, 74 (April 2001), Lexis-Nexis, Reed Elsevier.
10. M K F Karlins, L McCully and C T Chan (1997), Expanding Teamwork Beyond the Cockpit Door: An Integrative Program (OASIS) for Pilots, Cabin Crew, Station Managers/Traffic and Ground Engineers, Aviation Training: Learners, Instruction and Organization, (Eds R A Telfer and Phillip J Moore), Avebury Aviation, Aldershot, UK. 11. K OToole, Buyer Beware of the Human Element, Airline Business (July 2000), Lexis-Nexis, Reed Elsevier. 12. K OToole, Time to Invest in Human Assets, Airline Business (April 2001), Lexis-Nexis, Reed Elsevier.

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deal of attention to organisation culture. These organisations plan and develop a safety and customer-centric culture continuously by creating a learning-oriented and lively workforce with a sense of community and the ability to respond to customer needs and change. As members of a service industry, such organisations employ an employee-centred strategy (employees should be participative, empowered, committed and motivated) in order to be far more customercentric (aware of customer-perceived value and customer-perceived risk). In this context, a strong emphasis is placed on recruitment, selection, employee empowerment, succession planning, a hands-on management style and the organisational development function.
Conclusions

Five themes emerge from the review of the literature. 1. Management style in the successful airlines is far more hands-on and communicative than the military command and control style more typical of the industry. 2. The culture of the highest-performing airlines makes internal marketing operational, empowers employees, is customer-centric and focuses on teamwork and quality. 3. Management personnel at the top airlines possess excellent interpersonal skills, are accessible and approachable and recognise employee performance. At the industry level, there appears to be a shortage of talented managers that possess more than the required technical skills. 4. The leading airlines emphasise two-way communications and employee input into operational matters. 5. A commitment to training and development unquestionably distinguishes high-performing organisations from their less successful counterparts.
Overview of Audit Findings Organisation Development

of the audit clearly signal problems in this area. While 73.33% (see Appendix 1, Question 3) of respondents said that their organisations had identified a desired culture, only 53.33% (see Question 2) had a representative in HR continually monitoring trends and techniques of organisation development. Not surprisingly, less than half (40%) of the respondents said that there was a consistent culture throughout their organisations, and a shockingly low 20% said that their organisations had attained the desired culture. Opportunities to improve organisation development appear to have been bypassed by most organisations. Only 60% of the organisations in the audit appear to provide training for the improvement of team performance (see Question 49), and a mere 33.33% of respondents said that training on change management was offered (see Question 47). Not surprisingly, only 33% (see Question 20) of respondents said that their organisations carried out surveys or analyses of organisation culture and effectiveness. What is surprising is that, in spite of all these low scores, 100% of respondents said that they believed their organisations provided quality customer service to both internal and external customers (see Question 37). The enormous variance between this stated belief and the numerous indicators showing otherwise illustrates an alarming disconnection between perception and practise in HRM in these airlines surveyed.
Summary and Recommendations

The overwhelming consensus in the literature was that, more than any other organisation characteristic, an organisations culture was the key to a competitive advantage. However, consistent with the findings indicating low scores in the areas of communication, gathering of information, training and development and employee input, the responses in the organisation development section

The most obvious conclusion to be drawn from the results of the audit is how poorly understood the concept of internal marketing is in the airline industry. Airlines cannot offer optimal service to external customers because they do not know their internal customers very well. Airline administrators appear to show little awareness of or interest in their own internal customers opinions and insights. Management also tends not to communicate many types of important information (with the exception of rules and regulations) to their internal customers (both supervisors and line personnel) and often do not provide sufficient internal services that would contribute to optimising internal customer performance (for example training and development). The reason for this lies in the poor state of HRM in the airline industry. Shareholders and managers should be aware of these deficiencies. Broadly speaking, HRM weakness gleaned from audit results for one of the major categories suggests that organisation culture is in bad shape. Scores relating to consistency of organisation culture throughout the organisation and level of attainment of desired culture were surprisingly low.

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Appendix 1: Select Audit Findings Organisation Development
Number Out of a Total of 52 Questions Question Yes, No, N/A (or other as indicated in the question box) %

1 2 3 5 6 7 12 15 16 20 22 36 37 38 47 49

Is there an individual within the HR department accountable for 60, 40 co-ordinating the organisation development activities of the organisation? Does an individual within the HR department continually review current 53.33, 46.67 trends and techniques of organisation development? Has the organisation identified a desired culture? 73.33, 26.67 If your answer to Question 3 was yes, has it been communicated to 60, 6.67, 33.33 the organisations managers? Is there a consistent culture throughout the organisation? 40, 60 Has the organisation attained its desired culture? 20, 80 Is there a consistent organisation structure throughout the organisation? 53.33, 40, 6.67 Are organisation development considerations a part of the organisations 53.33, 40, 6.67 strategic planning process? Are organisation development considerations a part of the organisations 66.67, 33.33 tactical planning process? Are surveys and analyses of the organisations culture and its effectiveness 33.33, 66.67 conducted? Is training provided for managers and supervisors in organisation effectiveness? 66.67, 33.33 Have departments been encouraged to identify their internal and 93.33, 6.67 external customers? Does the organisation believe in providing quality customer service to both 100, 0 internal and external customers? Have employees been provided training in improving the quality of customer service? 86.67, 13.33 Is training offered to employees in how to deal positively with change? 33.33, 66.67 Is training provided for the improvement of team performance? 60, 40

Unless airline administrators begin conducting HRM audits in their own organisations, they will remain crippled by endless price wars and shortsighted cost-cutting binges. Airline administrators must make the connection between what their external customers value and how and why employees provide that value and more. The bridge linking customer value to employee performance is HRM. To this end, the following five recommendations are offered. 1. Airline administrators should conduct audits of their respective organisations in order to ascertain the gaps between what they thought their airlines were doing and what they actually were doing. In other words, an audit constitutes both a reality check and a baseline from which to plan for the future. 2. National and international regulatory bodies in civil aviation should collaborate on formulating an airline-specific HRM audit that could be readily adapted and used by individual airlines. An opportunity exists here for researchers in the field of HRM to conduct additional audits in the airline industry. 3. The recommendation is that airlines appoint a person whose responsibility it is to conduct

timely employee opinion surveys on the following subjects: organisation culture, organisation leadership, employee relations, equal opportunity employment and sexual harassment and benefits preferences. The results of the surveys should also be communicated to all employees. 4. The emphasis placed on communicating rules and regulations and performance improvement and disciplinary procedures should be equalled or surpassed by the clear and on-going communication to all employees of the organisations mission, strategy and desired culture, for example. In other words, administrators should seek to raise their audit scores for these latter points (i.e. mission, strategy and culture) to the same level they score in questions concerning rules and regulations. 5. Training and organisational development should be greatly expanded on. The most notable area is that of management training for managers and supervisors. In general, however, greater education and training are required in such areas as teamwork, change management, interviewing techniques, cultural diversity, communication skills and socialisation into the organisations culture via organisational development. s

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