11

Organizational Theory

Figure 10-1: Forces for and Resistance to Change

22

““How Airlines Resisted Change for How Airlines Resisted Change for 25 Years, and Finally Lost”25 Years, and Finally Lost”

Under old regulated system, federal Civil Aeronautics Under old regulated system, federal Civil Aeronautics Board set fares and routesBoard set fares and routes As w/ electric utilities, airlines could ask Board to raise prices As w/ electric utilities, airlines could ask Board to raise prices

whenever costs went upwhenever costs went up

When Congress deregulated U.S. airline industry in When Congress deregulated U.S. airline industry in 1978, many fares came down and flights increased1978, many fares came down and flights increased

But airline costs changed much lessBut airline costs changed much less Over objections of most major airlines, Congress allowed Over objections of most major airlines, Congress allowed

carriers to choose their own routes and farescarriers to choose their own routes and fares Established airlines defeated first crop of low-fare airlines easily Established airlines defeated first crop of low-fare airlines easily

in 1980s and worried more about strikes than new competitionin 1980s and worried more about strikes than new competition Labor contracts that kept expenses high and productivity low stayed Labor contracts that kept expenses high and productivity low stayed

in placein place Initial wave of post-deregulation competition did claim some big-Initial wave of post-deregulation competition did claim some big-

airline victimsairline victims During deep recession of early 1990s, Eastern and Pan Am failedDuring deep recession of early 1990s, Eastern and Pan Am failed

33

““How Airlines Resisted Change for How Airlines Resisted Change for 25 Years, and Finally Lost”25 Years, and Finally Lost”

Big airlines used centralized reservation systems, Big airlines used centralized reservation systems, frequent-flier plans, “hub and spoke” system of frequent-flier plans, “hub and spoke” system of controlling key markets, and international alliances to controlling key markets, and international alliances to keep business customerskeep business customers Brief booms in 1980s and 1990s encouraged Cos to believe that Brief booms in 1980s and 1990s encouraged Cos to believe that

radical change wasn’t necessaryradical change wasn’t necessary 9/11, high oil prices, and Internet delivered coup de grace 9/11, high oil prices, and Internet delivered coup de grace

As upstart carriers such as Southwest and Jet Blue As upstart carriers such as Southwest and Jet Blue spread across nation w/ across-the-board cheap fares, spread across nation w/ across-the-board cheap fares, traditional higher-cost carriers struggling to transform traditional higher-cost carriers struggling to transform themselves into versions of low-cost modelthemselves into versions of low-cost model

44

““How Airlines Resisted Change for How Airlines Resisted Change for 25 Years, and Finally Lost”25 Years, and Finally Lost”

For past 25 years, US Airways has been dodging radical changeFor past 25 years, US Airways has been dodging radical change Initially Alleghany Airlines, then US AirInitially Alleghany Airlines, then US Air

In early days of deregulation, US Air was one of most profitable In early days of deregulation, US Air was one of most profitable airlines, thanks to monopoly routes to small cities in Northeastairlines, thanks to monopoly routes to small cities in Northeast But wave of consolidation was sweeping industryBut wave of consolidation was sweeping industry US Air bulked up w/ 1987 purchases of Pacific Southwest and PiedmontUS Air bulked up w/ 1987 purchases of Pacific Southwest and Piedmont

Acquisitions turned co into #6 airlineAcquisitions turned co into #6 airline Represented first failure to overhaul businessRepresented first failure to overhaul business

Acquired airlines both had lower costs and better service, but instead of adopting Acquired airlines both had lower costs and better service, but instead of adopting their culture US Air assimilated themtheir culture US Air assimilated them

Workers at acquired airlines got large raises that brought them into line w/ US Air Workers at acquired airlines got large raises that brought them into line w/ US Air eesees

US Air’s costlier work practices also spreadUS Air’s costlier work practices also spread E.g., Piedmont customer-service agents earning $6.75/hr also worked on E.g., Piedmont customer-service agents earning $6.75/hr also worked on

tarmac, directing planes in and out of gatestarmac, directing planes in and out of gates At US Air, mechanic who earned at least $18/hr performed that jobAt US Air, mechanic who earned at least $18/hr performed that job US Air had to hire 400 mechanics to serve added Piedmont flightsUS Air had to hire 400 mechanics to serve added Piedmont flights

55

““How Airlines Resisted Change for How Airlines Resisted Change for 25 Years, and Finally Lost”25 Years, and Finally Lost”

Imposing lower-cost system on US Air ees would have involved Imposing lower-cost system on US Air ees would have involved labor conflictlabor conflict United’s pilots had staged 1985 strike to defeat mngt’s attempts to put United’s pilots had staged 1985 strike to defeat mngt’s attempts to put

newly hired pilots on ‘B scale’ w/ lower pay and more hoursnewly hired pilots on ‘B scale’ w/ lower pay and more hours Cost of buying labor peace was steepCost of buying labor peace was steep

Unable to compete w/ Southwest in California, US Air in early 1990s Unable to compete w/ Southwest in California, US Air in early 1990s scaled back and ultimately pulled out of most routes within West, scaled back and ultimately pulled out of most routes within West, essentially writing off acquisition of Pacific Southwestessentially writing off acquisition of Pacific Southwest

Acquisitions had given Co unneeded maintenance bases, reservations Acquisitions had given Co unneeded maintenance bases, reservations centers, training facilities, and crew bases, and it failed to close themcenters, training facilities, and crew bases, and it failed to close them Also had many different types of planes, unlike discounters that saved Also had many different types of planes, unlike discounters that saved

money on maintenance, training, and scheduling by having fewer typesmoney on maintenance, training, and scheduling by having fewer types Labor contracts signed in 1997 and 1998 gave most workers parity w/ four Labor contracts signed in 1997 and 1998 gave most workers parity w/ four

largest airlines plus 1%largest airlines plus 1% U leaders say mngt should bear blame for failing to cut nonlabor costs faster and U leaders say mngt should bear blame for failing to cut nonlabor costs faster and

attract more businessattract more business Successful airlines such as Southwest and Continental are mostly Successful airlines such as Southwest and Continental are mostly

unionizedunionized

Created low-fare division called MetroJet, but experiment failed Created low-fare division called MetroJet, but experiment failed because it didn’t have low costs to match faresbecause it didn’t have low costs to match fares Note Song and TedNote Song and Ted

66

““How Airlines Resisted Change for How Airlines Resisted Change for 25 Years, and Finally Lost”25 Years, and Finally Lost”

US Airways endured thanks to ability to charge high fares to business US Airways endured thanks to ability to charge high fares to business travelerstravelers Rise of Internet undermined this advantageRise of Internet undermined this advantage

Previously, only travel agents had access to computerized reservation systemsPreviously, only travel agents had access to computerized reservation systems In many fliers’ minds, mileage awards, airport lounges, first-class cabins, other In many fliers’ minds, mileage awards, airport lounges, first-class cabins, other

amenities offered by big carriers no longer justified higher faresamenities offered by big carriers no longer justified higher fares US Airways entered bankruptcy in August 2002, emerging in March 2003US Airways entered bankruptcy in August 2002, emerging in March 2003

Cut ~$2b in annual expenses, but not strong enough to ensure viabilityCut ~$2b in annual expenses, but not strong enough to ensure viability Costs to fly a seat a mile remained the highest in industryCosts to fly a seat a mile remained the highest in industry

Philadelphia was most profitable hubPhiladelphia was most profitable hub Talk of Southwest entering market, but US Airways believed Southwest would fly into Talk of Southwest entering market, but US Airways believed Southwest would fly into

Allentown – they guessed wrong… Allentown – they guessed wrong… US Airways forced to add flights and cut fares in responseUS Airways forced to add flights and cut fares in response Four months later, back in bankruptcy courtFour months later, back in bankruptcy court

In first bankruptcy proceeding, US Airways said it expected it could succeed In first bankruptcy proceeding, US Airways said it expected it could succeed if it competed well against other higher-cost airlinesif it competed well against other higher-cost airlines

Now, Co recognizes it must be able to compete against lower-cost carriers Now, Co recognizes it must be able to compete against lower-cost carriers as wellas well

Current CEO: “Sooner or later, people have to realize that the paradigm has Current CEO: “Sooner or later, people have to realize that the paradigm has shifted”shifted”

Source: Source: Wall Street JournalWall Street Journal, 10/5/04, 10/5/04

77

FIGURE 10-2

Lewin’s Force-Field Theory of Change

Resistance to change

Resistance to change

Forces for change

Forces for change

P1

Time

P2

Leve

l of p

erfo

rman

ce

Chang

e

88

Organizational Theory

Developments in Evolutionary Change

Sociotechnical systems theory: proposes the importance of changing role and task or technical relationships to increase organizational effectivenessTotal quality management (TQM): technique developed by Deming to continuously improve effectiveness of flexible work teams

Quality circles: groups of workers who meet regularly to discuss way work is performed in order to find new ways to increase performance

99

Organizational Theory

Developments in Revolutionary Change

Guidelines for Reengineering

Organize around outcomes, not tasks

Have those who use the output of the process perform the process

Decentralize decision making to the point where the decision is made

1010

Organizational Theory

Developments in Revolutionary Change

Restructuring: changing task and authority relationships and redesigning organizational structure and culture to improve organizational effectiveness

Downsizing: process of streamlining organizational hierarchy and laying off managers and workers to reduce bureaucratic costs

1111

Organizational TheoryFigure 10-6: Steps in Action Research

1212

Organizational Theory

Organizational Development (OD)series of techniques and methods that managers can use in their action research program to increase the adaptability of their organization

behavioral science discipline that provides a set of methodologies for systematically developing high‑performing organizations

1313

Organizational Theory

OD Techniques to Deal with Resistance to Change

Education and communication: inform workers about change and how they will be affected

Participation and empowerment: involve workers in change

Facilitation: help employees with changeBargaining and negotiationManipulation: change the situation to facilitate changeCoercion: force workers to accept change

1414

Organizational Theory

OD Techniques to Promote Change

Sensitivity training: group members, aided by a facilitator, learn how others perceive them and may learn how to deal more sensitively with othersProcess consultation: OD technique in which facilitator works closely with manager on the job to help manager improve interactions with other group membersTeam building: OD technique in which facilitator first observes interactions of group members and then helps them become aware of ways to improve their work interactions

1515

Organizational Theory

OD Techniques to Promote Change

Intergroup training: OD technique that uses team building to improve work interactions of different functions or divisions

Organizational mirroring: OD technique in which facilitator helps two interdependent groups explore their perceptions and relations in order to improve their work interactions

1616

Organizational Theory

OD Techniques to Promote Change

Organizational confrontation meeting: OD technique that brings together all managers of an organization to confront issue of whether organization is effectively meeting its goals