Only four of the world's top companies are singled out by two toughly critical management academics for having both 'reinvented their industry' and 'regenerated their strategy'. Of the four, only one comes from the UK: British Airways. The authors, Gary Hamel and C.K.Prahalad, base their book Competing for the Future on the proposition that reinvention and regeneration are the only ways of winning the competitive battles to come - and their praise is mighty pleasing for Sir Colin Marshall.
He's been in command of BA since becoming chief executive in 1983, when he was 50 years old. Although Marshall has never been to university, let alone business school, he brought to BA wide experience in international business. After going into the merchant navy at 18, he started on the management ladder as a Hertz Corporation trainee in Chicago and Toronto, and obviously showed tremendous promise. General manager in Mexico at the age of 26, he was assisting the corporation's president a year later: at 29 he was running the UK and Benelux operations.
From there, Avis poached Marshall to head its European operations. He was chief executive worldwide when the Avis business was taken over in 1979, and moved briefly to the Sears Holdings retail group before joining BA. What's happened there under Marshall to earn Hamel and Prahalad's plaudits? The reinvention and regeneration, they say, has produced 'unfailingly high standards.' BA constantly searches for areas that 'can add new levels of customer service that yield more in terms of loyalty and price realisation than they cost to create.'
The airline offers free mileage programmes, 'but more as a bonus and less as a bribe' - one of several unflattering comparisons that the authors make between BA and its transatlantic rivals. The authors see Marshall as engaged in a competitive race against Robert Crandall of AMR (American Airlines) and Stephen Wolf (then at United) 'to create the world's first truly global airline.' Other potential runners have been eliminated, like Pan Am: and who would have rated BA's chances against the industry pioneer before Marshall took charge?
The 'dream' that Marshall expressed after privatisation in early 1987 was to become 'The World's Favourite Airline'. Hamel and Prahalad call such an energising dream ('often something more sophisticated, and more positive, than a simple war cry') a 'strategic intent.' The rapid improvement in BA's customer rating (to best transatlantic airline in 1992, according to Business Traveller) represents the realisation of the dream, the turning of intent into action. The academics believe BA 'one of those very few airlines that people would actually go out of their way to fly.'
That may only mean that Hamel and Prahalad are two exceptionally happy customers, passing on their good experiences, which include the innovative 'elegant arrivals lounge at Heathrow' where passengers arriving from red-eye flights can shower, shave, smarten up and breakfast ('heaven-sent'). But there's serious strategic intent behind all these frills. BA needs to 'protect its margins and avoid deep discounting.' So you target ways of contributing the most to 'customer value': or you 'leverage' resources by targeting them 'in the areas that make the most difference to customers.'
You can only find out what makes that difference by listening to those who know: the customers themselves. Another highly regarded American academic, Richard Pascale, also believes that BA's 'service ranks among the best' and links that with the fact that 'it is one of the most profitable airlines in the world.' The programme which launched BA on Marshall's ambitious way was called 'Putting People First'. Writing with two co-authors, Pascale told readers of the Harvard Business Review that Marshall 'began leading British Airways down that road by going to those who dealt closely with customers and asking them what needed to happen.'
Paying attention to the customers and responding to their needs is fundamental to modern management. It fundamentally changed BA.The necessary action turned out to cover 'everything from making sure that the concourse lights were always on to seeing that meals on short flights were easier to deliver and unwrap.' Action taken included placing the airline's operations under the marketing arm, to ensure that 'all operating decisions would start from a concern for the passenger.' And the 'Putting People First' programme sought to create that same vital concern in individual BA employees.
As Chris Lane of TMI, the company which installed the programme, has observed: 'Everyone has their customer service stories, good or bad, but they have a common theme - the benefit of individual attention.' But what persuades individuals to pay attention to the customers - or (more commonly) stops them from doing so? Lane stresses that managers 'have a quality customer care duty to their own staff, as well as to those who provide the corporate income more directly.' Too often, though, companies make 'the mistake of focusing their efforts only on members of staff who have direct contact with customers. This strategy has almost always failed in the long term.'
Colin Marshall had no doubt that this truth applied to BA. Back in 1983, the year he moved in, he said that 'We want to persuade our staff that their colleagues are people too, and that the way staff treat each other is just as important as the way they treat the customer.' In fact, BA's most striking proof of the benefits of paying attention to your own people came in an area where direct contact with the passenger is most remote: engineering. It's a very large business in its own right, managed by Alistair Cumming, who became director of engineering in the year of Marshall's arrival.
The merger of BOAC's and BEA's workforces had brought total numbers down from 14,500 to 8,000. Productivity had duly risen sharply: but nobody could have called BA Engineering productive - it was beset by bad working practices, often enshrined in union agreements. Then, a seeming miracle happened. In fact, 'magical', is the word Cumming uses for the breakthrough numbers of 1991. In a very hard year, the reduction in engineering costs went 'beyond my wildest dreams'. He didn't know exactly how it happened, which worried him as an engineer. If you don't know the cause, and the effect stops, you don't know how to bring it back. However, 'so far, so good - but it's better than that'.
The total underspend was a thumping £38 million. Even though drawing a precise cause-and-effect line is impossible, probably half the gains came from higher productivity of labour. And the major cause is clear enough. The management, in effect, went down to the shop floor and asked the men two questions. What are we doing that's preventing you from doing a better job? What are we not doing that would help you to work more effectively? Most important, management listened to the answers - and, even more important, acted on them.
That's a loose description of what happened after BA took on Kepner-Tregoe as total quality consultants in Aircraft Maintenance (which dominates the division). Management wanted, not only to save costs, but to turn the organisation - change its culture, in the jargon - from one which didn't satisfy either management or men into a successful business which satisfied both. All operations, however good, can, of course, be improved. In most cases, though, the gap between present performance and potential is enormous. BA simply refused to accept that the gulf couldn't be bridged.
Reducing staff numbers working on BA planes had a 'double-whammy' effect. Costs came down in the de-manned departments, while income rose as men now maintained planes for other airlines. This ability to absorb spare skilled people ('real Japanese stuff') greatly helped BA's advance along the quality road. Since higher productivity raised no threat to jobs, positive emotions were much easier to arouse. What BA wanted to achieve depends heavily on emotion. When the emotion is positive, everything becomes possible. Let negatives into the air, and everything becomes much tougher.
One highly negative example that Cumming discovered on taking over was a pile of unserviceable undercarriages. They occupied a third of the floorspace, and were blamed on capacity bottlenecks. The problem could have been dealt with by sub-contracting, but shop stewards had an effective veto on putting work outside. With full backing from Marshall, Cumming acted firmly to restore management rights in the matter.
Nothing illustrates the huge gulf between then and now than another sub-contracting story. On the face of it, overhauling its own seating seemed senseless for BA, exactly the kind of work that could be better done by outside contractors. The work stayed at Heathrow - not because the unions, or anybody else, said it must; the men, given the chance, simply proved that their costs were well below those of all two dozen outside contenders.
Between 1983 and 1990, however, the result of management's determination to manage was turbulence - including a much-publicised strike. Management, together with the professional engineers, literally ran the airline for the best part of a fortnight. But Cumming was convinced, in the aftermath of the stoppage, that 'very determined management' could only go so far. To sustain further progress, BA had to win the employees' positive involvement and support. Achieving a totally different relationship, though, would demand a totally different approach from middle managers - and that was the biggest challenge.
These men, after all, had learnt how important it was for management to manage - and firmly. Now they were being asked to accept a sweeping change of culture. Cultures can be changed in two broad ways: by taking steps to create a new working atmosphere first, and then providing the necessary tools to solve problems: or by first supplying the tools, encouraging their use, and then letting cultural change come through - the line taken at Aicraft Maintenance. The consultants began by going down to the shop floor in January and February 1990 and seeking answers to five key questions:
1. Are there any quality issues?
2. If so, how are they picked up and transferred?
3. If they are picked up and transferred, how are they dealt with?
4. If they are dealt with, what working mechanism is used?
5. Is the environment supportive of change and the new behaviours required?
The analysis found plenty of internal quality issues, but since they weren't picked up or transferred, they were never dealt with. So many issues were outstanding that there was no point in monitoring the systems. In a sense, the process had to restart from scratch. That meant finding a project on which a fresh start could be made: capturing the issues, transferring them, and developing the skills for their resolution. Feasibility was crucial. In aircraft maintenance, you can't 'stop the line' - work must continue.
Nor are soft, unspecific messages any good when dealing with engineers. Hard, clear proposals and practices are needed. William Hextall, the consultant who led the project, emphasises that 'pragmatic, nuts and bolts total quality' was the necessary order of the day, using 'hard' processes' to achieve 'soft' objectives. The programme was ostensibly not cultural at all. It consisted of defining areas where K-T's well-established tools could be used, supplying the tools, coming to solutions - and carrying the solutions through.
By concentrating on substance, these managers felt more comfortable. 'Skills for quality improvement', known as SQI, were provided in five stages: basic Situation Appraisal (sorting concerns); Problem Analysis (finding the cause); Decision Analysis (making a choice); Potential Problem Analysis (ensuring success of action or plan); and Managing Involvement (ensuring commitment through involving the right people).
The consultants designed the project round what they heard and saw, using interviews, observations, and some number-crunching. The process began moving very fast, until the use of the K-T tools became imperative, with active management support. Practicality was crucial. For example, at Terminal Four traffic growth demanded more people. The extra numbers couldn't all be accommodated in one place. How best to divide the workforce between two sites?
Management could have planned the split and issued orders, risking almost inevitable uproar. Instead, the problem was turned over to a total quality group led by a foreman, with volunteer members. The excellent outcome, in Cumming's words, 'was a dream beginning to come true'. The dream isn't non-management; rather a different, truly attentive way of managing. BA's view is that this more effective way probably takes no more time: though it certainly demands more patience. That's the only downside of the switch from giving directives to 'facilitation and getting to understand', to 'encouraging and helping'.
At one moment, the upside benefits might have been lost to Aircraft Maintenance. A very detailed plan had been presented to everybody in the 747 and short-haul hangars. When the Gulf crisis hit, budgets were cut, and the consultants sent home. However, they persuaded BA to spend enough to test the approach's value in one small area, the 747 hangar, employing 150 people. This hangar had a long record of ill-success, frustration and inadequate management. If KT's methods could make headway there, ran the thought, they could do so anywhere - and, according to Cumming, 'people could hardly believe' the take-off that followed.
The synergy between the K-T methods and the actual work of maintaining aircraft must have helped. It was especially marked in the Casualty hangar, where ailing planes are handled by a highly skilled group. These engineers saw that KT 'Problem Analysis' had direct relevance - for its purpose is to 'find cause of a deviation': the basic steps, describing the problem, identifying possible causes and evaluating them, and confirming the true cause, are a perfect fit.
That can't be said of everything at Engineering, of course. The biggest identifiable gap (identified by the men themselves in a survey) was in the man-manager relationship: specifically, paying two-way attention. Staff felt they still got much of their information from rumour, that their contact with managers was far too little, that their efforts weren't sufficiently recognised, that they were not listened to.
Cumming's response was to tell managers to take their coats off (literally) and spend every Friday afternoon in the work place. A strict and intelligent code of conduct governed these sorties: including, don't argue or get involved in argument, listen as much as you speak, don't mix business with pleasure (i.e, don't just socialise and ask about the wife and kids), and always (note) follow-up on what's discussed.
The conversion to total quality has survived some major challenges - notably the Gulf War crisis, which affected, not only BA's overall finances, but the job-preservation philosophy on which Engineering's transformation partly hinged. With heavy job cuts demanded in BA as a whole, engineering couldn't be an exception. There were 800 people over 60, however, which helped the division to lose 500 staff without undue pain. More important, 'a very strong collective sense of urgency developed out of the black days in January and February 1991.'
The remaining need was to institutionalise what had been achieved, in both morale and material results, so that it was no longer an exciting novelty, but 'the way in which we work'. The process is one of replacing negatives with positives, of doing the natural thing well, rather than the unnatural badly. Gatwick provides an example. The men servicing 757s freely decided that they could introduce a fourth line to handle a growing workload, using existing staff. A fifth line was then planned under the same conditions - meaning a total improvement in productivity of 40-45%.
Listing such successes runs the danger of the Pangloss syndrome, in which all's for the best in the best of all possible worlds. That's never true in industry. The work at BA sprang from coping better with what goes wrong - by collective effort, resolving issues before they become problems. But things have moved on.
Now the task is to do better what is already done well. Thus. encouraged by the 'magical' results, Cumming promptly launched Mission Fifty Million to take 10% out of the 1993-94 budget. Encouraged in its turn, BA launched a new Quality Board 'to migrate what Engineering has achieved'.
In other words, paying attention to the engineers has paid off so handsomely that the same approach is being applied to raising performance standards elsewhere - in the areas where paying attention to customers has already transformed BA's reputation and performance. Behind the scenes or up-front, in Cumming's words, 'You've got to enthuse the people who do the work.' Which means understanding that 'You can't light a bonfire at the top. It only happens if you light the fire at the bottom.'
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