If the entire company needs to be changed, the CEO is the key player. This chapter focuses on strategy from the CEO's role of strategic effective leadership. the values and the standards of the organization: Values establish a company's identity; .. conserves resources by cutting costs, and is selective about priorities.
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- An Empirical Study of Strategic Positioning and Production Efficiency
- Airline CEOs: the increasingly important quest to find the ideal characteristics
- SAGE Books - The CEO as a Strategic Leader
- Advances in Operations Research
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They did not inherit sclerotic legacy frameworks and cultural backwardness. Theirs was the culture to establish and the world to be changed. The airline world has changed greatly since and the LCC leaders have often played a large role in that. In just over a decade AirAsia's Tony Fernandes has transformed a tiny, unprofitable Malaysian airline into one of Asia's biggest airlines — and the world's lowest cost short-haul — almost entirely through the force of character.
With great people skills, he has led from the front, innovating and inspiring, manoeuvring complex government regulation on international routes, establishing a new cross-border model for the region. A couple of years ago, Brazil 's LCC Gol would have been regarded as a model, transformational airline, but has since run into financial headwinds, causing the far-sighted founder and CEO, Constantino de Oliveira Jr.
The airline dramatically changed Brazil's domestic market, but shortage of financial success makes standing out more difficult. That does not necessarily qualify for CEO leadership but, despite some operational qualifications, requires remarkable skills. A parallel leasing operation provides a useful risk management tool.
All are seriously entrepreneurial, unlike the usually more institutionalised leaders of older full service airlines. Managing a large airline through rapid expansion is a feat that requires enormous skill. The nature of commercial and safety regulation create enormous barriers to fast growth, not to mention achieving profitability at the same time. To have simultaneously overhauled the world's long-haul market adds context to the remarkable feats that Emirates Airline has achieved. The Dubai -based carrier is today the world's fourth largest international airline by seats and the largest by available seat kilometres testimony to the nature of its long-haul flying.
With a fleet of over all-widebody aircraft and nearly as many on order, Emirates is receiving about two new aircraft every month one every 15 days! Apart from the obvious operational challenges and the constant need to wear down foreign government protectionism in order to gain market access, managing a staff that consists of different nationalities, while adding a new widebody aircraft to the fleet every 15 days, undoubtedly requires unique skills.
Meanwhile, just km down the road from Dubai in Abu Dhabi , Etihad has actually become the fastest-ever growth airline. Founded in , nearly 20 years later than Emirates, it has over 80 aircraft in service and a similar number on order. But where CEO James Hogan has made an indelible mark is in establishing a new order in airline partnering. Born of a recognition that matching the size of its near-neighbour was impossible, yet needing to attain critical mass necessary for an effective hub operation, Mr Hogan turned to codeshares and then progressively to equity ownership to entrench a new Etihad "equity alliance".
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In an industry where cross border equity holdings are very much the exception, Etihad has, in short order, acquired holdings in no less than six airlines, along with nearly 50 codeshare agreements and mutual FFP links. The airline is smaller than Emirates, but is still the 16th largest international carrier in the world by available seat kilometres. Like Etihad it has a mix of short and long-haul aircraft; with in operation and on order the carrier is also on a rapid expansion trajectory.
Qatar distinguished itself from the UAE carriers in by being accepted into the oneworld alliance, and joining on Oct, the only Gulf carrier to join a global grouping. With this diversity of model and scale, the ideal CEO is not going to be easy to find — and many features conspire to make the airline business — and many of the airlines in it — unique.
Clearly there are different and special characteristics involved in leadership. The assertion of industry uniqueness will offend some management experts and most economists ; certainly every business is different. But airlines are more different! There are many layers to the airline onion. Just pricing the perishable airline product involves a complex combination of science, technology and the dark arts.
One anecdote, a useful test of the complexity of any business: Asked to act in an anti-competitive airline pricing matter, the counsel concerned arrived at a Monday briefing armed with two hours to learn the niceties of airline costing and pricing. By the end of a week, they had begun to feel they understood the basics of the process. An airline is many businesses under a single roof — and, for international airlines, many roofs around the world with mandatory presence in all markets and jurisdictions served.
The day-to-day issues involved in aircraft maintenance, catering, running a frequent flyer programme, distributing product through multiple channels, handling bags and freight, training, managing and retaining skilled staff such as pilots, making risky multi-billion dollar investments in future aircraft, hedging currencies and fuel prices, with costs and revenues and staff spread through perhaps 60 countries could hardly bring with them a wider range of challenges. That is even before navigating the mountainous daily log of regulatory matters, in an industry where safety is the often unspoken fixed reference point and arcane economic constraints apply.
There is yet another distinguishing feature: The airline industry is a very old business, which boasts vastly more sexagenarian companies than any other. Several well known brands are well into their 80s and beyond. KLM , Avianca and Qantas are all well into their 10th decade and Mexicana just fell short, at the age of 89, when it finally collapsed in Aeroflot recently turned That this longevity is a child of regulation is no secret.
But, as with the fragile human body, age frequently brings with it sclerosis. In industry terms these are known as legacy issues.
They embrace pension funds, older, more costly employees and, above all, numerous highly organised and often globally coordinated unions. With usually at least a dozen or so unions to negotiate with in two or three year cycles, personnel issues are never far from front of mind for a legacy airline CEO, for better or for worse. It is fiercely competitive, yet nationalistic hangovers preclude international mergers. It is consistently the worst performing industry, bar none.
It only exists because its constituent airlines tend to pay their debts.
An Empirical Study of Strategic Positioning and Production Efficiency
Equity is not the foundation. No intelligent investor sees airlines generally as a long-term place to park funds. There are odd exceptions, but generally they are simply too complicated. Stock prices rarely even cover the asset value of an airline. This has given rise to the occasional attempt to privatise an airline company in order to expose and sell down the profitable parts, such as frequent flyer programmes, the rentable value of the fleet and various other discrete functions such as catering and maintenance.
In this way, the thinking goes, the simplified company structure allows better value assessments by analysts — and each company with its own CEO. Where it has happened however, with Air Canada for example, the residual airline struggles to make a living, because it is intrinsically such a poor business, at least in the shape of returns on investment. Thus airlines essentially seem to exist to support a host of suppliers and financiers — as well as to perform a remarkable socio-economic function.
The industry drives world tourism — and business — and in doing so ensures it is always in the spotlight, among consumers and politicians alike. If a politician wants to get some quick media coverage, attacking the airlines is guaranteed to get front-page column space. Who then in their right senses would want to run an airline? The relative importance of these leadership ingredients is largely a matter of opinion and timing and as we have noted one clear prerequisite is to remain in business — to be profitable.
Despite the lingering doubt about even this being essential in an industry where market exit is so infrequent, profits at least offer relief for the airline CEO. It is important also to recognise the importance of each will vary dependent on timing, the airline involved and its competitive environment.
Thus there is no common formula. For legacy airlines innovation rare and difficult though it may be is not enough. Like it or not, their people must be a major priority — not just because they will often have to accept poorer salary and conditions than they would like, but also because in such a consumer facing business they can make such a difference to the brand. It is perhaps no coincidence that most airline CEOs today are at such pains to stress that it is their people who are their main assets; they, not metal, are the sine qua non of the airline. This old industry is in transition.
Airline CEOs: the increasingly important quest to find the ideal characteristics
The process has been accelerating over the past two decades, but the reality of a new world is now unavoidable, as global economic conditions decline and growth in mature markets is no longer there to paper over the cracks that appear. Short-haul routes are under attack by low-cost competition; long-haul is becoming more competitive as regulatory controls are lifted and new entry from Middle Eastern and Asian airlines is introduced. In these conditions, a common pattern of heavy bargaining is evolving. Legacy airline managements are being forced to make big strategic adjustments, and to do so in short order.
Their primary action is inevitably to reduce costs. Yet most costs are external and allow only limited management options; fuel, now more than a third of cost, capital expenses and other overheads are inflexible, at least in a timeframe that allows suitable responses to new competitive challenges. Manpower reductions and productivity enhancements therefore become almost the only levers to pull. But despite often-inefficient work practices and relatively highly paid staff, the unionised segments are understandably often unwilling to concede to change.
It means that a senior pilot in one airline would have to start again near the bottom if he or she wants to move to another company. In those circumstances, dealing tough with the existing management can be seen as the only option. Indeed, where the airlines have become profitable — partly due to cutbacks on pay and headcount — wage increase demands are becoming more frequent. Southwest Airlines for example, the longstanding model of the LCC, now has pilots who are paid well above the industry average but who are arguing for increases while the airline is making profits.
Often, even where employees recognise the pressures on the airline, taking action in the common good becomes unacceptable at an individual level. Here is where the push-back occurs — and where management skills need to focus more on the People Priority. It is worth focusing on because it is one area where the persona of the CEO is a vital ingredient.
He was a corporate raider, highly confrontational towards organised labour. He is not fondly remembered — except by some of his shareholders. For those who would use it, the People Priority is not a switch that can simply be turned on or off. One right move can sway opposition, just as one wrong step can unravel years of hard work. So, not only must several people-oriented courses of action be committed to, there must also be the management capability to apply them consistently.
SAGE Books - The CEO as a Strategic Leader
In some — very rare — cases, a leader can create a strong culture over a short period of time by his or her actions and through genuine leadership. And even where an individual can wreak that change, paradoxically, it will not be achieved in isolation; this will be the one who is able to carry the board and staff along on the weight of strategic commonsense and an ability to communicate on a multilateral scale.
This valuable leader must be able to formulate and articulate corporate goals that all staff can recognise. Especially in a highly unionised environment, managing staff expectations is key to this process, ensuring they believe in it and feel some ownership. At the same time, customers too need to be able to relate to the innovations being made. The People Priority is also important in external dealings with airline peers, in partnerships, which demand a special ability to deal with a host of different airlines and to maintain sound relationships.
In ownership terms a minority equity share is the best that can be hoped for. So the ability to secure and nurture partnerships with other carriers is increasingly important as the industry liberalises, while having its feet still anchored in the cement of national ownership requirements. Today these are not optional relationships — they are an essential extension of market reach. Whether it is in a global alliance or in a series of bilateral links often both , the CEO is focal. In bilateral relationships especially, good personal chemistry, as well as the necessary strategic synchrony, is a precondition to successful partnerships.
Consequently, more than in any other industry, airlines rely on personal relations between senior executives of other large companies to seal the inevitable partnerships they must engage in. It is not just the global alliances, but literally thousands of bilateral arrangements between airlines mean that whole divisions of management must preoccupy themselves with making those deals work, seeking a balance of rewards and, at the same time ensuring that new opportunities are grasped.
The implied hands-on nature of this person-to-person ideal does however involve walking the fine line between leading from the front and being so engaged that the high level goal-making becomes blurred. The complexities in drawing together numerous different sub-businesses can easily force the CEO into becoming predominantly an operating officer rather than an executive — a chief operating officer, not a CEO. The airline CEO can all too readily become much more operationally focused than his equivalent in any other company.
That has some positives — it ensures a full grasp of all the interactions within the airline, for example, and it allows a good personal-touch CEO who is seen to be managing difficult problems, entrenching hero-relationships in the process. But it can also mean that everything that goes wrong is directly personally sheeted back to the CEO, regardless of actual accountability.
He or she must be where the buck stops; however, being able to rely on the central message being relayed effectively without direct intervention is not an easy task as the foundations of the industry shift. Airlines are typically institutionally weak in risk management. This may seem odd for an industry that is so risk prone.
Despite — or perhaps because of — the wide array of uncontrollable external hazards in particular, risk minimisation and management is typically distributed across a variety of corporate areas, so that coherent strategies are hard to find. Oil prices and the financial meltdown hurt airlines more than most.
This institutional incoherence therefore means that the airline CEO must become involved in almost every aspect of managing the fallout from each event. It is ironic though that the rapidly escalating impact of social media on airlines is finally forcing a linear discipline on management. The constant and growing need to respond quickly to anything from the most ludicrous consumer complaint to Qantas' near fatal A engine explosion in has wrought massive improvement in most managements' readiness to respond quickly to crisis, real or surreal.
The other side of hands-on risk management is innovation — or often, lack of it, in most airline managers of recent years. Steve Jobs was always striving to innovate. He was a master of technology and had the luxury of being hands-on in developing new models in an area where rapid advances made innovation de rigeur. His was a young industry, overthrowing the longstanding powers of music distribution and communications. Without innovation, Apple was dead. The same is hardly the case for network airlines. Here the status quo can be charmingly — and deceptively — attractive.
In this situation the airline CEO is typically hemmed in by such an array of unfriendly external events and myriad suppliers including airports, employee unions, government regulators, debt providers and lessors, even apart from the host of other service and equipment providers that conservatism rules. Taking a low-risk approach is so attractive that it becomes almost irresistible.
Throughout the modern history of aviation, economic regulation born of protectionism has distorted the nature of the airline business, so it is perhaps only normal that reliance on government intervention becomes the refuge of last resort. But to use it actively to stifle innovation by others or as an excuse for inaction cannot be a sustainable strategy. It is simply instead a means of delaying — and encouraging — the inevitable.
As the late Peter Drucker, widely considered the father of modern management, observed: He also urged that the process be systematised. Unless there are systems in place, the default position too easily becomes resistance to change, not innovation. Few industries are undergoing more change than airlines, yet the opportunities to innovate are seemingly going begging, notably among the longer established incumbents, where incremental change is happily mistaken for revolution. The result can be that any thought of systematising innovation is excluded by a fear of change in the first place.
The new entrant airline, by contrast, has all to gain and nothing of the status quo to lose. Innovation is a prerequisite, even if it means slavishly following the basic principles of an LCC. The skilled leader, however, will also probably be forced to guide his company through a process of evolution, as external conditions change. Recent, apparently successful, examples of this transition from earlier life forms include: Even the European majors — or two of them — have embarked on courses that, while not revolutionary, are certainly more than incremental.
The turnaround of British Airways and IAG under Willie Walsh, using a combination of confrontation and realism is one success story, as may be the unfolding strategy of Lufthansa's team. Meanwhile the third major, Air France , remains bogged down in incrementalism. And here, to return to the heavy burden on the airline CEO-cum-COO, Peter Drucker emphasises that the top manager cannot afford to be bogged down in day-to-day operations: Too often today, the CEO must be involved not only in the thought processes but also the execution of too many functions.
Advances in Operations Research
Innovation can get out of reach. While European legacies have been leveraging ownership structures and driving alliances, US full service airline CEOs have typically ranked among the low-risk takers. That is not necessarily a criticism, although it can scarcely be a compliment, given the overall performance of the sector over the past 20 years. During that time the US majors have been characterised by a largely indistinguishable chorus of bankruptcy almost as a strategy , consolidation and partnerships.
Innovation for these airlines has mostly been conspicuous by its absence. That's not to say selective imitation is unwise, but it can't be called innovation. Major US airline leaders may feel miffed at this assessment, especially as they are currently banking record profits. Yet, other than achieving bulk on the back of repeated bankruptcies, the big three American full service airlines now with an American-US Airways combination remain very much the same overweight companies heading for Chapter 11 again by the end of the decade, as the old cycle continues. That they are bigger and more powerful is certainly a temporary help in generating domestic profitability.
But it is important not to confuse innovation and market dominance. The innovation may come as dreaded "ultra-low-cost airlines" re-emerge, or as innovative hybrids like JetBlue expand. As hinted at above, even Southwest may be endangered now. Like JetBlue and Virgin America, and even a renewed Alaska Airlines , or the likes of easyJet, Vueling and Norwegian in Europe, it has been the new entrants that were mostly responsible for delivering improved service quality, along with numerous initiatives around reservations and distribution and passenger facilitation.
Not all of the new faces survived, but they certainly had the advantage of starting with a blank page, a good place to start when innovating; but there is no reason it should have been left to them to show legacy airlines the way in such areas as baggage charges. In a class alone of course has been Southwest Airlines. By the first decade of this century, LCCs were overlapping significantly and Southwest was inevitably showing some signs of legacy weakness.
But, although buffeted by new forces and the increasing effects of age, the airline is still distinguished by the positive inheritance he and former executive vice president Colleen Barrett left, with a culture that is preserved institutionally. When, back in the '80s and early '90s, Herb Kelleher invited other airlines to come along to "Corporate Days", his staff would worry about giving away all the company's secrets.
The CEO's response was "don't worry, it's so simple they just don't get it Herb Kelleher was undoubtedly hands-on, as were the small, new, passionate entrepreneur-led airline CEOs. He was always in touch; his comfort zone was everywhere. His deceptively simple formula may be impossible to replicate; and it is tempting to dismiss that as being of another era. But some elements are surely timeless. This outstanding brand of leader sees things first hand, feels the wind in the hair.
No different from many other CEOs in other industries. For big bankers that might work, but the successful airline leaders realise they need to be in touch. This is a dangerous place to be when the world around is changing so fast. It is possible — if not inevitable — that a division between CEO skill profiles will exist in different parts of the world.
For example, in the more hierarchically oriented cultures of Japan and Korea , the approachable CEO may be valued less. Leadership is still highly valued, but takes different forms. Yet even this stereotypical leader is fast disappearing as generational power shifts occur. This is, for example, particularly evident in new low-cost start-ups, which tend to target the younger, increasingly affluent singles market. That the small subsidiary constantly runs up against a traditional management does not make life easy, but that sort of change still comes slowly in Northeast Asia.
Asia and the other high-speed economies of the Middle East, Latin America and Eastern Europe as well as Africa are today typically home to vibrant, expansive airline markets. They can be intensely competitive, but they are redolent with opportunity. Innovation does not come automatically in these circumstances. The Asian flag carriers mostly derive from a recent history of government ownership and protection, so taking potentially risky — for the CEO — new moves is far from instinctive.
Yet the fast expanding Asian markets are spawning new entrant LCCs that in turn provoke responses from the various flag carriers. Managing potentially conflicting goals of the different airline subsidiaries was something the US and European companies found too hard in the late s; today the formulae are different, supported perhaps by less rigid work practices and the potential for growth as opposed to substitution that encourages successful solutions.
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The European majors are now re-exploring that territory — but the conservative Americans aren't. In Business transformation strategies: The strategic leader as innovation manager pp. The Strategic Leader as Innovation Manager , Mascarenhas, O A , 'The ceo as a strategic leader', in Business transformation strategies: Have you created a personal profile? Login or create a profile above so that you can save clips, playlists, and searches.
Please log in from an authenticated institution or log into your member profile to access the email feature. Transformations often begin when an organization has a new head who is a good leader and who sees the need for a major change. If the entire company needs to be changed, the CEO is the key player. If a divisions needs change, the divisional general manager is the key.
If any of these key players are not great leaders or change champions, transformation is difficult. If these leaders honestly believe and are convinced that the status quo is unacceptable, and must do something about it, then the transformation process is on. The number one error in a transformation process is not establishing a great enough sense of urgency Kotter