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CASE STUDY: Scandinavian Airlines System (SAS), page 921 "The Strategy Process", Mintzberg et al. "Evaluate How Successful Jan Carlzon's Cultural Change Was in SAS?" I feel it beneficial in terms of my understanding of the case to provide a brief prcis and highlight any areas that I will expand on at a later stage in the analysis. The above mentioned man joined the company in 1989 as President and CEO and quickly initiated a series of major changes within SAS and its subsidiaries. Despite success until the ' 80 's a continuation of this was reliant upon a strategy of change, as increasing competition within the airline industry made it progressively difficult to survive in. SAS was experiencing problems that were to some extent unique to them concerning the location and the country's small population and high personnel costs resulting in high operating costs. After 17 years of profits SAS declared losses in 1979 / 80 and 1980 / 81. They had been losing market share due to its fleet mix and route network not meeting the market needs.
Combine this with the declining reputation for service and punctuality and SAS had a massive problem. Carlzon felt that the company had lost sight of what their customers wanted, as he put it, "they had become a product driven airline instead of being a service driven airline" (p. 924). He recognised that a new strategy was required to turn things around. The market that SAS was operating in was different to the one Carlzon experienced at Linjeflyg and so he was unsure as to whether increased flight frequency and cutting fares would work to great effect.
The most stable market niche within the airline industry is the full fare paying business traveller but due to the recession businesses were cutting back on 'First Class' travel. Carlzon however decided to pursue the full fare paying passenger after a bigger slice of the "pie", but this was not without its problems with bankruptcy imminent and alienation of tourist passengers being of major concern, should his plan not work. SAS dropped 'First Class' and replaced it with 'Euro Class' which was cheaper than competitors and gave customers more amenities and entitled them to separate check-in, roomier seats and a better standard of 'plain' food for example. An aggressive advertising campaign, improved flight scheduling and punctuality accompanied this, the idea being to differentiate the business class passenger from the 'cattle class'. "If the business traveller benefited from a particular service or function, it was maintained or enhanced, otherwise it was cutback, or dropped altogether" (p. 925). Expenses were to be seen as resources with the cutting back of expenses that didn't contribute to revenue. Having talked of the strategy, this could not have been achieved without major restructuring of SAS.
They had previously been preoccupied with returns on investment, centralisation and technology with no customer orientation in what was becoming a service driven industry. Employees had a very poor view of customers and as one senior manager put it, "Taking control of a situation and bypassing regulations in order to please a customer were not the things to do in SAS" (p. 926). To subsume a whole range of changes introduced by Carlzon I think it is sufficient to say that he turned a company of bureaucrats into a company of businessmen with an emphasis on the customer. The traditional method of focusing on instructions has now been replaced with an emphasis on information, with the result being that a front line employee had the power to make the decisions to please the customer. This is a prime example of empowerment where the people who perform the task make the decisions about the task and decisions are pushed down the hierarchy. The above paragraphs provide a summary of the changes without going into too much detail of all the changes he instigated.
He basically wanted employees to "throw out the manuals and use your head instead!" (p. 927). He saw this as a way of releasing " untapped reserves of labour resourcefulness by facilitating employee responsibility, commitment and involvement. " There were various problems he had to overcome whilst trying to initiate these changes, the first being the confusion and frustration of middle managers that were being bypassed from above and below in the new regime. I personally don't see this as a problem as this was technically part of his plan to, dilute middle management making the structure of the company flatter, so in a sense this was inevitable and a necessary evil. The second area of opposition was met when they tried to introduce cross training of staff which resulted in the unions becoming involved. Finally, the short term nature of the goals, having been accomplished it was seen that the job was done which resulted in small pyramids cropping up again, and the falling back upon old habits.
This meant that a second wave of change was introduced with a longer time horizon. The mission was to provide the business passenger with a complete service. The Theory of Organisational Culture (OC) and its Relevance to SAS. Having provided an overview of the important aspects of the case it is now the time to apply the theory, or one of the theories that could be used, to the case in trying to answer the question of whether he was successful. OC refers to the shared set of values that control organisations members' interactions with each other and with parties external to the organisation.
It is believed that this can be used as a form of competitive advantage and organisational effectiveness. Referring to 'Organizational Theory' by Gareth R. Jones (1995 - Addison Wesley Publishing Company) there are two kinds of organisational values; a Terminal Value which he refers to as "a desired end state or outcome that people seek to achieve" (p. 168). In the case of SAS, the end goal of all Carlzon's changes was ultimately to achieve excellence in terms of service for the business traveller which, within limits was down to front line staff. Instrumental Values concern "desired modes of behavior" (p. 169) which are illustrated by the quote by Carlzon where he stresses the use of your head, not manuals. The value here would be the use of initiative by the individuals to please the customer.
These two values should be complementary as the latter should help in the achievement of the former. This culture is transmitted to the employees, particularly new ones, by modes of action of employees, behaviour, language, norms and more formally training programmes amongst other things. This is evident in SAS by the use of various tools by Carlzon when he was trying to reinforce the culture he wished to be followed. Examples seen are the use of personal letters, Carlzon's red books, personal meetings with SAS employees across the world, all with the intention of making the employee feel valued by the company and that their input was wanted. The most formal tool he used was the use of the 'learn to smile seminars' which were introduced as a form of education but the benefit they produced was more to do with the perception that the employees had that the company 'cared'. The next idea to consider is the impact of structure on culture and suffice it to say that Carlzon recognised that the structure in place, bureaucratic and centralised with no use of initiative, was not the correct structure to implement the changes he saw necessary to turn SAS around.
This is why he saw fit to flatten the structure, removing some of the hierarchy and enabling front line staff to bypass middle management. This is epitomized by the statement 'bureaucrats to businessmen'. The competitive advantage is there to be gained by having the ability to design a structure and manage your culture so that there is a good fit between them. Punctuality rose to 93 % (from a low of 85 %). By 1986 SAS had the third best profit performance. In the same year, 60 % of customers were full fare paying - the highest in Europe.
To draw upon a final piece of theory adapted from Johnson and Scholes, SAS appear to have changed in such a way that is mirrored by Miles and Snow's categorisation of an organisation's culture. They identified a defender, prospector and an analyser, only the first two relevant to SAS. At the outset, SAS appeared to have a defender culture in place, finding change a threat and favouring continuity and security, backed up by a bureaucratic approach to management. Having decided to pursue the full fare business passenger and requiring a fundamental change in culture, they now appear to be the complete contrast, a prospector, thriving on change and having a more creative atmosphere in place to embrace this. What we must remember when talking of an organisations culture is that there is no 'best' or 'worst'.
Take for example McDonalds, the culture and structure they have in place is suited to their needs, whereas the same centralised bureaucracy is no use to Swordfish Marketing and Promotion Limited. There are many other considerations when evaluating culture, the match between market / product positioning and say core competencies both play a major part in the successful use of culture. The change in culture was successful as far as it went, in that it enabled the strategy to be implemented and the above results to be achieved. The problem is showed by the introduction of the second wave of change, the initial changes threw up problems that required attention, as will the second and any further changes which will be needed in the future. The job is far from over and in fact it would be better to see it not as a job but more as a continual modification of the company in the light of the highly dynamic and competitive environment which they face. I don't believe you can say whether it has been successful per se as the job is ongoing and will never finish.
Up until the end of the case study it appears that what Carlzon implemented was successful by the achievement of SAS's results. However, the show must go on! Bibliography:
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