Mg 112 - Management Principles :

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Case review summary

Question(s) to be answered

Decision

Key factors in making the decision

Anticipated repercussions from the decision

Alternative decisions

Why alternative decisions were not chosen

Case Incident Study:Organizational Change at Air Canada

In early 2003, Canada's national airline was in crisis. The downturn in air travel caused Air Canada to post a $428 million annual loss. Air Canada executives decided to restructure the company and approached its employee unions to talk about ways of cutting $650 million in labour costs from its 35 000-employee workforce. By April 2003, the corporation had restructured the company and cut more than 4000 jobs. However, the airline continued to sink further into debt and filed for protection from its creditors. The CEO, Robert Milton, communicated to employees that the company was in financial crisis and that all employees were expected to "make significant concessions" in order to save the company. Unions representing Air Canada staff agreed to over $1 billion in cuts to compensation and benefits. The corporation's major investor, Victor Li, proposed an injection of $650 million into Air Canada in return for an equity stake in the airline, on the condition that the employees agree to further concessions. Employees were asked to agree to additional reductions to their pension plan.

Air Canada employees then discovered that, while they had agreed to major cuts in benefits and compensation, the restructuring plan provided Milton with a $20 million pay raise if he remained CEO of the company for five years. Employees were outraged that Milton had not also made concessions in his own pay and benefits. Morale at Air Canada was driven to an all-time low. Organizational performance declined. Industry experts commented that the airline business was one in which employee morale is critical to organizational performance: unhappy employees lead to unhappy customers.

A similar situation occurred at American Airlines a year earlier. American Airlines' employees agreed to $2.2 billion in pay cuts in order to rescue the company. Just as employees were about to sign agreements to prevent bankruptcy, they discovered that the CEO, Don Carty, had secretly accepted a $1.65 million bonus to remain with the company. Employees were outraged and threatened to back out of the deal. Don Carty resigned, the agreements were signed, and the company turned around. Carty's advice to the Air Canada CEO was that credibility with employees is crucial to the ability to lead the company through times of crisis. Credibility cannot be demandedit must be earned.

QUESTIONS

1.

For analysis:Describe the organizational change that Air Canada was going through and what the forces for this change were.

2.

For application:Why were the employees at Air Canada resisting the change that corporate executives proposed, and what could account for the decline in organizational performance?

3.

For application:What steps would you have recommended the corporation take to turn around the company and successfully implement change?

4.

For debate:Outside consultants make the best change agents for most corporations. Do you agree? Explain.

Sources:"Air Canada Employee MoraleThe Hostile Skies,"CBC Venture, February 15, 2004, 914, VA-2070 D; "Air Canada Timeline," June 20, 2005,www.cbc.ca/news/background/aircanada/timeline.html(accessed August 24, 2009).

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professorMorrisAnswered7 days ago

1. For analysis: Describe the organizational change that Air Canada was going through and what the forces for this change were.

The organizational change happened at Air Canada was the external force. It was all about economic developments, namely the decline in air travel. Canada's national airline company was losing $428 million a year. As a result, 4000 jobs were lost, and wages and pensions were decreased by over $1 billion. Furthermore, they were asked to make further pension benefit reductions in order to assist the organization in overcoming the situation. Victor Li, a large donor, agreed to these terms in exchange for a $650 million stake. Continuous losses forced Air Canada to adapt through restructuring during the internal crisis era. Obviously, expense and labor reduction are two methods used in the case study.

2. For application: Why were the employees at Air Canada resisting the change that corporate executives proposed, and what could account for the decline in organizational performance?

The first reason of resistance was the fear of losing. Many workers have worked for Air Canada for a long time and are familiar with the company's pay and benefits. It was difficult to alter certain aspects that may have a negative impact but still immediately benefiting the workers. It was not a good feeling, even though they committed to significant reductions in benefits and salaries. Employees also had some reservations about the move. The second explanation has to do with "confidence." Milton was willing to raise up to $20 million if he was allowed to lead Air Canada for five years after finding the CEO. Although 35,000 employers opted to forego a $1 billion payout, their CEO gambled on a $20 million payday.It was a big question about "fairness" in Air Canada at that time. People might feel that they were cheated and formed negative thoughts to resist the change. As a result, their spirit decreased quickly, and affect badly the organization's performance.

3. For application: What steps would you have recommended the corporation take to turn around the company and successfully implement change?

The main reason for the decline organizational performance was the board of managements. They defrauded their workers and eroded their confidence. As a result, the CEO and other relevant leaders had to accept blame. In the very least, they should issue a formal apology and the CEO should voluntarily resign. It would be necessary to develop a new management structure as soon as possible. Furthermore, unique promises from Air Canada's management should be communicated to all staff in a straightforward and genuine manner. Whatever a boss does, it would be difficult for them to keep clients happier if their staff are unhappy.

4. For debate: Outside consultants make the best change agents for most corporations. Do you agree? Explain.

In my personal opinion, I disagree that outside consultants can make the best change agents for most corporations. I believe that a person who understand him the most is himself. Because of a variety of sensitive causes, most businesses like to keep their internal operations secret. Within Air Canada, there was mistrust that some top executives wanted to help themselves. Outside experts can assist, but they won't be able to tell you exactly what happened at Air Canada or how poor their workers' spirits are. Third-person perspectives, on the other hand, can be more realistic than insider perspectives. In general, I agree that a well-balanced mix of external experts and internal strategies is the right approach.

Explanation:

Sources:

"Air Canada Employee MoraleThe Hostile Skies,"CBC Venture, February 15, 2004, 914, VA-2070 D; "Air Canada Timeline," June 20, 2005,www.cbc.ca/news/background/aircanada/timeline.html(accessed August 24, 2009).