To set the stage for any type of a case study–concerning change–it is important to take into account three areas; 1) where has the organization been and how has it done things in the past, 2) where is it at this point and how is it doing things, and finally, 3) where should it go to eliminate threats and weaknesses, and take advantage of opportunities, and how should it do it. Within this context, we need to look at how the organization is moving through the eight step process that creates successful change.
I will cover the fist two points in the balance of this introduction and cover the last point by looking at how the change process is taking place (or has taken place) within each of the 8 steps individually. Based on this process, I will conclude with some closing thoughts on whether or not SAS (Scandinavian Air Systems) was successful in it’s past change effort and whether or not it may be successful in its latest effort. First, let us look at the history of SAS and how it has operated in the past.
After WWII, three Scandinavian airlines merged to form SAS; Swedish interest was 3/7, Norwegian interest was 2/7 and Danish interest was 2/7. Within this, 50 % was held by private investors while the other 50% was held by the government. 1 While the company was never subsidized by the government and operated in a free market, it did have some protection in the form of having first right of refusal for domestic flights and exclusive rights to international flights. What this did was to lessen the impact of free competition on SAS which allowed it to generate profits while not being fully efficient.
The inefficiencies came from the corporate structure; bureaucratic from top to bottom and extremely centralized. Now we shall look at where the company is at now (or the point in the case where needed change is evident) and how it is handling its threats and weaknesses. Externally speaking, the industry was beginning widespread changes which began with the deregulation of the airline industry in the United States. This deregulation created a few very large companies while eliminating the smaller ones.
These new mega-companies-due to their sheer size-were able to reach economies of scale which allowed them to offer lower fare (with the same service) while still increasing revenues as well as profits. They were now also competing for a share of the European market. Furthermore, from the deregulation initiated in the U. S. European nations were beginning to follow the same trend. This led to nationalized airlines. Furthermore, fuel crises were happening at this time and increased airline operating cost. SAS could not compete with these new trends and began to loose money.
The CEO at the time realized the time for change was evident and began to implement some changes he thought would help SAS. Unfortunately, the changes that were implemented were the types of changes that used to work under the old regulated system; cut cost by controlling spending and tight controls on processes. The changes cut all of the amenities that SAS had become synonymous with which led to customer dissatisfaction as well as employee dissatisfaction. Furthermore, it added an additional layer of middle management in which all decisions had to go through further slowing down necessary decisions.
The bottom line here is instead of creating a more efficient organization (which is what had happened to other airlines via deregulation) it created a less efficient organization that was spending more of its resources on administration and not spending it on customer service thereby creating a worsening situation; the customers were becoming more disenchanted with SAS creating further losses due to customers flying with other carriers. At this point (the crisis point in the case), the Board of Directors began to loose faith in the current CEO and brought in a new person as COO and change agent.
Within a year and a half, Jan Carlzon COO became the CEO of SAS. His job was to turn the failing airline around. Now we will continue with the final step of this case study by looking at the balance of the case through the eight step change process adopted by John P. Kotter in “Leading Change”. We will look at what Carlzon called the “first wave” (changes to turn the company around and resolve the issues previously discussed) as well as his “second wave” (new changes necessary to adapt the company to new demands). Establishing a Sense of Urgency
In creating a sense of urgency, Kotter identifies two sub steps necessary; 1) examining the market and competitive realities and 2) identifying and discussing crises, potential crises, or major opportunities. 2 In the “first wave”, one of the first things Carlzon did was to assemble his management team and ask them to gather data on SAS customers. This covered the first sub step of examining market and competitive realities. What he quickly learned was the business traveler flew SAS most frequently and that they would pay full price.
However, they also expected the most and were the first to go to another carrier if their needs were not met. This information is critical because it covered the second sub step by identifying a major opportunity for an airline if they could successfully met the business customer’s needs. They could collect full fares which reaped the highest revenues as well as having the highest margins. As far as identifying the crises, it was pretty apparent that the company was in crisis; after over 17 years of strong operating profits, the airline lost over 15 million dollars.
3 While the case does not specifically state the crises information was disseminated throughout the ranks, we can reasonably assume such was done because of Carlzon’s style. While at a Lynjeflyg, he assembled the entire management staff in the airline’s main hanger and told them, “This Company is not doing well…. its loosing money and suffering many problems”. 4 In the “second wave” Carlzon’s situation is a bit different. The crisis is not apparent to all. In this wave of change he needs to find a way to create a sense of urgency.
To do so, he asks all of his managers what they think the biggest obstacle for SAS is. What he is doing is not only collecting necessary information, but actually letting the necessary people decide what the challenges are and creating their own sense of urgency. This is an outstanding way to approach this step because it creates ownership and buy in. It appears that Carlzon covers the first step quite thoroughly in both waves of change. Creating the Guiding Coalition In this step, the case does not specifically state how Carlzon goes about creating the guiding coalition.
However, with the facts the case does give, we can draw some conclusions as to whether or not he did. When creating the guiding coalition, in my opinion, it can be done in one of two ways; first you can gather a group with enough power and influence to affect the change down the ranks, or if you cannot find a group with enough power for your coalition, you can remove the obstacles and then create the group. According to the case, “Those who resisted these [Carlzon’s] ideas or were slow to adept were let go”.
Carlzon replaced the vast majority of his senior executives in the “first wave”. 5 This behavior can be a double-edged sword. Generally speaking, it can create short term gains but in the long run fails. However, I believe that Carlzon did one thing differently which will add to the possibility that this strategy will lead to long term gains; he went to the frontline employees from the beginning and got their input. Instead of using a guiding coalition to implement necessary change, his style removes the top down function of the guiding coalition and develops a bottom up strategy.
This allows him the leisure of removing the top people without lower level employee fear, because the frontline employees see that he is willing to get rid of top management if they are not congruent with the changes lower level employees have had a say in developing. By firing those opposed, it can be assumed he brought in management that was congruent with the vision. Developing a Vision and Strategy In this step, Kotter talks about a couple of sub steps; 1) create a vision to help direct the change effort, and 2) develop strategies for achieving that vision.
In developing a vision for the future, it is important to understand what opportunities exist and remove any obstacles within the organization that will keep from taking advantage of those opportunities. Carlzon was good at gathering information to use to develop a vision and a strategy. In developing his vision, he gathered all the managers and asked them to gather data on customers. He then used this data to develop his vision. His vision for this change was to become “the best airline in the world for the frequent business traveler”.
He understood that this vision could not become a reality unless SAS could provide the service business travelers required. He also understood that those who know the customer best are those on the front line servicing them. In order to develop strategy to reach the vision, he gathered hundreds of employee focus groups to brainstorm how to meet the customer’s needs. Many new ideas were generated. The common theme among them was the human factor was the key to meeting the customer’s needs.
These frontline employees also noted that if SAS was going to reach the new vision, they had to be empowered to make quick decisions. Carlzon also understood this, he stated, “We have to place responsibility for ideas, decisions, and actions with the [front line] people who are SAS during those 15 seconds [the initial meeting with the customer]”. 7 The strategy developed was to offer more amenities for the same fare, upgrade punctuality, change mix of aircraft to accommodate more comfort for the business traveler, better flight scheduling to accommodate business travelers, and revamp the corporate image.