Strategic Choice and Industrial Relations: A Case Study of British Airways
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Strategic Choice and Industrial Relations: A Case Study of British Airways
Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
Cardiff University British ALPA, Leeds University
Abstract
Although strategic choice theorists have developed sophisticated accounts of the
interplay between structure and agency, there is often only passing reference to the
impact, and interaction, of industrial relations. Conversely, many industrial
relations specialists reject strategic choice theory because much of the research on
management action ignores the exercise of power and the incidence of conflict in
employment relations. By integrating industrial relations into the theory of strategic
choice developed by Child (1997), Whittington (1989) and others, we analyse the
changing competitive fortunes of British Airways (BA) over recent years. We
demonstrate that the political processes which defined, redefined and subsequently
tempered the implementation of BA’s business and industrial relations strategies
led to the gradual erosion of ‘first mover’ advantages in the marketplace and
precipitated a shift from innovative to adaptive competitive behaviour.
Introduction would fa ll squarely on the company’s
In 1996, British Airways (BA) surpassed senior management team and the
Singapore International Airways (SIA) to constraints and opportunities they faced in
become the world’s most profitable airline. terms of internal legitimacy and external
By the end of the millennium, however, markets. Organizational theorists such as
BA was losing money, recording its worst Whittington (1989) have developed
financial results for 18 years in 1999-2000. sophisticated accounts of the interplay
Robert Ayling, BA’s Chief Executive, between structure and agency at various
appeared to put the blame on everything levels of analytical abstraction as it shapes
from the economic crisis in Asia and rising the organizational forms through which
fuel prices, to North Atlantic over- social reproduction and transformation are
capacity, the value of sterling and cut- realized (see Reed 1997, for a recent
throat pricing. In contrast, the press, the review). In many such accounts, however,
City of London, and eventually the BA there is only passing reference to labour
Board of Directors blamed Mr Ayling. and whether, or to what extent, industrial
When BA announced the resignation of the relations constitute an important constraint
Chief Executive in March 2000, the Board (or opportunity) in the formulation,
maintained that the company’s business implementation and realization of strategic
strategy was still the right one, but Mr choices. To be sure, strategic choices
Ayling was the wrong man to implement it remain the privilege of an élite, but as
(Financial Times 11 March 2000). The Whittington (1989: 297) himself
Board was forced to acknowledge, acknowledges, strategic choices are
however, that ‘there is a need for a greater ultimately dependent upon the
emphasis on the employee relations side of organization’s domination of employees
the business’ (BA Press Release 11 March and consumers.
2000).
The (undue) emphasis on management and
If we asked a strategic choice theorist to managerial prerogative constitutes one of
explain the changing fortunes of BA over the main points of criticism of strategic
the past decade, no doubt the emphasis choice theory in the industrial relationsPeter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
literature (see, inter alia, Edwards 1995: persuasion, negotiation and at times
20-21; Hyman 1987; and Sisson and imposition (Child 1997: 70). Clearly, there
Marginson 1995: 93-94). If asked to is far greater scope for a cross-fertilization
explain recent events at BA, an industrial of ideas than hitherto acknowledged.
relations scholar would no doubt focus on
the 1997 cabin crew strike and subsequent In the following section, we incorporate
events, which precipitated a marked industrial relations into the theory of
decline in employee morale and customer strategic choice, drawing in particular on
satisfaction. The inability of BA managers the work of Child (1997), Whittington
to dominate employees would serve to (1989) and Lazonick (1991). This
illustrate, in the eyes of many industrial synthesis involves a form of ‘structural
relations specialists, the limitations of a contextualization’ in which macro- level
strategic choice perspective. Thus, when it theories identify the structural and
comes to industrial relations, most developmental parameters within which
managers appear to behave in a distinctly lower (meso- and micro-) level analyses
non-strategic manner: for most firms, are to be located (Reed 1997: 32-33). Our
‘industrial relations only becomes a empirical focus is British Airways, which
consideration when it becomes a problem’ is analysed from a ‘firm- in-sector’
(Keenoy 1992: 97) and management action perspective in the first instance (see
is invariably found to be ‘opportunistic, Whittington 1989: 294). This facilitates an
habitual, tactical, reactive, frenetic, ad hoc, examination of the three central issues in
brief, fragmented and concerned with strategic choice theory, namely: (i) the role
fixing’ (Thompson and McHugh 1990: of agency and choice within organizations,
137). At best, industrial relations and other (ii) the nature of the organizational
policies linked to employment relations are environment, and (iii) the relationship
conceptualized as ‘third order’ choices that between organizational agents and the
are constrained or influenced by ‘first environment (Child 1997: 43).
order’ choices to determine the general
mission or purpose of the organization and The relationship between industrial
‘second order’ choices on organizational relations and strategic management choice
form and related control mechanisms (see is then explored in more detail through a
Purcell 1991). case study of BA. The case was conducted
in the tradition of workplace bargaining
For many industrial relations scholars, the research (see Brown and Wright 1994),
most critical oversight in much of the focusing on power relations and drawing
strategic management choice literature is on a range of documentary evidence (e.g.
deemed to be the exercise of power and the company reports and trade union minutes),
incidence of conflict in industrial relations interviews with senior BA managers and
(Kelly 1998: 19). According to Edwards officials from the five major unions, semi-
(1995: 20), ‘Strategic choice is industrial structured interviews with BA staff at
relations with much of the politics Heathrow, Gatwick, Birmingham,
removed’. This assessment is somewhat Manchester and Glasgow, focus group
ironic, and unfortunate, because the discussions with maintenance workers, and
foundations of strategic choice theory, a questionnaire survey conducted by
according to Child (1997: 44), are political telephone with pilots, cabin crew and
processes: change is accomplished through ground handling staff. In total, more than
social interactions both within 100 interviews were conducted between
organizations and in relation to the 1997-2000. Observational research was
environment, which are political in the also undertaken with flight operations,
sense that outcomes emerge through ground handling, engineering andPeter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
telephone sales, as well as via occasional Business Efficiency Programme (BEP)
travel on scheduled BA flights. At the launched in 1996. The tensions between
micro- level, actors’ own interpretive management and labour, however, run
understandings assume greater prominence much deeper: disputes with staff were
and some interview data are reported symptomatic of long-standing
verbatim. However, these data are still contradictions that characterize the
subject to critical scrutiny and may be company’s human resource and industrial
corrected and/or amplified (Whittington relations policies. A strategic choice
1989: 90). perspective which focuses on confrontation
between capital and labour allows us to
Theoretical sampling was based on BA’s comprehend organizational change and
role as a ‘trend setter’ in the industry (see, industrial relations in BA during the 1990s,
for example, European Commission 1997: exploring the tensions between structure
203; and ITF 1996), a potentially and agency in the changing context of UK,
prototypical rather than atypical case. A European and global civil aviation.
widely- held view in the civil aviation
industry in the early- to mid-1990s was Strategic Choice and the Management of
that BA’s strategy constituted ‘best Labour in the Civil Aviation Industry
practice’ management (see Colling 1995) In his review of the strategic choice
which determinist accounts might attribute literature, Child (1997: 70-71) emphasises
either to environmental factors (e.g. the interplay of two ‘cycles’ of interaction
liberalization of the product market which between action and situation. Within the
compels airlines to embrace a cost-based ‘inner’ cycle, ‘organizational actors seek to
approach to human resource management) work upon, and are simultaneously
or the ‘mind set’ of senior managers whose informed or constrained by, the existing
internal assumptions about how to succeed structures and routines of the organization’
within their environment prompts them to (Child 1997: 70). The ‘outer’ cycle extends
a programmed response (i.e. cost-cutting) to the environment, wherein
(see Whittington 1989: 2-3). The ‘organizational actors seek to influence or
limitations of environmental determinism, reach an accommodation with specific
however, are readily demonstrated via environmental groups and more general
comparison with BA’s major rivals such as environmental conditions’ (Child 1997:
Lufthansa. Thus, although we focus on 70). Each cycle is dynamic in character,
BA, passing reference is made to other thereby giving rise to organizational and
major airlines to highlight both the range environmental change through a process of
of potential choices available to BA and social interaction within and between the
the indeterminacy between strategic intent two cycles. Analytically, therefore, it is
and implementation. difficult to disentangle the two cycles.
Broadly speaking, however, we will
Even if BA managers had ‘read’ the consider each cycle in turn before turning
market correctly and developed an to the dynamic interaction between the two
appropriate business and human resource in the following section.
(HR) strategy, the response of (organized)
labour effectively put paid to management Within the inner cycle, management is the
plans. The limitations of action dominant actor by virtue of its control over
determinism are readily demonstrated the means of production and the authority
through a discussion of the events this imparts (see Blyton and Turnbull
surrounding the 3-day cabin crew strike in 1998: 76). It is wrong, however, to cast
1997. This dispute encapsulated workforce management in the role of monolithic,
opposition to the cost-cutting mantra of the omnipotent, omniscient strategist (CrowPeter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
1989: 18; and Thompson and McHugh quite the opposite (e.g. BA 1996). In
1990: 157). Conflicts between different practice, however, the (unanticipated)
management groups are not uncommon impact on employee morale and
(Whittington 1989), and this can have a commitment to the company, as manifest
significant effect on both the formulation at the functional and workplace levels, led
and implementation of business and to customer service standards below the
industrial relations strategies. Within BA, norms set by the company, ‘with a
for example, the appointment of Robert consequent impact on our reputation in the
Ayling as Chief Executive was widely market place’ (BA 2000: 3).
perceived within the company to signal a
shift away from the ‘soft’ human resource A common criticism of the strategic
(HR) policies promoted by his predecessor, management literature is the tendency to
Sir Colin Marshall, towards a ‘harder’ or present business strategies as simply an
more cost-centred approach to human ‘autonomous choice’ between different
resource management. Strategic choice generic routes to competitive advantage
theory admits a role for the individual (see, for example, Sisson and Marginson
organizational actor (qua entrepreneur) but 1995: 93-94). The three most commonly
as Child (1997: 61) points out the theory is cited routes to competitive advantage are
more concerned with the collective (qua cost minimization, quality enhancement
dominant coalition) (see also Whittington and product/service innovation. In much of
1989: 87). Thus, the replacement of BA’s the industrial relations and management
HR Director with her background in literature, however, HR strategies are
customer services by an HR Director with crudely ‘derived’ or ‘read off’ from these
his background in finance was highly business strategies (e.g. Schuler and
significant, as was the reorganization of Jackson 1987). In practice, of course, the
management functions with several idea of a ‘choice’ between these different
Departments (including HR) no longer business and HR strategies is artificially
reporting directly to the Chief Executive. stark and unrealistic. In the civil aviation
industry, for example, airlines increasingly
Business strategies formulated by the compete on at least two if not all three of
dominant coalition must permeate the these routes to competitive advantage (see
entire organization and receive support Blyton and Turnbull 1998: 71; and Colling
from other stakeholders such as 1997). Consequently, this is not a
government and union representatives if particularly illuminating way to
they are to prove effective (see Kochan and differentiate between carriers or to
Dyer 1993). Management action with conceptualize the competitive strategy of
respect to the labour process should any specific airline.
therefore be considered at three levels,
namely strategic, functional (e.g. collective An alternative approach is to differentiate
bargaining and personnel policies) and between ‘innovative’ and ‘adaptive’
practical (e.g. day-to-day interaction at the behaviour (Lazonick 1991). The former
workplace level) (Kochan et al 1986: 11). involves organizations living off value-
In particular, it is important to distinguish creating capabilities generated in the past
management intentions at the strategic and cutting costs on the basis of existing
level and the actual implementation of technologies rather than developing new
business strategies at the functional and products and/or processes (Lazonick 1991:
practical levels. The strategy of cost- 49-50). The emphasis is therefore on short-
reduction implemented under the BEP, for term profits rather than long term
example, was not intended to lead to a development, and managers adept at
deterioration in customer service. In fact financial manipulation often come to runPeter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
these companies (Lazonick 1991: 89). Unlike adaptive organizations, the
Innovative organizations, in contrast, innovative organization seeks to manage
secure competitive advantage by creating rather than avoid productive and
cost-quality-productivity outcomes that competitive uncertainty. Thus, through its
previously did not exist, either by investment activities, ‘the innovative
producing (providing) a superior product organization plays a role in shaping its
(service) at a competitive cost (i.e. economic (and social) environment’
product/service innovation) or a saleable (Lazonick 1991: 192; see also Whittington
product (service) at a lower cost (i.e. 1989: 109-110). Lufthansa, for example,
process innovation), or possibly both has been instrumental in redefining the
(Lazonick 1991: 199). product market through its leading role in
the creation of a global Star Alliance with
Lazonick (1991) argues that, when seeking other international airlines (e.g. SAS,
to implement its business strategy, the United Airlines and SIA) which now
organization faces two principal sources of controls over 20 per cent of world
uncertainty, namely (i) productive passenger traffic. Alliance partners can co-
uncertainty in its own ability to develop ordinate their schedules, offer new onward
and utilize human resources and new connections, increase flight frequencies,
technologies, and (ii) competitive and significantly reduce costs by joint
uncertainty in its product market which, purchasing (which increases their
unless the firm is a monopolist, is inherent bargaining power vis-à-vis aircraft
in the ability of its rivals to respond with manufacturers and other suppliers) and by
their own business strategies. These two combining or pooling their external
sources of uncertainty – the internal services (for example, Lufthansa and SAS
operations of the organization and its recently combined their sales workforce in
external economic environment – broadly France). Within a fully unified alliance, an
correspond to Child’s (1997) inner and airline can achieve cost savings of over 11
outer cycles of interaction. Adaptive per cent of its total cost base (O’Toole and
organizations seek to avoid uncertainty by Gill 2000: 45). Innovative organizations
minimizing their fixed commitments (i.e. tend to be more vertically integrated than
producing predominantly on the basis of their adaptive rivals as planned co-
variable costs) (Lazonick 1991: 200). The ordination by the firm must supersede
ultimate manifestation of such a strategy in market co-ordination (Lazonick 1991:
the civil aviation industry is the ‘virtual 201). Thus, whereas BA has sub-
airline’ where the carrier is no longer an contracted catering and threatened to out-
‘operator’ in the conventional sense but source ground handling, Lufthansa is now
rather a ‘marketing organization’: the a major global player in these services
airline sells a (global) brand, organizing through its subsidiaries. Lufthansa’s Sky
people to travel by air from one place to Chefs, for example, is now the world’s
another but with all the actual services largest in- flight catering supplier and
provided by contractors, franchisees and Globe Ground is among the world’s top
international alliance partners. Under five ground handling companies.
Robert Ayling, BA was widely perceived
within the industry and amongst its own The two sources of uncertainty identified
staff to be in the vanguard of such by Lazonick are, of course, interdependent,
developments (European Commission because if an organization can overcome or
1997: 203; ITF 1996; Kassim 1995; and mitigate productive uncertainty then this
interview notes). will increase competitive uncertainty for its
rivals. The question then is: ‘will rivals
respond by innovation or adaptation?’ PutPeter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
differently, strategic choice only makes occasions. Strategic choice, to reiterate, is
sense with reference to both pro-action and a political process.
re-action (Child 1997: 72; Crow 1989: 4;
and Whittington 1989: 88). To reiterate, Control of the labour process is therefore
however, these strategies are not simply a instrumental to the success of any business
question of autonomous mana gement strategy, but management do not have
‘choice’: management strategy, or indeed complete control of this process. Even
any actor’s choice of strategy, must be set adaptive strategies cannot avoid this
in the context of the means needed to problem: the adaptive organization might
secure it (Crouch 1982: 139). As not seek to develop the productive
Whittington (1989: 3) argues, for genuine capabilities of its human resources (e.g. via
choice to exist there must be a range of training), but it must still utilize them
alternatives; decision- makers must have (Lazonick 1991: 200-201). Thus, the
the capacity to choose between them; and organization must still seek to transform
each choice must be compatible with labour power (potential labour) into labour
survival (though not necessarily (actual work). In the civil aviation
competitive advantage). Organizations do industry, labour costs are a significant
not simply ‘possess’ strategic choices; they component of total operating costs,
must create and implement them. typically 25-30 per cent (Oum and Yu
1998: 201), and are one of the few variable
Whether an organization adapts or costs under the direct and immediate
innovates will depend on the material and control of management (unlike fuel,
relational structures existing at any given aircraft prices and airport landing charges).
time within the firm and its external This may predispose airlines towards
environment. Other actors heavily (labour) cost minimization strategies but
influence these structures, most notably what differentiates airlines is increasingly
rival firms, the state and (organized) service quality and product innovation (see
labour. This is where industrial relations Blyton et al 1998 and 2001). Service
enters the picture, not simply as part of the delivery cannot be physically separated
‘environmental structure’ (a set institutions from the ‘front- line’ staff who interact with
for regulating employment relationships) customers in the airline industry, and these
but also as a set of agents who respond employees are now implored to be more
both to external factors (the outer cycle) polite and courteous as well as efficient
and each other (the inner cycle). Thus, and resourceful. Labour control and
confrontation between capital and labour is industrial relations are therefore at the
instrumental in transforming, or heart of both adaptive and innovative
frustrating, the implementation of strategies in the civil aviation sector.
managerially-defined business and
industrial relations strategies (see Hyman In order to compete, the modern
1987). In the civil aviation industry, corporation requires the active co-
organized labour is able to mobilize and operation of labour as distinct from mere
deploy considerable power resources by compliance or coerced consent (see Blyton
virtue of the perishable nature of the and Turnbull 1998: 76-102). By ‘sharing’
product/service and labour’s disruptive the benefits of increasing productivity with
capacity in the production process, their workforce, not simply via higher
combined with the non-substitutability of wages but also long-run job security and
many occupational groups in the external social mobility within the firm (i.e.
labour market. Pilots in particular have careers), organizations have built viable
demonstrated their capacity to rebut forms of employee commitment and
managerial strategies on numerous competitive advantage (Lazonick 1991:Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
135-136). Historically, the specific market, led to the progressive deregulation
manifestation of this accommodation of air transport services. Contrary to
between capital and labour in the civil determinist accounts, it is important to
aviation industry was a form of bilateral recognize that while markets constrain
monopoly and ‘rent sharing’ between the managerial action, to the extent that ‘actors
parties. State-owned flag carriers must obey prevailing rules of exchange in
traditionally enjoyed sovereignty over their order to get from them what they want’,
domestic market and bi- lateral regulation they also enable ‘by providing access to
of their international routes: inter- the means of action’ (Whittington 1989:
governmental bi- lateral air service 109).
agreements (BASAs) would typically
establish which airlines were allowed to fly In the civil aviation sector, several major
particular routes (usually the two national European airlines such as BA and KLM
carriers), the airports to be flown to/from, actively sought liberalization in order to
the frequency of flights, the capacity and develop new competitive strategies and
revenue split between the airlines flying thereby dominate the market (see Martínez
the route (typically 50:50), and the seat Lucio et al 2001). Mrs Thatcher’s
prices offered to passengers. Thus, state governments, with the support of BA,
ownership and inter- governmental became the standard bearer for a radical
regulation positively discouraged programme of liberalization within the
innovation as prices were fixed and European Union (EU), which culminated
revenue shared regardless of the pattern of in the creation a single market for
revenue receipts. Not surprisingly, highly European civil aviation (in April 1997)
regulated systems of industrial relations compatible with the Single European Act
evolved in most western airlines, and (see Kassim 1995). For BA, EU
consequently most airline employees liberalization would create a new domestic
enjoyed comparatively high wages, job (i.e. European) market comparable in size
security and attractive conditions of to the US domestic market, thereby
service. Any improvements in labour establishing a passenger and revenue base
productivity were typically accompanied that would enable the company to compete
by ‘compensating’ wage rises (Alamdari with the major US carriers and other
and Morrell 1997). international airlines with global ambitions
(see Dobson 1995).
The inefficiency of most national flag
carriers could only be ‘tolerated’ under a An historical perspective should be an
protected product market regime where essential component of strategic choice
airlines could pass on any cost increases to theory as the relationship between
passengers. As a result, both public sector organizational co-ordination and market
managers and national governments were co-ordination that yields competitive
reluctant to expose their flag carrier to advantage rather than disadvantage is a
greater competition, either via market continually evolving process (see Child
access or by granting airlines the freedom 1997: 70; and Lazonick 1991: 290). When
to set prices and customer service the final phase of EU liberalization
standards. During the 1980s, however, a measures for the civil aviation industry
combination of mounting customer were introduced, BA was the only fully
pressure, neo- liberal economic policies privatized national flag carrier in Europe,
embraced by many national governments, which gave the company access to capital
and most crucially the realization by some markets and financial resources that were
airlines that they could secure ‘first mover’ simply not available to rival airlines. More
advantages in a more liberalized product importantly, domestic economic reformsPeter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
and labour market deregulation had Innovation, Adaptation and Industrial
enabled BA to restructure its internal Relations at British Airways
operations (see Blyton and Turnbull 1998: In transport services, market liberalization
69-76; and Colling 1995), creating a invariably leads to industrial concentration
significant competitive advantage over rather than (neo-classical) ‘free
other European flag carriers (most of competition’. US civil aviation, for
whom were seriously under-capitalized example, is now dominated by just five
and over-staffed) (see Kassim 1995: 195- major carriers. A similar process of
196; and European Commission 1997: concentration can be observed in Europe.
201). In the early 1990s, for example, BA As in the USA, the initial stages of
returned a healthy profit whereas airlines liberalization are marked by a wave of new
world-wide lost £10 billion, more than the entrants, but these companies tend to
industry’s total combined profits since compete in specific market segments and
commercial aviation began in 1947. At the are often swallowed up by the major (flag)
time, BA was able to maintain profits by carriers (see AEA 1997: 18; and ITF
containing unit cost increases within yield 1992). Thus, in the long run, it is
increases (i.e. increasing passenger anticipated that only a handful of global
numbers and aircraft utilization and/or airlines will dominate the world’s skies.
increasing the proportion of higher paying BA’s objective is to be one of these global
business and first class passengers) (see airlines, offering services in all three of the
Oum and Yu 1998: 203), but as other world’s major regional air transport
airlines emulate the industry leaders these markets (Europe, North America and Asia-
internal economies are quickly diffused Pacific), and all three inter-continental
and become an external economy enjoyed routes that connect these markets. To be
by all market participants. competitive in a global market, therefore,
BA must match the efficiency levels of US
This process of transposing internal into carriers and the cost competitiveness of
external economies is even more rapid Asian airlines, while at the same time
when airlines operate in a common market consolidating its position in the domestic
as competition leads to a convergence of (i.e. European) market where low-cost
productive efficiencies (Oum and Yu 1998: airlines have entered the market and rival
210). In particular, the benchmarking of European flag carriers have embarked on
airline services across carriers, from ticket ambitious restructuring programmes.
sales to in- flight service, ground handling
to aircraft maintenance, is now routine The foundation of BA’s competitive
throughout the industry (see Blyton et al strategy, which can be traced back to the
1998: 18 and 2001). This process is used to 1980s, was to reorient the company’s
initiate contract negotiations with labour business, and the mindset of its managers,
and/or external service providers in order from transportation to service (see, for
to establish ‘market rates’ (see example, Blyton and Turnbull 1998: 69-
Walgenbach and Hegele 2001). The 76; and Colling 1995). Henceforth, the
convergence of productive performance business would be market- led rather than
across European carriers in recent years operationally driven. What the market
suggests that the pro-active or ‘first mover’ demanded, or more precisely what Sir
organization of today may become Colin Marshall and other key managers at
tomorrow’s re-active and adaptive ‘second the time interpreted as the demands of the
mover’. This would appear to be the plight market, were much higher standards of
of BA, which is considered in more detail customer service. To quote BA’s former
in the following section. Chief Executive, ‘Anyone can fly
aeroplanes, but few organizations canPeter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
excel in serving people’ (Sir Colin began to decline. BA’s (over) reliance on
Marshall, quoted in Prokesch 1995: 103). the ever more intensive exploitation of
Human resource management initiatives labour inputs is in many respects indicative
such as ‘Putting People First’ and of a shift from innovative to adaptive
‘Managing People First’ were central to behaviour.
the delivery of new service quality
standards, but competitive advantage was An alternative interpretation of being
not based on service quality alone. BA ‘market- led’, which prevailed during
restructured its operations in the 1980s by Robert Ayling’s stewardship, was to
closing unprofitable routes, reorganizing benchmark all activities against the
its fleet, shedding jobs, and improving ‘market price’ (which BA defined as the
labour utilization. In short, innovation price at which the same or better quality of
created new cost-quality-productivity service could be purchased elsewhere). As
outcomes that enabled BA to secure Walgenbach and Hegele (2000: 124) point
competitive advantage. In effect, being out, benchmarking is often used to ‘bring
‘market- led’ involved redefining the into line’ the perception of reality of those
market, both in terms of the service that at whom it is targeted with that of
passengers could expect (and rival carriers management, ‘therefore enabling
would now have to match or exceed) and management to steer the perception of
as a point of reference for employees employees in the desired direction’. BA’s
which management used to legitimize the strategy of market testing was facilitated
restructuring of the airline. by a process of decentralization (i.e. the
division of operations into smaller units
BA’s performance in the 1980s and early retained under company ownership) (see
1990s rested heavily on labour, especially Shutt and Whittington 1987). For example,
as civil aviation became ever more ‘labour the purchase of Dan Air led to the
sensitive’ with progressive liberalization. establishment of BA’s EuroGatwick (EoG)
BA’s input prices are among the lowest in operations and the creation of British
Europe and, both historically and Airways Regional (BAR) in 1992,
internationally, low input prices have been operating from Birmingham, Glasgow,
more important than productive efficiency Manchester and other regional airports,
in determining cost competitiveness (Oum took short-haul routes out of BA’s existing
and Yu 1998). Thus, BA is cost network. Both subsidiaries could then be
competitive with KLM and Lufthansa due more readily benchmarked against
to lower input prices rather than higher comparable operators. Engineering was
efficiency. Nonetheless, labour utilization also transformed into a strategic business
has played a significant role in BA’s unit operating as a separate profit (and
competitive performance, especially in the loss) centre. If these and other in-house
1990s. Between 1992-95, for example, operations exceeded the market price, the
when BA’s profits were still rising, total differential between the two would become
factor productivity stagnated but labour the starting point for subsequent
productivity growth was still strong. In negotiations with labour.
other words, there was disappointing
performance in the use of non-labour If the differential could not be redressed
inputs and corporate growth was through internal reorganization and cost-
increasingly dependent upon improving cutting measures, then services might be
labour use (Martin and Parker 1997: 99- franchised to other airlines or sub-
101). This was particularly notable after contracted to external service providers,
1996 when labour productivity continued processes which Shutt and Whittington
to grow whereas the utilization of capacity (1987) refer to respectively as detachmentPeter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
and disintegration. BA in fact pioneered countries, BA’s rivals could secure access
the idea of franchising operations in the to the UK market. In fact, the UK’s civil
civil aviation industry (see European aviation industry is more open than most
Commission 1997: 201). The franchisee other European countries (see Kassim
operates its own aircraft and employs its 1995). It is therefore easier for European
own staff, but its aircraft are painted in BA airlines to secure access and/or establish a
colours and its staff must wear BA UK route network via take-over or merger.
uniforms and perform to BA service Examples include KLM’s purchase of Air
standards. BA also took the lead amongst UK and Lufthansa’s 20 per cent stake in
European airlines in out-sourcing various British Midland (BMi), which has now
services such as vehicle maintenance and joined the Star Alliance. As a result, BA’s
management, and information technology share of the UK market has declined
services (European Commission 1997: significantly in recent years and the Star
203). During interviews, staff expressed Alliance now holds 27 per cent of London
the view that both detachment and Heathrow take-off and landing slots
disintegration had eroded BA’s traditional (compared to BA’s 38 per cent). In
image and reputation as the airline now contrast, BA has faced greater difficulties
had less control over service delivery. expanding its route network in some
More importantly, these policies European countries and has struggled to
undermined their own perception of the make a profit from its European
company as an airline and an employer. subsidiaries such as Deutsche BA
The following quotes were not untypical of (Germany) and TAT/Air Liberté (France).
employee resentment towards BA’s new
business strategy: BA has also faced a new source of low cost
It may say BA on the plane but it’s not BA. competition in its UK and European
BA is becoming a brand, the virtual airline market from new entrants such as easyJet
(BAR cabin crew, interview notes).
and Ryanair. These companies brought
Rather than try to improve the efficiency of new forms of innovation to short-haul
the business, they look to outsource it. routes, in terms of both cost and quality.
That’s not management, that’s not taking Costs have been cut dramatically by selling
responsibility for the business. They’re direct to the public, refusing to pay
selling off everything, that’s the reality of commission to travel agents, out-sourcing
the virtual airline. Pretty soon, when you go
to the check-in desk that’s all there’ll be to as many activities as possible, and flying
the company, there’ll be nothing behind it from cheaper, less congested secondary
(BA engineer, interview notes). airports. Service has been redefined (or
debased) by scrapping in- flight food and
There were both outer and inner cycle seat assignments, making air travel more
processes at work in the new strategic like catching a bus or a train. Ryanair, for
orientation of the company in the 1990s. example, only flies Boeing 737s and
As already no ted, BA played a significant employs just two cabin crew (instead of
role in promoting the liberalization of five on a comparable BA flight). By flying
European civil aviation, and indeed viewed to secondary airports the company can
this process as central to its own global achieve a turnaround time of just 20-25
ambitions. Ultimately, however, innovative minutes (instead of an hour for a BA flight
organizations can only shape, rather than to hub airports) which means that each
control, their external environment. In aircraft can make two more flights a day.
particular, they cannot always predict, or According to Michael O’Leary, Chief
pre-empt, the innovative reaction of their Executive of Ryanair, BA’s own entry into
rivals. For example, just as BA could now this market, via its low-cost subsidiary
operate more freely in other European called Go, ‘simply enhanced the credibilityPeter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
of the sector’ (The Independent 19 January and human resource management, and
2000). within the company’s HR policies. The
former is an example of what Storey
Within the organization (the inner cycle), (1992) calls ‘dual arrangements’, whereby
BA’s reorientation towards costs and the the company seeks to downplay
‘market price’ was personified by Robert collectivism (industrial relations) and
Ayling’s tenure as Chief Executive. As emphasize individualism (human resource
already noted, Mr Ayling’s appointment management). Dualism dates from at least
signalled a change in key management the mid-1980s when the company stepped
personnel. It also signalled a restructuring back from any fundamental reform of
of management functions, with Human industrial relations or its relationship with
Resources placed under the Corporate the trade unions prior to privatization. As a
Affairs Department instead of reporting BA manager explained,
directly to the Chief Executive. For many The strategy was basically to try to write the
managers, and certainly the company’s unions out of the system, by-pass and
marginalize them. We wanted to do with our
employees and trade union representatives, workforce what Thatcher did with the UK
these changes signified a retreat from population as a whole, make them
employee centred HR policies and a failure individualistic shareholders ... One line of
to integrate labour’s concerns into the thinking was that if we could close down
company’s business strategy. As one Collective Relations [the sub-section of HR
responsible for relationships and contracts
senior BA manager explained, with the trade unions] then we would only
The role of HRM in the company is a bit like deal with individuals whom the company
the relationship between the moon and the could then blend into a team (interview
earth – it can exert great influence, dictating notes).
the tides and providing light when
everything would otherwise be in darkness.
But if you don’t want light, you pull the HR policies, however, tended to alternate
curtains. If you want to avoid the tide, you between a hard/cost-cutting approach and
move to higher ground (interview notes). softer/ employee-centred policies, or in the
words of another BA manager, between
Employees’ experience of the ‘darkness ‘killing people one minute and loving them
and light’, the ‘ebb and flow’ of corporate the next’ (interview notes). Such
HR policy, is encapsulated in the words of inconsistency is not peculiar to BA.
BA cabin crew: Arguably, it is a characteristic of all
We’ve all been through PPF [Putting People capitalist employment relations.
First] and other programmes, been told
we’re the best thing since sliced bread, and
Nonetheless, there are national, industry,
now they’re saying they’re not sure whether and company-specific factors that must be
they even want to employ you anymore. considered in order to understand the
There’s no longer any trust in management timing of strategic choices (Child 1997:
(interview notes). 70).
Customer service and good employee
relations go hand-in-hand. But all BA want Strategic choices are a reflection of what is
is the customer service, they’ve dismissed possible or permissible, rather than
the idea of good employee relations necessarily optimal, at different historical
(interview notes). junctures. Under Robert Ayling, the
interpretation of a market- led strategy as a
The inconsistency of BA’s HR and process of establishing market rates for all
industrial relations policies is a long- operations, possibly culminating in a
standing feature of the company’s business virtual airline, was in many respects the
strategy (see Blyton and Turnbull 1998: logical conclusion of a ‘permissive’
69-76). This applies both to the industrial relations system. BA staff
inconsistencies between industrial relationsPeter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
employed by BAR and EoG, for example, redefining the company’s future cost
have inferior terms and conditions of structure. Unlike previous cost-cutting
employment compared to BA employees exercises, such as the GAP Closure
working on short- haul routes from London programme of the early 1990s, the unions
Heathrow, which are different again from recognized that ‘BEP was for real. This
London Heathrow long-haul operations. wasn’t just about taking a few heads off
Go pays wages some 20-30 per cent below the roster. BEP wasn’t a paper deal where
BA mainline rates and up to a third of we could claw back concessions at a later
employees’ pay is based on performance. date. This was a serious cost reduction
European carriers such as SAS and programme’ (interview notes). In 1996,
Lufthansa, in contrast, have been unable to BA’s average expenditure on key
use decentralization as a mechanism to cut occupational groups such as cabin crew
internal labour costs because of established was 48 per cent higher than domestic rivals
collective bargaining arrangements and such as BMi and 90 per cent higher than
national employment law, as well as the Virgin, and this differential had actually
concerted opposition of airline staff and increased between 1989 and 1996 (CAA
trade unions (see Blyton et al 1999; and 1989 and 1996). BEP was devised to
ITF 1992: 59). Indeed, BA’s own redress this situation.
operations in France were hit by a long-
running dispute when the company tried to Secondly, in the words of one of the
impose inferior Air Liberté working company’s HR managers, ‘BEP is not just
conditions on TAT staff. Such about costs, it’s about what businesses we
‘restrictions’, however, can force should be in’ (interview notes). BEP
organizatio ns to look at other productive formalized the processes of
possibilities and new forms of innovation decentralization, detachment and
(see Lazonick 1991: 130). In BA’s case, disintegration by systematically costing all
the absence of what Streeck (1992) calls the company’s activities and establishing
‘productive constraints’ arguably led the ‘market rate’. According to another BA
management to pursue an irrational course source, ‘We do not want to pay more for a
of action for rational reasons – that is, cost- job or function than the market rate. We do
cutting might appear to be an appropriate not want to have an internal cost for doing
strategic response to low cost competition a job which is higher than someone on the
and the restructuring and/or emulation of outside can do it for’ (quoted in Airline
rival flag carriers in an increasingly open Business August 1997). As in many other
market, but this strategy undermined the organizations (Walgenbach and Hegele
foundations of BA’s competitive 2001), benchmarking was used to create or
advantage, most notably the employee increase the impression and perception of
consent and commitment crucial to competition in areas of the business in
sustaining innovative behaviour. which price and/or quality competition was
rarely or only indirectly felt.
The Business Efficiency Programme
(BEP), a £1 billion cost cutting initiative Thirdly, BEP involved a direct challenge to
launched in 1996, encapsulated what one organized labour, culminating in the 3-day
BA manager described as the ‘darker side’ cabin crew dispute in July 1997. At the
of human resource management and the time, BA’s approach to industrial relations
company’s retreat to the ‘higher ground’ of was perceived by many as the ‘last kick of
shareholder value. There were three Thatcherism’ (see The Guardian 7 July
important dimensions to the BEP. First, the 1997; and Financial Times 20 May 1997
Programme was not simply about cutting and 10 July 1997) and many union
costs but pro-actively controlling costs by representatives, during interviews,Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
expressed the view that BA’s ultimate goal January 1998, 2,800 new cabin had been
was to de-recognize the British Airline recruited on the new lower tier wage, some
Stewards and Stewardesses Association 30 per cent below existing rates, saving
(TGWU/BASSA). During a meeting £26 million). But the 3-day cabin crew
between Ayling and Bill Morris, General strike in July 1997 cost BA an estimated
Secretary of the TGWU, BA managers £125 million in lost revenue. The wider
produced a computer printout listing all costs of the dispute – in terms of customer
TGWU members employed by the confidence, the airline’s reputation in the
company and paying their union industry, and of course employee
subscription by ‘check-off’ (i.e. deduction commitment – are more difficult to
from their wages by the company paid calculate but are nonetheless substantial.
directly to the TGWU). Ayling threatened For example, customer service standards
to ‘press a button on the computer and declined in the aftermath of the strike, as
delete the entire membership roll’ did employee morale (as measured by the
(interview notes). company’s own internal employee attitude
surveys). The relationship between
Under the BEP, BA demanded savings of satisfying the internal needs of employees
over £42 million per annum from an in order to meet the external demands of
annual cabin crew budget of £460 million. the customer is well established in the
The key targets were temporal flexibility service sector (see Lewis 1999: 189 and
(most notably a new 5 days on/2 days off 194). In BA’s case, every 1 per cent
shift pattern to replace the established 6/3 increase (decrease) in employee
pattern), a new two-tier wage structure, a satisfaction is associated with a 0.24 per
pay freeze, and the consolidation of cent increase (decrease) in customer
various extended time payments (ETP) into satisfaction (Lebrecht 1999). Under more
basic salary. For cabin crew, however, the intensive working arrangements, cabin
very concept of a Business Efficiency crew find it increasingly difficult to deliver
Programme was a misnomer – as BASSA a high quality service, but some BA
informed its members in the Association’s managers appear to be oblivious to the
February 1997 Newsletter, BA’s plan ‘is wider ramifications of work intensification
not about efficiency, but about dismantling – ‘If it wrecks them physically and they
the agreements that the make the job of only last 3 years, then so be it. We’ve got
cabin crew worth having’. The 6/3 roster in 16,000 people who want a cabin crew job
particular was regarded, in the word of one with BA’ (interview notes). As service
union official, as the ‘sacred cow’ of cabin standards fell, BA lost passengers to other
crew conditions at Heathrow (interview carriers, especially in the more lucrative
notes). The fact that a 5/2-shift pattern was business passenger market.
already worked at EoG served to stiffen the
resolve of London Heathrow cabin crew, There are two important dimensions to
as their colleagues’ experience was one of BA’s failure to maintain its first mover
ever more intense and stressful work. advantages and its position as one of the
Cabin crew rejected BA’s proposals and industry’s leading innovative
voted 3-to-1 for industrial action. organizations. First, at the functional and
practical levels, BA’s strategy was poorly
BA eventually secured the desired £42 implemented. Workplace union
million per annum cost saving via rota representatives and national union officials
changes and the more effective utilization agreed that collective bargaining was
of flight duty times (staff working more subordinate to, rather than an instrument
days and longer hours for the same pay, of, the BEP (unlike previous cost-cutting
saving £16 million) and new start rates (by initiatives). Most expressed frustration atPeter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
management’s unwillingness to consider profits and revenues and more fully
alternative proposals (interview notes). integrate their operations. Oneworld must
More widely, BA staff, almost therefore focus on ‘passenger friendly’
unanimously, complained that areas such as frequent flier programmes,
management refused to listen to their branding, lounge access, easier
concerns. HR issues had been devolved to connections and customer support. The
line managers, with the HR Department potential cost-savings of a co-ordinated
cast in the role of what Storey (1992: 168) alliance such as one world, expressed as a
describes as ‘advisors’ or ‘internal percentage of the individual airline’s total
consultants’ (see Blyton and Turnbull cost base, are less than 2 per cent (O’Toole
1998: 90). Unfortunately, many line and Gill 2000: 45). In addition, even with
managers were ‘poor people managers and the cost savings from one world and the
were all too often reluctant to call the HR BEP, BA is still undercut by low cost
Department for help. To do so, they carriers such as easyJet and Ryanair who
thought, would be seen as a failure on their continue to eat into the company’s
part’ (HR manager, interview notes). A domestic (i.e. European) market.
recurrent feature of our interviews with BA
staff was the contrast that many drew with In the labour market, although extant
the Marshall era – ‘There was always cost- industrial relations led BA to the
cutting and a lot of painful change, but at conclusion that the BEP was a viable
least under Colin Marshall you knew what strategy, senior managers clearly
was happening and why’ (interview notes, miscalculated the resilience of organized
respondent’s emphasis). As a senior BA labour and the ‘stickiness’ of established
manager acknowledged, ‘We don’t collective bargaining procedures. For
communicate to our people any more, we example, BA’s attempts to dismantle
broadcast’ (interview notes). national bargaining and completely
decentralize industrial relations have been
Second, and more important, was the frustrated by union opposition (see
propriety of BA’s chosen strategy. Here Martínez Lucio et al 2001). Following the
there are both product market and labour conclusion of the cabin crew strike, BA
market dimensions to be considered. BA’s has re-established HR as a separate
strategy of fragmentation contrasted Department reporting directly to the Chief
sharply with the strategic integration of the Executive, with changes to key personnel
product market orchestrated by other major in the HR function. The company has also
airlines via global alliances and the sought to develop a new ‘partnership’
development of their productive agreement with the TGWU, having already
capabilities in key service activities such as established a similar agreement with
ground handling and catering. Put BALPA in response to the 1996 threatened
differently, BA misread the potential pilots’ strike. Thus, the alternation in BA’s
development of the product market and has approach towards organized labour, and
been slow to cement an international the inconsistencies between industrial
alliance capable of challenging Star and relations and human resource management
other global alliances such as policies, was still very prominent. So too
Northwest/KLM and the Atlantic were the contradictions within the
Excellence Alliance (based around Delta company’s HR policies. Post 1997, BA
and Swissair). Moreover, the one world decided to ‘love’ its staff once more and
alliance announced by BA and American put people first again (the word ‘love’ was
Airlines in 1998 does not enjoy anti-trust used in countless interviews by staff to
immunity or the full array of trans-Atlantic describe BA’s ‘change of heart’ after the
code sharing which allows carriers to share cabin crew strike). Over 15,000 staff havePeter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
attended a ‘Putting People First Again’ The utility of an inter-disciplinary
programme, but it has proven difficult to approach is clearly demonstrated in the BA
boost staff morale or recover staff case. Overt conflict became a dominant
confidence and customer service standards. theme in the company’s relationships with
As a BA manager admitted, labour during the late-1990s, most notably
The first time around, in the 1980s, PPF was as a result of the decline of industrial
like ploughing a fallow field with a shiny relations in management’s order of
new plough, so it was easy to make a big
difference. Now the field is already
priorities, their misreading of the
ploughed, and overgrown in places, so all consequences of such neglect, and the
you can do is try to make it look better, tidy inherent contradictions of BA’s strategy
things up, which is very difficult (interview which sought to deliver on both cost and
notes). service quality. The dynamic interplay of
inner and outer cycles, or productive and
Cabin crew and other BA staff echoed competitive uncertainty, illustrates the
these sentiments in interviews and focus enabling as well as constraining effects of
group discussions. In the words of a BAR the external environment, and the
shop steward, ‘BA is living on borrowed productive as well as the restrictive
time. Morale is at an all time low. People constraints created by the interactions
are just fed up with the company’ between management and labour. Thus, the
(interview notes). It is difficult to escape political processes which defined,
the conclusion that even if industrial redefined and subsequently tempered the
relations and HR considerations are implementation of BA’s business and
conceptualized as ‘third order’ choices, as industrial relations strategies led to the
would appear to have been the case in BA, gradual erosion of first mover advantages
these choices can have ‘first order’ and a shift from innovative to adaptive
consequences, as BA found to its cost. competitive behaviour. This, in turn,
accounts for the dramatic reversal in BA’s
Conclusion fortunes in the late 1990s and the eventual
It is commonplace to argue that industrial departure of the company’s Chief
relations outcomes cannot be ‘read off’ Executive.
from the external environment:
employment relationships need to be Acknowledgement - The financial support of the
properly ‘contextualized’ and not treated Leverhulme Trust (F/40/L) is gratefully
simply as an autonomous sub-system of acknowledged.
the political economy. Strategic choice
theory provides a framework for References
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environment, but only when the dynamic cost reduction: post liberalisation
of confrontation between capital and experience in the USA and Europe’.
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3(2): 53-66.
centre stage. Industrial relations scholars BA 1996 Racing into the future: cabin services
should therefore re-evaluate the utility of business plan, 1996/7. London: British
strategic choice theory. Conversely, Airways.
organizational theorists should pay greater BA 2000 Annual report. London: Britis h Airways.
attention to industrial relations and HR Blyton, P. and Peter Turnbull, P. 1998 The
dynamics of employee relations. 2nd
considerations in their analysis of Edition, Houndmills: Macmillan.
management action. Blyton, P., Martínez, Lucio, M., McGurk, J. and
Turnbull, P. 1998 Contesting
globalisation: airline restructuring, labour
flexibility and trade union strategies.You can also read
