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Strategic Restructuring in Malaysia Airlines (MAS)
1. Background of the report
The year 2005 saw Malaysia Airlines face one of its most testing times. Operating against a challenging global economic climate, increasing competition and rising operational costs, Malaysia Airlines was forced to broadly restructure its operations (Malaysiaairlines.com 2011). On 27 February 2006, newly appointed Managing Director/CEO Dato’ Sri Idris Jala, along with a new management team announced a Business Turnaround Plan (BTP). Since then a number of actions and changes were done to restructure the business. The company had achieved a significant cost reduction of RM 665 million in financial year of 2006 and more than 700 million in 2007, mainly through improving fuel efficiency, manpower productivity, in-flight spend, corporate sponsorship and other initiatives (Malaysiaairlines.com 2007). And throughout the implementation of the Business Turnaround Plan (BTP) downsizing has been a major technique to save cost that the company has turned to. For example, in 2009 MAS set the target to cut down about 3,000 to 5,000 employees. In the same year, some 4,200 employees out of the 18,000 permanent and confirmed employees worldwide from Malaysia Airlines (MAS) have applied to leave under the Mutual Separation Scheme (MSS). Malaysia’s Business Times reported that the scheme has saved the carrier about US$92.6 million a year in labor cost (Travelweeklyweb.com 2009). This study will focus on the research on the Business Turnaround Plan (BTP) and its change process.
2. Objectives of the report
2.1 To carry out an environmental check on the external & internal factors of Malaysia Airlines
2.2 To propose a viable and practical organization wide intervention (downsizing)
2.3 To identify the possible problems and challenging scenarios (i.e. political issues & resistances to change) that may arise in the implementation of intervention program
2.4 To provide optional solutions to the possible challenges identified
3. Case analysis
3.1 Literature review of the plan change & Kurt Lewin’s Change Management Model
One strategic direction that companies could minimize the disadvantages of forced changes and better utilize the advantages of proactive changes is through organization development which is directed at bringing about planned change to increase an organization’s effectiveness and capability to change itself through activities such as problem solving, learning from experience, re-framing shared perception performance, external environmental change adaptation and so on (Cummings & Worley 2009, p.23). There are three major steps in the Kurt Lewin’s Change Management Model: Unfreeze, Change and Refreeze.
Table 1 Lewin’s 3 Stage Model
Source: Lmcuk.com 2009
The first stage of the change process is unfreezing in which that major content of the job for our plan is to prepare the relative people for coming changes. This stage creates the motivation for people to change their attitudes and behaviors and it may begin by informing the employees the discrepancies between the desired behaviors or performance and the current state of affairs (Daft & Lane 2010, p.290). Below we will analyze the internal and external factors influencing final decision of downsizing in Malaysia Airlines using Lewin’s (1951) “Force Field Analysis Model” before we can decide the major tasks in this stage.
3.2.1 Factors influencing downsizing in Malaysia Airlines using Lewin’s (1951) “Force Field Analysis Model”
18.104.22.168 Review of the Force-filed diagnostic model
Lewin’s (1951) “Force Field Analysis Model” provides a framework for looking at the factors (forces) that influence a situation, originally social situations. The model looks at forces that are either driving movement toward a goal (helping forces) or blocking movement toward a goal (hindering forces). The principle, developed by Kurt Lewin, is a significant contribution to the fields of social science, psychology, social psychology, organizational development, process management, and change management (Lewin 1943). Lewin’s (1951) “Force Field Analysis Model” is often used during the change planning phase as a diagnostic tool. According to Ehap H. Sabri, Arun P. Gupta and Michael A. Beitler (2007, p.195), during the change planning process, ewin’s (1951) “Force Field Analysis Model” could be used to identify the driving forces and the restraining forces so that plans can be made to leverage the driving forces and reduce the restraining forces.
22.214.171.124 Force-filed analysis of Malaysia Airlines (MAS)’s downsizing change
Forces driving to the downsizing
- Ø Shareholder’s pressure
- Ø Customers’ wish to enjoy lower fare rate
- Ø Management decision
- Ø Financial needs
- Ø Fierce competition from the major competitors such as Air Asia
Forces against the downsizing
- Ø Employees’ fear about being laid off
- Ø Resistance from the interest groups
- Ø Labor union protest
- Ø Direct cost of downsizing
- Ø Indirect cost of downsizing, i.e. loss of well trained and skilled labor
Though there are a number of forces for as well as a number of forces against the downsizing, as we can see from the above list of the forces, those who have took the side of supporting the downsizing change such as the shareholder and management seem to have a bigger say on the eventual decision making process. In this point, if the management finally trade off the balance between these forces for and forces against and find out that the positive forces are stronger than the negative forces, the downsizing decision would be determined.
3.2.2 Resistances to change
Though the decision of downsizing could be made by the management of Malaysia Airlines (MAS), one thing that we need to do is to identify who will be victims in the coming downsizing action and how to minimize the resistances and the negative effects. The idea of resistance to change was first referenced by Coch and French’s (1948) classic study of the Harwood Manufacturing Corporation in which resistance is attributed to both individual and contextual factors (Pasmore, Woodman & Shani 2010, p.235). According to Piderit (2000), responses to change could be characterized by three distinct yet related dimensions: emotional, cognitive and intentional. And resistance to change hence could be represented by the bundle of responses to change that are negative along all the three dimensions. Below we will see who will resist the downsizing change and what could be the source for the possible resistances.
126.96.36.199 Who will resist the downsizing?
There are four major parties that will resist the downsizing strategy made by Malaysia Airlines (MAS) if the decision is made. The first party is the employees who had been severely impacted by the change as many of them would lose their job and face uncertainties in their future; The second party is the labor union which is established with the target to be on behalf of the enterprise’s employees and protect their interest, as many of them are going to be fired, the labor union would certainly tend to protect the interests of the labors who will be affected if they are made to believe that downsizing is not a must choice; another party that will resist the downsizing plan is the senior managers who could also be found in the list of redundancy and what is more their power could be reduced when the structure of the company will be adjusted and changed; one last party that will also resist the change is the government which tends to prefer a more stable social environment and thus the government officials could be against the downsizing especially when the downsizing will be involving a large number of unemployment which could impacted the social stability.
188.8.131.52 Possible detrimental impacts created by resistance to change
As any change involves moving from the known to the unknown, because the future is uncertain and may negatively affect people’s careers, salary, and competencies, organization members generally do not support change unless there are compelling reasons to do so (Hellriegel & Slocum 2005, p.458), there could be three major detrimental impacts created by the various resistances to change. Firstly, employee morality and performance could be lowered as they are worrying about uncertainties in the future regarding their job positions, people would be distracted from being able to focus on their jobs and thus lower the employee morality and job performance. Secondly, when some of the employees are terminated, there could be re-adjustments of the job responsibility to be done during which confusion of the job contents and responsibility could happen. One more detrimental impact of the resistances to change is the high cost of changing. If there should be a number of resistances coming from various stakeholders, it could incur high cost for the company to remove and minimize the direct and indirect impacts of the resistances caused to the normal order of the company.
184.108.40.206 Source of possible resistances
New and Couillard (1981) listed five key and usual reasons for the development of resistance in the change process:
l Threat to self-interest
l Inaccurate perceptions about the nature or implications of the change
l Disagreements in the understanding of information related to the change
l Psychological reactance shown by a strong motivation to maintain a sense of autonomy
l Feeling of alienation
In the case of Malaysia Airlines (MAS), conflicts of interests (Threat to self-interest) should be considered as the major source of the possible resistances from the various parties as we just identified, for instance, both a common employee and a middle level manager could resist the changes as their interest would be impacted due to the direct lose of their jobs or their power could be reduced due to the breakup of the existing interest groups, such conflict of interest could be very sensitive to the victims and thus they tend to resist the downsizing due to the direct loss that they can perceived. Another key source of the possible resistance is the threat to security (Psychological reactance or Feeling of alienation). As proposed by Ilene Morof Lubkin and Pamala D. Larsen (2006, p.325) that opposition to change is often based on a threat to security as change disrupts normal patterns of behavior. This does not necessarily mean that there will be a conflict of interest; the threat to security is actually an emotional worrying feeling about the uncertainties that will be coming.
220.127.116.11 Optional solutions to the handling of the named resistances to change
Regarding the possible resistance from the labor union, it is important for the Malaysia Airlines (MAS) to set up a negotiation team to keep closed communication with the labor union and persuade them to accept the downsizing plan which is beneficial to the rest of the employees and to the shareholders by restructuring the business. Regarding the threat to security (Psychological reactance or Feeling of alienation) perceived by the employees at the beginning before the final downsizing list is made, as people are afraid what will be coming rather than what really happen, it would be natural for them to disagree or act against such downsizing strategy, to deal with the emotional disorder, psychological consultancy would be helpful to advise the staffs in the company to make it clear about why the company needs to downsize its labor force and also educate the employees about the advantages of change and how disruptive change can assist one to achieve success.
3.2.3 Major tasks in the unfreezing stage
18.104.22.168 Communication and information dissemination
An unfreezing stage is actually a prerequisite to prepare people for the change and to make them more willing to accept the possible necessary changes (Barker & Angelopulo 2006, p.110). Communication strategies which include internal communications, marketing, media relations, and public policy and other communication activities would help increase the levels of awareness regarding the necessity, rationality and other update news about the downsizing strategy. While the company dominates the formal communication channels, it is also necessary for the management of the company to pay attention to the informal social network within the company. In the informal communication systems, to the company information dissemination would be of critical importance to avoid the generation of the rumors and fear emotions. All these communication efforts would aim at raising the Malaysia Airlines (MAS)’s employees’ level of understanding of the importance of the downsizing to the very survival of the organization and the related benefits that are coming.
22.214.171.124 Monitor the attitude formation and behavioral intention
Though the change agent and the relative internal departments and spokesman could have adopted appropriate methods to communicate the importance of the downsizing, the company would still need to monitor carefully the effectiveness of the communication efforts. Here two kinds of indicators could be used as measurements: attitude formation and behavioral intention. Attitude formation refers to extent to which the employees become favorably or unfavorably predisposed toward the change and behavioral intention refers to the attitudes above and other factors become an intention to accept or decline the changes (Lucas 1981, p.36).
126.96.36.199 Management of the expectations
As mentioned above, any change could at the beginning face difficulties and various resistances which bring chaotic scenarios to the organizations, though such chaotic situations could be short term, but they could contribute to a feeling of major setback to the employees, managers and investors. It is necessary for the change agent and the management in the unfreezing stage to communicate and send a message to the stakeholders that the implementation of the program would not be easy and there could be many difficulties. Such management of expectations could be very helpful as people are prepared for difficulties and challenges and it is believed that when people are prepared for difficulties they will work more and harder to get through the difficulties.
3.3 Change: Organization-wide interventions – downsizing & culture changes
In the second stage, change or transition, according to Kurt Lewin it is not a single event but rather a whole process. Transition is the inner movement or journey we make in reaction to a change. This second stage occurs as we make the changes that are needed. People are ‘unfrozen’ and moving towards a new way of being (Change-management-coach.com 2009). For Malaysia Airlines (MAS), the change process involves the announcement of the final downsizing decision and also the promotion of the new cultural changes. In the following there are some important components and principles that would contribute to a smoother transition process.
3.3.1 Timing of the downsizing decision announcement and new culture changes
Regarding the timing of the downsizing decision announcement, the decision should be made known to the internal and external stakeholders once the “unfreezing” efforts to prepare these stakeholders for the coming changes are done. Though it is recommended that the decision is made as soon as possible, more factors need to be checked such as the current operating needs should be taken into consideration to decide the timing of the final announcement. For example, when there is periodical high volume of passengers, the announcement should avoid being made in such period in which normal business order is critical. And the new culture changes could be announced when the change process is finalized with series of well planned change activities following the announcement.
3.3.2 Way to inform the individuals about the downsizing decision
Interview held by senior manager to the individuals who would be unemployed would be recommended to inform the employees about the company’s decision. One advantage of using interview as a way to inform the individuals about the downsizing decision is to better collect the feedback from the affected employees and what is more, the management could communicate orally with the employees about the reasons behind the decision and persuade the employees to believe that this is the final option that the company has and the company would provide assistance to employees to help to go though the difficulties.
3.3.3 Maintain good leadership behaviors (coaching, counseling and etc.)
With changes in the roles and responsibilities, throughout the change stage, as the overall employee performance could be lowered due to the changes, leaders are expected to take more responsibility and play the roles of coacher, negotiator and mentor to provide support to the employees to assist them to get adapted to the changes. Obviously, one of the pre-conditions of maintaining these good leadership behaviors such as coaching and counseling is that the leaders have already well trained in the previous “unfreeze” stage to perform these jobs.
3.3.4 Set up a small decision making groups with fast reactions
While changes are implemented according to the timeline and blueprint, unexpected changes and events could happen suddenly, it would be necessary for the company to set up a control center made up of a small group of key senior executive and managers to make rapid response to these accidents with sufficient empowerment.
The “refreezing” stage reflects the importance of following up on the change to make it permanent (Griffin & Moorhead 2008, p.532). Neglecting the refreezing stage can lead to change not fully being implemented and failure in sustainability of organizational transformation efforts. Though it seems that employees and managers could not undo downsizing but there are other ways that the change agent and the management could adopt to keep the sustainability of the transformation efforts. As proposed by Pershing (2006, p.269) that there are three major directions that an organization could use to sustain the change in the last stage of the Lewin’s (1951) “Force Field Analysis Model”: Implementing incentive and recognition strategies, planning for the further steps and D\designing communication and training programs.
3.4.1 Implementing incentive and recognition strategies
While rules can regulate the business behaviors and employee behaviors, it does not positively provide incentives for employees to improve and keep them dedicated to the changes that would require them to do extra work. To increase the employee commitment to the new changes, here are two key ways: through incentive strategy implementation and recognition strategies implementation. In term of the incentive strategies, company could provide monetary or non-monetary benefits to the desired employee behaviors to add on to their forces supporting the changes in everyone’s force-field diagram; and regarding the recognition strategies, there has been a change back to a more personalized approach. Too often service award program, spot recognition, performance management and incentives fail to make the emotional tie between the employee and their company. Symbolic recognition in many cases has been replaced with lifestyle “choice” only programs creating disconnection with the recipient by not capturing the true essence of the desired outcome. In the nowadays, a comprehensive recognition program could include cross-section of incentives, rewards, awards and recognition. While there is one best solution, there is a set of factors that create a strong culture that increase the employee commitment (Hrmreport.com 2010).
3.4.2 Planning for the further steps
One efficient way to sustain the current change is to progress to the next change based on the current outcome. In the second part of the Business Transformation Plan (Malaysiaairlines.com 2008), Malaysia Airlines (MAS) will have five steps to follow that make up the FSVC (Virtuous Cycle Profitable Growth):
Step 1 – 5-Star
Step 2 – Lower Costs
Step 3 – Competitive Fare (With a lower cost base, we will be able to offer low and competitive fares to our customers, and still be able to make a profit;)
Step 4 – Get more customers, more revenue (With high quality products and services at low/competitive fares, more passengers will choose to fly on Malaysia Airlines. This translates into more revenue;)
Step 5 – Grow network, build capacity (With more revenue and profit, we can invest in growing our network
and building our capacity. We will open up more routes and acquire more planes, and this leads us to sustainable, profitable growth)
After the downsizing change, the company would hopefully have a lower human labor cost, but still the company need to bring in change into the operation to achieve low overall operating cost and thus help achieve lower costs and achieve the following steps. To achieve this, more marketing surveys and investigations would be needed in order to progress to the further goals. For example, when downsizing change ends, those who survive the downsizing should be offered future personal career development plans to help them to identify the future goals and targets rather doing nothing which makes people believe that the future downsizing could be coming soon.
3.4.3 Designing communication and training programs
Figure 1 The new “MAS way”
Source: malaysiaairlines.com 2011
When Malaysia Airlines (MAS) tried to cut cost though labor force reduction, it is also important for the change agent and the management to pay attention to the communication design and the training program design to promote the so call “The MAS Way.” It is very important for the trainers to integrate the new proposed new “MAS way” in the training program to keep the new employees updated about our new changes as seen from the figure above.
And to the existing employees, frequent reminders should be sent by the company using various communication media channels such as company annual dinner, regular meeting, electronic meeting and internal newspaper and so on to enhance the new proposed beliefs and norms. Integration of a new belief and value into the company’s organizational culture system could be a long term difficult job and regular routine jobs should bear in mind this change. What is more, internal slogans and bulletin could also help send such messages to help refreeze the new changes.
4. Political issues and recommendations
4.1 Statement of the possible political issues
Based on the view from the book “Cadres and corruption: the organizational involution of the Chinese Communist Party”, (Lü 2000, p.21), corruption could be referred as an organization’s loss of its specific competence through failure to identify a task and strategy that partially distinguish between rather than equate or confuse, (particular) members with (general) organizational interests. According to this definition, corruption does no good to the organizations as it compromises the strategic reasonability and appropriateness by putting some individuals’ interests above the group interest. In the downsizing case in Malaysia Airlines (MAS), as some employees are about to be terminated, corruption could have happened when these people are willing to pay extra in exchange for a chance to survive the downsizing through unethical methods such as bribe and collusions.
4.1.2 Conflict of interests
As like many other changes that have impacts on the control and power distribution, conflict of interests could happen when it comes to implementation of the downsizing strategy especially in the higher management. For example, certain member of the board could have a personal interest or stake in the decision in particular when they are also employees of the company and who may lose their positions or gain new positions with the restructuring done within the higher management group (Overton & Frey 2002, p.173). When the conflict of interest happens, there is possibility that the decisions made by these management members would not be practical and creating the best and most benefits for the company.
4.2 Optional solutions to the handling of the named political issues
Here are several optional solutions to help with the change process and handle the political issues such as corruption and conflict of interests.
4.2.1 Promote business ethics, integrate high ethical standard into company culture
On one hand, the management of the Malaysia Airlines (MAS) could take the opportunity to promote business ethics and integrate high ethical standard as part of the company cultural system. While employees may not have time to read all the ethics theories, in a practical perspective, the promotion of the ethical standard would need to adopt a different way of teaching such as providing standard ethical behaviors for the employees to follow. Such standard behaviors could be very powerful as they exemplify that some behaviors are promoted and encouraged while some are ethically prohibited.
4.2.2 Conflict of interest avoidance
Another technique is conflict of interest avoidance. While conflicts of interest during changes implementation are sometime inevitable, their frequencies could actually be reduced largely by avoiding some scenarios of conflicts of interests by restricting the participation of the employees and managers who have conflicting interests in the particular scenarios. What is more, the company could set a specialized responsible position to be in charge of the work to investigate the possible conflict of interest and adopt necessary changes to avoid some of the conflicts of interest.
4.2.3 An open door policy and whistle blowing policy
Another method to fight against the corruptions and other unethical behaviors is through adoption of an open door policy and whistle blowing policy. An open door policy as its name tells, will encourage every employee irrespective of their levels, departments and titles would be encourage to walk in to the senior managers who are trained to handle with the internal political conflicts and unethical behaviors. A whistle blowing policy in an organization refers to disclosure by former or current employees of any illegal, immoral or illegitimate practices involving its employees through particular reporting channels (Aswathappa 2010, p.710). The whistle blowing policy should encourage any employee to approach to the particular department via letter, e-mail or telephone call and the policy should also include methods to protect the privacy and interest of the whistle blower.
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