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Industrial relations at British Airways - setting a new course?

On 10 March 2000, British Airways announced the resignation of Bob Ayling, the company's chief executive. His departure comes at a time of considerable industrial relations uncertainty: the company recently announced a renewal of its cost-cutting programme involving around 6,000 redundancies, but simultaneously appears to be exploring the possibility of "partnership" arrangements with the trade unions. This feature examines the recent history of industrial relations at British Airways and their possible future direction.

Fasten your seat-belts - preparing for privatisation

In the early 1980s, British Airways (BA) was incurring substantial losses, its reputation for reliability was poor, and its costs exceeded those of other major airlines. In order to prepare for privatisation, new managers were appointed by the Conservative Thatcher government to turn the company round. BA pursued an "added-value business strategy" which prioritised customer service and which depended in part on the development of human resource management practices such as employee development programmes, a profit-related pay scheme and teamworking, for which the company became renowned. Another important part of this reorientation involved a sustained cost-cutting programme, known as the "survival plan". However, the company also attempted to improve relations with the trade unions through open and regular communication, though collective bargaining was not used as an instrument for change.

In the second half of the 1980s, the firm's financial position improved in the context of favourable product market conditions. Significantly, BA had a near monopoly of domestic routes and a duopoly position in most of the international routes into and out of the UK. Between 1984 and 1990, employment rose from around 35,000 to around 50,000. However, the rosy picture often painted of this period should be qualified. Industrial disputes and occasionally industrial action remained a feature of industrial relations at BA - there was at least one dispute every year between 1982 and 1990.

Riding the storms - experiencing deregulation

In the early 1990s, BA's environment changed markedly. In particular, deregulation opened up competition within Europe, added to which was a general market downturn due to recession and the Gulf war. With no option of government subsidies, BA pushed ahead with aggressive cost-cutting. Thus, the balance between the value-added, high-quality strategy and the cost-cutting approach shifted towards the latter in the early 1990s. The pressure on business units to deliver improved performance helped erode the BA corporate ethos of an open management style, and changes were secured more by threats of selling off or franchising operations than through consultation and negotiation. Company-wide bargaining was undermined by the business units trying to negotiate local packages. Between 1990 and 1993, some 5,400 jobs (10% of the workforce) were lost. There was evidence of lower employee morale and industrial disputes were a persistent feature - again, at least one bargaining group in dispute every year in the early 1990s.

Flying off course - Ayling at the controls

In 1996, Bob Ayling stepped up to become BA's chief executive. In this year, the company announced record pre-tax profits of GBP 474 million and with the prospect of an alliance with American Airlines, the outlook seemed good. In a bid to increase profitability further, management embarked on a move to cut costs by GBP 1 billion within three years in what was known as the Business Efficiency Programme (BEP). Originally developed to anticipate recession, this became a longer-term strategy to respond to the effects of an increasingly deregulated market. Many of the cost-cutting measures were extensions of previous policies: outsourcing was applied to areas such as routine maintenance, engineering and information technology; and capital spending on property and some equipment was deferred. In a bid to compete with the new low-cost operators, such as EasyJet, many low-yield routes to and from Gatwick were also transferred to the firm's new "no frills" subsidiary Go.

Inevitably, management also sought to reduce labour costs. The most notable example was the attempt to restructure allowances and pay scales for cabin crew, which prompted a strike in the summer of 1997 (UK9708153F). Mr Ayling and his team adopted an extremely tough position in the dispute, closing the Heathrow office of the main cabin crew union BASSA (which is affiliated to the Transport and General Workers' Union, TGWU), and threatening to sack strikers and even sue them for breach of contract. The company's confrontational stance was seen as counter-productive, however. It appeared bullying, and turned moderate staff opinion against the company. Although only 300 cabin crew joined the three-day strike in July, more than 2,000 went on sick leave which resulted in longer-term disruptions through August. The cost of the strike was estimated at GBP 125 million. The effects on staff morale, service and company reputation (further damaged by the simultaneous introduction of a new baggage-handling system which led to record levels of lost baggage) could not be quantified.

To add to the industrial relations problems, the alliance with American Airlines became bogged down in regulatory difficulties, and a controversial GBP 60 million rebranding of the company's aircraft was abandoned. Despite the success of the BEP in achieving the target for cost reduction, BA's finances plunged into deficit. By 2000, the firm was bracing itself for losses of up to GBP 200 million. The writing was on the wall for the chief executive, and his resignation was announced on 10 March 2000.

Destination please?

Nevertheless, despite all of these problems, there are signs of more constructive relations emerging between the company and its unions. Regular meetings are now held between management and the unions to inform them of developments and help defuse problems at an early stage. This facilitated an agreement with pilots in 1999 promising job security in return for changes in working practices to improve productivity. At the same time, the BA subsidiary Go has negotiated a partnership deal with the Amalgamated Engineering and Electrical Union (UK9907214F), and press reports in December 1999 suggested that a similar agreement between BA and the TGWU was being proposed. With the removal of its chief executive, BA finds itself again at the industrial relations crossroads with an ultimate choice between confrontation or consultation and participation.

Commentary

BA has steered a difficult and often contradictory course between cost-cutting and "macho management" on the one hand, and high quality and staff involvement strategies on the other. After its recent tribulations, and especially in the light of the traumatic events of 1997, a cost-cutting strategy which fails to take employees and their representatives on board would be highly risky. A wider employment pact, extended to other groups of employees, therefore remains a possibility, if a still somewhat uncertain prospect. Current reports of around 6,000 job cuts hardly improves the immediate outlook for an agreement on job security, particularly when the unions have already conceded much that management has required. Yet the fact that management has already achieved most of its goals should make such an agreement easier to negotiate with the unions, which need not be asked to give up much more in return. The unions for their part recognise the problems of over-capacity and intensifying competition in the sector. What they require is a say in the management of restructuring and beyond that to be consulted and involved in how the organisation is run. A partnership arrangement in BA would be a different proposition altogether from that of the subsidiary Go, but it is not impossible if both parties are keen to leave behind the turbulence of the recent past. (James Arrowsmith, Tony Edwards and Keith Sisson, IRRU)

source : James Arrowsmith, Tony Edwards and Keith Sisson, IRRU
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