American Airlines Case Study Harvard

Business strategy at American Airlines was rather complicated yet growth-oriented and focused on providing people with more stable work opportunities, promotion, fringe benefits. One of the basic goals of the company is keep growing and it is the major goal of American Airlines that is realized in different ways, such as the reduction of costs that includes more efficient use of funds through non-monetary stimulation of employees, their career growth and provides opportunities for investments in technological improvements.

American Airlines management believed that increasing quality of service, reducing the number of late flights and lost baggage would ultimately differentiate American Airlines from its competitors who fly similar planes, buy food from similar caterers, and utilize the same airports.People are instrumental in the achievement of this competitive and bold strategy. To put it more precisely, the company aims at expansion of its share of the market and it is supposed that the improvement of the quality of services, higher reliability and lower costs would substantially ameliorate the position of the company in a short- as well as-long term perspective. So certain programs need to be implemented to give way to more empowerment, independent decision making, quality circles and other contributions from the employees of American Airlines.The Mission statement of American Airlines was to remain a leading company on the market with the greatest and most efficient service compared to the competition. Thus, American Airlines management would aggressively pursue the cost-cutting strategies which includes cost-cutting strategies that means that monetary stimuli will be use less often than they used to be.

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However, it does not simply mean that employees will have lower wages but it also provide the opportunity to stimulate their professional growth as the system of rewards is supposed to be based on the rewarding professional development of employees through special training within the company. Obviously, employees would be more concerned on their professional growth if they realized that their financial position rather depends on their promotion than their currently stable position. At the same time, these strategies also contribute to the improvement of services since employees constantly acquire new knowledge and skills and attempt to perform better in order to be promoted.One needs to remember that corporate culture of American Airlines is a way as expressed in terms of corporate structure, communications of things that need to be done. These things are represented by priorities, corporate values and corporate personality.

The corporate personality traditionally is shaped by the goals the company pursues. In this respect, American Airlines has a corporate personality of a leader that rationally tends to grow and expand, provide services of high quality with the help of well-qualified and trained personnel. In fact it is necessary to briefly discuss basic goals of American Airlines in order to better understand its corporate personality.Speaking about goals and objectives of American Airlines I should certainly note that American Airlines had many of them that can be presented in bullet form below:Reduce costs. The was the primary goal that just like many of the comprising objectives would actively pursue downsizing of certain positions, creating additional posts of employees having several roles involving supervision and responsibility which should naturally increase if costs are reduced because each employee should work more effectively and productively that is practically impossible if they lack responsibility. Instead the high responsibility of employees for the result of their work, in the condition of limited funding, makes them more concentrated on the results and quality of their work.

Maximize profits. This goal is present at any organization, while at American Airlines it meant changing pay options for the workforce that accounted for 30% of the total operating costs at American Airlines. The company reduced the entry-level salaries to such a level that would never be equal to the existing salaries of previously hired employees. As a result, the company could increase profits through reduction of costs and, at the same time, stimulate employees’ tolerance and decrease employees turnover since the time they work at the company affected the level of their salaries. Thus, in order to maximize profits, American Airlines would provide small salaries to the entry level/new hires while promising them stability and quit career growth.

Obviously, the important factor to attract new employees was succession planning since they realized that in perspective they could substitute the personnel that had been working at the company before they were employed. Consequently when they succeed they would be also in a privileged position. This is why they could readily sacrifice short-term benefits for the sake of long-term perspectives.Optimize operations. American Airlines would engage in empowerment, downsizing, and restructuring to optimize its operations, establish the optimal amount of flights to the most profitable destinations, while, at the same time, creating loyalty programs for customers and employees. Basically, the company launched the operation restructuring and made new investments in order to save in the future.

To put it more precisely, the operations restructuring included empowerment and downsizing. The main goals was to make the operations more efficient and prevent situations when the same or similar operations were fulfilled by different units. As a result, the operations efficiency would increase substantially and, thus, provide savings. At the same time, the need to invest, seemingly costly enough, also contributed to savings because investments were essential to sustain competitiveness of the company and, apparently, the modernization of equipment and material funds of the company are essential because their further exploitation and essential repair would grow more and more costly. This is why American Airlines would also invest $150 million in the computerized baggage handling system to reduce the number of mishandled luggage on American Airlines flights.

Retain the most competent workforce. Since labor is always the most precious asset of any organization, American Airlines would create numerous programs to guarantee a decent standard of living for its employees in return for high productivity and employee loyalty. The latter is particularly important in the context of cutting positions. Practically, it means that employees would be stimulated to be loyal because loyalty is rewarded and it would be just economically unprofitable for them to work within a company for a short term for the entry-level is low. On the other hand, they would have perspectives of the further professional growth, training and stable financial position being loyal employees.Exercise control over the unions.

American Airlines would actively cooperate with the labor union meticulously explaining why certain salaries cannot be raised and should not be raised.Expand services and grow in size. American Airlines’ primary goal was to grow in size through internal expansion. American Airlines, according to Crandall did not need other airlines (merger), other pilots or other planes. It wanted just the right to fly in certain areas it deemed profitable.Although not stated clearly in the essay, the strategy of American Airlines was to expand gradually while at the same time constantly minimizing costs of labor (primary objective of American Airlines’ management) American Airlines wanted to provide employees with other options beyond monetary to attract to American Airlines among which may be named the recognition program which implied privileges or rewards to loyal employees who had been working at the company for a long period of time.

At the same time, such employees would have better promotional perspectives.Speaking about HR strengths and weaknesses I would like to say that there had been some. The strengths were certainly the flight pass that allowed discounted flights for American Airlines employees. Low employee turnover rate would be guaranteed by the company’s strategy to stimulate employees’ loyalty. Constant and rapid promotion, growing job opportunities and employee trainings should give HR department another credit for nurturing competent workforce.

At the same time, the company had certain weaknesses, namely, it has to effectively forecast manpower needs that may be done in several ways. For instance, it is possible to provide a series of tests to reveal the needs of the personnel, interview employees and consult their opinion concerning possible improvements within the company. However, it should be said that in general the weaknesses were few, yet they seem to get into sight quickly. The transition from one compensation program to another would create confusion and disagreement among workers who found the changes unfair. Some believed that they were not paid fairly and wanted a raise, while others who had to live with the small pay for years did not want changes since the new hires would get unfairly high starting salaries.

Ultimately, the pilots seemed to get the highest raise, so other employees believed that they also deserved such raises for doing important work. Basically, the company focuses on the retention of its employees and increase of their loyalty. This would provide the opportunities for the stable development of the company due to the low level of employees turnover. At the same time, it is equally important to provide permanent development of employees by means of training and educating them. In this respect, it is worthy to note that additional training and educating could be realized within the company when employees learn the experienced of their colleagues and are trained by them.Prior to speaking about whether American Airlines is a defender or prospector company, one needs to know exactly what these actually mean.

A defender organization is a company that allocates its scarce corporate resources for a relatively narrow range of products and services in a relatively stable market. These organizations possess the following characteristics:

  • Highly efficient allocation of resources.
  • Very low speed of response to market changes.
  • Corporate jobs and positions are organized by functional areas.
  • Command center is very centralized.
  • Organization has low cross-functional communication.
  • Jobs are highly specialized.

Typical defender companies by their nature and structure exhibit efficient two way communication the majority of which comes from the top to the bottom of an organization, changing the behavior of corporate key stakeholders. The behavior of organization is not questioned and not prompted for a change. The key approach to management is to persuade and force rather than to achieve a win-win/compromise/collaborative outcomes in working with workers, suppliers or clients.

Historically it is the financial services organizations, auto industries and food producers who are defenders.–A Prospector company is an organization that moves rapidly on the marketplace to create new business opportunities in product and service sectors of the economy. These organizations share the following similarities:

  • Low efficiency compared to defender organizations.
  • Very quick speed of response to market changes and needs.
  • Most jobs are organized to capture additional market segments and serve existing customers.
  • Management is very decentralized
  • High cross-functional communication is supported and promulgated in the organization.
  • Low job specialization is present.

Typically these organizations are not able to keep up with corporate internal needs because of corporate desire and culture of changing quickly to keep up with the market. Human resources just like other key functions may not keep the pace with the corporate changes. Traditional representatives of the prospector organizations are most software/IT and dotcom companies.The analyzer organizations are the companies that incorporate elements of both prospector and defender.

Still, one can say that American Airlines is more of a defender company than of a prospector company.American Airlines together with its British partner (British Airlines) developed a deal that provided them with an advantage of being only 2 of 4 airlines that have permission to fly from London Heathrow airport to the USA while having immunity from Antitrust laws. American Airlines thus can be characterized as a combination of defender and prospector (which is represented by analyzer company). American airlines is large company that operates primarily in the air transportation industry (narrow product line), thus being the defender company. It had managed to maintain leadership position in its industry.

At the same time the company strives to operate abroad, innovate in the regional airlines, i.e. pursue new opportunities, which would mean that American Airlines is a prospector company.Speaking about the 5 HR activities I would like to note that they all were masterfully adopted by the HR department of American Airlines and the company indeed enjoyed abnormal profits and corporate growth/expansion over the next several years during which successful project had been implemented.HR planning at American Airlines had been meticulous and congruent with the corporate strategy to make American Airlines the best airline company on the market by providing the quality flights while minimizing the corporate costs and other expenses.

HR department is centralized. Basically, the main decisions are made by top executives thought the head of HR is responsible for their profound analysis and possess significant freedom in decision-making process that increases the speed of implementation of decisions in practice. At the same time, top executives made the most important decisions after consultations and discussions, taking into consideration the position of the head of HR.The follow-up process of analyzing how the HR activities affected the overall performance at American Airlines is used as the final step in the planning function process. In this respect, it is worthy of mention that the level of turnover is a very important indicator of the general success of HR functions since the lower is the turnover the better HR operates.

Since American Airlines is a defender company one can understand that the HR planning activity at American Airlines is directed towards centralized planning, and is focused on the primary corporate activities and core competencies. High level of efficiency at American Airlines planning is achieved.Staffing had been another issue I would like to pay much attention to in this part of the essay. American Airlines had been noted several times to have many applications from most competent and qualified prospects to work at American Airlines. At the same time American Airlines can boast one of the lowest employee turnover rates, since most of the employees expect rapid promotion up the hierarchy ladder as well as prefer to earn less yet make their career at American Airlines.

The case stud noted that American Airlines had had the best workforce available on the market and thus was capable of utilizing human capital to the company’s best advantage at least possible price. It appears that American Airlines would promote from within, thus giving every entry level employee a chance to succeed at American Airlines. The case study noted that American Airlines does care about its Human Resources and strive to align them around the corporate mission and goals. In fact, it is extremely important that every employee clearly realized the main strategy of the whole company and his/her place in it. In such a away, the employee would be more conscious of his/her work and would attempt to perform it possibly better and work at the company possibly longer due to the career perspectives and benefits from loyalty to the company.

It also makes the personnel more united since all employees could be inspired by the fact that all of them are working to achieve the same goals and even seemingly insignificant work could be of a paramount importance for the company at large.As it is the case with many defender companies American Airlines, still fails to accurately respond to the needs of its human resources which in turn might increase employee dissatisfaction and complaints because of inconsistent policies not accurately reflecting the market needs and the needs of American Airlines’ key stakeholders.Training and development at American Airlines had been at a decent level since the company cared about the constant improvement of performance and increased qualifications of its workforce under the centralized HR planning function. Under the PPC (peak performance through commitment) program each employee at American Airlines except for pilots (due to high opportunity costs) would receive regular classes on how to improve and benefit the organization by participating in its activities beyond regular job duties. Employees would increase their qualifications and subsequently would get promoted at American Airlines at a rate much higher than at of American Airlines’ competitors.

As a defender company, American Airlines meticulously and routinely would provide employee training and development ideas and implement them regularly to assure that employees constantly improve and provide American Airlines with the most efficient services. As a matter of fact, American Airlines had achieved high results in training and development, independently from the market trends and dynamics and the policy of the competitors.Performance management at American Airlines had been briefly mentioned yet it appears that due to increased empowerment initiatives initiated by American Airlines the management of performance had been at a rather high level. The Quality of Work Life (QWL) program of 1983 had been made to allow for less authoritarian supervision. The Quality of life initiatives would allow employees to get involved in the company matters comprising customer relations.

At some stations, most employees would work without a supervisor because of downsizing and sharing of roles among employees who besides doing their regular jobs would choose to assume more supervisory roles. The QWL here looks more like a prospector company move since it would reduce centralized control and provide more empowerment to the employees. Still, the QWL had been initiated under the centralized planning initiative of the American Airlines’ management. Thus, performance management would reflect the company’s mission and long term goals of possessing the most competent labor force as one of its competitive advantages of American Airlines.Compensation had been well developed at American Airlines, still the monetary component of the compensation was not of the greatest importance. As a matter of fact the compensation at American Airlines was more future–oriented and entailed fringe benefits rather than the actual monetary compensation.

At the same time, it is very important for the company to take into consideration the long-term perspectives and, such a situation, American Airlines have to analyze the marketing reports which reveal the current trends in the market at large and in the competitive companies in particular. Also, it is worthy of mention that the employee’s loyalty is one of the important factors defining the size of compensations. The HR department of American Airlines had meticulously analyzed the salaries of its competitors namely Delta and had provided similar salaries to all of its employees regardless the level and the time an employee had been working for the company was one of the most decisive factors though new employees also have perspectives of receiving both monetary (health insurance) and non-monetary (quick promotion and flight passes). Here again we see that the compensation activity of HR of American Airlines had been initiated by a defender company which reflected accurately the central planning and ideas developed at the top of an organization without taking into account the HR needs and the moves of the competitors of American Airlines. Thus, we see that many employees would question the compensation packages with each change the top management of American Airlines decided to implement.

The communication here again was seen as coming from top to the bottom of an organization. The position of employees was hardly taken into consideration and it is only labor unions representing pilots had managed to ‘persuade’ the company’s administration to take into consideration the position of employees, i.e. pilots. On the other hand, other employees’ position was practically ignored by the administration. As a result, other employees remained unsatisfied not only by the fact that their preferences and needs remained unheard but that some employees (pilots) turned to be in a privileged position compared to the rest of the personnel.

At some future time the changes had been made to the compensation of the employees, still American Airlines would do everything possible to keep it as low as possible. The American Airlines would effectively argue with the labor union that subsequent increases in salaries would contribute to the increase of corporate costs that in turn would certainly contribute to the corporate improper reinvestments, inability to sustain its strategy and thus the decline of corporate activity if not a bankruptcy. Ultimately, American Airlines would make some salary increases to certain categories of employees and would provide profit sharing increases to accommodate the employee and labor union demands for higher salaries.Needless to note that each of the HR initiatives described above would contribute to the corporate mission statement and the corporate goals of dominating the market. The company indeed would benefit from its investment in human capital, still had experienced certain drawbacks of its strategy.

The primary weakness of the HR department with its strategies was their inconsistency as contribute by the external forces as well as internal policies. For instance, after the salaries had been raised for certain groups of employees just like the promotion options, other groups of employees would get disgruntled and demand proper fair compensation for their own.Speaking about Health and safety of the employees at American Airlines I should note that this aspect had not been properly developed and present at American Airlines. Many employees would complain that their insurance just like other options were inadequate compared to the American Airlines’ competitors. Still, American Airlines argued that it provided its employees with unprecedented option for personal and career growth at American Airlines, something that American Airlines’ competitors could offer.

HR department of American Airlines should still consider providing the needed insurance and health benefits to the employees and their families to achieve the following purposes:reate more employee loyalty. While career and growth opportunities sound attractive, caring for employees and their families would reflect in higher employee loyalty.Better control. By providing health insurance options let alone gym passes and vacation voucher to the families of the American Airlines’ employees, the company would establish additional level of control over its employees that would come from their families. So if an employee fails to do the right job, he besides getting reprimands from the supervisors would also get a scandal at home as his wife no longer gets a free pass to the gym or his kids no longer get a chance to travel to the Disney World in the summer, something that a company did in the past.

Once again, this HR activity of American Airlines had been preplanned at the top to assure that the company possesses healthy and very productive staff. As it is attributable to other defender companies, American Airlines managed to achieve high efficiency with its personnel and this HR planning element would be more than coincide with the corporate mission and goals of constantly improving efficiency and productivity. This is one of the few HR activities that certainly reflected the market needs and conditions and gave American Airlines great efficiency boost.Employee relations and Labor relations at American Airlines had been also at a rather interesting position for the following reasons. On one hand American Airlines would do everything possible to stimulate its workforce to contribute to the corporate competencies through participation in corporate activities, empowerment and trainings it would for some reason fail to take into account employee contribution as depicted in the complaints of some employees who were unable to get their message through to the head office of American Airlines. Here the HR of American Airlines should establish a uniform/centralized reporting system where each employee would be able to step over his/her direct supervisor with the needed idea either in a personalized or anonymous mode.

The primary reason for such update would be to stimulate the employee to contribute to the organizational good even if some of the supervisors for some reason fail to transmit the most important messages up to the top level of American Airlines.Being a defender company, American Airlines was unable to develop a well-coordinated two way communication between the upper and lower levels of management in the organization. Much of the communication again had been originated at the top with the upper management trying to persuade the labor that its decisions are right and the best ones for the whole organization. The management used its position power and threatened to close the company altogether if the top management’s ideas, deemed the only profitable and long-term oriented, were not followed and supported by the labor unions. While the management indeed won over the labor unions it seems that it lost a battle with its own labor, creating disgruntled employees and tensions within organization.

In conclusion, I would like to note that American Airlines is a company with great opportunities and abilities. The difficulties the company experiences as depicted in the case study can be attributed to any company in any industry. Overall, American Airlines had been doing an excellent job retaining its most precious human assets, negotiate with the labor unions as well as invest in the corporate strategy and changes. Some of the potential problems and challenges the company experienced as depicted in the case study could be solved by using the means depicted in the essay, while American Airlines needs to understand that its commitment to market excellence and low employee turnover can only be done through proper management of corporate interests with the interest of its labor force. American Airlines needs to maintain its ability to empower the employees to the point willingly contributing to the corporate operations, working without supervisors and working overtime.

Investing in employee training had been done so far, and American Airlines should continue this strategy together with the ever increasing employee compensation to benefit in the long run and assure that it is American Airlines that has the most timely flights, the most accurately delivered luggage, the cheapest costs and the highest service.