The Unfriendly Skies - Strategic Improvement Turned Sour: National Air

As many renowned CEOs have reflected, strategy is 5% thinking and 95% execution. The author examines the rapid rise and spectacular fall of the CEO of one of the industry's biggest players (Both his and his firm's names are pseudonyms for a CEO of a major European carrier). The case shows how a seemingly good strategy (on paper) when poorly executed can accelerate the downfall of a once world dominant and successful organization. In particular, the case shows how lack of emotional sensitivity, a cold business and technocratic approach to strategy implementation can undermine the careers of even the most brilliant strategists.

by Quy Huy
Last Updated: 23 Jul 2013

As many renowned CEOs have reflected, strategy is 5% thinking and 95% execution. Knowing conceptually what the company should do in terms of strategic moves is necessary but not enough. These moves need to be implemented by the organization, and giving order to lower level employees does not always work well. In fact, it could cost dearly to the senior management team (who was eventually fired), the organization's profits, as well to thousands of employees who were battered by the pains of awkward strategy implementation.

Associate Professor Quy Nguyen Huy presents the dramatic reversals of fortune that befell Robert Berger, former CEO of National Air. (Both his and his firm's names are pseudonyms for a CEO of a major European carrier). The case study suggests how a seemingly good strategy (on paper) when poorly executed can accelerate the downfall of a once world dominant and successful organization as well as excessive pains and costs to organizations and their employees. In particular, the case shows how lack of emotional sensitivity, a cold business rational and technocratic approach to strategy implementation can undermine the career of some of the most brilliant strategists.

Berger joined NA in the mid-80s, when the carrier was starting on a remarkable transformation from a loss-making, state-owned behemoth with an atrocious reputation for customer service and punctuality, to being seen as a model of quality, innovation, and profitability for service-oriented industries as a whole all in less than a decade. By the time he assumed the top position in 1996, he had earned a reputation as a decisive, sensitive and media-savvy professional.

Realising that ongoing deregulation and other structural changes were creating a markedly different set of dynamics for the industry as a whole, Berger launched his Business Efficiency Plan only six months after taking over as CEO. The BEP's primary objective was to reverse the trend of steadily diminishing yields by launching a wide-ranging and dramatic series of cost cutting measures. Other major changes, such as outsourcing many key operations, pleased the markets and enhanced Berger's reputation for sound long-term strategic thinking. The drastic cost cutting measures were announced at the same time employees got news of record company profits and world best customer service. Employees were shocked and prepared for strikes.

Bitter and drawn-out clashes with employees followed. Management dealt heavy-handedly with the two cabin crew unions, generating widespread public condemnation and spreading anger and opposition among groups of workers not previously known for militancy. Growing staff dissatisfaction led to a sharp deterioration in customer service, and with it, company profits. NA began experiencing operating losses and steep drops in its share price, and Berger gradually lost the support of the airline's board of directors.

In addition to anger, cynicism also prevailed among employees who could not see how the airline could invest large amounts of money in what appeared to largely cosmetic changes such as changing the logo on aircrafts while performing cost cutting.

Subsequent efforts to rebuild relationships with angry, mistrustful, and cynical employees were initially received with caution. Employees remained on their guard and changed their mistrust of top management slowly. Improvements also came slowly.

The author largely leaves readers to draw their own conclusions as to Berger's rightful legacy. Regardless of one's opinion, the case invites readers to recognize the challenges of implementing a seeming good strategy, and to invite managers to remain humble and sensitive to operational employees' emotions and motivations to engage their cooperation to realize strategic goals that they truly thought as best for their organizations.

INSEAD 2004

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