Strategies for Cutting Company Costs: Leading CEOs on Establishing Spending Priorities, Ensuring Qua

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As competitive pressures on airlines have increased, growth slowed and restructuring and cost reduction became the norm, so the choice between confrontation or consensus seeking became more stark. But whether that means being cuddly or being cruel to be kind is not a template judgment. For the Gulf carriers, for lower cost new entrants, and in the high-speed growth markets of Asia, the Middle East and Latin America , innovation is more conspicuous and easier to adopt. In these fast expanding markets, the challenges can be quite different. There is another challenge, not unique to airlines, but of more pungent immediacy: As early-comers to computer technology, airlines dug themselves into what are now legacy systems.

These are expensive, inertial and extremely costly and complex to upgrade. Moreover — and this is at the core of many larger airline problems — the management systems of most airlines are built around buying aircraft, flying them and then on marketing and selling product. Airline systems readily handle purchases of a billion dollars of metal. Faced with an array of inertial forces, great leaders in the airline business have been conspicuous by their absence.

There are one or two standouts, but can their skills be replicated? Benchmarking airline companies against each other and often employed on short term contracts, there are forceful and counter-productive incentives to continue doing things pretty much the same way, but faster.

Steve Jobs was simply the greatest CEO of his time. Few would disagree with Rupert Murdoch's assessment of the former leader of Apple. But does that mean they were right? After all this is a highly subjective judgment. Steve Jobs was certainly one of a kind.

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He could see around corners. He eschewed traditional market research — there was no focus group 15 years ago being asked if they would like an iPod, with all the accompanying issues of access to copyright music. He was not always first to the point, but his result was always markedly better and his marketing flawless. With Mr Jobs went epithets such as relentless, visionary, creative genius, inspirational, revolutionary — along with perseverance and stamina.

He actually played a significant role in changing the world. Technologically he was a great, yet his biggest strengths were promotion and product delivery. Together these comprised an unbeatable combination. But he could only achieve what he did with near-unfettered power to implement what he fiercely believed was right. And he was relentless in pursuing his goals. He fired employees in the elevator and screamed at underperforming executives. These are perhaps characteristics of successful IT leaders; Jeff Bezos of Amazon , Bill Gates in his youth, Steve Ballmer his successor… These and others were all renowned for their tantrums.

The implication, as one observer noted, a lack of empathy, so that employees are regarded as expendable resources — is that a sign of a good or bad or effective leader? He had undoubted brushes with morality in some of his dealings; he was frequently brutal in his relations, with competitors, partners and staff alike. Perhaps Mr Jobs' autocratic behaviour was acceptable because of his obvious genius — although, in an earlier life with Apple, when that had not translated into profits, he had in been unceremoniously dumped. He didn't temporarily cease being a genius during his Apple exile either, meanwhile establishing NEXT, a platform that became the basis for the Mac OS X, along with Pixar that was later sold to Disney.

Nor did he, by all accounts, become a less abrasive personality when he returned. Finally, he was considered irreplaceable. Because he was one of a kind, this sort of "perfect" CEO can leave a massive hole when he leaves. Ideally he would not. Apple University had been established in "to teach Apple employees how to think like Steve Jobs and make decisions he would make. At Apple, Mr Cook has by most accounts performed well, not an easy achievement in the shadow of the Great Man.

He has a very different, more consensual style; he is not renowned for his tantrums. It could be argued he was merely surfing the wave that Mr Jobs created, but that would not only stretch credibility but also be severely unfair to Mr Cook. So, to have any chance of becoming the perfect CEO, profitability is a primary pre-condition. That takes a lot of the sting out of any debate about perfection.

There will be a minority, even a large minority, who will suggest that the greater the profitability, the greater the CEO. Consequently, if he is to stay with Apple, presumably Mr Cook must be able to help push the share price up again in the next year. Meanwhile, if the now-maturing company falls behind in market share almost a given as the market catches up , how useful will his consensual style be then in securing his own future, let alone Apple's?

In other words if he has all the best attributes of a leader of people and shaper of a committed team, but does not meet financial "success", can he be a successful leader? The paths to greatness all seem to point relentlessly back to the bottom line. And that's not the triple bottom line either. A quick look at the behaviour of the major commercial banks and their leaders over the past decade is enough to suggest that the overriding — or even sole — criterion is profit. Certainly there are usually token noises made about social responsibility and environmental sensitivity, but they really occupy a tiny part of the thinking or expenditure in most companies.

While financial institutions make billions of dollars in profit, expenditures on non-revenue areas amount only to millions, at most. Yet surely there has to be more to it than relatively short term share price, even in a perfect capitalist system. Notably, the aviation leader for example has little choice but to be much more sensitive to environmental concerns , even where there are real costs and while profits are lean.

That said, the initial judgment in this study of over 3, CEOs mostly turned around company profitability over a short period since One saying of his that would however appeal to many of the new breed of airline entrants: There was one airline CEO in the top who filled the criterion — but he was from government owned Air China , which had reported good profits. This is an industry not noted for its profitability. Unlike Apple, a new light in a new business, many of the airline industry's main participants are decades old, heavily saddled with the baggage of age, heavily unionised, regulated almost to death and, thanks to the proliferation of intermediaries, largely commoditised.

An Empirical Study of Strategic Positioning and Production Efficiency

At the same time there are relatively low barriers to entry and for most older airlines, remarkably high barriers to exit. In light of the nature of these challenges, are there special personal relationship aspects within an airline that increase the importance of the human factor? The quest for the secret of what characteristics go into making a great airline CEO is a well-trodden path. But specific features confront an airline leader over and above the common elements of corporate leadership. This was never truer than it is today, as an entire industry experiences upheaval. It is an industry in transition.

Yet, despite boasting many more high profile brands globally than any other area of commercial activity, very few CEOs force themselves forward as outstanding leaders. Some of the reasons for this may emerge below. In many ways he shares some of Steve Jobs' innovative creativity, albeit within the shackles of often-ludicrous regulatory constraints.

Yet he is abrasive publicly, has had a relatively high turnover of management although junior staff tend to have greater longevity and can hardly be said to have sympathetic people skills.

A tough lawyer and businessman, he was inspirational, innovative, constantly generated profits and, above all, established a remarkable culture in what became the granddaddy of all LCCs. Like Mr Jobs, he changed an industry. Moreover, the Southwest culture was institutionalised, so that it has survived into the next generation of leadership.

The one a tank battalion commander, the other a skilled conductor of a complex human machine, who created company styles that are the stuff of numerous adulatory management books. In each case shareholders experienced enormous capital gains and rapid airline growth, but other outcomes could not have been much more at odds, one with a human face, the other a machine to make money albeit helping change society through enabling pricing. Ryanair's arch-rival LCC in Europe , easyJet, has also performed spectacularly over the past two years.

Under Carolyn McCall, one of the airline business' rare woman CEOs, easyJet has adapted brilliantly into a new market niche and its share price has nearly tripled in the space of 12 months. Ms McCall has adopted a low profile as leader and if anything is seen as inclusive and a team player. And Vueling 's Alex Cruz has navigated the LCC through a complex evolution while remaining one of the lowest cost operators in the region. In the US , evolving LCC JetBlue, founded in the dying months of the 20th century, has also been an industry leader under CEO Dave Barger, profitable in a market dominated by the world's largest network airlines, but imparting a renewed sense of customer service and a human face to a market where dissatisfaction with the nation's airlines is widespread.

It is hard making a difference in an established, legacy airline. Substantial change — often needed now — is difficult and usually involves confrontation, loss making and an unhealthy dose of politics. More than one Air France leader has been put to the sword by a government unwilling to bite the commercial bullet.

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Political cowardice was a much stronger motivator than profitability. In growth markets standing out can be a little easier. LAN Chile 's Enrique Cueto has been an inclusive leader, while transforming the face of South American aviation, spearheading a series of cross border mergers which look likely to stand the test of time and launching a combined LAN as a world force. Africa 's Tewolde GebreMariam has long presided over that continent's most financially successful airline, Ethiopian , and established a range of effective partnerships to help protect that position.

Temel Kotil in Turkey has led Turkish Airlines on a remarkable expansion programme while remaining highly profitable and maintaining a healthy staff culture in a difficult environment. Lufthansa 's relatively successful turnaround has been achieved by a much more collegiate approach with now-departing CEO Christoph Franz guiding the team while ruffling many senior management feathers.

Airline CEOs: the increasingly important quest to find the ideal characteristics

Both are now profitable. Smaller airlines tend to slip under the radar, but recently-resigned Air New Zealand CEO Rob Fyfe was also one out of the box, with remarkable people skills and the strategic direction to put the once-shaky airline back on track. A milestone deal he struck with Emirates will reshape the airline's international presence. Larger than life, he was admired more than loved by his staff, but was responsible for innovative directions, especially in the area of distribution, that reshaped the industry.

His frequently pungent views still do. They did not inherit sclerotic legacy frameworks and cultural backwardness. Theirs was the culture to establish and the world to be changed. The airline world has changed greatly since and the LCC leaders have often played a large role in that. In just over a decade AirAsia's Tony Fernandes has transformed a tiny, unprofitable Malaysian airline into one of Asia's biggest airlines — and the world's lowest cost short-haul — almost entirely through the force of character. With great people skills, he has led from the front, innovating and inspiring, manoeuvring complex government regulation on international routes, establishing a new cross-border model for the region.

A couple of years ago, Brazil 's LCC Gol would have been regarded as a model, transformational airline, but has since run into financial headwinds, causing the far-sighted founder and CEO, Constantino de Oliveira Jr. The airline dramatically changed Brazil's domestic market, but shortage of financial success makes standing out more difficult. That does not necessarily qualify for CEO leadership but, despite some operational qualifications, requires remarkable skills. A parallel leasing operation provides a useful risk management tool.

All are seriously entrepreneurial, unlike the usually more institutionalised leaders of older full service airlines. Managing a large airline through rapid expansion is a feat that requires enormous skill. The nature of commercial and safety regulation create enormous barriers to fast growth, not to mention achieving profitability at the same time. To have simultaneously overhauled the world's long-haul market adds context to the remarkable feats that Emirates Airline has achieved.

The Dubai -based carrier is today the world's fourth largest international airline by seats and the largest by available seat kilometres testimony to the nature of its long-haul flying. With a fleet of over all-widebody aircraft and nearly as many on order, Emirates is receiving about two new aircraft every month one every 15 days! Apart from the obvious operational challenges and the constant need to wear down foreign government protectionism in order to gain market access, managing a staff that consists of different nationalities, while adding a new widebody aircraft to the fleet every 15 days, undoubtedly requires unique skills.

Meanwhile, just km down the road from Dubai in Abu Dhabi , Etihad has actually become the fastest-ever growth airline. Founded in , nearly 20 years later than Emirates, it has over 80 aircraft in service and a similar number on order. But where CEO James Hogan has made an indelible mark is in establishing a new order in airline partnering. Born of a recognition that matching the size of its near-neighbour was impossible, yet needing to attain critical mass necessary for an effective hub operation, Mr Hogan turned to codeshares and then progressively to equity ownership to entrench a new Etihad "equity alliance".

In an industry where cross border equity holdings are very much the exception, Etihad has, in short order, acquired holdings in no less than six airlines, along with nearly 50 codeshare agreements and mutual FFP links. The airline is smaller than Emirates, but is still the 16th largest international carrier in the world by available seat kilometres. Like Etihad it has a mix of short and long-haul aircraft; with in operation and on order the carrier is also on a rapid expansion trajectory. Qatar distinguished itself from the UAE carriers in by being accepted into the oneworld alliance, and joining on Oct, the only Gulf carrier to join a global grouping.

With this diversity of model and scale, the ideal CEO is not going to be easy to find — and many features conspire to make the airline business — and many of the airlines in it — unique.

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Clearly there are different and special characteristics involved in leadership. The assertion of industry uniqueness will offend some management experts and most economists ; certainly every business is different. But airlines are more different! There are many layers to the airline onion. Just pricing the perishable airline product involves a complex combination of science, technology and the dark arts.

One anecdote, a useful test of the complexity of any business: Asked to act in an anti-competitive airline pricing matter, the counsel concerned arrived at a Monday briefing armed with two hours to learn the niceties of airline costing and pricing. By the end of a week, they had begun to feel they understood the basics of the process. An airline is many businesses under a single roof — and, for international airlines, many roofs around the world with mandatory presence in all markets and jurisdictions served. The day-to-day issues involved in aircraft maintenance, catering, running a frequent flyer programme, distributing product through multiple channels, handling bags and freight, training, managing and retaining skilled staff such as pilots, making risky multi-billion dollar investments in future aircraft, hedging currencies and fuel prices, with costs and revenues and staff spread through perhaps 60 countries could hardly bring with them a wider range of challenges.

That is even before navigating the mountainous daily log of regulatory matters, in an industry where safety is the often unspoken fixed reference point and arcane economic constraints apply. There is yet another distinguishing feature: The airline industry is a very old business, which boasts vastly more sexagenarian companies than any other. Several well known brands are well into their 80s and beyond. KLM , Avianca and Qantas are all well into their 10th decade and Mexicana just fell short, at the age of 89, when it finally collapsed in Aeroflot recently turned That this longevity is a child of regulation is no secret.

But, as with the fragile human body, age frequently brings with it sclerosis. In industry terms these are known as legacy issues. They embrace pension funds, older, more costly employees and, above all, numerous highly organised and often globally coordinated unions. With usually at least a dozen or so unions to negotiate with in two or three year cycles, personnel issues are never far from front of mind for a legacy airline CEO, for better or for worse. It is fiercely competitive, yet nationalistic hangovers preclude international mergers. It is consistently the worst performing industry, bar none.

It only exists because its constituent airlines tend to pay their debts. Equity is not the foundation. No intelligent investor sees airlines generally as a long-term place to park funds. There are odd exceptions, but generally they are simply too complicated. Stock prices rarely even cover the asset value of an airline.

This has given rise to the occasional attempt to privatise an airline company in order to expose and sell down the profitable parts, such as frequent flyer programmes, the rentable value of the fleet and various other discrete functions such as catering and maintenance. In this way, the thinking goes, the simplified company structure allows better value assessments by analysts — and each company with its own CEO.

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Where it has happened however, with Air Canada for example, the residual airline struggles to make a living, because it is intrinsically such a poor business, at least in the shape of returns on investment. Thus airlines essentially seem to exist to support a host of suppliers and financiers — as well as to perform a remarkable socio-economic function.

The industry drives world tourism — and business — and in doing so ensures it is always in the spotlight, among consumers and politicians alike. If a politician wants to get some quick media coverage, attacking the airlines is guaranteed to get front-page column space. Who then in their right senses would want to run an airline? The relative importance of these leadership ingredients is largely a matter of opinion and timing and as we have noted one clear prerequisite is to remain in business — to be profitable.

Despite the lingering doubt about even this being essential in an industry where market exit is so infrequent, profits at least offer relief for the airline CEO. It is important also to recognise the importance of each will vary dependent on timing, the airline involved and its competitive environment. Thus there is no common formula. For legacy airlines innovation rare and difficult though it may be is not enough.

Like it or not, their people must be a major priority — not just because they will often have to accept poorer salary and conditions than they would like, but also because in such a consumer facing business they can make such a difference to the brand. It is perhaps no coincidence that most airline CEOs today are at such pains to stress that it is their people who are their main assets; they, not metal, are the sine qua non of the airline. This old industry is in transition. The process has been accelerating over the past two decades, but the reality of a new world is now unavoidable, as global economic conditions decline and growth in mature markets is no longer there to paper over the cracks that appear.

Short-haul routes are under attack by low-cost competition; long-haul is becoming more competitive as regulatory controls are lifted and new entry from Middle Eastern and Asian airlines is introduced. In these conditions, a common pattern of heavy bargaining is evolving. Legacy airline managements are being forced to make big strategic adjustments, and to do so in short order. Their primary action is inevitably to reduce costs. Yet most costs are external and allow only limited management options; fuel, now more than a third of cost, capital expenses and other overheads are inflexible, at least in a timeframe that allows suitable responses to new competitive challenges.

Manpower reductions and productivity enhancements therefore become almost the only levers to pull. But despite often-inefficient work practices and relatively highly paid staff, the unionised segments are understandably often unwilling to concede to change. It means that a senior pilot in one airline would have to start again near the bottom if he or she wants to move to another company. In those circumstances, dealing tough with the existing management can be seen as the only option. Indeed, where the airlines have become profitable — partly due to cutbacks on pay and headcount — wage increase demands are becoming more frequent.

Southwest Airlines for example, the longstanding model of the LCC, now has pilots who are paid well above the industry average but who are arguing for increases while the airline is making profits. Often, even where employees recognise the pressures on the airline, taking action in the common good becomes unacceptable at an individual level. Here is where the push-back occurs — and where management skills need to focus more on the People Priority. It is worth focusing on because it is one area where the persona of the CEO is a vital ingredient.

He was a corporate raider, highly confrontational towards organised labour. He is not fondly remembered — except by some of his shareholders. For those who would use it, the People Priority is not a switch that can simply be turned on or off. One right move can sway opposition, just as one wrong step can unravel years of hard work. So, not only must several people-oriented courses of action be committed to, there must also be the management capability to apply them consistently.

Forgot your login information? The Strategic Leader as Innovation Manager. The ceo as a strategic leader. In Business transformation strategies: The strategic leader as innovation manager pp. The Strategic Leader as Innovation Manager , Mascarenhas, O A , 'The ceo as a strategic leader', in Business transformation strategies: Have you created a personal profile? Login or create a profile above so that you can save clips, playlists, and searches.

Please log in from an authenticated institution or log into your member profile to access the email feature. Transformations often begin when an organization has a new head who is a good leader and who sees the need for a major change. If the entire company needs to be changed, the CEO is the key player. If a divisions needs change, the divisional general manager is the key.

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