The Dynamic Political Capabilities of European Airlines Dr Tazeeb Rajwani TT Hello, my name is Toby Thompson and I am here to with Dr Tazeeb Rajwani, Research Fellow here at Cranfield School of Management. Tazeeb is researching the Dynamic Political Capabilities of European Airlines. Tazeeb, before we go on to what led to this study, what are dynamic political capabilities. TR Toby, a very interesting question. A question that lots of people ask whenever I present. But allow me to put this into context, so that we are all on the same page and you are able to really appreciate the dynamics of what exactly is a dynamic capability. There are around 100,000 lobbyists worldwide; around 17,000 of them are positioned at the moment in Washington DC, 15,000 of them are positioned in Brussels at the moment and this highlights a very interesting question which is that the people who are lobbying, why are they lobbying? This is a very interesting question that touched me very, very recently and I thought to myself why are they lobbying? It’s obvious why they are lobbying because obviously it comes down to the influence that they can create in order to change policies or in order to even monitor the political landscape. So after realising this and acknowledging this, I thought to myself what is happening out there in a market? And you can see straightway places like Brazil, China, India, Mexico – a lot of the BRIC economies out there are engaging with lobbying. And it is a practice that is not new to anybody; it’s out there, but different countries out there have been engaging with it very differently. But nowadays there seems to be a best practice. So we wanted to understand what is this best practice, why are companies lobbying, what are the dimensions here that we are looking at? So coming back to your question what exactly is a dynamic political capability – they are the corporate political processes; and what we mean by that is that they are the routines by which organisations out there are able to influence government in order to create policy change or in order to align the corporate – the business – with the changing dynamics of the environment. So it’s very much about creating change; influencing. So in other words, they are the strategic and organisational responses that companies create in order to create positive outcomes, in some ways that will defend their positions from negative outcomes. TT So I am keen to find out what did your research reveal? TR That’s a very interesting question. I would say that my research Dr Tazeeb Rajwani
highlighted very interesting things. But before I tell you that, I think it is very important to tell you why did I look at this area. Well previous research has shown that lobbying as we know it is misunderstood; its dirty. And at the same time companies are engaging with it. So there are studies out there that looked at campaign contributions in America and how specifically in the energy sector some companies out there were giving money to government and as a result some policies were introduced. There are also studies out there that looked at how Disney, for example, were engaging with lobbying activities in order to extend the copyright rule. And then you have got examples of Bernie Eccleston bending Tony Blair’s ear in order to have his way with regards to advertising funding. And the list goes on. Everyone out there at the moment is lobbying. It is something that is misunderstood. So as a result I decided I needed to look at a specific industry; I needed to do a study that was very interesting and allow us to really understand a development of this political capability and also at the same time, how it is exercised. And what we mean by this is the best practice. So we looked at the airline industry as our laboratory in order to conduct this experiment. And the airline industry, you learn a lot from this industry. It’s very much an industry that is married to government. Traditionally if you look at this industry, they have been fought by politics; it’s got ownership problems with regards to government being on the boards, subsidy issues – lots of issues with regards to government. You can go back to 1948 with the Chicago Convention, where it came down to Civil Aviation rules on how to conduct air travel, sovereignty issues and so forth. Traditionally it is married to government and I thought what better place to look at than the airline industry, and more specifically European flight carry airlines. So we decided to contact different airlines. We contacted lots, but we managed to get five excellent airlines that allowed us to have entry and really allow us to understand what is happening with politics. They were very open, transparent, which was fantastic. So we looked at two public owned airlines – two state owned airlines – which had majority ownership which was government based. Then we had three airlines which were Lufthansa, KLM and SAS. And the state owned airlines were TAPAIR Portugal and Air Italia. Great composition, allowed us to have a variety and see whether or not there are two types or three or four, or whether or not there is no pattern of engagement and understanding how the political capabilities developed. So we got these five airlines, but then we wanted to understand what context is needed in order to really understand the dynamics and the interaction effects here. So we chose the deregulation process. Why? Because it was one of the most influential things in Europe when it came to policies. So we wanted to understand how airlines were lobbying before the introduction of the three packages to deregulate the airline Page 2
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industry. So we looked at Package 1, Package 2, Package 3. And these packages were introduced in order to create zoning systems for tariffs, capacity issues, allow airlines to travel from one place to the other, allowing airlines to merge. It was very much about liberalisation. So wanted to understand how these five airlines were developing their capabilities, the political capabilities and how they were configuring and reconfiguring and leveraging their political resources in order to influence government. What we found were two very interesting results. The first result we found was that there were two divergent patterns that we found. State owned airlines lobbied very differently to private owned airlines in this context. Why? Well our research found that they found that the ownership structure, the governance structure, moderated the choices they made with regards to how they lobbied. So when it came to whether or not we want to hire somebody that has some interesting networks, or whether or not we want to influence somebody because we weren’t happy with this tariff or this specific regulation within the package, it was very different. The patterns were very, very unique. So we found, yes, that private owned airlines put in a lot more effort when it came to lobbying and especially when it came to developing their political capabilities. State owned airlines didn’t. Now one of our companies made it very clear that the reason for this was simply because the government sat on their board. So if the government sits on your board, you don’t need to lobbying the same way because they are just round the corner from you. So the distance issue was quite an interesting factor. So yes, the two findings, to summarise, was that the two patterns were there. One pattern, state owned airlines, did not invest into building their political capabilities. Instead they relied on what we call external capabilities, political capabilities, which was the trade associations where everyone lobbies using the association of European Airlines, while the private owned airlines were doing both, but they did invest a lot more effort into the building their political capabilities. Our second finding, which was very interesting, was the actual way the political capabilities were developed. We found that there were three specific resources that all airlines – this was cross case – created and they were developing in order to create influence. Now the three resources were the network resource; so we found private owned airlines were investing during this period in order to hire people that had contacts in the European Commission. So network resources were fundamental. Human capital, so human resources, were also essential and they are married in many ways to the networks. You bring in somebody who is competent, who knows the new policies that will be introduced – somebody who had, say, experience of deregulation in the American airline industry because it happened in one big bang, so there was a big Page 3
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bang approach versus the three phased in approach. So they were hiring very carefully people that were competent, had the right networks, and at the same time investing in the structure – making sure that they had a structure that was married to the European Commission. So they built an actual outlet out there; so Lufthansa had an office in Brussels in order to be close to influence Commissioners, MPs and so forth. So state owned airlines didn’t have that. They were very much in problems when it came to lobbying during this time because the incentives were different. If the government owes you and the government is giving you subsidies and it’s a lot more relaxed, why do you need to deregulate the industry? You are happy, you have got your routes, you have got your tariffs, you are making money in some ways – so it was very interesting to see the different patterns between these two airlines. TT So can you generalise in terms of the practical impacts of your research? TR Definitely, definitely. What we found was that there are quite a lot of interesting practical implications here. One is that we found, and we defined very nicely, an archetype. We have got this very nice diagram that shows visually how government affairs directors, or managers, where they were putting their effort and time. So the strategic choices, versus the action. So we provide a very nice framework for other industry government affairs managers and directors to really appreciate where they need to put their effort and time. So it is something that a lot of countries out there are going to be picking up over the next few years. So China for example, India, Brazil, Russia. They are all exploring this idea of democracy, looking at how lobbying works and some people that are in these emerging industries don’t really have the cognitive frameworks – these mindsets, these mental maps to really take them to the right direction. So we have provided a very nice example of how the airline industry does it and how the private guys do it differently to the state owned guys. And whether or not it leads to performance and outcome. We didn’t look at this in our study, but this is something that we are going to explore later on. But undoubtedly we can say that, yes, lobbying does lead to enhanced performance and there lots of studies that have done that. But our study was answering the big question – how was it done and how was it different and why is it done in this specific way? Very much focusing on the antecedents and lots of managers out there would really enjoy that. TT This sounds like the tip of the iceberg, there is obviously more research to do. Tazeeb, thank you very much indeed. TR Thank you. Page 4