The Case of SAA and Failed Transformational Change And how it can turn itself around Rakindu Madurapperuma (130225238), Shine Mathew Zachariah (158139220), Adheena Anthony (156768228), Ramesh Mahat (138223235), Hasitha M K M Don (100650233) 0 Table of Contents Executive Summary............................................................................................................................... 2 Problem Identification........................................................................................................................... 3 SWOT Analysis ...................................................................................................................................... 3 Goal formulation ................................................................................................................................... 5 Strategy Formulation and Evaluation .................................................................................................. 5 Strategy Selection .................................................................................................................................. 7 Implementation Plan ............................................................................................................................. 8 References............................................................................................................................................... 9 Executive Summary South African Airways (SAA) has faced significant financial challenges, exacerbated by both internal management decisions and external market conditions. Despite its strong reputation for customer satisfaction and recognition as a leading airline in South Africa, SAA has struggled with frequent changes in leadership, demotivation among employees due to layoffs, and wasteful spending on unnecessary aircraft purchases. In response to these challenges, the research team has conducted a thorough analysis and formulated strategies to address SAA's financial difficulties. The primary problem identified within SAA is its poor financial position, which has been exacerbated by management actions such as excessive spending on transformational measures and high executive compensation. Despite external factors like global recessions and terrorist attacks, it is clear that internal decisions have contributed significantly to SAA's financial woes. A SWOT analysis revealed several key strengths, weaknesses, opportunities, and threats facing SAA. Notably, SAA's reputation for customer satisfaction and its government ownership present opportunities for growth. However, frequent changes in leadership, demotivation among employees, and financial instability pose significant challenges to the company's success. To address these challenges, the research team formulated five strategic goals, including increasing net revenue, reducing total costs, and paying off debt. Strategy formulation involved evaluating three potential strategies: leasing out flights, implementing expense tracking tools, and forming strategic partnerships with South Africa Tourism. After careful consideration, Strategy B, involving the adoption of expense tracking tools, was selected as the most viable option. This strategy aligns with SAA's goals of reducing costs, increasing profitability, and maintaining customer satisfaction. By leveraging technology to track expenses and reduce wasteful spending, SAA can improve financial efficiency and achieve its strategic objectives. The implementation plan for Strategy B involves a comprehensive approach, including research, presentation to management, selection of a suitable expense tracking tool, training for employees, and ongoing monitoring and adjustment. This plan aims to ensure a smooth transition to the new expense tracking system while maximizing its effectiveness in reducing costs and improving financial performance. Problem Identification Upon analysing the case, it is clear that the main problem that has plagued SAA is the poor financial position that the company finds themselves in. Although Beswick and Mosala (2013) have stated numerous conditions from the external envionrment that certainly hindered SAA’s financial condition (i.e.: global pandemic, global recession, 9/11 terror attacks), upon closer examination of SAA’s internal workings, it is clear that the company’s main problem stems from actions taken by the management. It should be notes that the poor financial position has been a precedent in the company for a large period of time, and it only worsened the management’s attempts to change the status quo. SAA management took deep transformational measures and invested heavy in those measure. For example; laying off 16% of the workforce, large investements into new aircrafts, large payments made to consultants, introducing incentive schemes for travel consultants etc. (Beswick & Mosala, 2013). Further, SAA had decided to pay their second CEO, Coleman Andrews, a salary that is much higher than what is considered the norm in the industry, along with bonuses that had gone upto 5 times his salary (Beswick & Mosala, 2013). This has also led SAA to take up several loans, which pushes them into further finanaical distress (Beswick & Mosala, 2013). All these massive changes made to the company, while may have achieved momentary financial gain, in the medium and long-term, it led to the worsening of the financial status of SAA. This can be explained by studying the Sears story, where the company chose to immplement major changes to the company to survive, which ultimately led to it’s demise (Palmer, Dunford, & Buchanun, 2022). Palmer, Dunford, and Buchanun (2022) state that tranformationsla change, like what SAA had implemented, can be detrimental to businesses, as can breed a lot of infighting and unfamiliarity, which in the case of SAA, has led to further insolvency. SWOT Analysis Strengths Customer satisfaction: Due to its emphasis on providing high-quality services and a positive client experience, SAA has won awards across a number of Weaknesses Frequent change in leadership: From the years, 1993 to 2004, SAA had had seven individuals take up the mantle of CEO (Beswick & Mosala, 2013). This creates areas (Beswick & Mosala, 2013). With excellent instability and anxiety for SAA employees (Myatt, customer satisfaction scores and awards for being the 2013). Which can lead to slowdowns at work. greatest airline in Africa, SAA continues to expand its Demotivation and Industrial action: Several layoffs income by drawing in new business and retaining its occurred in SAA (Beswick & Mosala, 2013), which can existing lead to employee demotivation. This is because their clientele (SÜDAFRIKANISCHE BOTSCHAFT, 2013). security needs are compromised, as per Maslow’s Reputation and Recognition: SAA's established track hierarchy of needs, which can lead to slowdowns record in the aviation sector, together with its many (Mcleod, 2024). Industrial action, union activities and accomplishments and honors, serve to uphold its strikes can also occur, leading to further slowdowns and position as the continent's top airline (Beswick & complication is the workplace. Mosala, 2013). Its well-known brand and proven track Wastage: Throughout the timeline, SAA made large record of providing excellent customer service increase airplane orders to both Boeing and Airbus, both of which trust with stakeholders and consumers, giving it a was later cancelled, with part of the order being competitive advantage in the market (South African delivered to the SAA (Beswick & Mosala, 2013). This is Airways, 2017) an example of Inventory wastage and Inefficient Operation wastage (leading to high operations and storage cost), and Misused Resources (opportunity cost of loans and investment being used for other means) (bdc, n.d.). Opportunities Threats Government Ownership: Since this is a government Financial Instability: SAA has a history of financial owned company it has massive advantage of financial instability, including losses and the need for government benefits and backup to operate in a solid manner. SAA bailouts. has been granted capital in regular basis which is fluctuations, and increased fuel prices all lead to impossible to even think for a private airline such a financial hardship. Recessions or economic slowdowns backup (BAILEY, 2020). generally lead to lower travel spending, which has a Law Tariff: 65% tariff decrease is a massive direct influence on airline revenue. Increases in fuel opportunity for the airline which could gain competitive prices can reduce profit margins for airlines because advantage, cost reduction and market expansion they have a major impact on operational costs (The opportunities. Strategy Story, n.d.) Economic downturns, exchange rate Market Share: having the majority of share in the High Competition: High competition from both operation reaching 38% of international arrivals and domestic and international airlines competing for market 49% of arrivals from the rest of the African continent is share. The entry of low-cost carriers such as kulula.com, an opportunity to grow in the future. “As market share Mango, and British Airways-operated Comair flights increases, a business is likely to have a higher profit (Beswick & Mosala, 2013) threatens SAA's market margin.” (Robert D. Buzzell, 1975). dominance. Intense rivalry can cause price wars, lower profit margins, and a challenge to maintain and attract passengers. Goal formulation 1. Increase Net Revenue by 50% by the end of the 1st financial year since change implementation. 2. Reduce Total Costs by 40% by the end of Q2 of the 1st financial year. 3. Increase Net Profit by 15% by the end of the 1st financial year. 4. Pay off 40% of all debt, by the end of Q2 of the 2nd financial year 5. Maintain current levels of customer satisfaction (measured via customer satisfaction survey) by the end of the 1st financial year. Strategy Formulation and Evaluation Based on the SWOT analysis and the goals that were decided to help combat SAA’s financial difficulties, the following strategies were formulated. Strategy A – This strategy would involve SAA leasing out their flights to other companies. SAA had to ground several of their planes, and they already have over 20 Airbuses in the company (Beswick & Mosala, 2013). Throughout the case, there are several mentions of there being purchases from Boeing and Airbus, which were later deemed unnecessary due to the cost of the planes, or due to the cost of keeping those flights in the air (Beswick & Mosala, 2013). Alternatively, SAA can take advantage of the rising competition (Beswick & Mosala, 2013) by leasing out their grounded to other companies for a fee. There are several advantages to this strategy. Namely, leasing out excess freights are a great way to bring in more profits into the company (Contino, 2023), and the case states that the number of players in the market is increasing (Beswick & Mosala, 2013). SAA can capitalize on this by leasing-out their planes. Further, via the fine print of the leasing contract, SAA can ensure that the company that leases from them are the party in charge of the maintenance of the plane. However, there is the disadvantage in the fact that, should there be a sudden surge in demand in the air travel market, SAA’s might not have enough planes to accommodate a sudden surge, and cancelling leasing agreements might be complicated. Strategy B - This strategy involves making use of expense tracking tools to reduce SAA’s costs. The case showcases that SAA struggles often times with excessive spending, i.e.: giving CEOs absorbent financial incentives, controversial incentive schemes for travel partners, paying large fees for specialists etc. (Beswick & Mosala, 2013). To control such spending, expense tracking software could be used to monitor SAA’s spending, receipts, managing documents and spreadsheets, and reducing chance of human error all together (Patel, 2024). Adoption of such technologies is quite cost effective on its own, not just from a cost perspective, but also in the fact that it gives its own evaluations, free from human error, which can help save time and resources (Patel, 2024). Further, employing expense tracking systems will enhance transparency and interconnectivity, which can lead to effective expense tracking and fast decision making, if handled effectively. However, there is the question of data security where should there be a leak, virus, spear phishing or any kind of malicious cyberattack, it could lead to loss of IP and money. This can wound SAA greatly. Strategy C – This would involve engaging in strategic partnerships with South Africa Tourism. SAA is no stranger to engaging in alliances (Beswick & Mosala, 2013). By engaging in a strategic alliance with South Africa Tourism (which is the governing body for South Africa’s tourism industry) (southafrica.net, n.d.). South Africa Tourism might also be interested as SAA is a market leader with a exemplary record for customer satisfaction (Beswick & Mosala, 2013). This strategy would present several benefits for SAA such as special benefits like tax exception, subsidies, access to expertise of industry specialists working in the government, easy access to industry information etc. Further, the alliance will also bring in more capital. However, an alliance with a government board may not yield the expected results as SAA’s goal of profit and cost-reduction, might clash with that of South Africa tourism, whose goals are more public -oriented. This can create conflict, and SAA’s decision making might get compromised. Strategy Selection Strategy B appears to be the most ideal strategy to be employed, and therefore the research team will choose Strategy B. This is because the employment of an expense tracking tool or software will help SAA reduce their expenses and costs, which will help achieve Objective 2. By ensuring that no change comes to price of tickets, and making sure that the gap between total cost per unit and selling price widens, Objective 3 will be achieved. The increased cashflow, effectively managed can be used to pay off debts, via the expense tracking tool, achieving Objective 4. Further, excess cash can also be funneled back into the company as investments, helping increase revenue via, for example, improvements in Sales and Marketing, helping achieve Objective 1. Overall, all things go well, the tracking software, should improve efficiency which should help maintain and imp rove customer satisfaction, which helps achieve Objective 5. Strategy A does appear help achieve Objectives 1, 2, 3, and 4, through the leasing-out of the planes, because not only will there be a lease income, but also cost will reduce as maintenance could be arranged to be borne by the lessee. The money coming in could be used to settle debts as well. However, SAA will not have these assets in-hand, should a surge of flight demands occur, loosing potential revenue, ensuring the failure to achieve Objective 1. Further, the lack of flights available for customers could create dissatisfaction in the customer base, causing the failure to achieve Objective 5. Strategy C could work, because the financial and non-financial incentives could help achieve Objectives 1, 2 and 3. And, being in an alliance with a government entity, could help reduce the burden of the loans, helping with achieving Objective 4. However, there is a risk of loss of autonomy within SAA, which threatens SAA’s customer service record. This is because internal conflicts and problems could transfer to the customer experience, creating difficulties for SAA with their plans of achieving Objective 5. Therefore, the research team recommends that SAA move forward with Strategy B to combat the identified problems. Implementation Plan The research team recommends the following implementation plan to adopt Strategy B (expense tracking tool adoption) into SAA. Agenda Time taken Research team identifying and researching different tools and software 1 week Research team create shortlist of tool, creating presentation and report 3 days Presenting the option to SAA top management via presentation 1 day Top management discusses with lower-level managers and selects option 3 days Team contacts selected tool developer to talk about different plans and pricing options 3 days Team finalizes with developer and purchases their services 1 day Team develops plan using the McKinsey 7-S model to introduce the tool to the company 2 weeks Team trains lower-level managers on how to disseminate the upcoming changes to their 1 day subordinates Lower-level managers let employees know of the changes and give them a platform to voice 3 days their opinion Team organizes software’s developers to come to the company and train employee on how to 2 days use the tool Full implementation of the tool into SAA and constant monitoring and make changes should Indefinite the need arise References BAILEY, J. 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