Your job is to provide the best possible argument for why you believe your approach is correct. You need to support your position with quality arguments. Be sure in Part 1 that you DO NOT start to develop a detailed new business strategy for the organization. While you may think that they could benefit from a new strategy, your job in this situation is to craft an HR strategy to support the direction that the company has chosen to take. Your focus in Part 1 should be on identifying the strategy, determining if the HR department is supporting the strategy and then identify the strengths and weaknesses of the HR department. If you classify the company as a reactor, you should recommend (briefly) the approach you think the company should take in the future (defender, prospector, analyzer – you can’t develop an HR strategy if there is no real business strategy which is the case with the reactor); but BE BRIEF. Don’t craft a detailed new strategy. Just take a slide to recommend the approach you think the company should take and why. Make sure that you do not try to “fix” the HR problems here – that is for Part 2. DO NOT repeat case information. Your job is to analyze the information – I have read the case and understand the issues that the company is facing. In Part 2, present a SWOT analysis and present your recommended HR strategy that would address the issues raised in the two questions at the end of the case. This case will be prepared as a power point presentation along with a two page executive summary (presenting highlights from both question 1 and question 2 the summary should be double spaced, 12pt font, in MS-Word). Prepare your slides as if you were delivering a presentation to the CEO of Delta Airlines describing your HR plan for the organization.
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CASE 2: Delta Air Lines, Inc.*
Delta has always understood the value of human resources within the organization. Whereas other airlines were
established by war aces or financiers, Delta was founded
by C. E. Woolman, an agricultural extension agent.’ As
a result, Delta has not been biased toward a militarycommand style of leadership common to other airlines.
Likewise, because Woolman was not a financier, Delta
has not historically relied on financial strategies to create
competitive advantage. 2 Delta has 4.Iwys diffirmtiated
it from other airlines by its customer service. This was
true when it was a regional airline, and it continued after
it became one of the six largest domestic carriers through
its 1986 merger with Western Airlines and its 2008
merger with Northwest Airlines.
Delta achieved customer service through the support of
its personnel. As a regional carrier, Delta was noted for
its Southern hospitality and charm. It introduced stewaidesses to the industry in the 1940s. Delta retained a
loyal workforce by paying competitive wages, treating
personnel equitably as it grew, and adopting a “no-layoff
policy.” Unlike most airlines, Delta approached its early
mergers with an eye toward accommodating its workers
and pilots. This was true when it merged with Chicago
Sonihern Airlines in 1953, when it acquired Northeastern Airlines in 1972, and when it merged with Western
Airlines in 1986. 5 Delta faced personnel issues during
each of these mergers and worked with the employees
to allow the merging entities to retain both position and
dignity in the organization. Whereas other merging airlines fell victim to sabotage, vandalism, slowdowns,
and poor customer relations, each of Delta’s mergers
were followed by increased productivity and generally
bitter customer relations. 6
The key to Delta’s success was its focus on human
relations. For example, when it merged with Western,
Delta promised job security and higher wages for existing Western employees. To generate excitement and
support among the new employees, Delta adopted the
slogan, “The best get better.” Delta promised to honor
previously negotiated labor provisions, and rather than
ignoring or provoking a conflict with an existing union,
Delta recognized the Air Line Pilots Association (ALPA)
as the union representing its pilots. Delta’s management
This case was prepared by Mark Dawkins and revised by Patricia
Duffy, Daniel Griffin, Kris Inchcombe, and Patty Pinholster. Updates
were provided by Michael Sipperley, Chris Graham, Jon Alden,
Cynthia Campbell, Eric Hamilton, Ed Nelson, Laura Wilson, Cathie
Mathe, and Thomas Ramirez.
worked closely with the union to merge pilot seniority lists. Delta convinced nonunion personnel at
Western to decertify three existing unions, using its
reputation for fair dealing with its employees.
Delta’s employees were historically some of
she highest paid among, the major carriers. In the
past, Delta employees have earned approximately
21% more than the industry average,’ which led
to high productivity and good service. 8 The good
service rendered by employees resulted in Delta
having the fewest number_ of consumer complaints of any major carrier for over 20 years.’
Delta’s commitment to its employees is evidenced in how it reacted to the recession of the
early 1980s. While other airlines were cutting
wages or filing for bankruptcy to restructure
their labor contracts, Delta kept its wages high
for existing personnel and aChieved cost reductions by requiring new hires to accept lower
wages. This tactic, although protested by other
airline groups, was accepted by Delta employees as the cost of staying competitive. Likewise,
Delta had refused to lay off any employees during the oil embargo of 1973. From its inception
through the 1980s, Delta was a paradigm of
human relations within the airline industry.
This was Delta’s heritage and hoped-for legacy.
However, in the early 1990s, Delta fell victim to rising fuel prices, greater competition
domestically and abroad, and a global
reces-sion. The first operating loss for the company
in almost 40 years occurred in 1993 and was
followed by another loss in 1994. This led its
then-CEO, Ronald Allen, to eschew his human
resources (HR) philosophy and training (having
been promoted from Delta’s HR division) and
embark on a severe cost-cutting program. Leadership 7.5, as the strategic initiative was called,
sought to reduce the airline’s average cost per
available seat per mile flown (CASM) to 7.5
cents. Delta’s costs had reached a high of 9.59
cents per available seat mile (ASM) in March
1994. Leadership 7.5 compelled the reduction of
Delta’s workforce by 11,ff0 employees; the
change of many employees from full time to part
time (associate employees), and the outsourcing
of a great deal of work formerly done .
employees. The efforts succeeded in reducing costs
to 8.5 cents per ASM and returning the airline to
profitability in 1995 but at a considerable price.
(In fiscal 2007, the operating cost per available seat
mile was 11.75 cents.) 1°
As noted, Leadership 7.5 was accepted by the
management of Delta as a desperate effort for
PART 6: CASES
survival. Many airlines were failing, and without a competitors to form alliances that would provide hub
dramatic change Delta would likely have joined access in key European and Asian cities. 18 However, at
them. But the covenant that it had previously had the end of the 1990s, Delta participated in alliances with
Austrian Airlines, Sabena, and Swissair (the Atlantic
with its employees was broken. Delta’s pilots
flight crews accepted pay cuts, and Delta’s nonun- Excellence Alliance). In fiscal year 2000, another alliion personnel received layoffs. Leadership 7.5 dev- ance was createdSkyTeampartnering Delta with
em lo ee morale at Delta, and this soon Aeromexico, Air France, and Korean Air. These alliresulted in a in customer service (evidenced ances include code-sharing, reciprocal frequent flyer
by a meteoric rise in customer complaints), efforts programs, and coordinated cargo operations.” Further,
to unionize, and disaffection among personnel. Delta introduced the concept of code-sharing, and it has
The year 1995 may have shown positive net formed code-sharing partnerships with several airlines,
income, hutXiAltaLslininan capital was breached including Aer Lingus, Aeromexico, Air Jamaica, Finnair,
Korean Air, Maley, TAP Air Portugal, and Transbrasil.
nd the damage could have been Fatal.
By 1996, revenues had increased, and Delta Finally, Delta has alliance agreements with All Nippon
was able to reverse the layoff trends and rssall, Airways and China Southern Antitrust Immunity part472 furloughed pilots. 11,12 In January 1996, nerships receive permission to jointly set prices and
Delta added 665 customer-service jobs, which schedules, and code-sharing alliance partners book seats
were filled largely by employees who had been and issue tickets for each other’s flights.
relegated topart-time status.” PAZ increases
Delta’s consistent growth is partially attributed to
5%’ tn nonurnowed workers restored pay its successful transition of leadership. At Eastern, Pan
cuts taken in 1993. 14 Nonunion workers Am , and TWA , the founding pioneers established
received pay increases of 2% to 5% again in almost dictatorial operations. Many were majority
stockholders who refused to share their power or preDelta reported a $3.8 billion loss in 2005 pare a successor to operate the company after they
-and a $6.2 billion loss in 2006. They turned resigned or died. As a result, those airline companies
profits around in 2007 and actually made $1.6 faced a difficult period of adjustment to new managebillion. Delta hopes the merger with Northwest ment after their chairmen left.
Airlines will help continue to improve profits.
Woolman’s departure at Delta was not surrounded
Delta announced ,a 3% pay increase to 38,000 of by such difficulties. After suffering a heart attac1(7r
their front-line employees, effective July 1, 2008. tad delegated some of his duties to other Delta board
Delta’s vision is to stay focused on the swembers. The board members gradually assumed more
future and be able to deal with the challenges of duties as Wczainmilbealth deteriorated. When Woolthe rapidly changing airline industry. 16 Delta’s man died at the age of 76, the airline was able to make a
strategy is directed toward regaining a strong smooth transition to a more modern, corporateity
competitive position, achieving long-term persis- collective management.
tent profitability, and being successful for years
to come. 17
Delta Air Lines is one of the most successful air
carriers in the United States. Delta Air Service
began its climb to prominence when it received a
U.S. government airmail contract in 1930. The
company, then renamed Delta Air Corporation,
received three more airmail contracts in 1941.
During World War II, Delta devoted itself to the
allied war effort by transporting troops and supplies. Delta returned to civilian service in 1945,
entering an age of growth and competition never
seen before in the airline industry.
Delta prospered as a major regional trunk carrier through the 1950s and 1960s. Delta continued
its expansion into international operations by forming alliances with other carriers. It was slower than its
Delta Air Lines’ board of directors signaled a change in
management strategy when Allen announced that his
10-year contract would not be extended beyond July 31
1997.20 Allen’s forced departure was attributed to ,
autocratic leadership style that he adopted during L
‘alb 7.5 and the, resulting decline of employee
and customer service. Allen had completed cost-cu
restructuring that included the elimination of 11,0
employees. Although the restructuring resulted
healthier barance sheet and a competitive
against domestic low-cost carriers, agn ‘s heavy-han
approacLcasm franchised Delta ’emplQieg,,, “By
1996, 61% of Delta’s employees felt they could not
management and 57% said service had decline&
The selection of Leo F. Mullin as CEO and pr
dent on August 15, 1997, indicated the extent of Del
CASE 2: DELTA AIR LINES. INC.
interest in a new leadership , style. Mullin, a Harvard
BA andformer banker, had been described as having
an saarAmanagement sqle and as being particularly adhandling people. Within 24 hours of being
selected CEO and president, the slim and bespectacled
54-year-old was roaming Hartsfield International Airport in Atlanta interviewing baggage handlers, ticket
agents, pilots, and flight attendants before catching his
flight home to Chicago. Mullin opined, It’s
, a cliché,
but inclusion breeds commitment. ” During his tenure,
Mullin traveled 3 weeks every month for employee and
investor meetings. He has also decentralized managemore , day-to-day authority to manmnt b
agers. Mullin initiated several significant changes in
1Telfa” s organization and corporate culture.
Mullin’s selection also represented a departure from
several Delta traditionsthe promotion of top executives from within the company and the top execinive
tion holding the chairman of the board, CEO, and
present positions. Delta had previously selected executive managers from within the company. Not only was
Mullin an outsider, he had never been employed in the
3171Ifie industry. In addition, Gerald Grinstein, credited
with orchestrating Allen’s departure, assumed the chairman of the board position. This was the first time Delta
employed separate individuals for the chairman and
CEO positions. Now, however, Mullin is retired and
ak Smith is the chairman of the board. 23
As of September 1, , 2007 Richard H, Anderson, . 52,
became CEO of Delta Air Lines. He joined Delta as a
member of the board of directors in April 2007. Anderson has nearly 20 years of aviation experience. He
entered the industry in 1987 at Continental Airlines,
where he ultimately served as staff vice-president and
deputy general counsel. In 1990, Anderson began a 14year career at Northwest Airlines where he served as
vice-president and deputy general counsel; senior vicepresident of technical operations and airport affairs; executive vice-president, and chief operating officer; and
from 2001 to 2004, as CEO. Anderson joined Delta
from his position as executive vice-president of United
Health Group, where he worked for the previous 3 years
and served as president of United Health’s Commercial
Markets Group. He also serves as a director of Cargill
Inc. and Medtronic Inc. 24
ivagl,13astian is president and CFO for Delta Air
Lines at its world headquarters in Atlanta. As president,
siian’ and his team oversee and coordinate the company’s strategy from network planning and revenue
management to sales, marketing, and business development. In his role as CFO, Bastian also serves as the company’s chietrestructuring officer, leading Delta through
one of the largest and most successful Chapter 11
restructuring processes in U.S. history, and doing so in
19 months. The solid business plan that Bastian helped
develop included $3 billion in annual financial
improvements that garnered strong support from
the company’s creditors and employees.: In addition
to achieving an industry-leading financial position,
Delta’s plan of reorganization included an innovative compensation program for Delta employees,
including stock, cash payouts, and pay increases. 25
Bastian joined Delta in October 1998 as vicepresident of Finance and Controller and was promoted to senior vice-president in February 2000.,
In that role, Bastian guided the company through
profit improvement initiatives garnering $5 billion in cost savings and revenue benefits between
2002 and 2004. Bastian left Delta in early 2005
to become senior vice-president and CFO of
Acuity Brands. He returned to Delta in July
2005 as CFO and was promoted to president in
August 2007. Bastian previously worked for
PepsiCo, where he served as vice-president of
business processes reengineering for Frito-Lay
and vice-president, finance officer, and controller for Frito-Lay International. Prior to PepsiCo,
Bastian was a partner in the New York audit
practice of Price Waterhouse, specializing in the
entertainment, advertising, and manufacturing
sectors, and also served as the strategic planning
partner for Price Waterhouse’s New York
Alrend of selecting senior airline executives TiM outside the industry has been developing over the past decade. As commercial air
transport becomes more complex, competitive,
and fast-paced, senior executives who understand and react to rapidly changing structural
and market forces become essential for the survival of a company. However, the development
of internal talent to fill senior executive positions has been inadequate in the majority of airline companies in the past. After deregulation in
1978, airline companies experienced dramatic
restructuring, primarily to reduce costs. One of
the cost-reduction steps was the elimination ‘6174
middle- and loW-management positions where
future talented individuals were previously identified and placed on a senior executive track. The
restructuring also reduced the mobility across
liiisiness units and, therefore, further inhibited the
development of general managerial skills. Now
Delta his a corporate succession planning system
and mentoring process that provides the foundation for developing and retaining a leadership
team. Through mentoring and coaching, the-knowledge, skills, and’
eXPerience of current leaders are
transferred to emerging ones, allowing Delta to build
a diVerse pool of potential leaders.’
PART 6: CASES
In 1997, Delta felt secure enough in the economy
and its own financial recovery to begin efforts at
healing the rift that had been created between it and
its personnel. This was no small task. Delta employs
approximately 49,000 limpleworldwide,
ing Atlantic Southeast Airlines (ASA) and Comair,
,plikulre,34),9449,,employees from Northwest Airlines. About 16%, or 12,830 employees, are represented by unions.,28 irateput; Delta has forced
concessions from its pilots; it has been charged,
with hiring practice discrimination by its flight
attendants; 2 and it has laid off almost 15% Qf its
nonunion* workforce. As a result, Delta believed
that it was necessary to change its management
and its relations with its personnel. In July 1997,
after 34 years with the company, Allen resigned
and was replaced by Mullin. Although an outsider and not a student of human relations, Mullin understood the task ahead and began a series
of initiatives to rebuild employee trust, confidence, and loyalty.
The first task was to reestablish advantages
enjoyed by Delta ware; that had inspired their
“royalty and dedication in the years before Leader
7.5. One of Delta’s first steps was to give
nonunion personnel a pay raise. Another was to
offer virtually every employee who had been laid
off a position back at Delta. Although this came
too late for many who had found work elsewhere and was not an option for those who were
unwilling or unable to relocate, it was a significant gesture by the company to the employees
(and one taken advantage of by many). In addition to salary increases, Delta initiated a profitsharing program, under which every
benefits from the success of the comm.-any. Independent of the profit-sharing program,
elta has established the Family Care Savings
Plan, a tax:qualified retirement plan in which
elta matches up to 15% 9f salary contributed to
theplan on a 2:1 rati9. All of these measures have
been helpful in rebuilding employee relations.
However, after 9/11 these programs had to be cut
for the company to avoid financial distress.
Delta recognizes and rewards high performance. hilact, it initiated an awards program called
Aballand Beyond (Appendix A). Every month
this program awards employees nominatel by their
peers for extraordinary work performance. There
are quarterly awards of more significant tangible
value and an annual ceremony in which the top 100
employees , are , elected to the “Chairman’s Club,”
Where they are honored at a dinner and receive an
award and shares of stock in the company. This concerted effort at recognition has served to rehivolve many
employees in the goals of the company.
Taking advantage of its improved information technology (IT), Delta disseminates an electronic newsletter.
The e-newsletter, ”Newsline,” is an irltranet page that
complements Delta’s open-door policy to allow employees access to information and aq,,
forumior asking quesvoicing
Delta has also established continuous improvement
teamsZITs) throughout the organization (Appendix B).
This effort allows panels of elected representatives to
meet with division hads and supervisors to voice Concerns and complaints, request changes, and provide
feedback on current policies and initiatives. The CITs
also have nonvoting representatives on Delta’s board
council. The council coordinates between divisions,
CITs, and the actual board of directors. There are seven
representatives on the board council, representing everyone from the flight crews to baggage handlers to senior
To find out even more about what its employees
think, Delta completed a broad-reaching survey called
Delta Survey 2000. It measured employee opinions in
areas such as leadership trust, customer service, safety,
job satisfaction, and rewards and recognition and was
conducted by an independent surveying firm. In addition, Delta executives have held nearly l.4),(Lface-to-fac,e,
meetings with front-line employees across the company.
Employee opinions and concerns are a vital part of
building a highly motivated team at Delta. As a result of
listening to its workforce, new enhancements, such as a
2-year leave of absence program and a part-tiiiw
employment ca …
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