Strategic Choice and Industrial Relations: A Case Study of British Airways

Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
Cardiff University British ALPA, Leeds University

Abstract
Although strategic choice theorists have developed sophisticated accounts of the
interplay between structure and agency, there is often only passing reference to the
impact, and interaction, of industrial relations. Conversely, many industrial
relations specialists reject strategic choice theory because much of the research on
management action ignores the exercise of power and the incidence of conflict in
employment relations. By integrating industrial relations into the theory of strategic
choice developed by Child (1997), Whittington (1989) and others, we analyse the
changing competitive fortunes of British Airways (BA) over recent years. We
demonstrate that the political processes which defined, redefined and subsequently
tempered the implementation of BA’s business and industrial relations strategies
led to the gradual erosion of ‘first mover’ advantages in the marketplace and
precipitated a shift from innovative to adaptive competitive behaviour.

Introduction would fa ll squarely on the company’s

In 1996, British Airways (BA) surpassed
Singapore International Airways (SIA) to
become the world’s most profitable airline.
By the end of the millennium, however,
BA was losing money, recording its worst
financial results for 18 years in 1999-2000.
Robert Ayling, BA’s Chief Executive,
appeared to put the blame on everything
from the economic crisis in Asia and rising
fuel prices, to North Atlantic over-
capacity, the value of sterling and cut-
throat pricing. In contrast, the press, the
City of London, and eventually the BA
Board of Directors blamed Mr Ayling.
When BA announced the resignation of the
Chief Executive in March 2000, the Board
maintained that the company’s business
strategy was still the right one, but Mr
Ayling was the wrong man to implement it
(Financial Times 11 March 2000). The
Board was forced to acknowledge,
however, that ‘there is a need for a greater
emphasis on the employee relations side of
the business’ (BA Press Release 11 March
2000).
If we asked a strategic choice theorist to
explain the changing fortunes of BA over
the past decade, no doubt the emphasis
senior management team and the
constraints and opportunities they faced in
terms of internal legitimacy and external
markets. Organizational theorists such as
Whittington (1989) have developed
sophisticated accounts of the interplay
between structure and agency at various
levels of analytical abstraction as it shapes
the organizational forms through which
social reproduction and transformation are
realized (see Reed 1997, for a recent
review). In many such accounts, however,
there is only passing reference to labour
and whether, or to what extent, industrial
relations constitute an important constraint
(or opportunity) in the formulation,
implementation and realization of strategic
choices. To be sure, strategic choices
remain the privilege of an élite, but as
Whittington (1989: 297) himself
acknowledges, strategic choices are
ultimately dependent upon the
organization’s domination of employees
and consumers.
The (undue) emphasis on management and
managerial prerogative constitutes one of
the main points of criticism of strategic
choice theory in the industrial relations
 Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
literature (see, inter alia, Edwards 1995:
20-21; Hyman 1987; and Sisson and
Marginson 1995: 93-94). If asked to
explain recent events at BA, an industrial
relations scholar would no doubt focus on
the 1997 cabin crew strike and subsequent
events, which precipitated a marked
decline in employee morale and customer
satisfaction. The inability of BA managers
to dominate employees would serve to
illustrate, in the eyes of many industrial
relations specialists, the limitations of a
strategic choice perspective. Thus, when it
comes to industrial relations, most
managers appear to behave in a distinctly
non-strategic manner: for most firms,
‘industrial relations only becomes a
consideration when it becomes a problem’
(Keenoy 1992: 97) and management action
is invariably found to be ‘opportunistic,
habitual, tactical, reactive, frenetic, ad hoc,
brief, fragmented and concerned with
fixing’ (Thompson and McHugh 1990:
137). At best, industrial relations and other
policies linked to employment relations are
conceptualized as ‘third order’ choices that
are constrained or influenced by ‘first
order’ choices to determine the general
mission or purpose of the organization and
‘second order’ choices on organizational
form and related control mechanisms (see
Purcell 1991).
For many industrial relations scholars, the
most critical oversight in much of the
strategic management choice literature is
deemed to be the exercise of power and the
incidence of conflict in industrial relations
(Kelly 1998: 19). According to Edwards
(1995: 20), ‘Strategic choice is industrial
relations with much of the politics
removed’. This assessment is somewhat
ironic, and unfortunate, because the
foundations of strategic choice theory,
according to Child (1997: 44), are political
processes: change is accomplished through
social interactions both within
organizations and in relation to the
environment, which are political in the
sense that outcomes emerge through
persuasion, negotiation and at times
imposition (Child 1997: 70). Clearly, there
is far greater scope for a cross-fertilization
of ideas than hitherto acknowledged.
In the following section, we incorporate
industrial relations into the theory of
strategic choice, drawing in particular on
the work of Child (1997), Whittington
(1989) and Lazonick (1991). This
synthesis involves a form of ‘structural
contextualization’ in which macro- level
theories identify the structural and
developmental parameters within which
lower (meso- and micro-) level analyses
are to be located (Reed 1997: 32-33). Our
empirical focus is British Airways, which
is analysed from a ‘firm- in-sector’
perspective in the first instance (see
Whittington 1989: 294). This facilitates an
examination of the three central issues in
strategic choice theory, namely: (i) the role
of agency and choice within organizations,
(ii) the nature of the organizational
environment, and (iii) the relationship
between organizational agents and the
environment (Child 1997: 43).
The relationship between industrial
relations and strategic management choice
is then explored in more detail through a
case study of BA. The case was conducted
in the tradition of workplace bargaining
research (see Brown and Wright 1994),
focusing on power relations and drawing
on a range of documentary evidence (e.g.
company reports and trade union minutes),
interviews with senior BA managers and
officials from the five major unions, semi-
structured interviews with BA staff at
Heathrow, Gatwick, Birmingham,
Manchester and Glasgow, focus group
discussions with maintenance workers, and
a questionnaire survey conducted by
telephone with pilots, cabin crew and
ground handling staff. In total, more than
100 interviews were conducted between
1997-2000. Observational research was
also undertaken with flight operations,
ground handling, engineering and
 Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
telephone sales, as well as via occasional
travel on scheduled BA flights. At the
micro- level, actors’ own interpretive
understandings assume greater prominence
and some interview data are reported
verbatim. However, these data are still
subject to critical scrutiny and may be
corrected and/or amplified (Whittington
1989: 90).
Theoretical sampling was based on BA’s
role as a ‘trend setter’ in the industry (see,
for example, European Commission 1997:
203; and ITF 1996), a potentially
prototypical rather than atypical case. A
widely- held view in the civil aviation
industry in the early- to mid-1990s was
that BA’s strategy constituted ‘best
practice’ management (see Colling 1995)
which determinist accounts might attribute
either to environmental factors (e.g.
liberalization of the product market which
compels airlines to embrace a cost-based
approach to human resource management)
or the ‘mind set’ of senior managers whose
internal assumptions about how to succeed
within their environment prompts them to
a programmed response (i.e. cost-cutting)
(see Whittington 1989: 2-3). The
limitations of environmental determinism,
however, are readily demonstrated via
comparison with BA’s major rivals such as
Lufthansa. Thus, although we focus on
BA, passing reference is made to other
major airlines to highlight both the range
of potential choices available to BA and
the indeterminacy between strategic intent
and implementation.
Even if BA managers had ‘read’ the
market correctly and developed an
appropriate business and human resource
(HR) strategy, the response of (organized)
labour effectively put paid to management
plans. The limitations of action
determinism are readily demonstrated
through a discussion of the events
surrounding the 3-day cabin crew strike in
1997. This dispute encapsulated workforce
opposition to the cost-cutting mantra of the
Business Efficiency Programme (BEP)
launched in 1996. The tensions between
management and labour, however, run
much deeper: disputes with staff were
symptomatic of long-standing
contradictions that characterize the
company’s human resource and industrial
relations policies. A strategic choice
perspective which focuses on confrontation
between capital and labour allows us to
comprehend organizational change and
industrial relations in BA during the 1990s,
exploring the tensions between structure
and agency in the changing context of UK,
European and global civil aviation.
Strategic Choice and the Management of
Labour in the Civil Aviation Industry
In his review of the strategic choice
literature, Child (1997: 70-71) emphasises
the interplay of two ‘cycles’ of interaction
between action and situation. Within the
‘inner’ cycle, ‘organizational actors seek to
work upon, and are simultaneously
informed or constrained by, the existing
structures and routines of the organization’
(Child 1997: 70). The ‘outer’ cycle extends
to the environment, wherein
‘organizational actors seek to influence or
reach an accommodation with specific
environmental groups and more general
environmental conditions’ (Child 1997:
70). Each cycle is dynamic in character,
thereby giving rise to organizational and
environmental change through a process of
social interaction within and between the
two cycles. Analytically, therefore, it is
difficult to disentangle the two cycles.
Broadly speaking, however, we will
consider each cycle in turn before turning
to the dynamic interaction between the two
in the following section.
Within the inner cycle, management is the
dominant actor by virtue of its control over
the means of production and the authority
this imparts (see Blyton and Turnbull
1998: 76). It is wrong, however, to cast
management in the role of monolithic,
omnipotent, omniscient strategist (Crow
 Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
1989: 18; and Thompson and McHugh
1990: 157). Conflicts between different
management groups are not uncommon
(Whittington 1989), and this can have a
significant effect on both the formulation
and implementation of business and
industrial relations strategies. Within BA,
for example, the appointment of Robert
Ayling as Chief Executive was widely
perceived within the company to signal a
shift away from the ‘soft’ human resource
(HR) policies promoted by his predecessor,
Sir Colin Marshall, towards a ‘harder’ or
more cost-centred approach to human
resource management. Strategic choice
theory admits a role for the individual
organizational actor (qua entrepreneur) but
as Child (1997: 61) points out the theory is
more concerned with the collective (qua
dominant coalition) (see also Whittington
1989: 87). Thus, the replacement of BA’s
HR Director with her background in
customer services by an HR Director with
his background in finance was highly
significant, as was the reorganization of
management functions with several
Departments (including HR) no longer
reporting directly to the Chief Executive.
Business strategies formulated by the
dominant coalition must permeate the
entire organization and receive support
from other stakeholders such as
government and union representatives if
they are to prove effective (see Kochan and
Dyer 1993). Management action with
respect to the labour process should
therefore be considered at three levels,
namely strategic, functional (e.g. collective
bargaining and personnel policies) and
practical (e.g. day-to-day interaction at the
workplace level) (Kochan et al 1986: 11).
In particular, it is important to distinguish
management intentions at the strategic
level and the actual implementation of
business strategies at the functional and
practical levels. The strategy of cost-
reduction implemented under the BEP, for
example, was not intended to lead to a
deterioration in customer service. In fact
quite the opposite (e.g. BA 1996). In
practice, however, the (unanticipated)
impact on employee morale and
commitment to the company, as manifest
at the functional and workplace levels, led
to customer service standards below the
norms set by the company, ‘with a
consequent impact on our reputation in the
market place’ (BA 2000: 3).
A common criticism of the strategic
management literature is the tendency to
present business strategies as simply an
‘autonomous choice’ between different
generic routes to competitive advantage
(see, for example, Sisson and Marginson
1995: 93-94). The three most commonly
cited routes to competitive advantage are
cost minimization, quality enhancement
and product/service innovation. In much of
the industrial relations and management
literature, however, HR strategies are
crudely ‘derived’ or ‘read off’ from these
business strategies (e.g. Schuler and
Jackson 1987). In practice, of course, the
idea of a ‘choice’ between these different
business and HR strategies is artificially
stark and unrealistic. In the civil aviation
industry, for example, airlines increasingly
compete on at least two if not all three of
these routes to competitive advantage (see
Blyton and Turnbull 1998: 71; and Colling
1997). Consequently, this is not a
particularly illuminating way to
differentiate between carriers or to
conceptualize the competitive strategy of
any specific airline.
An alternative approach is to differentiate
between ‘innovative’ and ‘adaptive’
behaviour (Lazonick 1991). The former
involves organizations living off value-
creating capabilities generated in the past
and cutting costs on the basis of existing
technologies rather than developing new
products and/or processes (Lazonick 1991:
49-50). The emphasis is therefore on short-
term profits rather than long term
development, and managers adept at
financial manipulation often come to run
 Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
these companies (Lazonick 1991: 89).
Innovative organizations, in contrast,
secure competitive advantage by creating
cost-quality-productivity outcomes that
previously did not exist, either by
producing (providing) a superior product
(service) at a competitive cost (i.e.
product/service innovation) or a saleable
product (service) at a lower cost (i.e.
process innovation), or possibly both
(Lazonick 1991: 199).
Lazonick (1991) argues that, when seeking
to implement its business strategy, the
organization faces two principal sources of
uncertainty, namely (i) productive
uncertainty in its own ability to develop
and utilize human resources and new
technologies, and (ii) competitive
uncertainty in its product market which,
unless the firm is a monopolist, is inherent
in the ability of its rivals to respond with
their own business strategies. These two
sources of uncertainty – the internal
operations of the organization and its
external economic environment – broadly
correspond to Child’s (1997) inner and
outer cycles of interaction. Adaptive
organizations seek to avoid uncertainty by
minimizing their fixed commitments (i.e.
producing predominantly on the basis of
variable costs) (Lazonick 1991: 200). The
ultimate manifestation of such a strategy in
the civil aviation industry is the ‘virtual
airline’ where the carrier is no longer an
‘operator’ in the conventional sense but
rather a ‘marketing organization’: the
airline sells a (global) brand, organizing
people to travel by air from one place to
another but with all the actual services
provided by contractors, franchisees and
international alliance partners. Under
Robert Ayling, BA was widely perceived
within the industry and amongst its own
staff to be in the vanguard of such
developments (European Commission
1997: 203; ITF 1996; Kassim 1995; and
interview notes).
Unlike adaptive organizations, the
innovative organization seeks to manage
rather than avoid productive and
competitive uncertainty. Thus, through its
investment activities, ‘the innovative
organization plays a role in shaping its
economic (and social) environment’
(Lazonick 1991: 192; see also Whittington
1989: 109-110). Lufthansa, for example,
has been instrumental in redefining the
product market through its leading role in
the creation of a global Star Alliance with
other international airlines (e.g. SAS,
United Airlines and SIA) which now
controls over 20 per cent of world
passenger traffic. Alliance partners can co-
ordinate their schedules, offer new onward
connections, increase flight frequencies,
and significantly reduce costs by joint
purchasing (which increases their
bargaining power vis-à-vis aircraft
manufacturers and other suppliers) and by
combining or pooling their external
services (for example, Lufthansa and SAS
recently combined their sales workforce in
France). Within a fully unified alliance, an
airline can achieve cost savings of over 11
per cent of its total cost base (O’Toole and
Gill 2000: 45). Innovative organizations
tend to be more vertically integrated than
their adaptive rivals as planned co-
ordination by the firm must supersede
market co-ordination (Lazonick 1991:
201). Thus, whereas BA has sub-
contracted catering and threatened to out-
source ground handling, Lufthansa is now
a major global player in these services
through its subsidiaries. Lufthansa’s Sky
Chefs, for example, is now the world’s
largest in- flight catering supplier and
Globe Ground is among the world’s top
five ground handling companies.
The two sources of uncertainty identified
by Lazonick are, of course, interdependent,
because if an organization can overcome or
mitigate productive uncertainty then this
will increase competitive uncertainty for its
rivals. The question then is: ‘will rivals
respond by innovation or adaptation?’ Put
 Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
differently, strategic choice only makes
sense with reference to both pro-action and
re-action (Child 1997: 72; Crow 1989: 4;
and Whittington 1989: 88). To reiterate,
however, these strategies are not simply a
question of autonomous mana gement
‘choice’: management strategy, or indeed
any actor’s choice of strategy, must be set
in the context of the means needed to
secure it (Crouch 1982: 139). As
Whittington (1989: 3) argues, for genuine
choice to exist there must be a range of
alternatives; decision- makers must have
the capacity to choose between them; and
each choice must be compatible with
survival (though not necessarily
competitive advantage). Organizations do
not simply ‘possess’ strategic choices; they
must create and implement them.
Whether an organization adapts or
innovates will depend on the material and
relational structures existing at any given
time within the firm and its external
environment. Other actors heavily
influence these structures, most notably
rival firms, the state and (organized)
labour. This is where industrial relations
enters the picture, not simply as part of the
‘environmental structure’ (a set institutions
for regulating employment relationships)
but also as a set of agents who respond
both to external factors (the outer cycle)
and each other (the inner cycle). Thus,
confrontation between capital and labour is
instrumental in transforming, or
frustrating, the implementation of
managerially-defined business and
industrial relations strategies (see Hyman
1987). In the civil aviation industry,
organized labour is able to mobilize and
deploy considerable power resources by
virtue of the perishable nature of the
product/service and labour’s disruptive
capacity in the production process,
combined with the non-substitutability of
many occupational groups in the external
labour market. Pilots in particular have
demonstrated their capacity to rebut
managerial strategies on numerous
occasions. Strategic choice, to reiterate, is
a political process.
Control of the labour process is therefore
instrumental to the success of any business
strategy, but management do not have
complete control of this process. Even
adaptive strategies cannot avoid this
problem: the adaptive organization might
not seek to develop the productive
capabilities of its human resources (e.g. via
training), but it must still utilize them
(Lazonick 1991: 200-201). Thus, the
organization must still seek to transform
labour power (potential labour) into labour
(actual work). In the civil aviation
industry, labour costs are a significant
component of total operating costs,
typically 25-30 per cent (Oum and Yu
1998: 201), and are one of the few variable
costs under the direct and immediate
control of management (unlike fuel,
aircraft prices and airport landing charges).
This may predispose airlines towards
(labour) cost minimization strategies but
what differentiates airlines is increasingly
service quality and product innovation (see
Blyton et al 1998 and 2001). Service
delivery cannot be physically separated
from the ‘front- line’ staff who interact with
customers in the airline industry, and these
employees are now implored to be more
polite and courteous as well as efficient
and resourceful. Labour control and
industrial relations are therefore at the
heart of both adaptive and innovative
strategies in the civil aviation sector.
In order to compete, the modern
corporation requires the active co-
operation of labour as distinct from mere
compliance or coerced consent (see Blyton
and Turnbull 1998: 76-102). By ‘sharing’
the benefits of increasing productivity with
their workforce, not simply via higher
wages but also long-run job security and
social mobility within the firm (i.e.
careers), organizations have built viable
forms of employee commitment and
competitive advantage (Lazonick 1991:
 Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
135-136). Historically, the specific
manifestation of this accommodation
between capital and labour in the civil
aviation industry was a form of bilateral
monopoly and ‘rent sharing’ between the
parties. State-owned flag carriers
traditionally enjoyed sovereignty over their
domestic market and bi- lateral regulation
of their international routes: inter-
governmental bi- lateral air service
agreements (BASAs) would typically
establish which airlines were allowed to fly
particular routes (usually the two national
carriers), the airports to be flown to/from,
the frequency of flights, the capacity and
revenue split between the airlines flying
the route (typically 50:50), and the seat
prices offered to passengers. Thus, state
ownership and inter- governmental
regulation positively discouraged
innovation as prices were fixed and
revenue shared regardless of the pattern of
revenue receipts. Not surprisingly, highly
regulated systems of industrial relations
evolved in most western airlines, and
consequently most airline employees
enjoyed comparatively high wages, job
security and attractive conditions of
service. Any improvements in labour
productivity were typically accompanied
by ‘compensating’ wage rises (Alamdari
and Morrell 1997).
The inefficiency of most national flag
carriers could only be ‘tolerated’ under a
protected product market regime where
airlines could pass on any cost increases to
passengers. As a result, both public sector
managers and national governments were
reluctant to expose their flag carrier to
greater competition, either via market
access or by granting airlines the freedom
to set prices and customer service
standards. During the 1980s, however, a
combination of mounting customer
pressure, neo- liberal economic policies
embraced by many national governments,
and most crucially the realization by some
airlines that they could secure ‘first mover’
advantages in a more liberalized product
market, led to the progressive deregulation
of air transport services. Contrary to
determinist accounts, it is important to
recognize that while markets constrain
managerial action, to the extent that ‘actors
must obey prevailing rules of exchange in
order to get from them what they want’,
they also enable ‘by providing access to
the means of action’ (Whittington 1989:
109).
In the civil aviation sector, several major
European airlines such as BA and KLM
actively sought liberalization in order to
develop new competitive strategies and
thereby dominate the market (see Martínez
Lucio et al 2001). Mrs Thatcher’s
governments, with the support of BA,
became the standard bearer for a radical
programme of liberalization within the
European Union (EU), which culminated
in the creation a single market for
European civil aviation (in April 1997)
compatible with the Single European Act
(see Kassim 1995). For BA, EU
liberalization would create a new domestic
(i.e. European) market comparable in size
to the US domestic market, thereby
establishing a passenger and revenue base
that would enable the company to compete
with the major US carriers and other
international airlines with global ambitions
(see Dobson 1995).
An historical perspective should be an
essential component of strategic choice
theory as the relationship between
organizational co-ordination and market
co-ordination that yields competitive
advantage rather than disadvantage is a
continually evolving process (see Child
1997: 70; and Lazonick 1991: 290). When
the final phase of EU liberalization
measures for the civil aviation industry
were introduced, BA was the only fully
privatized national flag carrier in Europe,
which gave the company access to capital
markets and financial resources that were
simply not available to rival airlines. More
importantly, domestic economic reforms
 Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
and labour market deregulation had
enabled BA to restructure its internal
operations (see Blyton and Turnbull 1998:
69-76; and Colling 1995), creating a
significant competitive advantage over
other European flag carriers (most of
whom were seriously under-capitalized
and over-staffed) (see Kassim 1995: 195-
196; and European Commission 1997:
201). In the early 1990s, for example, BA
returned a healthy profit whereas airlines
world-wide lost £10 billion, more than the
industry’s total combined profits since
commercial aviation began in 1947. At the
time, BA was able to maintain profits by
containing unit cost increases within yield
increases (i.e. increasing passenger
numbers and aircraft utilization and/or
increasing the proportion of higher paying
business and first class passengers) (see
Oum and Yu 1998: 203), but as other
airlines emulate the industry leaders these
internal economies are quickly diffused
and become an external economy enjoyed
by all market participants.
This process of transposing internal into
external economies is even more rapid
when airlines operate in a common market
as competition leads to a convergence of
productive efficiencies (Oum and Yu 1998:
210). In particular, the benchmarking of
airline services across carriers, from ticket
sales to in- flight service, ground handling
to aircraft maintenance, is now routine
throughout the industry (see Blyton et al
1998: 18 and 2001). This process is used to
initiate contract negotiations with labour
and/or external service providers in order
to establish ‘market rates’ (see
Walgenbach and Hegele 2001). The
convergence of productive performance
across European carriers in recent years
suggests that the pro-active or ‘first mover’
organization of today may become
tomorrow’s re-active and adaptive ‘second
mover’. This would appear to be the plight
of BA, which is considered in more detail
in the following section.
Innovation, Adaptation and Industrial
Relations at British Airways
In transport services, market liberalization
invariably leads to industrial concentration
rather than (neo-classical) ‘free
competition’. US civil aviation, for
example, is now dominated by just five
major carriers. A similar process of
concentration can be observed in Europe.
As in the USA, the initial stages of
liberalization are marked by a wave of new
entrants, but these companies tend to
compete in specific market segments and
are often swallowed up by the major (flag)
carriers (see AEA 1997: 18; and ITF
1992). Thus, in the long run, it is
anticipated that only a handful of global
airlines will dominate the world’s skies.
BA’s objective is to be one of these global
airlines, offering services in all three of the
world’s major regional air transport
markets (Europe, North America and Asia-
Pacific), and all three inter-continental
routes that connect these markets. To be
competitive in a global market, therefore,
BA must match the efficiency levels of US
carriers and the cost competitiveness of
Asian airlines, while at the same time
consolidating its position in the domestic
(i.e. European) market where low-cost
airlines have entered the market and rival
European flag carriers have embarked on
ambitious restructuring programmes.
The foundation of BA’s competitive
strategy, which can be traced back to the
1980s, was to reorient the company’s
business, and the mindset of its managers,
from transportation to service (see, for
example, Blyton and Turnbull 1998: 69-
76; and Colling 1995). Henceforth, the
business would be market- led rather than
operationally driven. What the market
demanded, or more precisely what Sir
Colin Marshall and other key managers at
the time interpreted as the demands of the
market, were much higher standards of
customer service. To quote BA’s former
Chief Executive, ‘Anyone can fly
aeroplanes, but few organizations can
 Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
excel in serving people’ (Sir Colin
Marshall, quoted in Prokesch 1995: 103).
Human resource management initiatives
such as ‘Putting People First’ and
‘Managing People First’ were central to
the delivery of new service quality
standards, but competitive advantage was
not based on service quality alone. BA
restructured its operations in the 1980s by
closing unprofitable routes, reorganizing
its fleet, shedding jobs, and improving
labour utilization. In short, innovation
created new cost-quality-productivity
outcomes that enabled BA to secure
competitive advantage. In effect, being
‘market- led’ involved redefining the
market, both in terms of the service that
passengers could expect (and rival carriers
would now have to match or exceed) and
as a point of reference for employees
which management used to legitimize the
restructuring of the airline.
BA’s performance in the 1980s and early
1990s rested heavily on labour, especially
as civil aviation became ever more ‘labour
sensitive’ with progressive liberalization.
BA’s input prices are among the lowest in
Europe and, both historically and
internationally, low input prices have been
more important than productive efficiency
in determining cost competitiveness (Oum
and Yu 1998). Thus, BA is cost
competitive with KLM and Lufthansa due
to lower input prices rather than higher
efficiency. Nonetheless, labour utilization
has played a significant role in BA’s
competitive performance, especially in the
1990s. Between 1992-95, for example,
when BA’s profits were still rising, total
factor productivity stagnated but labour
productivity growth was still strong. In
other words, there was disappointing
performance in the use of non-labour
inputs and corporate growth was
increasingly dependent upon improving
labour use (Martin and Parker 1997: 99-
101). This was particularly notable after
1996 when labour productivity continued
to grow whereas the utilization of capacity
began to decline. BA’s (over) reliance on
the ever more intensive exploitation of
labour inputs is in many respects indicative
of a shift from innovative to adaptive
behaviour.
An alternative interpretation of being
‘market- led’, which prevailed during
Robert Ayling’s stewardship, was to
benchmark all activities against the
‘market price’ (which BA defined as the
price at which the same or better quality of
service could be purchased elsewhere). As
Walgenbach and Hegele (2000: 124) point
out, benchmarking is often used to ‘bring
into line’ the perception of reality of those
at whom it is targeted with that of
management, ‘therefore enabling
management to steer the perception of
employees in the desired direction’. BA’s
strategy of market testing was facilitated
by a process of decentralization (i.e. the
division of operations into smaller units
retained under company ownership) (see
Shutt and Whittington 1987). For example,
the purchase of Dan Air led to the
establishment of BA’s EuroGatwick (EoG)
operations and the creation of British
Airways Regional (BAR) in 1992,
operating from Birmingham, Glasgow,
Manchester and other regional airports,
took short-haul routes out of BA’s existing
network. Both subsidiaries could then be
more readily benchmarked against
comparable operators. Engineering was
also transformed into a strategic business
unit operating as a separate profit (and
loss) centre. If these and other in-house
operations exceeded the market price, the
differential between the two would become
the starting point for subsequent
negotiations with labour.
If the differential could not be redressed
through internal reorganization and cost-
cutting measures, then services might be
franchised to other airlines or sub-
contracted to external service providers,
processes which Shutt and Whittington
(1987) refer to respectively as detachment
 Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
and disintegration. BA in fact pioneered
the idea of franchising operations in the
civil aviation industry (see European
Commission 1997: 201). The franchisee
operates its own aircraft and employs its
own staff, but its aircraft are painted in BA
colours and its staff must wear BA
uniforms and perform to BA service
standards. BA also took the lead amongst
European airlines in out-sourcing various
services such as vehicle maintenance and
management, and information technology
services (European Commission 1997:
203). During interviews, staff expressed
the view that both detachment and
disintegration had eroded BA’s traditional
image and reputation as the airline now
had less control over service delivery.
More importantly, these policies
undermined their own perception of the
company as an airline and an employer.
The following quotes were not untypical of
employee resentment towards BA’s new
business strategy:
It may say BA on the plane but it’s not BA.
BA is becoming a brand, the virtual airline
(BAR cabin crew, interview notes).
Rather than try to improve the efficiency of
the business, they look to outsource it.
That’s not management, that’s not taking
responsibility for the business. They’re
selling off everything, that’s the reality of
the virtual airline. Pretty soon, when you go
to the check-in desk that’s all there’ll be to
the company, there’ll be nothing behind it
(BA engineer, interview notes).
There were both outer and inner cycle
processes at work in the new strategic
orientation of the company in the 1990s.
As already no ted, BA played a significant
role in promoting the liberalization of
European civil aviation, and indeed viewed
this process as central to its own global
ambitions. Ultimately, however, innovative
organizations can only shape, rather than
control, their external environment. In
particular, they cannot always predict, or
pre-empt, the innovative reaction of their
rivals. For example, just as BA could now
operate more freely in other European
countries, BA’s rivals could secure access
to the UK market. In fact, the UK’s civil
aviation industry is more open than most
other European countries (see Kassim
1995). It is therefore easier for European
airlines to secure access and/or establish a
UK route network via take-over or merger.
Examples include KLM’s purchase of Air
UK and Lufthansa’s 20 per cent stake in
British Midland (BMi), which has now
joined the Star Alliance. As a result, BA’s
share of the UK market has declined
significantly in recent years and the Star
Alliance now holds 27 per cent of London
Heathrow take-off and landing slots
(compared to BA’s 38 per cent). In
contrast, BA has faced greater difficulties
expanding its route network in some
European countries and has struggled to
make a profit from its European
subsidiaries such as Deutsche BA
(Germany) and TAT/Air Liberté (France).
BA has also faced a new source of low cost
competition in its UK and European
market from new entrants such as easyJet
and Ryanair. These companies brought
new forms of innovation to short-haul
routes, in terms of both cost and quality.
Costs have been cut dramatically by selling
direct to the public, refusing to pay
commission to travel agents, out-sourcing
as many activities as possible, and flying
from cheaper, less congested secondary
airports. Service has been redefined (or
debased) by scrapping in- flight food and
seat assignments, making air travel more
like catching a bus or a train. Ryanair, for
example, only flies Boeing 737s and
employs just two cabin crew (instead of
five on a comparable BA flight). By flying
to secondary airports the company can
achieve a turnaround time of just 20-25
minutes (instead of an hour for a BA flight
to hub airports) which means that each
aircraft can make two more flights a day.
According to Michael O’Leary, Chief
Executive of Ryanair, BA’s own entry into
this market, via its low-cost subsidiary
called Go, ‘simply enhanced the credibility
 Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
of the sector’ (The Independent 19 January
2000).
Within the organization (the inner cycle),
BA’s reorientation towards costs and the
‘market price’ was personified by Robert
Ayling’s tenure as Chief Executive. As
already noted, Mr Ayling’s appointment
signalled a change in key management
personnel. It also signalled a restructuring
of management functions, with Human
Resources placed under the Corporate
Affairs Department instead of reporting
directly to the Chief Executive. For many
managers, and certainly the company’s
employees and trade union representatives,
these changes signified a retreat from
employee centred HR policies and a failure
to integrate labour’s concerns into the
company’s business strategy. As one
senior BA manager explained,
The role of HRM in the company is a bit like
the relationship between the moon and the
earth – it can exert great influence, dictating
the tides and providing light when
everything would otherwise be in darkness.
But if you don’t want light, you pull the
curtains. If you want to avoid the tide, you
move to higher ground (interview notes).
Employees’ experience of the ‘darkness
and light’, the ‘ebb and flow’ of corporate
HR policy, is encapsulated in the words of
BA cabin crew:
We’ve all been through PPF [Putting People
First] and other programmes, been told
we’re the best thing since sliced bread, and
now they’re saying they’re not sure whether
they even want to employ you anymore.
There’s no longer any trust in management
(interview notes).
Customer service and good employee
relations go hand-in-hand. But all BA want
is the customer service, they’ve dismissed
the idea of good employee relations
(interview notes).
The inconsistency of BA’s HR and
industrial relations policies is a long-
standing feature of the company’s business
strategy (see Blyton and Turnbull 1998:
69-76). This applies both to the
inconsistencies between industrial relations
and human resource management, and
within the company’s HR policies. The
former is an example of what Storey
(1992) calls ‘dual arrangements’, whereby
the company seeks to downplay
collectivism (industrial relations) and
emphasize individualism (human resource
management). Dualism dates from at least
the mid-1980s when the company stepped
back from any fundamental reform of
industrial relations or its relationship with
the trade unions prior to privatization. As a
BA manager explained,
The strategy was basically to try to write the
unions out of the system, by-pass and
marginalize them. We wanted to do with our
workforce what Thatcher did with the UK
population as a whole, make them
individualistic shareholders ... One line of
thinking was that if we could close down
Collective Relations [the sub-section of HR
responsible for relationships and contracts
with the trade unions] then we would only
deal with individuals whom the company
could then blend into a team (interview
notes).
HR policies, however, tended to alternate
between a hard/cost-cutting approach and
softer/ employee-centred policies, or in the
words of another BA manager, between
‘killing people one minute and loving them
the next’ (interview notes). Such
inconsistency is not peculiar to BA.
Arguably, it is a characteristic of all
capitalist employment relations.
Nonetheless, there are national, industry,
and company-specific factors that must be
considered in order to understand the
timing of strategic choices (Child 1997:
70).
Strategic choices are a reflection of what is
possible or permissible, rather than
necessarily optimal, at different historical
junctures. Under Robert Ayling, the
interpretation of a market- led strategy as a
process of establishing market rates for all
operations, possibly culminating in a
virtual airline, was in many respects the
logical conclusion of a ‘permissive’
industrial relations system. BA staff
 Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
employed by BAR and EoG, for example,
have inferior terms and conditions of
employment compared to BA employees
working on short- haul routes from London
Heathrow, which are different again from
London Heathrow long-haul operations.
Go pays wages some 20-30 per cent below
BA mainline rates and up to a third of
employees’ pay is based on performance.
European carriers such as SAS and
Lufthansa, in contrast, have been unable to
use decentralization as a mechanism to cut
internal labour costs because of established
collective bargaining arrangements and
national employment law, as well as the
concerted opposition of airline staff and
trade unions (see Blyton et al 1999; and
ITF 1992: 59). Indeed, BA’s own
operations in France were hit by a long-
running dispute when the company tried to
impose inferior Air Liberté working
conditions on TAT staff. Such
‘restrictions’, however, can force
organizatio ns to look at other productive
possibilities and new forms of innovation
(see Lazonick 1991: 130). In BA’s case,
the absence of what Streeck (1992) calls
‘productive constraints’ arguably led
management to pursue an irrational course
of action for rational reasons – that is, cost-
cutting might appear to be an appropriate
strategic response to low cost competition
and the restructuring and/or emulation of
rival flag carriers in an increasingly open
market, but this strategy undermined the
foundations of BA’s competitive
advantage, most notably the employee
consent and commitment crucial to
sustaining innovative behaviour.
The Business Efficiency Programme
(BEP), a £1 billion cost cutting initiative
launched in 1996, encapsulated what one
BA manager described as the ‘darker side’
of human resource management and the
company’s retreat to the ‘higher ground’ of
shareholder value. There were three
important dimensions to the BEP. First, the
Programme was not simply about cutting
costs but pro-actively controlling costs by
redefining the company’s future cost
structure. Unlike previous cost-cutting
exercises, such as the GAP Closure
programme of the early 1990s, the unions
recognized that ‘BEP was for real. This
wasn’t just about taking a few heads off
the roster. BEP wasn’t a paper deal where
we could claw back concessions at a later
date. This was a serious cost reduction
programme’ (interview notes). In 1996,
BA’s average expenditure on key
occupational groups such as cabin crew
was 48 per cent higher than domestic rivals
such as BMi and 90 per cent higher than
Virgin, and this differential had actually
increased between 1989 and 1996 (CAA
1989 and 1996). BEP was devised to
redress this situation.
Secondly, in the words of one of the
company’s HR managers, ‘BEP is not just
about costs, it’s about what businesses we
should be in’ (interview notes). BEP
formalized the processes of
decentralization, detachment and
disintegration by systematically costing all
the company’s activities and establishing
the ‘market rate’. According to another BA
source, ‘We do not want to pay more for a
job or function than the market rate. We do
not want to have an internal cost for doing
a job which is higher than someone on the
outside can do it for’ (quoted in Airline
Business August 1997). As in many other
organizations (Walgenbach and Hegele
2001), benchmarking was used to create or
increase the impression and perception of
competition in areas of the business in
which price and/or quality competition was
rarely or only indirectly felt.
Thirdly, BEP involved a direct challenge to
organized labour, culminating in the 3-day
cabin crew dispute in July 1997. At the
time, BA’s approach to industrial relations
was perceived by many as the ‘last kick of
Thatcherism’ (see The Guardian 7 July
1997; and Financial Times 20 May 1997
and 10 July 1997) and many union
representatives, during interviews,
 Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
expressed the view that BA’s ultimate goal
was to de-recognize the British Airline
Stewards and Stewardesses Association
(TGWU/BASSA). During a meeting
between Ayling and Bill Morris, General
Secretary of the TGWU, BA managers
produced a computer printout listing all
TGWU members employed by the
company and paying their union
subscription by ‘check-off’ (i.e. deduction
from their wages by the company paid
directly to the TGWU). Ayling threatened
to ‘press a button on the computer and
delete the entire membership roll’
(interview notes).
Under the BEP, BA demanded savings of
over £42 million per annum from an
annual cabin crew budget of £460 million.
The key targets were temporal flexibility
(most notably a new 5 days on/2 days off
shift pattern to replace the established 6/3
pattern), a new two-tier wage structure, a
pay freeze, and the consolidation of
various extended time payments (ETP) into
basic salary. For cabin crew, however, the
very concept of a Business Efficiency
Programme was a misnomer – as BASSA
informed its members in the Association’s
February 1997 Newsletter, BA’s plan ‘is
not about efficiency, but about dismantling
the agreements that the make the job of
cabin crew worth having’. The 6/3 roster in
particular was regarded, in the word of one
union official, as the ‘sacred cow’ of cabin
crew conditions at Heathrow (interview
notes). The fact that a 5/2-shift pattern was
already worked at EoG served to stiffen the
resolve of London Heathrow cabin crew,
as their colleagues’ experience was one of
ever more intense and stressful work.
Cabin crew rejected BA’s proposals and
voted 3-to-1 for industrial action.
BA eventually secured the desired £42
million per annum cost saving via rota
changes and the more effective utilization
of flight duty times (staff working more
days and longer hours for the same pay,
saving £16 million) and new start rates (by
January 1998, 2,800 new cabin had been
recruited on the new lower tier wage, some
30 per cent below existing rates, saving
£26 million). But the 3-day cabin crew
strike in July 1997 cost BA an estimated
£125 million in lost revenue. The wider
costs of the dispute – in terms of customer
confidence, the airline’s reputation in the
industry, and of course employee
commitment – are more difficult to
calculate but are nonetheless substantial.
For example, customer service standards
declined in the aftermath of the strike, as
did employee morale (as measured by the
company’s own internal employee attitude
surveys). The relationship between
satisfying the internal needs of employees
in order to meet the external demands of
the customer is well established in the
service sector (see Lewis 1999: 189 and
194). In BA’s case, every 1 per cent
increase (decrease) in employee
satisfaction is associated with a 0.24 per
cent increase (decrease) in customer
satisfaction (Lebrecht 1999). Under more
intensive working arrangements, cabin
crew find it increasingly difficult to deliver
a high quality service, but some BA
managers appear to be oblivious to the
wider ramifications of work intensification
– ‘If it wrecks them physically and they
only last 3 years, then so be it. We’ve got
16,000 people who want a cabin crew job
with BA’ (interview notes). As service
standards fell, BA lost passengers to other
carriers, especially in the more lucrative
business passenger market.
There are two important dimensions to
BA’s failure to maintain its first mover
advantages and its position as one of the
industry’s leading innovative
organizations. First, at the functional and
practical levels, BA’s strategy was poorly
implemented. Workplace union
representatives and national union officials
agreed that collective bargaining was
subordinate to, rather than an instrument
of, the BEP (unlike previous cost-cutting
initiatives). Most expressed frustration at
 Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
management’s unwillingness to consider
alternative proposals (interview notes).
More widely, BA staff, almost
unanimously, complained that
management refused to listen to their
concerns. HR issues had been devolved to
line managers, with the HR Department
cast in the role of what Storey (1992: 168)
describes as ‘advisors’ or ‘internal
consultants’ (see Blyton and Turnbull
1998: 90). Unfortunately, many line
managers were ‘poor people managers and
were all too often reluctant to call the HR
Department for help. To do so, they
thought, would be seen as a failure on their
part’ (HR manager, interview notes). A
recurrent feature of our interviews with BA
staff was the contrast that many drew with
the Marshall era – ‘There was always cost-
cutting and a lot of painful change, but at
least under Colin Marshall you knew what
was happening and why’ (interview notes,
respondent’s emphasis). As a senior BA
manager acknowledged, ‘We don’t
communicate to our people any more, we
broadcast’ (interview notes).
Second, and more important, was the
propriety of BA’s chosen strategy. Here
there are both product market and labour
market dimensions to be considered. BA’s
strategy of fragmentation contrasted
sharply with the strategic integration of the
product market orchestrated by other major
airlines via global alliances and the
development of their productive
capabilities in key service activities such as
ground handling and catering. Put
differently, BA misread the potential
development of the product market and has
been slow to cement an international
alliance capable of challenging Star and
other global alliances such as
Northwest/KLM and the Atlantic
Excellence Alliance (based around Delta
and Swissair). Moreover, the one world
alliance announced by BA and American
Airlines in 1998 does not enjoy anti-trust
immunity or the full array of trans-Atlantic
code sharing which allows carriers to share
profits and revenues and more fully
integrate their operations. Oneworld must
therefore focus on ‘passenger friendly’
areas such as frequent flier programmes,
branding, lounge access, easier
connections and customer support. The
potential cost-savings of a co-ordinated
alliance such as one world, expressed as a
percentage of the individual airline’s total
cost base, are less than 2 per cent (O’Toole
and Gill 2000: 45). In addition, even with
the cost savings from one world and the
BEP, BA is still undercut by low cost
carriers such as easyJet and Ryanair who
continue to eat into the company’s
domestic (i.e. European) market.
In the labour market, although extant
industrial relations led BA to the
conclusion that the BEP was a viable
strategy, senior managers clearly
miscalculated the resilience of organized
labour and the ‘stickiness’ of established
collective bargaining procedures. For
example, BA’s attempts to dismantle
national bargaining and completely
decentralize industrial relations have been
frustrated by union opposition (see
Martínez Lucio et al 2001). Following the
conclusion of the cabin crew strike, BA
has re-established HR as a separate
Department reporting directly to the Chief
Executive, with changes to key personnel
in the HR function. The company has also
sought to develop a new ‘partnership’
agreement with the TGWU, having already
established a similar agreement with
BALPA in response to the 1996 threatened
pilots’ strike. Thus, the alternation in BA’s
approach towards organized labour, and
the inconsistencies between industrial
relations and human resource management
policies, was still very prominent. So too
were the contradictions within the
company’s HR policies. Post 1997, BA
decided to ‘love’ its staff once more and
put people first again (the word ‘love’ was
used in countless interviews by staff to
describe BA’s ‘change of heart’ after the
cabin crew strike). Over 15,000 staff have
 Peter Turnbull, Paul Blyton, John McGurk and Miguel Martínez Lucio
attended a ‘Putting People First Again’
programme, but it has proven difficult to
boost staff morale or recover staff
confidence and customer service standards.
As a BA manager admitted,
The first time around, in the 1980s, PPF was
like ploughing a fallow field with a shiny
new plough, so it was easy to make a big
difference. Now the field is already
ploughed, and overgrown in places, so all
you can do is try to make it look better, tidy
things up, which is very difficult (interview
notes).
Cabin crew and other BA staff echoed
these sentiments in interviews and focus
group discussions. In the words of a BAR
shop steward, ‘BA is living on borrowed
time. Morale is at an all time low. People
are just fed up with the company’
(interview notes). It is difficult to escape
the conclusion that even if industrial
relations and HR considerations are
conceptualized as ‘third order’ choices, as
would appear to have been the case in BA,
these choices can have ‘first order’
consequences, as BA found to its cost.
Conclusion
It is commonplace to argue that industrial
relations outcomes cannot be ‘read off’
from the external environment:
employment relationships need to be
properly ‘contextualized’ and not treated
simply as an autonomous sub-system of
the political economy. Strategic choice
theory provides a framework for
connecting the internal machinations of the
organisation with the wider competitive
environment, but only when the dynamic
of confrontation between capital and
labour, set in its historical context, takes
centre stage. Industrial relations scholars
should therefore re-evaluate the utility of
strategic choice theory. Conversely,
organizational theorists should pay greater
attention to industrial relations and HR
considerations in their analysis of
management action.
The utility of an inter-disciplinary
approach is clearly demonstrated in the BA
case. Overt conflict became a dominant
theme in the company’s relationships with
labour during the late-1990s, most notably
as a result of the decline of industrial
relations in management’s order of
priorities, their misreading of the
consequences of such neglect, and the
inherent contradictions of BA’s strategy
which sought to deliver on both cost and
service quality. The dynamic interplay of
inner and outer cycles, or productive and
competitive uncertainty, illustrates the
enabling as well as constraining effects of
the external environment, and the
productive as well as the restrictive
constraints created by the interactions
between management and labour. Thus, the
political processes which defined,
redefined and subsequently tempered the
implementation of BA’s business and
industrial relations strategies led to the
gradual erosion of first mover advantages
and a shift from innovative to adaptive
competitive behaviour. This, in turn,
accounts for the dramatic reversal in BA’s
fortunes in the late 1990s and the eventual
departure of the company’s Chief
Executive.
Acknowledgement - The financial support of the
Leverhulme Trust (F/40/L) is gratefully
acknowledged.
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