Business Agility And The Odds Of A Successful American Airlines and USAir Merger

Craig Le Clair
Vice President, Principal Analyst
November 22, 2013

Another blockbuster airline merger is upon us. It is hard to imagine this will benefit the flying public – fewer direct flights,  higher prices, more crowded planes –if that is possible- are a likely outcome. But the stock market likes the move: more pricing power + economies of scale – how can you not like this?  The Airline industry in aggregate has lost over 50 billion dollars in the last decade. Life time it is in the red. Southwest is the only airline to consistently make money. Warren Buffet, before eliminating airlines from his portfolio, has been quoted as saying “If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

Cynicism and ugly facts aside, the success of this merger will depend on how prepared the combined airlines are in dealing with change in their markets and ecosystem.  Dominant companies with few competitors tend to think they are immune to change.  So they don’t try to increase their awareness of changes, and other than cost, don’t try to improve their execution of change strategies.  They become less agile as companies – when new competition starts to pick them off, they will be left with the least differentiating and least profitable parts of their business. 

Forrester is putting significant effort into Business Agility – what it is, how it relates to the success of companies within industries, and what foundations business agility is built on.  We’ve identified 10 dimensions that underlay business agility – and even developed a quick assessment methodology.

Looking at what agility foundations the combined AMR+USAir  should have, several of these dimensions jump out:

  • They must invest to excel at Market Responsiveness – understanding what’s going on in their markets and shifting their strategies and resources to respond.  This is a major upgrade from their too-common focus of viewing customers as someone they can sell a seat upgrade to.
  • They must become excellent at organization Change Management. Change management enables this ‘mash-up’ of two airlines to stay focused on customer experience, implement new processes and encourage positive behavior and attitudes. High performing enterprises embed change management skills directly in the business because they are optimistic about a changing future.  Our recent study of agility and performance found that high-performing companies also had high competence on  change management
  • They must think about how they design, change and support business processes – which we call the Process Architecture dimension. As their customers and competition changes, business processes must change –to continue to improve the mobile experience, for example. AMR+USAir must embrace business architecture and leading business process management (BPM) methods such as target operating models.  They must excellently leverage Business Process Management Suites (BPMS) and Business Rules that add flexibility to core systems  such as aging Global Reservation Systems and other proprietary systems of record. 

We define Business Agility as “the qualities that enable an enterprise to embrace market and operational changes as a matter of routine.” This is the attribute that allows companies to thrive amidst the waves of change – changes that make business executives anxious. But our agility methodology can quantify the dimensions of that anxiety and provide insight on how to fight back.

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