Mid-Term ExamHURD 741 Organizational Development
Case Study: Merger of US Airways and American Airlines
In February 2013, US Airways and American Airlines (AA) announced plans to merge, a union that would
create the world’s largest airline. Because this was the fourth major U.S. airline merger in recent years and
because the merger would take place in the context of bankruptcy protection sought by American Airlines in
2012, the parties anticipated intense scrutiny of the merger’s competitive effects by the U.S. Department of
Justice (DOJ) and thus retained FTI Consulting subsidiary Compass Lexecon to perform the economic
analyses required to address the DOJ’s likely concerns. The DOJ was expected to focus on whether the
deal would decrease competition in the commercial airline industry enough to permit airlines to increase
prices in the various markets served by the merging parties. The extent to which restrictions on operations
and/or pricing — designed to mitigate any anticipated competitive effects — were required as conditions for
merger approval.
With regard to Compass Lexecon’s work on the merger, Bruce Wark, who led AA’s legal and regulatory
efforts during the merger process, indicated that "We chose Compass Lexecon to evaluate and quantify the
consumer benefits arising from our merger. Their economists have a deep understanding of the airline
industry, and they have the reputation and knowhow to convince both regulators and judges. Their work
was instrumental both in defending against the claims filed by the DOJ and in finding a resolution with the
DOJ that allowed us to consummate our merger."
Similarly, Howard Kass, who led US Airways’ legal and regulatory efforts during the merger process,
indicated that "Compass Lexecon was a valued member of the U.S. merger team. Having worked
successfully with Compass Lexecon on several other projects in front of regulators, we knew that Compass
Lexecon would bring a level of professionalism, expertise and candor that is unmatched by others.
Compass Lexecon’s devotion to its clients, knack for detail and commitment to finding solutions where
none seemingly exist are why we chose Compass Lexecon."
FTI Consulting's Role: Subsidiary Compass Lexecon
Teams of economists from Compass Lexecon had begun working on the engagement when US Airways
first expressed interest in acquiring American Airlines after it had filed for bankruptcy protection in 2012.
The teams analyzed massive amounts of data on the airlines’ traffic and pricing practices pertaining to
various nonstop and connecting routes in order to assess the potential overall competitive effects of a
combination, as well as effects on markets involving Reagan Washington National Airport in particular —
where many anticipated that DOJ would require the airlines to surrender a significant number of takeoff and
landing slots as a condition for merger approval.
Based on these analyses, the Compass Lexecon team prepared whitepapers and held consultations with
DOJ staff that demonstrated that the transaction would have the effect of creating a larger network, which
would be able to operate more efficiently and effectively, thereby providing new and better options to all
airline consumers. By studying the outcomes of recent mergers, as well as pricing and traffic on routes with
Adapted from FTI Consulting
(http://www.fticonsulting.com/insights/case-studies/merger-of-us-airways-and-american-airlines)
different numbers of competitors, the Compass Lexecon team also presented analyses demonstrating that
these benefits would swamp any potential competitive harm as a result of the transaction.
Despite this evidence, the DOJ surprised the carriers by filing suit to block the merger in August 2013,
claiming, among other things, that elimination of US Airways’ Advantage Fares Program, once the merger
was consummated, would increase airfares for consumers.
Outcome: A pre-trial settlement allowed the deal to proceed
In response to the lawsuit, the Compass Lexecon team shifted its focus to converting its prior work into
expert reports and presentations that demonstrated that the transaction would create significant consumer
benefits with minimal competitive harm, including heightened focus on analyzing and rebutting the DOJ’s
concern about Advantage pricing. In November 2013, soon after Compass Lexecon filed its evidence —
and just weeks before the trial was scheduled to begin — a settlement was reached that required limited
(and anticipated) concessions, including the divestiture of 104 slots at Reagan Washington National Airport
and 34 slots at LaGuardia Airport.
The settlement, which was upheld by the courts in April 2014, kept the parties’ merger plan intact and will
allow $1 billion in estimated annual synergies arising from the transaction to be realized.
OD Assignment:
Your department is responsible for developing, implementing, and evaluating all
Change Management interventions for the new “American Airlines Group Inc. (NASDAQ: AAL)”.
You are specifically in charge of creating the change management plan for:
Human Capital Strategy
In an effort to complete your proposal for the Senior Management Team, consider the following as you
develop a plan of action for the company:
•
•
•
•
Use the Five Stages of Organization Development
Determine the diagnostic tools
Select a Systems Approach to manage the change
Outline a plan to evaluate the effectiveness of the change process
Adapted from FTI Consulting
(http://www.fticonsulting.com/insights/case-studies/merger-of-us-airways-and-american-airlines)
quately by the odk/
Before
change. The first step is the manager
of disequilibrium or needs improvem
or decline or from competitive, techr-
to choice. All too often, the problem is solved by not solving it: it takes too
they may mine in the individu
al sution, so both parties must continue with a tenuous and unharmonious tenment. There must be a felt need, be
Sometimes, the psychological contract between the organization and the ways. Managers must be sensitive te
mxc address certain key expectations. One or both parties may assume thason out there."
ser"may be the underlying assumption of one or both parties. Unstated on
erees to some unstated expectations. The phrase "it is intuitively obvious to the
tions can lead to an organization of individuals who feel cheated or of war
disappointed in their subordinates. To avoid such misunderstandings, both parties
and the representatives of the organization-should formulate a
psychological com
te continually renegotiated.
Stage 2: Develop the Practi-
After an organization recognizes
relationship begins to develop bet
person or organization that is bei
tant determinant of the probables
relationships, the exchange of
contract) depends to a great des
tioner and the client system. TH
cation, a relationship of trust,
responsibility, rewards, and
point.
The practitioner must d.
For instance, the practitioner
A MODEL FOR ORGANIZATIONAL DEVELOPMENT
Organization development is a continuing process of long-term organizational improve
program, the emphasis
sisting of a series of stages, as shown in Figure 1.6. In an OD
a combination of individual, team, and organizational relationships.
I
proposal for the Senior Management Team, consider the following as you develop a plan of action for the company
tomorrow
ENG
Chet Organised the game
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er employee
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Best Com
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Mar
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STAGES
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STAGE 4
Action Plans
alaga
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STAGE
The
Diagnostic
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iduals and
FIGURE 1.6 Organization Development's Five Stages
organiza
se the two
and tew
en its ex
pects its
quality
sique to
me de
adivid
many
alien
The primary difference between OD and other behavioral science techniques is the em-
phasis upon viewing the organization is a total system of interacting and interrelated elements.
Organization development is the application of an organization-wide approach to the func-
tional structural, technical and personal relationships in organizations. OD programs are
bused upon a systematic analysis of problems and a top management actively committed to the
change effort. The purpose of such a program is to increase organizational effectiveness by
the application of OD values and techniques. Many organization development programs use
the action research model. Action research involves collecting information about the organi-
zation, feeding it back to the client system, and developing and implementing action programs
to improve system performance. The manager also needs to be aware of the processes that
should be considered when one is attempting to create change. This section presents a five-
stage model of the total organization development process. Each stage is dependent on the
preceding one, and successful change is more probable when each of these stages is consid-
ered in a logical sequence.
ns of
nt.
hay
Sto
fly
an-
I.
Stage 1: Anticipate a Need for Change
Before a program of change can be implemented, the organization must anticipate the need for
change. The first step is the manager's perception that the organization is somehow in a state
of disequilibrium or needs improvement. The state of disequilibrium may result from growth
or decline or from competitive, technological, legal, or social changes in the external environ-
ment. There must be a felt need, because only felt needs convince individuals to adopt new
ways. Managers must be sensitive to changes in the competitive environment, to "what's going
on out there."
sche
Stage 2: Develop the Practitioner-Client Relationship
After an organization recognizes a need for change and an OD practitioner enters the system, a
relationship begins to develop between the practitioner and the client system. The client is the
person or organization that is being assisted. The development of this relationship is an impor-
tant determinant of the probable success or failure of an OD program. As with many interpersonal
relationships, the exchange of expectations and obligations (the formation of a psychological
contract) depends to a great degree upon a good first impression or match between the practi-
tioner and the client system. The practitioner attempts to establish a pattern of open communi-
cation, a relationship of trust, and an atmosphere of shared responsibility. Issues dealing with
responsibility, rewards, and objectives must be clarified, defined, or worked through at this
point
The practitioner must decide when to enter the system and what his or her role should be.
For instance, the practitioner may intervene with the sanction and approval of top management
by using
CA
baly two kinds of com
indis
is ove-stage
of indisiduals
knowledge. The
man mind that
ians of the group
with the client
Crescent level and
was
pully exp and a so
/pter from a vesty was invited
kwane ne D program
as become almost ines
only
Continual change is
forts is
This
uously improve perfo
op model or paradigm
As an OD pro
moves toward inder
the practitioner-che
come overly depen
and awkward issue
not the practitioner
ganizations, wheth
The individuals in
are power-motiva
have disagreemer
reality and ofter
tioners deal with
OD, an OD prog
be aware of pol
situations.
stage. The Diagnostic process
de pe terase clut begin to gather data about the system. The c
om the diagnosis
pre deose telor perspective may be
internal OD
www.support of members in the lower levels of the org
main by the organization
As the inde Mine managers and workers
to pond and developed a working relationsion of data in
and providing the mind and the practitioner with a better understanding of
Tito question the client's diagnosis of the
Che le ofron for the DracticAfter acquiring information relevant to
le coperchid ole the problem the OD practitioner and client together analyze the date
parus and relationships. A weak inaccurate, or faulty diagnosis can
the problem that is saluto defy the forces causing the situation, and to provide
e cosy and intelectuate program. The diagnostic phase, then, is used to determine
the changes and techniques.
sually generate a large amount of "hard" or operational data, the
may present incomplete picture of organizational performance. The practitioner and
as for further action programs. One organization, for instance, was having a problem with
Anjemployee over the practitioner investigated the lugh tumover rate by means of a ques
come creare che rage or depth of the available data by interview of questionnaire
more to determine why the problem existed, and from these data designed an OD program to
yesang big cursoves CD progradis Rase since reduced employee tumover to 19 percent
cam. The firm's colores felt it had become a bureaucratic organization clogged with red
Ata por food comparty, a new executive vice president ticeded to move quickly to im
prove the division's performance. With the help of an external practitioner, data were gathered by
Le problems. Then without identifying the source of conuments, the management tean)
conducting intensive interviews with top management, as well as with outsiders, to determine
worked on the information in a 10-hour session until they were able to hammer out the problems
Desk for anberrayer
Summary
This chapte:
organizatior
ment and o
introduced
ment (OD)
compared with 34 percent for the industry
and develop a plan of action
Stage 4: Action Plans, Strategies, and Techniques
is total quality management (TQM). job design, role analysis
, goal setting, team building, and
are discussed in detail in subsequent chapters)
. In all likelihood, more time will be spent on this
intergroup development to the causes specified in the diagnostic
phase (all of these techniques
fourth stage than on any of the other stages of an OD program.
effectivene
. Cha
initi
age!
ucte
ada
. O
m
te
problems and increasing organization effectiveness. These programs apply such OD techniques
SO
1
Stage 5: Self-Renewal Monitor, and Stabilize
Once an action program is implemented the final step is to monitor the results and stabilize
the desired changes. This stage assesses the effectiveness of change strategies in attaining
stated objectives. The system members need to know the results of change efforts in order to
determine whether they ought to modify, continue, or discontinue the activities. Once a prob-
len has been corrected and a change program is implemented and monitored, means must be
devised to make sure that the new behavior is stabilized and internalized. If this
the system will regress to previous ineffective modes or states. The ideal OD program will cre-
not done,
ate a client system that has a self-renewal capability that can maintain innovation without out-
side support
Continuous Improvement
In today's environment, companies seeking to be successful and survive are faced with the need
10 continually introduce changes. The unlikely has become commonplace, and the unthinkable
action for
DLL
Clapter 1 - Organization Development and Reinventing the
has become almost inevitable. The most important lesson managers need to learn is that there are
only two kinds of companies those that are changing, and those that are going out of business,
Continual change is a way of life. A critical challenge for managers who are leading change ef-
forts is to inspire individuals to work as a team.
This five-stage model shows how different OD methods and approaches are used to contin-
uously improve performance so that the vision can be achieved. It is important to remember that
no model or paradigm is perfect, but it can still provide useful approaches to change.
As an OD program stabilizes, the need for the practitioner should decrease. If the client
moves toward independence and evidences a self-renewal capacity, the gradual termination of
the practitioner-client system relationship is easily accomplished. If the client system has be-
come overly dependent upon the practitioner, termination of the relationship can be a difficult
and awkward issue. An important issue in the implementation of an OD program is whether or
not the practitioner is able to deal effectively with power and political infighting. Hierarchical or
ganizations, whether they are business, governmental, for-profit, or not-for-profit, rely on power.
The individuals in positions of influence generally constitute the power structure and frequently
are power-motivated people. Managers compete for promotions, and departments and divisions
have disagreements over budget allocations. In addition to power issues, political infighting is
reality (and often a dysfunctional factor) in most organizations. The issue is whether OD practi-
tioners deal with these power and political issues in bringing about a change. Given the nature of
OD, an OD program is not a political power type of intervention. Still, the OD practitioner must
be aware of politics and use a problem-solving approach that is compatible with power-oriented
situations.
Summary
This chapter focused on several major issues. One is that
organizations operate in a dynamic and changing environ-
ment and consequently must be adaptive. You have been
introduced to the emerging field of organization develop-
ment (OD) and the ways it is used to improve organizational
effectiveness.
• Challenge. One of the manager's most difficult tasks is
initiating organization change and renewal. As a man-
ager, you must be sensitive to changes in markets, prod-
ucts, and competition, and be aware of the need for an
adaptive and flexible organization.
• Organization Development. Organization develop-
ment is the discipline that applies behavioral science
techniques to management problems. Because the es-
sential task of management is to deal with change, it is
the purpose of this book to better prepare managers for
this task.
• Change is Constant. Change in our dynamic environ-
ment is unavoidable. And change is occurring so rapidly
that it is a moving target. An organization will be able to
survive only if it can effectively respond and anticipate
vironment
and related areas, such as
plied social sciences, inte
and decision making. If
ganization, they are inte
come from outside the o
practitioners.
• Culture. Culture is the se
civilization, society, or
the shared language, dr
system, interactions, and
an organization
. Socialization. Sociali-
employees to the org
class for the first time
a new job. You may d
room norms, you ma
room norms, or
individualism.
• Psychological Co
brings many under
explains them, an
shared responsibil
organization
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