OPINION: SAA’s turnaround strategy failure to take off
JOHANNESBURG - Public enterprises minister, Pravin Gordhan, has mentioned that a fresh turnaround strategy for SAA would soon be ready for approval, which is hoped to deliver a “fit for purpose” and competitive airline well positioned to entice a strategic equity partner.
Since 2012, SAA has been implementing its long-term turnaround strategy (LTTS) along with remedial actions to drive it forward. Yet today, the LTTS has still not successfully been implemented. A 2018 study conducted through the Unisa Graduate School of Business Leadership (SBL) provides some context to better understand the shortcomings associated with the LTTS.
For 12 years SAA has incurred losses as a result of poor revenue versus cost management in a highly competitive market, mismanagement, state capture and an inability to service debt. Over the past two years alone the airline has been bailed out to the tune of R15 billion. On top of an initial R14 billion loan, a further R3,5 billion was borrowed, which along with an amount of R9 billion, was due for payment at the end of March this year.
Additionally, Minister Gordhan puts SAA’s dire financial situation down to a commercially unsustainable cost structure, incorrect fleet configurations and "cumbersome approval processes". But, he maintains, there is an investment case for the airline if reforms are well implemented and system inefficiencies are eradicated.
Following a directive in late 2012 by then-public enterprises minister, Malusi Gigaba for a strategy to be developed to improve the airline’s financial sustainability and operational efficiency, the SAA’s LTTS was unveiled in early April 2013. The strategy – generally considered to be well-conceived - was to be followed by a comprehensive three-phase implementation plan aimed at ensuring successful delivery of its objectives with continuous and cyclical monitoring, and review over a twenty-year period. The impact, it was believed, would be felt from the first year of implementation.
In 2016, a 90-day action plan was implemented by then interim chief executive, Nico Bezuidenhout, to bring back on track the stalling LTTS. During the financial year ending 2016, when the plan was implemented (and guided by the LTTS), SAA went from a R5.5 billion loss the previous year to a loss of just R374 million. That figure rose back sharply to R3.7 billion the following year before reaching R5.7 billion in 2018.
In a bid to come to grips with its own weaknesses, SAA commissioned various diagnostic studies employing the services of numerous management consultancies. All studies consistently and unanimously identified the airline’s business operating model (BOM) and the business change implementation programmes as key contributors to the poor implementation of the LTTS.
Although changes to the fundamental dynamics of the airline industry have had a significant negative effect on SAA’s performance, none has been as profound as SAA’s inability to change its BOM and to effectively implement the LTTS.
Over the past few years, SAA has explored various means and approaches that could be effective in successfully implementing its turnaround programme. These include delegating the implementation to identified individual managers, business units, and cross-functional teams. The airline even attempted employing the balanced score card approach. Yet all of these approaches failed to realise a successful implementation of the LTTS.
The PMO approach
In 2017, the airline considered the project management office (PMO) approach. In practice, the global airline industry employs PMOs in their respective organisations, and although published evidence of the effectiveness of PMOs in leading the delivery of key change programmes is anecdotal in the aviation sector, nearly all airlines have traces of PMOs in their organisations.
Both Etihad and Emirates airlines have large and centralised PMOs whose objective is to manage all its growth and expansion programmes. In the USA, major airlines utilise the PMO as a strategic function for managing the implementation of new business development and product deployments.
When the UNISA SBL study was conducted in 2018 SAA had two misaligned PMOs (IT and Corporate). Each served its own specific mandate not aligned to the business strategy. The Corporate PMO in particular focused on passively managing the group balance score card (GBSC) comprising a list of key performance indicators (KPIs) set out by the shareholder, namely the National Treasury. The PMO reported on progress gained against those targets with no oversight responsibilities on progress and quality considerations of the GBSC KPIs.
An enabler of implementation
In 2018, a collaborative research study was conducted with a UNISA Graduate School of Business Leadership MBL student to explore and identify the critical success factors for implementing the LTTS, and recommend best-practice deployment and operationalisation of a PMO that might successfully lead its implementation. The research took the form of an eight-month study based on a qualitative methodology, with the research respondents sampled from SAA’s corporate management and specialist teams, comprising of executive managers, general managers, heads of departments, senior managers, managers and specialists that were directly involved in the implementation of the LTTS.
The research yielded an overwhelming agreement and consistency amongst all respondents that there has been a failure to successfully implement the LTTS. Key reasons for implementation failure included the lack of leadership, a lack of strategy buy-in amongst the leadership team, a lack of strategic focus, high staff turnover and a dearth of required skills and training for implementing the LTTS.
The key recommendation stemming from the research findings was that SAA should develop a strategically aligned and centralised PMO – and enterprise PMO – as the most suitable and effective way of for successfully delivering the LTTS. Importantly, it was indicated that the PMO should hold a prominent position in the executive boardroom – a single organization wide PMO directly reporting into the CEO.
The research further recommended that the current form of the implementation approach should be overhauled. Management accountability should be recognised and punitive measures put in place for instances where this is disregarded.
Furthermore, the research found that some of the critical success factors (CSFs) for the LTTS implementation had not been properly considered. For these it was suggested that a PMO would be best positioned to effectively lead the LTTS over a two-year period.
SAA announced that Nico Bezuidenhout will return to the embattled state company’s domestic low-cost carrier, Mango, with the appointment hoping to be a step towards stabilising leadership and strengthening the executive capacity of the group, according to the airline.
Further, Gorhan states that in addition to the process of strengthening the company executive and the board to ensure stability, a joint implementation committee has been established “between management, the board and my department to accelerate implementation, accountability and enable quick decision making."
Whether the new iteration of LTTS – or an entirely new version – will use the strategically aligned enterprise PMO approach remains to be seen. What is critical is that it will be impossible for the new strategy to be delivered unless there is a consistent focus on implementation that is sound, measurable, transparent and company-wide.
Sanele Nhlabatsi, a senior lecturer at the Unisa Graduate School of Business Leadership (SBL) and specialist in portfolio, programme and project management.
BUSINESS REPORT ONLINE