KLM is set to cut deeply into operational costs. The carrier needs to find savings of €700 million to keep costs under control. According to an internal reorganizational plan, up to 25% of management and support personnel will become surplus to requirements. The efficiency drive is part of the firm’s aim to become a High Performance Organisation (HPO), a concept developed by the Boston Consulting Group.
The parent company of Dutch carrier KLM, Air France-KLM, earlier in 2015 released a plan to implement cost saving measures within its organisation to the tune of €2 billion. The airline group has to deal with increased competition, and following the impact of several trends and threats, urgency has taken hold to future-proof the organisation. A large part of that restructuring, approximately €700 million, will be realised by KLM itself. To achieve the millions in saving, the Royal Aeronautical Society’s programme ‘Perform 2020’ has been launched. An important component of this programme is the plan to become a High Performance Organisation (HPO), a concept which is modelled on a framework of the Boston Consulting Group (BCG).
High Performance Organisation
Commissioned by KLM CEO Pieter Elbers, the US consulting firm recently examined KLM's organisation. The findings were severe. Due to the large management layers, the airline is too complex, too slow and too expensive. Furthermore, efficiency gains can be achieved in operations and as well as a transformation of the culture within the firm to better reflect its strategic goals and the needs of the customer. On the basis of the review, the consultants advised KLM to transition to a so-called High Performance Organisation (HPO). BCG‘s HPO model is based on fourteen organisation properties, divided into five pillars: quality of management, an open and action-oriented culture, long-term orientation, continuous improvement and innovation, and finally, the quality of the employees.
For KLM the implementation of the model means a transformation towards customer focus, better internal cooperation, more involvement in the organisation and, at the end of line, a considerably more efficient operation. In a recently shared document with the leadership team of KLM, which leaked through the NOS, a Dutch news organisation, it appears that the transformation to an HPO started in September and is scheduled to take 12 months. For employees, the project has major implications – not only do they have to deal with new processes and practices, and yet another reorganisation, the programme will also see as many as 25% of management and support jobs disappear *. “Within each division, a target for minimum span of control is likely to lead to a ~ 25% reduction of managers. For every support function, the combination of optimisation and restructuring is expected to result in a reduction of ~ 25% of FTEs,” according to the plan.
KLM currently employs around 33,000 people, making it one of the five largest employers in the Netherlands. The majority consists of ground staff (about 60%), pilots and cabin crew. The supported function employs approximately 800 FTEs at its headquarters in Schiphol, in addition there are several hundred FTEs working at other locations. As such, there may be hundreds of jobs at risk. Redundancies are not directly addressed in the report, but are not excluded, says Elbers. Initially, KLM is expected to focuses on natural attrition and internal transfers. Because of the lower salary costs, the company expects to achieve structural savings of around € 40 million per year.
“Last year, we announced that we want to reduce the organisational footprint by removing layers. We are currently going through the process to make the organisation simpler. We are, as it were, redesigning KLM,” says Elbers about the programme to magazine Business. BCG has been closely involved in the analysis and design phase of the HPO programme. Expectation is that the consultants will also oversee the programme’s deployment, but it is unknown to what extent they are involved in the implementation phase.
Other major transformations that have been launched under the banner of ‘Perform 2020’ include ‘Digitisation KLM’, ‘Innovation’, ‘Customer Experience’ and ‘Operational Excellence.’ The High Performance Organisation workflow functions, in many ways, as the spider in the web because it determines the organisational structure, processes and the firm’s future culture.
HPO in the Netherlands
The HPO concept is not new in the Netherlands – especially not so for KLM. In 2012 KLM’s management** received a copy of author André de Waal’s book ‘What Makes a High Performance Organisation’. De Waal is the director of the HPO Centre, a knowledge and research organisation in the field of HPOs based in Hilversum. The purpose of the centre is to reflect best practice using the HPO framework to organisations and provide them with a basis for long-term performance.
* Pilots and cabin crew are outside the scope of recommendations in the latest reorganisation plan.
** KLM was then led by then CEO Peter Hartman. He was succeeded in July 2013 by Camiel Eurlings, who in turn handed over the position in October 2014 to Pieter Elbers, the current CEO.