NY times had an interesting article on the Delta – Northwest merger and its operational implications (“Delta-Northwest Merger’s Long and Complex Path“)
Before you continue reading, please answer the following three questions, regarding your most recent flight?
(1) How many times have the bells rung before the plane began its final approach?
(2) Was the soft drink poured into a cup or was the can handed to you?
(3) If you got a wedge of lime with your soft drink or tea, was it one sixteenth of a lime or one tenth of a lime?
If you answer these questions, let alone answer them correctly, you have the potential to be a great operations manager. One of the first lessons in the operations management course is regarding the tight connection between strategic level decisions and actual operational implementation. We usually bring Wickham Skinner’s famous quote on operations being either a corporate millstone or a competitive advantage, (and rarely being neutral). In this case, Delta has used the merger to turn around its financial performance, but what about its operations?
Financially, the merger provided a big boost to Delta’s bottom line. Delta posted its highest profit in a decade last year. But even as the integration into a single carrier was hitting its stride, Delta’s operations struggled. The airline had the worst record among large carriers for on-time arrivals last year, and it accounted for a third of all customer complaints, the worst of any airline, for categories like service and lost bags, according to the Transportation Department.
One of the major challenges an operations manager faces is reducing the complexity of the operating system (i.e. the resources and processes). These type of tasks are not easy in any system, let alone when merging two very different systems, tightly linked to their original value propositions and cultures:
All airlines have their own way of doing things, developed over time and through labor negotiations. All have specific working rules, flying procedures, maintenance schedules and computer programs. And all have their own cultures. Delta always thought of itself as the gracious host. Hence its flight attendants poured the requested drinks. Northwest was the practical carrier; its attendants just handed over the can. “It was like Noah’s ark out here,” said Peter Wilander, an executive at Delta responsible for in-flight services. “We had two of everything.”
Delta has taken the right steps from the beginning by getting its pilots’ unions to agree to a common contract by the time the merger closed. However, to completely streamline the merger, one has to go process-by-process and decide which one to adopt.
Pilots at Delta, for instance, used to ring the cabin bell four times as they began their final approach, while those at Northwest rang it twice. The merged airline now signals just two times. No decision, seemingly, was too small. Before the merger, Delta used to cut its limes in 10 slices while Northwest cut them 16 ways. The lime debate was even mentioned at a meeting attended by Mr. Anderson, the chief executive, who was told it saved Northwest about $500,000 a year. In the end, Delta stuck with its 10 slices.
Establishing processes for continuous improvement and complexity reduction is an essential cornerstone of every good operating system. There is very little glory in such processes, but for a large organization with so many employees and transactions, you live and die by your processes:
The amount of work is boring beyond belief,” Mr. Wilander said. “It is also critical to the airline.”