Fragmenting your business the Qantas way

A mere six days after Qantas announced it was splitting its domestic and international businesses, each to have their own CEO and balance sheet, CEO Alan Joyce says he’s seeing positive changes in the airline.

“You have these two heads of these businesses already coming out with what they want to do, what they want to push for and accelerating the change program to make it happen because they know that they’re fully accountable for it,” he told The Australian.

“And I think that cultural change, we’ve seen it in Jetstar, we’ve seen it in frequent flyer, will generate huge value for our shareholders,” he added, referring to Jetstar and the airline’s Frequent Flyer businesses, which already operate separately from the broader airline.

Fragmentation and centralisation: An unending cycle

Qantas’ decision is interesting as it goes against the impulse to simplify and cut costs that drives many businesses in transition. Browse the websites of Australia’s leading consultancies, and it will be clear complex corporate structures like those at Qantas are not in fashion. The buzzword is simplification, which PwC touts can make things clearer for stakeholders, reduce operational costs and lead to better alignment between a business’s structure and its operational needs.

Brian Gardner, general manager and managing principle at Donington Group, tells LeadingCompany playing around with different corporate structures is “life-cycle stuff”.

“Qantas is highly likely to combine the two operations at some point. It comes as part of the nature of the business life cycle. Its strategic imperatives will change down the line – though we don’t know how far down the line.”

Organisational psychologist Leanne Faraday-Brash says most employees have a preference for either a centralised or fragmented structure.

“I think that most employees would say, if they’ve been around long enough, that they’ve witnessed the cycle over different times. Some of them will have an innate preference for centralisation, but there are always some individuals who don’t like head office, who like the opportunity for more autonomy with clear lines of responsibility.”

There are two chief benefits to this sort of fragmentation: focus and engagement.

One begets the other. The modern corporation can be a leviathan, where few workers see their purpose clearly within the whole. Breaking up a business into its constituent parts, giving employees a clear focus, makes their purpose clearer. This can bring energy and life back to a company.

Businesses other than Qantas have benefited from splitting their business up. LeadingCompany recently profiled EWeb Marketing, where founder and CEO Gary Ng has flatted the corporate hierarchy and broken his business up into small business units. Each “pod” operates semi-autonomously.

“The vibe is amazing,” he told LeadingCompany, gushing about the initiative and responsibility his workers had brought to the company since the change. In telling the press how excited his leaders were at being given their own fiefdom to run, Joyce’s words are reminiscent of Ng’s, showing even large businesses can gain from the engagement that comes from giving their charges new responsibility.

Several other factors could tip the preference of businesses one way or the other.

Splitting up a business into separate units risks duplication, Gardner says, a risk Joyce himself has acknowledged. It can also obfuscate the chain of command, and add extra distance between the top and bottom of an organisation.

A clear separation may also give rise to different cultures within an organisation, but both Gardner and Faraday-Brash say this isn’t always a bad thing.

“It’s just something leaders need to be aware of,” Gardner says. “Encouraging that focus is good, but you could see a divergence between the culture and values of different parts of the business.”

Faraday-Brash says many businesses have sub-cultures within the one team. “You can’t necessarily assume there’ll be one unified culture in Qantas anyway, or that everyone should have same opinion of business,” she says.

“Inspired leadership, coupled with clear vision and robust strategies, and high engagement within those business and the ability to retain talent, are what will determine the success of the split, whether the culture is unified or not.”

Managing the transition

In Qantas’ case, the split seems natural. The domestic and international airline operations, after all, face vastly different management challenges. Qantas International needs a dramatic cost-cutting and turnaround operation, while Qantas Domestic, while facing increased competition from the likes of Virgin Australia, needs to defend its preferred status among Australia’s business class. Where Qantas International needs to cut, Qantas Domestic needs to spend.

This clarity will help Qantas’ staff get behind the split, says Faraday-Brash.

She says there are several things employees need to be assured of when businesses undertake such a restructure.

Firstly, employees need to understand and trust the stated reason for the split. In Qantas’ case, a danger lies in some of the commentary around the split being intended to allow foreign ownership or investment of part of the business. “That might trouble some of the staff,” Faraday-Brash says. “They might have a values clash with the idea that this iconic Australian brand could end up part-foreign owned. So in that sense, whether they can trust and understand the rationale for the split will make a big difference.”

Secondly, employees could feel anxious around their ability to adapt to changes in their job, as well as the level of autonomy they are likely to have as part of a new business unit. “Some may welcome the increase in autonomy that comes from being part of a smaller business, but that will also depend on the leadership style,” Faraday-Brash says.

And last, the speed and breadth of the changes will have to be considered. Workers who have to move interstate or otherwise change their career plan will need time to do so.