Building Quality into Services

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SAS pioneered in the Arctic route in 1954 with a flight from Copenhagen to Los Angels. In 1957 with transpolar service to Tokyo. SAS is also Pioneer in using modern technology within Europe or to the US reducing travel time and improving quality of flight. There was a boom in terms of profit in the 50s, 60s, and 70s. The problems started appearing in the late 70s and early 80s. There was a substantial reduction in profits.
Jan Carlzon accepted the Presidency of this Giant in 1981. Looking at the recent reduction in profits Carlzon had to take drastic measures for improving the financial status of the company. He undertook various strategies and was able to achieve a sustainable growth rate for SAS. (INSEAD CEDEP 1988)
Carlzon being a sharp and intelligent business leader at once noticed that due to stagnation in the market and over the capacity company was losing its market share against competitors. He understood that he should chalk out a new business strategy to deal with the situation. The first strategy that proven and tested by him in his previous venture. He decided to reduce the fleet so that the operating costs may be reducing thus increasing the profit. The replacement of large aircraft in smaller ones would be more cost effective and it would be helpful in increasing the frequency of flights on short and busy routes. He also planned to convert the first class to Business class with almost similar facilities but lower rates.
Resource-based theories of strategy
As discussed earlier the previous management was more interested in acquiring the planes of the latest technology and also of larger size. These planes drained the resources of the group and also increased the operations costs. He asked the managers to cut those expenses that were not productive but should not hesitate in raising those that may increase the productivity of the company. Administrative costs were reduced by 25% but also good investments were made into new services and facilities and aircraft interiors. Another important step taken by the Group was to expand the circle of its services. The group wanted to take care of all the needs of the customer from buy tickets to going back home. Introducing SAS International Hotels did this. In 1983, SIH became a separate division within the SAS group. (INSEAD CEDEP 1988)
Human-resource-based theories of strategy
As Carlzon believed in quality, not quantity, so he brought about wholesale changes in the human resources section of the group. As the size of the fleet was reduced, consequently the number of staff was also reduced. But on the other hand, new recruitments were made on a smaller scale where the quality was a decisive factor, not quantity. As he introduced new products so different, type of staff was required for that. In the past there was a bureaucratic atmosphere, everybody just stuck to the company policy, there was no personal initiative involved. For this purpose, a larger number of staff was required to take care of all sorts of rules and regulations.