Driving transformational change in the workplace is difficult...

Driving transformational change in the workplace is difficult for any organisation.


But Qantas Airways' plan to cut 5000 jobs – or 15 per cent of the workforce – along with $2 billion of costs over the next three years is a particularly brutal restructuring.

As a customer-facing business, maintaining staff morale is crucial to encouraging passengers to keep flying with Qantas rather than its domestic and international rivals.

Qantas has already suffered a fall in the 2014 Corporate Reputation Index compiled by research consultants AMR to 26 from 13 last year and is well behind rivals Air New Zealand (7) and Virgin Australia (8). The index measures the customer's emotional attachment to the brand.

Qantas also ranked in the bottom five for the individual measurements of Workplace, Leadership, Performance and Innovation in the survey conducted just after the 5000 job cuts were announced.

AMR managing director Oliver Freedman said the announcement of the redundancies shouldn't have had such a serious impact on Qantas's reputation, but it had already used up a lot of goodwill when it shut down the airline in 2011.

Motivating staff to uphold the brand's core values at a time when they fear the loss of their job – or that working conditions will deteriorate if they stay at the airline – is a very difficult task.Cut costs, grow revenue

Neale Anderson, a director of consultancy group Catalise, which advised on the turnaround of ailing state-owned European carrier Air Malta, said rebuilding morale should be a key focus of the Qantas management team.

He has worked in change programs across many industries but has yet to see an organisation cut its way to health on its own.

"It has got to be a mix of revenue growth and cost cutting," he says.

Fairfax Media, publisher of The Australian Financial Review, is one company heeding that lesson.

Chief executive Greg Hywood's push for new revenue growth initiatives such as in its Domain property business, digital subscriptions, events, content marketing and data demonstrates his focus isn't only on managing decline.

Legacy retailers David Jones and Myer are trying to boost stagnating revenue by ramping up online sales, passing lower wholesale prices onto consumers, refurbishing stores and opening new small-format stores.

Qantas's management team, led by chief executive Alan Joyce, has been very vocal about the need to cut costs. But there has been far less focus on growing revenues.

Budget division Jetstar has placed growth in its international and Singapore-based arms on hold and Qantas has not been shy about warning its international division is at risk of "terminal decline". Winning over the workers

Qantas's view is it is too early to talk about growth initiatives while jobs are being cut. But after the job losses, the airline will still have 25,000 staff seeking motivation to perform to the best of their abilities.

"What are they being asked to get excited and passionate about? What future they can sign up for?" Anderson asks. He said Air Malta had cut nearly half its staff as part of its restructuring plan but put in place an incentive scheme for those that remained and worked to boost ancillary revenue in-flight and attract more travellers in the off-season through targeted ads in northern European cities.

Air Malta last year halved its operating losses to €13.7 million ($20 million) and managed to increase revenue despite cutting its capacity.

This was done even though the workforce is heavily unionised, as are employees at Qantas.

Staff at rival Virgin are benefiting from improved working conditions as the airline moves upmarket to better compete against Qantas. Virgin chief executive John Borghetti is well-regarded by staff and union leaders and morale is generally high.

At Qantas, the primary method of inspiration has been telling workers the best form of job security is to improve financial performance and customer satisfaction.

Qantas has asked all staff – even the lowest paid – to take a pay freeze over the next three years. That means they will not receive typical increases that cover inflation.Making friends with the unions

Relations between Qantas management and unions have long been combative. The 2011 grounding has led to a lack of trust between union leaders and Joyce and his management team.

Anderson says the airline would be better off working with the unions on improving productivity than asking for a pay freeze at a time when staff already lack motivation.

Qantas uses absenteeism, or the number of sick days taken per year, as a measure of staff engagement. Its annual report shows Qantas mainline employees took 10 sick days on average in 2012-13, compared with 4.7 at Jetstar and 3.1 in the head office.

That indicates the mainline staff are less engaged than peers and there is room for productivity gains if employees don't feel the need to take every entitled sick day.

Another option to improve morale, raised by broker CLSA, would be to offer financial or equity incentives for staff if the airline met profitability targets earlier than expected.

Communication is another important issue for companies undergoing a transformation. In Qantas's case, the sheer amount of media attention and speculation – some of it wrong – has made internal communications a challenging task.Talking it through

Behind the scenes, Qantas executives have been running regular town hall meetings with around 700 staff per session to answer questions from the floor and those sent in from other parts of the organisation.

There have also been roadshows with senior leaders going into crew rooms, call centres and maintenance hangars to talk face-to-face with employees not based in the head office. One of the aims is to empower staff to come up with their own solutions for business problems, share them with management, and if approved, to implement them.

Encouragingly, Qantas has managed to post some of its best on-time performance levels of the decade over the last few months despite the staff turmoil.

Joyce has referenced successful transformation programs at other legacy carriers like Japan Airlines as examples for Qantas to follow.

But big challenges remain. Morale among pilots and engineers – two important and vocal sections of the workforce – was at rock bottom even before the cuts. And trust between unions negotiating on behalf of staff and management is so broken at Qantas that it is unclear what can be done to regain it, barring a change in leadership or a significant round of re-engagement by the current management team.

Ralph Norris faced a somewhat similar situation when he arrived as the new chief executive of Air New Zealand in 2002. Fresh from a government bailout after the Ansett collapse, the airline had compiled a staff culture survey. Only 29 per cent of employees had even bothered to fill it out. Of those that had, 90 per cent had no confidence in the airline's management or the strategy.

In response, he invited seven groups of 800 employees from different parts of the company to an event where they discussed future options and opportunities. It helped staff understand what the strategic imperatives were, why wage freezes and even cuts were needed and why they needed to focus on flying people rather than aircraft. Once the crisis had begun to abate and the airline had returned to profit, staff were each awarded a $NZ500 bonus.

No doubt, it helped that Norris was brought in from the outside to repair the organisation. Two chief executives later, Air New Zealand is now the most financially successful airline in Australasia and the top-ranked airline in the Corporate Reputation Index.

Air NZ is a smaller organisation than Qantas with less competition, and no single strategy is a fit for every company in a sector.

But investors recognise that airline staff cuts need to be handled more carefully than those at non-customer facing businesses to ensure the brand remains healthy.

Qantas has a loyal workforce that wants the airline to do well, but it needs to ensure they remain motivated.