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CASE: Read the following case and answer the questions below.
The Thomas Cook collapse as a case study in irresponsible leadership
The Star Online: Published on 23 September 2019
LONDON (Reuters): Thomas Cook, the world’s oldest travel firm, collapsed on Monday (Sept 23), stranding hundreds of thousands of holidaymakers around the globe and sparking the largest peacetime repatriation effort in British history.
Thomas Cook Group was a British travel company which operated as both, an airline company and a tour and travel firm. The Group was founded after the merger of Thomas Cook AG and My Travel group in 2007. However, the brand “Thomas Cook” is 178 years old and was trusted by travelers globally.
After being in business for 178 years, longer than any other such firm in the world and during which it became a beloved brand in Britain, it has been forced into liquidation, crushed by bad decisions, large debts and a failure to adapt to 21st century ways of shopping.
Rather than building a strong online presence, it adhered to a bricks-and-mortar model of physical stores and face-to-face chats with consultants. That made it vulnerable to a complex range of unforeseen circumstances, among them changing habits, weather and Brexit.
Another element is a vivid example of the Self-Serving Bias: when referring to the colossal failure of the company he leads for years, the CEO blames the banks, the weather, Brexit… what not, just not himself and his team. This lack of taking responsibility, at such high level, by a person who was paid millions a year is, at the very least, pathetic. It is a classic case of non-symmetric risk: now, many people who had little influence on the company’s collapse will be paying for this failure: customers, employees, and UK citizens. At the same time, the executives, who as leaders are the most responsible for it, are not likely to give back any portion of their salary and bonuses.
A business expert from the University of Sunderland believes a perfect storm of factors led to the collapse of one of the UK’s most trusted companies. Professor Lawrence Bellamy, Academic Dean, Faculty of Business, Law and Tourism, at the University of Sunderland, says problems with the company have been evident for some time.
He said: “After raising revenue levels from 2016 to 2017 – but realizing marginal profits – Thomas Cook cited the exceptional summer as a reason for their poorer sales and resulting losses in their 2018 annual company report. “The company had falling margins from 2015 and had increased its debt position greatly in 2018 after reducing in previous years.
“For such a longstanding giant of the industry then the capability to absorb the issue, restructure to take out cost and ensure that the company was more robust going forward, should have been given.
“However, further issues arose including the weaker pound hitting procurement, consumer confidence, a flat package holiday market, increasing aircraft operating costs and different business competition models. These all tested the resilience of an organization which, due to timings of payment and scale of operations had a built in cash-flow advantage and procurement power.
“When times become challenging the ability to change greatly increases the chances of survival and dealing with the overhead of aircraft fleet, sales outlets and hotels, saw the company with a large asset base and all the costs which come with that.
“Given the high revenue and operations of the group then it is likely that elements of the company will be acquired and operated by others in the future, for a reduced cost.
Thomas Cook has been a great business since its birth. The company changed the way people traveled. In the age when it was a luxury to travel to another city, the company made it possible to easily travel to other countries. Along with its travel business, it has also been a great financial company for travelers. However, everything has an end. So, it is an acceptable truth and not a surprise that the company ceases to operate anymore. Even though the travel industry has grown as a whole, but it has also evolved in the process.
Source: The Staronline. Available at: https://www.thestar.com.my/news/world/2019/09/24/thomas-cook-collapses-why-and-what-happens-now#CQSwM05vch4MSvQo.99
- Successful implementation of change in organizations requires a wide range of leadership behaviors. What are some of guidelines that describe current thinking about the best way to implement a major change in Thomas Cook Group?
- The Chief executive and other strategic leaders of Thomas Cook Group could have influenced the prosperity and survival of the organization. Discuss the skills that, when mastered and used in concert, allow leaders to think strategically and navigate the unknown effectively
- Use relevant leadership theories to analyze the behavior of the CEO and leaders of Thomas Cook Group. Explain the theory which you think would have been most useful for helping the CEO and leaders of Thomas Cook Group to be more effective to ensure survival and sustain competitive advantage?