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Airline failure caused by ‘herd thinking’ says leading academic

As the Italian government struggles to save its failing carrier, Alitalia, a leading business school academic has criticised the scramble for growth across the international airline industry.

“There seems to be an addiction to the idea that ’bigger is better’ in the industry”, says Professor Pierre Dussauge of the leading European business school, HEC. “However the real truth is that large airlines go broke just as much as their smaller counterparts.”

According to Professor Dussauage, who teaches on the ‘Leading Strategies for Outstanding Performance’ programme at HEC in Paris, the real cause of failure is a tendency to collective thinking in senior management right across the industry. “The idea that only five or six airlines can survive has become an article of faith, which no-one on the boards of major companies seems to question any more, which is why we have seen so much merger and acquisition activity. But where is the hard evidence behind this belief?”

Professor Dussauge points out that the tendency of senior management to simply accept conventional wisdom is not just a feature of the airlines sector but of a whole range of industries. “Look at the beer industry for example, which also became obsessed by size. The result was a rapid and artificial increase in the price of businesses to the point where it was impossible to get a return on investment. This ‘bandwagon’ effect can also be seen in the outsourcing sector where the offshoring of manufacturing has created dangerous international competitors in countries such as India and China and where transport costs and increased reaction time often negate the savings made in labour and materials.”

“The organisations that will win are not those that simply follow the herd,” he says, “but the ones that can understand what underpins how effective a strategic decision really is and which then have the courage to do something different to create advantage.”

Notes for editors

Pierre Dussauge is Professor of Strategic Management at the HEC business school in France and is programme director on ‘Leading Strategies for Outstanding Performance’ which is designed to show senior executives how to create value for shareholders and stakeholders. HEC was recently named as the top business school in Europe by the Financial Times. For more details see: http://www.exed.hec.edu/en/news/view/id/15/Leading_Strategie...

About HEC

For over 125 years, HEC Paris has produced ideas and leaders that shape the world of business.

HEC Paris offers a unique portfolio of executive education and graduate management programs: HEC Grande Ecole (Master of Management), 20 Specialised Masters, MBA (FT and PT programs), Executive MBA (Paris, Beijing, Saint Petersburg), TRIUM Global EMBA and the PhD. HEC has a permanent faculty of more than 100 professors along with 90 visiting and affiliate professors from the most prestigious universities around the world. HEC was ranked no 1 business school in Europe by the Financial Times in 2006 and 2007.

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