Forster N. - Maximum performance (2005)(en)

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their needs. What the customers wanted, according to the incisive prose of Gordon Bethune, was ‘a clean, safe and reliable airline that took them where they wanted to go, on time and with their luggage’. Gosh, let me get a pen and notebook! Did you say ‘with their luggage’? Wow!

(Bill Bryson, Notes From a Big Country, 1996)

In 1993, Continental Airlines (CA) was in crisis, having just been rescued from bankruptcy for the second time in nine years. The company had gone through ten presidents in a decade, and its employees were paralysed by fear and inertia. Morale amongst employees from senior managers to check-in staff, flight attendants and baggage handlers was dreadful. It was ranked tenth out of the ten major US airlines as measured by on-time arrivals, baggage handling, customer complaints and involuntary denied boardings. It was a company with a lousy reputation for in-flight service, flight delays, cancellations and the hideous décor of its terminals. CA’s planes were routinely dirty and had a variety of different colour schemes. Customer complaints were three times the industry average. The company hadn’t posted a profit since 1978, and in 1994 reported a loss of $US619 million on revenues of $US5.7 billion (O’Reilly, 1999). A new CEO, Gordon Bethune, was appointed in October 1994. After his arrival, CA’s fortunes changed dramatically. By 2000, CA was ranked as the ‘second most admired airline in the USA’ and came 23rd in a survey of ‘the best companies in the USA to work for’. Bethune has regularly received awards for his leadership acumen, including Fortune’s award for being the sixth best business executive in the USA in 1999. Even after 11 September 2001, which was a major blow to the US airline industry, it was the only airline left in the top 100 ‘best companies to work for in the USA’ in 2002, at number 42 (Levering and Moskowitz, 2003: 90; Fortune, 18 April 1999, 10 January and 28 February 2000). How did Bethune engineer this remarkable and dramatic turnaround, and also transform CA into a well-run, profitable and congenial company in just five years?

The presence of energetic and committed transformational leaders

Much of this successful transformation can be attributed to Gordon Bethune’s personal qualities. Before joining CA, he had already acquired a reputation as a man who really enjoyed being involved with his employees. Throughout his working life, he had walked the talk and spent an astounding amount of time communicating with his staff. As a petty officer in the Navy, Bethune instinctively knew how important it was to spend time with the men in his command. He was so successful in this job that, in one 24-month period, his crews maintained their planes so well that not a single engine had to be replaced

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during their normal flying schedules. Bethune also had a long-stand- ing reputation as a man with a good sense of humour: ‘Employees seem unfazed and his style comes across as open and straightforward. Besides, he can be hilariously entertaining, savouring a story over dinner about lust-crazed Foreign Legionnaires and a camel’ (O’Reilly, 1999: 94). After he left the Navy in 1979, he embarked on a career in civil aviation, working initially at Braniff, moving on to Western Airlines and later to Piedmont. After Boeing bought Piedmont, Bethune moved the company’s HQ to Seattle, where he was put in charge of the company’s Renton Plant, which maintained the 737 and 757 passenger planes. In 1994, he was offered the top position at CA.

A clear sense of direction, or purpose, or a set of clear and well-articulated goals and objectives for the company to travel towards

Fortunately for Bethune, a 33-year-old consultant called Greg Brenneman, from Bain & Company, had been advising CA for about 12 months. The two men immediately hit it off, developing a good personal rapport, and Brenneman was appointed Chief Operating Officer in late 1994. In December, the two got together at Bethune’s house in Houston and together thrashed out a vision for the future direction of CA. This became known as, ‘The Go-Forward Plan’. Their vision was ‘To fly to places that people wanted to go in clean attractive airplanes; to get them there on time (with their bags) and to serve passengers food at meal times. To get all that done fast, right away and all at once.’ That was it: simple, clear, direct, to the point, and easy to remember (Brenneman, 1998: 4; unless otherwise indicated, all further page references in this section are from this article).

Overcoming employee resistance and integrating change with the organization’s operational culture and employees’ working practices

Before Bethune and Brenneman became involved with CA, employee morale was at rock bottom, with labour turnover, absenteeism, sick leave and work injuries at record high levels. Shortly after he joined the company, Bethune recalled seeing that his baggage handlers had ripped the company’s logos from their uniforms, because they didn’t want to be recognized as CA employees when they left work. The leadership of the company had been distant and ‘managed’ by diktat. Different groups of employees had been pitted against one another in half-baked attempts to ‘cut costs’.

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Communication was extremely poor, laterally and horizontally and, as a result, employees often learnt about what was happening in the company in the local press, not from their own managers. Furthermore, employees had no avenues to go down with their ideas, suggestions or questions. There was a formal paper-based suggestion scheme but these forms, ‘just disappeared in a black-hole’ (p. 6).

Early on in the change management process, Brenneman and Bethune knew that they were going to have to change the defeatist and cynical culture at CA. As Brenneman observed, ‘How to create a new culture is the topic of hundreds, if not thousands of books and articles. Gordon and I didn’t bother with them. We agreed that a healthy culture is simply a function of several factors, namely: honesty, trust, dignity and respect. They all go together; they all reinforce one another’ (p. 10). They engineered a mind-shift that empowered and involved employees to an extent never seen before in the company’s history: ‘We were going to change Continental’s culture to one of fun and action and restore employees’ trust (p. 5) [ ] The word fun scares a lot of executives. But I would argue that people have fun at work when they are engaged, when their opinions are respected. People are happy when they feel they are making a difference [ ] They care, they laugh, they talk and then fun happens pretty naturally (p. 10) [ ] Our message was this: Continental is your company – go and make it work’ (p. 11). And that is exactly what Continental’s employees proceeded to go out and do.

Creating a sense of urgency and getting the right people on the bus

Bethune and Brenneman believe that they succeeded in changing CA because they knew that they had to take drastic action immediately. They realized that they would either have to completely reinvent the company, because if they didn’t it was going to go bankrupt for a third time, and probably be liquidated, with the loss of 40 000 jobs. They were also men who had been frustrated at the slow pace of change in the organizations they had worked for in the past, and knew that this could not be allowed to happen at CA. In turn their sense of urgency and commitment rubbed off on their senior managers. The ones that it didn’t rub off on were soon replaced. As Brenneman observed, ‘We saved Continental because we acted and we never looked back. We didn’t say to the patient – if you can call a dying company that – “Now just hold on while we run a lot of tests and then perhaps perform an extremely delicate 12 hour procedure.” No, we just took out the scalpel and went to work. We gave the patient little or no anesthesia and it hurt like hell. Then again, the patient is now cured! [ ] Looking back

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now, I realise that the biggest factor in our favour was momentum. The rallying cry of our turnaround was, “Do it fast, do it right away, do it all at once” ’ (p. 12).

Bethune and Brenneman knew from the outset that they would have to replace some of the senior managers at CA. In all, 50 out of 61 senior managers were eventually replaced and a ‘smart team’ of senior players recruited. The criteria for employing new people were straightforward: ‘First they had to pass what we called, “The raw IQ test” – there is no substitute for smarts. Second, they had to be driven to get things done. Finally, they had to be team players, willing to treat everyone with dignity and respect in an extremely collaborative environment’ (p. 7). New recruits were offered stock options, so if the company’s shareholders started winning, so would they. CA’s turnaround soon created many millionaires in the company. It wasn’t just senior managers who were replaced. Bethune and Brenneman replaced staff from all levels of the company, from the Board to supervisors and baggage-handlers.

One of the toughest decisions they had to make was shutting down one of CA’s greatest loss-makers, its plant in Greensboro, North Carolina. Brenneman went into a lion’s den of 600 angry pilots, flight attendants and support crews. He explained the details of the closing and relocation plans for employees, as well as CA’s plans for the future. He then opened the floor up for questions. Although the pilots remained hostile, every other employee attending the meeting defended Brenneman, supporting his vision and plans for the future. He left to a standing ovation (p. 12). Some redundancies were achieved through early retirement and the company HQ’s bureaucracy was also reduced in size. As Brenneman has observed, there is no choice but to sweep out the old and make way for the new during times of change (p. 5).

The development of straightforward, realistic and workable strategies

Bethune and Brenneman realized that they had to create a strategy that could embrace change in four areas at the same time. They knew that, if they simply tinkered with one area alone, they would not be able to drive systemic change throughout the whole company. As Brenneman recalls, ‘Every company should have a strategy that covers these four elements – market, financial, product and people – whether it is in a severe crisis or not’ (p. 6). Their strategic change plan covered people, systems, structure processes, customers and clients and was dovetailed into their original vision. As Brenneman recalled in 1998, ‘saving

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Continental wasn’t brain surgery’, and their Go Forward Plan, ‘wasn’t complex, it was pure common sense’. They believed that they had to create a workable strategy that everyone could understand, with a few key change measures built in that could be easily evaluated. Up to that point in time, there wasn’t a single employee who had any idea what CA’s strategy was, because it didn’t have one. Bethune, Brenneman and their senior management team created a four-point strategy:

Fly to win

This meant shutting down unprofitable routes, developing new hubs in Houston, Newark and Cleveland and winning back disgruntled customers (pp. 5–6). The company also sold its unreliable fleet of Airbus 300s, which had been renamed ‘Airbus 360s’, because of their tendency to taxi out for take-off, then turn around and come back in for repairs or maintenance (O’Reilly, 1999: 94). CA also set up a strategic alliance with Northwest Airlines to extend its flight routes, enhance competition and improve customer travel options in November 1999.

Fund the future

This involved selling off non-strategic assets and restructuring debt while investing in new and more reliable IT systems for bookings. The company also invested in six super-tugs, at a combined cost of $US3.2 million, at Newark airport to circumvent the regular $US60 000 fines the company received for routinely exceeding the one hour allowed for disembarking passengers, and restocking and refuelling their planes.

Make reliability a reality

This called for better on-time performance and less lost luggage, as well as a concerted effort to win back their customers’ loyalty. This also meant getting two sets of employees communicating more effectively with each other: those who wrote the flight schedules and those that ran the flight and airport operations. In the past, the scheduling department had simply written a flight schedule and given it to operations, often just days before they were to fly it, because this information was ‘confidential’. As a result, operations often didn’t have flight crew and support staff in the right locations at the right times. Consequently, many flights were cancelled or delayed, thus leaving large numbers of angry passengers behind.

With both groups signing off on the schedules, this problem was soon eradicated. Employees were given $65 bonuses every time CA finished in the top five airlines in on-time performance. Within months CA was regularly coming first. These changes also had a major impact on CA’s bottom line performance. Before, the company had been forking out up

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to $US6 million every month to reaccommodate their passengers on competitors’ flights. The on-time bonus scheme cost $US3 million a month and the company was bringing in an additional $US4 million a month from the new passengers that were now flying with CA. The result was an additional $US7 million a month in revenues (O’Reilly, 1999: 93–4).

Working together

This represented a concerted effort to rid Continental of friction between employees and managers and create a culture of trust, cooperation and superb service for CA passengers: ‘we were going to change Continental’s culture to one of fun and action and restore our employees’ trust’ (pp. 8–10).

The key measures that were built into this strategy included tracing cash flows, monthly on-time performance evaluations, lost baggage rates, customer complaints and the number of involuntary denied boardings. They also included turnover, sick leave, attrition and on- the-job injuries to monitor the progress of their ‘People Plan’ (see below).

Extensive two-way communication with all CA employees during the change process

‘To implement the plan immediately and in its entirety, we sold it to our coworkers with energetic zeal’ (p. 6) [ ] That’s why when we took over, we started talking with our employees. In general, our communication changed from don’t tell anybody anything unless absolutely necessary to tell everybody everything’ (p. 11). Bethune and Brenneman travelled on CA’s airplanes (sometimes incognito), visited airports, worked as baggage handlers and stood alongside their ticket agents. They talked with as many employees as they could, listening as much as they explained the vision and plans that they had for the company. They constantly told their employees that they believed in them. Bethune and Brenneman also understood the power of symbolism in their communication strategies. Over the years, a nine inch-thick tome of petty rules and regulations had been created, known as the ‘Thou Shalt Not Book’. Early in 1995, they took this, put it in a 55-gallon drum, poured gasoline over it and ceremonially burnt it in front of a crowd of employees, with the simple message, ‘Continental is your company to make great. Go do it now.’ Both the symbolic act and the message spread round CA within days, cementing the message that the new leadership really was committed to turning the company’s fortunes round (p. 11).

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Bethune started attending every graduation ceremony for new flight attendants. Every month, he hosted an open house in his office, which any employee could attend. He recorded a three-minute update of company events every Friday, which employees could listen to by ringing a toll-free number. Several times a year he travelled to the company’s hubs to address employees. He handed out prizes for Halloween costumes and candy on Christmas day to staff working over the holiday. He was renowned for being an impassioned and very funny public speaker and, when he first told the story about the lustcrazed French Foreign Legionnaires and the camel, it made its way round the company faster than one of CA’s planes. His employees addressed him by his first name and he was known on sight by his people (O’Reilly, 1999: 94). An annual questionnaire was also introduced to ascertain how well senior managers communicated the ‘Go Forward’ plan, and how well they set goals and treated their employees. If bosses fared poorly on these surveys Bethune was known to withhold part of their annual bonuses.

Throughout the company, 650 bulletin boards were set up. These contained topical information on the company, from a weekly update on the company to future plans. Two-way communication was encouraged via an employee-managed toll-free hotline, which still receives about 200 calls per week. Each suggestion had to be researched and replied to within 48 hours. About one in ten were implemented. There were also biannual company videos and free quarterly magazines. Twice a year Bethune and Brenneman gave presentations to their employees at nine different sites. Every corporate officer had to visit their group of employees at least four times a year to update their employees, listen to their feedback and suggestions and help with their problems (p. 11).

Involving CA’s employees, and celebrating successes and short-term wins

From the beginning, Bethune and Brenneman aimed to create an atmosphere where people wanted to come to work and overcome the tense and suspicious climate that had previously existed amongst CA’s employees. Cultivating honesty, trust, dignity and respect became a key job of CA’s new senior management team and Bethune and Brenneman considered it to be their top priority. As we saw earlier, as soon as Bethune was appointed, he declared that, if Continental ranked among the top three airlines for on-time performance in any month, he would pay six million dollars to all non-executive employees. Six million was the cost to the company of cancelled flights. The very next

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month, CA came fourth and in the following two months came in first. Bethune had to pay up six more times in 1995. For CA employees who had seen so many broken promises about bonuses in the past, this was a revelation, and reinforced the impression that things really were changing for the better. Bethune even travelled around the country personally handing out thousands of bonus cheques to his employees (O’Reilly, 1999: 92).

The next stage was to closely align employee remuneration and compensation schemes with CA’s strategic objectives. All employees receive 15 per cent of the company’s annual profits and every Valentine’s Day Bethune and Brenneman distributed profit-sharing cheques to their employees. By involving its employees and changing its culture, CA was able to move rapidly from being the airline with the worst reputation for losing passengers’ baggage to having the secondbest record for five straight years between 1995 and 1999. A measure of this turnaround can be gauged by the sale of Continental logo merchandising. The same employees who had ripped CA logos off their uniforms were now buying hats, caps and T-shirts for themselves, their families and friends. Just 24 months after taking over, sales of logo merchandise to staff had increased by 400 per cent (p. 12). As Brenneman observed at the time, ‘That’s the kind of thing that happens, when you let the inmates run the asylum. You feel as if you’ve lost a bit of authority and control over every last detail – because you have – but that’s OK. You can’t run a company from the executive suite of an office building anyway. When the employees are happy, everyone is happy, from the customers to the shareholders’ (p. 12).

Involving CA’s customers and clients

‘You might think the first step in breaking the doom loop is to fix the product, but that’s actually the second step. The first is to beg forgiveness from all the customers you have wronged’ (Brenneman, 1998: 8). Bethune and Brenneman personally wrote to or phoned many of CA’s disgruntled customers to beg their forgiveness. This duty was not hived off to middle management or PR people. Bethune, Brenneman, every vice-president and many senior executives were required to spend time dealing with letters from angry and dissatisfied customers. They also had personally to call each one of these to apologize and to explain what the company was planning to do to fix its problems. They also applied the same process to the travel agents involved with CA, who had been at the receiving end of a lot of flak from CA’s disgruntled customers and corporate clients. This admission of guilt, and the

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fact the CEO and his senior management team were making the effort to deal with this issue, went a long way to preventing further haemorrhaging of CA’s customer base in 1994–5.

The next step they took was to cut CA’s advertising budget in half because, as Bethune observed, ‘it is offensive and insulting to customers to advertise a product they know is crummy’ (p. 9). The rallying cry, ‘Ask the customer in seat C9 the right question’ was operationalized by first listening to the company’s most lucrative customers. In CA’s case this meant talking to their business clients in rows 1–9, at the front of the plane. They simply asked customers in this class want they wanted and what they would be willing to pay for. They discovered that all they wanted was safe terminals and planes, on-time flights, comfortable and attractive planes, good food at meal times and reliable priority baggage handling. Bethune recalled in 1998 that ‘we were failing miserably on all counts’ (p. 9).

Within six months, every plane had been repainted with the same colour scheme and all interior décors were made uniform. The hideous chevron design of the carpets in their terminals was replaced. When he had been told by the maintenance department that it would take four years, Bethune’s reaction was ‘if you can’t get it done in four months, we’ll find someone who will’ (p. 9). This sense of urgency had an immediate impact on the company’s employees, because ‘they could see senior management finally taking the actions they knew had been needed for years’ (p. 9). Other changes were made to both the quality of food and when it was served, with a whole range of new gourmet and snack foods introduced: ‘And that’s the whole point of asking the customer in seat C9 the right questions. In turnaround situations, or any business situation for that matter, you can’t afford to risk anything else’ (p. 10).

Ongoing commitment to continuous change, improvement and learning

CA is a company that has not allowed complacency or inertia to set in, and has continued to change and evolve and deal with new challenges. These include maintaining its on-time performance and overall passenger service, as well as coping with the arrival of Pro-Air, a new startup airline (O’Reilly, 1999: 96). The combination of a clear vision, systemic thinking, simple strategies, new equipment, employee involvement and improved morale have all paid huge dividends for the company. Along the way, CA has received dozens of awards for excellence, including Air Transport World’s ‘Airline of the Year’ in

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1997 and 1999 and seven ‘Airline of the Year’ awards from OAG in 1997. As a result, the company has weathered the post-11 September storm better than any other US airline, with the possible exception of Southwest. As Gordon Bethune commented in 1998, ‘We have big plans for Continental and we mustn’t lose our momentum. Even though the turnaround is over, we won’t forget the lessons we learned from it. In fact we are putting them into practice every day’ (p. 12). This belief was the central driving force behind CA’s remarkable turnaround and continues to form the bedrock of its continuing evolution, even after the events of 11 September, and the devastating effects this had on the US airline industry during 2002–3.

Postscript: 11 September 2001 and its aftermath

The combined effects of the attacks on the Twin Trade Towers in New York, other subsequent terrorist acts, the Second Gulf War in 2003, continuing instabilities in the Middle East and the emergence of severe acute respiratory syndrome had a devastating impact on the world’s airline industries, and Continental has not been immune from this. Worldwide, losses on international airline services amounted to more than $US30 billion and wiped out more than 40 000 aviation jobs during 2001–3. Bookings fell by 40 per cent. Several smaller American airlines failed during 2003–4, even with the support of a six billion dollar aid package approved by the US Congress in early April 2003 (Creedy, 2003). While CA was forced temporarily to suspend 20 per cent of its employees in 2002–3, it promised to re-employ them as soon as it could. As we saw earlier, it was the only American airline to be ranked in the top 100 ‘best companies in the USA to work for’ in 2002, and was also ranked as the ‘Number One’ airline in the USA by Fortune in 2002 (Levering and Moskowitz, 2003). Continental was also presented with the 2003 Hay Group/Fortune award for ‘Most admired airline in the world’, after two consecutive second places behind Singapore Airlines during 2001–2 (Hjelt, 2004: 47; 2003: 37). These awards were based on the votes of more than 10 000 directors, executives or senior managers in 375 companies. After the company posted meagre profits in 2003, Bethune and his heir apparent Lawrence Kellner both took pay cuts of 50 per cent, a measure of the character and integrity of both men, their commitment to CA and their understanding of the sacrifices their employees had been making during 2002–3 (Creedy, 2004).

CA also managed to reduce its operating costs by $US235 million during 2002–3, with a final target of $US500 million by the end of 2004. However, even though CA was considered to be one of the strongest