Up and Down of People Express
From the time he was a schoolboy, Donald Burr has found it easy to achieve just about anything he tried, from sports to academics. By 1980, after he had become chief operating officer of Texas International Airlines, Burr was ready for a new challenge. And so he set out to start his own airline – People Express – in an empty Newark, New Jersey, terminal.
In 1978, Congress had passed the Airline Deregulation Act, which opened the airways to new carriers. Burr saw an opportunity. If he could compete with the older, established airlines, People Express could succeed. And how could he compete? By offering no-frills, low-cost flights to people who weren't already entrenched customers of the other airlines.
However, no frills and low cost were not customary in the airline industry. After years of regulation, airline bureaucracies had become bloated, and unions – for pilots, flight attendants, and mechanics – had gained high salaries and short work weeks. With a lock on routes, airlines found it unnecessary to compete on the basis of price; instead, they tried to entice passengers with such services as in-flight meals and free baggage handling. The innovative approach of People Express soon bеcame the talk of the industry, and the airline price wars of the 1980s began.
Meanwhile, Burr had been implementing an equally innovative approach to organization. His company, he decided, would be structured to maximize employees' contact with customers and to give every employee a manager's interest in seeing the company succeed. To achieve these goals, Burr abolished the layers of middle managers so common in large companies. Everyone at People Express became a manager: a customer-service manager, maintenance manager, flight manager, general manager, or managing officer. Within these general categories, nobody specialized
Chart II.
O
Board of
Directors
Typical Large Consumer
P
roducts
Company.
A
President
Head,
legal department
e
xtensive
organization chart.
Vice-president,
transportation & warehousing Vice-president, marketing
Controller Vice-president,
manufacturing
Manager, sales Manager,
mar- ket
research Manager,
publicity, promotion, advertising Manager, manufacturing info.
systems Manager, accounting Manager, financial planning Manager,
production* Manager,
transportation Manager, warehousing
Head,
dealer sales
Head,
forecasting Head, promotion
Head,
quality
control Head, planning
Head,
purchasing
Head,
engineering
Head,
order
handling
Head,
pricing
analysis Head, publicity
Head,
direct sales
Head,
advertising
Head,
competitive analysis
* As many such managers as there are products
very much; everybody took turns at a variety of jobs. "The next time you fly People Express," said Burr, "your coffee may be served by People's chief financial officer, who is a certified flight attendant and flies weekly." Pilots, officially known as flight managers, found themselves working out flight schedules or meeting with Federal Aviation Administration officials. And there were no secretaries; managers wrote their own letters and answered their own phones.
This organizational innovation was just the tip of the iceberg as far as People Express's "corporate culture" was concerned. Burr set forth six rules for the company's employees to live by: "The first one, of course, is service, growth, and development of people. The second one is to be the best provider of transportation for people. The third is to develop the best leadership. The fourth is to be a role model. The fifth is simplicity; and the sixth is to maximize profits. Those are the things we teach everybody here. That is our objective. If people ask, "Where are we going, where are we headed?' that's it."
What once sounded so easy and clear-cut got lost in the din surrounding People Express a few years later. In 1985, for example, Burr bought Frontier Airlines in order to expand his access to airports in the western United States. In some ways, Frontier was the very antithesis of People Express. A major difference was that the acquired airline grew up with the same sort of bureaucracy Burr had sought to abolish at People Express. Moreover, Frontier's unions extracted a promise that Burr would not seek to undercut their established, traditional division of labour. It would have been hard to merge this group of employees with the more flexible People Express employees. In 1986, however, facing a loss of $10 million a day on Frontier's operations, Burr filed for bankruptcy on behalf of his acquisition. Despite that move, his own company remained in jeopardy and was soon sold to a competitor.
Burr has acknowledged his company's problems. First, he blamed himself and other top managers for trying to expand too much and too fast. Second, he confessed that the innovative management structure may not have been adequate to cope with People Express's rapid growth – especially after the company began acquiring other airlines.
On the other hand, Burr is proud of making discount air travel a reality, and he built a billion-dollar airline, the fifth largest carrier in the country, in only five years. To a remarkable degree, he accomplished all this while pursuing a unique vision of how a company should be organized. From his point of view, in fact, organization was everything: "I really believe that we would never have been able to grow to a billion dollars in annualized revenues without our particular type of organization. If we had not put in the flat structure and the free environment, we never would have made it."
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COMPREHENSION CHECK |
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Exercise 1. Give the characteristics to Donald Burr, company’s organizer and owner. Follow these steps:
Personal treats of Donald Burr.
His initiative.
His ability to new thinking.
His first mistake and the reasons which led him to it.
His ability to critical comprehension of events.
Exercise 2. Fill in the following chart.