Perhaps BB and AJ you need to have a think about this statement if you're reading (which I'm sure you are)
From Worst to First
Continental Airlines has achieved one of the most dramatic business turnarounds of the Nineties. CEO Gordon Bethune tells how.
Gordon Bethune
with Scott Huler Plus: 7 Principles for a Turnaround
When Gordon Bethune left Boeing to become president of Continental in 1994, the company was despised by travelers, employees, and shareholders. Its stock has since risen about 1,700%, and the company recently reported its 12th consecutive quarter of record results. In this excerpt from his often hilarious new book, Bethune tells how he approached his first, most basic turnaround challenges.
Let me tell you the story of the ambulance in the valley. There's a little town, and it's about halfway up a mountain on a bend in the road. That hairpin turn is a terrible hazard, and about once a month, cars go flying off into the valley below. It's awful.
The town council gets together and they look into how much it's going to cost to regrade the road, put in signs, and install a guardrail--in other words, make the thing safe. Well, it's going to be really expensive. In fact, it's going to be so expensive that they decide they just can't afford it. But the cars are still flying off the road, and people are getting hurt. They don't like that, and they want to do something, so they solve the problem of the dangerous road in what they believed was a less expensive way.
They put an ambulance in the valley.
It's a great story, because it shows how hard people will work to avoid solving their real problem. At Continental before I came here, that kind of thinking was a way of life. The philosophy was that you couldn't solve a problem because it was too expensive to do what would solve the problem.
That's sort of where Continental was: It had become a lousy, unreliable airline, and people had stopped using us and for good reason. An airline has no real value at all unless it's predictable and reliable, but for a decade management had been cutting costs so much that it not only wasn't improving the road, it had even stopped putting the ambulance in the valley.
So when I came aboard I started asking a simple question. We know what it costs to do something--get the planes cleaned more often, paint them, hire an extra person to service the engines ten minutes faster so we can schedule planes to fly when people want them to fly. These things cost money, and there are always good reasons to avoid doing something that costs money. But what was it costing us not to do those things?
The answer: It was costing us our business. We had cut costs so much that we simply had nothing to offer anymore. Our service was lousy, and nobody knew when a plane might land. We were unpredictable and unreliable, and when you're an airline, where does that leave you? It leaves you with a lot of empty planes. We had a lousy product, and nobody particularly wanted to buy it. We had to fix it.
We figured that the most important thing to passengers was getting where they were supposed to get on time. Any survey of airline passengers will tell you that. In fact, the 1997 J.D. Power & Associates Airline Customer Satisfaction Study showed that on-time performance was 22% of what determined customer satisfaction. No other single element was judged higher than 15%. Thus, we chose on-time percentage as our macro metric--our basic indicator of whether we were doing well.
We did one more thing. We told our employees that if our planes landed on time, as our customers desired, we'd pay them extra. Specifically, we told them that every month our on-time percentage was good enough for us to be in the top five nationwide, according to Department of Transportation figures, every employee would get $65 extra. If the customers won, the employees would win.
I've always emphasized that what you measure and reward is what you get. Put another way, what gets measured is what gets managed. It's simple: You measure the results you want, and you reward those results. Although the pilots operated under their own union contract, the deal included every other nonmanagement employee--gate agents, flight attendants, baggage handlers, secretaries, reservation agents, and so on. By the way, we got to the $65 figure by determining what it cost us each month to run flights late--feeding passengers, sometimes putting them up overnight, finding them other flights. We came up with the figure of $5 million per month. We figured we could take half that and give it right back to our employees if our flights were on time. Multiply $65 by 40,000 employees, and you've got $2.6 million. We were going to save money by spending money.
You don't need me to tell you that it worked, but let me tell you: It worked. We announced the new program in January 1995. I'm not sure every employee truly understood it, and I'm not sure every employee who understood it thought that anything good would come of it. These employees didn't trust us, and after the previous decade it was hard to blame them for that.
However, it seemed as if employees gave us the benefit of the doubt right off the bat, because in January 1995, 71% of our planes landed on time. That wasn't perfect by any means--we ranked seventh among the top ten airlines--but it was a lot better than January 1994, when we brought in only 61% of our flights on time and came in last. It was a start. We let our employees know we appreciated that and reminded them that if they did better, there was $65 in it for them.
Then in February 1995, 80% of our flights landed on time. That put us in fourth place--and, for the first time in years, better than the industry average of 79%. Checks worth more than $2.5 million went out to our employees; we didn't just drop 65 extra dollars into their paychecks and have the whole impact of their bonus disappear. Nor did we let them start calculating how much of it they lost to taxes. We gave each employee $65 in a special check--we took the withholding out of their regular paychecks so they got 65 actual dollars.
It was exciting to walk the halls during early March, when employees were buzzing about the $65 in what seemed to them to be found money. You would hear stories--one woman wasn't going to tell her husband she got the check so she could use it for something special for herself, another employee let his children choose whatever sugary cereal they wanted when they went grocery shopping.
Do you think our employees noticed? Well, we finished first in March for the first time in the airline's history. We finished first again in April. We didn't do so great in the next couple months, the result of a work slowdown by some of the pilots, who were in the midst of an understandably frustrating union contract negotiation. But when our contract with the pilots was settled, we were right back up: second in August and September, third in October, fourth in November. We got so much better so quickly that we raised the bar. For 1996, we decided we had to finish third or higher to get the bonus. We also raised the reward to $100 per employee.
The program got so much press that other airlines began to copy it and work as hard as we did to be on time. So we adjusted. Even if we're only fifth-best in a month, we figure that if we're on time 80% of the time that's good work and worth the reward. Getting the planes in on time became a central part of Continental's culture. Just as important, we were getting things done together--as a team.
At first with the new on-time policy, we saw something that in a way wasn't too surprising: The planes were landing on time, but the number of lost bags was going up. It makes sense. If you're getting paid to get the planes in on time, what's your priority going to be? You think another baggage cart might be coming with a couple more bags, but if you wait you might miss the 15-minute leeway for being judged on time. What would you do?
So we had to get the word out that if the number of baggage complaints was increasing, that wasn't going to make it. We didn't want on-time flights without bags, or without people, or with dirty aisles. On time meant the whole system was working on time, not just part of it. So we explained this to our employees, and baggage started making it onto the planes; we recently went through a period during which we were in the top three airlines in baggage handling for 30 out of 31 months.
Bit by bit, we have learned to focus our employees on their real jobs. We were paying them to do better, and they were doing better. They quickly learned that their job wasn't to save money anymore. Their job was to run a good airline--an airline that got planes in on time, with their bags; that fed its passengers and treated them well; that showed them nice-looking planes all painted the same color, with first-class seats, frequent-flier miles, and polite people working at the gates and on the reservation lines. That's how our employees would win--that's how they got paid. So that's what they became: people who did their jobs so that the airline could do its job.
All this said, just tossing a little money at employees was not suddenly going to fix all that was wrong. One of the first things we did was burn the old employee manual. That's one of the most important things we did, and it had a profound effect on the reliability and predictability of our airline.
Under the old style of management, as symbolized by that authoritarian manual, employees were limited on every side. A passenger with an unusual situation was a dangerous character to be avoided, not a challenge to be resolved. No matter what employees did, the manual probably told them that it was wrong--and if the manual didn't, then one of their perpetually annoyed supervisors in our generally cranky airline surely would.
Here's an example. We used to have what were called Add-a-Penny, Add-a-Pal fares--you'd buy one ticket at full fare and someone would fly free along with you. Say a woman is flying with her husband on a companion fare to their daughter's wedding in Chicago. However, there's a problem with the plane, and their flight is canceled. The old manual was crystal clear about procedure in this situation: We put people paying full fares on other airlines; people flying free or paying other special fares had to wait for the next Continental flight. There's no room for interpretation: Mr. Smith, your flight leaves in 20 minutes, sorry for the trouble, and have a nice flight with our competitor. Mrs. Smith? Not so fast--you'll be going out five hours from now.
That's World War III right there in the airport, and Continental's gate agent wasn't any happier about it than the Smiths were. You know it's a stupid policy, but you know that at the old Continental Airlines we followed rules and that was that. So you had a choice: You could take the heat from the Smiths and hate it, or you could break the rule--and maybe lose your job.
With the symbolic burning of the manual, we changed that. We set up a committee to reorganize and rewrite the manual. And we don't call it a manual anymore, we call it guidelines. The new guidelines are supposed to help employees solve problems--give them a sense of where the boundaries are when they run into trouble. But in the general pursuit of their jobs, we want them to use their heads and use their resources. We don't want robots, we want team members.
Now the guidelines say, for example, that if someone is flying on a special fare or a free fare, we'll try to put them on the next Continental flight. But if you find yourself in the middle of something complicated, something unusual, something that just doesn't fit, then you use your head and make the best decision that you can. Do what's best for the customer--and the airline. Not one or the other.
To be honest, this approach scared some of our managers to death. And there was some grounding to that fear. When you've got irate customers yelling at you in an airport, it may be tempting for an employee to just give them what they want--whatever they want--to make them stop yelling, especially when Continental management has made clear that we want to stop yelling, too. Some managers feared that whatever the problems were, employees would solve them by spending money--giving away fares, buying new parts when old ones could be fixed.
I didn't worry. Sure, I figured, 5% or so will run wild, take advantage, screw this up. But the other 95% are people who probably will be so glad for the opportunity to do their jobs that they'll easily manage the balancing act between the good of the airline and the good of the customer. Then we can let our entire management team worry about managing only 5% of our employees, because the other 95% will basically be managing themselves.
Our success shows that I was right. The combination of the freedom to do their jobs and the incentive to get results was the recipe for a miracle.
Here's an example. Say you're a flight attendant, looking to close the airplane doors and get ready for takeoff, but you're five meals short. You go to the catering person servicing the plane, and you ask for five more. He's got a problem: His cart is empty, and he's got to go back to the kitchen and get more. In the old days, that meant a late plane. But it wouldn't be the flight attendant's fault. Catering would have to answer for the delay the following day. Besides, she didn't want to handle the irate customers who didn't receive meals if everyone decided to eat.
So that flight attendant was going to hold the plane, and if anybody asked why it was late, she was prepared: "His fault," she said, pointing at the catering guy. He could shift the blame to his kitchen staff, I suppose. But the point is that people wouldn't stick their necks out to solve problems. That's what the situation demanded. That was how to be successful at Continental Airlines.
Now it's different. If that flight attendant is five meals short and the plane will be late, she's going to get creative. First, of course, she's going to tell the catering guy not to put her in that position again. Then she's going to close the door of the plane and get ready for takeoff. She knows that those passengers think getting where they're going on time is more important than their meals--and she knows she'll be rewarded if they get there on time. She'll figure she can find five investment bankers on the plane who'll trade their meals for free drinks and she'll solve the problem that way. The difference is that she now has the ability to solve that minor problem--we want her to solve that problem. We figure that's her job.
Take that little example and multiply it by more than 2,000 flights a day, by millions of telephone calls to our reservation centers, by thousands of bags that might have missed a plane if somebody didn't hustle, by thousands of gate agents making thousands of decisions to keep passengers happy and planes moving. You can see the impact our new policy has.
I can't stress enough that getting people to understand their jobs and how they are measured made their lives easier. This was the complete opposite of how it used to be, with an employee manual that boxed them into ridiculous procedures for every element of their work. Now we give them actual goals instead of rules--and rewards if they make the goals, rather than punishment if they miss them.
It's a kind of checklist. Go into the cockpit of an airplane--or the galley, or anywhere that airline people do their jobs--and you'll find checklists: takeoff checklists, landing checklists, supply checklists. When your job is broken down into a series of steps that you know need to get done each time you do it, it becomes easier to do that job. The key here, of course, is that the jobs are now defined in steps that actually get the jobs done--and in ways that the people doing the jobs have signed on for. By the time we made a flying schedule, or a new cleaning procedure, or a fee structure, or a maintenance estimate, the people who were expected to do the work had signed off on what it was we were asking them to do--whether it was fly between Houston and Miami in less than three hours or perform a certain maintenance task in 45 minutes.
We have also worked at making the goals underlying these checklists really easy to understand: Get the planes to their destinations in a clean, safe, and reliable manner, with their baggage. That's it--that's the job. Now that management is out of their way, the employees do it every day.
The best example I can find for how thoroughly our culture has changed took place on a flight I took recently from Washington to Houston. When I get on a flight I stick my head in the cockpit to say hello, introduce myself to the crew, and chat for a minute. But I often get on at the last minute, which this time meant I was getting on just as the gate agent was hustling to get the plane out on time.
My back was to him, and I heard someone say, "Excuse me, sir, you'll have to sit down. The plane has to leave."
One of the flight attendants was horrified. "Do you know who that is?" she hissed. "That's Mr. Bethune!"
The agent said, "That's very nice, but we gotta go. Tell him to sit down."
I sat down, happily. That agent's job was to get the airplane out on time. His pay was connected to that. I, whether I was chairman of the airline or president of the U.S., was not going to get in his way. That, I thought, is how Continental Airlines stays on time--and how it has changed for the better.
Excerpted from From Worst to First: Behind the Scenes of Continentalšs Remarkable Comeback--A Flight Plan for Success, by Gordon Bethune with Scott Huler, to be published in May 1998 by John Wiley & Sons Inc.
7 Principles for a Turnaround
Two rules for managers: Get your job done, and work together.
Make sure that when the team wins, everyone wins.
Tell employees what's going on, fully and honestly.
Remember that customers want dependability and predictability.
Almost everybody loves predictability.
If you're the top guy, every problem is your problem.
It's a lot harder to keep things going great than to get them going great in the first