A Change In Direction At Continental Airlines

Essay, Research Paper

What words come to mind when you think of Continental Airlines? Successful company, preferred airline, good service, on-time airline, top carrier, financially solvent, happy employees. These are all true; however, this was not always the case. Just six short years ago, probably not one of those descriptions would even be said in the same breath as Continental Airlines. In fact, in 1994, Continental was facing its third bankruptcy; that bankruptcy would have been the final blow to take this airline down for the last time. Employees were disgruntled about their work environment, their pay, and their airline; they had even taken pay-cut after pay-cut in an effort to keep the airline afloat. Customers did not think much more of the company, as Continental was considered simply the worst among the nation?s ten biggest airlines. Continental Airlines is now recognized as one of Fortune Magazine?s ?100 Best Companies to Work for in America,? even moving up from the 40th position to a very respectable number 23 on the list in 1999 (a particularly satisfying award for a company of over 50,000 employees). Continental is also now considered to be a respected airline and company, not only in the airline industry but also across all industries both nationally and worldwide. This metamorphosis came about because of a team of individuals who took a hard look at the condition of the company. They considered where the company had been and where it could go. At that point in time, the possibilities were two; Continental could continue on the road it was on (and probably end up in its third bankruptcy and possibly the end of an airline) or undergo some major changes in the hopes of creating a really great airline. As the story goes, the Board of Directors of Continental Airlines went out on a limb and hired a gutsy, plain-speaking ex-Navy aircraft mechanic who was armed with a few commonsense notions about good management and who possessed the courage to look past the bottom line, managed to motivate his people to bold new heights of excellence and win back this company?s long-lost customer base. This person, armed with a down-to-earth basic recipe for turning a company around, was and is Gordon Bethune.

Change does not come about overnight, nor does it come easily. As stated by Merriam-Webster, change is ?to make different in some particular fashion; to give a different position, course, or direction to; to replace with another; to make a shift from one to another; to exchange for an equivalent sum or comparable item; to undergo a modification of.? Management is defined as the ?act or art of managing; the conducting or supervising of something (as a business); judicious use of means to accomplish an end; the collective body of those who manage or direct an enterprise.? (Merriam-Webster) These things all happened at Continental Airlines beginning in 1995 under the direction of Gordon Bethune. Gordon, as he is known to all of his employees from the second in command down to the newest ramp agent, is a leader who is about his people and his product. He is a feisty, plain-speaking man who fought for the position as Chief Executive Officer. After ten leaders in ten years, the Board of Continental had only wanted someone to be a figurehead for the company. They were not looking for a ?leader;? they had had ten of those already. The Board simply wanted someone to ?take over.? So, they let Gordon take over for the next ten days until the next board meeting; at that point, he would have a chance to address the Board and some decision would be made. What a timeline; what stress. Gordon knew the company needed dramatic change in every conceivable way. His first step was an easy one; he stuck a wedge under the once-locked, video camera monitored doors of the executive suite. This was the equivalent of hanging an ?under new management? sign in the window of a restaurant. It was a start, as well as a testament to his style of management and to the culture he longed to see at Continental. Bethune spent the next ten days holed up with Greg Brenneman, then a consultant for Continental and now the President and Chief Operating Officer, to come up with a plan to present at the board meeting. Greg?s background was in turning companies around and Gordon quickly recognized his talents in doing just that and wanted his partnership in this turnaround attempt. What an ?attempt? this would be. For this board meeting, Gordon and Greg had ten days to not only make the usual financial and operations presentations but to design a plan that would completely change the direction of a $6 billion corporation. What Continental Airlines was about to undergo was a monumental change, one which would dismay and delight the critics, the customers, and the employees.

For Gordon and Greg, manipulating the numbers was the easy part, changing the hearts and minds of employees who had undergone years and years of different leaders, pay reductions, and distrust was the hard part. The people of an airline are just as much an integral part of the product as the planes themselves. Reengineering was to become the order of the day.

Everyone knows that reengineering is about processes. To the great relief of many workers, the focus is taken off of them and put on the work. At that point in time, the employees were just plain skeptical about anyone coming to create ?change.? Change and reengineering thoughts processes are characteristic of the following types of statements. “Let’s not blame people, let’s look at where the process failed.” “If there is a problem, it’s because the process is broken. The people are doing their best to make it work.” Employees know these things all along, but they are pleased when they have a leader or someone in management whom can bring about change that believes in these ideas. In many ways, not only had the processes failed but so had Continental failed the employees. When a company finally gets a leader who can bring about changes in the processes, improve them, fix them, the employees should be happy. Right? Well, there is a problem. The employees are people and reengineering the processes means change, and people have a lot of problems with change. The employees of Continental Airlines had already undergone ten changes in ten years and there was little trust with which to work. Any reengineering project that does not factor in the difficulties people have with change and address the change issues in a systematic, structured way, is doomed to fail. Gordon new he was up against these types of odds and took measures to make sure his people knew he was in this with them. Let us take a look at a few states of change in the reengineering process. They are the future, current, and delta states of change as described by Jeaneanne LaMarsh of LaMarsh and Associates.

The future state of change involves the idea of wanting a change, but not necessarily the changes in the plan itself. Employees may have their own ideas about what should change, and this change frequently revolves around someone else changing, not them. For Continental, it involved both. The current state of change involves the thinking that while the new way of working may be much better, employees do not see that there is that much wrong with the current way of working. They may see the way to make things better as just adjusting and manipulating what they do today, not the drastic and wrenching changes in the plan. It can be difficult for them to individually visualize the effect they themselves have to change and the overall effect. In this case, the employees did not have the faith that any change would make the difference, so why bother. They had spent the last ten years trying change after change after change; they were numb at this point. Finally, the delta state of change involves the new change being viewed as highly desirable, and the current way very unsatisfactory, but the process of going from here to there, the process of changing, looks too hard, will take too much energy, and is confusing and frightening. Moreover, it may appear that there are not enough resources of time, people and money. (LaMarsh) Not to mention, for the Continental Airlines employees, they were too tired and beaten down for yet another change. They wanted someone to show them change, not just talk about it from up high. They needed communication, reinforcement, and reward to get the job done. Companies and people have no choice: they must change to survive. They do have a choice, however, in how they change. Deciding to manage change by applying an organized, structured methodology is the clear choice of successful companies. When they do this, changes are implemented faster, cheaper, and with a minimum of pain and disruption to people. ?Right away. All at once.? These are Greg Brenneman?s words to describe the change that took place in Continental?s turnaround Since every company is struggling to make changes, those that can do it successfully have a strong edge over their competitors who struggle and often fail. Change management is a key factor in making the changes from business process reengineering successful. Gordon, along with Greg set about to create this plan, and to create it in its simplest form. They were determined to come up with a plan everyone could relate to and one which focused on moving ahead, going forward, rather than looking back on what had gone wrong for so many years. The called it the Go Forward Plan. (Bethune/Huler) Enter the delta state of change.

The Go Forward Plan was broken down into four parts: a market plan, a financial plan, a product plan, and most importantly, a people plan. The parts of this plan were not set up to be sequential steps, one mastered before the other could be started. Since the Go Forward Plan addressed every element of the business, all four steps had to be undertaken constantly and simultaneously. The points of this plan, as submitted to the Board, included Fly to Win, Fund the Future, Make Reliability a Reality, and Working Together. These words were easily understandable, communicated a message in industry terminology, and were words which denoted hope. (Bethune/Huler). This was the new blueprint for success.

Fly to Win was determined to cover the market plan, the external image changer. It was communicated as achieving the top-quartile industry margins. They had to grow the airline in ways it could make money, and improve the mix of ?coats and ties versus backpacks and flip-flops.? It was about expanding international airline alliances and continuing to eliminate non-value-added costs. Quit doing the things that did not make money. Approach the major travel agents with their hat in hand. Restore the previously award-winning frequent flyer program (which had been cut out in an earlier cost-cutting effort) to regain appeal with a focus group of customers, a target market.

The financial plan was called Fund the Future. Gordon jokes in his memoirs about the Continental turnaround, ?If there ain?t no funds, there ain?t gonna be no future.? (Bethune/Huler) Continental must reduce interest expense, develop franchise hubs and lay the foundation for future growth. There must be an increased focus on the fleet plan, development of hub real estate and the generation of a strong cash flow and improved financial flexibility. At the inception of this plan, the interest rate on new fleet was above 21 percent. Today, it is amazingly below 7 percent. In addition, and foremost on the agenda was finding a way to escape another Chapter 11 Bankruptcy. Leases were renegotiated, payments postponed, debts refinanced and changed the pricing structure. Most reorganizations stop here, but not at Continental Airlines and not with the Go Forward Plan. There were still the product and the people that needed some major attention.

And so, Make Reliability a Reality: the product plan. Make Reliability a Reality focused on having an industry-leading product Continental could be proud to sell. As part of attaining that pride, the long road to hoe was to consistently rank among the top in the industry in the four key Department of Transportation (DOT) measurements: on-time arrivals, baggage handling, complaints, and involuntary denied boardings. Basically, get the customer where they want to go, on time, safely, and with their baggage. The key to this piece of the plan hinges on the people, the employees. In order to provide this service, the people had to want to provide it. These were easily measured goals and the reward came in the form of cold hard cash. With every visit to the top second or third in on-time performance, each and every employee would receive a $65 check as thanks for making it happen. The top honor of first place in DOT ranks was rewarded with $100. This may seem somewhat insignificant, but to the employees, it meant commitment and a direct link by each and every one of them to the goals of the company.

The godfather of business reengineering, Michael Hammer, admitted recently that a neglected ingredient in his original formula for reengineering the corporation — the radical redesign of business processes to achieve spectacular gains — has caused many reengineering projects to end in disappointment. The under-emphasized element was people. (Boyd) Bethune and Brenneman knew this already, and the people were not about to be overlooked. The most important part of this company?s turnaround dealt with the Continental corporate culture. The plan was for a company where employees enjoyed coming to work every day and were valued for their contributions. Key factors included treatment of each other with dignity and respect, the focus on safety, employee-friendly internal programs, improved communication, and compensation which was fair to the employee and fair to the company. These were accomplished with various internal and on-going programs for learning and professional growth, various communications publications (daily, monthly, quarterly, etc.), and increased pay over time to meet market standards.

Bethune took this four-point plan to the Board, and they bought it. At that point, they had little choice. As stated earlier, the Board wanted a front man only, not a leader; after all, they had already run through ten of them previously with little success. Gordon convinced them that with all the financial and people plans he and Greg had come up with, little would be accomplished without a solid leader. He felt he was the man. Five years later, he still is the man.

Change for Continental Airlines was not easy, it was not smooth, it was not over night (though it seems to have been in retrospect) and it was not without revision. What it was about was a plan with focus, vision, tangibility, and a commitment to its people, its product, and its customers. In the nearly six years since the inception of the Go Forward Plan in 1995, Continental Airlines has stuck with this plan that paved the way up from despair and doom. Quarterly goals and are set and measured against those four cornerstones even today. Continental is now a company that can boast consecutive record and yearly earnings since 1995 and is proud to share that profit with the employees through profit sharing. On-time bonuses were paid in excess of $95 million to employees. Absenteeism has been reduced by 31 percent, and employee turnover has dropped 52 percent. The company shows appreciation for coming to work by awarding seven Eddie Bauer version Ford Explorers in a drawing every six months for those eligible with perfect attendance. To date, the company has given away over 60 of these vehicles. The company has won various awards and accolades from the prestigious J.D. Power (third award won in four years), to the Fortune?s ?100 Best,? Frequent Flyer Program of the Year, and many others. These are all a testament to the dramatic change management brought on under the leadership of Gordon Bethune and Greg Brenneman. Though some might argue that Bethune and Brenneman?s approach was not scientific in its nature, they cannot argue its effectiveness. A plan for success was developed, the plan was implemented, and success continues to be enjoyed every day. Today, Continental Airlines is an airline and a company which is well respected by its peers, preferred by its customers, and loved by its employees. At Continental, they changed the management and they managed the change; their still doing so today and with continued measurable success.

Merriam-Webster On-line Dictionary; www.m-w.com. 2000.

LaMarsh, Jeanenne. ?The People Side of Business Reengineering: The Key Success Element.? BPR Online Learning Center, Quality Leadership Center, Inc. December 1999.

Bethune, Gordon with Scott Huler. Behind the Scenes of Continental?s Remarkable Comeback: From Worst to First. John Wiley & Sons, Inc. New York, 1998.

Boyd, John. ?Creative Business Reengineering.? Computing Japan. March 1997, Volume 4, Issue 3, p. 48.