People express case analysis PDF

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PEOPLE EXPRESS: CASE STUDYIs People Express successful?In the period of 1981-1985, People Express (hereinafter, PE) had a explosive growth and was very successful. From their opening, which was around 1981, they had very high revenue and growth rate of more than 90%. In addition, they got way more a...

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PEOPLE EXPRESS: CASE STUDY Is People Express successful? In the period of 1981-1985, People Express (hereinafter, PE) had a explosive growth and was very successful. From their opening, which was around 1981, they had very high revenue and growth rate of more than 90%. In addition, they got way more airplanes, which went from 3 to 76 airplanes in 1985 (exhibit 3). Furthermore, the places they flew also increased a lot. They started with flying around 3 cities, but in the end flew to as many as 158 cities by 1986. Number of people sing Newark airport also rose from 6.5 million to 26 million a year, one of the main reasons being PE. Also reflection the financial success, stock prices and the income they had per share got sky high. However, after 1985 things started to go downwards, not only did the sudden success become too much for the company to handle(people where overworked, burned out, etc) but American Airlines also started with low-fare tickets, which means that PE’s only strategy is being challenged and they had to find something new to do, because now American had just as low offerings, if not even lower than PE. The changing industry was a threat to PE. They tried to build themselves up with various different strategies, one of them being buying up other aircrafts, which resulted in them flying in over 100 airports, and another strategy being offering various services, such as first class, in flight services and lounges at airports, or joining more complex reservation systems, however it was not enough and they in the end ended being bought up. So to summarise, I would say that PE had a good period but overall was not successful.

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Who are the customers – External Analysis PE wished to offer satisfactory flight options at significantly lower prices than their competitors. The focus was on recruiting consumers who might not usually fly because of other airlines' high fares, as well as people searching for a good deal. For example, the case states that “The competitive business strategy was ….. to take advantage of deregulation by offering unrestricted, greatly reduced prices, and convenient flight schedules”(p.2). The airline would have to continue to expand in order to provide the finest possibilities to their customers. “…Burr saw growth in the interest of the customers… because it provided more and better opportunities for people to travel with excellent service and low costs.” (p.4). The wish of wanting to have low fare tickets for their customers succeeded as the case states “People Express had the lowest cost per seat mile of any airline (5.4 cents verses 9.2 cents for the industry)” (p. 9), and “The company bought used aircraft at low prices from other carriers, then ripped out galleys and first-class cabins to add more low-priced seats.” (p. 5). Compensation, being one of the largest costs, had to be controlled. “…PE used roughly 50 people to staff each aircraft, about half those needed by the competition.” (p.7) Also, “PE designed its compensation strategy to reward people for good results and to minimize cost for the company.” (p. 8) “It flew underserved, low density routes mainly dominated by local and regional carriers.” (p.14) So in short, PE was aiming towards people that usually would not fly, by offering affordable prices with good customer service.

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Who are the competitors – External analysis

People Express aimed mainly towards the market of people that wouldn’t otherwise travel/take flights due to its costs, so that being said their biggest competitors were low-fare flights. PE had a emerging big growth during the period of 1981-1985, however that growth also came with problems. The demand got so hight that PE struggled to meet it, and could not deliver as they previously did. At the beginning PE’s competitors could not compete with them and their low fare tickets, however, once the industry started to change and other aircrafts started with low fare strategies, Pes competition rose and it became very dangerous as low fare was their selling points. For instance the case mentions “When PE offered a $99 fare and seven daily flights from New York to Minneapolis, undercutting northwest s $263 coach fare, Northwest promptly dripped its fare to $95 and boosted its flights between the two cities to 11 per day”(p. 15)This became a very big challenge for PE. In addition it is also mentioned that United and American responded in similar ways, which increased PE’s competition, as it is mentioned “If People Express had been so successful latently because of the prices it offered, it lost that advantage…on January 18, 1985. It was on that day that American Airlines announced its Ultimate Super Saver.” ( p. 16) In addition to the obvious competitors such as airlines, PE also was fighting against technology. It seems that other airlines, such as American, had way better technological systems than PE, as PE’s marketing manager stated; “… Our computer system was not sufficiently advanced to let us put multiple-priced seats on a single plane.We were focused to compete through a variety of mirrors and strings – our Tuesday night only sale, out Wednesday sale…Don saw more clearly than any of us that that was a problem. He said “You have to come up with something, because this Ultimate Super Saver thing is going to eat your lunch!”…”(p.16)

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The Seven Practices

Employment security and compensation The case mentions that “PE designed its compensation strategy to reward people for good results and to minimise cost for the company”(p.8) and due to this reason, the differences in salaries between the different roles was not as big as in other companies. A flight attendants salary was perhaps more than competitors, however general managers and managing officers earned less salary than other people outside PE. They believes that salaries are costs and expenses and dividends and high stock prices are the rewards of ownership (p.8). Therefore, stocks ownership and profit sharing was a part of the compensation at PE. People were obligated to buy around 100 shares at the price of $3 a share when being employed at PE. They were also allowed to buy more if they wanted at a redacted price later on. Furthermore the case also mentions that “ Through profit sharing, managers could substantially increase their base salary, the size of the bound depending on the managers years of service, their position in the company, and PE’s return on revenue”(p.8). Other important compensations that PE had were “the 401k stock purchase plan” which allows a manager to invest up to 15% of his/her salary in PE common or preferred stock and “the ownership income program” where managers got quarterly dividend, based on how many shares they had thru the purchase plan mentioned above. Lastly, they had 100% medical and dental benefits, and offered $50,000 in life insurance. Selective hiring Cross-utilisation was a big part of the recruiting at PE. By Cross-utilisation we mean that no one did the same job all the time, as personal growth and development was a big part of PE. Therefore, everyone, included managers, would rotate between in flight and ground work, line and staff work. Thus, PE was looking for bright, educated, well-groomed, mature, articulate, assertive, creative, energies, conscientious, and hard-working people. As stated in

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the case “Burr described them as “affirmative, it with people” people. “Our main criteria was whether wed want to go to dinner with them” he said. They had to be people who liked the “wide openness” of the company…” (p. 7). It is also mentioned that for the CSM position, they were looking for service professionals such as teachers and nurses, and that airline experience was needed. Rather they thought that people from traditional airlines were people where “everyone memorised the union contract and knew you were only supposed to work X number of minutes and hours” and that “they might not be comfortable with PE’s board and changing assignments” (p.8). Furthermore, it is also mentioned that “every new hire went through orientation, where Burr explained the company’s philosophy.” (p. 8) and no one would be fired for doing mistakes in trying to execute the precepts. It is stated that people would mainly get fired if they showed “dishonesty or wilful disregard for the company’s direction” (p.8). Self-managed teams It is stated that Burr wanted people to be self managed (p.6) and that they were a part of the contribution to policy-level decision making, thru committees and councils. In accordance to the case their definition of self-management was “to set specific, challenging, but realistic objectives within the organisational context; to monitor and assess ones own performance; to invent and execute activities to remedy performance problems, exploiting opportunities for improved performance; and to actively seek the information, resources and/or assistance needed to achieve the performance objectives”(p.6). Looking at Exhibit 2, one can see the organisational structure, such as that most decisions were made by “management teams” alongside with “ advisory councils.” Sic of the managing officers, and eight general managers also served one or more management teams (aside from the above mentioned responsibility). The management teams were put under 4 different “staff committees”; operations, people, marking, and finance/administrative. (p.6-7). As the top decision maker, Burr was informed of the work through weekly staff meetings and advisory councils.

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Training After the big and sudden growth, PE met a lot of struggles and problems, and to increase the support during this difficult time, the leadership development program was strengthened and improved. The case study mentions that the leadership program was “…more specifically focused on the genesis of and the basis of the PE people strategies, particularly in regard to the successful implementation of its competitive business strategy.” (p. 13). The structure of the program was as follows; “Senior manager wold attend raining sessions off suite that were run by Burr and PE’s consultants. Each level of leadership would the train the next level… “ Reducing of status Status was not a very big thing at PE. Most staff was called a manager in order to feel important, and cross-utilisation was a very big part of the company’s strategy. In other airlines, for instance, the pilot was the highest position, but at PE even the pilot would switch positions every now and then and do other jobs outside of their main. The employees were referred to as people, and travellers as customers in order to emphasise the importance of both the people and customers – it showed that people had their freedom and were trusted. Information sharing Although the case did not mention anything specific information about information sharing, it is, however, mentioned that all employees have access to shares and ownership, which gives them the right to know/see the information and performance of the company.

Burr’s role as a manager Burr took vantage of the deregulation and wanted to start a airline that could provide even more affordable prices to customers, he believed that this would attract business people who wanted big savings and people who usually would not fly. He also wanted to start a company that was more productive and more fun than your average American company. He did not believe in the typical “beat them and they’ll do more” styles, and therefore he wanted to create a better place that was not only more affordable, and exciting but also a rewarding

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place to work at, and this is where the name People Express comes from – because the focus is the people. Burr knew that that his stance was contrary to most organisations in the U.S and rejected any insinuation that he was optimistic or soft. The case states that he said “I’m not a goody two shoes person, I don’t view myself as a social scientist, as a minister, as a do-gooder. I perceive myself as a hard-nosed businessman, whose ambitions and aspirations have to do with providing goods and services to other people for a return”. The foundations of the company were later on build, and while other companies might call to objectives or goals, Burr called the precepts in order to stress the importance. Burr and his team came up with sic precepts; 1. Service; commitment to the growth and development of out people; 2. To be the best provider of air transportation; 3. To provide the highest quality of leadership; 4. To serve as a role model for others; 5. Simplicity; and 6. Maximisation of profits The precepts allowed him to mix strong leadership with freedom: leadership in setting corporate goals and direction; freedom in how people would implement the means to achieve those goals. So if they are internally motivated, they understand the objectives, they understand where they are headed, then they can create the environment, they can manipulate the environment in the best “possible sense and therefore serve our customers in the best possible way. You have two parameters at People Express: take care of people; take care of customers. And the two first precepts were the most important, they were even more fundamental than profit, the leadership believed, because even profit itself was the result of the first two precepts: serving people and customers. Even those who in other airlines would be called flight attendants and pilots, were in PE instead called, "customer service managers" (CSMs) and "flight managers" (FMs). They were not always or necessarily managers of people, but of resources, of the environment, of relationships with others.

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The overarching purpose of People Express was to "become the leading institution for constructive change in the world." As Burr put it, "Now the pretty thing that happens when you do that, when you get a big noble purpose, is that it raises the whole aspiration of the corporation, of the people in the corporation, even the people who are least motivated by something like that." Thus, the foundation of the new company was its philosophy, which Burr believed strongly in. The way to get people to "own" the precepts, thought Burr, was to rigorously teach them—Burr spent a great deal of time in front of his people explaining the philosophy—and then to get the people to teach the philosophy to each other. Growth was also important to PE's people, Burr believed. He believed he and his people should do a lot of celebrating of their accomplishments, but always in the context of continuous hard work.Furthermore, The case states that ““Burr believed that in 1980, the airline industry was offering a homogeneous, undifferentiated, commodity product. Thus, PE's marketing strategy was to differentiate its product” (p.4) Thus, PE's marketing strategy was to differentiate its product in three ways: first, by attracting and motivating superior service-oriented people, which would achieve high levels of productivity and thereby generate the second and third legs of the marketing stool, very low prices and very high frequency of flights. In the 1980 initial public offering prospectus, Burr wrote: "The Company believes that an airline is a professional service organization, the success of which is dependent in large part on the attitudes of its personnel.” And therefore formed the organisational strategy that was mentioned above where everyone is referred to as a manager as he believed this would make them feel more important and emphasise the importance of the people. In addition he also expected all people to be self managed and hence implemented this structure as well as well as the structure of cross-utilisation, where no one did the same job all the time, rather they rotated. When the industry suffered through years of record losses, when other carriers struggled with deregulation, fuel shocks, the air controllers' strike, and the recession, People Express prospered. Some began comparing Burr to Henry Ford: like Ford with automobiles, Burr had made airline transportation available to millions of new customers.(p.9)..

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As the company grew it expanded by buying more aircrafts and expanding to more cities. People got busier and the demand got very high. Burr thought that while too much stress was possible, to stop moving forward altogether was not the answer, either. After “peoples distress” period started, many problems occurred. Burr and his managers had responded to those problems from the beginning. Burr also set up a structure group and decided to strengthen and develop the leadership program some more as a problem-solving and decision-making response to the problems that occurred after the growth. In addition he also started the incentive program, For Burr, this program was an example of a "benign" control, where individuals' objectives and incentives aligned with the company's. Alternative strategic responses after change in the market and industry; In order to have a chance in the changing market Burr said he had two options to go after; one being developing new hubs and the second being buying another airline. So he decided to acquire frontier and other airlines. Another strategy he used to be able to compete with the other airlines is up scaling his services, such as adding in flight services, VIP lounges at some airports and so on.

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