The business trajectory of Continental Airlines - Essay Example

? The case study describes the business trajectory of Continental Airlines. Continental Airlines was once a proud company that had strong earnings, superior customer service, and strong brand value. The firm was extremely successful due to the leadership of its CEO Robert Foreman. “Leadership is an important function of management which helps to maximize efficiency and to achieve organizational goals” (Managementstudyguide, 2012). Mr. Foreman was in charge of the company for 40 years. When he stepped down as CEO the company started in a downward spiral of instability, turmoil and financial troubles. The firm lacked leadership evidence by the fact that the company had a constant turnover of CEOs. The leaders of the company ran the firm into financial troubles. The company filed for bankruptcy twice within a period of ten years. The company hit rock bottom in 1987 and 1988 when the company registered accumulated losses of $500 million (Nohria, Mayo, Benson, 2010). The organization had major problems starting by the fact that the employees were unmotivated and dissatisfied in their workplace. A lack of motivation and enthusiasm are two reasons why business enterprises fail (Sasson, 2012). The employees considered Continental Airlines a crummy place to work. The firm suffered from customer dissatisfaction. A Forbes study revealed that the company ranked tied for last within the industry in profits-sales-assets per employee (Nohria, et al., 2010). In a separate study by the U.S. Department of Transportation the firm ranked last in the industry in on-time percentage, baggage report, and complaints of poor service. There was a lack of teamwork among the employees of the company. Teamwork in the workplace is critical to accomplish the organization’s goals (Cross, 2012). The company was in desperate need of an overhaul and reorganization. The person that came to the rescue of the company was Gordon Bethune. Gordon Bethune was elevated to the position of Chief Executive Officer in 1994. Bethune was a former lieutenant in the U.S. Navy. In 1978 Jimmy Carter passed the Airline Deregulation Act. The law was designed to give commercial airlines the latitude to set fare prices and it enable airlines the ability to enter or exit a plane route. The deregulation movement presented a tremendous opportunity for the industry. A firm that was able to capitalize on deregulation was Southwest Airlines. On the other hand Continental Airlines did not implement any effective strategies to capitalize on deregulation. The main root of the problem was the lack of leadership from the executive management of the company. Another problem was that there was also a power struggle for ownership of the company which deterred attention from implementing operational strategies to be able to capitalize on deregulation. Mr. Bethune was able to lead the turnaround at Continental by implementing sound business strategies. Four strategies that Bethune implemented at the firm were: Fly to Win, Fund the Future, Make Reliability Reality, and Working Together. The Fly to Win Strategy was a product service plan. The company removed air capacity of unprofitable routes. The firm eliminated 18% of its flights in an effort to reduce costs by eliminating unprofitable flight routes. A lot of the flights that were eliminated were from the CAL Lite program. One of the new emphases of the company was in becoming a customer friendly airline. The firm concentrated in offering flights to places people wanted to go. The Fund the Future strategy emphasized finding capital to fund the operations of the company. The organization restructured its plane fleet. It reduced its fleet type from 13 to 4 (Nohria, et al., 2010). The company matched airplane size with the size of customer markets. It also eliminated above market leases on planes. For instance Continental eliminated all 21 of its Airbus A300 and the 4,000 employees that served them. Despite the company’s initiatives the firm faced risk of bankruptcy once again in December of 1994 due to the fact that the company did not have enough cash reserves to pay payroll. Gordon Bethune found a creative solution to the problem. He negotiated with the executives of Boeing to request a refund of $70 million on a plane order the company made. Boeing had a cero return policy. Due to the good relation Bethune had with Boeing’s president, Ron Woodard, Boeing gave Continental a partial refund of $29 million. The money helped strengthen the cash flow position of the company and avoid bankruptcy. The third strategy Bethune implemented was Make Reliability a Reality. The firm started using the 15 most important performance metrics used by the Department of Transportation including on-time performance, mishandled bags, overall customer complaint, and involuntary denied boardings. The company also focused on reaching its destinations on time, being clean, safe, and reliable. Continental set up an employee hotline to receive feedback from the workers. The firm also obtained feedback from its customers by providing postage reply cards in the in-flight magazines and by setting up a hotline. The fourth strategy implemented by Bethune was Working Together. The firm established company wide goals and managerial cooperation. In order to motivate the employees the firm used financial incentives to encourage cooperation which increased employee confidence. There is a 100% correlation between employee happiness and customer satisfaction (Nohria, et al., 2010). Gordon Bethune was able to lead the turnaround effort by thinking outside the box and changing the corporate culture of the company. His leadership style was instrumental in the new found success of the company. Some of the values and principles that Gordon supported include teamwork, cooperation, and negotiation. He is a good communicator and an active listener. He believes in the value of leading by example. For instance Bethune is not only an executive, but he is also a mechanic and a pilot. He earned the respect of his staff. The case study displayed many business lessons that can help students understand the business world better. An important lesson from the case is that in order for companies to success it is imperative to have a good corporate culture. A second lesson associated with accounting is that focusing on cost cutting is not the only solution to increase profitability. Getting employees involved and motivating them with financial rewards can increase the employee morale of a firm. Another important lesson learned is that the success of an enterprise is highly dependent on the leadership ability of the executive management team. References Cross, S. (2012). The Importance of Teamwork. Retrieved October 27, 2012 from http://www.ehow.com/info_7786896_importance-teamwork.html Managementstudyguide.com (2012). Importance of leadership. Retrieved October 27, 2012 from http://managementstudyguide.com/importance_of_leadership.htm Nohria, N., Mayo, A., Benson, M. (2010). Gordon Bethune at Continental Airlines. Harvard Business Review. Sasson, R. (2012). Lack of motivation and enthusiasm. Retrieved October 27, 2012 from http://www.successconsciousness.com/lack-motivation-enthusiasm.htm Read More