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Project Communication

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The Corporate Culture at People Express Airlines People Express Airlines begun operating in 1981 and grew into being the fifth largest US carrier by February 1986[1]. However, by the end of 1986 is had been sold to Texas International Airlines due to its financial problems. In my paper I will try to analyze the decline the company from the point of the view of the corporate culture in the company. Most of the data in my paper comes from a case study on People Express published by the Harvard Business School[2]. From when People Express (PE) was founded by Donald Burr, the company established very clear principles and values to drive its staff in all its activities. As it turned out, the 6 so-called precepts and the corporate culture that everyone cherished were instrumental in bringing the company to its rapid and wide-scale success. However, although staff worked hard to offer a quality service until the very end, by 1985 the company was nicknamed “People’s Distress”[3] because of its inability to cope with the scale of its operations. As I will argue, it was management’s decision to continue with the rapid expansion of the company despite the arising problems that lead to the growing instability and decline of the company. Thus, People Express failed because the economic and logistical situation made it impossible to continue fulfilling the goals that were part of its corporate culture, particularly its commitment for quality assurance (PE’s second precept was ‘to be the best provider of air transportation’[4]). Corporate culture, although a continuous driving force for the company, was eventually undermined by PE’s ability to manage its non-human resources. The ideas that Donald Burr built into his airline were revolutionary. In an age where employees were given little flexibility and were closely supervised, People Express was an enterprise that truly empowered its people and gave them independence. The environment in which people worked was very motivating – not only because of pay incentives, but mainly because it served some basic spiritual needs of the employees. For instance, it was emphasized that employees were part of People Express’ goal to “become the leading institution for constructive change in the world”[5]. This motivated the people, because it was different from most other jobs, where employees worked just for the sake of their bosses’ profits or their own wages. In addition to this, the work environment was also socially rewarding. Said one Customer Service Manager (PE named all its people “managers”): “The greatest thing was the people; that’s what made you go and work hard. […]”[6] The Employees were also empowered by allowing them to rotate to their job of choice (provided it was available and they had the qualifications for it). And finally, they had the freedom to innovate and even to make mistakes, as long as they remained focused on the goals set by the precepts, particularly on ‘taking care’ of their colleagues and the customers[7]. All these, along with the team spirit, made employees very motivated and willing to work hard: “Everyone was working towards a common goal; we all cared about the company.”[8] These characteristics of the climate at PE were essential for motivating the employees, and they all worked together with the set of values that Burr built in his company. In addition to hiring only the employees that were a match for this environment, the company also carefully trained its new employees into this culture, with Burr himself being present at the trainings either physically or in the form of a 4-hour video recording[9]. In these workshops, as well as many of the memos sent out to employees, the importance of the precepts was capitalized. Burr explained the rationale behind this: You have people all over the world at 50,000 feet, 10,000 feet, and at airports all over the world. They have to be their own internal system, you can’t control them, supervise them and so forth. So if they are internally motivated [and] they understand the objectives, then they can […] serve our customers in the best possible way.[10]

Although this strategy was an alternative to classical ways of controlling employees, Burr’s success in constructing a corporate culture exactly the way he wanted it ultimately constitutes a success in exerting control on his employees. According to the classification of Charles Perrow, control can be direct, bureaucratic or fully unobtrusive[11]. The recognition of Burr’s ideology within the organization, although unobtrusive, was nevertheless a way of exerting control on the employees. PE’s corporate culture, both with its ideological and work environment components, never failed. However, there were periods when employees were absolutely overwhelmed. In June 1983, Burr admitted that PE was “operating beyond [its] practical capacity”, but remained convinced that stopping the growth was not the solution.[12] As a result, the company employed more workers and restructured itself so that work would be conducted in smaller, more manageable working groups.[13] Eventually the corporate culture remained vigorous and continued to be a driving force for the company. The company’s logistical problems were not, however, as easy to overcome. As staff continued to work on efficiency and the delivery of the best possible service, the company was also being pushed forward by an extraordinary ambition at the level of its management, despite the fact that PE was obviously operating ‘beyond its practical capacity’. The decision for continued growth exacerbated the following logistical problems, leading to subsequent financial problems[14]. Firstly, the Newark terminal, which People Express used for its operations, had been operating well over its design capacity (about 1,000,000 passengers a month instead of the 100,000 which it was designed for). This lead to overcrowding and delays, especially during holidays and weekends. Secondly, People Express had run into the problem of having to deny boarding to some ticketed passengers because it had decided to overbook planes[15]. Finally, People Express had begun to face increasing competition because it was now operating on routes where major airlines were already well-established. Thus, in the face of the declining quality and attractive fares from other airlines, customers began to turn away from People Express. The discrepancy between the quality of service that PE aimed to offer and the resources available to achieve this goal should have been recognized earlier by those running the company. As a low-cost carrier that challenged the preconception that good service can be offered at an affordable price, the company’s position on the market depended on continuously offering reliable and impeccable service. In my opinion, the price that the company set for its service was not even that important given the fact that it had already established a customer base and that its fares were substantially lower than those of the competition anyway. However, allowing the quality of the service to drop should have been avoided at all costs. What’s more, PE’s finances had been managed ‘on the edge’ from the very beginning, so the company was also very vulnerable to even small drops in its income. Unlike the major carriers, which could drop their prices in order to compete with PE even despite short-term losses, Burr’s company had to rise its prices as soon demand for its services fell. Having lost its reputation for providing high-quality service and its ability to offer competitive prices, it could no longer retain its customers. In addition to failing to recognize the gravity of the logistical problems, Burr made an additional decision that was not in the spirit of the principles that he had taught his employees: the purchase of Frontier Airlines. Firstly, this went against his previously stated commitment not to buy another airline[16]. Secondly, Frontier Airlines’ culture and business model was too different from PE’s to be able to successfully integrate with it in the intended timeframe. Frontier had high operating costs and a unionized workforce, and was already struggling financially[17]. This, along with concern from industry analysts[18], should have discouraged Burr from closing the deal. Nevertheless, he went ahead with the boldness that characterized him, despite the risks and PE’s own problems, which now included the resignation of Hap Pareti and Lori Dubose, two key figures in the organization[19]. To sum up, the failure of People Express came because of a clash between the organization’s established goals and the too ambitious pursuit of market share. During the first years of People Express, the corporate culture and the ambitions of management worked hand-in-hand to drive the company ahead: after having set up a system which insured significant cost cuts, the ambitious management succeeded in increasing the scale of the business manifold. However, by 1985, because the business had grown so large, the employees had begun to have trouble fulfilling PE’s goal of being ‘the best provider of air transportation’[20]. The ambition to further expand before logistical issues were resolved sealed the organization’s fate. Burr eventually had to sell People Express because of its financial difficulties, but the business model of his company has permanently transformed the airline industry. It was, after all, Burr’s principle of cutting costs that eventually allowed other carriers to compete successfully with People Express and drive it out of the market. By the time People Express was able to expand its service to cities where other carriers had been operating for decades, its competitors had already learned new ways to cut costs and costumers had already learned that air travel can be affordable. In this sense, although the context of the industry as well as some managerial mistakes forced Burr to eventually sell People Express, in only five years he had established ‘a new way to conduct business’[21], and his vision had gathered enough momentum to ‘make a better world’.

References
Michael Beer et. al. 1993. People Express Airlines: Rise and Decline. Cambridge, MA: Harvard Business School Publishing.
Charles Perrow. 1986. Complex Organizations, A Critical Essay. New York: McGraw-Hill.
Appendix - The proliferation of People Express’ culture and business model
Note: All statements below are quotes from the cited sources (quotation marks have been omitted)
|People Express – 1981-1986 |EasyJet – 1996-present and Ryanair |
|[…] Burr called them precepts. All policies and practices had to be |Our Values underpin this and form 5 core principles you can observe in|
|consistent with them. Burr and his team came up with six.[22] |everything we do.[23] |
|Precept #2: To be the best provider of air transportation.[24] |Our Vision is simple - to be the best low-fare airline in the |
| |world.[25] |
|[Burr] was tired of what he called the “deadening grind and lack of |What is it about us that has been so successful? We think it's our |
|vision” of TI business style. |approach to challenging convention and "the ordinary".[26] |
|Corporate headquarters, upstairs in the North Terminal, was stark[27] |No offices, just open plan, open culture, remote working and hot |
| |desking, fun and enjoyment - this is what it means to work for |
| |easyJet.[28] |
|It’s got a “mystique” to it. No matter where I go from the buy side |“I have always wanted to work at easyJet, the brand is a real talking |
|the first thing I head is “tell me about People Express”.[29] |point”[30] |
|PE designed its compensation strategy to reward people for good |The deal at Ryanair is simple: We reward you well for effort. Where |
|results and minimize the cost for the company. |possible, we incentivise your work so the more you do the more you get|
|[…] stock ownership and profit sharing were a big part of one’s |paid. […] We offer an excellent share option scheme, which ultimately |
|compensation package at People Express.[31] |allows you to own a piece of the airline and share in its success.[32]|

Where the evolution of the companies differed
|People Express |easyJet |
|If People Express had been so successful largely because of the prices|Those that ever doubted we would be a serious contender were silenced |
|it offered, it lost that advantage […] on January 18, 1985. |as we continued to grow and then in 1998, something happened that |
|American Airlines, [through its computerized reservation system], |would change our business totally - easyJet.com, our sales website, |
|could offer up to 10 different prices for seats on the same |began to take bookings online.[34] |
|flight.[33] | |
|At the top President Hap Pareti left to start his own Presidential |[In 2002,] Stelios [the founder] stood aside as Chairman. Still a |
|Airline […], and Lori Dubose […] left the company at Burr’s |shareholder, he recognised that the talent we had been building in the|
|request.[35] |business could really take things to the next level.[36] |

-----------------------
[1] HBS, p. 18
[2] Cited as HBS, see endnote for complete citation
[3] HBS, p. 12
[4] Precept no. 2, HBS, p. 2.
[5] HBS, p. 4.
[6] HBS, p. 10.
[7] Burr: “We have two parameters at People Express: take care of people; take care of customers. How could you be more free? I tell everyone, “Make all the mistakes you want.” No problem. But just remember, we’re always guided by those precepts.”, HBS, p. 3.
[8] HBS, p. 10.
[9] HBS, p. 14.
[10] HBS, p. 3.
[11] Perrow, 1986.
[12] HBS, p. 11.
[13] HBS, p. 11.
[14] The following sentences sum up the logistical problems as described in the section Customer dissatisfaction: “People’s Distress”, HBS, p. 12.
[15] HBS, p. 12.
[16] HBS, p. 17.
[17] HBS, p. 18.
[18] HBS, p. 18.
[19] HBS, p. 16.
[20] Precept no. 2, HBS, p. 2.
[21] See the appendix for an example of two European air carriers that run on PE’s business model
[22] HBS, p. 2.
[23] http://www.easyjetcareers.com/about-us/vision-and-values.asp
[24] HBS, p. 2.
[25] http://www.easyjetcareers.com/about-us/vision-and-values.asp
[26] http://www.easyjetcareers.com/about-us/where-have-we-come-from.asp
[27] HBS, p. 5.
[28] http://www.easyjetcareers.com/about-us/culture.asp
[29] HBS, p. 10.
[30] http://www.easyjetcareers.com/about-us/where-have-we-come-from.asp
[31] HBS, p. 8.
[32] http://www.ryanair.com/site/EN/about.php?page=Jobs&sec=working
[33] HBS, p. 16.
[34] http://www.easyjetcareers.com/about-us/where-have-we-come-from.asp
[35] HBS, p.16
[36] http://www.easyjetcareers.com/about-us/where-have-we-come-from.asp

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