Moments of Truth
by Jan Carlzon
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Book Summary Information
Author: Jan CarlzonEdition: Paperback
Published: 1989-02-15
ISBN: 0060915803
Number of pages: 160
Publisher: Collins Business
Book Reviews of Moments of Truth
Book Review: You can read it in an hour
Summary: 3 Stars
This short book is an examination of three companies that Jan Carlzon worked for and how he turned them around. The first is unremarkable and is not relevant to his later insights. He was responsible for a company which was a subsidiary of a airline which sold holidays. He reduced costs to get it through an economic downturn.
The next job he had was working for a Swedish domestic airline. The airline was losing money but the ability to cut costs was limited. The reason for this was that the airline schedules and routes had been determined politically. There was limited ability to cut costs. The strategy he used to overcome the problem was to try to increase revenue by fare discounting. The problem was that previous fair discounting attempts had not been that effective. He developed a advertising strategy which aimed at expressing the cost by referring it to notes of currency. This was successful and traffic increased not by an anticipated 20,000 but by 120,000.
Following that he was put in charge of SAS an international airline company that was owned by Norway Sweden and Denmark. His strategy to make the airline profitable was to sell full fare seats. Up to this time Carlzon had made a habit of firing internal marketing units in his airlines and depending on the knowledge of his staff at the front line. He was able to use this knowledge to make his airline attractive to business class passengers.
He removed first class and created a business class.(In his view the only people who used first class with any regularity were airline executives) The business class had a distinct section of the plane which was curtained off. They got on the plane last and left first. They had a distinct waiting area. He worked out that the most significant thing of importance to business class travellers was prompt departure. He asked one of his employees to come up with a strategy of moving to 100% success of leaving at the right time. They came up with a strategy which identified the reasons for airplanes leaving late. They were:
* Waiting for passengers on connecting flights
* Waiting as a result of meals not turning up for the passengers
* Waiting for late staff
* Compressing flights
A strategy was worked out that would cost an estimated $1.8 million dollars to make flights go on time. From now on no one would wait for connecting flights. Passengers would be put on other carriers. If meals did no turn up it was thought that in most cases there would be a surplus and if there was not customers could be given vouchers for restaurant meals at the next embarkation point. If cabin (as opposed to flight) staff did not turn up the aircraft would take off. The compression of flights means that if a plane was half full it would be cancelled with the aim of trying to fill up the next plane to a full load. Flights simply were to be flown regardless of whether the flight was full. This in fact was going to be the major part of the $1.8 million cost.
What happened was that the strategy of flying on time was so successful flight compression was not a problem. All flights were now full and the strategy only cost $200,000 with the pay off the increased revenue from the full flights.
Another strategy was Carlzon's moth balling of newly purchased airbuses. One of the things which characterizes the airline industry is the use of new technology. To this extent the industry is production driven. The advantage of the new airbuses was that they had a lower cost per-passenger mile. The problem with them was that they were a bigger aircraft and for them to run cost effectively the airline would have to have less scheduled flights and have more people flying on each scheduled flight. This however had the potential downside that the airline would lose attraction to the customer as there was less flexibility in the schedule. For that reason Carlzon kept his older DC 9 aircraft in service as he was customer focused.
The conclusions that Carlzon draws about how to run a company is that marketing and sales are the key. The reality of a company and how it is seen is based on the individual moments of contact that a customer has with the representatives of the company. As these contacts are so important it is his view that the representatives of the company at the client interface be highly motivated and skilled. Further that they have the ability to make decisions about what they do. Lastly that they be in a position to feedback to the management what the realities are. In his view a flatter empowered structure is the key to the success of the modern corporation.
The sorts of things that he did were counter intuitive. It would be thought that aircraft which flew cheaper would be good for the bottom line. It makes good sense to compress flights so that aircraft fly full. Yet it was these things which potentially had the cost of reducing market share. Managers who were isolated from the customers might think it was attractive to cut costs in this way but front line staff are better able to sense the market dynamics of the industry.
Summary of Moments of Truth
The president and CEO of Scandinavia Airlines (SAS) shows how to adapt to the new customer–driven economy.
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