Scandinavian Airlines System
Synopsis
After almost two decades of good earnings in the sixties and seventies, SAS – Scandinavian Airlines System – was hit by recession. The oil crisis starting in 1973 meant less travelling and skyrocketing fuel costs. The fiscal year of 1978-79 had SAS in the red. By 1981 when Jan Carlzon was appointed CEO, SAS had dived from peaceful moneymaking into operating at a loss.
A change was needed. There were no costs left to be cut, service had deteriorated due to the cuts already made, and the market was more competitive than ever. On top of that, SAS had a reputation of not being punctual.
The Problem
Diving fast - what to do next?
Closing in on the 1980s, Scandinavian Airlines System, SAS, like other air carriers had been enjoying almost two decades of good earnings. Running airlines during the sixties and seventies had been a really snug business.
Costs weren't exactly low, but expanding business and artificially high fares more than made up for that. Suddenly, recession hit. Fiscal year 1978-1979 had SAS in the red.
Oil crises meant less travelling while at the same time fuel costs skyrocketed. Cuts in costs did reduce the margin of loss at many an airline, but cuts don't bring about more business. At SAS, a change was needed. Enter Jan Carlzon.
The then 39-year-old Swede had a record of running successfully a travel agency and a domestic airline when the board appointed him CEO of the SAS group with more than 12,000 employees. That was in the summer of 1981.
The Solution
Turn-around
Like the famous Dick Whittington of the old rhyme, Jan Carlzon chose the seemingly illogical way out of the crisis. While Dick turned round and walked through the fire to become Lord Mayor of London, Jan Carlzon called for investments of 250 million Swedish kronor plus incurred additional operational costs of another 60 million kronor per annum.
That was his idea of a turn-around programme. Jan Carlzon himself has explained the rationale of his plan in his book "Moments of Truth" (Harper & Row, 1987): "There were no costs left to be cut, and service had deteriorated due to cuts already executed. The market had become increasingly competitive. SAS had lost market share and had been left with a surplus capacity. The customers' perception of our level of service had been impaired. - And then there was this reputation of SAS not being punctual."
SAS needed a unique selling proposition – and to cultivate that uniqueness - hence the investments. The proposition Carlzon came up with was "The Businessman's Airline". SAS should cater to the group of non-leisure, non-economy travellers who make up the bulk of many airlines' business.
SAS weren't the first to come up with the concept. But they stuck with it into the extreme.
Give Customers what they want and what they pay for
If you pay the full price, you get the works. Fly on a discount, and you have to pay for your drinks.
This - to put it bluntly - was the basic message when SAS introduced its Businessman's Airline. Together with remarkable improvements on the punctuality issue (accounting for a large share of the initial investment) this approach to the market hit home.
The improvements introduced for business travellers almost all had a symbolic quality to them: Secluded lounges at airports, special lines to check-in, curtains dividing cabin sections. Everything very spectacular.
The Moment of Truth
"Now we're going to fight"
Jan Carlzon
"We have 50,000 moments of truth every day." This famous Jan Carlzon one-liner bears on the crucial role played by primary contact between service provider and service buyer.
Since service is created in the very instant of that contact, and since management obviously cannot be present to direct all those moments of truth, the welfare of service organisations rests on frontliners - those who deal with customers.
So when Jan Carlzon sounded the bugle back in 1981, the exact words of his war cry were deliberately picked: "Now we’re going to fight", meaning: Now WE are going to fight - meaning: It's not management that's going to swing around SAS, it's people-plus-management. By Jan Carlzon's book, that meant people first.
It had to be a Wave
In SAS lingo, the events of 1981-82 are referred to as "the Wave" or "the first wave" (as it happened, there were more to follow). For good reason, too, because the whole campaign was designed like a great ocean wave: moving swiftly across the surface, harnessing immense powers and turning everything upside down. Losses had to be contained fast and initial investment had to be brought home soon. Further, unshackling front-line operator power and bypassing middle management required concerted action along the whole front, or it could easily be stopped in places, thus placing the whole project at a risk. Finally, marketing the new airline concept for SAS required maximum noise in the market.
Building the Team, Growing the Individuals
Every one of the 12,000 SAS employees were put through a two-day service programme designed to help them grow as individuals and to fill them with a new and dynamic sense of the organisation's purpose.
To this end, SAS hired TMI, known for their "high-energy, inspirational style of training" (so said Karl Albrecht and Ron Zemke in "Service America!", Dow Jones-Irwin, 1985).
The Outcomes
Wall-to-Wall in no Time at all
After the initial contact and trial procedure in 1981, SAS were quick to appoint TMI operators of the seminar project, which was a two-tier operation. After a series for top management, all front-line staffers attended complete sessions of two-day and one-day rounds. This was followed by one-day seminars, essentially the same as the others but more compact, for non-frontliners.
Not so much talked about were in-depth "second tier" seminars for middle managers, the famed "insulation layer". Actually, these people were not pushed aside totally, as the myth has it. Instead, they were taken aside, coached in the art of servicing their front-line personnel while looking after their responsibilities in operational results.
In the process, TMI picked the thematic name of "Putting People First" for the service management seminar and turn-around process programme now marketed as a sole brand for TMI.
By request of SAS, the seminar project had to get underway fast in order to obtain maximum effect by near-simultaneous training. That was the Wave paradigm going to work again: The staff of 12,000 should be swept away, carried off their feet and thrust in the same direction at about the same time.
The seminars got off the ground early in 1982 and in some seven months it was all done. The wall-to-wall training of the people of SAS had been completed, doing its bit in the great movement thought out by Jan Carlzon and his team – the movement that eventually brought the airline from trouble into stardom. Celebrated as the Airline of the Year a year later, SAS began cashing in big earnings immediately, and at a much faster rate than anticipated.
From there on…
The SAS First Wave seminars in 1982 inaugurated a new era in the relationship between management practice and management theory. Buzz words such as "The Moment of Truth", "Wall-to-wall Training" etc. are shorthand for practical solutions created during the early days of the TMI programmes for SAS - solutions to crucial problems raised by the need to implement the theories of service management. Thus, the First Wave was a unique large-scale workshop creating important experience and documented results to be further exploited in years to come.
While the major share of TMI's programmes may have been conducted for medium-sized or even small companies, certain large-scale achievements, such as the programmes for British Airways, have contributed to developing the global approach epitomised by the "wall-to-wall" concept. All of BA's 36,500 staff were trained, and, at the conclusion in 1987, the programme earned the unconditional commendation of Sir Colin Marshall, Chief Executive of British Airways: "Many factors have contributed to our recent success, but the spearhead was the "Putting People First" programme run by Time Manager International."
Both SAS and British Airways were acclaimed as the "Airline of the Year" after their turn-around programmes. Since then, TMI has been working with many other airlines, notably Japan Airlines, Air New Zealand, Austrian Airlines, Turkish Airlines, Indian Airlines, CSA Airlines and Hungarian Airlines, showing that the concept is adaptable to other cultures.
However, Putting People First is not only for airlines. AVIS rent-a-car, American Express and the Hilton International Hotels are examples of companies showing how other service industries benefit from the concept.
Widely acclaimed and serving as the topic of a number of studies, Putting People First and TMI were portrayed in a BBC TV feature in 1988. This feature was repeated a number of times by popular request and is also available as an educational videotape.
The Human Factor
One of the greatest achievements that can be ascribed to TMI's work in the field of training for service management is probably that the role of the human factor is now generally acknowledged. Take the following statements, now widely recognised in service management, but originally coined and put to work by TMI:
- "If you put staff first, then they will put customers first".
- "Staff working off the line are there to service those who work on the line, directly dealing with clients". And:
- "The service towards customers will never exceed the service rendered within the company".
"In 1981, when Mr. Jan Carlzon acceded to the post of CEO of Scandinavian Airlines System, SAS, one of the major international air-carriers, he was in for a rough ride, and so was his organisation: SAS had dived from past peaceful money-making into operating at a loss.
Mr. Carlzon and his following of managers went about the task to swing around the large organisation, implementing a three-pronged strategic approach:
- SAS must become most effective
- SAS must concentrate its efforts
- SAS must adapt to the market
TMI was called upon during the process to help implement some of the measures needed. TMI does not credit itself with the total SAS turn-around programme that eventually led the airline back into the black figures and, as a bounty, to naming SAS the Airline of the Year. Jan Carlzon and his crew should be credited for this and have rightly been so. TMI does, however, appreciate the immense impact that participating in the SAS experience has had on us. Seeing what happened inside SAS at the time was great. Taking part in making it happen was fantastic."
Claus Møller,
Founder and Chairman of TMI
For more information on this case, please contact TMI by telephone: +45 48 22 50 00 or e-mail: denmark@tmiworld.com