As I suggested at the beginning of this chapter, most entrepreneurs have a very specific purpose for their business plan and, once that purpose has been accomplished, the formal planning process is over. The People Express business plan is theonly written plan the company ever put together. The question of why the company never assembled another plan to guide its astonishing growth is one that prompts extensive explanation from founder Donald Burr.
Quite simply, he begins, the company didn’t really need an operating plan once it had financial backing. Not even for budgeting purposes?
“We felt budgeting was one of the things that stand in the way of customer service,” he explains. “The mind-set of budgeting is that it’s finance driven instead of customer driven.”
Burr points to Continental Airlines, which acquired People Express, to illustrate his point. “Continental Airlines lives by budgeting,” he says. “From the food to the uniforms to the people, it’s budget driven. You end up with a seriously flawed product as a result of such a process.”
As for People Express, he explains, “We figured out what we wanted to do as we went along. You have to hire people and buy equipment and everything else goes along. We focused everything on the equipment and operations of the company. We had a very low-cost system. We did not spend any money on engineering.”
He acknowledges the criticism of People Express as a company lacking the controls or other discipline that an ongoing business plan might have helped bring about and he is unimpressed. “I’ve heard all the criticism about arrogance and no controls and distractions from acquisitions,” he says. “People Express was more in control than any airline.”
Tracing the downfall. Why, then, did People Express sell out to Texas Air under the pressure of heavy losses six years after start-up? That had nothing to do with planning, or lack thereof, Burr maintains.
The problem, he argues, came from “the technological change in the industry.” The change became apparent in early 1985, when American Airlines inaugurated a computerized distribution system that enabled the airline to track competing airlines‘ prices and match or beat them, sometimes within hours of implementation. “They changed their prices by the minute,” he recalls. “We could never tell what they were doing.”
Until that time, notes Burr, “We could never satisfy demand. But then they [competitors] said, ‘We’ll sell you a seat at their price or less.”
The meaning: “They had a better product at a lower price,”Burr says. “We were lucky to be able to sell the airline to Texas Air.”
Wouldn’t the exercise of putting together a business plan have enabled the company to anticipate the impact of competitors making use of the information revolution? Not surprisingly, Burr is negative. The efforts by competitors weren’t a total surprise, he says. “We had decided early on that we couldn’t afford the billion dollars to have a competitive information system,” he explains. “So we had none.
“We raised $1 billion [for equipment],” he explains. “We couldn’t raise another $1 billion for an information system.”
A counterargument. But even if Burr were aware of competitors‘ efforts to use information for competitive advantage, he admits he was caught off guard by the huge impact the effort had on his company. “We were producing American Airlines‘ product for $1 billion a year less than it was,” he recalls. “We were feared. They put us out of business in nine months. We were a healthy, profitable company. In nine months, they broke us.”
In that last statement, I would argue, Burr makes the strongest case possible for a formal planning approach. Had top executives of the company been involved in planning, they would have been examining closely their competitors‘ marketing approaches. People Express officials would have been considering their own company’s strengths and weaknesses in that light and possibly have recognized earlier the tremendous potential impact of information technology. They might well have made a different decision about allocating their resources to establish an information base—or they may have become involved in a joint venture to accomplish the same goal at a lower cost.
Planning doesn’t ensure success. But it reduces the chances of surprises of the sort that caught People Express off guard.
Possibly related posts: (automatically generated)
The Follow-up: What Do You Do, Or Not Do, for an Encore?
- The Customized Business Plan
- The Art of Motivating Employees
- Making the Plan: What's Realistic?
- Targeting Your Audience
- Managing Stakeholder Relationship Part 2
- The Right Message
- Business, Customer Satisfaction is Paramount, there are steps leading to customer satisfaction continue...
- A Division Manager's Survival Guide
- From profit to performance, Marketing Logistics
- Persistence pays
