The information system at American Airlines has become an integral part of the overall strategy to gain a competitive edge in the industry
The information system at American Airlines has become an integral part of the overall strategy to gain a competitive edge in the industry
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General Management
CASE 1: Coke’s European Scare
What seemed like an isolated incident of a few bad cans of Coca-Cola at a school in Belgium turned into near disaster for the soft drink giant’s European operations. In June 1999, Coke experienced its worst nightmare—a contamination scare resulting in the recall of 14 million cases of Coke products in five European countries and a huge blow to consumer confidence in the quality and safety of the world’s most recognizable brand.
After the initial scare in Bornem, Belgium, Coke and Coca-Cola Enterprises (CCE), a bottler 40 per cent owned by Coca-Cola, thought they isolated the problem. Scientists at the CCE bottling plant in Antwerp found that lapses in quality control had led to contaminated carbon dioxide that were used in the bottling of a recent batch of Coke. Company officials saw the contamination as minor problem and they issued an apology to the school.
At the same time that the problems were being dealt with an Antwerp, things were breaking down at Coke’s Dunkirk, France, bottling plant. In Belsele, 10 miles from Bornem, children and teachers were complaining of illnesses related to drinking Coke products. The vending machines at the school were stocked with Coke from the company’s Dunkirk plant and were thought to be safe. Now a second bottling plant’s practices were being questioned. What initially seemed like an isolated incident was now a crisis.
Immediately following the second scare, Belgium’s health minister banned the sale of all products produced in the Antwerp and Dunkirk plants. Things got worse when Coke gave an incomplete set of recall codes to a school in Lochristi, Belgium, resulting in 38 children being rushed to the hospital. Immediately following this incident, French officials banned the sale of soft drinks produced in the Dunkirk plant. It was believed that fungicide on wooden shipping pallets were the cause of the illnesses at the Dunkirk plant.
On June 15, 1999, 11 days after the initial scare in Bornem, Coke finally issued an explanation to the public. Most Europeans were not satisfied. Coca-Cola officials used vague language and often contradicted one another when making statements. France’s health minister, Bernard Kouchner, stated, “That a company so very expert in advertising and marketing should be so poor in communicating on this matter is astonishing”
After three weeks of testing by both Coke officials and French government scientists, it was concluded that the plants were safe and that there was no immediate threat to the health of consumers. Coke has destroyed all of the pallets in Dunkirk and tightened quality control on co2.
How could this happen to the company that is revered worldwide for its quality control and the superiority of its products? Coke has spent decades building its reputation overseas and the European market now represent 73 per cent of total profits. While the scare has had some effect on Coke’s profits in Europe, the company is more concerned with damages to its reputation and consumer confidence in its products.
Many critics say that Coke’s slow response time, insisting that no real problem existed and belated apology have severely damaged the company’s reputation in Europe. Some would disagree and feel that Coke handled the situation as best it could. “I think that Coke acted in a responsible, diligent way,” says John Sitcher, editor of Beverage Digest. “Their first responsibility was to ascertain the facts in a clear and unequivocal way. And as soon as Coke knew what the facts were, they put out a statement to the Belgium people.”
The character and quality of a company can often be measured by how it responds to adversity. Coca-Cola believes that this crisis has forced the company to re-examine both its marketing and management strategies in Europe. Coke executives in Brussels are predicting that the company will double its European sales in the next decade and that this setback will only make the company stronger. Wall Street analysts seem to agree. Only time will tell.
Question:
- What are the management issues in this case?
2. What did Coke do and what could have been done differently?
3. What are the key factors that were or should have been considered by management?
CASE 2: INFORMATION TECHNOLOGY AT AMERICAN AIRLINES
The information system at American Airlines has become an integral part of the overall strategy to gain a competitive edge in the industry. The extensive use of computers began in the 1950s in payroll and inventory control and extended to customer service. In the early 1960s, American developed the widely known SABRE system (SABRE stands for Semi-Automated Business Research Environment). It is one of the most sophisticated passenger reservation system used by travel agents and customers.
Shortly after implementing SABRE, American also used the system for other tasks, such as controlling freight shipments, as well as dispatching and tracking flights. When the government deregulated the airline industry in 1978, the information system became an even more important tool for competing against the low-cost airlines whose labour costs were as much as 40 to 50 per cent lower. American Airlines’ strategy was to use the information technology to compete in a variety of ways. One application was to have as many aircrafts seats as possible filled without having many passengers “bumped” through overbooking. Another application was to obtain the proper balance between discount and regular fares. It was estimated that revenues could be increased dramatically by shifting only one per cent of discount fares to the full fare—clearly a competitive advantage in a market where price change occur daily and even hourly. Still another application of the information system was to find the most efficient way to fly in order to reduce fuel cost, which is the second largest expense. Some airplanes have sensors on board to monitor essential equipment; the operational information is sent to the ground station. Maintenance can then be planned effectively and performed more efficiently when the aircraft lands. Still another application of the computer was to determine the most profitable routes. The complexity of scheduling over 13,000 pilots and flight attendants on 1300 daily flights is horrendous. The high cost of overtime can put an airline at a competitive disadvantage.
Robert L Crandall, the former chairman and president of American Airlines, thinks that information systems are the key for success. He stated: “We have taken what was once a basic reservation system and built it into an integrated information system that drives our corporate strategy as much as it is driven by that strategy.” While American Airlines has been the industry leader in the use of information technology, competition developed. The 1992 program of the European Community (EC, now the European Union or EU) was designed to eliminate trade and many political barriers. The European airline industry also became deregulated than engaging in mergers, some airlines are now integrated into a network linking selected carriers together. An illustration of the cooperation among airlines involves the two computer reservation systems called Galileo and Amadeus. Thus, American Airlines—with a strategy of expanding in the European market, the largest market in the industrialized world—has ample competition. Recently, the five biggest US Airlines (Continental, Delta, Northeast, United Airlines, and now also American Airlines) developed a common website called Orbitz.com (www.orbitz.com), which could also affect SABRE.
Technology that may have given once a competitive advantage to a company may, in time, become obsolete unless it adapts to new demands and develops new applications. Max Hopper, the architect of the SABRE system, suggests that old models are no longer sufficient. Those who can use the available tools and modify them will gain a competitive edge. The trend is away from stand-alone applications to platforms that facilitate new approaches to problem solving and decision making. SABRE is not only a reservation system, but also a system for inventory control, making flight plans, and scheduling flight crews. Other data-basses were added for car rentals, hotel reservations, and theatre shows. SABRE has become an electronic travel supermarket.
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| The information system at American Airlines has become an integral part of the overall strategy to gain a competitive edge in the industry |
Questions:
1. Discuss the evolving use of information technology at American Airlines?
2. Should American Airlines expand its position in Europe? What are the arguments for and against this expansion?
CASE: 3 REBRANDING MCJOBS
As with most fast-food restaurant chains, McDonald’s needs more people to fill jobs in its vast empire. Yet McDonald’s executives are finding that recruiting is a tough sell. The industry is taking a beating from an increasingly health-conscious society and the popular film Supersize Me. Equally troublesome is a further decline in the already dreary image of employment in a fast-food restaurant. It doesn’t help that McJob, a slang term closely connected to McDonald’s, was recently added to both Merriam-Webster’s Collegiate Dictionary and the Oxford English Dictionary as a legitimate concept meaning a low-paying, low-prestige, dead-end, mindless service job in which the employee’s work is highly regulated.
McDonald’s has tried to shore up its employment image in recent years by improving wages and adding some employee benefits. A few years ago it created the “I’m loving it” campaign, which took aim at a positive image of the golden arches for employees as well as customers. The campaign had some effect, but McDonald’s executives realized that a focused effort was needed to battle the McJob image.
Now McDonald's is fighting back with a “My First” campaign to show the public—and prospective job applicants—that working at McDonald's is a way to start their careers and develop valuable life skills. The campaign’s centerpiece is a television commercial showing successful people from around the world whose first job was at the fast-food restaurant. “Working at McDonald's really helped lay the foundation for my career,” says ten-time Olympic track and field medalist and former McDonald's crew member Carl Lewis, who is featured in the TV ad. “It was the place where I learned the true meaning of excelling in a fast-paced environment and what it means to operate as part of a team.”
Richard Floersch, McDonald's executive vice president of human resources, claims that the company’s top management has deep talent, but the campaign should help to retain current staff and hire new people further down to hierarchy. “It’s a very strong message about how when you start at McDonald's, the opportunities are limitless,” says Floersch. Even the McDonald's application form vividly communicates this message by showing a group of culturally diverse smiling employees and the caption “At McDonald's You Can Go Anywhere!”
McDonald's has also distributed media kits in several countries with factoids debunking the McJob myth. The American documentation points out that McDonald's CEO Jim Skinner began his career working the restaurant’s front lines, as did 40 percent of the top 50 members of the worldwide management team, 70 percent of all restaurant managers, and 40 percent of all owner/operators. “People do come in with a ‘job’ mentality, but after three months or so, they become evangelists because of the leadership and community spirit that exists in stores,” says David Fairhurst, the vice president for people at McDonald's in the United Kingdom. “For many, it’s not a job, but a career.”
McDonald's also hopes the new campaign will raise employee pride and loyalty, which would motivate the 1.6 million staff members to recruit more friends and acquaintances through word of mouth. “If each employee tells just five people something cool about working at McDonald's, the net effect is huge,” explains McDonald's global chief marketing officer. So far the campaign is having the desired effect. The company’s measure of employee pride has increased by 14 percent, loyalty scores are up by 6 percent, and 90-day employee turnover for hourly staff has dropped by 5 percent.
But McDonald's isn't betting on its new campaign to attract enough new employees. For many years it has been an innovator in recruiting retirees and people with disabilities. The most recent innovation at McDonald's UK, called the Family Contract, allows wives, husbands, grandparents, and children over the age of 16 to swap shifts without notifying management. The arrangement extends to cohabiting partners and same-sex partners. The Family Contract is potentially a recruiting tool because family members can now share the same job and take responsibility for scheduling which family member takes each shift.
Even with these campaigns and human resource changes, some senior McDonald's executives acknowledge that the entry-level positions are not a “lifestyle” job. “Most of the workers we have are students—it’s a complementary job,” says Denis Hennequin, the Paris-based executive vice president for McDonald's Europe.
Questions
1. Discuss McDonald's current situation from a human resource planning perspective.
2. Is McDonald's taking the best approach to improving its employer brand? Why or why not? If you were in charge of developing the McDonald's employer brand, what would you do differently?
3. Would “guerrilla” recruiting tactics help McDonald's attract more applicants? Why or why not? If so, what tactics might be effective?
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