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Continental was founded in 1934 and offered jet flights starting in 1959. The company continued to offer more destinations around in the U.S. as well as around the world. The deregulation of 1978 caused trouble for Continental for the next 15 years. The company had never earned a profit outside of bankruptcy between 1978 and 1994. In 1993, Continental filed its second bankruptcy only ten years after the first. The company was headed for a third if it didn't get its act together. Continental was the result of seven airlines that merged together. The company's old strategy was to reduce costs and cut out features that were important to customers. Continental had ten presidents in ten years. Employees where not driven to make the company better. Employees were ashamed to work for the company and the culture was terrible. If an employee wanted to move up in the company, they would get the person ahead of them fired. They learned not to tell supervisors when something needed to be changed and had no care for Continental. Out of the ten largest U.S. airlines, Continental ranked tenth, in 1992. Consumers knew this airline was the worst, and avoided flying if at all possible. The planes looked old, they didn't match, and the seats on the planes were different colors. When something needed to be replaced, a part was taken from an airplane that was not in use. Flights were more often late then on time, resulting in a lot of money being spent to put customers on different flights and in hotel rooms. Once Gordon Bethune, CEO and Greg Brenneman, COO, took control, things started to look up.

Key Issues

Brenneman and Bethune had many goals in mind when they first got together. They needed to "fly to places people wanted to go, when they wanted to go, in clean, attractive airplanes; get them there on time with their bags; and serve food at mealtimes" (Brenneman 4.) In order to do this, they knew these things had to happen fast.

Continental currently has a competitive advantage over other airlines. Customers receive One Pass miles when they fly and earn free flights. The company has added kiosks to make checking in much easier for customers. Brenneman and Bethune also have made the Continental culture much more positive by empowering employees, listening to suggestions, and offering incentives.

Four Generic Building Blocks

Today, the four generic building blocks are an asset to Continental. Efficiency is the cost of an input to produce a given output. Continental's old strategy was to offer the pilots incentives to reduce fuel. It seems like a great idea; however the effects of this were higher costs. To reduce fuel, pilots would slow down flights, causing delays and missed flights which cost a lot of money to fix. They would also skimp on air conditioning which aggravated travelers to the point were they didn't want to come back. The company also incurred higher costs because employees had to work over time. Now Continental offers many incentives. To raise the efficiency of the company, employees who have perfect attendance for six months in a row are eligible for a fully loaded Ford Explorer and gift certificates. This has lowered employee sick leave by 20%, saving the company much more than it would have paid out. Another source of efficiency is the incentive program the company has established. Every month that Continental is in the top three airlines in on time flights, every employee receives a $65 bonus check sent to their home. If the company comes in at number one, employees receive $100. Again, the money Continental saves by not paying to put customers on competitor flights or in hotel rooms, is more than half of what would have been spent.

High quality service is very valuable to travelers. The old Continental was not reliable at all. The majority of flights were late causing much frustration. Once Continental implemented the on time flight incentives, a major turn around happened. The company's flights went from 40% on time to 80% on time within a few months. Customers also perceived Continentals airplanes to be of high quality once they received a make over. All of Continentals planes were painted inside and out, given a new logo, and renovated interiors to match. Travelers thought the company had bought a whole new fleet, when in fact some of the oldest planes were in its fleet.

Innovation at Continental came about when Brenneman and Bethune implemented their strategies throughout the company. One innovative process came from an employee suggestion. The bag handlers thought it would be nice to get the luggage of priority customers to the conveyor

belt first. It would be at no extra cost to the company and it would result in many happy people. The baggers simple loaded bags marked "priority" on to the first carrier and the rest on the second.

The most important turn around at Continental involved customer responsiveness. The main objective of this turn around was to offer the customer what they wanted and to stop the cost cutting. Once the company did this, it knew that revenues would increase faster than costs. First the company started off by calling every person they angered and apologized. The CEO, COO, and other executives in the company were responsible for doing this. They begged for forgiveness, asked for input, listened to complaints, and explained the turn around. Most customers were very surprised and decided to give Continental another chance. The next strategy was to "talk to the traveler in seat 9C." This is generally the isle seat near the front, occupied by a business traveler who pays full price. Continental asked what they were willing to pay extra for and they responded; safe planes and terminals, on time flights, comfortable planes, and reliable baggage handling. Continental was already exceptional in safety so this survey resulted in the cosmetic changes of airplanes and terminals, as well as the logo change. The company also increased the cleaning schedule of the planes. Continental reduced flight routes that were empty and increased routes that were desired.

Prior Strategy

The prior strategy was to cut costs which lead to angered travelers. This strategy has not help create any of the current distinctive competencies. It drove Continental to lose customers as well as revenue.

Barriers to Imitation

The current strategy of Continental has four areas which created a major competitive advantage. It is called the "Go Forward Plan" and it was implemented in 1994. The first part of the plan is called "Fly to Win" and it focused on the marketplace. Continental decided to build up its main hubs and expanded their



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