Thomas Cook: Lift Off

An update to the Thomas Cook story illustrates how this works on the front lines.

Manny Fontenla-Novoa, an up-through-the-ranks executive, stepped into the CEO’s position at Thomas Cook in January 2003, with his eyes open. He said, ‘‘Thomas Cook is an amazing organization. It has more than 150 years of proud history. I want this to be the best and most successful period of Thomas Cook history so it will be around for the next 150 years. This is not a stepping stone to something else for me; this is it. This is our time.’’

His predecessor had spent the prior 18 months engineering a much- needed financial turn-around. But Manny recognized that bringing costs in line was only the first phase of the dramatic and lasting transformation they sought. To lift the organization from third place in its industry to the top spot would require that they grow faster and more profitably than their competitors.

No mean feat, that. The industry, it seemed, had suffered more than its share of setbacks. Just as Thomas Cook laid plans to take the Florida vacation market by storm, the September 11, 2001, terrorist attacks and the following anthrax scares intervened. Following this shock, global travel volume plummeted, and discretionary vacation travel was hit the hardest.

Over the past year, the company had restructured from independent vertical businesses—airlines, tour operations, and distribution—to a single coordinated operation. A few lingering elements of the consolidation were still in process, but the leadership team had implemented consistent financial processes, consistent human relations practices, and consistent rewards and incentives to focus all of Thomas Cook’s 13,000 employees on the good of the whole.

By mid-2002, vacation travel peeked out of the shadows, but the Iraqi conflict and the SARS threat drove it back again. In addition, sluggish economic conditions across Europe made customers especially price-sensitive. As a result, vacation travel was changing. The straightforward packaged vacation market of the past was fracturing into components. People wanted short breaks as well as longer stays. They wanted to take advantage of a discount Internet airfare as they pieced together their plans. And they wanted more flexibility than ever before in designing their own itineraries.

Focus on the Front Office

To drive profitable growth, Manny wanted to take full advantage of the back-office consolidation that the company had implemented through its cosourcing agreement with Accenture. More important, however, he wanted to place his focus squarely on the front-line business. He began by rebuilding his management team.

Glenn Chip, a colleague of Manny’s from the tour operations business, stayed in place as the head of the Thomas Cook airline, but Manny appointed a new finance director and director of HR. He also asked Russell Margerrison to take responsibility for yield. Margerrison had joined tour operations finance just in time to help implement the SAP general ledger and transfer the operation to Accenture. In Margerrison’s new role, he managed all the prices—for vacations, foreign exchange in the retail network, fees for third-party travel agents, insurance companies, car hire, and airport parking lots. He explained, ‘‘If I price too high, sales can’t sell the holidays [vacations]. If I’m too low, margins slip. Plus I have to operate within the competitive market. We have pulled this activity together to a single location, and we now change prices on a daily basis.’’

Manny also brought in outsider Chris Onslow as his managing director of sales. With a background in retail, not travel, Chris took responsibility for everything that faces the customer—all the channels from the shops and foreign exchange bureaus to the direct TV station, Web site, and business-to-business activities. Onslow admitted he was initially reluctant to join Thomas Cook, considering it too much like the BBC and Barclays and not enough like Virgin. Ultimately, Manny’s vision and passion convinced him his perception would soon be wrong, if it were not already.

Getting into the Thick of It

Manny and his team charged the organization to get their hands dirty. As an operating executive who had ‘‘zigged and zagged his way up through the organization, touching everyone on the way,’’ Manny intuitively understood the intimate, emotional connection between customers and staff that drove profits. He asked his team to improve profits by 50 percent for each of the next two years.

The first challenge was to make sure the previous administration’s improvements were bedded down and operating sustainably. Tim Barlow, Manny’s new finance director, was not completely satisfied with either the level of financial control or the management information coming out of Accenture’s shared-service center. Barlow was particularly eager to strengthen the practice of paying suppliers only from official invoices and segregating duties to prevent fraud. He began holding regular meetings with the Accenture team to address these control issues and to develop a new finance dashboard that would give management up-to-date access to a daily profit-and-loss statement. Barlow explained, ‘‘The biggest obstacle to improving the center was getting people to recognize we had a problem. Once the previous management acknowledged the issues, it became easier to put improvements in place. Now I am exploring the opportunity to transfer more of my retained team to the center as well as giving the business directors timelier, more relevant information.’’

As the new team took over, however, the back office was in much better shape than the front. Without much ado, Onslow renamed his four contact centers to be sales centers. He explains: ‘‘I wanted to change the mind-set from ‘taking calls’ to ‘selling holidays [vacations].’ We now have targets for flow, targets for conversion, daily targets, personal targets, infinitely more targets.’’ He also launched a sweeping improvement program to implement retail centers of excellence in his 650 high street shops. He asked each of his 27 regional managers to identify one store in the center of their regions to be their model. In that store, the manager would implement best practices. The staff would know how to open the store, what the window card should look like, how to approach a customer, and how to do effective training. When this store was operating at this high standard, it would be certified by the executive team as ‘‘Fit for Trade 1’’ in its region. As the manager rolled these practices out across the region, the model store would begin pushing best practices to the next level to become ‘‘Fit for Trade 2.’’ Onslow recounted: ‘‘This approach gives us both consistency and improving profitability forever. When you are in a business our size, you have a big problem if your poster is wrong. This way, you never roll out your mistakes.’’

Onslow was not the only member of the executive team who was involved with the centers of excellence. Both to give the model stores the benefit of top management attention and expertise, and to connect top management more closely to the business, each of the top 27 executives in the company adopted one of the centers as his or her personal charge. ‘‘The stores grow up as a result,’’ Onslow explained. ‘‘The first thing that happened is that performance went down. Sales went down; morale went down. The only thing that went up was pressure to perform. People were ringing up to complain that they couldn’t stand to be monitored every day. They said it was ridiculous to think their entire staff would know the brochure. But we got through that, and now people are excited about the direction we are taking. We launched this program three months ago, and the model stores already have a nine-point sales differential over the others.’’

Improving retail sales was necessary but not sufficient to drive the company’s transformation. Historically, the vertically siloed Thomas Cook had a tidy profit record at retail and in its airline, but these were more than offset by losses in tour operations. The new vertically integrated organization required much more coordination among the parts. Glenn Chip, managing director of Thomas Cook Airlines, laid out some of the challenges: ‘‘The airlines are a factory. What’s best for us is the lowest seat cost per kilometer, so if we can do things in a standard way and minimize change, we will be more cost-competitive. But that doesn’t tell the whole story. If we have capacity on routes where there’s no demand, that’s not good. We have to be flexible enough to see what the market wants and provide that efficiently. It might drive cost in the airlines, but it will improve profits overall.’’

While the sales side could respond immediately to yesterday’s profitand-loss report, the airline had to manage capacity that was relatively fixed for a season. With overall travel demand depressed, the airline’s ability to sell excess capacity to charters was limited. Chip’s challenge was to optimize the route structure based on demand and profitability, with a careful eye on fixed-cost allocation and contribution to overhead. In addition to coordinating with the Thomas Cook tour and retail operations, Chip had to work with parent company executives in Germany to plan how the airline would operate as a pan-European system. He explained: ‘‘We are trying to establish what can sensibly be centralized to drive out the costs that customers don’t care about, like adopting common aircraft types and common maintenance procedures.’’ To make sure the organization kept its priorities straight, Chip reminded his colleagues: ‘‘Our customers are not sophisticated businessmen; they are families on holiday [vacation]. It’s our job to give them a holiday [vacation] experience. We should drive costs down to compete with the no-frills airlines, but not to the point where we become a ‘no thrills’ airline.’’ Nadine Jones, acting director of HR, added: ‘‘We are not selling a shirt or a toaster that you carry out of the store; we are selling a dream.’’

To orchestrate the next stage of Thomas Cook’s transformation, the executive team was hungry for better management information. Barlow was working on a daily P&L to help operating managers throughout the company adopt a profit focus. Margerrison, the director of yield, sponsored the introduction of a revenue-management system to enable his analysts to manage prices with day-to-day responsiveness. Onslow added: ‘‘Eventually I would like to send every member of the sales staff a sheet in every pay envelope that says: ‘Here’s how you did this period on the P&L.’ I want to drive accountability to profit; not margin or market share or any of those other things we have measured in the past.’’

The executive team’s passion for better information extended deep into the organization with a new initiative called ‘‘eXcelerate.’’ Its objective was to provide a knowledge base and simulation-based training program to bring every sales associate rapidly up to the level of the best person in the business. Onslow explained: ‘‘We wanted to take the wisdom of someone with 25 years of experience and implement that in formal training for our new associates. And we wanted to bring the experience of everyone who travels with us back to our sales centers.’’

Working with Accenture, the executive team crafted a sales simulation to coach an associate through the sales process, helping him or her identify customer needs, recommend vacation destinations, and close the business. If the associate failed to offer the best vacation option or missed an opportunity to add a rental car to the package, the system was designed to take the associate back to the point in the conversation where he or she had made the error. ‘‘It’s a fabulous tool,’’ Onslow remarked, ‘‘more like a one-on-one coach than short-lived classroom instruction.’’

The training system was based on a detailed map of the sales process as well as an extensive knowledge base about vacation destinations and experiences. To build the knowledge base, Thomas Cook asked everyone in the business, including the customers, to send a postcard when they traveled. A customer might write, ‘‘On my trip to Malta, I found a romantic little church. I got engaged.’’ With this kind of information a sales associate who had never been to Malta could help a customer imagine the possibilities.

The executive team recognized that the cosourcing relationship with Accenture had been instrumental in helping them design and implement the next phase of the company’s transformation. This included upgrading management information across the board as well as developing the new sales training systems. Onslow noted: ‘‘The cosourcing relationship is cleverly set up to be measured in part on innovation, so Accenture comes to us with tools like eXcelerate.’’ Manny added: ‘‘The great thing about this is that we are doing it on a profit-sharing basis. Accenture is prepared to earn money based on the improvement we get from using the tool. That gives us a massive benefit.’’

Passion for Change

If the first phase of Thomas Cook’s transformation helped the company taxi down the runway in the right direction, the second phase aimed for lift-off. As Manny and his team set their sights on making the coming years the best time in Thomas Cook’s history, they recognized the importance of their unique management approach. While they had plenty of short-term targets, their real aim was to create a lasting, successful business. That meant building from the foundation, not just polishing the external appearance.

To reach their high-performance goals, the executive team unwound some of the pay and performance tactics that were in place when they took over. They opted instead for programs to reward, recognize, and encourage their people. Nadine Jones explained: ‘‘Whatever we do today, our competitors will copy tomorrow. How do we move ahead, then? We have to make sure our people are unique. They must be the best motivated, the best trained, the most obsessed with the customer, united as one team, and intensely proud of who we are and what we do. Manny is the right leader for us now, and Accenture is helping us every step of the way.’’

Manny summarized, ‘‘I am passionate about this organization. I have always felt that the teams we have in the field are the best in the industry. They do things every day that go beyond the call of duty. I have the support of the organization, which is fantastic. It spurs me on, and I would never take it for granted. Our job is to inspire and lead these amazing people to achieve. We want to be the company of choice, full stop, and now we have real forward momentum.’’