My trip to Japan this past week, brought me first to Kyoto, then to Osaka and Tokyo. Kyoto is the City of Temples and Shrines, over a thousand, much of which are all in wonderful condition. The purpose of my trip, was to do a keynote presentation to senior Japanese leaders in the healthcare field, on the transformation that is underway in healthcare around the globe. I also conducted a day-long workshop for middle to senior leaders in the healthcare industry, more focused on advancing leadership development in individuals, teams and organizations.
If you have never been to Japan, go! The Japanese are perhaps the best hosts on earth. They delight in making things easy for you and showing you their country.
Intermingled among the work related events, we had opportunities to visit very interesting shrines where Shoguns sat in court governing regions of the nation back in the mid 1800s. We learned about their culture and styles of leadership. One style that was very disconcerting to me, as I am always late to everything, was that if you were late to a meeting with the Shogun, by a minute, and that was after traveling months to get there, it was time to say goodbye to your comrades. There were very strict codes of behavior in terms of who sat where in meeting the Shoguns, and even more strict
when meeting the Emperor.
In advance of my trip, I read up a lot on the Japanese healthcare system. Like most modern systems, it was based on Bismarck’s model in Germany of a more centrally controlled system. But unlike say Canada and the U.K., the primary involvement from government is in setting prices for everything from 4 stitches to an MRI. The costs are kept very low, such as $105 for a night in a hospital, any hospital.
In the USA, that would be comparable to a hotel on the freeway for one night, certainly not our top hospitals, where rooms run into the thousands per night. The rigid cost structure is transparent, and everyone has to follow it, no exceptions. So, it is hard to run a healthcare business in Japan and be profitable, but everyone is covered, and the quality of care is good, based on Japan having the highest life expectancy rate, and lowest infant mortality rate in the world among other statistics. The Japanese can get into see their doctors usually in a day or two, and that can include top specialists. Japanese typically go to their physicians regularly resulting in better preventative care. And there are few if any lawsuits, and no one goes bankrupt in Japan due to medical bills.
Yet, all is not perfect of course. The system is struggling financially with low costs and an increasingly older population. Moreover, while I was in Japan, there was a series of stories of a surgeon who had killed a number of patients over a several year time span, and it appeared many knew he was incompetent, but challenging a senior physician is difficult to do in a culture like Japan. One article termed it a problem with leadership, that should have intervened to stop this surgeon. I would add a problem with organizational culture, not unlike we see in the US in terms of similar incidents.
In the end, we started some potential fruitful relationships between our school and the healthcare leaders in Japan, and going back to Japan in the near future, seems like a great possibility. Between the hospitality, food and beautiful cities and countryside, it seems like a great place to strike up a collaboration.
Curtis Reusser, CEO of Bellevue based aerospace manufacturer Esterline, addressed a packed crowd in Anthony’s Forum during the most recent Leaders to Legends Breakfast. While discussing his decades-long career in the engineering sector (he’s an alum of UW’s engineering school), Reusser delved into the mechanics of running a large, yet under the radar company, revealing everything from his approach to activist investors to decentralization. Watch the full lecture below:
Christina Fong’s four tips to becoming a more effective networker in 2015
At the dawn of any new year, it’s human nature to take stock of our lives and plot measures to improve them—losing weight, exercising more, procrastinating less, or whatever the doctor orders. In this new year, however, you might consider addressing an area that can enhance your life, your career and your effectiveness as a leader: networking.
Foster Unplugged: Are effective networkers born or made?
Christina Fong: There is some research that indicates that your personality does affect the type of network that you tend to be in. That being said, no matter how introverted or extroverted or selfless or Machiavellian you may be, we all can improve our networking effectiveness.
Okay, then, let’s cut to the chase. What can we do in 2015 to become more effective networkers?
There are some specific behaviors we can improve upon. I’d categorize them into four actions:
Meet new people at networking events.
Diversify your network.
Expand your conversation topics.
Follow your passions (or, don’t try to fake it).
Isn’t meeting new people what networking events are for?
You’d be surprised. Researchers who tracked the interactions of people wearing GPS-embedded nametags found that the vast majority of people at networking events and parties tend to talk only to people they already know. To make the most of a networking opportunity, I urge people to push themselves to break out of their circle of friends and acquaintances, and actually meet new people. Introduce yourself to someone you don’t know. Strike up a conversation with a stranger.
What do you mean by “diversifying” your network?
There’s a great historical illustration of the power of a diversified network in Malcolm Gladwell’s “The Tipping Point.” On an April night in 1775, two patriots rode from Boston to inform the nearby citizenry of an impending British attack. One, named William Dawes, had a limited social network that was largely insular: everyone knew everyone else. The other, Paul Revere, had much more expansive network of acquaintances, many of whom did not know each other. This diversity of connections enabled his message to disseminate widely and quickly (and won Revere immortal fame whilst Dawes was relegated to a historical footnote).
What can we learn from this? The most effective networkers are those who connect with others who are dissimilar to themselves. This means knowing people in different industries and walks of life, from different demographic backgrounds and of different ages. We especially encourage more senior executives to connect with younger colleagues.
What’s the point of expanding conversation topics? Shouldn’t networking be focused?
We tend to talk about school with our school friends, church with our church friends, and work with our work friends. But the most effective networkers are able to toggle between different domains of conversation with different people. A great example is the Silicon Valley venture capitalist Heidi Roizen who is famous for blurring the lines between personal and professional in her extensive and powerful network.
Passion is great, but don’t we sometimes have to attend events that don’t really excite us?
Maybe, but don’t expect to get much out of them. Many of our MBAs make the mistake of going to events they think they should attend or where high-powered people will be. But we don’t typically make meaningful connections at such events because we appear calculating as opposed to genuinely interested. When you follow your passion, your body language changes. Your enthusiasm and openness is incredibly attractive.
What’s the biggest misconception people have about networking?
That it needs to be self-serving, viewing people as instruments to our own objectives. Francesca Gino calls this “dirty networking,” and her studies show that it makes us feel literally contaminated. It is not sustainable. If you are trying to use your network only to help yourself, you are not going to be as successful as if you use your network to help other people. At Foster we talk a lot about the work of Adam Grant, author of “Give and Take.” One counterintuitive takeaway from his work: people who spend time giving to others can be more successful, over time, than those who take from their networks or try to broker a fair exchange of giving and taking.
How can you be a giver without being taken advantage of?
As Grant points out, the most successful givers schedule particular times that they dedicate to helping other people. They also develop some particular expertise to offer their network, some added value that complements the expertise of others. Finally, they recognize that helping others—in a controlled and intentional fashion—actually relieves their own stress, and makes them more productive, even during their busiest periods.
How does effective networking lead to more effective leadership?
You can’t be a leader by yourself. The most influential and effective leaders, especially in the long run, are those who build communities in which it’s easy for everyone to help everyone else. Connectors. Catalysts. Changing the way we think about networking—from how to use people to how to help people—is often a first step in becoming a better relational leader.
With some work, this is attainable to any personality type. Many of our MBAs enter the Foster School thinking I can either help myself or others. But the big “aha” moment is that these are not mutually exclusive. Helping others doesn’t mean you’re not helping yourself. Most of the time, our self-interests are aligned with helping others.
Christina Fong’s tips on networking are adapted from the Foster School’s LEAD, a leadership development course for incoming MBAs. Learn more here.
The Fall 2014 Leading Across Boundaries (L.A.B.) session focused on the topic of dealing with “complexity” in the workplace. In a recent global study, both CEOs and MBA students identified dealing with complexity as a major area of challenge in their work. Bruce Avolio, Mark Pigott Chair in Business Strategic Leadership and Executive Director of the Center for Leadership & Strategic Thinking (CLST) describes complexity as;
“1. When you have a lot of competing and difficult priorities to choose from and not all the information you need.
2. When you are trying to lead systems that have a lot of moving parts and you are trying to figure out how to integrate them to get things done.
3. When you have lots of competing priorities and have to determine how to get each done with limited resources.”
During the session, a panel of business leaders (Beth Schryer, Director 737 Business Operations for Boeing Commercial, Karen Clark Cole, CEO & Founder of Blink UX, and Nick Dykstra, Finance Director at Intellectual Ventures) sat with a group of ten MBA leaders to discuss the challenges they have with dealing with complexity in their current leadership roles. The panel then provided their strategies for dealing with complexity and responded to questions posed by the MBA leaders in attendance. Soleil Kelly, Foster’s MBA Association (MBAA) Leader and Bruce Avolio moderated the dialogue.
See photos of the event below:
L.A.B. sessions enable MBA students to discuss topics of interest with business and community leaders while developing their own leadership skills. The sessions are sponsored by MBAA and CLST. Visit CLST’s website to learn more.
Two years ago, Coinstar Inc., known for its eponymous coin conversion kiosks as well as the movie rental kiosks Redbox, found itself in stasis. Addressing a packed Anthony’s Forum during his Leaders to Legends talk, CEO Scott Di Valerio put it this way, “Think about a company that has two businesses that grew rapidly and then have hit a level of maturity, that’s where we were two years ago.” He knew it was time to shake things up—a process that included a name-change (Coinstar became Outerwall in 2013), renewed focus and vision, and leveraging customer data—all while maintaining their unique company culture. During his time at the podium, Di Valerio expanded upon the three latter aspects, explaining how each one plays a pivotal role in the story of Outerwall.
Know thy customer When discussing Outerwall’s marketing strategy, Di Valerio made it clear that data is king. After the company name-change, Outerwall purchased a NASCAR truck and began regularly sponsoring banners in Seahawks and Sounders games. These decisions, Di Valerio revealed, are driven by data that indicate high brand loyalty among sports fans—a key factor when deciding who to market to. “When we took a look at where to push our product brands, and our demographic, and our consumers,” Di Valerio argued, “sports is the highest return area for us to go.” Outerwall also invested in a CRM system, enabling the company to begin sending targeted emails, track user behavior, and provide incentives for customers who haven’t used a Redbox kiosk in a while. Likewise, customer data can also be the reason to end a service. When answering a question on Outerwall’s decision to shut-down the short-lived streaming service Redbox Instant, Di Valerio points to the data that reveals Redbox customers to be transaction-based and more interested in new release movies—something subscription-based services cannot provide.
Focus Every action Outerwall takes must fit within its four strategic pillars:
1) Lead in automated retail
2) Optimize core business
3) Grow business probability and
4) Invest in strategic platforms.
One such action is their investment in ecoATM, a kiosk that enables users to sell their old mobile devices (cell phones, mp3 players, and tablets) for cash. In support of the venture, Di Valerio points to other mobile buy-back programs like mail-in services, store credit offers, and online classified ad. All of which, Di Valerio argues, is not exactly customer-friendly, stating “the number one thing people want from their used electronics…is cash, not store credit or credit on their bill.” By deploying ecoATM, Outerwall will continue to leverage automated technology while delivering a service that no one else can provide.
Strong company culture
As CEO to a company with over 2500 employees, Di Valerio sees his role as chief “encourager” of sorts, promoting teamwork and removing roadblocks that impede innovation. To this end, he keeps his hiring philosophy pretty simple, stating “Hire people that can take your job and don’t be intimated by it.”
Outerwall also maintains an environment of giving, with over a third of Outerwall employees regularly volunteering at charitable organizations (the company matches employee volunteer hours and contributions). The company also donates 1 percent of its after-tax profits to non-profits, a move that Di Valerio says works double-time, creating a positive workplace while attracting a “different kind” of investor/shareholder.
While it may take several years to truly understand the implications of Outerwall’s transformation, it is clear that Di Valerio is very excited about the direction his company is taking and will continue to, in his own words, “find a better way for a better every day.”
The Executive MBA experience kicks off each fall with a five day residential program at Skamania Lodge on the Columbia River east of Portland. Away from the distractions of daily life, first year students immerse themselves in intensive instruction, collaborative projects and bonding with their fellow students. Here are some snapshots of this year’s residential session, with comments by students on the value of the experience, including a challenging class with the inimitable Charles Hill, Professor of Management & Organization and the faculty director of the EMBA Program.
“The rapid pace of learning at Skamania was outstanding. The professors provided ample material to read, contemplate and absorb in preparation for five consecutive days of class. During the daily sessions, students were required to recall significant portions of the assigned material to examine precepts of micro economics, finance and leadership.”
“Charles comes at you as-advertised – fast and intense – with questions requiring that you to not only read the assigned material, but also to think deeply about it. This deep thinking will get you about 60% of where you need to be. From there, you have to take a deep breath, sit on the edge of your seat and lean into it. Fortunately, the intensity of Charles’ class session is matched by his love of teaching and fair approach. It won’t hurt too badly.”
“The intensity at residency was unreal. Long days, amplified by classroom encounters with professor Charles Hill out of Scared Straight resulted in a searing educational experience. I’ve never learned more in a shorter time period. The fear of failure in the classroom quickly dissipates as everyone participates, and gets not-so-politely corrected by professor Charles Hill.”
“There were three constant thoughts that ran through my head while at Skamania and in the Charles Hill hot seat:
No matter what you do, do not criticize the text or mention that it might be a little dry because the guy standing in front of you (Charles Hill) wrote it.
If I look him directly in the eye maybe he won’t see me …. darn it, that didn’t work!
Everyone is watching so here goes nothing! Please be the correct answer, please be the correct answer….
On a serious note I remember thinking how interesting his class was and that despite being exhausted what a good job he did keeping us all engaged in the class. Additionally I recall thinking how impressed I was with the caliber of the professors and how lucky I was to be a part of such a smart and talented cohort, Skamania was a very humbling experience for me.”
“Skamania overall was a tremendous opportunity to sit through several intense days of class and brush away the mental cobwebs. More so, though, it was an opportunity to spend focused time with your new classmates and teammates. A great time to start some shared experiences and friendships of a kind that are harder to find the older you become.”
As the executive director of the Seattle Symphony Orchestra, Simon Woods must strike a delicate balance between the business and artistic sides of his organization. While for-profits may be based on creating value, non-profits are centered on creating “impact.” So, there’s always a struggle when deciding to “do things that lose more money, but make more impact,” Woods said.
On October 29, Woods presented at the Leaders to Legends lecture series and discussed the recent challenges and transformations the Seattle Symphony faced under his direction. According to Woods, the previous decade was not an easy one for the organization, beset by external pressures like the recession, and internal friction from the misalignment of artistic vision among members. Symphonies are large and fragile organizations: “They’re like giants—they fall hard,” he said.
Woods came to Seattle in May 2011, during “a moment of great artistic potential aligned with a moment of financial peril,” he said. Together with Music Director Ludovic Morlot, Woods has been instrumental in defining and executing a vision to establish the Seattle Symphony as a dynamic, forward-looking, and community-focused organization. Woods worked previously as Chief Executive of the Royal Scottish National Orchestra, President and CEO of the New Jersey Symphony Orchestra, and Vice President of Artistic Planning and Operations at The Philadelphia Orchestra. He’s spent the better part of 20 years on the business side of music.
Woods explained the six-part plan that helped turn things around for the Seattle Symphony.
Change the brand from traditional to contemporary. According to Woods, Seattle is a progressive city, so it needs a progressive orchestra.
Plan boldly. To match the new brand, the Seattle Symphony started taking more risks in its programming by performing more contemporary pieces, playing in different spaces, and collaborating with rock, pop, and rap artists.
Control the messaging. Woods underscored the importance of staying on message, so that the organization could present itself as “the orchestra of Seattle, not just in”
Work to build a financial bridge to the future through fundraising and re-budgeting.
Focus on the long term. The Seattle Symphony didn’t ask its constituents for help now, but rather for help becoming a great organization for the next generation.
Gather morale. Woods wanted to “build an internal culture of collaboration and harmony.”
So far the plan has paid off, and the Seattle Symphony has balanced its budget for three years in a row. When you “invest in reflecting the values of your city, not surprisingly, you get rewarded,” Woods said. More significantly, the organization’s impact has not diminished. In fact, the Seattle Symphony has a greater impact than ever, as demonstrated by the launching of new projects like its music education program, prison outreach program, and the creation of a record label, to name a few.
The challenges may not be over, but Woods remains optimistic. “As the world speeds up, there is more and more need for beauty and peace in life,” he said.
Brad Tilden knew it was a long shot. As a young finance executive at Alaska Air Group in the mid-1990s, Tilden made the case to his CFO that sending him to the Foster School’s Executive MBA Program would be a sound investment. “The company wasn’t flush in those days, and we had always taken a conservative view on costs,” he recalls. “So I didn’t expect the answer to be quick or positive.”
But after conferring briefly with then-CEO John Kelly, Tilden’s boss came back and simply wrote “OK” on his proposal. “I was thrilled,” says Tilden, Alaska’s current chairman and CEO.
So began a long and symbiotic partnership between Alaska and Foster that goes far beyond the company’s significant philanthropic investment in the school.
The EMBA Program has become a de facto executive training academy for Alaska leadership. To date, 22 of its most promising executives have graduated from the program. Many now serve in senior roles at the company, including Tilden (EMBA 1997); Ann Ardizzone (EMBA 2008), vice president, strategic sourcing and supply chain; Karen Gruen (EMBA 2010), vice president, corporate real estate; Kris Kutchera (EMBA 2009), vice president, information technology; Andy Schneider (EMBA 2009), vice president, inflight services; Joseph Sprague (EMBA 2007), senior vice president, communications and external relations; Shane Tackett (EMBA 2011), vice president, labor relations; Shannon Alberts (EMBA 2005), corporate secretary; and Diana Shaw (EMBA 2013), vice president, customer service.
And though former CEO Bill Ayer’s (MBA 1978) MBA came from Foster’s full-time program, he has brought his formidable expertise and insight to teaching the EMBA’s powerful “CEO and the Board” course for nearly a decade.
Tilden says the impact of this cohort of Foster-educated leaders is evident throughout the firm: “Having a critical mass of people with a common education and disciplined approach helps us frame issues and execute solutions more quickly.”
“The EMBA Program has played an important role in developing high-performance leaders at Alaska,” adds Ayer. “The classes, the teamwork, and the networking opportunities add up to a unique learning experience. In a business where people are the only sustainable competitive advantage, a Foster EMBA provides a critical edge.”
Business Leadership Celebration honors remarkable alumni, sings a Disney tune
The University of Washington Foster School of Business welcomed the CEO of Disney and honored three remarkable leaders—a healthcare entrepreneur, a pioneering academic and a city-defining developer—at its 23rd annual Business Leadership Celebration at Bellevue’s Meydenbauer Center last night.
The evening’s hosts were UW Regents Marnie Brown (BA 2014), a student in the Foster School’s Master of Professional Accounting Program, and Orin Smith (BA 1965), retired president and CEO of Starbucks.
In his keynote conversation, Robert A. Iger, chairman and CEO of the Walt Disney Company, shared his essential traits of a great leader: curious, optimistic, focused, fair, thoughtful, decisive, risk-taking, courageous, innovative, and a perfectionist to boot.
In Q&A with ABC News correspondent Cecilia Vega, Iger embarked on an entertaining meander of topics, ranging from his humble start at ABC four decades ago (when his myopic first boss declared him “not promotable”) to the great leaders who influenced him (including Roone Arledge, Tom Murphy, Michael Eisner and Steve Jobs). He recalled the risk he took to bring “Twin Peaks” to the small screen and the even larger risk that Walt Disney took to bring “Snow White” to the big screen. He noted successful Disney acquisitions of Pixar, Marvel and Lucasfilm (for a total price tag of more than $15 billion), and shared a laugh at his folly in greenlighting “Cop Rock,” a short-lived TV police musical in the early ’90s. And he celebrated the Disney’s historically successful first animated feature directed by a woman—Jennifer Lee’s “Frozen”—and historic construction of the company’s largest castle ever for Disneyland Shanghai.
“I’m often asked what I think Walt Disney would think of the company today,” Iger said. “I think he’d be unbelievably proud. We’ve managed, after 91 years, to continue to be relevant to a world that doesn’t look anything like the world that existed either when Walt founded the company in 1923 or when he died in 1966. And we’ve done so without compromising the values that Walt put into everything that was Disney: notions of optimism and inclusiveness, universally appealing stories that touch people’s hearts.”
Walt Disney famously said that “if you can dream it, you can do it.” No one embodies this notion better than the three recipients of the Foster School’s 2014 Distinguished Leadership Awards.
Dan Baty (BA 1965) is a life-long entrepreneur who has catalyzed successful ventures in international healthcare, wine and wealth management. After growing a small chain of nursing homes in his early career, Baty co-founded Emeritus Senior Living, a network of assisted living and retirement communities in 45 states. Today he’s principal of Columbia Pacific Group, a private equity and wealth management company he founded more than 30 years ago.
“Suggested speaking topics tonight were impact of the business school, and lessons learned in 43 years of business.” Baty said. “My immediate response to both of these was: relationships. And many started as an undergrad at the University of Washington.”
Nancy Jacob (BA 1967) became the first female dean of a major American business school when she was appointed to lead the Foster School in 1981. The school’s Executive MBA Program launched during her tenure. After retirement from the UW—where she was the first female full professor of finance—Jacob founded NLJ Advisors and Windermere Investment Associates and established a successful second career in the financial services industry.
Jacob remarked on the dearth of women in finance at the beginning of her pioneering career and the ongoing challenges for women in traditionally male fields. “We make a big deal of the glass ceiling for women executives in their careers,” she said. “But that’s misleading because life is not a vertical climb. It’s a multidimensional trip. It doesn’t come with an easy button or a fair button. It is what it is. But when one door closes, another opens. You have to be flexible and you have to be willing to deal with adversity.”
Kemper Freeman, Jr., (UW 1963) is the chairman and CEO of Kemper Development Company, the driving force behind Bellevue Square, Bellevue Place and Lincoln Square—four million square feet of award-winning mixed-use real estate. Freeman studied economics and political science at the UW and pursued careers in farming, radio, banking, real estate, and even a stint in the state legislature before joining the family business that has reshaped the city of Bellevue.
Freeman shared his family’s philosophy of devoting 30 percent of waking hours to the community, saying that the “absence or presence of private-sector leadership within a community makes or breaks that community.”
He also credited the amazing diversity of successful local companies—Boeing, Microsoft, Costco, Amazon, Nordstrom, PACCAR, to name a few—as well as the Foster School with making this a golden age for the region’s economy. “There’s so much bad news going around,” Freeman said. “But if this isn’t Seattle and Bellevue and the Northwest’s best time of all, I don’t know what it is.”
More than $100,000 in net proceeds from the UW Foster School Business Leadership Celebration will support scholarships and help create futures at the University of Washington.
Keeping the customer as its lodestar, Alaska Air Group navigated a turbulent decade to emerge as one of the marquee companies in the Pacific Northwest
Alaska Air Group recently moved into to the Fortune 500, that ultimate collection of the nation’s elite businesses, that manifest marker of size and success.
It was no small feat for a comparatively small, independent carrier to join the big boys in an industry marked by brutal competition, rampant consolidation, and chronic crisis. And it was even more remarkable that Alaska sustained its growth through a decade of Herculean trials.
So you might expect this momentous milestone would call for some serious celebration at the company’s south Seattle headquarters. Some bottles of champagne, perhaps. A press release, at least. Did they even pause to savor the achievement?
“We celebrate a lot of things,” says Brad Tilden (EMBA 1997), the chairman and CEO of Alaska Air Group. “But we didn’t really celebrate joining the Fortune 500.”
The understatement adds up when you consider it comes from a man possessed of a pilot’s cool and an accountant’s good sense leading a company with roots in the Last Frontier.
“It’s like compound interest,” Tilden adds. “Somebody had a really good idea 82 years ago, and we’ve been working at it year after year.”
Alaskan roots, American dream
That somebody was Linious McGee, who began flying passengers and cargo in his three-seat Stinson between Anchorage and Bristol Bay back in 1932. A merger, two years later, with Star Air Service created Alaska’s largest airline, eventually renamed after the state.
At the industry’s deregulation in 1978, Alaska was the 24th largest airline in the US. And it was just beginning expansion into the Lower 48. By the end of the 1980s, Alaska Air Group had added regional carriers Horizon Air and Jet America. It had enjoyed nearly two decades of profitability and sustained growth. And it had earned a reputation for superior customer service.
Economic prosperity and low fuel costs kept Alaska growing through the 1990s.
But Tilden, who joined the company from Price Waterhouse in 1991, says that Alaska Airlines was growing almost despite itself. Friendly service masked a declining efficiency of operations. Complacency had crept in, a culture of good enough, not great.
As the century turned, Alaska’s internal vulnerabilities were about to be mortally tested.
The century’s first decade began in tragedy. The January 2000 crash of Alaska Airlines flight 261—half of its 88 victims being employees, family members or friends—sent the tight-knit company into mourning.
It was only the first of a litany of trials to challenge both airline and industry. Shortly after the dot-com bubble burst in 2001, the attacks of 9/11 altered air travel forever. The SARS scare of 2003 followed. Then oil prices spiked just as the financial crisis shook the foundations of the global economy.
Amid the external pressures, Alaska Airlines faced a litany of contentious labor contract negotiations beginning in 2003. Strained morale brought a dip in performance. There were simply too many late flights and mishandled bags.
“Alaska was burning through the goodwill it had earned over many decades,” says Bruce Avolio, director of the Center for Leadership and Strategic Thinking at the University of Washington Foster School of Business.
A new case study by Avolio, Chelley Paterson and Bradford Baker chronicles Alaska’s decade of dilemma. Survival would require absolute transformation—modernizing operations and slashing costs—without sacrificing the legendary customer service experience that had made Alaska Alaska.
“There was an increasing recognition among the leadership,” says Avolio, “that the course they were on could not continue.”
Crossing the Rubicon
The situation demanded decisive action. And fortunately, Bill Ayer (MBA 1978) had risen up the ranks to become CEO in 2002.
“At a time when this business required a person of tremendous courage,” says Tilden, “Bill was the perfect leader.”
Ayer never wavered from hard—and sometimes heartbreaking—decisions. The first set the tone for the company’s transformation. Amid an epidemic of default that swept the major carriers, Ayer declared that Alaska would not seek bankruptcy protection.
“We figured out what our costs needed to be for us to be viable and said to ourselves that we simply have to get there,” recalls Tilden, then CFO.
Among the difficult moves to ensure the company’s survival were a painful round of layoffs, the outsourcing of some ground operations, and some pragmatic dealing for concessions from the unions.
“The choice to stay out of bankruptcy helped the company downstream,” Avolio says. “By not destroying people’s pensions and protecting this covenant with their employees, Alaska’s management salvaged a degree of trust.”
That trust would prove vital.
Fix Seattle, then the company
If cost cutting took toughness, improving performance took smarts. There was a lot to fix, but Ayer and Tilden chose, wisely, to first fix Seattle, Alaska’s largest hub.
“We identified the basic things we needed to improve upon to be successful—safe operations, on-time performance, low fares and great customer service,” says Tilden. “And we focused relentlessly on them.”
Applying lean methodology and measuring every task, performance began improving immediately, first in Seattle and then throughout the network.
“Once they fixed Seattle, Alaska demonstrated what can be accomplished in its other cities,” says Avolio.
The dramatic transformation has been widely confirmed. Alaska has been rated highest in customer satisfaction (among traditional network carriers) by J.D. Power seven years in a row. It’s been number one in on-time performance four years running according to FlightStats.com. Outside dubbed Alaska its “Best Airline” in 2014.
Alaska has earned highest marks in just about every category awarded: air cargo handling, delivery and logistics, technology, maintenance, sustainability, philanthropy, loyalty program, employee satisfaction—even friendliness to pets.
And aggressive expansion to the East Coast, Midwest and Hawaii when others retreated has made Alaska one of the fastest growing companies in the industry.
The importance of being Alaska
That growth has lifted Alaska into the Fortune 500. The company may barely have noted the milestone. But Seattle should.
Alaska’s ascendancy adds another industry leader to the region’s increasingly diversified economy, according to Suresh Kotha, the Olesen/Battelle Excellence Chair in Entrepreneurship at the Foster School.
“Having another service-based company like Alaska become a dominant player in its industry creates jobs, broadens our economy and buffers us against the kind of cyclical downturns we used to face.”
He’s referring to the not-so-distant past when a slowdown at Boeing threatened to shut down the city. But today Seattle enjoys a far healthier balance of manufacturing, service and retail. The region is home to nine of the Fortune 500 plus other powers in a wide array of industries including aerospace (Boeing’s continued strong presence, plus a galaxy of suppliers), software (Microsoft, RealNetworks), retail (Amazon, Starbucks, Costco, Nordstrom, REI, Eddie Bauer), truck manufacturing (PACCAR), trade (Expeditors International), forestry products (Weyerhaeuser), and clusters in telecommunications, biosciences and gaming.
A successful airline adds to the economic diversity. “It’s making Seattle one of the nation’s best places to do business,” Kotha says.
Avolio adds that other companies could learn a great deal from Alaska’s customer focus and level-headed navigation of crisis “with discipline and focus.”
The other lesson of Alaska, he says, “is that the essence of great leadership is building a sense of ownership in employees and customers.”
Ayer asked a lot of Alaska Air Group’s employees to save the company in its darkest hour. And those employees stepped up.
“We are the only legacy airline not to have filed for bankruptcy, thanks to the determination of our people,” he says. “What we learned by doing the hard work ourselves bodes well for our future.”
In 2012 Ayer passed the controls to Tilden, a new kind of leader for a new chapter in Alaska’s story. His focus today is on fine tuning the customer experience.
Tilden is continuing to foster Alaska’s celebrated culture of innovation that delivered the industry’s first online ticket sales and check-in kiosks, and is now developing apps to remove the anxiety from travel. “The goal today is to be the easiest airline in the world to fly by 2017,” he says.
Of course, technology can only do so much. People make the difference. While continuing to cultivate top management prospects in the Foster Executive MBA Program (see sidebar), he’s really trying to push the airline’s leadership to the front lines.
“The big opportunities going forward will come from consistent execution and delivery of service across every airport and every employee,” says Tilden.
To that end, he has initiated two company-wide programs to engage every employee and empower them to lead. It helps that they have a vested interest. As the profit-sharing program that Ayer and Tilden started during the lean days of the mid-2000s begins to pay handsomely, the link between airline performance and personal prosperity is easy to follow. That’s good for everyone’s bottom line.
“If the employees want us to be a great airline, we’ll be a great airline,” Tilden says.
The airline industry seems to have stabilized, and Alaska is all systems go, elevating both its standards and goals. An exemplar of corporate responsibility, it’s also a pillar of philanthropy in the larger community—and especially at the University of Washington.
“There is a really special culture at Alaska,” Tilden says. “A real sense of mission, that what we do for the communities we serve—the infrastructure we provide businesses, the connections we provide families—is important.”
“What makes me proudest is the company’s outstanding performance since I retired,” says Ayer. “The team is executing better than ever and, as always, there’s no shortage of challenges. The reality is that there are a lot of factors that are not controllable, so those that are must be very well managed.”
Tilden is ever vigilant. Or, as they like to say in Alaska’s HQ, “Brad’s never happy.”
He’s seen the perils of complacency, especially when most of the challenges ahead are yet unseen.
“In some ways, the challenge was simpler ten years ago,” notes Avolio. “You knew all of the things that were broken; you just had to fix them. Today, you don’t know where the market is going. There are a lot of question marks.”
One certainty is that fierce competition will come from smaller airlines and the big ones (which keep getting bigger through consolidation). Most immediately, Delta is making a significant incursion on Alaska’s prime West Coast territory.
But Tilden believes that Alaska Air Group has found the secret. And it’s not at all sexy. “What’s going to help us succeed over the long run is continuing to do the basics well,” he says. “We need to be safe. We need to be on-time. We need to offer low fares. We need to provide great service. Those things are 100 percent in our control. And I think if we get them right, we’re going to win.”