Chapter 1. Building Effective Organizations - Sage Publications

actually running the automated factory floor,allowing the user to ensure that the PLC soft-ware is performing properly. The system canbe used for debugging new industrial software,retooling, and employee training, all of whichresult in substantial time and cost savings forthe user.

These products, developed by SST, wereoften the result of a solution to a technicalproblem no other company could solve. PGalso had a number of other products and ideasunder consideration for possible launch in 1994or 1995.

PG’s key success factors were appliedresearch, product service and marketing. Newproducts were needed to maintain pace with arapidly changing plant electronic environment.In case of faulty products, a replacement had tobe provided quickly. Also, product awareness bysystem integration engineers, complemented byan efficient and effective distribution network,was vital for PG’s growth.

Integrated Systems Group

ISG was involved in three distinct, yet ofteninterrelated areas of services: consulting, sys-tem engineering and customer support. ISGemployed computer professionals and engi-neers who were assigned to the development ofsoftware and hardware solutions for complexfactory floor systems. Clients were providedwith tested, reliable and sophisticated solutionsfor data collection, custom control software,batching systems, diagnostic systems and pro-grammable controller simulation. ISG also imple-mented and commissioned packaged controlsoftware, and provided project management forlarge and technically complex projects. ISG cus-tomers included industrial manufacturers andinstitutional organizations.

ISG’s key success factors were to completeprojects on time, on budget and of high quality.To date, ISG had received excellent feedbackfrom clients. ISG’s performance dependedhighly on the quality of its employees. Its goals

were for manageable growth, focusing on projectswithin the company’s scope and skills.

ENVIRONMENT

In early 1990, the North American economy wasin a recession. Although recovery was widelypredicted, some results of the recession werepermanent. Companies sought to maintain mar-gins during this recession through downsizingand reducing production costs. SST’s ProductsGroup benefited from this trend because PICSand Direct-Link cards offered ways of reducingthe cost of automating a plant, a move whichoften reduced production costs. The market forPG grew despite the recession. The recessionalso meant that many companies eliminated ordrastically reduced their in-house engineeringcapabilities and sought to subcontract this work,a trend that benefited ISG.

SST’S TOP MANAGEMENT

AND HUMAN RESOURCES

SST was directed by its two owners:

• Richard R. Brock, P.Eng., was the CEO ofSST. During his eight years as president ofSutherland-Schultz Limited, Brock recognizedand nurtured the potential of the ProductsGroup (PG) and Information Systems Group(ISG), which eventually formed S-S Techno-logies Inc. He continued to be involved in allaspects of the new company, and brought toit his extensive knowledge of business manage-ment and development.

• Keith Pritchard was the president of SST.Pritchard had risen through the company ranks,starting as a systems analyst, becoming projectmanager, then group manager, and finally,president in 1992. Pritchard also developed thePICS product that accounted for $500,000 ofcompany sales. His unique set of skills in bothmanagement and technical areas made him anexcellent leader for the company.

38 • CASES IN ORGANIZATIONAL BEHAVIOR

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SST had a flat organizational structure thatallowed it to respond quickly to technical andmarket changes. Anyone who had a door left itopen; employees felt free to take their concernsto whomever they believed could help. Decisionswere often made using a consultative approachthat empowered those involved, which led to“ownership” of problems and their solutions.

Projects were assigned to individuals orteams, depending on the size. The individualsand teams were self-managed. Responsibilityfor project scheduling, budgeting and executionwas left largely in team members’ hands. Suchresponsibility created commitment to the projectfor those who worked on it and led to the highmotivation evident within the company.

Overhead resources, such as marketing andadministration, were kept to a minimum. Forexample, there were only four people on the mar-keting team, which managed over $4 million inrevenues. Administrative support was providedby two or, at times, three people. Even the con-troller (Doug Winger) shared his time with twoother related organizations (SAF and WilsonGas). SST was truly a lean organization.

Resources—PG

PG had highly competent, highly motivatedtechnical teams. The technical people wereleaders in their respective fields, with extensiveand varied educations and backgrounds. Theyworked well together to meet Research andDevelopment (R&D) challenges, and to respondquickly and effectively to customers’ inquiries.Many team members were involved in the origi-nal product development and expressed a per-sonal commitment to PG’s continued marketsuccess.

• Linda Oliver, B.Math., the lead programmer forthe PICS product, had worked on the project asa designer and programmer since its inception.

• Bruce Andrews, Ph.D., was involved in the on-going development of the PICS product, espe-cially the communications tasks and testing;he also wrote the manuals.

• Lorne Diebel, C.E.T., developed a reputation asa communications “guru.” Lorne often travelledto far-off sites, on a moment’s notice, to debuga customer’s application problem.

• Jonathan Malton, B.Sc., a talented hardwaredesigner, had been instrumental in advancingthe Direct-Link cards from the old “throughhole” format to the new “surface mount”technology.

Newer members were added to PG as the paceof R&D increased and customer support becamemore demanding. Newcomers brought theirown areas of expertise, and worked alongside themore senior team members, whose enthusiasmfor their work was infectious.

As a result of its progressive and appliedR&D program, the technical team members wereadvanced on the learning curve. This allowedSST to keep ahead of the competition. As aresult, large PLC vendors often came to SST tosolve their communication and simulation prob-lems, rather than investing in the learning curvethemselves.

The marketing team had grown over the pastfew years as PG revenues grew. People fromboth a marketing and a technical backgroundcombined to create a well-rounded, effectivemarketing department:

• Ian Suttie, P.Eng., a leader in the market group,was involved in design review, marketing, dis-tribution and sales of all products. His mainfunction was to set up a network of distributorsand representatives to reach all major marketsin the United States, Europe and beyond.

• Colleen Richmond had experience in marketingwith other high-tech firms. She handled all thetrade shows, promotional material and advertis-ing activities.

• Steve Blakely was the inside salesperson, andcame to SST with a technical background. Heresponded to enquiries for information, and wasthe first contact within SST for customers hav-ing technical difficulties.

• Colleen Dietrich was recently hired by SST todetermine the extent to which leads generatedthrough the various advertising media used byPG eventually resulted in sales.

Building Effective Organizations • 39


The marketing team worked well together,buoyed by PG’s success. However, they werestretched to the limit, and team members admit-ted they were unable to do everything they wishedto do because of personnel constraints. All knownproduct complaints were acted upon; however,there was no formal audit of customer satisfaction.

Resources—ISG

ISG’s most important resource was its people.The engineers and technicians were not onlytechnically competent, but were highly moti-vated and loyal. The following is a brief sum-mary of ISG people and the skills they brought tothe company:

• Mark Schwarz, P.Eng., an accomplishedsystems analyst and leader in the group, wrotesales proposals, estimated projects, and didmost of the marketing for ISG. He was verygood at business development, seeking outlarge, extremely complicated projects, and oftenhelping the customer define the scope andapproach to the project. Convincing a customerthat you could handle their large, technicallycomplex job was tricky business, but Schwarzexhibited a talent for it. Schwarz also had a talentfor scheduling personnel and was interested inensuring that everyone had something interest-ing to do.

• Vivienne Ojala, P.Eng., an experienced and tal-ented project manager, designer and program-mer, as well as leader in the group, was morethan capable of handling all aspects of designand project management for the $2 million-plus projects ISG hoped to attract. She wasexcellent with customers who preferred her“straight” talk to the “techno-babble” othersgave them. Ojala made the customer confidentthat the project was in good hands, which isvery important when you have asked a manu-facturer to give you a production system thatcould determine business success or failure.Ojala was also good at training those whoworked on her projects, as well as developingpeople in general.

• Peter Roeser, P.Eng., was a systems analystwith special skills in the area of communica-tions and various operating systems.

• Brian Thomson, P.Eng., was an expert in thearea of real-time software development. He alsomanaged projects.

• Ted Hannah, P.Eng., was a project managerand systems analyst with extensive skills andexperience.

• Bruce Travers, who marketed ISG capabilitiesin Ontario and provided technical directionfor projects, had over 20 years’ experience withindustrial applications of information systems.

Due to the diverse skills of its people, ISGwas able to tackle large, complex systems inte-gration projects that most of the competitorscould not. ISG had in-house expertise coveringnearly every technology that would be applied toa project. Also, because ISG was not tied to a sin-gle supplier of PLCs or PCs (as many competi-tors were), it was able to be more flexible andinnovative in the solutions that were presented tocustomers.

Another important ISG resource was itsexcellent reputation and relationship with a largeCanadian manufacturer, which had given ISGsubstantial repeat business. As well, ISG hadcompleted many projects for several large NorthAmerican companies and had never failed todeliver on its promises.

ISG was advanced on the learning curve.New customers benefited from the fact thatISG had faced many challenges before, and solvedthem successfully. ISGs experience was morerounded, and, hence more innovative and currentthan an in-house engineering department thathad only worked in one type of factory.

CONSULTANTS’ INTERVIEWS

The consultant interviewed all SST employees.Some of the observations, which resulted fromhis interviews, are grouped below by issues:

i. Hierarchical Structure

Pritchard viewed Suttie, Schwarz and Ojala asgroup leaders. However, PG members generallysaw themselves as reporting to Pritchard and saw



Suttie as performing the marketing function.When apprised of this situation by the consul-tant, Pritchard said it would take time for Suttieto establish his position.

The ISG situation also proved somewhat con-fusing. A number of ISG members saw Schwarzas a leader. However, there was some confu-sion as to his position vis-à-vis Ojala, who hadrecently returned to SST after leaving to work fora much larger technology company in Montreal.Ojala tells the story of Pritchard begging her toreturn to SST, a story that Pritchard confirms.Ojala saw herself as reporting to Pritchard (andso did Pritchard). Her “formal” relationship toSchwarz had to be worked out.

Before Ojala left SST (she was away forfive months), both she and Schwarz reported toPritchard directly. When Ojala left, many of herresponsibilities, such as some of the proposalwriting and personnel scheduling, were given toSchwarz. Now that Ojala was back, to everyone’srelief, there was the question of how to structureher role, particularly in relation to Pritchard andSchwarz. Ojala would not report to Schwarz, andSchwarz would not report to Ojala.

In a short period of time, Schwarz and Ojalatook on leadership positions in ISG. Informally,they divided the tasks of scheduling, hiring,training and managing customers. They workedin different industrial sectors and tended to dealwith different groups of ISG engineers. However,they jointly made management decisions thataffected ISG goals and maintained a free flow ofpeople and ideas between the ISG groups relatedto each of them.

ii. Commitment and Motivation

The consultant was overwhelmed by the highcommitment to SST and the task motivationexpressed by employees. The people loved thework environment, the lack of politics, the quickresponse to their technical needs (equipmentand/or information), and the lack of talk-for-talk’s-sake meetings. They were confident intheir future and happy to come to work. For theconsultant, this was a refreshing contrast to the

downsizing gloom and doom that permeatedmany other companies he worked with in the1990s.

The employees set their own working hours.They had to put in 40 hours per week, but coulddo this at any time. The flexible working hoursallowed them to engage in other activities thatoccurred between 9:00 a.m. and 5:00 p.m., suchas their children’s school events. Employeeskept track of their overtime and were paid eitherstraight time or took the equivalent in extraholidays. Each employee recorded his/her over-time weekly, and passed on the information toPritchard. Previously, employees had noted theovertime information mentally. Pritchard hadthem write it out and report it weekly, because heobserved that their mental calculations erred onthe side of the company (they remembered fewerhours than they worked overtime).

iii. Personnel Functionand Communications

New employees were generally assigned toa project manager, who informally took on theinduction and training role. In that way, newemployees immediately tied into a task, and itwas left to them to learn the culture and expecta-tions of SST by osmosis. Should the employeesnot perform well, or fit into the culture, theiremployment was terminated.

Periodically, Pritchard would have a meet-ing of all employees to inform them of SST’sprogress, success and direction. Given these meet-ings, Pritchard was surprised to learn that only afew employees were aware of SST’s goals andstrategy.

One issue mentioned by a couple of employ-ees dealt with performance appraisal and com-pany benefits. Performance appraisal wasconducted by Pritchard; however, he did notkeep a record of the meeting, and it was not doneat regular intervals. Also, anyone interested inlearning about benefits or salary ranges forvarious jobs did not know whom to contact. Incontrast, all employees knew whom to contactfor technical information. In fact, performance



appraisal, compensation and benefits weremanaged in an ad hoc manner.

iv. Compensation

Compensation, base pay and bonuses, wasthe most contentious issue that arose from theinterviews. Base pay tended to be at the low endof the spectrum for engineers. New engineersjoining SST compared their salaries to those ofother graduates and, also, to statistics providedby engineering associations, which publishedcomparative data. They believed that the com-parison showed them as significantly underpaid.

Bonus payments also generated concern.Historically, when SST was part of Sutherland-Schultz, the company had a few good years andgenerous bonuses were paid. However, whenthe recession hit, the construction side ofSutherland-Schultz slumped considerably and,although PG and ISG held their profitability, thecompany as a whole could not afford to paybonuses. In fact, SST people were laid off, andsome of those who remained felt cheated. Nowthat SST was on its own, there was an opportu-nity to tie bonuses directly to the company’sperformance. Management wanted the bonussystem to achieve the following goals:

• To develop a cooperative team spirit.• To foster cooperation between ISG and PG, and

to limit interpersonal competition.• To provide extra reward for unique contributions.• To not reward weak performance.

v. Partnering

Given the experience of losing Ojala toanother firm (albeit temporarily), Brock wasanxious to develop a “partnering” system inwhich those crucial to the company’s successcould participate. He wanted to make people likeSuttie, Schwarz and Ojala feel like owners orpartners committed to the company, so theywould not be lured away by the promise ofgreener pastures; after all, the job market forpeople of this calibre was extremely promising.This was true not only of those in managementpositions, but also of the best systems analystsand programmers: people like Linda Oliver andLorne Diebel.

Brock contemplated having part of the part-ners’ bonus to consist of stock in the company.The problem was that these people were allyoung, with growing families, and could notafford to have their money tied up in stock whenthey had mortgage payments and day-care coststo worry about. Generally, their immediateconcern was cash flow, as they knew their long-term earning potential was excellent. Brock’sconcern was how to structure the partners’ com-pensation to keep key people on-side, whileallowing room for more partners to be broughtin as the company grew. The company hadrecently hired a half-dozen talented engineeringand computer science students, all of whom hadthe potential to become the next Schwarz, Suttieor Ojala. On top of all this, Brock still had hisown return on equity to consider.


Culture

• Open communications at all levels• Flexible working hours• Few policies• Profit-sharing at all levels• Quick decision-making• Encourage initiative, not

bureaucracy

People

• Highly motivated• Highly skilled (Tech)• Entrepreneurial• Team players• High performers• Committed to SST

Exhibit 3 S-S Technologies’ Desired Culture and People


WHERE DO WE GO FROM HERE?

Brock, Pritchard and the consultant wanted todesign a compensation system that would con-template an expansion to double or triple SST’sexisting size. They knew the existing SST cul-ture attracted and nurtured highly motivatedand committed employees who expanded thecompany successfully and rapidly. The trio’stask was to design a compensation system that

would support the existing SST culture and thekind of people they wanted to attract (Exhibit3). They also wanted to develop an action planthat would ensure buy-in to the new compensa-tion system.

NOTE

1. Pritchard had a minority share in SST.


OP4.COM: A DYNAMIC CULTURE

Ken Mark

Fernando Olivera

Copyright © 2000, Ivey Management Services Version: (A) 2001–01–23

INTRODUCTION

Feeling full of energy after having a produc-tive company meeting that focused on updat-ing OP4.com’s vision statement, Ray Matthews,co-founder and Internet chief executive officer(iCEO) of OP4.com paused to reflect on thegrowth that his company had achieved. It wasMay 30, 2000 and Vancouver-based OP4.com,an internet portal for teenagers, had just cele-brated six months of existence. With the goalof creating the Internet’s leading portal forteenagers, Matthews knew that OP4.com’s inter-nal culture had to reflect the identity of its Website: hip, cool, spontaneous, witty.

Now that OP4.com’s Web site activities weregaining momentum and media attention, Matthewswanted to maintain this unique culture throughthe next few crucial months of rapid growth andchange. Tom Pressello, co-founder and businesschief executive officer (bCEO) explained theimpetus for change:

Content sites in general are becoming more closelyscrutinized by investors. To facilitate a drive

towards profitability, we have recently divided thecompany into four divisions, each responsible forgenerating revenue. In addition, we’ve got to startthinking about revenue streams on content—wire-less, syndicated content, models for sustaining ourbusiness. I’m sure that because of this change, ourculture has to adapt to this reality.

THE INTERNET AND THE DEVELOPMENT

OF TEEN-ORIENTED WEB SITES

With the advent of instant messaging tools,communities of Internet interest groups beganforming around the world. Web companies likeTheGlobe.com, iVillage and Lycos began devel-oping virtual communities where like-mindedindividuals could congregate. Communicationbetween people became even more advancedwith the development of chat capabilities—amini-industry comprised of companies like iChatand ICQ began facilitating real-time conversationtransmitted electronically. Aside from sheer nov-elty, a significant driver of this change was cost—these services were often provided free of charge


to anyone with an Internet connection, oftenas a means to develop loyalty amongst users.Because many of the early pioneers and adoptersof Internet technology were teenagers, companiesfocusing on the teenaged demographic began totarget this niche market. The goal of communitysites was, in general, to gather a particular targetgroup in large numbers such that the collectionas a whole became attractive to advertisers.Relative to other media such as television, printor radio, it was inexpensive to set up a Web siteand as a consequence, large numbers of commu-nity sites sprang up in the mid 1990s, attemptingto develop into full-fledged business entities bycatering to the consumption needs of their audi-ences and or by selling advertising.

The percentage of U.S. teenagers online aged12 to 19 would jump from 11.5 million to 20.9million between 2000 and 2002.1 During thatsame period, conservative estimates indicatedthat the percentage of children and teenagersonline (more than once a week) as a segmentof the teenaged population, would jump from26 per cent to 47 per cent.

Without a doubt, the teenaged North Americanpopulation was more Internet-enabled than anyother demographic group. This demographicgroup had virtually grown up with the Internetand was very at ease with its technology. Theyhad gained a powerful communication tool withe-mail, and could be in constant, real-time com-munication with their friends anywhere in theworld.

THE CREATION OF THE YOUTH PORTAL

OP4.COM: OUR PLACE 4 EVERYTHING

OP4.com was the brainchild of Stuart Saundersand Ray Matthews, both in their early thirties.Saunders, a full-time motivational speaker, hadworked directly with thousands of teens acrossCanada and the United States. Based in London,Ontario, Saunders was the co-founder in 1990of Leadership Innovations, a leadership companythat provided leadership training and motivationalspeakers to the North American high school

market. Vancouver-based Matthews was a formerschool teacher, award-winning educator, authorand entrepreneur.

Wanting to attract the attention of teenagersand provide them with a place to voice theiropinion, OP4.com’s objective was to build itselfto be a portal, an Internet site that would attractand retain a large percentage of its visitors byproviding multiple communication and informa-tion functions and products (see Exhibit 1).OP4.com allowed teenagers to discuss topicswith each other through electronic chat rooms,use e-mail and bulletin boards and submit arti-cles. The OP4.com concept would need to haveimmediate appeal to this demographic group inorder for its business model to work. OP4.comwanted to position itself as the premier youth-oriented site in North America, with proprietarycontent as a cornerstone.

Saunders commented: “I started this to havea positive Web community for kids. I had the visionbut not the dollars and cents—I was thinkingstrictly of the kids.” Saunders’vision for the site ledto the creation of three content sections: expres-sion, entertainment and empowerment. Saundersfelt that these sections represented all facets ofteenaged life and the issues that teenagers faced.

Expression—This section allowed users to voicetheir opinion and for others to read and critiquethem by submitting responses. Spontaneity wasencouraged and there was a relatively short spanof time between article submission and postingon the site. This was a forum where youth couldwrite off-the-cuff but personal pieces on spiritual-ity, coping, activism and more. These pieces werelimited to 300 words or less and OP4.com’s con-tent editors reviewed these pieces, checking formajor spelling or grammatical errors. This editingprocess allowed OP4.com to screen out hate post-ings and overtly vulgar, undesirable articles.

Entertainment—This section contained reviewsof movies, music, books, sports, television andInternet sites of interest to teenagers. Aimed atkeeping visitors updated on the North Americanentertainment scene, reviews were both writtenby OP4.com staffers and submitted by members.



Also included were interviews of music bandsconducted by OP4.com staff.

Empowerment—This section included self-help,motivational pieces—articles which were meant,in the words of OP4.com staffers, to change theirworld. For example, there were articles titled ACall to Action, People Doing Good, AIDS andTeams Doing Wonderful Things. The content ofthis section was generated internally by inter-viewing selected role models in the youth com-munity. In some cases, articles were solicited fromfeatured youth leaders.

According to Saunders and Matthews, twokey factors differentiated OP4.com from otherteen sites. The first was the fact that their con-sumer aggregation model was unique: it reliedon Leadership Innovations’ speakers to marketto its audience. Since Saunders’ other company,Leadership Innovations, reached hundreds of

thousands of students each year through acombination of motivational speeches, summerleadership camps and weekend leadership confer-ences, there existed the opportunity to promoteOP4.com via speech mentions and bookmarksthat were handed out at the end of every speech orevent. Saunders felt that Leadership Innovations’endorsement of the site would encourage hisaudience to visit it.

The second point of differentiation was thequality of its written content: it published itsown staff articles and monitored the quality ofsolicited content on its site with the goal of devel-oping a consistent, wholesome brand image.

The business viability of content sites hadbeen called into question in mid 2000, withbusiness analysts declaring that content siteswere unlikely to survive as business entitiesunless these sites showed investors a tangiblepath towards profitability.


Exhibit 1 OP4.Com Site Screen CaptureSource: www.op4.com; November, 2000

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THE SENIOR STAFF AT OP4.COM

The three founders of OP4.com complementedeach other’s personalities. Between Saunders,Matthews and Pressello, there was a mix ofvision and attention to detail and a range ofdifferent skills that each brought to the com-pany, including financial management, peoplemanagement, idea development and projectexecution.

Stuart Saunders, iPresident,Co-Founder and Director of Aggregation

Beginning as a high school motivationalspeaker in the late 1980s, Saunders had builtthe largest youth-oriented leadership companyin North America (in terms of youths reached).Currently managing a speakers’ bureau of moti-vational speakers, leadership summer camps,running seminars and workshops, Saunders andhis London, Ontario-based team estimated thatthey reached over 10 million students per year inCanada and the United States.

“Although I am currently the president ofOP4.com,” Saunders offered, “I know that some-time soon, OP4.com will have to bring on some-one more experienced to help run this company.Currently, I spend about 30 to 40 hours a weekon this project, aside from the time I spend pro-moting the site during my speeches.”

Ray Matthews, Co-Founder and iCEO

Forming Balance Fashions Inc. in 1986,Matthews grew the small company into a multi-million dollar direct sales fashion company thathad since expanded to include more than 1,000sales representatives across Canada.

The concept of direct sales with BalanceFashions took off and by January 1990,Matthews had his Balance National Programcounting over 140 sales representatives nation-wide. Matthews wrote “The Dirt on Success,” astrategic entrepreneurial seminar series that waspresented to more than 250,000 individuals in

North America. Most recently, Matthews was thefounder of villagenetwork.com a virtual commu-nity site for artists that was sold to Art VisionInternational.

Matthews commented:

In my position as iCEO, I aim to be the visionary,always encouraging my team and multi-tasking.I’m not strong at linear patterns and minutedetails—that’s why we have Tom Pressello, thebCEO, who handles the corporate financing, chieffinancial officer-type decisions. He starts at ‘no, itcan’t be done,’ then works to ‘yes.’ I’m the oppo-site, starting at ‘yes, it can be done’ then workingto ‘no.’

Tom Pressello, Co-Founder,bCEO and Chief Financial Officer

Prior to joining OP4.com’s Vancouver headoffice, Pressello, aged 31, was a consultant inthe strategic planning and corporate financeareas for technology start-ups and turn-arounds.A graduate of the Business Administration pro-gram from a prestigious Canadian businessschool, Pressello had also been the vice-presidentof finance for a generic pharmaceutical companyand had worked in merchant and corporatebanking.

As bCEO, I’m like the stereotypical ‘Dad’ in thefamily, keeping a tight control over business andfinances, and Ray is the stereotypical ‘Mom’—motivating, nurturing, cheerleading. We butt heads,but that tension keeps us working well with eachother. At OP4.com, my job is to lead the companyfrom a financial viewpoint—I challenge all oursuppliers on their costs to us. They know that theycannot squeeze me for extra profits and I think theyrespect me for that.

STAFFERS AT OP4.COM

Saunders ran OP4.com’s office in London,Ontario and oversaw a staff of six “seeders,” whowere hired as facilitators in OP4.com’s chat



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rooms. Consisting entirely of part-time, highschool-aged staff, the seeders would be presentat all chat room discussions, mediating any dis-ruptions, answering questions, bridging conver-sation gaps. Since London was located severalthousand kilometres away from Vancouver,Saunders wondered if he would continue to runthe seeders from his London office. OP4.comhad been split in this fashion at the beginningdue to the fact that Matthews was located inVancouver and Saunders had his company locatedin London.

Matthews knew that, in order to cater to theinterest of teenagers, it was critical that someoneclose to that age group managed the site’s content.OP4.com wanted to display through its Web sitea young, dynamic image of itself. Matthews’ firsthire was Sam Reynolds, 24, as content director,or as she was commonly called, “Content Queen.”He then hired the three members of the contentteam—Dana Starritt, Libby Shumka, JessicaCowley and next the marketing staff. Last, hehired Web administrator, Ian Hayashi, and SpringMunsel, the senior designer to support the site forFlash, HTML and Java (these were the program-ming languages that enabled Web site creation).

Matthews located his employees by usinghis network of contacts, preferring to seek outpeople he already knew and trusted. One issuehe faced was finding good Web talent who hadexperience in programming languages, were flu-ent in Internet-style communication and had aproven track record. Also needed were peoplewith contacts who would be able to solicit adver-tising and business.

Reynolds commented:

There’s lots of recruitment at this stage of ourcompany. It’s who you know, personal contacts andreferrals. Personal contacts are great—everyoneknows at least someone and you know that if some-one comes recommended, there will be no problem.

By offering university internships, OP4.comfound many of its younger writers. This was notonly due to the fact that OP4.com as a start-uphad limited cash resources, but also because the

interns were close to the age demographic it wastrying to reach. Two interns were aged 19 and 20.

Matthews knew it was critical to bring peoplein who fit into the dynamic culture he was tryingto build. By asking them a series of questionsduring their interview, such as what was theirfavorite movie and why, he was able to deter-mine their fit. Matthews also looked for peoplewho would thrive in a changing environment.Dana Starritt was the senior editor. Her firstinterview with Matthews was supposed to be atthe office but, due to unforeseen circumstances,the venue changed twice more from a downtownbookstore to the Cactus Club (a downtownVancouver bar). Through his observation of hercool reaction to these changes, Matthews wasable to determine that Starritt would be a goodfit for his company since she felt comfortablewith spontaneity and change.

In Matthew’s search for staff for OP4.com’sVancouver office, he was specific on the mix ofpeople he would hire. “There are four ‘styles’that we look for,” said Matthews, “and wewanted to build OP4.com with a balanced staff.”Using popular American icons to describe thesestyles, he continued, “There is the Analyzer,much like Mr. Spock (Star Trek), the Driver,embodied by Donald Trump (businessman),Socializer, for example Meg Ryan and RobinWilliams (actors), and Relators, like OprahWinfrey (talk show host).”

Over time, it became clear that any new hireswould need to fit with the young dynamic culturethat was developing and that this culture wascritical for the success of OP4.com

Sam Reynolds observed:

It’s an uncomfy oxymoron if we’re pitching a siteto youth from a stuffy, stagnant corporate culture.Here, there is no break between the culture ofyouth in general and the culture of our team. In theInternet industry, it’s an employees market and onecan’t assume that people will come begging forjobs. On the other hand, these people will spendlong hours at work—you will not be invited toplay on our team unless your vision is synchronouswith ours. We want to make people as comfy asthey can be.



DEVELOPING A YOUTH-ORIENTED

CULTURE AT OP4.COM

With his first few hires, Matthews knew that hehad created a solid foundation upon which tobuild a company. Reynolds and Starritt embod-ied the youth culture he was seeking to build andMatthews knew that he could count on them totrain his next hires.

“We want to ensure that everybody is accessi-ble to the team and vice versa,” Matthews stated.“We share our musings constantly, have weeklystrategic action plan discussions and celebratethe results achieved that week. I want to keep myteam well-informed.” Given that OP4.com hadramped up very quickly, Matthews felt that it wasimperative the vision statement was revisitedevery six months in order for the staff to feel thattheir involvement and ideas were important.

Matthews’ approach to managing was one of“managing by walking around.” He wanted to beinvolved with his people at the ground level, tofind out what they were working on, to get asense of the whole operation by being in the“trenches,” so to speak. To make new employeesfeel that they were part of the team, OP4.comhad a welcome letter when the employee firstarrived, appreciation cards, flowers and beerwere sent, and weekly meetings were held tomake sure the employee adjusted well.

A ritual that had been instilled from thebeginning was the “robust discussion,” used towelcome team members to OP4.com. JessicaCowley, staff writer, was “honored,” along withtwo other new members, with a team-bondingsession where each team member shared theirpersonal thoughts. No topic was taboo and thisexercise was aimed at creating a sense of trustamongst team members. The objective of thesession was to develop emotional relationshipsbetween team members and foster the feeling oftrust within the team. “There’s a real sense ofsafety, security and acceptance of differences atOP4.com,” Cowley stated. “You can feel the cul-ture through the variety of ways in which wetreat each other, approach each other, supporteach other. It’s all very forward-looking—from

the rituals we have, weekly meetings, runningjokes, socializing outside of work time, we reallyenjoy each other’s company.”

To provide examples of leadership ideals,incidences of successes were passed down tonew members. The valiant efforts of the com-pany secretary who drove to the airport to ensurethat the courier package would be submitted intime had become a company legend. Matthewsbelieved that the lack of a formal employee train-ing program was, in part, made up by theseanecdotes which served the purpose of culturebuilding at OP4.com.

“We’re also empathic as a company and this isdefinitely reflected through our Web site as ourusers see us as an anonymous and safe forumfor ‘coming out of the closet,’ for example,”remarked Reynolds. “No one needs to use his orher real name on the site. To help our staffersappreciate this aspect, we had our team write asecret on a postcard—their deep and darkestsecret—and drop it, addressed to ‘The Postman,’in the mailbox.”

OP4.COM’S UNORTHODOX

TRAINING AND FEEDBACK SYSTEMS

As in most other start-ups, OP4.com’s manage-ment team worked long hours to develop the site,often trouble-shooting minor problems whicharose on a constant basis. The many demandson everyone’s time meant that very few formalmeetings could be set and it was up to newemployees to learn from observation, by makingmistakes or from a combination of both.

When asked about formal training Reynoldslaughed (hard) and replied:

Training? It’s been off the cuff. Just jump offthe deep end and we’ll see you in two weeks! No,seriously, there’s tons of support. Personally, I sitpeople down and go through priorities and long-term goals. Here is something interesting. Therewere four people who started on May 1. I wantedto teach them that the Web site needs to be caredfor on a permanent basis and to illustrate that point,



we went on a field trip to a home furnishing store.Each person picked out plants and we let themknow that they had to care for the plants, just asthey would for the Web site.

On another occasion, we got the staffers buyingpostcards, writing five personal goals on them,addressing and sending the postcards to them-selves. When we wanted them to get used to think-ing quickly—in this business, you have to be quickon your feet—as a second assignment, we gavethem three words, hammer, velvet, emancipation,and told them to write a creative piece in oneminute, then send it to a team member. Along withcreative writing, this exercise also served to culti-vate their peer editing skills.

Public recognition was used as a mechanismto provide feedback to OP4.com employees. Atthe end of team meetings, Matthews would takethe time to publicly recognize someone worthyof praise. Matthews felt that “dramatizing whatsuccess looks like” was far more powerful thanmonetary rewards. It was his belief that this affir-mation of good work performed meant more tohis employees because they were publicly recog-nized for it.

REWARDING INITIATIVE

WITH RESPONSIBILITY

Matthews knew that in a start-up situation,opportunities for new business partnerships ornew online ventures could arise at any time.Because of his preference for spontaneity, he wasopen to employee suggestions about new projectideas. Thus, Matthews allowed his employees toapproach him with ideas for projects and if theideas were deemed feasible, it was likely thatMatthews would hand over to that employeedirect ownership of the project.

When an employee suggested exploring co-marketing initiatives with a wireless company,Matthews endorsed her proposal and re-arrangedher duties to reflect this new focus. On anotheroccasion, Reynolds allowed an intern to assume

content production and publishing duties whenhe sought to assume this responsibility.

MATTHEW’S REACTION IN

THE FACE OF EMPLOYEE MISTAKES

Matthews realized that not all ventures wouldwork out and that employees would be prone tomaking mistakes of various magnitudes. He wascomfortable with this risk and made it clear tohis staff that he trusted them to make the rightdecisions. However, when pressed about how hewould deal with staffers if serious mistakes weremade, Matthews responded:

Here is a story I read in a newspaper once. Thingshad gone wrong at a large software corporationand an engineer, through his mistakes, had just costthe corporation $5 million. Being also the headof the research and development department, theengineer paid a visit to the president and tenderedhis resignation. The president listened to the engi-neer’s announcement, thought about it for a fewmoments and replied; ‘Why would I fire you if itjust cost me $5 million to train you?’ That, in anutshell, explains how I would handle potentialmistakes by my fellow staff members.

REWARDING STAFFERS AT OP4.COM

OP4.com, like most Internet start-ups, had a poolof stock options for their employees, believing thatproviding the potential for rich rewards was a keymotivating factor for employees. Options allowedan employee to purchase company stock at a verylow price, often less than 10 cents per share. Thewhole notion behind stock options was that at theinitial public offering or in the event the companywas purchased, the vested options would be worthhundreds if not thousands of times of the amountinitially paid for them. Because of this potentialpayout, stock options were intended to encourageemployees to put in more effort. Ideally, they wouldfeel a bigger sense of ownership and, along withthe rest of their co-workers, work hard to increasethe value of their company.



OP4.com was still a small company withunder 20 people and no formal promotionprocesses were in place. Promotion was an adhoc process—people who took the initiative anddeveloped a new program were rewarded for itwith more responsibility, but not necessarily atitle which conferred more seniority (thoughanother perk of working at this start-up wasthe option of choosing your own work title—examples of which were “Code Samurai” (IanHayashi), “Community Hactivist” (Dana Starritt)and the aforementioned “Content Queen” (SamReynolds)).

Reynolds observed, “If there is somethingnew, do it, then find someone to replace what youwere previously doing. We’re taut and stretchedand at this stage of growth, we need to bringpeople on.”

MAINTAINING THE CULTURE

THROUGH THE NEXT STAGE OF GROWTH

From meetings with OP4.com’s investors, Pres-sello knew that their next major goal had to be

profitability. To achieve this, the founders beganto draft formal reporting structures to managetheir staff and prepared to divide the companyinto business units that would be responsiblefor generating their own revenue streams—content/wireless, OP4 media projects, OP4 mar-keting, OP4 Web site and education program/community programs. OP4.com anticipated thatit would start to hire more people as their pro-grams developed.

Steve Goodman, vice-president of corporateaffairs offered:

We may put together a magazine, or explore otherprojects in television, radio or wireless. At thisstage, it’s like having a bank account with no job—the advertising revenues we have will not sustainus long-term. This restructuring into business unitsis our first step towards generating self-sufficientrevenues.

What was also very important to Matthewswas that the unique culture he had built up atOP4.com remain intact as the company grew.Matthews had just finished his Tuesday morningsession on building culture where the team had


Business Unit (all Vancouver)

Content/Wireless

OP4 Media Projects

OP4 Marketing

OP4 Web site

Education Program/CommunityPrograms

Purpose

Produce content for site andseek out/manage wirelesspartnerships.

Develop new concepts in mediato generate excitement amongsttarget audience with the objectiveof youth aggregation.

Market OP4.com to youthmarket.

Manage the ‘look and feel’of the OP4.com Web siteand chat.

Working with high schools to solicitcontent.

Staff Members

1 director (Sam Reynolds),4 editors, 1 designer

3 staffers

2 staffers to Toronto

Matthews, Saunders,Pressello and 6 staffers

2 staffers


revisited the vision statement. The upcomingweeks would be crucial because Matthew won-dered if the still-nascent state of OP4.com’s cul-ture at its Vancouver head office would survivethis restructuring.

NOTE

1. Source: Jupiter Communications, 2000.


WESTJET AIRLINES (A): THE CULTURE

THAT BREEDS A PASSION TO SUCCEED

Ken Mark

Gerard Seijts

Copyright © 2001, Ivey Management Services Version: (A) 2004–07–09

INTRODUCTION

It was April 17, 2001, and WestJet’s marketcapitalization had just surpassed that of AirCanada’s, the country’s leading airline. “We’rein the hospitality business and our culture iseverything to us,” stated Don Bell, co-founderand senior vice-president of customer serviceof Calgary-based WestJet Airlines. Bell wasadamant on maintaining WestJet’s culture inthe face of increased company growth and com-petition. All of WestJet’s founders believed thatculture was the key to their airline’s continuedsuccess and that they could not afford to mis-manage it. However, Bell knew that the tremen-dous growth at WestJet would put pressureson its unique culture. He wondered how WestJetcould grow and maintain its vibrant culture.

THE HISTORY OF WESTJET AIRLINES1

The roots of WestJet Airlines go back to 1994,when entrepreneur Clive Beddoe (president ofthe Hanover Group of Companies) discoveredthat it was cost-effective to purchase an aircraftfor his weekly business travels between Calgaryand Vancouver. During the time his company

was not using this aircraft, Beddoe made it avail-able for charter to other cost-conscious businesspeople through Morgan Air, owned and operatedby Tim Morgan. The response to this venturecaused Morgan—along with Calgary business-men Don Bell and Mark Hill—to realize thatthere was an opportunity to satisfy the need inWestern Canada for affordable air travel coupledwith good service by starting an airline.

Beddoe, Bell, Hill and Morgan believed thatthere was not only a market for a low-fare carrierin Canada, but that they could succeed at bring-ing this service to the country. Through research-ing other successful airlines in North America,the team examined low-cost carriers throughoutthe continent, including the primary examplesof Southwest Airlines and Morris Air (whichlater became part of Southwest Airlines), bothoperating in the United States. David Neeleman,president of Morris Air, was contacted for assis-tance on writing a business plan, and along withMorgan, Hill, Bell and Beddoe, became the found-ing team of the concept that became WestJetAirlines.

Over the next months, the team worked withNeeleman to develop a comprehensive businessplan and financial model. This information wasthe blueprint for the start-up of a three-aircraft,



low-cost, low-fare, short-haul, point-to-pointairline to serve markets in Western Canada. Withthe business plan in hand, a number of localbusiness people were approached, and within30 days, the needed capital (Cdn$8.5 million)was raised.

After this, developments moved quickly inbringing WestJet to life. In July 1995, WestJet’sfirst staff members moved into the company’sfirst office in downtown Calgary. In Novemberof that year, the team purchased two Boeing737–200 aircraft and added a third to the fleetin January 1996. In late January of 1996, theteam completed a second offering to retail andinstitutional investors and raised over Cdn$20million to commence operations on February29, 1996.

The airline started operations flying to thecities of Vancouver, Kelowna, Calgary, Edmontonand Winnipeg. Since then, the company hascontinued to expand, bringing more WesternCanadian cities into WestJet’s world. In March of1996, WestJet added Victoria to its route network.

WestJet was started in an “ideal” environ-ment—Western Canada—where the main com-petition came from Canadian Airlines, whichhad experienced financial troubles. AlthoughCanadian initially tried to match WestJet’s rock-bottom fares (and attempted to compete in vari-ous other ways), it could not afford to competeagainst the upstart’s low-cost structure (e.g.,WestJet provides no meals, offers no frequentflier programs and has incredible turnaroundtimes at the gates).

In June 1996, the airline purchased its fourthBoeing 737 aircraft and added service to the newmarket of Regina. In August that year, Saskatoonwas added. In June 1997, Abbotsford-FraserValley was added, making WestJet the only sched-uled carrier to operate at that airport. March 1999saw the addition of the two new destinations ofThunder Bay and Prince George, and in September1999, WestJet added Grande Prairie to its servicearea.

WestJet met a major business goal when, inJuly 1999, it completed its initial public offeringof 2.5 million common shares. The share price

at closing was Cdn$10. It was an exciting dayfor all WestJetters, representing the achievementof a major goal and raising the necessary capitalfor expansion of the company in the comingyears. The capital raised from the offering,Cdn$25 million before post-closing adjust-ments, would be used for the purchase of addi-tional aircraft, as well as the building of newhead office and hangar facilities in Calgary, inorder to meet the needs of the company’s expand-ing workforce.

In 1999, unprecedented changes and restruc-turing were seen in the airline industry in Canada(e.g., plans for a merger between Canadian Airlinesand Air Canada, small carriers that discoveredviable market niches, and carriers that failedwithin a short time-span), offering a window ofopportunity for WestJet to expand its servicebeyond its existing route structure. In December1999, WestJet announced that it would be extend-ing its successful low-fare strategy across Canada.Steve Smith, WestJet’s president and chief exec-utive officer in 1999, justified the expansion bystating:

Our success over the past four years has proventhat the travelling public will embrace any expan-sions to our airline’s route network and schedule,while continuing to maintain the low-fare structureand exceptional customer service that has becomesynonymous with the WestJet name.

In March 2000, WestJet added services toHamilton and began to build the John C. MunroHamilton International Airport as it’s easternhub. In April 2000, WestJet added Moncton toits network and in June 2000, Ottawa was alsoadded. Bill Lamberton, WestJet’s vice-presidentof marketing and sales, noted that these scheduleenhancements included services added as a resultof the addition of the third-generation aircraft for2001. He stated:

This new aircraft will allow us to enhance our longhaul schedule to provide greater connectionsbetween our Western hub in Calgary and ourEastern hub in Hamilton. As we continue to expandour airline, we will look for new cities to add to our


network, new niche routings, as well as betterconnections, so that more and more Canadians willbe able to benefit from our low-fare, high-volumeservice.

Hamilton was chosen as the Eastern hub forseveral reasons. First, it was a niche route, mean-ing no other airline operated from the airport,hence making WestJet the airline of choice forpeople who lived in this Southern Ontario area.Second, costs were an issue. For example, land-ing fees for Toronto were steep. Third, efficien-cies were a consideration. For example, WestJetcould land an aircraft in Hamilton, deplane andboard guests, refuel, restock and load and unloadbags within 20 minutes. At Pearson InternationalAirport in Toronto, it would be hard to taxi tothe gate in this time! The more time in the air,the more efficient and profitable airlines can be.Moncton was also a niche market. Halifax hadsignificant competition, whereas Moncton hadlittle.

THE FOUNDERS

Clive Beddoe, Don Bell, Mark Hill and TimMorgan founded WestJet and, in April 2001,remained part of the executive team. Beddoe wasthe president and chief executive officer as wellas chairman of the board of directors. Bell andMorgan were senior vice-presidents, and Hillwas vice-president. Bell was responsible for theairlines’ customer service areas including reser-vations, information technology (IT), customerservice, and frontline services including flightattendants and airports. Bell and Beddoe werecredited with creating the carrier’s bottom-upmanagement structure and energizing the staff.Morgan, a former pilot with Canadian RegionalAirlines, was responsible for maintenance andflight operations. Hill was in charge of strategicplanning.

All four entrepreneurs were substantial share-holders in the company—2000 data indicatedthat, combined, they owned nine per cent of theairline, a stake worth Cdn$85 million.

COMPANY PERFORMANCE

Since the beginning, WestJet had been consis-tently ranked among the most profitable airlinesin North America. WestJet had been profitablesince its inception in 1996. In an industry where90 per cent of startups fail financially, WestJetgrew from two planes in 1996 to 21 in 2000.Revenues in 2000 were Cdn$332.5 million, andexpected revenues in 2001 were Cdn$460 mil-lion. Despite more competition, higher fuel costsand a slowing of the North American economy,the airline’s earnings per share for the first quar-ter of 2001 increased to 13 cents from 10 centsduring the same period in 2000.

All employees shared in company profits.WestJet’s generous profit sharing plan allocatedbonuses based on profit margins: if the airline’sprofit margin was 10 per cent, then 10 percent of the net income would be spread amongemployees, prorated to salary. This profitsharing plan had a ceiling of 20 per cent of netincome, and cheques were handed out twicea year.

In November 2000, more than Cdn$8 millionwas handed out to employees, with the aver-age cheque amount being Cdn$9,000. One man-ager quipped, “That’s why we have motivatedpeople.” But Beddoe insisted it was not justabout money, saying, “They know their contribu-tions have gone above and beyond anything we’veasked of them, and that’s what generated theprofits.”

In addition, right from the start, many ofWestJet’s employees owned equity in the com-pany. WestJet matched every dollar their employ-ees invest in company stock. For example, in2001, 83 per cent of the airline’s staff memberswere shareholders. Many of the original employ-ees invested prior to WestJet’s initial public offer-ing and have more than Cdn$400,000 in stockvalue. The first 20 pilots at WestJet becamemillionaires.

In exchange for profit sharing and the stockpurchase program, WestJet’s employees workedfor 95 per cent of the industry’s median salary intheir job category.



WestJet took pride in the customer serviceit provided to its guests. Since the Air TravelComplaints Commission began tracking passen-ger complaints in 2000, it had received only twofrom WestJet guests. In the same time period, theCommission logged 769 complaints from AirCanada passengers. This translates into 24,000guests flown per complaint for Air Canada ver-sus one million guests flown per complaint forWestJet (all data pertain to domestic flights).

Satisfaction with the job and colleaguesamong the 1,700 people working for WestJetwas high. Bell explained:

As for reality versus expectations, I found that, ingeneral, an employee’s actual experience on thejob is better than what he or she had anticipated.For example, call centre customer service associ-ates said that they found their job experience betterthan expected, and their colleagues warmer, kinderand more willing to help than expected. Most ofthem rate eight or nine out of 10 for pride in theorganization. That shows me that we have toremind people how good we are. It’s the one or twoper cent that causes a cancerous environment. Theday we find that employees’ on-the-job experienceis worse than what we believe it is, we’re finished.

CULTURE

Beddoe insisted that WestJet’s corporate culturewas the primary reason for the airline’s superbperformance. “The entire environment is con-ducive to bringing out the best in people,” statedBeddoe. “It’s the culture that creates the passionto succeed.”

Siobhan Vinish, director of public relations andcommunications, described the culture as a veryrelaxed, fun, youthful environment in which cre-ativity and innovation are rewarded. For example,in the call centre where people take bookings(called the “Sales Super Centre”), the representa-tives had the authority to override fares, makedecisions not to charge fees for cancellationsand bookings, and waive fees for unaccompaniedminors, on a case-by-case basis. People weretrained to understand the ramifications of the

decisions that they made. Senior managementtrusted the representatives in looking out for theinterests of the company, customers and share-holders. Nevertheless, overrides were trackedand monitored each month. Additional train-ing and coaching were provided if patternsemerged (e.g., overriding change fees on a con-sistent basis).

Pilots were considered to be “managers,” andwere encouraged to think with the executiveteam. One example of WestJet implementing asuggestion from its pilots came from significantfuel savings as a result of taxiing with one engineinstead of two.

Prior to launching WestJet, Beddoe and hiscolleagues had no experience running a sched-uled airline. One of the industry’s biggest problemswas dealing with a largely absentee workforce,spread all over the country, working at airports,hangars or in the air. Beddoe stated, “Whatoccurred to me is we had to overcome the inher-ent difficulty of trying to manage people and tohone the process into one where people wantedto manage themselves.”

Thus, the founders set out to create a com-pany that was managed from the bottom up.WestJet gave workers a high degree of latitudeto perform their jobs without interference fromsupervisors. Beddoe continued, “I don’t directthings—I just try to persuade. We set some stan-dards and expectations, but don’t interfere inhow our people do their jobs.”

Vinish explained:

The flight attendants are asked to serve customersin a caring, positive and cheerful manner; how theydo that, however, is left up to them. Resourcebooks are provided for them to refer to, and thereis a team of people who continually updates thesebooks.

In addition, Bell offered:

A lot of the stuff is intuitively obvious—we don’tfocus on culture. We believe that culture isdefined by the actions of executives. I may focuson empowerment and trust, Clive on profit shar-ing, and another one focuses on fun. This forms



the circle of influence. It’s very fragile—all ourcombined actions contribute and form part of ourbrand—whenever we start to do things offside,it affects the culture. We think of our customersas guests. We have agreements and partners, asopposed to contracts and employees. Profit shar-ing and stock purchase plans are important, butthat’s the icing on the cake. They’re critical com-ponents of our company, but they don’t define theculture.

People with a great attitude always see the glassas half full. We’re an opportunity culture versusan entitlement culture. We create opportunities forpeople. For example, lots of people have made alot of money but have given WestJet a lot in return.In contrast, at Air Canada, a lot of money is paidto get a little work done. This is because unionsstripout opportunity. We’re creating wealth andsharing that wealth.

In a feature article in Canadian Business,December 25, 2000, it was noted that:

Some executives entertain lavishly on the companydime. If Clive Beddoe tried to, he would probablyget lynched. Consider what happened when thepresident and CEO of WestJet Airlines Ltd. threw acatered barbecue one weekend for the company’ssenior and middle managers at his private fishinglodge on the Bow River, downstream from Calgary.News of the party spread quickly through thecompany, and when Beddoe returned to work thefollowing Monday, a WestJet maintenance workerstormed into his office. Pounding on Beddoe’sdesk, the employee demanded to know why theboss was blowing company profits on hamburgersand beer for the folks at head office. WestJet has agenerous profit-sharing plan, and the maintenanceguy figured his cut was being squandered on asoiree he wasn’t even invited to. Beddoe told himnot to worry. “I pointed out that I paid for the partyout of my own pocket,” says Beddoe, grinning.“He was a little humbled, but I congratulated himon his attitude. He’s like a watchdog, and he hatesinequities. That’s the spirit of WestJet.”

The company’s accountants (located inWestJet’s head office under the sign “Bean-land”) said that profit-sharing plan was front andcentre and transformed each employee into a

“cost-cop,” constantly scouting for waste andpossible savings.

Derek Payne, treasury director, boasted, “Weare one of the few companies that has to justifyto employees its Christmas party every year.”

All employees had a sense of humor andplayed practical jokes on one another. Morgan,vice-president of operations, was also a pilot forWestJet. For new people who had never worked atan airport, Morgan would send them to “run andget the keys for the airplane.” Of course, an air-plane does not need keys, but the attendant wouldrush into the office, pick up the key with a hugetag that said “airplane” and rush back through theaisles to loud applause from passengers.

Another quality that set WestJet apart from itscompetition was the team spirit of its manage-ment and staff. On a visit to the night shift in themaintenance department, CEO Beddoe, dressedin coveralls, offered to go outside in sub-zero tem-peratures to change an airplane tire. He had topush the toolbox across the tarmac in–30-degreeweather, check the tire pressure and change thetire. Eventually, Beddoe succeeded at the task.WestJet’s people tended to give for the collectivewell-being of each and all, and there was an egal-itarian spirit. It also showed that work at WestJetis a team effort. These values began at the topand trickled downward.

Bell, who oversees customer service atWestJet, routinely helped out the representativesin the Super Sales Centre when there was highcall volume.

Sandy Campbell, the chief financial officerstated, “There’s peer pressure among the employ-ees. They recognize who buys into this programand who doesn’t, and peer pressure is an amazingthing.”

The culture is so customer-centred and sowell defined that, at WestJet, employees some-times joked that WestJet is more “Southwest”than even Southwest.

Beddoe concluded:

We have a philosophy of trust here. Sometimes youget burned when you trust people, but most timesyou don’t. Workers have pride in what they dobecause they are the ones making the decision



about what they’re doing and how they’re doing it.They are not just functionaries. They actually takeownership of their jobs.

OVERALL PRODUCTIVITY

The benefits of creating WestJet’s type of envi-ronment appeared substantial. WestJet avoidedthe cost of a significant layer of supervisorypeople. Next, it achieved a higher level of pro-ductivity per person. WestJet operated with about59 people per Boeing 737 aircraft, comparedwith more than 140 at a typical full-service airlinesuch as Air Canada.

The airline’s focus on controlling costs andits specific cost-cutting measures had been wellpublicized. It flew only one type of aircraft, the125-seat Boeing 737, offered a single class ofservice, utilized the Internet as much as possibleto sell tickets, operated without paper tickets,offered no frequent flyer programs, provided nomeals and minimal in-flight service, had no air-port lounges or link-ups with other airlines, andaggressively hedged against rising fuel costs.This can be contrasted, for example, with AirCanada and its 16 different planes from nine dif-ferent manufacturers, which resulted in muchhigher maintenance and training costs. WestJet’scost-cutting measures resulted in operation costsbeing almost half those of Air Canada’s.

To reinforce its cost-cutting strategies, thecompany stressed teamwork. With no unions toinsist on job descriptions, all employees had widediscretion in their day-to-day duties. WestJet’spilots often went into the cabin and tidied upbetween flights. Even Beddoe would help outwhen he was aboard. Job behaviors such as thesemeant annual savings of up to Cdn$2.5 million incleaning costs and facilitated quick turnarounds,often within a half-hour. The record was anincredible six minutes.

Striving towards savings, Bell added:

Once, I created a ‘report card’ for the companywith two or three colors in the design. Employeesasked me why it was not in newsprint.

Most important of all are the actions of theexecutive team. People trust the executive in doinga good job. I need to link the impact of savingsonto profit sharing. Cdn$8 million in savings doesnot mean anything to employees until you link it totheir pocket book.

Because of these strong cost-cutting mea-sures, WestJet could make money with ticketprices 50 per cent below the industry average.In an interview with the Financial Times,November 21, 2000, WestJet officials stated thatits low costs meant it could break even when itsplanes were just 63.3 per cent full. In the secondquarter of 2000, WestJet averaged 76.2 per centcapacity.

WestJet increased fares three per cent at thestart of 2001, but resisted the temptation to raiseprices even further or reduce the number of itscheapest seats, even though it flew at near capac-ity. Rather than fight for market share with largercarriers, WestJet’s strategy was to use low pricesand unrestricted tickets to lure people who wouldotherwise drive, take the bus or train or stayhome. “To move our pricing higher quickly justmeans our whole philosophy of market stimula-tion doesn’t work,” said Bill Lamberton. It wouldalso mean that there would be more room for anew competitor such as CanJet Airlines or RoyalAirlines Inc. to enter the market with lowerprices in an effort to capture the market segmentthat WestJet is pursuing.

HIRING

WestJet received between 3,000 and 4,000resumes every week. Most of the new hires werenew to the airline industry. “We prefer it thatway,” stated Beddoe. “This is a new culture, anew vision. It’s better to start with a clean slate.”

WestJet looked for two character traits—enthusiasm and a sense of humor. This was atheme borrowed from Southwest Airlines, whichwas known for its practical jokes and free spirit.It was common aboard WestJet’s Boeing 737sfor the flight attendants to crack jokes, hold con-tests (e.g., singing contests and aisle bowling



games) with the passengers. Most passengersdid not seem to mind the jokes and, in fact, mostcame to expect it.

The specific hiring process varied fromdepartment to department. Behavioral interviewswere used to assess a fit between the person andthe WestJet culture. WestJet made a consciouseffort to provide realistic job previews to jobapplicants. Job simulations were also part of thehiring process. For example, WestJet held groupinterviews for flight attendants, in which itexplained what WestJet was about, what WestJetstood for and what in particular WestJet waslooking for. One interview session included mak-ing a lighthearted, creative presentation to thegroup, describing what the person would bring toWestJet.

Vinish and Bell stressed that the hiring andorientation period is of critical importance toWestJet. Bell offered:

People by nature are negative, but there are somewho are criminally enthusiastic. I do things calledfireside chats. I talk to new hires about culture andwhat makes us tick. This is their orientation intoour culture, our mission and our values. I want tofind out what company people want to work for.

MAINTAINING

A UNION-FREE WORKFORCE

WestJet did not have a union. Instead, WestJet’ssenior management team created the Pro-ActiveCommunication Team (PACT), an employee asso-ciation that allowed management to keep intouch with it’s employees, addressing their con-cerns before they became a problem. PACT pro-vided WestJet employees with the services theymight want to receive through a union, withoutthe hassles, rules and adversarial environmentthat a union typically brings.

PACT covered the entire company with anumber of chapters representing the differentwork groups. Each chapter had at least onerepresentatives who sat on a council. Besides

dealing with personnel issues, PACT aided insetting salary scales. Said Beddoe, “It takes awaythe opportunity for conflict because the employ-ees are part of the solution, not the problem.”

If an employee group, such as the flightattendants, wanted to leave PACT, it has toget approval from 75 per cent of its members.Beddoe added:

It ensures we have a successful relationshipwith our people on a long-term basis. It took metwo years to convince our people to embrace theconcept of PACT because everyone here is soanti-union. But the staff voted 92 per cent in favorof it. We have since had some extremely success-ful resolution to issues that have cropped up.

COMMITMENT TO

MAINTAINING THE CULTURE

A vibrant corporate culture was so central toWestJet’s success that preserving it was Bell’sand Beddoe’s main obsession. Not fitting in withthe WestJet culture could have dramatic conse-quences. The sudden resignation of Steve Smithin September 2000 was a case in point. Smithwas hired in early 1999 to take over Beddoe’s jobas CEO. Beddoe stayed on as chairman of theboard, but wanted someone to take over the day-to-day operations and represent the carrier asit evolved from a private concern into a publiccompany. Smith was running Air Canada’sregional airline, Air Ontario, at the time, andWestJet’s board of directors liked his amiable,energetic personality.

But it became apparent almost immediatelythat Smith did not fit with WestJet’s culture. Forexample, Smith would override decisions madeby WestJet employees who were “empowered”for over four years. Company sources said thatSmith had a top-down management style andwas accustomed to dealing with hostile unions.Beddoe stated:

Steve got off on the wrong footing with PACT. Hetreated PACT like a union and they resented that



immediately. He came from a background whereyou weren’t open and straightforward, where youdon’t play all your cards at once. Well, we don’t dothat. We tell it like it is. We tell the employees whatour issues are, and we try to work to a solution. Wedon’t hold back half the deck.

Beddoe maintained that Smith’s interactionwith PACT improved over time, but the badfeelings lingered. There were other issues.According to one source, Smith locked hornswith Beddoe and the board over how quickly theairline should grow. In his first business plan forWestJet, Smith called for revenue and earnings togrow at 27 per cent per year. The board orderedhim to maintain the airline’s current growth rate,in the 45-per-cent to 50-per-cent range. A sourcefrom WestJet stated, “When he first arrived,Steve had no sense of how much momentum thecompany had and how aggressively to grow it.You’d have to dismantle the thing to grow at only27 per cent.”

Employees became agitated, morale sufferedand the culture that built the airline was at risk.

Vinish had spoken to Beddoe about how hewould communicate the sudden resignation toWestJetters and the public. Beddoe did not wantto announce that Smith was “moving on tobetter things.” If he had said that, and if he hadnot mentioned anything about culture, Beddoebelieved he would lose credibility with hisemployees. After all, he was the one who wasthe foremost proponent of open communication,and candid communication is what the execu-tive team expected from its employees. Thus,Beddoe decided to talk candidly about thedifferences between Smith and the WestJetculture. Beddoe believed that this would showthat management had credibility to “say it likeit is.” He explained:

There is no question in my mind that if I had left itthree or four months or even six, it would havebeen a precipitous event, because then we wouldhave lost the core of the executive team, and bythat I mean the senior management team of thecompany.

Beddoe was greeted with high-fives, hugs andhurrays from everybody once he walked backinto the executive office to take over Smith’sresponsibilities.

Steve Smith denied that a cultural rift led tohis departure and “vehemently disagrees” withWestJet’s assessment.

COMPETITION AND EXPANSION

As recently as 1999, Beddoe was content to be inWestern Canada. But the merger of Air Canadaand Canadian Airlines changed the situationfor him. WestJet’s board decided to expand east-ward before new carriers, such as Halifax-basedCanJet, cornered the low-fare market. WestJetstarted flying out of Hamilton, Ontario, in thespring of 2000, and served Ottawa and Monctonand had plans to enter Montreal.

By using Hamilton as a hub, WestJet avoidedhead-to-head route competition with Air Canadaas it tried to establish itself in the East. CanJet,in comparison, was fighting Air Canada on itshome turf at Toronto’s Pearson InternationalAirport, and it admitted in late 2000 that it wasstruggling. One industry insider predicted thatCanJet would not even be around in 2002.

Other airlines noticed the success of WestJetand were in the process of attempting to mimicWestJet, that is, its culture and operations.Canada 3000 merged with Royal and CanJet inApril 2001. Air Canada intended to enter the dis-count market through forming a strategic part-nership with Toronto-based Skyservice to fendoff competition from WestJet and Canada 3000.Skyservice owned 80 per cent of Roots Air.However, WestJet appeared not to be too worriedabout other airlines introducing no-frills versions.Vinish explained:

Air Canada would have to reduce their costs inorder to be successful. This game is all aboutcosts—Air Canada has operated for many years intheir current state—for them to go into the low-costmarket is difficult. Air Canada has many operational



requirements. For example, we don’t hire cleaners.If I decide to fly to Saskatoon, my promise to myfellow employees is that I help to clean the plane.We don’t have a mentality that says, “That’s not myjob, I’m not prepared to do that.” Air Canada has aunion—an employee would not be able to get upand serve coffee to passengers even if he or shewanted to. Such behaviors are not encouraged at AirCanada because serving coffee is somebody else’sjob. Low fares need low costs. Low costs need con-cessions from people in order to do that.

Historical data indicated that setting up acompetitive, profitable low-fare subsidiary hadproven to be a problematic endeavor for the con-ventional airlines. Several of these airlines hadtried and failed.

Beddoe was more blunt, stating that AirCanada’s plan “is another disaster in the making.”

CONTINUED GROWTH

Beddoe continued, “We fly only five per cent ofthe available seat miles in Canada. We’ve onlyjust started. Look at Southwest Airlines. It’s stillgrowing, and its stock today is the highest it hasever been.”

Amid the vast changes taking place in theairlines landscape in Canada, WestJet had bigexpansion plans. In August 2000, it ordered 36of the next-generation Boeing 737–700 seriesaircraft, with an option to pick up 58 more. Thatwould give the carrier a fleet of 94 aircraft. Withthe new planes, WestJet intended to start flyingnon-stop from Calgary to Hamilton. This planwould enable WestJet to add frequency and non-stop flights to its schedule, further enhancingcustomer service.

Other possibilities included a future alliancewith JetBlue, the discount airline launched in2000 by Neeleman, who built and then soldanother successful Southwest clone, Salt LakeCity-based Morris Air, before becoming one ofWestJet’s founding shareholders. Neeleman’s lat-est venture, JetBlue, is active in the northeastern

United States. WestJet co-founder Hill observed,“They’re in New York, and we’re in southernOntario. We operate off the same reservationsystem. We know each other well. Anything ispossible down there. I wouldn’t discount it.”

CONCERNS

Industry watchers voiced concerns aboutWestJet’s future, arguing that an economicdownturn could hurt a carrier dependent onleisure travellers, and its expansive growthwould make it hard, if not impossible, to keep the“fun” culture alive. Beddoe countered by sayingthat WestJet was prudent as well as ambitious. Ithad protected itself against rising fuel prices withhedging contracts. He also noted that BritishColumbia had been one of the fastest-growingmarkets, even though the province had been in arecession.

Moreover, because 58 of its 94 new jets areoptional orders, the growth rate can be slowed toa rate equal to two new jets a year once its olderjets are retired. The management team at WestJetbelieved that, in a depressed economy, it couldmanage performance expectations by communi-cating openly with its people, by being honestwith them.

As for the corporate culture, Beddoe offeredthat Southwest, on which WestJet was based,has kept its culture alive 25 years even as itsworkforce swelled to 30,000. He agreed thatprotecting the culture is essential. “It’s focusNo. 1. Our risk, in my view, is internal, notexternal, and that’s why we put so much empha-sis on it.”

Vinish added:

What is the impact on our culture as we continue togrow? We all could fly into Calgary and find theWestJet culture. How can we perpetuate the culturein Moncton? We’ve thought about that. We need tosend WestJetters to go and spread the feeling outthere.



Bell concluded by saying that culture wasparamount at WestJet, that as it grew, it wasessential it kept its unorthodox, irreverent feel.He was concerned about not overextendingWestJet so that its success would come to ahalt. It would be unfortunate, he thought, ifWestJet developed into a big and bureaucratic

organization, unable to sustain its culture becauseof its success.

NOTE

1. Taken from www.westjet.com, April 15, 2001.




Documents

Chapter 1. Building Effective Organizations - Sage Publications