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"The best book on leadership by a CEO.'' -JohnNaisbitt, authorofMegatrends New Strategies for 'Ibday1s Customer-Driven Economy JANCARLZON President, Scandinavian Airlines FOREWORD BY TOM PETERS Moments of Truth Moments of Truth Tan Carlzon = HarperCollinsPublishers A hardcover edition of this book was originally published in 1987 by Ballinger Publishing Company. It is here reprinted by arrangement with Ballinger Publishing Company. MOMENTS OF TRUTH. Copyright© 1987 by Ballinger Publishing Company. All rights reserved. Printed in the United States of America. No part of this book may be used or reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles and reviews. For information address Harper & Row, Publishers, Inc., 10 East 53rd Street, New York, N.Y. 10022. First PERENNIAL LIBRARY edition published 1989. Library of Congress Cataloging-in-Publication Data Carlzon, Jan. Moments of truth. "Perennial Library." Reprint, with new introd. Originally published: Cambridge, Mass.: Ballinger Pub. Co., cl987. I. Scandinavian Airlines System-Management. 2. Aeronautics, Commercial-Sweden-management. 3. Airlines-Sweden-Management. l. Title. HE9860.S28C37 1989 387.7 '065'4 85 88-45644 ISBN 0-06-091580-3 97 RRD 30 29 28 27 26 25 24 23 22 CONTENTS Foreword -Tom Peters vii Chapter 1 A Moment of Truth 1 Chapter 2 The Vingresor and Linjeflyg Turnarounds 7 Chapter 3 The SAS Turnaround 21 Chapter 4 Profession: Leader 31 Chapter 5 Setting the Strategy 41 Chapter 6 Flattening the Pyramid 59 Chapter 7 Ta king Risks 75 Chapter 8 Communicating 87 Chapter 9 Boards and Unions 97 Chapter 10 Measuring Results 107 Chapter 11 Rewarding Employees 113 Chapter 12 The Second Wave 121 FOREWORD I magine that there's a loose panel in the passenger compartment of the New York to Los Angeles air plane. The panel has a sharp, protruding edge that has tom the stockings of a passenger who reports it to the nearest flight attendant. The flight attendant can't repair the panel herself because she doesn't have the proper tools. She needs help. The only thing she knows to do is file a report that will end up in an office somewhere. But the office contains only a telephone and intercom; no tools. Meanwhile, our flight attendant has delegated the problem upward in the com pany. To her way of thinking, she has done her job. Late that afternoon, the report will be sent to a corresponding level of another department. A half-hour later, it is placed on the desk of someone in the technical department. The techni cian isn't sure whether or not he can fix the problem. But he needn't worry. By now the plane is flying at 31,000 feet over Dubuque. The technician scribbles a directive on the now dog-eared form: "Repair when possible." And it will be repaired�lO pairs of torn stockings later. vii MOMENTS Of TRUTH Jan Carlzon's answer to this? Get rid of the horizontal barriers to communication. Tum middle managers, "hired to make sure instructions are followed," away from the role of administrator and into leaders and facilitators for the frontline people who serve the customer and market. After all, the first IS-second encounter between a pas senger and the frontline people, from ticket agent to flight attendant, sets the tone of the entire company in the mind of the customer. This is what Carlzon calls the "moment of truth." Who is Carlzon? In late summer 1986, Business Week described how Sweden "became Europe's powerhouse. ... Ten years ago it was the 'sickest of sick men.' Now it's the envy of the continent." No one better exemplifies what ' Business Week calls "the aggressive, fast-moving manage ment style that has made winners out of many Swedish companies" than SAS's Carlzon. At age 36, in 1978, he took over Linjeflyg, Sweden's domestic airline, thus becoming the world's youngest air line president. Following a People Express-like strategy, he slashed fares, filled seats, and achieved exceptional success in record time. His reward was the presidency of SAS in 1981. After 17 consecutive profitable years, the airline had racked up $30 million in losses in 1979 and 1980. Employees ruefully awaited his arrival. More cost cut ting and fare slashing was expected. Instead, Carlzon created "EuroClass," first-class service at coach rates, as part of his single-minded focus on the business traveler in an effort to become "the best airline for the frequent business traveler" in Europe. In short order, punctuality became the best in Europe; remarkably, SAS returned to profitability in just a year, while the rest of the international airlines tallied a record $2 viii