Analyze the following case study to identify strategic and cultural mistakes, evaluate expert recommendations, and propose a viable recovery plan for the company.
Instructions:
Case Review:
Read the case study PeopleExpress: Can Don Burr Go Back to the Future?
Analysis Tasks:
Identify and describe the main strategic mistakes and cultural misalignments that contributed to the company’s challenges. Evaluate the recommendations provided by experts within or outside the case context. Develop a recovery plan that addresses both the strategic and cultural aspects, ensuring sustainability.
Evaluation of Expert Recommendations
Experts typically recommend two main courses of action for companies in severe crisis: Retrenchment (scaling back to core competencies) or Strategic Transformation (investing heavily to compete at a higher level).
Recommendation: Halt Expansion and Divest Frontier Airlines.
Evaluation: This is an excellent and necessary recommendation. The core identity of PEOPLExpress was the ultra-low-cost, no-frills model. Divesting Frontier would immediately reduce operational complexity, remove union conflicts, and drastically lower the average cost per available seat mile (CASM) back toward competitive levels.
Recommendation: Invest Heavily in Infrastructure and Automation.
Evaluation: This is critically important but often too late. By the time the crisis hit, delayed flights and lost baggage had severely damaged the brand. While necessary for sustainability, this investment would have required substantial cash flow or debt, which the highly leveraged company likely could not afford.
Recommendation: Modify the "Generalist" Culture for Specialization.
Sample Answer
Analysis of People Express Airlines' Collapse
People Express (1981–1987) was a revolutionary airline known for its low fares, rapid expansion, and highly egalitarian culture. Its failure was primarily a result of critical strategic mistakes compounded by a unique, but ultimately unsustainable, corporate culture.
1. Strategic Mistakes and Cultural Misalignments
Strategic Mistakes
Mistake
Description
Uncontrolled, Rapid Expansion
PEOPLExpress grew too fast, too soon, acquiring assets like Frontier Airlines (a full-service carrier) and expanding into major hubs like Newark and Chicago. This diluted the simplicity of the original low-cost model and strained resources.
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