“We were getting hammered,” said Arnold Donald, Carnival Corporation’s CEO, recollecting his first days on the job in mid-2013.
“Fuel prices were going through the roof, the Arab Spring was destabilizing much of the world, and we’d just been through two very public crises with ships belonging to our Costa and Carnival brands.”
Founder Ted Arison and son Micky had built Carnival Corporation into the largest leisure travel company in the world through savvy acquisitions and a healthy respect for the independence of its 10 global brands, which include Carnival Cruise Line, Holland America Line, and Princess Cruises. Each brand served a different customer and, according to Donald, since there were only so many ships in service, the mandate was always to create demand and deliver efficiency at each unit. Clearly, it had worked, the recent trials in the media notwithstanding.
So Donald decided to change it.
“Ted and Micky had given us an advantage of scale,” Donald said. “I spent the first few months on the job collecting information on what leveraging that scale might look like, from cabin stewards to presidents, and from outside sources. The opportunity became pretty clear to me.”
Donald’s innovation, however, was to expose his team to the same facts, and trust that they would come to a similar conclusion.
He brought the brand presidents together for a retreat in fall 2013 at which he shared the information he’d collected and, with that as context, asked each of them to articulate a vision for personal, brand, and company-wide success. After three days of intense conversation and bonding, it worked, and the leadership team crafted an aspirational vision that they not only shared, but co-owned.
“Facts are hard to ignore.”
This started a chain reaction in the company, as the leaders hosted a similar session in January 2014 with broader leadership team, only with the deliverables being evermore specific and actionable goals, with leadership summits now held annually. Donald instituted financial incentives to reward not just innovative ideas that could be applied across the businesses, but skewed a healthy proportion of the rewards unit leaders received to the success of the company overall.
The implications for both the cost and revenue sides of its business were immense.
As one of many examples, teams discovered that the brands were paying seven different prices for arugula, though all using the same vendor. One brand believed its mattresses were the best and they had negotiated the best price possible, so the relevant buyers from across the company got together and, literally, ripped them apart, only to learn that the mattresses from that individual brand were the lowest quality and highest priced in the fleet.
Carnival Corporation, the world’s fifth largest purchaser of airplane tickets, had never negotiated prices from that unified position.
“On the revenue side, the brands don’t compete with one another necessarily, so if somebody knows how to up-sell a beverage, you’re leaving money on the table if you don’t share it,” Donald explained. “Our revenue management opportunities for casinos, communications, on-board retail, and the guest experience overall are only now starting to yield measurable results.”
Though Donald brought in experts, dubbed coaches, to help staff in ticket purchasing and revenue management find opportunities to collaborate, and populated a few senior positions with people from outside the cruise industry, it’s notable that he hasn’t instituted some complex system for coordinating or tracking innovation.
“When people share a vision, they know the right things to do, and they can see the results validated by our performance,” Donald said.
So far, those numbers suggest it’s working. Since the innovation program began, demand and revenue are up, and cost savings will be in the range of $170 million at the end of 2016. EPS is up 65% over the past two years, along with a significant increase in return on invested capital.