PwC
How important is the ability to predict the future to be a good CEO?
Mr. Bologna
It is very important. In a professional company, like ours, in which the CEO is a professional figure, there is a greater responsibility for the company planning and strategy. It is a lonely position, one that is not shared. Some companies try to have co-CEOs, but I do not believe that can sustain itself in the long term.
When you are not the owner of the company, it is difficult to act with audacity. That is the difference between the time, Captain Rolim Amaro — who was the director-president of TAM — and now. Besides being the president of the board of directors, he was the owner. If he made a mistake in his forecasts, the business was his. Today the responsibility of a CEO is much greater, because the mistakes affect the shareholders.
In the aviation industry, being correct in the forecasts is especially important because the cycle of investments is long term. With the technology that is available today, people’s behaviour changes very rapidly, and decisions are taken in a global manner. There is no longer a regionalised decision, and information is available to everyone. No one has privileged information anymore. Whoever is able to make better forecasts, and is able to anticipate the consumer trends and the way technology might unfold, has an enormous competitive advantage.
PwC
Which characteristics or abilities must a company have to be able to adapt to these global changes that are so accelerated?
Mr. Bologna
First of all the company needs a clear focus, it needs to identify what its business is, and keep to that. Many companies end up migrating, losing focus of their brand, making their identification by the consumer more difficult.
Secondly, it is necessary to work on branding. The brand of a company must be assured; its essence must be well treated, aiming at customer fidelity to its main business.
In third place, as a platform, comes the investment in technology. In aviation, it is state-of-the-art in everything we do, from the aircrafts to the systems. We are an industry that works seven days a week, 24 hours per day, we do not close for stocktaking nor do we have collective vacations. We need dynamism in logistics aspects and in dealing with information.
To complete all of this, without a doubt, it is necessary to have the people. This is a much broader concept than that of Human Resources – an expression that reminds us of someone giving us a pay check, an area that pays benefits. When I talk about people, I refer to the management of shared knowledge, so that everyone understands the strategy, and to the physical environment where they find themselves. These are the pillars. When there is an environment of competition, volatile and adverse, the brand is no longer a matter of marketing, it is one of culture.
PwC
How can the organisational culture help a company respond to global change and to be open to innovations?
Mr. Bologna
Organisational culture always depends on the company, on its origin. In our case, one person constituted our DNA, 30 years ago. The founder had the geniality and the insight to do something different. He saw that he did not have allies, except the passenger. At that moment, he observed their behaviour, their needs and created a differentiated culture - the branding of the red carpet loading to the airplane’s door, the in-flight candy, the smile of the flight attendants and the service, “Speak with the President” - all of this to show the delivery of a differentiated product. It was necessary to change some things along the way, with the growth of the company and behavioural changes.
It is not possible to age, it is necessary to renew. Today, the youngster does not require hot food, but he is concerned with low fat. We must maintain our DNA, but we must be more holistic. In the past TAM was very focused on transporting the executive, now we want to attract everyone, the youngster to the elderly, from leisure to business. We also want to attract women and have even changed the way we present ourselves.
PwC
How do you know when it is the time to renovate the culture of a company and up to what point can it be moulded?
Mr. Bologna
Satisfaction polls have to be something habitual in a company, not a sporadic practice. We work a lot with polls. We have carried them out quarterly, for the last three years, as a way to pick up trends. Both the client satisfaction poll, as well as the internal satisfaction poll are now performance indicators for variable remuneration.
It is very common to only consider metrics connected to results, profit, value added and financial indicators. But because we are a service rendering company, client and collaborator satisfaction weigh a lot. Only this way are we able to maintain the culture connected to the essential factors of the brand.
PwC
How must an organisational structure be, to be able to respond effectively to global changes? Should it be more centralised or decentralised?
Mr. Bologna
The question of structure is simpler than that of culture, because there it is possible to adopt best practices, such as that written by captain Rolim Amaro: "whoever does not have the capacity to create must have the courage to copy".
In our case, the CEO has five operational lines below him, which are related to the company’s cycles. The cycle begins with someone selling, who is also responsible for customer service. There is no further physical delivery, after the electronic ticket. In this operational line, the sales person is a B2B, if dealing with a travel agent, or a B2C, if it is the consumer on the site. We only see our final client at the customer service desk at the airport, where he/she must be transported. This is the second operational line, where the people who take care of the technical area, the airplane and the client, are.
In the airplane, which is the third operational line, we have the crew, which are service and technical personnel. From this point on, there is the air network planning area, which organises the flights. Lastly, there is a classic area, which is the CFO, which deals with relations with investors, treasury, planning, accounting and general control.
In our structure, these five lines report to the CEO. Besides them, there are four areas which are considered strategic to our business. Two are mandatory: having an external auditor and an area of flight security (which audit who is piloting and who is maintaining the aircraft). Another area, not mandatory but considered strategic, because it makes us look at trends, is the marketing area. Here we discuss product development, care with the brand, communication policy, advertising, Internet, and the in-flight service. In other words: product strategy. For example, we were faced with the challenge to make a cheap and differentiated in-flight service. We do not want the little cereal bar (adopted by the competitor Gol), because it is too simple. So then we settled on ice cream and a different type of sandwich.
PwC
Does this structure, with the separation of strategic areas, give you agility?
Mr. Bologna
Exactly. The other area considered strategic, is people and knowledge. In it we have the Intranet and the communication part. To communicate, in a company with 15 thousand people, is complicated, therefore we make use of e-mail-video, video-conference, motivational and endo-marketing activities. Internal communication is done by marketing, even when it is generated by the personnel area, because we try to use the same language used for the client. Another area we consider strategic is the technological area, which is directly connected to the CEO, besides the corporative communication area, which enters into dialogues with opinion makers.
PwC
How do you ensure access to people, information and information networks, to be able to respond to the global changes?
Mr. Bologna
It is mandatory to spend money with auditing and lawyers. But in our business, spending money with advertising and marketing is also obligatory, because we are a consumer service company. The company that spends most money with marketing in Brazil is the one that sells most - Casas Bahia (a chain of home appliances and electronics stores).
The consulting companies are not obligatory, but they are strategic. So we have to seek the best in the market with reference to consulting, because they will bring us the trends and references of what is happening in the world. They will show us how the regulatory market works in Australia or China or the aviation tendency in Europe.
Some countries are in an advanced development cycle, different from Brazil’s. Which is Brazil’s? We are a miscegenation of races, half Europeans with American minds. My family is of Italian origin, but my mother’s house in the countryside of São Paulo is much more modern than my aunt’s house in Italy. To cook in a microwave oven in Italy is seen as absurd. So then we have to adapt the global tendencies to this Brazilian cultural miscegenation. We must be plugged into these information levels, through all available channels. Auditing does not only audit, it also brings the best practices. Lawyers also bring planning elements. And marketing brings consumption tendencies.
On the people side, it is necessary to develop internal talents, trainee programs, selection processes that bring very capable youngsters that are good graduates and have will power, people with ideas. Sometimes, in the midst of the company, there is someone with an excellent idea who is not being heard. Therefore it is important to get out of the hierarchical structure.
PwC
How do you ‘get out of the hierarchical structure’?
Mr. Bologna
It is no use for the CEO to stay up at the top of the structure, waiting for the idea to arrive. It is necessary to go to the “factory floor”, to promote meetings. We have the “Coffee with the President” every 15 days, early in the morning. Every time a different community or area is chosen, such as managers, airport personnel, customer service, call centre or cabin crew. In the case of the pilots we host a barbecue. On these occasions, I try to hear them. Great ideas come up because they see the operation from the field.
This practice generates a liberty of speaking with the CEO and communication flows better, because in such meetings there is no hierarchical structure. Obviously, for cases of accusations and conduct misbehaviour we have an ethics channel, which is outsourced, and we do internal campaigns to motivate the employees to use this channel in cases such as fraud or racial discrimination.
We also have “Talk with the President”: the channel with the consumer created by Captain Rolim Amaro. We also learn a lot from this contact with the clients. To complete this theme, we created the council of clients, in 2002, formed by frequent passengers, invited for a presence group which met during three months and now is organized in a community on the internet.
PwC
Would you say that TAM’s structure is decentralised?
Mr. Bologna
It is decentralised, but with constant information channels. We are totally connected. We have what is called “collaboration”, with voice and image systems on IP, Blackberries - we joke about being the “BBTAM”, the Big Brother TAM. We have images of all the airports, because of the Internet.
The great trade off is between good sense and rules. If we put too many rules we stiffen the structure. But if we stick only to good sense, we spend a fortune or generate fraud. An organisation without rules is vulnerable to hackers.
Our business depends on procedures - it originated in the military sector and for this reason still maintains the “voice of command” a lot. Not necessarily from the CEO, but from the leadership. When I enter an airplane, the captain is the person who gives the orders. I am subordinated to him, although I am the president of the company. Everyone in the company has this vision of the captain, of the voice of command.
This sometimes creates difficulties, because there is the state of readiness waiting for the voice of command. That is why we evolved the structure for each area to have its budget, its performance indicator and its result parameter. Everyone is connected to the fixed and variable remuneration components and to the polls.
To have multi-functioning between the areas, I have what we call a Project Control Panel. For all the activities that are inter-functional, we have a methodology of applied projects, accompanied by me. I give the tone. We launched a campaign of differentiated tariffs and this was a project administered by the president, because it involved Information Technology, commercial, marketing, airport, endo-marketing and training. If I left it with the commercial area, the project would not go ahead, because they would continue waiting for me to give the voice of command, for the technology area to include that in their priorities.
PwC
So there are moments when it is necessary to centralise?
Mr. Bologna
Yes, to give rhythm, to have the delivery culture. What goes to the Control Panel is what has a high financial impact, what affects the company image or that which is multi-disciplinary. We cannot let the company become inert, expecting delivery. We must set the rhythm with deadlines and rules, create a culture of moving ahead, because our business is very integrated.
PwC
How important are the value chain strategies in responding quickly to global changes?
Mr. Bologna
It is important to maintain the warrior spirit in the value chain, a spirit of superseding, of outdoing challenges. This is connected to the profile of those who are hired. In the value chain with the client, the passenger enters a type of tube. In all his points of contact with the company – in the site, in the airport, at the counter, in the finger, in the luggage transport – we need to be 100% successful, so he will return.
All the stakeholders need to have our culture. Sometimes everything works out, but the luggage dispatcher ruins the client’s suitcase because he stepped on it. The challenge is to maintain this culture of value in the whole sales cycle chain of the company. We carry out opinion polls all the time, measuring results, airports and processes. We need to go to the location with a stop watch in our hand, to check to see what is happening in each phase of our delivery to the client. Not only to know that we are doing well in-flight.
We have the habit of imagining that the company is the yolk and the white of the egg is the market. The brand is actually in the middle, around the yolk, it also embodies the community. The ideal is to obtain a partnership of the stakeholders with the company. The limit of this would be that the employee would be a passenger as well as a shareholder. The shareholder would be a passenger. This way he cheers for everything: he wants the success of that company, but he also wants to travel well and pay little. But he knows that it is of no use to pay cheap and the company to go bankrupt. This concept did not exist in Varig, for example. It got its governance wrong. It was not in the brand or in the technology. It is a case that demonstrates the importance of the commitment with the stakeholders.
PwC
How should the value chain strategies be in the internationalisation process and in the relation with suppliers?
Mr. Bologna
It is important, before anything else, to think about what is basic and fundamental in aviation. The client expects us to offer a broad network of destinations and frequencies of flights, regularity and punctuality. Furthermore, he wants good service in the airport, he does not want to wait in line. People also like a new airplane, and a smile in-flight. After this basis, then yes, we will think about the in-flight service. It is no use to serve caviar and Moet Chandon champagne, if the airplane is dirty or if it is delayed. After the basic it is possible to differentiate with in-flight service and entertainment.
Today we have the culture of “back to the basics”, because if not people tend to “fly” to what is glamorous. In the same way, our basic is the domestic market. We know and understand Brazil, this is our market. After that comes the international market. But the glamour is in the international market. So we need to make clear to our chain which is the core business, both the market segment, as well as the quality of our product offerings.
PwC
Are alliances, joint ventures and acquisitions important?
They are. Our business is international. We do not have any local supplier in our main business. The airplane, the equipment and the financing come from foreign companies. So we are constantly abroad. Our core is the domestic market, but we look for international expansion in a selective and profitable manner. For this, TAM needs the following: free pricing, liberty to fly, operational efficiency, rigorous payment commitments and economic-financial capability. Since we transport lives this is the minimum. In the international market, we do not defend the so called flag company; we are against the mono-designation of routes. We are in favour of multi-designation.
We fly to destinations where there is traffic and that have a Brazilian profile. That is why we fly to Miami, New York, Paris and London, and we want to go to Frankfurt. But we are not going to make a political route to the Congo, because the government wants to develop a business policy in that country, for example. The genesis of the existence of a route is not in the government’s wish; it is where there is business. Wherever there is traffic, a need for locomotion, we will put a flight there. China, for example, is a prospect that we are monitoring.
PwC
Which is the moment to monitor a prospect and when to decide to invest in it?
Mr. Bologna
It is no use to try to be a pioneer and be a “pioneering fool”. Varig had opened a base in China. People made the following calculations: there are one billion Chinese, if 1% come here, we will need ten flights. Except that this market still does not exist. Therefore, it is necessary to approach this market through alliances and then evaluate if our presence there is justifiable. We do not want to open a company in Europe or Mexico, because they are cultures that we do not dominate. As a service rendering company, we are a Brazilian company following the flow of Brazilians, wherever there is commerce. But of course China is a prospect.
PwC
How do you monitor prospects?
Mr. Bologna
Through polls, studies and sector directories. IATA (International Air Transport Association) publishes several directories about the volume of traffic. We are plugged into all of these air traffic flow management systems, we buy and analyse data bases. In the case of world aviation, there was a boom of global alliances, such as Star Alliance, but that is already established, it is no longer a prospect. Alliances today are based on flight connectivity and integrated mileage programs. Except that Brazil is in a destination continent, it is not a transit area. Alliances are very important in Europe and in the United States.
TAM’s biggest asset is to have the distribution of South America. For us, at this moment, the best agreements are the bilateral ones. We do not discard being in an alliance one day, depending on the muscles we develop. It is good to remember that the biggest step for TAM’s internationalisation only occurred in May of 2005. Until then, we were still doing a code share with Varig, discussing if we would do something together.
PwC
How ready is TAM today to react to changes in environment, be it crises or opportunities?
Mr. Bologna
TAM is trying hard to do this, but it is not totally ready. We are working on three fronts; which are connected to each other. Firstly, to have the delivery culture it is necessary to reward success and punish failure, because you can not feed a paternalistic culture. Secondly, this execution capability is linked to results metrics that provide financial reward, because it is no use to plan and not execute. Lastly, to work multi-disciplinarily in complex structures, it is necessary to know what is strategic at the moment and the timing for the marketing.
For example, we had to take advantage of Varig’s down-sizing and fulfil flights that were left open. We had to make a third frequency to Paris and also fly to Milan. There were no new aircraft, but we were able to get hold of a MD11 and decided to use it. We can not remain paralysed in search of the optimum. We went to buy the new aircraft, we did a bid between Airbus and Boeing, and ended up buying a Boeing Triple 7, which will only be delivered in 2008. But we can not tell the government or the market that in 2008 we are going to have a flight. So we are going to fly with a MD11.
PwC
Which sectors or organisations, in your opinion, have a good means to be able to adapt and protect themselves in relation to changes?
Mr. Bologna
The financial system has this speed. Especially in Brazil, that capability was developed due to inflation, legislation, the control, the complexity of tax matters. The telecoms sector also has this ability, due to the constant search for creativity and the choice between one technological platform and another. Very competitive sectors in technology are like this. Aviation is more intensive in all senses: in capital, personnel, energy, technology and management. We live with this challenge and with the fact that we are a “risk business”, because we fly.
PwC
And which sectors are not so good at adapting to changes?
Mr. Bologna
The sectors which are slow are those which maintain a monopoly of the market. This is typical. With the opening of the Brazilian economy, this reality began to change. One example is what happened to Varig, which lived in a time when they were the only flag company. The regulations protected the company, which had a reserve of the market. In these cases, you live a kind of aristocracy. The president of the company has a big car with a driver, he is surrounded by an “entourage”. This has never existed at TAM, because we were born with captain Rolim’s culture, which would bend down to fix the red carpet.
PwC
In 1998, 32 percent of CEOs identified Latin America as a region that offered the best opportunity for five years of growth. This percentage surpassed China (23 percent) and India (4 percent). The scenario is very different in this year’s poll, with CEOs identifying China as the best opportunity market, followed by India and then by Brazil, in last place. Why do you think CEOs underestimated the importance of India and China as emerging markets?
Mr. Bologna
China lived in a communist regime. No one predicted capitalist-communism. Maybe the CEOs were still connected to the opportunities to be explored in the commercial relation with the United States and Europe. There was a lot of discussion about the European Union, and this took away the focus.
We have to remember the concerns CEOs had at certain times and afterwards they revealed themselves as decoys. For example, the “millennium bug” was the biggest commercial fraud in the history of technology. Nothing happened. A lot was said about the European Union, that it would be a great centre of power, it would surpass the American market, that the Euro would knock out the dollar.
As I am of Italian origin, I thought that prediction was exaggerated. If the Tuscan does not speak with the Neapolitan, how is the Italian going to get along with the German? The concept of a nation without mobility of labour does not exist.
PwC
In hindsight, would you have evaluated the opportunities in China and India differently ten years ago?
Mr. Bologna
I do not think so. India was always seen for its castes. It seemed to be a society where there was a conformity with everything, where people thought they were going to die poor because they were born poor. China was a communist country, which reminded us of Cuba. With the end of the Berlin Wall, that was simply retrograde. No one imagined the development of capitalism the way it happened in China.
PwC
Do you think that organisations still underestimate the potential of India and China or have businesses already adapted themselves to the increased importance of these two countries?
Mr. Bologna
I think that everyone is finally aware of them. Everyone thinks more globally compared to ten years ago. We have to remember that Brazil, for example, only opened its economy in the beginning of the ’90s, with the Collar government. The Fernando Henrique government (1994-2002) was the one that achieved better foreign relations. Today we are much more mature.
PwC
In 1998, 20 percent of CEOs thought that the Internet would only have a moderate impact on business and one third of them remained more than one month without connecting to the web. In 2000, close to 50 percent of the CEOs thought that the primary function of the corporative website was to disclose information. Only two percent saw the site as a source of recruitment. Why do you think that so many CEOs underestimated the importance of the Internet?
Mr. Bologna
This is basically due to the digital barrier of that generation. We were born analogue. If I were to give my mother a digital watch, she would not even be able to set the time. If you gave my son an analogue one, he would not know what it was.
PwC
Was your vision of the importance of the Internet different ten years ago?
Mr. Bologna
Since I am an engineer – a production engineer (I graduated in 1978 from the Escola Politécnica da Universidade de São Paulo) I received a large dose of information and technology while I was still at school. My first job was as a systems analyst, I was a programmer, I used the first desk top computers, I purchased program cards. Technology was always very close. Of course I never imagined that the Internet would have exactly this importance, but I was a user back in the days of university networks.
PwC
In what way have the businesses of today already adapted themselves to the Internet boom? How was it at TAM?
Mr. Bologna
The Internet was underestimated, but it was also overestimated, when there was the NASDAQ bubble. People believed that the Internet would generate new sales, but actually it is a sales channel. There are several channels: shop, telephone, fax, e-mail, site. What happened is that there was a migration, because the client that buys through the Internet is no longer using other channels. It is clear today that the Internet is a sales channel and a media.
For TAM it is an important channel and the speed of migration is great, because the Internet makes people’s life easier. The online travel agencies are going to be very strong, because with them it is possible to make a more economical trip or one that most reflects your life style.
PwC
The polls have identified an excess of regulation as a growing obstacle for businesses in the last nine years. Does the excess of regulation disturb you in the development of strategies?
Mr. Bologna
Our sector is regulated because it requires it. It is a dynamic regulation, it is not stiff. What we have are flight regulations and the adjustment of infrastructure. The crisis in the Brazilian aviation sector (delays and cancellations provoked by problems in the air traffic control) has its origin in the fact that the regulator did not adequately build the infrastructure.
Contrary to other sectors, I believe that those that make up the infrastructure, such as transportation, energy and sanitation, need a certain degree of regulation, due to the large investments made in fixed assets and activities that require adequate operation procedures. There is no excess of regulations. It needs to be dynamic and give the investor stability. A stable regulatory environment is necessary.
PwC
Do you try to actively influence regulations? How?
Mr. Bologna
Of course, through contacts with regulatory agents, showing them trends and tendencies.
PwC
With which persons do you regularly interact to help foresee future changes? In what way do they help?
Mr. Bologna
There is a structure that removes the solitude of the CEO. We have a board of directors, and to predict the future is also part of its functions.
The shareholders also need to share what they expect of the company, what positioning they expect. The strategy emanates from the shareholders, although it is discussed and proposed by the CEO.
We also organize the management committees – we have the strategic, remuneration, auditing and finance. I do not take a proposal to the board of directors before going through these committees – they are not approving committees but recommendation committees.
I feel very at ease with these committees; if I have doubts, I debate and discuss them with the counsellors. Besides this internal structure, I have external consultants.
Lastly, I have close friends and my wife, who is a person I interact with, exchange information with and confide in.
PwC
With relation to data and information, what sources do you use on a regular basis to back your decisions about the future?
Mr. Bologna
In relation to the business, there is specialised media, national and international. Newspapers are also important, in this case Valor Econômico, Gazeta Mercantil, Estado de São Paulo, Folha de São Paulo – and the weekly magazines such as Veja, Exame, Época, Isto É. I take a look at these newspapers and magazines. I also like Bloomberg, and I watch CNN. The Institutional Investor’s a magazine that has a lot of interesting information. I also take a look at Google, looking for generic themes that interest me.
PwC
What initiatives or processes do you and your managerial team use to predict, review and plan actions in relation to future tendencies?
Mr. Bologna
We have a performance meeting, which is a control panel. These are monthly meetings, and they help give visibility to the business monitoring and tendencies. We also have the weekly executive committee meetings.
PwC
Is there anything else that you would like to add to this arsenal to help you respond more rapidly to the changes in scenario?
Mr. Bologna
What helps me is the quality of life. It is necessary to have a healthy life, practice sports, take care of the physical part. It is also necessary to read things that are not about the business. If not, the executive isolates himself in his “little world”. It is important to read different things, related to spirituality, or even novels and police stories. I try to read things that give me outside references.
PwC
Are there any barriers or difficulties that you would like to remove to facilitate your quicker response to changes, to your forecasts?
Mr. Bologna
Some internal bureaucracies, even due to compliance factors. Sometimes we are obliged to follow some bureaucracies that make our work more difficult. It would be better if the processes were more dynamic, involved less paper, less signatures. Organisations in Brazil are still very dependent on paper. The trend is towards “paperless”.
PwC
Looking back at the last ten years, which opportunities do you think that most of the CEOs lost?
Mr. Bologna
The most important ones are already mentioned here. Maybe CEOs did not perceive the maturing and importance of women in business. Women are great executives, because they do not make corporate gossip as men do. Internally, this helps maintain the focus on the business, there is less dispersion of energy and this reduces stress in organisations.
