Sea Changes: Carnival Cruise Corporation CEO Arnold Donald On Transformation

Tell us about what you learned during your listening tour.

The core essence of our business is exceeding guest’s expectations. We have nine world-leading brands. Each one caters to a different psychographic—not demographic—segment.

For example, we pay Steve Wozniak to lecture on Seabourn Lines and he, at times, pays us to sail on Carnival, which is a completely different brand, because he likes the social atmosphere and the general community experience on Carnival. Some people want to be pampered, and some want to socialize. It’s two very different types of products. So, I learned that each brand had its own community. And if we understood well what resonated with that community, each of those communities in the general public are large enough to more than fill our ships at great pricing. I learned from our people that we didn’t have in place the best listening tools to hear our employees and be able to capture what they could do with the diversity of thinking to help us create extraordinary solutions.

I also learned that we were not leveraging our scale. We were the fifth-largest purchaser of airline travel in the world, but nobody knew that, including us, because each brand was doing it independently. I learned that the best way to address this was not to centralize, but to get the brands to communicate, coordinate and collaborate across the company in order to capture the diversity of thinking, but at the same time, leverage the scale.

One example of this is our revenue management tool, YODA, which six of the brands had a share in developing. Individually, maybe one or two could have financed it, but the rest of the brands were too small to have taken on such a big project. Just the sharing of learning and the sharing of what’s going on in their businesses has improved revenue management overall. The tool was better than what each had to work with beforehand.

What operational changes have you made as a result of this?

We did a market research study, basic stuff. But as opposed to each brand doing its own market research study, we did one collectively. Because we did that, we did a much deeper market research study and actually spent less money than if each brand had done its own. Coming out of the study we understood better how the brands are differentiated and how they resonate with different communities and psychographic segments.

We then reorganized our communications and media strategy around what each brand needed to deliver to its particular guests. That is constantly being refined, and it’s made a difference in terms of being effective and attracting the right people to each brand. If somebody gets on the right cruise, they will be cruisers for life. If they get on the wrong one, they may not be. But even worse than that, the most powerful marketing tool we have is word of mouth.

We can advertise and talk all we want, but if you tell your best friend, “Hey, I’m telling you, this cruise thing’s pretty cool,” they’re more likely to go on a cruise. An okay experience is not good enough because when that person goes home and their friends ask how the cruise was, the answer “it was okay” doesn’t make anybody really want to go.

We’ve seen disruption in the hotel and transportation industries with Airbnb, Uber and Lyft. How concerned are you about disruption in the cruise industry?

The beauty of the cruise industry is that it’s tiny. We’ll maybe sail as an industry 30 million people this year. There are 1.4 billion travelers a year, with over half a billion vacationers a year on the planet. The city of Orlando attracts something like 70 million tourists a year. Las Vegas sees 40-something million. Venice does 24 million or 25 million The entire global cruise industry is the size of one major tourism city, and not even that in some cases. So, we’re so tiny. Therefore, when you say disruption we’re not anywhere near a mature industry. We’re underpenetrated in every market in the world. We’re capacity-constrained because there are only so many shipyards. The most the industry can grow in a year is 7 percent off a small base.

It will be tough for anything that involves being on the ocean, that requires a vessel, to be instantaneously disruptive because there’s limited shipbuilding capacity.

How do you get cultural buy-in with 120,000 employees across hundreds of countries around the world?

It’s a challenge. But when I first came, I did the listening thing. When I pulled the top leaders together—keep in mind, some of those leaders loved me as a board member but never thought I was going to be running the company because some actually wanted the job—I made it clear that I wasn’t interested in having my own team. I could see some things needed improvement, but there were a million things going right that I didn’t even know about because I’d never run a cruise line. I asked the top guys, “What does success look like for you and your family five years from now? What does success look like for you and your brand or department five years from now? What does success look like for you professionally as an individual five years from now?”

Some hadn’t worked together before, so I paired them up. We conducted trust exercises so that we could get them to rely on each other. I was looking for mutual buy-in. When you present intelligent people with the same facts they tend to reach similar conclusions. We also tried this exercise with 70 leaders from around the world. It was tricky insofar as in some cases English was their third language, let alone their first.

After these exercises, they were all fired up. “For the company to be successful going forward, this is what we need to do. Let’s go.” I said, “Well, if I had told you this from the outset, you wouldn’t feel this way. You feel this way because you own it. You came up with the solution by yourselves, and now you own it. But if we just go out and tell the rest of the organization that, it’s not going to work because as soon as you hit a bump in the road, they won’t own it. We have to do the same thing with the people that report into you.”
In addition, we had to engineer diversity. The simple reason is that it’s the right thing to do, but put that aside.

Businesses thrive over time through innovation. Innovation by definition is diversity of thinking. It’s thinking outside the box. You increase your probability of innovative thinking if you have people who really are different from each other. If you purposely engineer a team of talented people who are truly diverse who are aligned around a common objective, where the process is to work together to drive true inclusion so everybody has an equal voice, everybody gets rewarded in the end.

You have to put the right processes in place. I engineered a diverse team, brought in some folks who were ethnically diverse and who were gender and background diverse. I wanted one person on the leadership team who didn’t have a college degree.

I have a man who was born and raised in Communist East Germany on my team. His manner and behaviors are dramatically different from a woman raised in Philadelphia who was a travel agent. Such people wouldn’t naturally work together, but by creating an environment where they understand what they share in common and have a common objective, they become a powerful force, and you multiply that across the leadership team.