Monday, June 26, 2017

Blade Wars

For some time now we’ve been seeing ads on television and various other media for new companies that are selling razors and shaving products over the Internet. I’ve been watching them with some interest, both because I use such products myself and also because this is a product category that has suffered from artificially inflated prices for as long as I’ve been old enough to shave. Whether this is an isolated case or if it turns out to have relevance to other product categories remains to be seen, but at the very least it would appear that the traditional strategic advantages are no longer quite as sustainable as you might think…

Fox Business is reporting that Gillette’s share of the men’s shaving market has been dropping for at least the last six years – from nearly 70% in 2010 to 54% in 2016, and possibly still dropping. To the best of my knowledge, there has never been any reason why other companies could not have challenged Gillette’s domination of the industry, any more than other companies could have challenged Frito-Lay for control of the potato chip and corn chip industry. But as in the case of salty snacks, it can be very difficult for a new competitor to break into an industry that already has an entrenched competitor with vendors, distributors, retailers, and the majority of the end users already its control. The purchase of Gillette by Proctor and Gamble in 2005 only made things that much harder for anyone else who might have thought to break into the market…

As a result, Gillette has been selling razor cartridges for as much as $6 each, and is in the middle of testing and introducing new extensions to the product line that might go even higher. It has become something of a running joke in recent years that the company keeps adding blades and jacking up the price. And while exactly how much of the price was made up of profit margin remains in dispute, it has not been much of a surprise to learn that the well-known Schick competing products run for as little as 50% of the Gillette equivalent’s price. Finding out that the cheapest Dollar Shave Club refill cartridge goes for as little as 20 cents was rather more surprising, to be sure, but what was really amazing was seeing the full-page ad in the newspapers responding to the new competition…

You can see one of the examples at Campaign Outsider if you’d like to. Gillette was already planning to answer the shave clubs delivery/convenience advantage by launching their own subscription service, but apparently the threat posed by the price advantage has caught their attention as well, and they are now publicly announcing upcoming price reductions across their product line. If the Fox Business story is correct, this should amount to an average reduction of about 12% on Gillette shaving products. Whether this will be enough to counter the 90% price advantage offered by the new online competition remains to be seen, of course…

Now, I’m not saying that the new price reductions won’t work, or that the success of the new shave clubs will bring additional competition into the market. I don’t begin to have enough data to make any such predictions, and I’m not sure anybody else does, either. For all that the situation is a classic example of a previously dominant company having to deal with an unexpected entrant crashing their market, the use of an Internet-based campaign and a direct-billed subscription model, not to mention home delivery, is almost literally unprecedented in this industry and product category. I can’t see any reason it shouldn’t work, and I’m not sure there’s anything Gillette or P&G can do about it – except compete with the newcomers on their own terms, that is…

Gillette is still entrenched in the market; their product is available in virtually every supermarket, drug store, convenience story, and general merchandise retailer in this country. They’ve got the technology and knowledge-base to create superior products, the distribution channels to get them into any customer’s hands, and the capital to run better ads and set whatever price points they can get away with. It seems possible for them to compete in this market and win, especially with the support of their corporate parent. What they can’t do is ignore the threat that these new competitors represent. The way they have been doing until now…

Wednesday, June 21, 2017

Sucker Showcase

Many years ago, the original cast of Saturday Night Live did a sketch about a game show called “Irwin Mainway’s Sucker Showcase” during which the host would tell various credulous idiots (the titular “suckers”) various obvious lies in order to get them to humiliate and/or injure themselves. It’s a variation on the old idea that people will do literally anything in order to get on television or win money; when you combine the two there’s almost nothing that is too obviously stupid to keep people from doing it. Dan Ackroyd was the MC (Irwin Mainway) and Steve Martin was the show’s “returning champion” – e.g., somebody so dim that he couldn’t figure out the show’s true nature even after enduring an episode of it. Steven Martin later included the sketch in his own T.V. special; you can find the clip here: https://youtu.be/4Hi8DIEhb_o

What seems most remarkable to me isn’t so much how prescient this sketch turns out to have been as how much more honest the format is, to the viewers if not to the contestants. Modern reality television has subjected contestants to activities at least this unpleasant, and potentially even more hazardous to life and limb, starting with shows like “Fear Factor” and “Survivor” and continuing to the current day. But where the fictional Irwin Mainway and whatever heartless production company was behind him were openly making fun of people, and inviting their audience to laugh at these suckers/contestants, the modern reality show hosts (and, one assumes, producers) go on endlessly about how exciting and competitive their contests are, and how well their contestants are dealing with the challenges involved…

Now, I would be the first to admit that this isn’t a new idea. A number of television series have based episodes around the concept over the years, and there are at least three full-length movies of which I’m aware that have been released on the same themes. I will admit, however, that I have started worrying about the long-term effects of both encouraging people to be credulous idiots and encouraging other people to watch them and laugh. As the world becomes more complicated all around us it gets easier every year to make an innocent mistake that can screw up your entire life. Even ten years ago if you lost your cell phone, the worst that would happen is that you would report it as lost/stolen, have the carrier deactivate the account and give you a new one, and buy a new phone. If you’d bothered to sign up for the insurance, they’d just give you a new one. Today that same phone could allow someone to drain your bank account and max out all of your credit cards before noticed it was gone…

I point this out for a number of reasons, not least of which is I’m worried about the corrosive effect this is having on our society; however, the effects on business, and particularly on business strategy, may be even worse. Business runs on information, even more so than money, and without complete and accurate information it isn’t possible to plan your activities or make competent decisions. If you base your calculations on bad data there is no way you can possibly get the right answers (the infamous programmer’s term GIGO – garbage in, garbage out – comes into play here), and with people deliberately introducing nonsensical information into reference sources just for the fun of watching more people behave like credulous idiots it’s getting harder every day just to tell what is real and what is supposed to be humor…

Earlier this week I noticed a clickbait item trumpeting that Don Knotts had just blurted out his “real” reasons for leaving the Andy Griffith Show. Which sounds like minor celebrity gossip, at best, until you realize that Mr. Knotts has been dead for eleven years as of today’s writing, and he revealed the complete rationale for leaving the show in the early 1970s. Heaven only knows what kinds of malware or online scams you might be subjecting yourself to if you clicked on that link, but the one thing I’m fairly sure of is that if you did click on it you would not have learned anything about the late Don Knotts that everybody else didn’t know forty years ago. If you make a practice of clicking on such links you probably won’t learn anything else, either, but you’ll definitely have qualified for an appearance on the next Irwin Mainway production when it comes out…

And that’s still not even the worst of it…

Thursday, June 15, 2017

The Hits Keep Coming

Suppose for a moment that a random customer of yours has just saved your company from a disaster that would have meant the loss of an asset worth at least $100 million, plus at least a few hundred wrongful death lawsuits, each of which can easily run into the millions of dollars all by itself. Let us further suppose that the employees to whom they initially reported the impending disaster did not believe their report, and only reluctantly verified the story while being particularly rude to those customers. And while we are at it, let’s suppose that the signs of impending doom that they discovered could have been noticed by any ordinary school child, and that enough witnesses exist that trying to cover up the details of the story would be asinine. Where would you expect to find those customers when the dust clears?

Well, unless you said “Sleeping on the floor in the Baggage Claim area because no one gave them a hotel voucher” you have, again, over-estimated the customer service and public relations skills of our old friends over at United Airlines. According to a story from the New York Post a United flight was departing from Newark for Italy when two of the passengers noticed fuel leaking from the airplane’s main tanks in the wing. Not just a dribble, either; they described it as looking like the stream from a fire hose. The flight attendants reacted to the report of this information by yelling at the passengers to get back in their seats, and only reluctantly looked out the window – whereupon they immediately called the cockpit and told the flight crew…

After aborting the takeoff and returning to the gate the flight crew were nice enough to the heroes of our story, personally thanking them for saving the plane and everyone aboard from the fiery (and idiotic) death the airline had unknowingly been courting. United’s ground personnel were less effusive, however, proceeding to attempt to cover up the incident, issuing a statement downplaying the leak, and trying to get everyone on the flight rebooked and overseas before they could start talking to the press. They managed to get meal vouchers to all of the passengers, but somehow failed to supply hotel vouchers to all of the customers they had just massively inconvenienced (and nearly killed), including the couple who had noticed the leak in the first place…

Now, I don’t mean to suggest that these two people, a couple on their honeymoon, were the only thing standing between United and total disaster. We can probably assume that the flight crew would have noticed the rapidly dropping fuel levels, either on a routine check or when the flight computer’s alarms went off, and returned to the airport. I’m also not suggesting that the airline go to any special lengths to thank them, although one would imagine that customer retention concerns alone would make that worth the effort. I’m just pointing out that I’ve gotten better care than that when a flight I was supposed to be on was canceled at the last moment, and all I have ever done for that particular airline was buy a ticket…

Okay, so this wasn’t really an atrocity. The worst thing that seems to have happened is that a group of passengers was moderately to severely inconvenienced (if the worst thing that ever happens to you while traveling is having to sleep in an airport, you’re an extremely fortunate traveler), and any of that could have happened on any ordinary day, even without mechanical failures and employees who appear to be thick as a brick. But it does make you wonder how many close calls a single company can survive, even leaving potential air disasters out of it for the moment. Sooner or later people are going to get fed up with the various United shenanigans and start voting with their feet. You might expect that the company would want to put off that day for as long as possible, or at least avoid any billion-dollar disasters in the meantime…

But unless this story turns out to be a hoax, you’d be wrong about that, too…

Wednesday, June 14, 2017

Museum of Failure

As I’ve mentioned a number of times on this blog, I originally went back to grad school to learn more about management failure, with an eye towards getting people to stop running perfectly good companies into the ground. This turns out to be harder than you would expect, because as one of my professors pointed out during my first year in Michigan, it’s difficult to study companies that don’t exist anymore. Even if you could find financial data, operational records or human resources information for defunct companies, and you generally can’t, the problems that killed the company could just as easily be intangibles like personality conflicts, poor stakeholder management, greedy owners, poor corporate governance, or sudden economic downturns. Usually the best you can do is study the failure of specific products or programs…

Regular readers of this blog (assuming I have readers) already know that I collect these stories; they’re a staple of my lectures at MSU as well as a major part of why the “Stupidity” tag appears on more of these posts than any other. Sometimes I do find myself having to remind people that most businesses (and business people) aren’t actually idiotic failures; it’s just that people who operate a business successfully very rarely need to hire management consultants, and they even more rarely do anything funny enough to be worth making snarky comments about in a business blog. And while anyone who aspires to run a successful company, or even work for one, absolutely should study the way successful firms have accomplished their missions, I was still practically giddy when I learned that an entrepreneur and clinical psychologist had launched a Museum of Failure in the city of Helsingborg, Sweden…

You can visit the Museum’s own site if you want more information, or pick up the Detroit News story online if you’d like to read about the operation. Some of the artifacts in their collection will probably already be familiar to the reader, such as the infamous Apple Newton PDA or the venerable Sony Betamax, while others may have slipped under your radar, like the Harley-Davidson fragrance products or the visually revolting green catsup. But while many of these items may move you to wonder what the inventors were thinking, the key point of this exhibition isn’t so much that they failed as specifically how. Because while many of these products are every bit as preposterous as they sound, some of them are quite sound in themselves…

Take, for example, the Betamax. Most people know it simply as an older format that lost out to the more common VHS tapes (before the entire product category were rendered obsolete by DVDs, Blu-rays, and eventually streaming video services). What most people today may not realize (or remember) is that the Betamax was actually a better product. By any objective standard, the Betamax had better picture quality, better sound quality, better workmanship, and was generally more reliable than even the most advanced VHS systems. What did it in wasn’t price or quality so much as a fundamental misunderstanding of the market – and the competition…

When Sony first introduced the Betamax it was a very innovative concept: bringing both the size and the cost of video tape down to the point where any private citizen could have one at home. Consequently, the company decided to keep close control of all aspects of the system, refusing to allow anyone else to use the technology. With no real competitors, they could set the price point wherever they wanted to, and take their time bringing out additional features. The extent to which their competitors reverse-engineers the Betamax design remains somewhat unclear, but in addition to the lower price it was the longer tape running time and pre-recorded tapes that made the VHS so much more successful. With a run time of less than an hour, later increase to just over two, it would be difficult to record movies from cable or broadcast television on a Beta tape, and initially it was almost impossible to find anything pre-recorded on one…

Now, I don’t mean to suggest that the failure of the Betamax, or any of the other products in the Museum, for that matter, would have been easy to predict in advance. If I could tell you with any certainty what products or features would sell in any specific market I could probably have retired on the fees from telling companies not to build the Apple III, the Google Glass, or the Pontiac Aztec. I am in full agreement with the founder of the Museum that all future innovators, and the operational leadership of companies attempting to sell new and innovative products, should study all of the products in this collection, and any others that they can get their collective hands on…

Because I can almost guarantee you that the next big exhibit in the Museum of Failure will have its initial product launch any time now…

Monday, June 12, 2017

Strategic Failure: Profit

There’s a common Internet meme that has been around for some years now in which includes three step-by-step directions, to wit: 1. Buy Products; 2. Sell Products; 3. Profit! As far as I can tell it started out as a sarcastic comment on people doing things that shouldn’t normally gain a profit, either because one or two of the steps involve criminal/unethical behavior, or because at least one of the steps involves something for which no sane person would pay money. What may not be clear, especially now that the meme has become something of a cliché, is that this faulty strategic approach is responsible for a very large number of business failures every year, especially in the case of online businesses and websites that are intended to make a profit…

With the rapid expansion of online businesses in the late 1990s and early 2000s, a lot of people with brilliant technical and programming skills but limited business experience began creating websites that they believed would be an effective license to print money. I got to work with some of these folks during my time with the Small Business Development Centers program from the SBA, and almost inevitably, the founders of the company had created an amazing product or service, but had never considered how they would get paid for their work. Most net citizens at the time would not pay for content, and selling advertising on the site was difficult unless you could prove that the advertisers would be able to generate actual sales off those specific ads…

Even today, it remains difficult to get people to pay for online content unless it serves some function they can’t get in the real world or just steal off of any of the various pirate sites. Selling advertising is still a possibility, of course, if you have millions of visitors each day, but the presence of sites like YouTube and Facebook make that harder for a small business to achieve, not easier. Most internet advertisers today will only pay on the basis of verifiable “click-throughs” – people who saw their ad on your site and clicked on it – and some won’t even pay for that traffic unless it results in a verifiable sale. This has led to some to some desperate and often far-fetched approaches…

Consider, if you will, any of the Internet businesses that will allow you to use their basic services for free, and then attempt to get you to purchase an upgraded version or add-on features for the free version (or occasionally both) – the so-called “freemium” services. Pandora is probably the best-known example, but I can list dozens of others; one could actually see any of the media sites with a “paywall” arrangement as using the same tactics (e.g. newspapers that will allow you to read 10 articles a month off their online site, after which you have to pay). Some of these have met with limited success, but even something like Pandora, which provides a service to recording artists and music holding companies as well as consumers, has struggled to stay operational, and with the appearance of the App Store it’s increasingly difficult for anyone else to sell software…

My experience is hardly universal, and even the published research isn’t entirely clear on this point, but it has always seemed to me that this particular strategic failure comes about because people immersed in the challenge of building a new product or service aren’t usually thinking about the strategic aspects of the new business that their invention will create. Even within the business community itself, the kind of long-term strategic planning that is one of the staples of the management function is not widely appreciated by our colleagues from other disciplines. After all, why would anyone want to spend their time working on a musty old business plan, articulating the strategy that will make their business a success, when they could be coding, drawing, animating, welding, soldering, polishing or shipping their products? Or, for that matter, tracking sales, balancing the books, paying the vendors, managing the other stakeholders, or investing the proceeds? But unless there is some method by which people will give us money for doing whatever it is we are doing, the whole thing is a hobby, not a business – and it won’t last any longer than our hobby budget does…

Of course, failure to create an adequate business plan is a strategic failure in its own right – but that’s a discussion for another day…

Sunday, June 11, 2017

The Ethics of Profits

I hadn’t intended to follow up on this week’s piece concerning the EpiPen scandal at Mylan because, as usual, I didn’t really think there were two sides to discuss. Anybody who would intentionally charge a 60,900% markup – or even a 600% markup – on a medication that could save someone’s life in an emergency is going beyond simple capitalism into a realm that might get their company (or occasionally their entire industry) placed under government price controls just to keep people from rioting. That is to say, there is no ethical justification for such a policy, according to any standard of which I’m aware. But while it seems obvious that allowing people and organizations to earn some profit is the basis for our entire economic system, the point at which something goes beyond a reasonable profit and into outright exploitation or usury is rather less clear. I thought we should take a closer look…

First off, it should be obvious that in a completely free market it makes no sense to price something at a level that no potential customers can afford, or even at a level that no one would be willing to pay. In fact, pricing strategy to a large extent deals with how many additional purchases we can generate for each increment by which we lower the price; the point at which we can’t increase revenue by lowering the price any further being the price point. If price is the only factor driving the transaction then we probably can allow the “Invisible Hand” professed by Adam Smith and beloved of conservative pundits to sort things out. Unfortunately, conditions in the real world are rarely that simple…

In any situation where the purchase decision is more complex than simply buying the product or not having one additional levels of complexity come into play. One can choose not to pay for a luxury item, but one cannot chose not to pay for food, clothing, shelter, or medical care, just to take the obvious examples. In any situation where different customers have different resources available the situation becomes more complex again, as in cases where some people can afford to purchase food, or pay for medical care, while others in the same society can’t. And when we introduce issues like social stratification, racial discrimination, gender discrimination, transportation, logistics, government regulation, crime, spoilage, and cultural importance of specific goods and services (just to name a few) the entire situation can become baffling complex…

At the same time, we should probably acknowledge that none of the large-scale experiments with command economies, whether partly or fully socialist, appear to have ended up as anything other than complete (and usually repressive) failures. The post-scarcity economies so beloved of utopian philosophers might conceivably be different, but for the moment no such system appears to be technically possible, and thus far in history no system that requires people to sell products or services for what the government says they must (as opposed to what people are willing to pay) appears to have worked. So long as people remain motivated more by personal gain than they are by the greater good, it does not appear than any of these conditions are going to change…

As business people, we know that we would like to make as much profit as possible while at the same time creating the best possible society in which to live and the healthiest world in which to live – not because business people make any claim to being saints or angels (we’re not) but because healthy, prosperous, long-lived customers have more money to spend and more years in which to spend it. And as much as we might like to make a 60,000% profit we don’t want to do so in such a way that we get sued, regulated, mocked by thousands of scruffy bloggers, used as evidence in favor of nationalizing our industry, or that involves having our factory burned to the ground around us. So I have to ask the question:

At what point does our responsibility to our society, our nation or our world supersede our responsibility to our employees, vendors, creditors, customers, and stockholders to earn the highest possible profit on a given transaction?

It’s worth thinking about…

Thursday, June 8, 2017

Consider the odds

If anyone out there is surprised at hearing about new and different examples of airline personnel screwing up by the numbers no one has mentioned it to me. It’s possible that this is the result of all of us getting desensitized to these stories because of how often they come up, or perhaps the increasing deluge of horrible and horrifying news is making all of us jaded. For the record, I don’t believe that the world is actually getting worse; I think it’s far more likely that as the world becomes increasingly interconnected we’re getting more information of all kinds, good and bad. I do consider the most recent story, which is being brought to you by United Airlines (the people behind the Dave Carroll episode!) is particularly inept, but I think it speaks as much to the size of the problem as it does to any specific airline or airport…

If you missed the original story you can pick it up off the Washington Post site. It’s another one of those cases of a United supervisor trying to have their own way instead of thinking, in this case continuing to insist that a musician travelling on a United flight had to check her 17th Century violin despite Federal law that explicitly gives musicians the right to carry their instruments aboard. In this specific case, the musician had informed the airline at the time she booked her ticket that this carry-on arrangement would be necessary, and told the gate agents that she would leave and take a different airline if they wouldn’t let her carry her violin with her. For the supervisor to have continued to insist on checking the instrument at that point is absurd, as well as illegal, but when the supervisor made a sudden lunge and tried to rip the violin case out of the passenger’s hands it crossed the line into a level of stupid that we rarely see even in Airline stories…

Fortunately for the airline their passenger was not permanently injured during the ensuing wrestling match; even more fortunately, she has apparently decided that she has better things to do than suing the airline. Why, exactly, someone in a supervisory position was either unaware of the laws regarding this situation or too pig-headed to obey them (or both) is beyond me, but I think it points up just how complex the customer service function is in this industry. Consider, if you will, that the last time I checked the US airline industry moves somewhere over 2.2 million people a day – on the order of 820 million people per year. That means that even if screw-ups like this one are literally one in a million, there will be a couple of them every day, and over 800 in a year. It also means that the various airlines could get everything perfectly right 819,999,948 time each year and we would still have an atrocity like this one going on somewhere every week on the average. Or, if you like, every company in the industry could get every one of its people certified to Six Sigma standards and there would still be around 2,780 failures per year (about 53 per week), although admittedly not all of them would be this idiotic…

It should come as no surprise to regular readers of this blog (assuming I have readers) that even in the Airline industry, where customer service failures can result in million-dollar fines, billion-dollar lawsuits, and potentially even deaths, customer service is apparently still being regarded as an expensive function that does not generate any income. I don’t know how much longer the industry can go on this way, and I don’t know how many additional companies can go bankrupt before people stop blaming rising fuel prices, uncooperative unions, or fickle customers, and figure out that what is really killing these companies is management incompetence and inadequate customer service…

Or that, at least in this case, those two factors are one and the same…

Wednesday, June 7, 2017

Check Your Assumptions

In any strategic problem, the first step is always to gather as much information as possible. Failing to see something that is going on in front of you can destroy your best efforts before you even recognize the problem, but reacting to something you believe is there that really isn’t can be even worse. On the asset utilization side failing to understand what you have to work with, and the limitations of those assets can be fatal, and on the competition side, it’s not really possible to fight against an opponent you don’t know you have. But the one that can really kill your enterprise is when something that you knew about all along turns out to be something you didn’t realize it was…

All of that might seem obvious, especially if you have read about or studied strategy formulation, or if you have a decent grasp of competitive situations in history, but it continues to amaze me how often people and organizations get beaten by things they didn’t take the time to understand. Consider, if you will, the growing market for electric vehicles and the rise of companies like Tesla Motors that are building products in response. As recently as the turn of the Century, even analysts within the Automotive industry were still dismissing the electric car as a novelty item, or at best, a golf cart with delusions of grandeur. The sort of thing that might sell a few dozen units in environmentalist bastions like California, but would never have any real impact on the international market for combustion-engine vehicles…

Since then, of course, we’ve seen the rise of hybrid vehicles like the Toyota Prius and Honda Insight, the appearance of plug-in hybrids like the long-delayed Chevy Volt and Bolt projects, and the surprising persistence of Tesla itself. One might still forgive the casual observer for failing to realize that the demand for electric vehicles has risen from almost zero to the vicinity of 2.5 million units per year world-wide, but according to the story running this week on the Bloomberg site, that’s exactly what has happened. Increasing demand from China is driving a lot of the increase, but the ability of fully-electric cars to reduce any given country’s carbon emission totals are making this class of vehicle attractive to every country that is still in the Paris Accords (which is all but three of them as of this writing)…

Now, I would be the first to admit that 2.5 million doesn’t sound all that impressive when you consider that in 2016 (the last year for which figures are available) world-wide production of cars exceeded 72 million units according to the OICA – it’s a bit under 3.5%, if you care. But those numbers are still rising, as VW claims to be preparing to launch an entire line of electric vehicles in the US and EU markets, with the goal of selling at least 2 million units per year by 2025, and Mercedes-Benz has already announced its intentions to bring out 10 new electric vehicles by 2022. And there’s no telling what might happen if the Big Three ever start taking this new threat seriously and get their own offerings into the market…

Personally, I do still believe that the folks over at Bloomberg may be a little premature when they declare that the dominance of fuel-burning engines is fading. Until such time as it becomes possible to drive long distances without having to wait for an hour or two every 200 miles while your batteries are recharged, it’s hard to see the American consumers (among others) giving up vehicles that can just be refueled in a few minutes. But I can still remember when GM brought out the EV-1 concept vehicles (essentially a small fleet of prototype electric cars) in 1996, only to see them dismissed with a collective sneer, as a curiosity that would never lead to a viable product, let alone a product class that is already accounting for 2.5 million years and growing…

Check your assumptions constantly, people, because it’s the threat you never recognized that can kill your company before you know to worry about it. In fact, it might save a bit of time if we all just stop making assumptions about strategy…

Tuesday, June 6, 2017

Worse Than You Thought?

There was an interesting article on the New York Times site this week about a company called Mylan, which is probably best known for the scandal that erupted last year over alleged price gouging over the emergency epinephrine injector marketed under the trade name “EpiPen.” Readers who follow such things (assuming I have readers) may recall last summer, when there was a national outcry about this product, which contains less than $1 worth of the drug, but retails for $609 for a box of two. There were various accusations, claims and counter-claims, and the sort of official corporate statements that make people who don’t know any better wonder if command economies are really so bad (spoiler alert: they are). One might reasonably assume that the company would have done something about the situation by now…

Unfortunately, that assumption does not appear to be supported by the observable evidence. According to Times columnist Charles Duhigg, the company is still charging $609 for two name-brand EpiPens, or about $370 for the generic versions. The company insists that it isn’t doing anything wrong, and when challenged on this its CEO pointed out the on-line coupon and discount programs that can bring the consumer’s cost down below $100 per package. All of this appears to be correct, or at least Mr. Duhigg was able to confirm it when he looked up the offers in question. The real question seems to be why this situation is still going on a year after it made national headlines? Did the company restore its prices to the infuriating levels once the public outrage died down? Actually, it’s worse than that…

According to the linked article, the company has never actually lowered the prices on this product, although they have released the generic version and started up the discount and coupon programs over the past year. It’s probably also worth pointing out that despite the preposterous television commercial Mylan ran last year – it’s probably what drew enough attention to push the whole situation into the public consciousness in the first place – the EpiPen was never intended as anything other than an emergency measure to stop a life-threatening allergic reaction after everything else fails. Unless the user is extremely careless – or exceptionally unlucky – the only time they should need to buy a new EpiPen is when their current ones expire. But even considering that this isn’t a purchase anyone should have to make more than once every few years, there’s still the question of why the company hasn’t taken any real effort to lower the price. It turns out that this is also worse than you’d expect…

Put simply, all the company did was issue some ass-covering public relations measures and wait for the outrage to blow over – because that’s all it needed to do. In today’s Internet culture most people will have moved on to another scandal within a few days – which is as much a comment on the number of horrific news stories that come up these days as it is about the attention span of most people with access to multiple media. In such cases it usually helps if the outrage spreads to the shareholders of the company, or at least to the employees, but in this case both groups DID complain to senior management, only to be brushed off as part of the same stalling tactics. It’s unclear how much longer senior management and the Board of Directors a Mylan might have continued with these tactics if Federal regulators hadn’t announced that they were investigating the company for overcharging Medicaid by $1.27 billion for the aforementioned EpiPens…

Now it would appear that a group of pension fund managers, who control large blocks of Mylan stock, are planning to unseat most of the Mylan board for what their press release called “new lows in corporate stewardship.” The Times story also notes that Mylan’s chairman was paid $97 million in 2016, which was more than the salaries of the chief executives at Disney, GE and Wal-Mart combined. I can’t speak for anyone else, but I’d certainly be demanding my money back if I was one of the stockholders. And I hope somebody does, because while this may be a new low in terms of ethics and decency, unless the people who actually own these corporations (generally the stockholders) and the governments that give them money (that’s your government, folks) don’t start paying attention, and demanding better management practices, I’m reasonably sure that there will be something even worse coming along any time now…

Monday, June 5, 2017

Strategic Failures: I Am Not The World

In this space I have often mentioned the common strategic failure commonly called the “I am the World” fallacy; it’s the belief that some people have that everyone in the world likes the same foods, colors, clothing, cars, movies, books, television programs, furniture, vacation activities, appliances, climates, landscaping, sports, drinks, weather, building designs, sports teams, cities, states, nations, or many other things, just because they do. But in recent years I’ve started noticing a related problem that I think might be almost as disastrous, and potentially even more insidious. Until somebody comes up with a better name for it (or tells me that they already did), I’m going to refer to this as the “I am not the World” syndrome…

During my time working with entrepreneurs and some of their more problematic new business concepts I saw this kind of fallacy far more often than simple logic would suggest. To many of these people, the fact that dozens (or thousands) of other firms had attempted to launch the same exact business, possibly even on the same exact site, and ultimately failed, was irrelevant to their own plans and would be casually brushed aside. Obviously, those previous failures had been attempted by people far less clever, hard-working, likable, determined or knowledgeable than themselves, and all of the previous attempts to launch such a venture had only needed their input in order to achieve utter triumph. Well, their own input and a six-figure low-interest loan secured by your tax dollars, that is…

The odd part of this concept is that if you look around you there are examples all though our modern world. I don’t mean the people who believe that they can get a million-dollar job right out of college with a B.A. in English, or even the students who seem to believe that they can write a term paper at 4:00 AM for a deadline of 8:30 AM the same day and still receive an A for the assignment. Both of those behaviors are traditionally, really, and can ultimately be solved without more than a somewhat regrettable loss of time or money. The really bad examples are things like people who ignore all of the evidence about texting while driving (or drinking and driving, for that matter) and wind up causing inexcusable harm to others, as well as themselves, because obviously THEY can do these things safely. Evidence to the contrary doesn’t apply to them; only to people who are somehow less special…

Now, I would be the last person to tell anyone that they can’t change the rules of the game, find a different path, or try a more oblique approach to a traditional problem – but then, that’s kind of the point. I’m not saying that all of the previous attempts are irrelevant, nor would I advocate dismissing anyone else’s difficulties or failures. On the contrary, I began studying ineffective strategies and analyzing failed companies precisely because I believe that the best way to avoid making mistakes is to avoid the ones other people have already made. By the same token, I’m not going to tell anyone that their new service, product or strategy will not work just because similar ventures have failed, but I will ask them to explain why they believe their approach is superior – and if their reply comes out to “Because it’s ME!” I’m going to assume that they are suffering from the aforementioned strategic fallacy…

It’s a widely-known, often repeated statistic that nine out of every ten entrepreneurial projects fails – and it’s also true that nearly all successful entrepreneurs have had multiple failures for every project that succeeds. The fact is, creating a new company, let alone a new industry, starting with only a good idea and a lot of hard work really is extremely hard, and even the people who are exceptionally good at it will fail nine times for every time they succeed. The last thing anybody can afford to do is ignore all of the examples of the people who have already tried something and failed. Because if they do, they’re probably going to end up the same way…

Saturday, June 3, 2017

Yet Another Bad Choice

Several times over the past few years I’ve written in this space about the frequently baffling marketing programs attempted by the Burger King Corporation, and the backlash from both the consumers and their own franchise holders as a result of these occasional crimes against good taste. The “Freaky King” ads alone would be enough to make me want to fire my ad agency, but after episodes like the marginally obscene print ads for their foot-long burger and internal management fiascos like demanding that their franchisees sell products for below cost in order to align with national advertising campaigns, I have begun to question why the people running this company haven’t been committed for their own safety. And then I learned that the company had decided to open their newest overseas operation by insulting the royal family of the country they are just about to launch in…

According to an article on the BBC News site, Burger King is about to start operating in Belgium, and have been running an online ad that asks people to choose between a picture of the “Freaky King” mascot character and a picture of King Philippe, the actual monarch of that country, under the heading of “Who is the King?” Apparently, if you select the picture of the actual King, you get a pop-up message asking if you’re sure about that, considering that he’s not the one who will be cooking your fries. A spokesman for the Royal Family has issued a statement saying that they do not approve of this tactic, and would not have given permission for Burger King to make use of the King’s image if anyone had actually asked them…

I’m not familiar with Belgian popular culture, so I can’t tell you what level of offense this ad campaign with rise to with the people being subjected to it. There are places in the world where the royal family would simply ignore this kind of thing, and consider it nothing more than part of being a public figure in an increasingly vulgar world. There are other countries where this sort of campaign would result in the company being sued, banished from the kingdom, or just having all of their local assets confiscated and all of its local management team jailed. And there are other places in the world where this sort of thing might result in outraged subjects boycotting the company, marching in protest, setting fire to their in-country locations, or burning local managers in effigy (or possibly in person)…

What isn’t clear to me is why any company would take such an approach in the first place. In any nation where their actual king is a beloved figure this will be taken as a cultural insult, and in any place where there is a totalitarian government this would be considered an actual incitement to insurrection in the streets (which it actually might be). But regardless of the population’s actual relationship with their monarchy, it’s hard for me to imagine any circumstances under which this type of advertising would be considered a sly in-joke as opposed to yet another tone-deaf attempt by a particularly ugly American company to appropriate some part of the local culture in order to sell food products that are potential health risks…

I’ve read the same things you have about there being no such thing as bad publicity, and to some degree that might be true, but given the worsening relations between the US and Europe during the past few months, and the past week in particular, it just doesn’t seem like the best time to be going around calling attention to American arrogance and tone-deafness. Not that there is ever a really good time to do that, of course…

Friday, May 26, 2017

Think About It

I didn’t really plan to follow up on my last post. I would imagine that if you feel that education in America has finally taken that last step over the cliff and into irrelevance, or that our culture has devolved to the point where tuning in, turning on and dropping out has really become sage advice, that the opinions of a humble fixed-term instructor teaching business strategy and policy would be of no interest to you. And if you read yesterday’s collection of statistics, business research, and operational strategy, and still are siding with young people who think dropping out of school is courageous and failing your classes “on purpose” (so that you can’t back out and take a mainstream job later, even if you wanted to), then I don’t believe any additional rational arguments will convince you of anything. So perhaps we should consider some theory and/or philosophy instead…

One of the first things that came to my mind is that even in the arts, where we kind of expect people to give everything up to follow their dreams, this kind of behavior makes no sense. Most of us need some kind of day job while we pursue our art, and without a college degree you will be limited to traditional pursuits, such as waiting tables (actors), driving cabs (writers), or dressing up as corporate mascots and playing with children and badly-behaved adults (dancers). Granted, the alternative has its own hazards – faced with having a B.A. in English and no specific training I got a job in the service sector, got promoted into management, got an MBA, and eventually became a management consultant and a management teacher. But throwing any chance of getting a job that does not involve rancid pizza and vomit (which all of the above do) seems absurd, especially if you were only two more weeks from finishing…

In a business context, however, this behavior isn’t just absurd, but idiotic. Business strategy is all about being better than the competition, and one of the key concepts is using the available resources to gain that competitive advantage. I don’t know if having a degree in Computer Science will be of any relevance in whatever entrepreneurial pursuit the self-proclaimed “former valedictorian” is going to begin next – he does not mention it anywhere in his open letter – but just throwing it away because you can isn’t a good policy. Especially when you consider that he (or his parents) have already spent the money on tuition. It’s also not a good demonstration of the mentality you need to be in business, let alone become an entrepreneur with nothing but willpower and a hankering for taking on the world…

I think that the late Sir Terry Pratchett said it best, in his YA novel The Wee Free Men:

‘…if you trust in yourself…’

‘Yes?’

‘…and believe in your dreams…’

‘Yes?’

‘…and follow your star…’  Miss Tick went on.

‘Yes?’

‘…you’ll still get beaten by people who spent their time working hard and learning things and weren’t so lazy.’

Now, I don’t mean to suggest that this particular young dreamer, or any of the others like him, are actually lazy, or that they don’t have every intention of working eighty or ninety hours a week to make their entrepreneurial ventures a success. I’m certainly not the world’s expect on entrepreneurship, as witnessed by the fact that I work for the State of Michigan these days. And goodness knows, I’ve made the mistake of ignoring the evidence of history and assuming that when I try something it will be different. But if I’ve learned anything in the last twenty-some years of bouncing around Corporate America (and studying it, and teaching people about it), it’s that the things we think are unique are often common, and the problems that we believe no one can solve have often been solved many times before…

In the end, all we really have are intelligence and knowledge, as guided by experience, and throwing any of it away so you can thumb your nose at all of the people who are somehow less special than you are doesn’t make you an entrepreneurial genius…

Although it might make you a Computer Science major who needs to read more…

Thursday, May 25, 2017

Yeah, About That...

When I first ran across the (viral?) story about the self-proclaimed “Valedictorian” who intentionally failed all of his classes and dropped out of school two weeks before graduation to become an entrepreneur I’ll admit I was annoyed for more than just professional reasons. To be sure, as an instructor in the business college I find the assertions that all education is a waste of time and all one needs to be successful in life is to believe in themselves to be arrogant, self-serving intellectual drivel. I’ve seen too many young philosophers who believe that they already know more than they could possibly learn in school; they generally skip lectures a lot and end up grubbing for grades. But I’ve also worked with (and occasionally for) a large number of actual entrepreneurs over the years, and what this unteachable young genius is saying also fails to match up with the observable facts…

To begin with, the statistics on entrepreneurial start-ups are fairly conclusive: 90% of them fail before ever breaking even, regardless of the confidence or self-actualization of the entrepreneur starting them, or even of how many previous times the same individual was successful. This is not to say that no one has ever gotten things to work on the first go – that’s not how statistics work – but it does mean that even people who are relatively good at this process will need more than optimism and commitment to their ideals if they plan to succeed. They will need a viable business concept – not just a product of service that people will actually want to purchase, but one that can generate enough revenue to meet expenses when they do. I’ve seen too many projects that came to grief because the person or persons in charge never actually figured out how they would earn money doing it, and if you go on the “unfunded” page of any of the crowdfunding sites you can find dozens more…

They will need a plan. I’ve already spent a lot of time on this site talking about business plans, and why they are important, including the boring parts that nobody ever wants to learn about, let alone do. A business plan is great for showing to potential investors, including friends and family, and is absolutely critical if you want to get loans or grants, including the SBA loans and grants for which I used to help people apply. But the most important reason for doing one is for yourself; if you can’t articulate everything you plan to do, in plain language, you have no realistic chance of doing it. That goes double for the vision statement (which lays out what you are trying to do) and the mission statement (which details how you intend to accomplish your vision) – your investors may or may not want to see it, but if you can’t explain these things you’re not likely to have any…

They will need money. I’m not saying that no one has ever started an entrepreneurial company in their garage or their parent’s basement and gone on to build a wildly successful company – Kevin Plank of Under Armour, Jeff Bezos of Amazon, and Jobs and Wozniak (who need no introduction) are all proof of that. But for every Steve Jobs there are literally thousands of people who are still living in their parent’s basement after seven or eight tries, unable to earn enough to pay for lunch, let alone that “Lifestyles of the Rich and Famous” mansion they thought would be theirs within a year or two. It’s possible that the author of this supposed think-piece has actually figured out what he plans to do and how he plans to do it, but I can’t help thinking that it would have been much more interesting to hear about that, rather than some half-baked, derivative philosophy…

And it would have been far more impressive to actually start that wildly successful new venture and then write about how throwing away three or more years of your life and tens of thousands of dollars was actually a brilliant and brave decision…

Tuesday, May 23, 2017

The Truth

If you’ve been following the last two posts (assuming that anyone is reading any of these posts) you may have been asking why the management failures I’m describing keep happening. How could anyone be daft enough to issue contradictory orders to their employees? For that matter, why would anyone treat all of the customers (without whom we do not have a business) as though they were compulsive thieves who routinely steal everything that isn’t nailed down? I could make any number of nasty, sarcastic remarks at this point, but the truth is that like so many other things, operational management of any public-contact organization is harder than it looks…

Spend any length of time in any large retail store, for example, and you will come upon physical traces of shoplifting, such as the boxes expensive merchandise arrived in that have been emptied when the thief stashed the actual product on their person. If the store carries groceries you will find signs of “grazing” – people walking through the store, eating as they go, and then leaving without paying for any of their meal. Check out the back room and you will probably find evidence of employee fraud – all it takes is opportunity and the ability to rationalize the theft; even need is secondary. The only thing that will prevent either problem is an increased chance of getting caught; countermeasures like video cameras are useless if no one is ever monitoring their pictures, and the severity of the punishment threatened is irrelevant if no one will ever have to face those consequences…

It is possible to offset some of the theft problem with security tags and cameras, but the only fail-safe method is simply raising prices to cover the cost of the losses – and as noted elsewhere on this blog, any shoplifter who believes that the company won’t do this is kidding him or herself, and stealing from the community more than the store. You can beat the customer service contradiction by just accepting that some people are going to try cheating the company at the service desk and telling your supervisors to make the customer happy, no matter how absurd the customer’s demands happen to be. But if you want to combat any of these issues without simply shoveling money out the window, the only other choice is to get busy…

A manager who knows his or her employees can develop their people, promote and reward the good ones and eliminate the completely crooked. A good loss-prevention team can catch the most blatant thieves and fraudsters in the act, and thwart many of the others with simple active countermeasures like careful inventory control and locked displays. A management team that is committed to excellence in customer service can support their front-line personnel, take on the worst cases themselves, and never second-guess the unfortunate line supervisor who got stuck dealing with a “screamer” at some obscene hour of the morning. The problem is that all of these things take effort…

Now, no one who has ever done it would ever suggest that customer service management is easy. The hours are absurd, the conditions are terrible, and as the only exempt personnel in the company, the line managers are the lucky ones who get to deal with every extra detail for which the company does not have overtime hours available. Taking the time to walk the aisles and get to know everybody in the building at any given time is a huge drain on time and resources that you probably don’t have. But as I have noted on a number of occasions, if you study the dominant company in any given field it will probably be the firm with the best customer service, and in many cases it will also be listed as the best place to work. The bottom line is that we can blame lazy, thieving employees and greedy, thieving “customers” all we want to, but the success or failure of any company that makes its living off of direct interactions with the public is up to the management team. It’s on us…

It may be an unpleasant truth. But it is still the truth…

Monday, May 22, 2017

Mine

It’s a truism in the Service Sector – at least among management personnel – that it’s always the nice customers with whom you have to be the most careful. Bad customers, whether absurdly entitled, short-tempered, fault-finding, easily offended, bigoted, smug, condescending, mind-numbingly cheap, exceptionally rude, chronically late for everything, out of touch with current pricing, oblivious to health and safety regulations, unafraid of the law, or simply whacked out of their tiny little minds are not going to alter their behavior not matter what we do, and that includes boycotting our business. In fact, some of these oddballs will actually refuse to do business with any company that does not give them things to complain about. In many cases, it is doubtful if you could actually lose these customers if you tried, and there would be little to worry about if you did. They’re not really the problem…

The real problem are those customers who will arrive without fuss, behave politely, follow any clear signage or instructions, pay the appropriate price for the product or service – and leave, never to return, if treated badly by the customer service personnel. In fact, if your company’s customer service personnel are sufficiently incompetent, or if your company’s customer service policies are sufficiently horrendous, you may be quietly hemorrhaging these customers and never know it until the firm starts to go bankrupt…

Now, I’m not suggesting that the customer service function is easy, or that managing personnel who perform that function isn’t a challenge. The truth is that while inventory loss due to customer actions – shoplifting as well as vandalism – does not approach the losses most businesses experience due to employee theft and damage, those actions are much more exasperating to the front-line personnel who have to clean up the resulting mess, and front-line managers who have to deal with both the horrible customers (and outright thieves) and the corrosive effect they have on the employees. It does not take many episodes of being lied to, cheated, insulted, abused, or grossly inconvenienced before the average person will realize that any given visitor may turn out to be completely monstrous and start treating everyone as a potential criminal…

In many cases the “nice” customers are the counterpart of our “loyal” employees – the people who adhere to company policy, do their best to perform their job duties correctly despite the miserable conditions and insulting salaries, and would never dream of stealing. Treating these people as potential thieves and embezzlers makes no more sense than treating all customers as potential shoplifters and vandals. Where this becomes a critical problem is when a loyal employee is trying to adhere to the company policies and rules (standards to which the company is holding them) but in doing so outrages a customer, either because the customer really is a thief or a scam artist, or because they’re a nice customer who resents this treatment. This can, and frequently does, result in a situation where the employees know that if they deviate from company policy they will be fired, but if they comply with company policy and a customer complains about them (either because they’ve been thwarted from taking criminal actions or because they’re honest people who would never resort to criminal actions – the behavior is generally the same) they will be fired anyway…

Faced with this kind of Catch-22 situation, many employees will attempt to balance the need to conform to absolute, arbitrary rules written by people who may be completely out of touch with the realities of front-line customer service and the need to placate difficult, dishonest, or completely sociopathic customers. However, some employees will become disillusioned, engage in counterproductive work behaviors (from loafing to outright theft), or just quit, resulting in many of the problems described in the previous post. After all, being threatened with termination (or actually being terminated) so that a thieving “customer” can successful steal from the company is completely unjust, and utterly violates the implied social contract between the employee and his or her supervisor…

There have been a number of attempts to change this situation, or at least contain the most damaging parts, to both the employees and the customers who would actually be worth having. But that will bring us to Part Three of the story…

Saturday, May 20, 2017

Yours

I was wandering around on the always entertaining Not Always Right site, laughing at some of the obviously stupid events (and stewing over some of the injustice) when I ran across one of the frequent comments about companies siding with customers – including abusive, lying and thieving customers – over loyal employees. Regular readers of this blog (assuming I have any) already know that I’ve been on both sides of this issue over the years. Some of you may recall that my hopscotch career has included stops in Retail and Cable Television, both on the Customer Service side, where I’ve seen most of these issues play out. This is where I developed the contention, often expressed in these posts, that people who want you to do things for their benefit that provide no advantage to the company aren’t really customers, and should be treated accordingly. But when I read the most recent examples on NAR, I was struck by the fact that like all stories, the issue of loyalty to the company versus loyalty to the employees has three sides: Yours, Mine, and the Truth…

Consider, for example, the issues inherent in managing a retail store. In any crew, there will be people who will faithfully serve the company in miserable conditions for minimal reward for decades at a time and adhere to every regulation the company applies. Regrettably, the converse is also true: on every store’s roster you will find people who can’t get through a single 8-hour shift without stealing anything that isn’t nailed down. In fact, there are several authorities who will tell you that more theft and damage is caused by the employees than the customers and the general public put together. That doesn’t even count the assets and merchandise that are lost by careless employees, destroyed by ignorant (or occasionally just stupid) employees, or stolen under the noses of oblivious employees. That isn’t the worst of it, though…

In retail, as in most front-line customer service applications, a single mistake can wipe out all of the progress you have made in the previous twenty-seven successful sales. That is, a sufficiently angry customer will generally tell between twenty-five and thirty (it depends on who you ask) other people about how appalling your service and/or product was. That statistic does include psychopaths who will be outraged by what color the sky is that day, and the easily-offended people who will consider the cashier’s hairstyle to be a vicious cultural insult, but it also includes perfectly normal people who happened to ask an employee an unfortunately annoying question on a particularly difficult day. And while a satisfied customer will tell four people about a positive experience (thus lowering the ratio to a still-horrendous seven-to-one), it can be difficult to generate any particularly positive experiences during a simple interaction like a retail purchase. That isn’t the worst of it, either…

For most of the retail managers I’ve worked with, met, interviewed, read about, consulted with, or in recent years taught in the Business College, the worst aspect of running a business that offers insultingly low pay, laughable benefits, miserable working conditions, mind-numbing job duties, and the constant risks and aggravations of working with the general public, is simply the fact that almost no one wants to do the job in the first place. Turnover is a constant problem, with people leaving to take better jobs at their first opportunity, but absenteeism, tardiness, low work performance (or zero work performance), fake worker’s compensation cases, real worker’s compensation cases, disciplinary issues, and abuse of the handful of benefits actually available to the employees makes this one of the most challenging Management roles in any free-market economy. And while the theft issues are not as much of an issue in the Service sector, work avoidance, social loafing, freeriding, and abuse of both company assets and the available benefits are, if anything, even worse…

All things considered, it’s not actually that surprising that the people running the company, who we should remember are responsible for keeping the doors open, the lights on, and the payroll checks from bouncing, might place greater importance on the people who come to their place of business to give them money than they do upon the workers they employ. But this is only Part One of the story…

Thursday, April 13, 2017

Doubling Down

In my last post, I joined with the thousands (millions?) of other bloggers out there who are piling on to United Airlines for their determination to set customer relations back a hundred years by not just bumping customers off of overbooked flights but actually using the seats freed up that way to move their own employees around the country. Since the story first broke the victim in the original story has retained legal counsel and the CEO of United has issued a real apology for the incident – in that order, unfortunately. Whether that will help with the multiple lawsuits that are about the hit the company remains to be seen, but over the last day or so a similar event has popped up in the news that has even more disturbing implications…

You can pick up the original story off of the Los Angeles Times website if you want to, but apparently there was a United passenger who needed to get from Hawaii to Los Angeles in time for a business meeting, so he paid for a full-price first-class ticket. He had already boarded the plane on Kauai and was enjoying the complimentary orange juice prior to takeoff when a United ramp agent ran onto the plane and told him he had to get off. Upon asking, the passenger in our story discovered that United had overbooked the flight, and were going to give away his seat to a passenger with “higher status.” Apparently there is a pecking order among frequent flyers (based on number of hours flown, maybe?), and the company will cheerfully screw over anyone if a higher-ranking customer wants their seat…

I’m already on record as saying that the company’s handling of the original situation was asinine, and I’ll stand behind that, but at least we can consider the idea that moving the four crew members would prevent the cancellation of an entire flight – that is, the company was accepting annoying four customers to avoid completely browning off two hundred of them. In the Hawaii case, however, the only advantage the company seems to have gained was the chance to suck up to someone who already flies with them all the time, while at the same time costing themselves another frequent flyer, everyone from his company, and anyone else who might be concerned with being bumped off their flight by someone whom the airline likes more than them…

Now, we should probably note that, like overbooking, bumping passengers to make room for VIP customers is a long-standing practice on all of the airlines. In some cases there might even be a sound business reason for doing so, as in the case of emergency travel or a family trying to get somewhere together. But the idea that every business practice that was acceptable in 1931 (when the company began flight operations) is still reasonable today is utter nonsense, and the assumption that your customers will put up with being displaced purely at the whim of some slightly more frequent flyer is demonstrably preposterous. It took a week of pushback, and the threat of even more legal action, before the company even came up with a written apology and reimbursed the customer for the price difference between his full-fare first-class ticket and the middle seat in Economy class they ended up sticking him into…

I’m not sure how much more of this knavery, chicanery and buffoonery the United Airlines stockholders are going to tolerate; I know that I personally would have started demanding resignations from everyone responsible for this crap starting with the “United Breaks Guitars” episode involving Dave Carroll. I’m also fairly sure there’s a limit to the number of times a company facing strong competition, rising costs, falling revenues, customer dissatisfaction, and an increasingly hostile operating environment world-wide can go alienating current and potential customers by making mistakes that any small child could tell them are idiotic…

Wednesday, April 12, 2017

Piling On

I’m not sure what I can say about the current United Airlines situation that hasn’t been said by millions of business bloggers (and travel bloggers, one assumes) since the story broke. If you missed it, the story goes that United had oversold a flight from Chicago to Louisville, and then compounded the problem by trying to get four passengers to give up their seats so that a flight crew could get to Louisville in time for the flight they were supposed to work the next day. When no one volunteered, the airline selected four passengers who were already on board the aircraft and attempted to eject them. One of these four people took exception to being forced to give up his seat, refused to leave the plane, and was eventually forcibly removed by ground security personnel – literally kicking and screaming…

In any era prior to this one, the whole episode would probably not have made it onto the local television news; it might have made the local paper if it was reported at all. Unfortunately, in an age when almost literally everyone carries a camera around with them every day it is unrealistic to expect that no one on the plane wouldn’t have recorded video of the whole thing and posted it to various social networking sites before the flight even took off. It shouldn’t have surprised anyone that a graphic (and to some extent disturbing) video like this one would have gone viral immediately, either, or that this would cause additional Public Relations nightmares for a company that isn’t exactly known for good PR or good customer relations. Why it appears to have come as a surprise to senior management is beyond me…

Now, we should probably acknowledge that overbooking flights – and bumping people off of them when necessary – has been standard practice within the airline industry for decades. It’s completely legal, and in fact you have already agreed to put up with it – there is a clause in your ticket agreement that give the airline the explicit right to do that. It is also probably worth noting that for most of its existence, the airline industry has wielded enormous political and financial power in the US, and senior management personnel have apparently gotten used to answering to their stockholders, the FAA, Congress and the Unions before they consider what their customers might want. And I’m sure you already know that most people my age and older don’t automatically think about how the world will view their actions, if only because they don’t think of the world as watching them…

What struck me about the affair wasn’t the remarkable tone-deafness of the management team, as demonstrated by the CEO’s non-apology for the events, or the laughable incompetence displayed by the customer service personnel involved. It was the fact that United appears to see this whole situation as being nothing more than business as usual; this is the way they have done business for generations, and they see no reason to change now. But the fact is this level of disregard for your customers and disdain for anything they or the general public might feel about your company would have represented gross incompetence even before any given disgruntled passenger could share his or her gripes with every other potential customer in the world in a matter of seconds. And even more importantly, perhaps, this situation is not going to change…

As we plummet ever further into this new century, every customer-contact position must be treated as if everyone in the world is watching, because they effectively are. And every employee who holds such a position needs to be trained to ask him or herself how they would handle the situation in front of them if the whole affair was going to appear on every television and Internet news channel in the world within a few minutes, because it probably will be. Simple, ordinary, it-could-happen-to-anybody mistakes will be bad enough; errors that involve callous disregard for your customers, putting the company’s interest ahead of the customers, or violation of either criminal or civil law will at minimum damage your corporate image and credibility, and may very well end up destroying the entire company if you annoy enough of the wrong people badly enough…

But that’s a story for another day…

Wednesday, March 29, 2017

Booming Along

Earlier this year, in the March issue of Air and Space Magazine, I found the surprising story about a company called Boom Aerospace (or sometimes just “Boom”) that claims to be gearing up to build the fastest civilian aircraft in history. The company hasn’t revealed the name or model number of the design, but the airplane in question would apparently be a 45-seat airliner capable of about Mach 2.2 and a ceiling of around 60,000 feet. That’s about 1,450 miles per hour, or around 2.6 times the cruising speed of a conventional airliner – fast enough to go from New York to London in roughly 3 hours and 15 minutes. Even better, the company claims that its airliners will be efficient enough to make a transatlantic fare of $2,500 profitable for airlines flying that route – which is where things get really bizarre…

A quick check on Expedia shows that a business-class fare of $2,500 round-trip from New York to London is just barely possible, assuming you book well in advance, stay over a Saturday night, buy a non-refundable ticket, and so on. If you want a non-stop flight you will end up paying around three times more than that, but if you are willing to accept one of the 1-stop routes you will be in transit for 14 to 18 hours depending on how long the layover is. If the company’s claims hold up, travel on one of the Boom aircraft would be the greatest value in the air, giving a potential operator the option of maintaining price parity with other airlines on the same route and making far higher profits, or undercutting all of the existing competitors while making a similar level of profit, all while offering a highly superior service (at least in terms of transit time). Whether or not this will really work is a much bigger question…

Anyone familiar with commercial aircraft will probably remember the Concorde, an Anglo-French supersonic transport (SST) in service from 1976 to 2003. The aircraft was an amazing technical achievement, particularly considering the limits of 1970’s technology, but was never commercially viable, due in large part to the extremely high ticket price. Ranging as high as twice the cost of a first-class ticket on a conventional airliner, and twenty or more times as much as an economy-class fare, travel on the Concorde was beyond the reach of most flyers, and too expensive for most business travelers to justify. It certainly didn’t help that only a handful of units were ever produced, with the only buyers being Air France and British Airways (e.g. the national carriers of the countries that originated the project), or that due to noise concerns the Concorde was only allowed on flights over water…

Now, we might reasonably ask how a private company, without either the backing of a national government or decades of successful production of civilian or military aircraft, could hope to succeed where Aerospatiale and BAC failed. We might also ask how a private company would be able to successfully operate such a vehicle when the national carriers of two different countries couldn’t make a go of it. It’s possible that 40-plus years of technical advancement in the aerospace field, especially in advanced construction materials and computer-assisted production techniques, might make this new design cheaper to produce and more efficient to fly on a per-passenger basis than the Concorde. It is also possible that a private company will have an easier time selling the aircraft to various governments and their national carriers around the world. And it may be that as air travel has generally gotten slower, more drawn-out, and less comfortable than it has ever been before, that the idea of spending less than half as much time (or possibly less than one-sixth as much time) on an airplane will have a much greater draw than it did a generation ago…

Personally, I’m not going to plan on traveling on any Boom aircraft for the foreseeable future, at least not until they manage to get their financing worked out and their product actually available for purchase. But I have to admit that if the company goes public any time soon I’m going to be severely tempted to invest in at least a few shares. Because if they can actually build an airliner with these capabilities that is also economically viable, this will be the biggest change in the nature of air travel since the introduction of jet-powered airliners in 1952…

I have to admit, though, that’s still a pretty big “if”…

Sunday, March 26, 2017

The Ethics of Snowflakes

About a week ago there was a story on the Blaze newsletter site about a company that claims to have developed a pre-screening tool they call a “Snowflake Test,” which appears to be more of a survey about the applicant’s political and philosophical leanings than it is about any particular job skills or abilities. Since the company is taking a position that defies liberal beliefs on a number of dimensions, they are using the common convention of deriding everyone who does not agree with them (and who will not, therefore, be able to pass the “test”) as Snowflakes, or occasionally Precious Snowflakes. If, as the company alleges in the article, their key customers are also opposed to liberal/progressive positions this may be an effective means of recruiting people who will be well suited to interacting with such clients. What is less clear is the ethics of using such a survey. I thought it might be interesting to take a closer look…

To begin with, we should probably note that many companies make use of some form of pre-interview screening. In some cases this will regard job skills, but in others the company will be trying to get a feel for how honest the applicant is, how detail-oriented they are, or how careful they are with financial matters, just to name a few. The idea is usually to avoid wasting either the interviewer’s time or that of the applicant, since if the screening tool can identify some factor that would make the candidate unsuitable for the job there is no need to go through with the interview itself. In some cases the screening may convince the applicant that the company or the position is not a good fit, which will also save everyone’s time. This is the first example I can remember seeing that specifically addresses the applicant’s political and social beliefs, however...

Now, we should probably acknowledge that none of the questions that have surfaced so far have asked anything about an applicant’s age, race, gender, physical ability, physical conditions, marital status, religious affiliations, political affiliations, club affiliations, service organizations supported, charities supported, or any other factor that would be officially considered discriminatory under Federal or State laws. Assuming that none of these survey questions are actually illegal – and the lack of lawsuits suggests that this may be the case – then the company is entirely within its rights to use such a survey, and no one really has any standing to complain about them. People who do not have highly positive feelings about the United States are not a protected class, for example, and neither are people who are strongly opposed to gun control. And while a company-wide bias against people with those opinions might lead to a hostile work environment, it’s difficult to see how avoiding such confrontations hurts anyone…

Without a great deal of internal information I can’t tell you if the company would be more effective with a greater diversity of ideas and philosophies than it is with its current roster. Everything we know about strategy formulation suggests that a groupthink mentality – everyone in the company following the same lines of thought without dissent – limits the effectiveness of the firm and may eventually result in its being too rigid to adapt to changing conditions. One could argue that the company’s leadership owes it to all of the various stakeholders to be as effective as possible, but one could also argue that attempting to hire people who will be compatible with the prevailing company culture would be better for both the company and the new hires. All of which leads me to the question:

All else being equal, and assuming that no laws are broken in either case, does the company’s desire for a cohesive corporate culture, based on shared values and opinions held by the employees, outweigh the company’s responsibility to hire the best and most capable employees regardless of their political, social, economic, or personal convictions? 

It's worth thinking about...


 

Sunday, March 19, 2017

Make What Great Again?

Despite my avoidance of political topics on this blog, I am perfectly willing to admit that I am personally pro-business, and against excessive regulation. The problem is, as a Centrist my idea of what constitutes “excessive” does not suit people on either end of our increasingly polarized political spectrum. I don’t agree with the far right, who appear to believe that business leaders are a collection of saints and angels who would never do anything to the detriment of the public good just because it would enrich them personally, and I can’t abide the far left, who appear to believe that all we have to do is meditate, eat organic kale, and keep our carbon footprint as close to neutral as possible, and everything we need will just appear before our wondering eyes...

The unfortunate truth is that regulations exist because without such measures people will cut corners and take chances that make no bloody sense, even if those behaviors have no real chance of increasing their personal wealth. So as much as we would all like to avoid government interference in business operations that chokes off trade and curtails personal freedom, whether that involves increased tax incentives for small business start-ups or legalization of certain controversial agricultural products, I think we can all agree that FAA regulations that prevent passenger aircraft from catching fire and exploding in mid-air are probably worth keeping…

Unfortunately, as a story from the Associated Press last week makes clear, not everyone in our current Administration understands this principle. It seems that under certain conditions lithium-ion batteries can self-ignite, which is generally not a good thing on an airliner carrying hundreds (or thousands) of gallons of highly flammable, potentially explosive fuel. Over the past few years three cargo aircraft have experienced such fires (and have been destroyed in flight), and the UN agency that deals with international flight safety has been trying to get all of the nations that have airlines to adopt safety regulations about transporting these batteries by air. One might think that this sort of common-sense measure would appeal to both the people who own airplanes and the people who fly on them, and so far it has, but that doesn’t consider the people who make lithium-ion batteries…

Sure enough, the battery industry has been lobbying to prevent exactly this sort of regulation, and the current business-friendly government in Washington has placed a freeze on this and all other new safety regulations pending additional study of their effect on business. Apparently, they are arguing that people in remote areas, such as the Alaskan back country, would be unable to get the batteries they need if this regulation was applied to all flights. They also seem to be blaming the Chinese, whom they claim manufacture sub-standard batteries and avoid the existing safety regulations, even though neither of these claims have any relationship with reality…

Now, the truth is, I have no idea how often the need for lithium-ion rechargeable batteries becomes so acute (and so immediate) that it isn’t possible to ship them using surface transportation, let alone cargo aircraft, and requires that large loads of batteries arrive by the first and fastest mode of transportation. I am dubious about how often, or even whether, such a spike in demand is more important than the safety of hundreds of innocent passengers, not to mention the potential loss of airliners that can easily cost hundreds of millions of dollars in their own right. It’s also not clear to me how the battery lobby has been able to push its agenda past that of the airline lobby and the consumer protection lobby…

I can’t tell you if the current Administration in Washington will actually be able to make America great again; I’m no expert on politics or economics, and I think the country is pretty great as it is. What I can tell you with complete certainty is that I’m not going to be purchasing tickets on any airline that is still accepting loads of rechargeable batteries as air freight on passenger flights, and that if I had any stock in any airlines that did this I would be raising every possible kind of stockholder protest right now. And if I was in charge of running an airline, any airline, I’d make absolutely certain that we stopped carrying such cargoes, no matter how much the battery companies were willing to pay. Before things get any worse…