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”…

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...

 

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…

Pass It Along

I didn’t really intend to do a follow up to the “automated ordering kiosk” stories this quickly, but then I suppose I should remember that I don’t make the news, I just report it. Or at least make nasty, sarcastic remarks about the news, anyway. One of the things I’ve been talking about for a while now is the question of how companies that are suddenly forced to begin paying a higher minimum wage will respond to the situation. With rare exceptions, there are only three ways to deal with an increase in a specific cost (in this case Payroll): lower other costs to compensate, accept a lower profit margin, or raise prices. In theory, if the Federal minimum wage were to be increased to $15 per hour, businesses that employ low-paid workers could attempt to lower other operating costs, raise their prices, or just settle for making less money. Unfortunately, as I’m sure you’ve realized by now, things in business policy and strategy are rarely that straightforward…

Consider, for example, one of the hot spots for this debate: the Restaurant business. Unless you’ve worked in the Food Service industry you may not be aware of it, but in addition to the quick-serve personnel, who almost always start at minimum wage, most of the states allow employers to pay anyone who routinely gets tips at an ever lower rate; often as low as $2.13 an hour. Clearly, getting a salary increase to $15/hour, or even to regular minimum wage, would be a significant improvement for any of these employees. At the same time, the increase in salary costs would hit those companies even harder than usual, since they’d be going from $2.13 to $15 instead of the $7.25 to $15 that everyone else would have to absorb. At that point it seems quite likely that companies in this industry would respond by raising prices – especially considering that they are already doing so…

You can pick up the original story off of the Wall Street Journal site, and the Consumerist site commented on it, too, if you don’t happen to have a WSJ subscription. According to the Journal, restaurants in a number of states are experimenting with a “labor surcharge” added to the bottom of your bill to cover the cost of wage increases. It’s not a new idea, really; as the Consumerist people note, other restaurant chains have tried this before, and the cable television and telephone companies have been using exactly this tactic for years to obscure the amount you are actually paying them each month. Whether or not this will work on a large scale in an industry where people will routinely spend hundreds of dollars on a drink and then balk at leaving anything for their server remains to be seen, of course…

Another interesting question is whether any of these companies will abolish tips altogether, and just attempt to pay their employees a living wage. All of the data we’ve seen over the last few years suggests that forcing people to work for tips does not improve either performance or service, and contributes to several kinds of counterproductive work behaviors. Meanwhile, the handful of companies that have tried eliminating tips have reported better performance, higher morale, and improved customer relations, although some people do have trouble adjusting to not leaving a tip after a lifetime of habit…

I’ve worked on both sides of this issue, as well as seeing it from the consumer side, and I have to admit that while I’ve never had a problem leaving a tip, I’ve seen and felt the corrosive effects of people stiffing tipped employees, either because they are miserable cheapskates, or just sadistic assholes having fun. I’d be perfectly okay paying a bit more for my meals to ensure that nobody ever had to experience any of that crap again. I’m not sure how many customers share my point of view, or how many business owners would be willing to take a chance on this new approach. But unless something derails the $15/Hour movement soon, I suspect we’re all going to find out…

Best or Worst?

By now, any of my regular readers (assuming I have readers) must be aware that I spend a lot of time looking for products and organizations that have failed in amusing or instructive fashions – partly because I’m a business strategy teacher and a former failure analyst, and partly for my own amusement. To be fair, I have often brought you stories about the strange, bizarre and wonderful new ideas that turn up from time to time, some of which have actually lived up to the hype that their inventors and I have given them. This goes a long way toward explaining why the “Stupid” tag and the variations on the “Innovations” tag are so common on these posts. But much more infrequently, I will find a story online that might be either the smartest or the dumbest thing I have ever seen – or possibly both at once. Such was the case with the new movie theater design I read about today...

You can pick up the original story off the MSN home page if you want more detail, but the basic idea is that somebody decided to make a movie theater into an indoor playground. It’s got a typical screen and audio/visual equipment, but it also has a slide, a jungle gym, and various things to jump on, run around, and play with. They’re apparently going to include both conventional seating for adults (parents, one assumes) and kid-friendly seating areas like beanbag chairs and such. Since it’s difficult for smaller children to sit still and watch anything for two hours or more anyway, the people behind these facilities appear to have gone entirely the other way. Rather than trying to get people to be quiet and show respect for the other customers, they’re building a place where people can just let their kids do whatever they want…

Personally, I can’t think of any venue that would have less value for me, but then I don’t have (and do not ever expect to have) responsibility for any small children. I’m not the sort of person who takes children to age-inappropriate events, either, or at least I don’t think I am. Although I will concede that there are some people of my acquaintance who will never be able to watch a movie without annoying the crap out of everyone else in the building, and some of them are now well into middle age. But whatever the exact demographic of customers using these kid-friendly movie venues turns out to be, my strategy for dealing with them is simply not to go to any. The real question, from where I’m sitting, is what effect this will have on movie viewing experiences in other venues…

On the one hand, the existence of movie theaters in which the kids can run around and make all of the noise they want to might be a good thing. If we can convince any significant percentage of families with rambunctious children to go to such venues and leave the rest of us in peace, that could mean fewer disruptive children screaming and running around when we’re trying to watch a movie. On the other hand, I’m not sure that training people to assume that a given venue should make special provisions to accommodate their children is a good idea. It isn’t hard to imagine people who have grown up running wild in venues where they would normally be required to have some consideration for the other customers growing up to believe that they should always be allowed to do just as they like…

Of course, we should probably also concede that in recent years we have all witnessed increasing numbers of nominal adults who behave that way anyway. And we have already seen the appearance of movie theaters that do not tolerate any noise or disruption during the presentation, such as the Alamo Drafthouse organization, which does not permit very young children onto the premises at all. So maybe the idea of venues that serve the specific needs of a particular demographic group really is a brilliant idea; it might even be a way for this struggling industry to recover some of the market share it has lost to Blu-ray, DVRs, and Pay-Per-View/On-Demand cable services. Or perhaps this is the beginning of the end of movie-going as we know it…

I still can’t decide...

Finally Out in the Open

I read with great interest an article that appeared on the BBC home page this week regarding open-plan offices. If you’ve never been afflicted with one, the term refers to those arrangements without offices or even cubicles, where everyone’s desks are just sitting out in the middle of the floor. In extreme cases, people aren’t even assigned a specific desk; there’s just a communal work space, and everyone sits wherever they want to. There has been a lot of effort made in recent years to sell the open-plan office as “new” and “innovative,” as a reaction to the common “cubicle farm” arrangement, all of which ignores the fact that open-plan offices were used for decades before the cubicle became common. And, as anyone who has ever had a desk in the middle of the floor can tell you, there’s a very good reason that cubicles did become common…

As it turns out, open-plan offices are based on not one but two common fallacies. The first is simply that people who are sitting together in the shared space will spend their time talking about work-related topics. This can happen, of course, but unfortunately, people aren’t usually that disciplined. This results in a lot of extraneous conversations about whatever the employees happen to be thinking about at the moment, which both wastes time and distracts all of the people around them who are trying to work. Which brings us to the second problem: having people all around you working, talking, and making noise turns out to be really, really distracting…

Modern research on multitasking – some of which is cited in the BBC report – has revealed the very interesting fact that most of us can’t. The average person needs to focus on a single activity in order to have anything like full efficiency; splitting time between two or more activities just makes all of them take longer. This has turned into a perennial problem for college instructors, by the way, because too many of our students believe that they really can write emails, text with their friends, and surf the Internet while also paying attention to lectures. The truth is that, with very rare exceptions, anyone trying to do this will end up with memories of what they were texting about and some of the things they saw online, but not so much about the lecture they were nominally present for…

Now I don’t want to sound as if I am picking on college students in particular. On the contrary, if business leaders with years or decades on the job fall victim to the same fallacy every time they approve of things like the open-plan office concept, what can you expect from undergraduates who have been brought up to believe that they can do everything at once if they try hard enough? The real question, in my mind, is how anybody who has ever tried to get anything done in a noisy environment with multiple people talking and several different people trying to get their attention could possibly believe that having all of their employees sitting around a single table was a good idea in the first place…

Of course, it is possible that since most decisions regarding office furniture and organization are made by managers, who will generally have been given offices with real walls and doors as one of the perks of their position, that no one with the authority to reject the open-plan concept had realized how counter-productive it really was until recently. If this is the case, I think we can expect to see more and more companies going back to cubicle farms as the consequences become clear to those in charge. At least, we can all hope so, right?

Not That Hard

For some time now I’ve been saying, both in this space and in real life, that while I have no quarrel in principle with the $15/hour movement, I don’t believe that the people involved with it have really considered the economics of the situation. As a business consultant and a business teacher I don’t buy into any of the “robber-baron” mythology; business owners are driven by the desire (and occasionally need) to make money, not to make the lives of their employees difficult. No one is saying that capitalists are a bunch of saints and angels, but the concept of them as comic-opera villains, plotting the destruction of their workers, is every bit as silly as the far-right mythos, in that most people would rather work for a living than exist on handouts. Unfortunately, this also cuts both ways…

In most unskilled and labor-intensive jobs, people are used because they are cheaper to recruit and train than it would be to equip the business with automated equipment capable of doing the same tasks. There are exceptions, of course – some civic-minded companies will retain sub-optimal production systems, either out of concern for the communities in which they are based or because without job income their customers won’t be able to purchase their products. But for the most part, if any part of a company’s operations can be replaced or reorganized in such a way as to lower operating costs or increase revenue, one should expect them to do so…

The corollary, and the place where people seem to be having conceptual issues, is that any artificial change in the relative costs of different methods will also impact the desirability of operational changes, such as automation. That is, if the Federal Minimum Wage is increased to $15/hour, the breakeven point for new equipment will rise with it. To take a common example from the last few years, once it became possible to replace a crew member making $7.15 per hour ($14,872 per year, plus taxes and benefits where applicable) with a machine that could fill soft drink cups automatically for less than $14,800 per year, many of the larger fast food chains began buying such machines…

Even worse, however, are the automated ordering kiosks that McDonald’s has been testing, and that Wendy’s is apparently going to start installing starting later this year. Not every fast food location needs to have a dedicated person making drinks on every shift, but every such operation does require order takers whenever it is open for business. For a 24-hour location, that’s 8,760 hours per year, or a whopping $131,400 just on salaries for each available register position per calendar year. When you add in recruiting costs, training costs, retention costs (fast food counter positions turn over several times per year), employee-related shrinkage and accidents, and the aforementioned taxes and benefits, it becomes somewhat surprising that the automated kiosks haven’t already reached widespread deployment…

Now, no one is suggesting that people don’t deserve a living wage in return for a day’s work. Even to a business leader, the concept that you can’t sell goods and services to consumers if there aren’t any who can afford your products and/or services is fairly elementary. What appears to be getting lost in this conversation is that if costs rise, but revenue does not, eventually the company will go out of business. One could argue that if senior management and the stockholders were to accept lower incomes the company could divert those funds into higher salaries, but that isn’t realistic either; if investments with higher returns exist then the stockholders will invest in them, and if higher salaries exist then the top management personnel will pursue them. Unless you are planning to run the entire economy by government commandments – and the large-scale experiments on command economies conducted during the 20^th Century did not end well – then any artificial increase in costs is not the long-range solution to this problem…

And while finding a workable long-term solution to this problem may be difficult, identifying the problem and realizing that a simple artificial salary (cost) increase would not work really wasn’t that hard…