Annals of Commerce: customers are not inventory

Our captains of industry (the kind of people Donald Trump loves to throw into government jobs for which they are completely unprepared) are really smart in so many ways, or they wouldn’t be so rich, right?  The latest awkward exceptions are the Wells Fargo bosses who supervised a national enterprise of cheating retail customers, and Oscar Muñoz of United Airlines, who somehow contrived to be the last person on the planet to figure out that dragging [sic] a paying passenger off his plane so he could ferry four staffers to a location convenient to United was Not OK.  Muñoz’ witless behavior is something of a surprise, because he has not spent his life in a privileged bubble; according to Wikipedia he was the first in his family to go to college, from a family of nine kids, and last year took off a couple of months from work to have a heart transplant. The man has paid some dues.

I would like to add to the ample discussion of this episode (see especially Helaine Olen’s piece enlarging the scope of debate beyond the case at hand) an insight I owe to my late colleague Robert Leone: Muñoz’ problem, and his lieutenants up there in the executive suite, have their feet nailed to the floor for two reasons.  One is that they are actually not that smart, and do not understand their own cost structure. The other, and my main point here, is because they have no clue what it’s like to be one of their customers! They never fly Y class, or at least haven’t since that product became a hated, degrading, wretched experience in their hands.

American railroads went through an instructive period starting in the 1920s: their leadership was overwhelmingly “freight people” who systematically neglected passenger service because the ‘cargo’ of the latter expected to arrive on time, be kept warm in the winter, be treated respectfully by staff, and–on long trips–fed. That’s even more trouble than a load of cattle: who needs it? No hopper car full of coal ever complained about being rained on or left on a siding.

Bob was a scholar of the automotive industry, and I am now going to channel his insights about General Motors (and probably the other two bigs) back when Toyota was beginning to eat their lunch. GM executives mostly rose through the company for their whole careers and never worked anywhere else. Each year, the company delivered them a new GM car of the model appropriate to their status, and drove last year’s away. If the car needed service, a kid showed up with a loaner and took it off to be fixed or replaced. Among the standard duties of each was to drive his immediate superior back and forth to the airport, a gesture of servility pretending to be quality communication time. When they traveled, they were required to rent a GM car.

The result of this comfortable arrangement was that no-one running the company ever bought a car, had a car fixed, or drove a competitor’s product. They were completely defenseless when the quality revolution hit their industry, and had to go on their knees to ask Toyota to make Saturns in Fremont with them and teach them how to do their jobs.

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.

8 thoughts on “Annals of Commerce: customers are not inventory”

  1. The underlying problem of the quality of airline travel is a freely made collective choice of the American public. In the wake of deregulation, there were a number of airlines that tried to offer better service at higher prices, but the public voted overwhelmingly with its money that price was the *only* element that really mattered. Airlines that tried to offer better service in coach got killed, and those that offered the cheapest prices got the business, regardless of what service they provided. That price war drove margins to almost, and in many cases less than, nothing. The airlines had to fly planes with every single seat in use or lose money. So, they have to overbook flights, or cancellations and missed connections would make it impossible to fly at a profit.

    None of that excuses the choices made by individuals in this case, but the overall environment in which we fly is a perfect example that you get what you pay for. If price is the only thing that matters, don't expect the service provided to be anything other than appalling.

    1. I think (perhaps wrongly) that it's a little more complicated than that. The airlines really didn't have a good idea of what constituted "better service" and didn't have good ways of signalling what they had. And they didn't necessarily have control over some of the things that passengers might have wanted as services. There was not a market for $50 extra to have slightly better food on china instead of plastic while the aircraft was still randomly delayed and luggage arrived two days later. So if you knew that the experience was likely to be miserable anyway, paying more for it made little sense. (And some airlines that were cheaper still managed to make the overall experience decent, but were killed by a combination of collusion and undercapitalization.)

      Many of the decisions airlines made at the time reinforced the problem — hub-and-spoke, trying to balance margins on the backs of staff…

      1. Another issue here is that business travel is often booked by corporate travel offices, rather than the individual business traveler. So it is not the passenger choosing, but someone with a firm policy of just getting the lowest fare. Remember, the average corporate traveler is not, contrary to some opinions, a hot-shot high-level exec, but a mid-level salesperson or the like who has no particular clout with the travel office.

  2. The people who run the criminal justice system – senior cops, prosecutors and judges – should spend some time in jail as part of their training. It would not be realistic or safe to subject them to the hellholes of solitary confinement and supermax, but the experience of loss of liberty, even for a weekend, would be salutary.

    I've never been bounced from a European budget airline. It is extremely difficult and expensive to change or cancel a booking; the airline reckons it has sold the seat whether you sit in it or not.

    1. I've done four stints in the pokey. Never prison, but, for example, four days in the Sierra Blanca lockup near the infamous "border stop" where Willie Nelson and one or two other celebs have gotten popped (it's 80 miles from the nearest border crossing, but it's right after The Big Bend of the Rio Bravo, so it's technically within 25 miles of a border, and under post-9/11 rules they can suspend the 4th Amendment, as at borders). The magistrate had "gone fishing", straight out of a Mayberry skit, so I couldn't get magistrated for four days.

      During my time in jail, I thought many times that it's something every American should undergo, as you said, even if just for the weekend. Not only is the loss of freedom jarring, but there's the fear. I noticed that in the space between the filthy mattress and the edge of the bunk, every single man in Tanque F had a prison-issue razor whittled away to a blade, and a jar of Vaseline. My sphincter involuntarily clenched. Then there's the hazing of newbies. I was not allowed to take the one remaining bunk to sleep, but was forced to sleep on the floor my first two nights, and they spaced themselves at the table exactly so there was no room for me to sit down, forcing me to eat standing up. And they actually DO serve hard tack and gruel! At lunch they serve hideous meat sticks, and you are obliged to give at least one of yours to the toughest and biggest guys.. Next, there's the language issue — my Spanish is pretty good, but if you don't speak any, you'll have a hard time in stir. Then all the unwritten rules, that get you grabbed by the collar and shouted at if you fail to follow them.

      But finally, the most disconcerting thing of all is that none of the other guys were going to be able to throw bail, nor pay any court fees. Some of the older ones had been in the country lock-up for YEARS, never quite qualifying for prison, but unable to pay their way out. And their offenses were trivial. But the other 23 men in the 24-person tanque had committed the two most heinous crimes in American society: they were poor and they were dark.

      On the upside, I know how to light a cigarette using only a paperclip and q-tip.

Comments are closed.