Can Corporate America Innovate? Only If They Solve Problems For Customers
- Posted by Jeff Carter
- on June 14th, 2013
Recently, I have been thinking about and exposed to the idea of corporate innovation. Yesterday, there was a series of snafu’s at O’Hare which caused me to not be on my flight-and I am still working out the issues. Some my fault, some the airline. Amidst my anger, I started thinking about corporate innovation and customer service.
If you are young, the gold standard for corporate innovation is a company like Google ($GOOG) or Apple ($AAPL). They come out with new products and create new streams of revenue all the time. Wall Street puts pressure on other corporations to be more like them. Those companies make innovation look easy, so why can’t everyone do it?
If you are of my vintage, the gold standard for an innovative company was $3M. Ironically, in the later 1980′s and 1990′s, Apple was considered a stick in the mud. Microsoft ($MFST) was the innovator. 3M is an innovative company and rolls out new products that contribute to its top line revenue all the time. Again, they make it look easy.
In my initial research, I wondered what are the impediments to corporate innovation? Why is being “corporate” an acronym for being in a straitjacket?
There seem to be a lot of ways to say the same continuous problem that stops corporations from being more innovative. It’s a people and policy problem. Even small businesses have the problem. Fred Wilson’s blog today outlined one:
A few things about that infographic. The placed I’ve checked into the most, The Coffee Shop, is a place I will never go to again. Sometime in early 2012, I was treated badly by a hostess, and on the way out I vowed never to return. I haven’t and won’t.
Here are some impediments that corporate executives have identified. I know a fair amount of corporate executives from across the spectrum of industry, and the dominant topic those conversations revolved around was: Corporate Culture-it’s not designed to take risk; it’s set up for perfection (Six Sigma Processes).
In effect, it’s an organizational design problem. A people problem. Not a technological or functional problem.
When I was a sales rep for 3M, I was talking to a parts manager at a GM ($GM) dealership. He told me GM was giving them fits on returns and it was costing his department a lot of money. “Could you put Post-It adhesive on a tape?”, he asked. I immediately called my boss, Harry Toussaint. I relayed the problem to Harry. Within around two weeks, I had rolls of tape to take to parts managers that were specially cut. I handed them out and tracked the results. I wasn’t the only sales rep with the tape. Other reps across the country in other branches were doing the same thing. Within two months, a corporate marketing person, John Zoia, came down from Minnesota and travelled in the car with me, talking to customers. Within eight months(and it might have been sooner, I can’t remember), we rolled out a new product which is in the Auto Trades line to this day, Post It Tape.
That tape was a door opener at GM dealerships for 3M sales reps. No doubt they sold ancillary products out of the catalog because of that product.
Because of corporate culture that I learned in training, I felt empowered to act. It was a part of my job description. Once I relayed information, my boss carried the water for me in the company. At each level of management, they all had been empowered to take action, and could make decisions. 3M spent some money, did a test, and then tracked the results. The marketing manager’s job description was to take research out of the lab, take information out of the field and synthesize it into new products. Upper management gave them the power to roll out new items. Sometimes those things failed and it cost money. Sometimes it didn’t. But they weren’t afraid to fail.
Contrast that to my American Airlines experience.
American Airlines isn’t worried about innovation. They don’t see themselves in the innovation or customer business. Airlines worry about operations. Get people on planes, get people off of planes, and keep the planes working and in the air. Planes on the ground cost them money. Get randomization out of processes to save costs. People are an impediment to operations.
A different business with some of the same principles is hotel operations. Do you know why people love to stay at the Ritz Carlton? It’s because they have a culture of innovation. They empower employees to take care of problems. Don’t focus on the money in this quote, focus on how the problem or perceived problem was solved.
My wife and I enjoyed a Ritz-Carlton experience this year. During one especially busy time at the hotel’s restaurant, the waiter apologized for the wait, gave us complimentary appetizers, and paid for our desserts. When I asked him why he did so he said, “I’m empowered to keep my guests happy.
Ritz Carlton employees use two words a lot, “Certainly”, and “My Pleasure”. It says a lot about how they approach business.
Airlines also understand supply and demand economics exceedingly well. See how prices for seats change over time. They have first, second, third and in many cases fourth and fifth degree price discrimination. The milk as much money out of each customer as they possibly can, and try to keep as much producer surplus (microeconomically speaking) to themselves-giving consumers very little.
Airlines are Six Sigma operators. That’s why when one little thing goes wrong it’s a massive hassle to change anything. A weather pattern flows through, guaranteed money loser for airlines. It’s clear, their culture isn’t designed to be innovative. Is there anyone that loves their flying experience from start to finish with airlines? It’s the worst part of the job according to my friends that fly all the time. Like going to the dentist.
Prior to the weather, I realized that I had incorrectly booked my travel. I wanted to rebook. On Southwest ($LUV), no charge. They are the only airline that does that to my knowledge. On American, massive issue. A $200 charge to rebook on a ticket that cost $341.00. In this case, it wasn’t a space issue since the flights at that time were not even close to full. An empowered employee that had been trained to be customer focused would have seen a flight that wasn’t full and made the change for free.
I wound up changing it the day before for $75.
Then the weather hit. Massive delays. I got to the airport early. I checked my bag through the new bag self checkout and went to the gate. The gate was crammed with people. No where to sit, or hardly stand. My flight was delayed, and instead of giving a realistic time for take off, every fifteen minutes, they moved the time about ten minutes. At the last minute, they moved the gate.
I was late to the gate. The lady behind the counter said they had closed the door and reassigned my seat. I wasn’t going to be on the flight-but my bag was. Houston, we have a problem.
Because of logistics it made no sense for me to travel. So, I told the gate agent my problem. She pointed me to a phone bank of four phones and said I could talk to someone there that could handle it. I went, finally got an agent, and then that agent told me I could get back on the flight. I explained that it had left the gate. I said, “I want a refund, and I need my bag delivered to my place in Chicago.”.
At that point, an empowered American employee could have followed Marshall Field’s rules for dealing with customers. ”Give the customer what they want.” Put another way, “The customer is always right.”. Put in Lean Start Up vernacular, “If you don’t build what your customer wants, and don’t listen to them, you will be out of business.”.
Last I checked, American was coming out of yet another bankruptcy. Airlines go bankrupt all the time because they don’t value their customers, they value operations. Customer service isn’t a point of innovation for them-and it permeates the organization. Think, how quick were they able to deploy wifi in a cabin? Years.
The person on the phone told me there was nothing they could do, talk to the gate agent.
So, I went back to the gate agent, and she said, Nothing I can do, talk to a customer service agent. There was one right there, she said, nothing she could do.
This is why American’s get sick of dealing with faceless corporate bureaucrats, and don’t see a difference between very large corporations and government agencies.
I went to the ticket counter. I explained my situation there, and that person had to get a supervisor. They were the first people that could do anything to rectify the problem. But, while they tried they weren’t empowered to take care of it. But their virtue is they explained everything clearly so I understood. I asked them if they had the authority to make decisions, and they said they didn’t.
Ironically, that’s why you see a lot of automation at the front end of airports. The airlines don’t see their front facing employees as true customer service reps-they are just machines.
To rectify the problem, I had to go through two separate departments. Baggage and customer service. I went to baggage, and that guy gave me a number to call. He didn’t have the authority, but had the number. Remember, at this point I have dealt with five separate people, each could have been empowered but wasn’t. Neither was he.
I called. I spoke to a person, then was put on hold.
Eventually, the call dropped-so I got on the L. I began Tweeting about it. Eventually the @Americanair twitter told me to DM them. Once home, I left a message on their Facebook ($FB) wall. Via Twitter and Facebook, I got a full refund, and hopefully my bag will get back to me today-delivered to my residence. Why do their social media platforms accomplish what people can’t?
At each step of the way, the corporate culture of the airline is not to innovate. Innovation is problem solving. Airlines have not set up their companies to solve problems. They set them up to operate like a machine. One slip up and someone gets hurt. Their goal then is to minimize the damage to themselves, not their customers. It’s a one way street.
Innovation starts at the top. 99% of CEO’s will say their company values innovation. It’s what shareholders want to hear. But, unless they empower employees, they won’t innovate.
Executives get worried about risk. They make decisions from fear. What if the American execs had empowered someone at the airport to take full control and solve the problem? All they see is money out the door because a machine isn’t working. But the reality is, they lost a customer. Once people read this, they might lose even more customers. I guarantee that 90% of customers view flying as a commodity so they are indifferent on airlines-except I am hearing different things about Southwest.
Companies that don’t innovate don’t create economic incentives for their employees to problem solve and innovate. Google pays an employee up to $1M dollars for an idea that is implemented. There is economic incentive to solve problems. Solving problems means getting in touch with customers and finding out what they want.
This is also why when undertaking due diligence with a startup, it’s critical to find out what pain point they are solving. Is it a real pain point? Or an iterative feature? Big corporations can iterate on existing features because it’s a low cost way to make them stickier to customers. But, startups need to blow up their targets in order to be really successful.
Execs at other airlines probably think Southwest is profitable because of their operations, which have been programmed to be incredibly efficient. They also think it’s because of their success at hedging jet fuel-another operational risk management process. But they are wrong.
Which airline makes money? Which handles their customers more like Marshall Field?
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)
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