Wednesday, April 15

The Problem With Chasing Profits For Most Companies

A long-time colleague of mine used to make every prospect he met chuckle over his quip that he wasn't in the "advertising business." He was in the "check cashing business." The more money his marketing strategies generated for his clients, the more often they would write him checks.

His delivery was something of a marvel too. He said it with such smug confidence that you wanted to sign up with his firm. "Yes, yes! I want to be in the check cashing business too." Who doesn't?

The notion of making money is a powerful one. It has been baked in the balance sheet for some companies — enough so that their culture permeates it. Every incentive is built around growth, awareness, profits, and sales. And there doesn't seem to be any problem with it, until this thinking begins to create gaps between the business and its customers.

How profit margins are maligning the airline industry.

On one hand, the airline industry is enjoying record-setting profits. But on the other hand, the customer experience continues to crash as airlines charge for every luxury, convenience, and necessity while stripping away customer comfort and service.

Higher fares, hidden fees, and fewer employees contribute to a growing problem, exacerbated by the additional hurdles created by airport security. There is no question about it. Flying is worse. There are problems: more lost bags, more oversold flights, more flight disruptions, and more lapses in customer service than ever before. And most analysts are predicting it will get worse before it gets better. Even reward miles are a bit of a shell game on some carriers. You can earn them, but not redeem them.

Even when USA Today called flying something to be endured rather than enjoyed last year, nothing changed. The airlines simply doubled down and let things slip a little further. They might again too.

With 87 percent of all air travel dominated by four carriers, being travel unhappy is the new normal unless you happen to be a shareholder. Airlines profits have soared as airlines limit seats to make themselves look like attractive incentives. It's no longer about cost recovery, but inflated demand.

So what is really happening? Airlines are simply operating with a profit mindset, banking on the drop in oil prices and their ability to hold fares at their current level. It's a short-term boon to be sure. With the roomiest today really the tightest seats of ten years ago, it's becoming ripe for disruption.

Nobody really knows what that form of disruption might be. Maybe it will be a high speed rail system that relies less on fuel prices or the future proliferation of automated cars that make road trips less taxing. And while some people still equate such solutions with science fiction, either seem more likely than the emergence of more JetBlues (that won't succumb to investor pressures).

The bottom line is that the airline industry is leaving itself open for competition much in the same way taxi cab companies created the ride sharing disruption, the music industry forced the digital disruption, and the reference material market killed its print. Others are ripe for disruption too.

Almost all of them had the same thing in common. They tried to consolidate or regulate rather than diversify or communicate. They sacrificed customer service for cost containment. They placed profits ahead of their value propositions. They considered themselves invulnerable to disruption.

Profits are a by-product of innovation, attitude, and cohesiveness.

The best businesses never place profits first. They value all of their constituents — customers, employees, shareholders — equally. In fact, according to What America Does Right by Robert H. Waterman, Jr., companies that do are four times better in revenue growth, eight times better in job creation, 12 times better in stock prices, and 756 times better in new income growth.

So why do some people say put profits first? Most of them believe that revenue and expenses are somehow opposing forces. But they really aren't. They often work together, provided you can demonstrate a value proposition that justifies a slightly higher premium. Make it worth it.

Sure, some people can argue that no one will notice one missing olive. But eventually, someone will notice that the entire salad has gone missing, along with the peanuts, pretzels, blankets and pillows.

It's also why CEO Doug Parker seems to be struggling to meet his goal of "restoring American to the greatest airline in the world." To do it, he will have to reverse engineer profit-first thinking that has dominated the carrier since "olive" accounting was instituted years ago. In its place, the airline will have to remember that sometimes an olive is an expense, but sometimes it's an investment. Ergo, great reputations aren't built on scarcity principles. They are built on meeting elevated expectations.

It's a lesson that long-time colleague of mine eventually learned. His "check cashing business" was shuttered. It turns out that the prospects he won over were quick to miss the "advertising business."
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