Steve Pearlstein’s column today in the Washington Post (Off Balance at the Top) is another great example of how top executives still don't understand the I-Cubed Economy. The story is about how American Airlines has been charging for curbside bag check in. The result is greater profits for the airline but a direct lose of income for the porters:
You would think that at a time when passengers are frustrated by long lines inside the terminal and grumpy about the deterioration of service in general, that airline executives would look to expand upon its successful curbside operation rather than try to squeeze it for an extra tenth of a point in profit margin.
After all, with curbside checking, passengers voluntarily pay a premium for a necessary function that would cost the airline four times as much if it were performed inside by a ticketing agent who earns, say, $15 an hour plus benefits. And in the porters, the airlines have highly satisfied and highly motivated employees whose pay not only varies with the quality of their work, but also varies with airline traffic, going up when times are good and down when times are bad.
But as is their wont, airline executives were not content to leave well enough alone. Rather than raise ticket prices to reflect the reality of higher fuel costs, they decided they could improve their bottom line by robbing the tip jar of their most visible front-line employees.
Of course, they deny that's what they are doing. The $2 per bag charge for curbside check-in, they explain, is simply a way of charging willing passengers for premium service without having to raise prices for everyone else. But the airlines' internal documents put the lie to that explanation. In the case of American Airlines, for example, 2005 planning documents used as evidence in the Boston trial showed that the airline would get $16 million to $20 million a year in new revenue if it were to roll out a curbside checking fee nationwide, while spending only about $7 million on porters' wages. All the rest would be pure profit.
As for the Boston porters, they soon discovered that customers think the mandatory $2 fee is a tip or that they know it isn't but are unwilling to pay a tip on top of the fee. The porters testified that their daily tips typically fell from $200 to no more than $80.
This is not just another story of the incredible stupidity of airline executives and their willingness to sacrifice long-term customers' satisfaction and loyalty to short-term financial pressures. It is also a story of rank hypocrisy. It is these same airline executives who are constantly defending their own generous pay packages -- and those of other corporate executives -- by arguing that you can't retain and motivate key executives if they don't have the carrot of bonus pay dangled in front of their noses at all times.
The problem is more systemic than just greed. It goes much deeper into our way of thinking. It is, in fact, a business system still captive of an outmoded way of thinking (as Keynes remarked “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”)
Under the old industrial age Taylorist model, jobs were divided into thinkers and doers. Managers (engineers, scientists, etc.) were thinkers; front line workers were doers. Thinkers told the doers what to do and how to do it. Front line workers did what they were told. While the more rigorous application of Taylor’s Scientific Management (like time-motion studies) survives in only a few places, the mentality of the division of labor remains rooted in our psyche.
Overlay this deeply rooted mindset with a thin veneer of the information age rhetoric of “employees are our greatest asset” (with little understanding – or, more likely willingness to understand – the deeper meaning of that phrase). The result is what Pearlstein describes. Obviously, in the information age, “thinking” is important. So managers (thinkers) are seen as important intangible assets and given high compensation in order to keep that asset; front line workers such as the porters (doers) are invisible. Never mind that the porters are the first people the airline’s customers see – and as such are a key link in the customer service system.
The Circuit City fiasco is another example of this outmoded way of thinking.
Until and unless the so-called captains of industry shed their old way of thinking, these examples will continue. We can only hope that as a new generation of leaders takes over – who have not learned the outdated lessons of the past – the number of these dinosauric actions will diminish.
By the way – congratulations to Steve Pearlstein on winning a Pulitzer Prize for commentary! Well deserved.
Leave a comment