New and Improved Frequent Flyer Programs

The airlines have long recognized the inherent liabilities of their frequent flyer programs.  There is – or was – an enormous legacy of free flights waiting to be redeemed by frequent travelers who planned to take their families on vacations or use their nest egg of points for retirement travel.  The airlines, however, are working diligently to undermine the value of these nest eggs and avoid having to pay off on their promises.

Their plans have three components.  First, constantly increase the number of points needed for free flights from 25,000 to 50,000 to 100,000 or more.  Second, make the flights available for free flights overwhelming onerous.  For example, the free flight from Atlanta to Boston stops in Dallas-Fort Worth, Salt Lake City, and Detroit on the way to Boston, turning a 2-3 hour flight into 16 hours.

Third, charge for redemption of points.  If you use points for Atlanta to Boston, it costs $1,000 to redeem the needed points.  Or, you can buy a ticket for $400-500.  Thus, the frequent flyer points are not just worthless.  They have negative value.  The millions of miles flown on the major airlines are now a liability for passengers, at least if they do not understand the airlines’ games.

Our investigators interviewed several airline executives to more fully understand their strategies and how they are creatively avoiding the legacy of frequent flyer programs.  All of these executives spoke anonymously, fearing retribution from their employers. Their stories are eerily similar, despite their being no evidence of conspiracy.

They spoke to us because they are also frustrated.  One said, “We used to be loved by business flyers.  They said things like, ‘I already feel at home when I relax in my seat on the homeward leg of my trip.’  Now, they ridicule us and clearly hate us.  But it seems that is where the business is headed.”

Another executive told us, “It is important to understand that, despite slick marketing programs and promotions, airlines have absolutely no interest in the welfare or satisfaction of passengers.  All the nice words are just a front.  The intent is to squeeze as much revenue from passengers as possible while providing as little value as possible.”

Another executive put it differently, “We would really rather just carry freight.  It is difficult to damage and does not complain.  People expect us to care about them.  Why should we?  They are lucky to get from point A to point B so cheaply.  But they also want peanuts, pretzels, drinks, toys for the kids, and space for service animals.  Beyond all that they want airfares as cheap as possible.”

“Why don’t you charge more for your services rather than doing everything possible to fill every seat?” we asked.  They responded, “With the right pricing, we can fill every seat.  In fact, we continually tighten up spacing to allow more seats, all of which we fill with the right prices at the right time.”

“Most people choose airlines based solely on ticket price.  An empty seat generates no revenue.  So we constantly adjust prices to fill seats, while we also increase fees and degrade services.  We are continually surprised with what people will endure for a $199 seat, even though various fees can easily double this price.  It almost becomes a game to see how little value we can provide.”

“But you have turned airline travel into a very negative experience.”  The immediate answer was, “People will put up with high prices and horrible service because they have no choice.  They can complain all they want – we delete their complaints as fast as they submit them.  We don’t care in the least what they think and feel.”

“Won’t this backfire at some point?”  The quick reaction was, “Do the chickens protest the hen coops?   Do the cattle protest the feedlots?  No, they have no choice.  Passengers are just revenue sources and can be treated like chickens or cattle.  We don’t care if they are frustrated and angry.  We don’t care if they seek transportation services elsewhere.”

“What do you care about?”  After a perplexed look, one executive said, “Isn’t it obvious.  Profits, share prices, and executive compensation.  That’s the overarching purpose of an airline.  How could it be anything else?”

Latest Airline Tag Line

New York — In reaction to a flurry of consumer complaints about major airlines’ new “zero fare” model, one airline has unveiled a new marketing pitch, with the following tag line.

“We don’t need you — take the bus!”

Responding to pundits’ criticisms of this being ridiculously “over the top,” an airline spokesperson responded, “We have monopoly positions on many of our routes. We can charge anything we want. We can provide whatever level of service we want. Customers have NO leverage. They have no choice.”

When asked if their intent was to antagonize customers, the response was, “We want to weed out customers who complain. They are just irritants. We have instructed our customer service agents to hang up when customers complain and zero out their frequent flyer accounts.”

“Is that legal?” we asked and the answer was, “We are not concerned with that. Take us to court. Sue us. We can afford years of such suits. Consumers are effectively helpless. They always have been, but now this is an important element of our business strategy.”

“Won’t this eventually backfire?”

“Maybe, although this country has never been interested in investing in serious alternatives. Almost nobody has a functional train alternative. Buses are possible but painfully slow.”

“At some point, won’t the government intervene?”

“We only need 3-5 years. In that time, we will accumulate huge sums of money — we estimate $250 billion — and then we will withdraw from the market, sell the planes, and move on.”

“What will communities do that depend on air transportation?”

“We would be glad to sell them our airplanes, although they will probably need a bit of maintenance and update by then. We actually have planned to sell the planes to developing countries, but I suppose a local deal could be worked out, as long as we are indemnified for all risks.”

“So, you really do not care about your customers and the public in general?”

“Our only goal is to maximize shareholder value in any ways that are legally possible. If you were a major shareholder, you would certainly agree. Our one objective is to turn money into more money — the airline business is just the current means to that end.”

Major Airlines Announce Zero Fares

New York — Major US airlines announced today a new pricing model for air travel. Zero airfares. Free.

The airlines have decided to unbundle all aspects of air travel. Customers will only pay for the services they desire. If they avoid all services, they will fly for free.

The airline CEOs as a group issued a statement with this announcement heralding the coming of free air travel, emphasizing their long commitment to customer service and safety.

Here are some examples of service charges:

Luggage: $100 per piece; no carry-on luggage allowed as overhead luggage bins will be removed, which will allow much more rapid boarding and exiting of the aircraft.

Drinks: Range from $10 for a bottle of water, $20 for a soft drink, $30 for beer, $40 for wine, and $50 for liquor.

Snacks: $10 for each packet of pretzels, peanuts or cookies; snack boxes for $50. A single concierge using pre-stocked vending carts will vend all drinks and snacks.

Sales Period: From the time the boarding door is closed until the plane backs away from the gate, there will be a one-hour period during which items may be purchased from the concierge. There will be no in-flight sales. All flight times will be increased by one hour to accommodate this period and assure passengers on-time arrivals.

Bathrooms: $20 per use, $30 if the bathroom light is activated, no toilet paper or hand towels provided. Bathrooms will be cleaned as often as once per week.

Seats: No assigned seats, no seat numbers, business class eliminated allowing a major increase of seats on each plane. Larger planes will be configured to carry 500 passengers.

Safety: $50 for seat belts, $100 for flotation device under seat, flight attendants are eliminated, replaced by the single concierge noted above who has no safety responsibilities. A single pilot will fly each plane.

Insurance: $100 premium required per person, with the airlines being the beneficiary. Otherwise, passengers must sign “fly at your own risk” waiver of any possible airline responsibility.

Penalties: Passengers’ credit cards will be automatically charged the following penalties: $50 for snoring, $100 for crying baby or barking dog, $200 for each unruly child

Airport lounges are eliminated, as are concourse seating and food services as well as other retail. Passengers are loaded first come first serve via turnstiles similar to subways. No one is provided priority, not handicapped, elderly, or children. Gate agents are eliminated.

The airlines project that these new offerings will result in huge increases in revenues as well as substantial decreases of costs, particularly for airline personnel. With airline liability being eliminated, they expect dramatic decreases of insurance costs. Indeed, any major aircraft accident will result in a windfall due to the aforementioned insurance.

To compensate terminated airline employees, rather than severance pay, each terminated employee will receive 100,000 frequent flyer points in the new program described below.  These awards are valid for six months and can be used any weekday except for holiday weeks. Employees will, of course, be eligible for free travel as outlined above.

Each passenger will be required to provide credit card information prior to each flight. They will be automatically charged for each service and consumable, detected in part via an extensive onboard sensor network. This will enable customers to pay instantly any penalty or service purchase.  The airlines expressed their commitment to providing detailed electronic receipts within 30 days after each flight.

Finally, the airlines frequent flyer programs will be completely revamped. The concept of free tickets for points will be eliminated, reflecting the fact that tickets will now be free.  Further, upgrades will be unavailable with only a single class of service available. Points will now be usable for onboard entertainment.  Four classes of entertainment will be available — Silver, Gold, Platinum, and Diamond — and earned via cumulative onboard expenditures rather than miles flown.  The normal $100 entertainment fee will be discounted by 25%, 50%, 75%, and 100%, respectively, for these four classes of passengers.

The executives commented, “We realize that the lost of first class upgrades and possible free vacations reflects a major change. However, we are confident that the increased quality of our online entertainment will be an enormous hit with our customers.  Our Diamond Members, with 100% entertainment discounts, may even take free flights just for the opportunity to compete, for free, in our online games. We expect to be seen as a major entertainment venue.”

Industry pundits reacted to this announcement with skepticism.  One suggested that frequent flyers would game the system and judiciously avoid any fees.  Another suggested that people would form teams to take flights in mass to assure airlines lose money.  One airline spokesperson said, “Our abilities to instantaneously change fees and implement new fees will be akin to pari-mutuel   betting.  For each flight, we will know how much we need to charge passengers’ credit cards to be profitable.  We will adjust fees accordingly once the concierge period is over.”  When asked about the possibility of passengers paying far more than they expect, she responded, “Flying has always been risky.”

Five Million Jobs

A few years ago, I co-chaired the National Academies Healthy America Initiative.  The members of this committee came from both the Institute of Medicine and the National Academy of Engineering.  Our assignment was to wrestle with issues surrounding the effectiveness and costs of healthcare delivery.  However, we wanted to put this in a larger context.  We eventually agreed on an overarching goal of fostering a healthy, educated and productive population that is competitive in the global marketplace.  This essay suggests how to accomplish this goal.

There are roughly 10 million unemployed people in the U.S. right now, down from 15 million a few years ago.  The current unemployment rate is 6.7%.  If we could cut that in half, we would be very close to what is considered full employment in the U.S.  Five million jobs would achieve this goal and, as laid out below, accomplish several other important things in the process.

I propose that we create jobs in three areas.  First, we need to invest in improving and maintaining the nation’s crumbling infrastructures, especially in urban areas.  It is estimated that fixing infrastructures after they crumble, e.g., after the bridge collapses, costs five to ten times more than properly maintaining them.  In the process, we could also add smart sensors and other technologies to both target and decrease maintenance costs.

The U.S. Department of Transportation estimates that each billion dollars spent on infrastructure investments creates 30,000 jobs; 10,000 in construction, 5,000 in manufacturing, and 15,000 “other jobs” due to the other businesses benefitting from the new construction and manufacturing jobs.  (I will use this 2:1 ratio for the other investments as well.)  For reasons that will become clear, we need to create 1,560,000 jobs in this manner, which will cost $52B.  This will save enormous amounts for unplanned maintenance, but that cannot be elaborated here.

There are 117 million people in the U.S. with chronic diseases.  It has been repeatedly shown that regular attention from health coaches and care coordinators can help them to better manage their diseases.  The Agency for Healthcare Research and Quality, a unit of the U.S. Department of Health and Human Services, reports that such programs can lead to reduction of patient visits to specialists by 24%, emergency department visits by 13%, and hospitalizations by 39%.  These savings are far greater than the costs of such programs.

Assume that, on the average, each patient with one or more chronic diseases is provided one hour of attention per month by both a coach and a coordinator. Some, of course, would receive much more attention and others much less.  This would require 702,000 health coaches, 702,000 care coordinators, and total 1,404,000 jobs at a cost of $56.2B per year assuming each job averages $40,000 per year. Using the 2:1 ratio noted above, the total number of jobs created would be 2,808,000.

As indicated, this would save more than it costs due to reduced use of more expensive healthcare services.  Further, these patients would be healthier and more productive.  Thus, the return on this investment would be substantial.

Three million students drop out of high school per year; 45% in 9th grade; 34% in tenth; 23% in eleventh; 16% in twelfth. (The sum of these percentages is greater than 100 because each successive year includes a smaller base of students.)  If they all stayed in school until graduation, we would need an additional 158,000 teachers and 158,000 teaching assistants, totaling 316,000 jobs, at a cost of $14.2B per year assuming each two jobs, teacher plus assistant, average $90,000 per year. Again using the 2:1 ratio discussed earlier, this generates 632,000 jobs.

Note that this assumes each teacher plus assistant focuses on 16 high-risk students.  This 8:1 ratio will enable providing students the attention needed to help them feel more engaged.  It is likely that this will also require that the content of instruction be varied to better target these students’ aspirations.

80% of the people in U.S. jails and prisons are high school dropouts.  The annual costs of incarceration are $80-90 billion.  If we eliminate high school dropouts, we would only need to reduce incarceration costs by 16-18% to beak even on this investment.  It is easy to imagine doing better than that.

Thus, we create 5,000,000 jobs (1,560,000 + 2,808,000 + 632,000) jobs for annual investment of $122.4 billion ($52.0 + $56.2  + $14.2).   This amounts to 4.1% of our annual Federal tax revenues.  If we consider the costs savings of reduced unplanned maintenance, reduced use of expensive health services, and reduced costs of incarceration, these investments should yield a quite impressive return on investment.  They will also yield significant income tax and social security tax revenues.

Beyond the economics of these investments, we get a healthy, educated, and productive population that is competitive in the global marketplace, plus state-of-the-art, well-maintained infrastructures.

Patterns of Change

Invention or ideas lead to innovation and change, often championed by someone other than the originator – think of Carnegie, Morgan, Rockefeller and Vanderbilt.  The change agent builds an empire around the innovation, typically aspiring to monopolize the commercial value of the innovation.  The empire becomes exploitive of customers, employees, and the environment.  Eventually, the world pushes back.

Competitors may provide the counterbalance.  IBM dominated computers until Digital countered with minicomputers and then Apple surprised everyone with microcomputers, after which IBM rebounded for a while before ceding the market to Dell, HP, and Lenovo.  Most recently, microcomputers have given away to portable tablets and other devices.  Networked computer and communications technology has replaced the dominance of big hardware.

The automobile industry provides another compelling example.  Henry Ford transformed the industry with mass production.  Ford dominated until Alfred Sloan changed the game with new models each year and differentiated brands.  Customers wanted more than the lowest priced black vehicle.  By the 1950s and 60s, the Big Three dominated, banishing many smaller brands to oblivion.

This led to decades of poor quality vehicles, with brands becoming decreasingly distinguishable due to sharing of components and platforms to save production costs.  The Big Three seemed to think that consumers would buy whatever these companies decided consumers wanted.  They were right — briefly.  Globalization led to higher quality, reasonably priced vehicles, especially from Japan, resulting in the Toyota Camry and Honda Accord replacing the Ford Galaxie and Chevrolet Impala as the best selling cars in the United States.

Government can also be the counterbalance.  The Progressive Era followed the excess and oppression of the Gilded Age.  The Sherman Antitrust Act (1890), the Federal Reserve Bank (1913), the Securities and Exchange Commission (1934), and the National Labor Relations Board (1935), first championed by Theodore Roosevelt and later by Franklin Roosevelt, reigned in and later broke up the trust empires.  The Dodd–Frank Wall Street Reform and Consumer Protection Act (2010) is perhaps the most recent example of government countering excess.

Nevertheless, the exploitive change agents become enormously wealthy, often famous and are sought after for their opinions far afield from anything related to their expertise.  They, of course, eventually pass away, although their heirs and assets may remain prominent for a couple of generations.  These change agents were usually of great value to society, first for the creative destruction their original innovation fostered, and subsequently for the creative destruction their exploitations motivated.

 

Fully Understanding

I have been lately digesting an enormous amount of material on biological systems and urban systems.  For both systems, I am interested in their health.  The focus in biology has been on cancer and understanding the signaling mechanisms whose aberrations allow uncontrolled cell growth.  Within cities, I have been exploring urban resilience, including historical narratives in the US for the last four centuries.  Both of these endeavors were motivated by very different opportunities.

Nevertheless, serendipity has intervened as usual and I find myself contrasting the two domains.  The scale of both humans and cities are mind boggling – 50 trillion cells in a human body and 10-20 million people in a city.  Of course, the 50 trillion cells have much less discretion than the 10-20 million residents in a city.  Thus, the two systems may be more comparable in complexity than the difference in the two numbers might lead one to believe.

For example, getting all the cells in a human body to walk in one direction would be much easier than convincing all the inhabitants of a city to walk in the same direction.  The owner of the human body simply has to start walking and all his or her cells follow along.  There is no comparable entity in a city.  On the other hand, getting all the citizens in a city to vote would be much, much easier than getting all the cells in a body to express any intention except birth, growth, and death.

It seems that cells in a human body and citizens in an urban area may not be very good analogies of each other.  However, they both are really difficult to fully understand.  There are too many levels and far too many interactions to be able succinctly describe the essence of either system.  Of course, you could make the same argument about a rabbit or a tree.

This begs a definition of “fully understand.”  It would seem that the definition depends on why one is trying to understand something.  I cannot imagine that anyone really wants to understand everything about a human, a city, a rabbit, or a tree.  Are weight, volume, density, and molecular structure of interest?  How about the current charge of every electron in every atom of every molecule of every substance in a city?

Clearly the notion of understanding is very much intent determined, as are other constructs such as complexity, cognition, and emotion.  We have invented many constructs that are useful such as gravity, energy, and heat.  These are among our ways of labeling regularities in the universe as we experience them.  They help us to predict that things will fall, motion requires something to drive it, and days with higher temperature feel warmer.

But we do not – and cannot – fully understand these phenomena.  Yet, we can employ these constructs and various principles, e.g., conservation and continuity, to engineer useful processes and devices.  Our limited understanding has pragmatic value.  What do we lose by recognizing these limitations?

Much of what we characterize as rigorous research is laced with equations, theorems, and proofs.  However, we can only prove things within the confines of these artificial worlds that we have created.  We can only prove things in our model worlds.  We cannot prove theories in the physical world.  The best we can do is find evidence that supports theories as plausible, as well as be on the lookout for disconfirming evidence.

Optimal solutions in model worlds are, at best, pretty good solutions in the real world.  We have no way of knowing the best answer in the real world.  We make a wealth of assumptions to force reality into a set of equations.  These assumptions are almost never true, but they can be good enough to enable useful outcomes.  The primary value is in these outcomes rather than the equations.

Airlines and Quality of Service

The latest debate on air travel concerns whether a person should recline his or her seat if it inconveniences the long-legged person behind them.  Further, should the person behind be allowed to use the Knee Defender device that blocks a seat from reclining?  There have been thousands of impassioned opinions posted on the overall issue.

The most ingenious suggestion has been that the two passengers involved should stand up in the aisle and fight it out.  No weapons allowed.  Last person standing gets to decide what happens to the seat.  This will result in a lot of injuries, but air travel has its risks.  By the way, the airline would be indemnified from any lawsuits resulting.

Of course, the airline is the source of the problem.  They pack the seats so closely that people are in each other’s way.  They create a substantial amount of stress for an enormous number of people.  It is not just the spacing of the seats.  Everything the airlines do is focused on providing the minimally acceptable quality of service so that profits can be maximized.

I realize that profitable airline has often been an oxymoron.  This has been due to gross inefficiencies and incompetence, both legacies of having been regulated monopolies before 1978.  I know that was 36 years ago, but cultural norms and values only change very slowly – unless some external force compels change.  Here is an idea that might work.

Airlines should be forced to compensate passengers for poor performance.  Each passenger is paid one dollar per minute for delays in departure, taxi, landing, and gate arrival.  If each of these phases were delayed by 15 minutes, each passenger would receive 60 dollars.  For 200 passengers, this would amount to a $12,000 penalty.  Severe delays could easily cost an airline $100,000.

Some would argue that delays are not always the airlines’ fault.  That’s true, but the airlines should be very good at dealing with delays.  With my scheme, I bet they would get better and better.  They would also schedule flights to minimize delays. They would, of course, also price flights to hedge against potential penalties.  To create some balance in pricing, the penalty could be 1% of the ticket price per minute of delay.

This idea could completely change the outlook of passengers.  The pilot announces a one-hour air traffic control hold and the cabin explodes in applause.  Stuck on the tarmac with no arrival gate open?  More applause.  People would see their tickets as potential lottery winners.  They are betting that the airline will screw up, while the airline is betting they won’t.

What if an airline could not cope with this underlying uncertainty, could not perform, and failed as a business?  That would be creative destruction at work.  Poor performers would be weeded out, as they should be.  New airlines would emerge and absorb many of the employees whose jobs disappeared with the poorly performing airline.

How does this solve the reclining seat problem?  Much time is lost when loading and unloading the aircraft.  Two things would make it easier – more space per passenger in general and more control of luggage.  Checked luggage should be free and carry on luggage, other than an item that fits below the seat, should be something like $100 per roll-aboard.  But people do not like waiting at baggage claim.  They will if they are paid a dollar per minute of delay beyond 15 minutes after offloading of the aircraft.

Overall, we need an incentive scheme that highly motivates airlines to dramatically improve quality of service, while also providing passengers some respite when service degrades.

Plucking Geese

Over the past two years, I have become a frequent train traveler between New York and mostly Washington, but also Albany and Boston.  The Acela is more expensive than flying but much more convenient and usually on time.

The other Amtrak trains provide much poorer service. Delays are frequent; an hour or more is not unusual. Multiple gate changes can happen, resulting in huge swathes of people flooding from one gate to another and then another. Agents often seen uninformed and confused.

Why is there such disparate service when the same organization provides both services?  A strong possibility is that the Acela gets priority because it provides much better revenue and profits.  I have several times experienced the Northeast Regional being sidetracked to let the Acela pass.

Of course, I could always fly. The captains of private industry should know how to provide high quality service compared to the semi-public sector passenger train business. But, they do not!

In fact, this segment of the private sector could not be much worse. We should hear almost daily of airline CEO firings.  But, we do not. Their Boards of Directors seem content with their companies being hated. Clearly, the commercial aviation industry has completely lost its luster.

To be fair, however, first-rate airlines still exist, for example, Cathy Pacific and Singapore Airlines. There are also excellent automobile companies such as BMW, Honda, Mercedes, and Toyota.  The US still has leading high tech companies like Apple, Intel, and Texas Instruments, although global competitors are snapping at their heels.

How have US airlines and automotive companies become mediocre?  The primary answer is leadership. When these companies were still high performers, they persistently hired CEOs to be stewards of the status quo. They needed to “hit the numbers” in any way possible.

Consequently, truly strategic thinking about customers and innovation were limited to litanies of buzz words.  These companies increasingly antagonized and confused customers. No one any longer believes US airlines marketing slogans. As one airline executive told me, “We keep pulling feathers until just before the goose honks.”

We lost Mercury, Oldsmobile, Plymouth, and Pontiac as the Big Three cut costs and quality, rendering these brands effectively de-badged.  The wonder is that these companies’ leaders did not think customers would notice. They must have imagined that they would be just like the airlines’ geese.

Stewards of the status quo cannot imagine being anywhere except at the top of the heap. A key competency is ease of being deluded. If this is combined with a strong dose of arrogance, a top firm is well on its way to creative destruction, having cooked its own goose.

Complexity Overload

How many user names and passwords do you have? Do you need passwords with exactly six or eight or ten characters including as least one numeric character and one non-alphabetic or non-numeric character? How often are you required to change them for security reasons?   Do you have a list, tucked away physically or electronically that helps you manage this information?  In general, how do you keep track of all the essentials of connectivity?

Many of these user names and passwords enable access to websites for your bank accounts, investment accounts, airlines, various utilities, seemingly endless retailers, and countless news sites.  For the most part, transactions on these websites are easy and successful.  However, when something goes wrong, e.g., a credit card or an address is not acceptable, it can take enormous effort to straighten things out.

The problem, of course, is that there is no knowledgeable human to ask for help.  Some sites provide a phone number to call for help; some of the helpers are actually knowledgeable.  Many sites, however, provide limited or no access to help.  The objective of the enterprises associated with these sites is, I assume, to minimize labor costs.  Further, they expect to regularly lose irritated customers and see this as just part of business.

This ever-growing connectivity infrastructure provides us with a vast number of choices of ways to spend (or possibly invest) our money and consume seemingly endless goodies and entertainment.  Beyond these benefits, what are the costs of this wild west of opportunities?  Certainly there are occasional frustrations as noted above.  There is also sporadic electronic fraud that might affect one of your credit cards or retail accounts, e.g., the recent Target fiasco.

More pervasively, how do you feel about unknown entities that know every online transaction and cellular call you make?  How about their knowing every email you send, every movie you watch and every download you make?  How about their knowing your every keystroke?  Of course, we willingly give up all this information in exchange for the things we seek.  By searching, downloading, etc., we “opt in” to divulging the basic transactions of most of our lives.

If you reflect on all of the above, the complexity of everyday life has increased substantially.  The number of things you need to know and relationships you need to manage has burgeoned.  The probability, albeit extremely small, that all your assets could suddenly disappear is very real.  When you call about your suddenly zeroed accounts, you will hear, “Chose 7 if your account balances are now zero.”  Once you choose 7, you will hear, “Our customer support center for this service is open on Tuesdays between 7:00 and 8:00AM, IST (India Standard Time).”

How Great Companies Transform — Then Fizzle

From many years in Atlanta, I have known many UPS executives, including CEO Mike Eskew who led the transformation of UPS from a package delivery company to a global supply chain services company.  I use a case study of this transformation in my classes and workshops on enterprise transformation.  It is one of my favorite success stories.

Well, at least I thought it was until recent experiences trying to ship several boxes via UPS.com.  These recent negative experiences, detailed below, led me to the local UPS store a few times for explanations of various practices.  In the process, I discovered that the UPS franchised stores have a very arms-length relationship with the corporation that owns all the brown trucks.  Put simply, they use UPS as their shipper – as a vendor of services – but cannot help you with anything about UPS.  I might as well have asked my UPS-related questions at McDonalds or Baskin-Robbins.

I had hoped to ship several boxes by using UPS.com to print labels, schedule a pickup, and pay in advance.  I created an account on UPS.com, but found that this was not really a UPS account; it was only access to the website.  So, I needed to set up another personal account, but it would not allow this because my address is on a university campus.  When I tried a different address, it would not accept it because it was not the address associated with my credit card.

So, I called customer service.  The representative told me that I could schedule a pickup and then do all the paperwork with the driver, including printing out the shipping labels.  She could not help with the address and credit card problem at all.  When the driver arrived the next day, he would not take the boxes because I had not completed the online transaction and printed the labels.  In fact, he never prints labels.

I eventually got the boxes shipped three days later by manually lugging the five large boxes to the UPS store.  This experience caused me to explore other people’s experiences with UPS.  I found an enormous wealth of complaints, far too many to detail here.  Interestingly, one of the most common complaints is that there is no mechanism to complain, other than via your state’s consumer protection agency.  UPS clearly does not want to know about unhappy customers.  Thus, they can avoid learning and adapting to customers’ desires and expectations.

This is not the UPS that I knew ten years ago.  Of course, their Atlanta neighbor, Delta Air Lines, is also not the company I used to know, in their case twenty years ago.  In both cases, excellent service has been severely compromised in the pursuit of efficiency.  The fact that many customers now despise them is not of concern.  You have to conform to their rules and accept whatever level of service they provide, or you have to choose among all the other companies with the same philosophies of service.

Are there implications of such changes, or is the demise of service quality simply a fact of life?  My limited data on UPS and extensive data on Delta suggest that customers are very much looking for alternatives.  I have heard many premium Delta customers say, “I used to be a huge Delta fan; now I wish they would go bankrupt and out of business.  I really hate Delta Air Lines.”  Similarly, my limited UPS data says the love is gone.  Many customers are looking forward to the creative destruction of these companies by innovative new concepts and technologies.