Culture in the Clouds

Wednesday, June 27, 2007

It was only a matter of time for this true confession moment to arrive. I am a commercial airline junkie. Despite never having worked for an airline or the likelihood that I ever will, I love reading about the airline industry. So you can imagine what a thrill it was when I won in a silent auction a few years back a session in the America West (now US Airways) flight simulator in Phoenix, Arizona. Yes, I flew an Airbus 320 (I need to work on my landings).

So Susan Carey’s interview with CEO Dave Barger in the June 21 issue of the Wall Street Journal (“Changing the Course of JetBlue”) naturally caught my attention. I was curious to hear what he had to say, having been recently promoted to CEO and being there during JetBlue’s operational meltdown in February.

His comment that caught my attention was his response to the question about the likelihood of airline consolidation.

WSJ: Will the long-predicted consolidation of the airline industry ever happen?

Barger: I truly believe it will. Take a look at the auto industry and the steel industry and these other maturing industries and one can’t help but be led to a conclusion that there will be consolidation. How many alliance carriers do you need to go from A to B? How many domestic brands do you need? But how do you merge cultures? That seems to be the lone question that never has been answered adequately. You can merge operating certificates and facilities and fleets and the infrastructure. But even if a merger makes sense, there isn’t enough creativity to say, “Listen, how are we going to make the cultural side of the equation work?”

Even for a culture aficionado like myself, Mr. Barger’s comments on the blending of cultures being a key business challenge jumped out. This thought stayed with me as more articles came out the past few days about Northwest Airlines rash of cancellations, apparently due to pilot availability. The pilots are blaming management for not hiring back enough pilots to cover the busy summer travel season and management saying it’s pilots not showing up for work. Since I live in the Detroit area, I am unfortunately beholden to Northwest for my travel needs. And it ain’t pretty. They recently came out of bankruptcy, having slashed $2.2 billion in annual operating costs, with 60% of the savings coming from reductions in employee wages, benefits, and work rule reductions. And it shows. I would venture to say that very few people on a Northwest plane want to be there.

Then I read Melanie Trottman’s article in today’s Wall Street Journal (“As Competition Rebounds, Southwest Faces Squeeze”) about some radical changes Southwest Airlines is contemplating as it decides how best to compete with the legacy airlines (such as Northwest) who have lower costs as a result of going through bankruptcy. Here’s the quote that stood out for me:

Southwest, which prides itself on being employee-friendly, is one of the only airlines that has not sought wage or benefit concessions from its workers. The airline characterizes its work force as ultraproductive and pleasant to passengers. If management seeks pay cuts, it risks alienating employees who Mr. Kelly (CEO) calls the airline’s “greatest weapon.” Mr. Kelly says he’d consider pay cuts a “management failure.”

Southwest knows that an employee-positive culture is an investment, a savings account you add to in both the good and bad times (Southwest didn’t lay off anyone after 9/11) so that when you need to go to the employees and ask for greater effort in service or cost reductions, they are more likely to make the necessary sacrifices to stretch the company dollar. Contrast that with Northwest’s approach. They busted one of their unions during bankruptcy. It solved a short-term problem and obviously helped to keep the airline aloft. But at what price? Long term they have a significant employee relation problem – pilots who will only do the minimum required. I don’t know about you, but when was the last time a commercial airplane flew without a pilot?

Which brings me back to Mr. Barger’s comment. Imagine trying to merge the cultures of Southwest and Northwest. I think I need some Dramamine.


Post-script: As I was writing this column, up pops an email from Crain’s Detroit Business with the headline, “Tell Us Your Northwest Problems.” Excuse me while I take this call.

What Comes After (in Business)

Tuesday, June 19, 2007

Two recent articles got me thinking about the life cycle of companies and business in general. Neal Boudette’s article in yesterday’s Wall Street Journal (“Detroit Confronts Surplus of Showrooms”) and David Gross’ guest column in the June issue of Inc. (“The Truth About Investment Bubbles”) both allude to the fact that death is as much a part of the business world as the living world. Couple this with the fact that most religions believe that death is not the end of the line, that there is some type of re-birth that occurs, you can find yourself in a philosophical discussion that has real business ramifications.

In the case of the saturation of Big 3 dealerships left over from their heydays, Boudette points out in his article that it’s not so easy to pull the plug on a dealership. Given state laws that protect franchisees, some of these smaller dealerships can hold on for some time. Boudette describes one Lincoln-Mercury dealership in southern California (average sales of 20 to 25 cars a month) that turned down a buy-out offer from its Toyota competitor down the street. “But Mr. Mayberry, 58 years old, said no thanks. His father had bought the business in 1961, and he does enough business between new-car sales, used cars and service to make a profit and pay his salary and those of his two brothers and employees.” I’m sure from Ford’s perspective, it would be better if Mayberry Lincoln-Mercury closed up shop. And maybe it is time for it to die. But as long as it is making a profit, as long as it is still breathing, why bring it to a premature death? But the longer it is alive and diluting the local auto market, the greater the drain on Ford.

Gross talks about how major investments in infrastructure over the past 150 years has sometimes led to short term death but long term growth. The over-building of such things as telegraph lines, rail lines, and fiber-optic cable created the possibility that some players would not survive the shakeout. But those that did or those that built on this inexpensive infrastructure were able to create new businesses in a cost-effective manner. So just as we benefit from the fossils left behind of dinosaurs long gone, so do businesses build and succeed on the skeletons of over-built infrastructures. Nothing ever disappears completely.

Sometimes what needs to die in order for a re-birth is the death of a myth or self-perception. Some companies have such a storied history that when the present starts to pummel them, they cling to the past and its finely tuned myths. The company may not need to die but how its stakeholders view its past, present, and future may need to die off. We can only begin to let go of the past if we believe that something good and new will rise from the ashes. Something always comes after.

Laptop Dip

Tuesday, June 5, 2007

Last week I attended an event featuring Seth Godin, the marketing guru and author of such books as Purple Cow, Permission Marketing, and Small is the New Big. (Apparently he is B-I-G on the West Coast.) He was in Ann Arbor as part of the book tour for his latest, The Dip: A Little Book that Teaches You When to Quit (and When to Stick). His argument is that successful people (and organizations) quit all the time. They succeed because they know when to either quit or push through what Godin refers to as “the Dip” – the point in the process where things get really tough and you start to question why you’re even in this. They also excel in recognizing and abandoning efforts that are headed for a dead-end -- “the Cul-de-Sac” in Godin-speak.

Which brings me to the news from late May that Dell will start selling two desktop PCs in Wal-Mart and Sam’s Club starting this Sunday. So Dell is going retail, into the heart of Hewlett-Packard territory. The two have battled it out for some time as to who will be the world’s largest PC company. As I understand the story, a few years back, Dell’s direct sales model (you order and customize your PC online and it is shipped to you directly) was kicking H-P’s retail model, primarily on price. H-P decides to play the Dell game and tries to compete on price, laying off employees to get the low cost structure that Dell can achieve through low inventories, since they make PCs only on demand. H-P starts to lose big. Out goes CEO Carly Fiorina and in comes new CEO, Mark Hurd. About this time the laptop revolution starts to kick in and more buyers gravitate to retail locations where they can check out the look and feel of the laptop. At the same time H-P gets its internal operations in order and yesterday the Wall Street Journal publishes an article entitled “How H-P Reclaimed Its PC Lead Over Dell.”

So here’s where “the Dip” comes into play with Dell. Mr. Godin points out that “the stupid thing to do is to start, give it your best shot, waste a lot of time and money, and quit right in the middle of the Dip.” Even though Dell says this is the first step in a broad, global retail push, it seems like a weak first step. Let’s face it, Wal-Mart and Dell? If you’re going retail, you got to go with Target. And it’s only two models of desktops. (I thought the laptop market is where the action is nowadays?) From an organizational culture standpoint, Dell needs to live-and-breath retail, something that doesn’t happen overnight. In the process, Dell will need to relax the “direct sales dogma” that has brought them much success. In an email to employees a few months ago, Michael Dell stated that “the Direct Model has been a revolution, but it is not a religion.” I suspect many within Dell found the statement to be heretical – the Direct Model has been their Holy Grail of competitive advantage for some time. Some say “you can’t serve two masters” and Godin the Oracle says “you really can’t try to do everything, especially if you intend to be the best in the world.” Seth, do you want to be the one to tell Michael Dell you can have a Dip on the way to a Cul-de-Sac?