June 22, 2009

The Perils of Productivity

Can't you just see the airline senior staff meeting around the conference table with the American Airlines chairman reveling in this cost reduction? Some eager beaver in accounting is proudly announcing how he has carved out more savings from the AA passengers. Just an olive here and a can of Coke there back in coach and pretty soon, we're talking about real savings. The AA press release proudly trumpets these savings and receives wide attention and publicity. This is good - right?

Actually - no. First, consider all the first class airline passengers reading that article and angrily considering how some nerd in accounting has just cheated them out of an olive they paid dearly for. Whether they left the olives on their plates or not, customers don't like services taken away.

Then think about the much larger group of passengers who would love to fly in first class but now see it diminished in value. The question all passengers must ask is if they cut out the olive, where else have they cut corners. On-Board Service? Maintenance? Back office? In fact, as I was flying to DC last week, seated in humble Row 9, with the hoi polloi, I was tempted to sneak into First Class and poll the denizens there as to which of their food items we could remove to cut costs. I would suspect not many would be swayed.

What I think we can learn is that programs that cut services to customers probably have only a short-term value to an organization. Customers remember, and when they do, they make other choices. Or if not choosing other companies to do business with, often regard the offending company with suspicion and disdain.

What we have to remember in productivity is what happens with the programs and processes we initiate. The key words to consider are ""efficient and "effective". Consider this definition of efficient.

In the 80's, we liked to think that we were "efficient". Consolidations were rampant and CEO's spouted out phrases like "redundancy deleted" and "economy of scale efficiencies accomplished." The result was the merger of unlikely companies where holding companies suddenly owned divisions that made air conditioners and produced food items. Tasty eh?
Our run for "efficiency" left staff and customers confused and often underserved. In luxury retail, we cut back on our service staff and found that customers still expected a hand to carry big packages to their cars. When store general managers had to leave meetings to do carry out, we took a second look at that efficiency.

Then in the 90's, we began to discover "effective" and what we found was that programs that served customers "effectively" left them feeling well served while still providing cost reductions. The era of computer availability at the consumer level was now easily accessible and customers jumped in with both feet. So we accomplished a lot in this transition.

But, you have to be careful with words like "accomplished". Do you want your savings initiative to be the "missing olive" equivalent of standing on an aircraft carrier and stating "mission accomplished"?

Consider the guiding words of the dictionary regarding effective and you can see the difference. For me, I would rather be effective and know that the plans I have made encourage growth and service. And that would be the best plans I could make.

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