Category Archives: Business
Howdy folks, it’s getting near tax time again! Enjoy this little gem from the archives while you itemise your deductions.
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this…
The first four men (the poorest) would pay nothing The fifth would pay $1 The sixth would pay $3 The seventh would pay $7 The eighth would pay $12 The ninth would pay $18 The tenth man (the richest) would pay $59
So, that’s what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20″. Drinks for the ten men would now cost just $80.
The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men ? How could they divide the $20 windfall so that everyone would get his fair share?
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man’s bill by a h higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.
And so the fifth man, like the first four, now paid nothing (100% saving). The sixth now paid $2 instead of $3 (33% saving). The seventh now paid $5 instead of $7 (28% saving). The eighth now paid $9 instead of $12 (25% saving). The ninth now paid $14 instead of $18 (22% saving). The tenth now paid $49 instead of $59 (16% saving).
Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.
“I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man,”but he got $10!”
“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!” “That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D. – Professor of Economics. (via Independent Journal Review)
Author’s Note: This was originally written and published as an academic paper early in 2010, before Southwest’s decision to purchase AirTran was announced. The material exists as it was originally written with only images added for the purposes of this blog.
Hailed as a scrappy, start-up, small-market airline, Southwest Airlines has taken an unconventional attitude toward the air travel industry and turned itself into the most profitable company in the business. Throughout its history, Southwest has had to fight tooth-and-nail, quite literally, for its very existence. It’s this warrior attitude that has developed into a tongue-in-cheek approach to marketing and a vehement sense of doing right by the customer; which has, in turn, developed into a business strategy that has kept the company growing for over thirty years.
Since its inception, Southwest’s mission has been a “dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.” The company focuses on this mission through an extremely selective hiring process that ensures all employees fit within the corporate culture believing that truly fun-loving and spirited employees bring superior customer service through their inherent attitudes that are allowed to shine without the confining regulations and propriety that so many other airlines practice. Southwest employees routinely go the extra mile to help a customer because—by and large—they genuinely care about making people happy. Just as most other wildly successful companies, Southwest’s philosophy agrees that happy employees translates into happy customers and happy stockholders.
In 2004, when Gene Kelly took over as CEO from Herb Kelleher, he formally instituted the four factors and five strategic objectives that had become and, as he said, would continue to be the guiding principles of Southwest Airlines’ continued success. Hiring great people and “treat ’em like family” is the first factor which is illustrated through the airline’s extremely selective interview process and extremely generous wage and benefits schedule. Southwest employees have, on average, made more than their rival counterparts without taking massive pay cuts during hard economic times through a conservative financial plan as well as stock options that have grown as considerably as the company has over the years. Second, Southwest cares for customers “warmly and personally, like they’re guests in our home” because it only hires employees who genuinely care for people. Third, Southwest pledges to keep fares lower than anyone else through safety, efficiency, and operational excellence. The company’s 25-minute turnaround goal can only be achieved through efficiency and teamwork where ground and flight crews all work together to have a plane ready to board within the specified time limit. When faced with glaring safety violations tarnishing the company’s near-perfect safety record, Southwest acts with integrity by alerting and working with federal inspectors to make sure aircraft are repaired and maintenance is brought current—despite the possibility of fines and other potential penalties (lost revenue, for example), which is far outweighed by the potential company-ending disaster that could occur otherwise. Finally, staying prepared for hard times has helped the company weather the economic recessions and skyrocketing fuel costs. Southwest maintains strong liquidity and aggressive fuel hedging which keeps them afloat while other, larger airlines are haemorrhaging money, raising fares, declaring bankruptcy, and merging out of existence. Southwest’s five strategic objectives build and restate the four factors while adding the goal of offering customers a convenient flight schedule to places that they actually want to go. This has allowed Southwest to realise its goal of bringing the American public the “Freedom to Fly” almost anywhere, at any time, and for a low price.
By utilising aggressive cost-cutting measures, such as their trademark no-frills flight service, point-to-point route structure, single-model fleet, and fuel hedging, Southwest Airlines currently enjoys one of the lowest operating costs per passenger seat mile—13.85 cents in first quarter of 2008, a feat that can not be duplicated by other airlines (the closest, America West, reports 15.58 cents per passenger seat mile). In addition, Southwest maintains large cash reserves ($16.77 billion in 2007) as compared to the industry average. The airline’s volume strategy of selling full planeloads for lower fares than selling fewer seats for higher prices has led to historically high revenues for the company as well, as less money is wasted flying full rather than empty seats. Not only boarding more passengers per flight, but also quicker turnarounds leads to more available seat miles, which, after filling those seats, leads, again, to larger revenues. These elements have put Southwest in a position of being, financially, the strongest airline in the United States as of the fourth quarter 2008.
Due to the nature of how it conducts business, Southwest Airlines enjoys many competitive strengths. The airline has enjoyed unprecedented growth since 1971 driven by a simple fare structure, low costs, and impeccable customer service. The company also maintains a fleet of one aircraft type, which saves on parts inventories and maintenance training costs as well as provides them with incentives such as volume discounts and flexible financing options. Strong, simple loyalty programs help to build lasting relationships with repeat customers. Southwest’s desirable corporate culture also makes it able to be highly selective during its interview process for new hires, making sure the company hires only the best of the best applicants.
One major weakness in Southwest’s product is its lack of seating options. Passengers must arrive early to be more selective about their seating arrangements, which may aggravate some passengers and turn them off to the experience. Because it only flies smaller Boeing 737 aircraft, cargo space is limited, and increased revenues from less price-elastic cargo transport must be foregone in favour of highly price-elastic passenger miles. Also, being reliant on one producer for aircraft creates some level of dependency on Boeing that may prove a strategic weakness if aircraft prices change. Southwest also does not offer any international flights, even to popular tourist destinations in Canada, Mexico, and the Caribbean—missing out on the very lucrative vacationing market segment.
Southwest has always been a leader in incorporating advanced technologies into their business model. The airline was among the first to utilise electronic ticketing as well as adding winglets to improve efficiency in their aircraft fleet. By continuing to seek advanced technologies, Southwest has the opportunity to gain significant competitive edges against its competitors during the adoptive phase of the new technologies (which can last upwards of ten years, in some cases). Southwest can also consider expanding into markets not already served by the airline, especially smaller markets in the southeast and central United States with little or no competition.
Several threats face Southwest Airlines, as well as their competitors. Chief among these is the price of jet fuel and other petroleum derivatives that are essential in aircraft maintenance. Currently, a slowing domestic economy has reduced the amount of leisure travelers while commute alternatives such as teleconferencing have reduced the need for business travel. Increasing federal regulatory action also threatens Southwest, especially in light of recent safety violations that caused a significant portion of the fleet to be grounded for inspections and repairs. Not only FAA regulatory action, but also ever-increasing demands for security protocols from the TSA threaten air travel by making it inconvenient for many people, either through outrageous screening processes or increased costs of passenger screening, which is then passed back onto the customer.
The bargaining power of the buyer in this market is quite high, as there are several options in each market on which a potential customer can choose to fly, and the services offered are relatively standard at this point. Typically, he who offers the lowest price is going to attract the most customers, which is where Southwest typically displays some advantage. In addition, the threat of substitutes is high as well for the same reasons—undifferentiated services and proliferation of competitors. Southwest has also set themselves in a situation where their suppliers have a high level of power as well. While maintaining a fleet of only one aircraft type significantly reduces the cost of warehousing parts and training mechanics as well as simplifying maintenance logistics, it puts all bargaining power in the hands of the manufacturer, Boeing. Any decision to increase prices of aircraft or parts can force Southwest to succumb to those extra costs under threat of grounding the entire fleet. Fuel suppliers also keep a choke-hold on the industry as a whole as they control the means of production (in this case, the distribution of fuel—without which, there can be no flights). However, Southwest has been able to mitigate the effect of fuel costs by their aggressive hedging strategy. Competitive rivalry is also quite high in the airline industry. There are many competitors and, such is the case in periods of slow economic activity, each one plays a price game to entice customers away from the others in order to keep their operations at sustainable levels.
One piece of good news for Southwest, considering Porter’s Five Forces model, is that the threat of new entrants is low. There is a lot of cost and capital investment associated with starting an airline, and, especially in periods of slow economic growth, the risk often far outweighs the reward. Established brand names—often legacy airlines—tend to survive the troughs better than small start-ups, especially when customers are not patronising as they do during peak economic times. Loyalty programs become paramount, discouraging changeover and promoting the strong brand names that already exist in the marketplace.
Southwest Airlines seems to be doing almost everything right, but, even still, there are two notable strategies that the company can implement for continued growth across all market segments. Currently, Southwest offers no partnerships with other air carriers for international or tertiary domestic markets. Southwest can “extend the LUV” to these smaller domestic markets by partnering with regional airlines that provide shuttle service to the larger markets. In addition, Southwest can partner with larger international carriers to enhance their global reach from entry ports such as LaGuardia (for European travel) and LAX (for destinations to and from Asia and Oceania). Such partnerships may seem counter-intuitive to Southwest’s self-reliant culture, but as the global community becomes smaller, airline partnerships will become inherently more important.
The other major consideration, and presently the most important, for Southwest’s continued expansion is the acquisition of rival airlines. This may be the most important step in enhancing Southwest’s domestic presence because it opens up previously-untapped markets to Southwest’s lower-cost, simplified structure. Utilising the company’s large war chest, motions to purchase AirTran or JetBlue can easily be made during the economic slowdown. Both of these airlines are of particular strategic interest because—by and large—they operate in markets that are not currently serviced by Southwest, including major presences in tourist destinations in the Caribbean and business travel destinations in Canada. Also of singular interest is the fact that both competitors operate a fleet of Boeing 737’s, which will—unlike Delta’s acquisition of Northwest’s “hodgepodge” fleet—ease transition costs by not forcing Southwest to retrain mechanics or attempt to unload unused aircraft inventory on an already saturated market as well as by keeping maintenance costs relative to the size of the fleet, thereby not negatively affecting overall costs per available seat mile.
The Hotel Paris International, in order to meet their mission of using “superior guest service to differentiate the Hotel Paris properties, …increase the length of stay and return rate of guests, …and boost revenues and profitability” should begin a comprehensive human resources overhaul by developing a clear plan to direct all actions during the overhaul process. This plan should begin with outlining each step as it should be performed. To start, in an effort to streamline hiring worldwide, job descriptions should be clearly defined and standardised. Once job standard job descriptions are developed, then aggressive recruitment can be instated to provide an almost-constant pipeline of applicants, which will also make the interview and hiring process more competitive. Qualified applicants should not require extensive training in Hotel Paris’s systems, but some introductory or orientation training should be phased in to further standardise operations. In addition, periodic recurrent training may be beneficial. Once reliable and consonant employees have been integrated, systems of performance evaluation should be introduced and maintained to ensure quality service company-wide. Finally, in order to retain valuable employees, a superior reward system should be implemented, and compensation should be fair within industry standards.
Clearly defined job descriptions are important to maintaining a happy and motivated workforce. Without proper descriptions, employees can become shiftless and morale drops quickly because of frustration from the “I wasn’t hired to do this” attitude that many under-appreciated employees exhibit. Not only can proper job descriptions enhance existing employee morale, but it can also (and most importantly) make future recruiting and training much easier. Hotel Paris’s first priority should be to develop comprehensive descriptions for all front-line positions, then work their way up the corporate ladder. This is most easily done by having supervisors make observational surveys of their subordinates, coming up with a list of tasks and duties for each position. To enhance the company’s mission of being customer-oriented, some customer service duties may be added to each description—especially in front-line positions where customer interaction is most likely. Once these surveys are completed, job descriptions can be disseminated to all positions company-wide where employees will be elaborated as to their expectations. The employees that fit the positions best will be retained, those that do not will be let go through attrition, and overall morale will improve. Improved morale will translate into better customer service and lower turnover rates.
Once concrete job descriptions are in place, the task of overhauling recruitment becomes priority. As some employees may have left because of new expectations, those positions must be filled. As there is no uniform standard for recruitment and hiring, several key factors must be considered. First is internal recruitment; promoting from within is one of the easiest and cost-effective ways to fill positions within a company. Intracompany memos (employee newsletters, etc.) can advertise available positions at each location, and qualified prospects can apply directly through the company HR department. Internal promotion retains valuable employees who have a vested interest in the company as well as allowing for job mobility worldwide. Second (and the first priority in external recruitment) is media coverage; a wise choice would be to advertise in several media outlets in each market and survey applicants to determine which outlets are most effective at attracting not only qualified applicants, but also which of those applicants are hired. One of the best sources for applications is a “careers” section of the corporate website, these applicants often perform more research into a company and are typically proactive in their job selection process. Headhunting can also be a valuable tool in recruiting new corporate-level managers if there are no viable options at the front-lines. No matter what the methods determined, Hotel Paris must keep regional preferences in mind and advertise accordingly. Once the most effective media outlets have been determined, then HR can keep a pipeline of potential interviewees ready for callbacks any time that a position must be filled.
Interviews should be standardised as much as possible company-wide; that way, a desk clerk in Paris has the same (or very similar) qualifications, attitudes, and skills as a desk clerk in Los Angeles, Miami, or London. A customer who chooses Hotel Paris for one city should expect to see the same level of service and care in any other city they travel to. In addition, the interview process should include a skill assessment tailored to each job description which may or may not include behavioural assessments or technical evaluations, depending on the position. Security guards, housekeepers, and anyone else with front-line access to guests’ security (keys, rooms, parking areas, etc.) should, obviously, pass a criminal background check while a desk clerk should be able to handle computerised data entry while having impeccable “people skills” such as courtesy, manners, and tact. A set of standard interview questions can allow managers to perform effective interviews coherent with the mission goals set by the corporate HR department. These questions can be inferred from job descriptions as well as by interviewing model employees already in those positions to determine their thought processes and proliferate those attitudes throughout the company.
Even when hiring good employees that should, arguably, need little-to-no initial training, an initial training period can be prescribed in order to streamline and simplify the transition to the position. Some initial HR department training can be incorporated into the orientation process, indoctrinating the new hires into corporate culture and showing the rudiments of individual jobs. After an initial orientation period, new hires can be formally trained on-the-job by either their immediate supervisor (who will have taken a course in OTJ training) or by a training manager whose job it is to train new hires in a particular position at any location. The orientation training can be done at the group level in a classroom setting or at the individual level via computer-based training (CBT). With the proliferation of the Internet, the latter can be a significant cost-saving measure as it can be updated from a central HR department and maintained by the corporate IT department. Also important, in order to maintain superior employees, is to institute a program for continuous and recurrent training. Recurrent training can vary from job to job, from formalised training on new equipment to customer service workshops and even professional certification programs where applicable. This continuous training program can also support internal promotion by providing supervisor or manager candidate workshops focusing on important concepts such as leadership and conflict resolution. The important thing to consider here is that it is not the amount of time devoted to training, necessarily, but the quality of training received as well as the quality of employees hired into those positions, which the earlier stages of this comprehensive action plan have already addressed.
In addition to training employees in the basic functions of their jobs, health and safety training should be a recurrent system that encourages strict limitation of workplace hazards. This sort of training can be facilitated through video lectures and online seminars that identify particular hazards associated with each job function. From the obvious benefit of not harming employees, focusing on health and safety of employees will translate to the overall welfare of the guests in our charge. For example, housekeepers using various cleaning products will not mix certain chemicals that can give off noxious gases if taught correctly. Pool attendants can keep decks clean and clear so that guests or other employees do not slip and fall. Safety is an utmost priority for any business, but in a service industry, where a safety violation can potentially harm your customer, it can not be avoided, and so, standard company-wide training in safety must be incorporated into orientation and recurrent training programs.
Having formalised job descriptions and standard training procedures, Hotel Paris can now focus on the task of actually maintaining day-to-day operations with their employees. The most effective method of ensuring that the new hiring and training policies are effective is to perform periodic appraisals of employees’ work. Thanks to the new, specific job descriptions, human resources can now develop performance appraisals tailored to each individual position. At this point, HR should develop benchmark metrics to best evaluate employee performance. Can a desk clerk keep an average five-minute check in/out time? Can a housekeeper keep an average ten-minute cleaning time? How many instances of customer security violations are recorded monthly? Can the kitchen maintain a thirty-minute delivery time on room service orders while holding the highest standards of quality (as defined by customer comment cards)? Those employees that are able to maintain standards should be rewarded not only through their basic wages, but also, periodically, through incentives as these have been proven to foster a high level of morale leading to improved teamwork and, consequently, customer service.
There is an old adage in business that says if you keep your employees happy, then they will keep your customers happy. This has been proven time and again in various industries from air travel to steel production. In order to attract (and retain) the best talent possible, Hotel Paris must raise the base pay of their employees in all job categories to above that of the local industry average. Likewise, the best way to keep employees happy and focused on the mission-at-hand (“superior guest service”) is to incentivise the pay schedule. Through (now well-defined) performance appraisals for each job, managers can pay employees on a sliding scale based directly on the nature of the quality of their work. Housekeepers can be compensated for maintaining a quick pace while working together to ensure quality in their room maintenance. Desk clerks can be rewarded for keeping a quick registration pace and high marks in customer comments. Security guards can be rewarded for preventing incidents by staying vigilant. Having defined performance metrics allows employees to know exactly what they are working for and seeing those rewards come through concretely keeps morale high enough to maintain that level of service defined in the strategic mission statement.
In addition to wage compensation, a comprehensive benefits plan can help retain quality employees and keep them career-focused rather than looking to Hotel Paris as a job to help cover a few extra household expenses. New lines of thinking in benefits packages produce systems where some benefits can be traded for others, depending on employee preference. Instead of a “use it or lose it” system for awarding sick days, a new “a la carte” system can allow employees to trade unused sick days for extra pay or scheduled vacation days. In addition to keeping employees happy by giving them an enhanced measure of control over their benefits packages, there is the added benefit of incentivising actually coming in to work every day. Missing a day due to illness (or personal errands, as many employees tend to use sick days for long weekends or to handle other personal matters) may not mean a loss of normal wages, but it can mean a loss of bonus pay or that extra vacation time. Employees also not wanting to use sick days will take care of their health better, further reducing insurance spending—saving thousands (or even millions) that can be used to pay better wages, build new locations, or renovate existing hotels. Making these benefits available to employees as soon as possible (immediately, or, at most 30 days) will further motivate the new hires into a high sense of duty and performance instead of waiting through a long probationary period watching colleagues enjoy benefits that, in all fairness, were earned just as diligently.
As Hotel Paris implements the steps outlined in this action plan, a culture of equality and fairness is only sure to arise thanks to new policies regarding treatment of workers and compensation. To restate an earlier idea, in a service industry, happy and fulfilled customers are the direct result of happy and fulfilled employees who are the direct result of an ethical and fair-minded management team. Basic company ethics can be introduced during orientation training, but they are best ingrained through action on the job. When a company hires the best, they should not have to worry about labour relations or unionisation. In order to better stay focused on changing employee concerns, not only should an open-door policy be implemented where a subordinate can address their concern with an immediate supervisor, but a direct human resources hotline can be opened that will address all concerns in an anonymous and immediate manner. Having a sense of importance in the company supported by strong incentive pay and egalitarian corporate culture can virtually eliminate any concerns regarding union labour as well as making sure employees take ownership which will lead not only to superior customer service, but also to long-lasting, career-oriented employees, saving time and money in recruitment, hiring, and initial training costs.
He did it. He won the victory over himself. He loved Big Brother.
George Orwell, 1984
In a turn of events that one might argue a little unnerving, Google announced that it will soon be crawling your public Facebook posts. For me, as a person who understands the permanence of the Web, this comes as no real surprise. I think that most of the fear and, therefore, outcry will come from the huddled masses (mostly teenagers and young adults) who mainly tend to use Facebook as a public platform for whining about their interpersonal problems/issues/drama. Personally, I believe that sort of venting is why God invented the pub.
Twitter has been Google searchable for some time now, and it only makes sense that Facebook finally let the ‘bots crawl all over it’s walled garden. After all, the whole network has long been just a farm ground for paid advertisers, and Zuck himself has referred to his own customers as “dumb fucks.”
It’s also worth noting that this initiative will also affect other networks that may or may not require a log-in to view comments (Disqus, et al) because of the way the process utilizes (exploits) HTML standards. For a company that maintains that they can “make money without doing evil” as part of their fundamental philosophy, this is a rather odd step for Google–twisting a set of guidelines that has long been the “gentleman’s agreement” concerning the way requests are handled across the Web.
My advice, at least for now, is to keep the drama off the social networks. If you need to vent, call your mates. In the mean time, adjust your privacy settings, opt out of any 3rd-party marketing initiatives, and mind what how you comment on others’ posts–they may not have the same privacy settings as you.
Read the full article here (via Wired)
The F-22 was approved initially to give the Air Force a next-generation stealthy aircraft to evade ever improving enemy air defenses. But a funny thing happened: Our enemies’ air defenses stopped improving.
Vice Admiral Jack Shanahan, 2006
Good news for the folks back in Marietta, the F-22 has resumed operational test flights after a four-month grounding following several major malfunctions of the next-generation avionics. It seemed a little prophetic that the demonstration at this year’s Sun N Fun was cut short because of a master caution stemming from the avionics. It’s been a rocky road for the program, with sweeping defense cuts brought on by the Obama Administration being the final nail in the coffin for the world’s only 5th-generation fighter jet.
Personally, I’m divided on the issue–I appreciate the Raptor for everything it’s capable of, but I agree that it’s a bit of a beast and almost unnecessary when F-15 Eagles and F/A-18 Super Hornets can get the job done en masse. However, if (when?) WWIII finally breaks out, and dogfighting once again becomes a necessary form of warfare, it’ll be nice to have a fleet of stealth fighters that can out-turn and out-fire the enemy. That, and they just look so cool doing it.
Read the full story here (via Planenews)
Make a friend, sell a house.
Warren Vestal, Sales Trainer
I’ve worked in sales off and on for quite a while now–probably most of my working career, actually. One thing I have noticed in common with each job is that the training focuses almost entirely on the technique of selling. It’s really this technique, typical of “greasy salesmen,” that tends to drive customers to put up the very barriers that the training emphasizes on breaking down. It’s been my experience that just “making a friend”–that is, to say, building trust by legitimately caring about the customer–is the easiest way to sell anything. Some people are naturally amiable, and they tend to make customers feel at home and not pressured which builds confidence, trust, and–most importantly–repeat business.
There has only been one company (who shall remain nameless) I worked for that emphasized product knowledge as much as the technique of selling, and it was also the company I had the most success selling for. Simply put, if a company does everything it can to build a confident salesperson by focusing training on product knowledge and industry awareness, then a salesperson will be honest and open with that customer–improving everyone’s bottom line.
Read the full article here (via Hubspot)