Interestingly, this study is based wholly on statistical performance, rather than customer input.  The academics utilize on-time flight performance, denied passenger boardings, mishandled bags and complaints filed with the Department of Transportation.  The analysis does not even begin to explore surveying customers about their satisfaction.  Anyone who flies regularly can well imagine those results.  Oh my.

How to react to worsening quality stats?

So how would you expect an innovative, adaptive growth-oriented company (think like Amazon, Apple, Samsung, Virgin, Neimann-Marcus, Lulu Lemon) to react to declining customer performance metrics?

• They might actually change the product, to make it more desirable by customers.
• They might hire more customer service representatives to identify customer issues and fix problems quicker.
• They might adjust their processes to achieve higher customer satisfaction.
• They might train their employees to be more customer-oriented.

But, United decidedly is not an innovative, adaptive organization.  So it responded by denying the situation.  Claiming things are getting better.  And talking about how it is spending more money on its long-term strategy.

The frailty of “Operational Excellence” as a strategy

United doesn’t care about customers – and hasn’t for a very long time.  United is focused on “operational excellence” (using the word excellence very loosely) as Messrs. Treacy and Wiersema called this strategy in their mega-popular book “ The Discipline of Market Leaders” from 1995. United’s strategy, like many, many businesses today, is to constantly strive for better execution of an old, historical business model (in their case, hub-and-spoke flight operations) by hammering away at cutting costs.

Locked in to this strategy, United invests in more airplanes and gates (including making acquisitions like Continental) believing that being bigger will lead to more cost cutting opportunities (code named “synergies”.)  They beat up on employees, fight with unions, remove anything unessential (like food,) invent ways to create charges (like checked bags or ticket change fees), fiddle with fuel costs, ignore customers and constantly try to engineer minute enhancements to operations in efforts to save pennies.

Like too many companies, United is fixated on this strategy, even if it can’t make any money.  Even if this strategy once drove it to bankruptcy.  Even if its employees are miserable. Even if quality metrics decline. Even if every year customers are less and less happy with the product.  All of that be darned!  United just keeps doing what it has always done, for over 3 decades, hoping that somehow – magically – results will improve.

Competition requires innovation to succeed

Today people have choices.  More choices than ever.  That’s true for transportation as well.  As customers have become less happy, they simply won’t pay as much to fly.  The impact of all this operational focus, but let the customer be danged, management is price degradation to the point that United, like all the airlines, barely (or doesn’t – like American Airlines) cover costs.  And because of all the competition each airline constantly chases the other to the bottom of customer satisfaction; each  lowering its price as it mimics the others with cost cuts.

In 1963 National Airlines ran ads asking “is this any way to run an airline?” Well, no.

Success today – everywhere, not just airlines – requires more than operational focus.  Constantly cutting costs ruins the brand, customer satisfaction, eliminates investment in new products and inevitably kills profitability.  The litany of failed airlines demonstrates just how ineffective this strategy has become.  Because operational improvements are so easily matched by competitors, and ignores alternatives (like trains, buses and automobiles for airlines) it leads to price wars, lower profits and bankruptcy.

Nobody looks to airlines as a model of management.  But many companies still believe operational excellence will lead to success.  They need to look at the long-term implications of this strategy, and recognize that without innovation, new products and highly satisfied new customers no business will thrive – or even survive.

Links:

A 2006 forecast of Dell’s demise based upon Operational Excellence strategy/focus

How Dell and Starbucks suffered marked declines in 2009 due to focus on Operational Excellence

2011 forecast of Dell’s ongoing revenue decline due to operational excellence strategy

How operational excellence led to “momentum fixation” killing Dell, RIM, Yahoo growth

Why a Congressionally mandated limit on the Postal Service product offerings forced Operational Excellence as the strategy – leading to financial disaster!