If You Want To Succeed, Look to Darwinian Evolution

If You Want To Succeed, Look to Darwinian Evolution

As we move towards opening up the country to varying degrees, I see some interesting data points.

 

Many consumers and businesses are wary.

While I don’t have any specific data, talking with friends, clients, and looking at social media, I see that most people are careful. They are:

  • social distancing,

  • avoiding contact with others,

  • wearing masks and gloves, and

  • not going to restaurants.

Furthermore, I don’t see anyone in a hurry to change this behavior. I look forward to seeing some data on this.

 

Some businesses are open.

As I move around Atlanta, I see many retail locations are open, from Home Depot to some small local retailers. What I notice is that Home Depot is still busy but at a lower level than pre-shutdown. Many small local retailers are open but empty. From what I have heard, some hotels are operating, but service is limited, and the employees are continuously cleaning after each guest touches the doors, check-in desk, etc.

Online business is operating at full speed and shows little signs of slowing. The biggest issue will be their inventory. B2B remains relatively strong in specific sectors, but as the effect of more bankruptcies and closures ripples through the economy, I think demand could weaken.

 

Some places are giving up on data and experts.

Many states are opening up before meeting the guidelines set by the Administration, i.e., Georgia, and Texas, and the White House is encouraging this behavior and anti closure protests. Furthermore, Arizona has halted its partnership with experts predicting coronavirus cases would continue to increase. The argument is that we have to open up as the damage to the economy cannot be sustained. To stop the fear, kill the messenger. To quote David Farragut, “Damn the torpedoes… go ahead! … full speed!”

 

The delicate nature of our supply chain.

An interesting paper argues that the cost of opening up is higher than the price of shutting down, as we are learning daily that our supply chains cannot take the hit from illness, i.e., the meat industry, nasal squabs, fresh produce. Could other sectors be affected? What would happen if the energy, transportation, or pharmaceutical sector failed? We aren’t even sure which industries are critical. As this progresses, will more industries stop working effectively as their supply chains stop working? I expect so, and we will learn what is vital.

 

Waiting for a return to the old normal.

Many are looking forward to a return to the way things were before COVID-19 hit. I don’t think we are returning to that period. If we look at 9/11, 3,000 people were killed, vs. 76,000+ today of COVID. Also, the economic loss will be much higher. Events like this will change behavior for many forever. Some of the things I see being affected are:

  • Business travel

  • Flying

  • Hotels

  • Rental Cars

  • Ride Share

  • Restaurants

  • Large meetings/events

  • Sports

I am sure I will be proved wrong, but things will be different. An interesting article on how COVID might affect restaurants like Prohibition affected drinks may provide food for thought.

 

What does this mean for your business?

As I have said in this weekly newsletter before, Darwinian evolution holds that those that adapt best to the new environment will survive. Therefore, the questions for all CEOs and business leaders are:

  • How do we continue to perform in this new world?

  • What is our new environment?

 

Performing in the New World.

There is resistance among many in the U.S. to look abroad for best practices that are implementable here. As a CEO once told me, “There is nothing anyone can teach us.” However, many of our current practices came from abroad, i.e., just in time manufacturing and continuous improvement. So why not.

While experiencing about the same number of diagnosed infections as Italy, Spain, France, and the UK, Germany has registered approximately one-quarter as many deaths. Also, German authorities gave all factories the option to stay open through the pandemic, with the result that over 80% of did so, and only one-quarter have canceled investments. Businesses, to protect workers, implemented strict safety rules early on, and managers involved unions and employees in safety planning. Regional governments were quick to test and trace chains of infection to contain the spread. Finally, many German firms having ties to China had a jump on planning for operations through a shutdown. As a result of its experience in China, Volkswagen implemented a 100 steps affecting many aspects of workers’ routines, including where to change into work clothes, where and how to eat lunch, and how to check for Covid-19 symptoms.

Ebm-papst Group, a family-owned fan and motor manufacturer, has kept its domestic factories running at 80 percent of normal capacity. With three factories in China, management got an early warning of the seriousness of the pandemic, and so they sought to buy masks. Today they a full-time employee whose sole responsibility is to source masks and now have over 100,000 stockpiled. To provide a safe environment, social distancing, ubiquitous face masks, in-house Covid-19 tests, and contact tracing when employees fell ill helped enabled the company to keep its plants open. Ebm-papst, like most German companies, involves employee representatives in management decisions. The head of personnel and a workers’ representative sit on the crisis task force. To date, only 15 of its 6,700 employees in Germany have contracted the virus, and the workers feel safe.

However, the German economy is not immune to COVID and will probably suffer its most significant downturn since WWII. Furthermore, German’s rely heavily on international trade and global supply chains, which could remain under pressure for months or even years. Yet many economists, including those from the International Monetary Fund, thi
nk that the decision by German companies to keep running through the lockdown could allow its economy to recover faster than other nations next year.

 

What is our new environment?

This question is more complex; however, all CEOs and business leaders need to have a team to look at this. As I have said before, they need to look beyond what is happening today, and consider:

  • How could our supply chains be affected?

  • How could my customers’ supply chain be affected?

  • What will our working capital look like going forward if we have more inventory?

  • Can we source more products locally and reduce reliance on international supply chains?

  • How will our business operations change going forward, great WFH?

  • What costs have we cut that we can live without going forward?

  • What personnel have we cut that we don’t need?

  • What roles have we cut that we don’t need?

  • What roles do we need that we don’t currently have?

  • What employees/skills do we need that we don’t currently have?

  • What do we need to do to keep workers and customers safe?

  • Will any consumer/business behavior or government policy changes affect our business?

  • Will any consumer/business behavior or government policy changes affect our customer’s business?

  • Will any consumer/business behavior or government policy changes affect our supplier’s business?

  • How financially stable are our customers and suppliers?

  • How financially stable are their industries?

  • What new markets are available that were not before?

  • What new clients can we attract with our service/product offerings which we didn’t have before?

  • What happens if revenue falls by 25%, 50%?

  • What happens if revenue grows by 25%, 50%, can we meet standards and delivery schedules?

  • What should we automate?

  • How should we change our investment plans?

This is not a definitive list, but definitely, a place to start. Good luck and if I can help, contact me.

Copyright (c) 2020 Marc A. Borrelli

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The Inability to Deal with Unexpected Events = Failed Leadership

In the last week, we have seen two examples of failed leadership out of the same industry – the airline industry.

First, there is Delta Airlines and its 3,500+ canceled flights due to the storms that passed through the Southeastern US last Wednesday. Now the inclement weather is not the airline’s fault, and few of us would want them flying in dangerous conditions; however, it is how the airline responds to that situation reflects on its weaknesses and those of its management. From what is appearing in the press:

  • Five days later, flights still being canceled;

  • From Wednesday until sometime on Friday wait times at Delta’s call center were over three hours;

  • When travelers did get through they could not get information on their situation;

  • Passengers stranded overnight in airports because of insufficient hotel rooms and no knowledge as to when they might be leaving;

  • Planes were stranded and could not get moved to the right gates;

  • Stranded Crews, uninformed as to their situation, and when they did often get to the right gate and plane, had worked too long to be able to work for the flight, thus requiring a new crew;

  • Crews informed that the airline was no longer making reservations for them in cities as it was overwhelmed, and they were on their own, and the airline would reimburse them; however, some younger staff could not afford to pay for hotels and so were sleeping in airports;

  • Delta had no agreements with some the other leading carriers to transfer stranded passengers to their flights to assist in moving the backlog; and

  • Pathetic apologies from Delta’s management.

Of course, Delta will undoubtedly recover from this debacle. However, to ensure that there is salt in the wound, Delta made two announcements. They were making the SkyMiles program less generous, and replacing many of the chairs in the concourses next to their gates with smaller, harder, plastic ones so passengers can appreciate the TLC the company feels for them.

Not to be upstaged by Delta, and in the time-honored tradition of “Here hold my beer” on Sunday, United Airlines decided that it needed four volunteers from a flight to get off as they need to provide the seats to United crew. None of the passengers were willing to accept United “kind offers of compensation,” so the company selected four passengers at random and took them off the flight. One passenger refused, so security dragged him bloodied over the seats, down the passageway, and out of the plane upsetting many passengers.

The video has gone viral on social media and watched over 250million times according to some reports. Initially, United apologized for the overbooked situation. However, United’s CEO, Oscar Munoz, did not apologize for the handling of the passenger, or as he termed it, “re-accommodate these customers.” In an email to employees, he doubled down on the situation supporting the company’s actions and blaming the passenger for the entire episode. As the backlash grew against United, Mr. Munoz made more vague apologies before finally stating that “I continue to be disturbed by what happened on this flight and I deeply apologize to the customer forcibly removed and to all the customers aboard,” . . . “I want you to know that we take full responsibility, and we will work to make it right.”

Unfortunately, Mr. Munoz was brought in to fix United service problems about eighteen months ago, so apparently, that effort has made little progress. Also, Mr. Munoz’s support of the employees is consistent with United’s general attitude to its customers. From other articles appearing at the moment, United is an equal opportunity abuser, threatening to put a first-class passenger in handcuffs if he did not give up his seat to a higher priority passenger. The culture of we are right and you the passenger are always wrong and to be abused is failed leadership of the worst kind. Initially, the market reacted negatively to the news but has recovered as investors realize that there will be little impact on United. The share price at the close today (4/12) is down about 2.2% reflect a drop in United’s value of approximately $0.5bn.

It is within United’s rights as a carrier to remove anyone for any reason from a flight, and if they resist, forcibly remove them if necessary. Thus there will be no recourse against the airline legally as a result of this. Will there be a consumer backlash against United? No, for the same reasons, there won’t be one against Delta. The US carriers are effective monopolies in their markets; Delta has 81% of the gates in Atlanta and goes to great lengths to ensure other carriers, i.e., Jet Blue do not come in. Monopoly can treat their customers any way they like as the customer does not have a choice – think of the way utilities make you wait at your home for half a day for a technician to show up to connect you. However, this behavior reflects that the US carriers are closer to the RyanAir than Singapore Airlines when it comes to service while charging a Singapore Airlines price. It always amuses me that Delta boasts that it selected the best Business Airline because I have to wonder by who, obviously, no one that has flown internationally on other airlines.

However, I digress. Let’s return the failure of leadership. It is my experience that all organizations, like people, make mistakes. However, successful organizations and individuals are those that recognize the mistakes early and correct their behavior. Taking two great business quotes:

“Culture eats strategy for breakfast” Mark Fields

“Everyone has a plan ’till they get punched in the mouth.” Mike Tyson

It is the culture that deals with the unexpected, not strategies and plans.

Thus the role of leadership is to create a culture within the organization to deal effectively with unexpected change. In the case of Delta, it is evident in the ensuing chaos of the last week that the company is not set up for sudden change. After the IT disaster that befell the company last year, one would have thought they would have a better grip on it, but it seems that Delta did not take advantage of that situation to learn how to deal effectively with the unexpected.

United, having oversold the flight and needing to move some crew to another location, had not allowed for such a situation. This situation was a failure of planning. However, rather than solve the failure to plan, they decide to take the easy solution of removing someone from the flight, but when one passenger did not want to go, the staff make the tagline “the friendly skies” late-night comedy fodder for years to come.

Most of us do not have companies that exist in monopolies, where we can abuse customers as they have no choice. Our clients are fickle, and a social media storm like those Delta and United experienced would put us out of business. Thus we must teach our employees how to deal with the unexpected and give them the decision making authority to do it. They need to understand the objectives and the mission of the organization to ensure the decisions they take to align with the company’s goals, but mainly to ensure that when the unexpected happens, the whole place does not become the Titanic. Also, we need to teach them how to keep customers happy. Ritz Carlton Hotels used to have a policy that anyone in a hotel, from the bellman up, was allowed to spend up to $1,000 no questions to cure a customer complaint. That built a reputation for fantastic service and guest satisfaction, which Ritz still enjoys to this day and keeps the customer returning.

The US carriers will continue to provide inferior service, in the tradition of Basil Fawlty, until such times as competition threatens them into realizing it is the customer that matters, and excellent service is essential. However, until then, expect more incidents like we have seen over the last week because, as any parent will know, without consequences, there is no change in behavior.

 

© 2017 Marc Borrelli All Rights Reserved

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