Hello again! I haven’t posted in a while; mainly due to the fact that summer has arrived and I’ve been enjoying writing poems and songs, having long conversations and playing guitar late into the night 🙂 In fact, I’ve just flown back from an awesome holiday in Spain, and was thinking on the flight about a few things I was reading to do with airlines and, (surprise, surprise!) Behavioural Economics.
Before we start; airline companies are classified as HROs – High Reliability Organisations. There’s risk and complexity involved with flying, which means much more money must be spent to avoid catastrophes.
Richard Branson (of Virgin airlines) once famously said:
If you want to be a millionaire, start out as a billionaire and launch a new airline.
Airlines face lots of competition – think of all the different companies you could fly with: Easyjet, Ryanair, British Airways or Flybe for a few examples. This means there is constant pressure for companies to keep costs down and quality up – if you don’t have the right balance, money starts to be lost quickly!
Along with this, they also have very high running costs. These include those of fuel, upkeep and safety measures, the leasing of land, and the cost of employees. Fuel prices can swing wildly depending on the price of oil, so there have been many times when airline companies have needed to save money or face going out of business.
At this point, there might be a temptation for executives to issue drastic top-down instructions. This ‘innovation’ or big change, sometimes has adverse effects. With an HRO, a decrease in quality may save some money, but could lead to a major catastrophe.
In my last-post-but-one, POST #23: The ‘I’ Word, I put in a quote from Robert Maurer. His alternative to innovation is kaizen, whereby lots of small, gradual steps replace giant leaps of change, which, though ambitious, often fail. In his book, he mentioned this company:
In 1971, Herb Kelleher founded South West Airlines, a domestic American organisation. They quickly rose to success through their image of being a ‘fun’ company; with the flight attendants often singing the in-flight announcements. Yet in 2003, they were starting to lose their underdog status, and other, newer airlines were chasing at their heels.
So Kelleher sent a letter to every one of his (roughly) 6,000 employees, asking them to save 5$ a day. One woman suggested using plain bin-liners instead of ones with the company logo on them. This then saved them $300,000 just that year! Other employees recommended small steps like taking the stairs instead of the lift to save electricity. Just through the simple act of sending a letter, Kelleher set in motion hundreds of thoughts and ideas that led to the cutting of costs by more than 5%. Cool, huh?
This next example is an experiment that occurred when some Behavioural Economists teamed up with Virgin Atlantic. The emphasis was on reducing fuel consumption, and the method was to give pilots a monthly assessment on whether they were meeting targets or not.
There were four different, randomised groups that pilots were put into. One group was the control group, who received only the information that a study was being performed on them. Even that was enough to make the pilots save a really noticeable amount of fuel. This is simple psychology; when you feel you’re being watched, perceived pressures tend to modify your behaviour.
The other three groups received feedback. One group just got that, another was given encouragement if they didn’t meet the target, and praise if they did, and another group, if they met their target was told that ten pounds would be donated to charity.
These three performed slightly better than the control group, but there was no difference between the group that gave to charity and the others.
Overall, the experiment saved the equivalent of 3.3 million pounds of fuel – a lot of money! The small step of giving pilots monthly feedback had massive results for Virgin Atlantic.
I’d love to know your thoughts on this 🙂 Have you ever had a small change in your life that’s given out massive results?
The Spirit of Kaizen – Robert Maurer Ph.D.