Monday, March 26, 2007

From: Rolfe Shellenberger – e-mail of 15 January, 2007 from an ongoing discussion about innovation

What you are really saying, Richard, is that innovation is crucial because all of the past tends to mold with age. Copycats may be rewarded with financial gain from relative inertia, and that has been a prevalent airline pattern ever since deregulation appeared, but "same old, same old" is hardly a winning strategy when so much opportunity exists for changing paradigms. My own perspective is that all events are interrelated. That means technology or any other human endeavor is altering its gestalt all the time; resistance to that force is what generates failure. If you don't pay attention or ignore those "flow" changes, your enterprise is doomed. In marketing anything, you have to create for your selected targets, an artificial vision; what they can expect to see that is different from what they see now. Very few advances have occurred when inertia dominates, as it does today among legacy airlines. Too many marketers are product-oriented rather than sensation-oriented. A case in point is the new airline, ExpressJet, which will operate nonstop between cities that are not hubs of any airline. Just describing that uniqueness may be an attention-getter, but perhaps even more powerful an appeal is that no middle seats are imposed on travelers; in fact 2/3 of seats are window seats and 2/3 are aisle seats. Aha! 4/3 is impossible! No. That is a true statement because on one side of the aisle are rows of 1-seat and 2 seats on the other side of the aisle. Few people buy on factual information; they buy on what is most important to them, e.g., comfort, speed, freedom from hassle, safety, and supplier sensitivity to those issues.
Rolfe


Eastman's "Off-the-Wall Comment(s)"© …

Much of what David Neeleman emulated was taken from Southwest ... by David's own admission. The difference between those that succeed and those that don't has a lot to do with the ability to adapt. History ... business, social, or natural ... is paved with proof that the "big" don't necessarily survive any more than the small necessarily die. Those that survive are those that adapt.

In the airline industry, those that have survived (big and small), have been those with leadership that could and did adapt. Innovation is all about adapting to new needs -- not copying.

Even more relevant – leadership is about not doing what others expect based on what's been done in the past! Most of the financial airline distress of the past few years can be attributed to managements doing what their predecessors or competitors were doing!

<< ... you have to create for your selected targets an artificial vision, what they can expect to see that is different from what they see now. >>

But buried in the middle of Rolfe’s comment is the fundamental crux of the issue. Consider the implementation of the words "... you have to create ... an artificial vision ....

The premise of the vendor creating a vision that induces buyers to select their product is a marketing premise that is not out of date. It originated in the Industrial Age when vendors controlled the channels through which their products were distributed; and airlines were among them. But …

… in this era of digital knowledge ... the buyer already has "the vision" -- whether artificial or not. In this era of ubiquitous access to information, the buyer has already researched and knows what he/she is seeking to purchase -- particularly by the time the buyer is in a state of readiness to purchase (as opposed to the information gathering state).

Getting a sale in this environment is NOT tied to the vendor creating a vision at this point! Rather, getting the sale is dependent on the vendor providing product in virtual time that MEETS the already conceived vision of the buyer.

In this era of digital information, the “selling” process needs to evolve during the buyer’s information gathering mode; whether that information-gather state takes place during the 10 minutes prior to creating the booking; or takes place over two to three months of pre-planning (and pre-planning is just as important to corporate travel buyers/packagers as it is to the leisure traveler).

Marketing ... or that part of selling that precedes the actual consummation of the sale ... must walk the fine balance of filling in the buyer's vision based on what the buyer already understands ... or will understand ... as a function of his self-acquisition of the related knowledge. This is a far different focus from the legacy mind-set of "creating a vision for your target prospects." In the latter, the vendor creates the vision ... in the former, the vision is created by the buyer from multiple sources and the vendor must fulfill that buyer's vision. They are almost diametrically opposed human processes.

The initial paragraph reflects on the fact that those who survive are those that adapt best. Adaptation is just that ... adapting to new demands and expectations from buyers. In the airline business ... as in other sectors of the travel business … or in the computer business ... there are new ideas all the time. But new ideas only become innovation when they achieve the critical mass of acceptance by the users/buyers at acceptable costs.

Equally important, a successful single innovation invariably drives secondary innovations built on the first. Over time, as acceptance becomes critical mass, innovation becomes "standard" ... the ideas for growing the innovation become increasingly marginalized within the boundaries of the process itself as person-after-person; company-after-company emulates the new paradigm with incremental improvements. It's sort of like jumping half way to the end of a log; each time the half-way jump becomes smaller until ... at some point in time, to jump 1/2 way topples one over the end of the log.

The legacy airline industry and their channel distribution outlets has been jumping half-way to the end of the log for the better part of 40 years. More recently, new “incremental innovations” have failed because the legacy information systems inhibited balanced communication or completion-of-transaction of the new innovation. The core hosting platforms have been unable to adapt; and the traditional retail outlets and intermediaries have been reluctant to restructure their processes at the risk of being wrong. Essentially, they have failed to adapt.

Instead, the industry and its analysts continue to measure themselves and managements by criteria established in the legacy processes that are now, largely 40 years old. The start-up air carriers and the new online digital packager/outlets have innovated adaptive models independent of those processes … and they continue to expand market share and generally derive profits at the expense of the carriers or traditional distribution channel structures that are NOT adapting.

What the new carriers are accommodating (i.e. adapting to) ... and the legacy carriers are failing to accommodate ... is the newly acquired power of informed knowledge-driven buyers.

In the Production Era, producers (read airlines using classic hosting platforms, brick-and-mortar agencies with people “packaging” customer travel plans, tour packagers bound to legacy business technology platforms, etc) use to control the flow of information and thus, controlled the decision-making process of buyers. That business environment is disappearing … rapidly.

Today’s knowledge-driven buyer’s access to information allows competitive decision-making in the buyer’s head. While the production-era airline/producers must still inform, they can no longer control the information flow through their production channels. Information has become ubiquitous -- both in distribution of product information AND in information pertaining to production of product. Buyers need/expect to be able to interactively pick-and-chose from a myriad of same-time/same-place alternatives.

Airlines and digital packagers that are the most profitable are those that have both allowed the product they offer to be adapted to meet buyer demands ... and have adapted new information business models to accurately educate buyers as to what is and is not available to meet different buyer’s needs or expectations.

Those are marketing and selling criteria far different from the legacy model of “creating a vision” in the buyers mind at the point of sale.

In short, what gets incentivized is based on what is measured by management; so what is measured becomes critical to any company's future. Airlines, travel agencies, tour operators, or wholesalers that measure based on the past models are at risk. Innovation is derived by measuring against the needs and demands of buyers searching solutions … and adapting the business process in real time to serve what each “measurement” identifies. Technology tools and business processes that integrate fractional or component travel parts are what enable adaptation and instant flexibility.
As reflected in the strategic discussion of Amadeus, Sabre, and Expedia above, intermediary vendors and outlet service providers that are not headed down one of these paths at full speed are destined to the dust-heap of travel providers. Critical mass has been attained as reflected in the Expedia, JetBlue, Air Canada, and now impending EU CRS ruling examples noted above. There is no going back!

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