So how does a theory about commerce get tested?
Several years ago I recommended that Boeing and the airlines be broken up. Boeing should be broken into manufacturing and service. Airlines should be broken into customer service and airline operations.
These proposals grow out of my observation, in Commerce, that there are three categories of business: trade, industry and clientry. Trade optimizes every sale, industry aims to reduce cost and increase efficiency and clientry aims to develop long term relations with clients.
The industrial side of a business requires a different form of management than the clientric side. That is why the two forms of business should be separate and why Boeing and the airlines should be split apart, for their own and everyone‘s benefit.
Yesterday’s Wall Street Journal had a front page article about Air Canada which has been broken into its component parts. It turns out that running the airline has a return on capital under 5% while the customer relations passenger and freight systems have a return on capital of roughly 20%. These two parts are very different forms of business and should not be managed the same way.
Focusing on long term customer relations does not mean having the lowest costs, it means providing the most rational net benefits to the customers as measured in many forms, especially in recourse and service. The airline mileage plans are a good example of clientric business behavior.
An airline that maximized operations would never hold up an airplane to wait for passengers. On the otherhand the planes would be heavily used, have multi-passenger-cargo functions and be low cost multi-airline operators.
This is the first solid evidence that my model matches the real world of commerce.
Comments