Cash flow is king: How a focus on margins leads to declining customer service

Dive Brief:

United Airlines' April PR fiasco, wherein a passenger was forcibly removed from an overbooked flight, began in Wall Street, far before the incident occurred, according to the New York Times.
Investors' emphasis on profit margins can lead companies to spurn other metrics, like customer service, in efforts to squeeze assets. The new competition is to have the best numbers: United's margins have risen nearly four-fold in the past five years; the industry's margins have risen to 16.3% from 5.2% in 2012.
Airlines are not alone. Consumer packaged goods and manufacturing companies are suffering the same pressures — the Times cites Ford's deposition of its CEO as an example. However, consumer behavior in demanding lower prices may also be at fault.

Dive Insight:

The endless drive for company profits is not only impacting customers and employees, but suppliers as well.

Pressure for margin enhancement is gained through often draconian internal cost reduction initiatives, constant pressure on employees, and the dismissal of supplier relationships in exchange for a ‘low costs at all costs’ operating philosophy. It is no wonder that this pressure erupts in areas typically reserved for civility, like on an airplane, in the lobby of a movie theater or in an aisle at the local big box.

The passenger dragged off of the United Airlines flight in Chicago last April was more than just a customer. He was a member of the supply chain. So were the officers who removed him, the airline employees who needed his seat, and the fellow passengers taking the video of the unfortunate event. Violence aside, how is this different than the mounting pressure on suppliers to meet tight and often shifting production schedules, while maintaining perfect quality and meeting stringent cost reduction targets? And in an extended supply chain, that unending pressure amplifies throughout the supply base. The behaviors we see on our newsfeeds might just be the tip of the iceberg.

Overall pressures in the workplace are at an all time high. Wage stagnation, job insecurity, economic uncertainty, unending technological change and an increasing expectation of perfect service at the lowest possible cost has just about everyone on edge. We speak a good game about supplier relationships and the customer experience, but at the end of the day all that matters is the bottom line. Still.