Monday, January 28, 2013

Anxiety as a Cost

The airline industry operates according to a simplistic theory of customer value. In Eleven Things Organizations Can Learn From Airports (January 2013), Seth Godin criticizes this theory.

"By removing slack, airlines create failure. In order to increase profit, airlines work hard to get the maximum number of flights out of each plane, each day. As a result, there are no spares, no downtime and no resilience. By assuming that their customer base prefers to save money, not anxiety, they create an anxiety-filled system."

Alan Patrick (@freecloud) believes that the airline theory is correct: "fwiw the work we did show that many customers value price, fewer value low anxiety".

Sometimes it is not hard for companies to collect evidence to reinforce their assumptions, but we need to examine and interpret such evidence carefully. Here are some things to consider.

  • Statements about customer preference may be based on survey (asking them about their preferences) or behaviour (inferring preferences from their choices). Behaviour might seem to be a more reliable indicator than survey.
  • However, people make choices based on the information they have. If they appear to choose between airlines based solely on price, that might mean they think other factors don't matter, but it might also mean they don't expect any airline to be better than any of the others. Furthermore, obsessive attention to price may represent a suppression of more difficult issues.
  • Many people simply don't fly at all, or choose alternative forms of transport wherever possible, because they find flying such an unpleasant or frightening experience. If you only look at the people who do fly, this is a biased sample. See for example Liesl Schillinger, The Cost of High Anxiety About Flying (New York Times Jan 2010). 
  • People often don't acknowledge anxiety, they just find other reasons not to be your customer.

In economic terms, we can regard anxiety as a cost. This cost doesn't appear on the airlines' financial accounts, for two reasons. Firstly, because it is not easily represented in monetary terms, and secondly because it is not directly incurred by the airlines but by their customers. See my post on the Calculus of Cost (January 2013).

For that matter, companies don't always recognize the anxieties experienced by their own employees, although there is some awareness of this question in some sectors (such as military and healthcare) where anxiety can have life-and-death consequences.  Robert Johnson explores this factor in the US Army.

"People take shelter, as it were, behind their official roles. One becomes, in essence, an anonymous member of the institution's "collective instrumentality". Under these conditions, one may feel little or no personal responsibility for one's actions. Alternatively, one may feel personally responsible for one's conduct but view any guilt or anxiety as a cost of maintaining one's honorable commitments to the institution."

More fundamentally, organizations such as military and healthcare derive much of their structure and culture from the psychological pressures faced by people in these organizations. There is a broad literature on this, going back to the work of Menzies Lyth and her colleagues at the Tavistock Institute. So to understand the costs of anxiety, we shouldn't just consider the effects experienced by individuals, but also the organizational costs of protecting people from these effects.

Robert Johnson, Institutional Violence: Organizational and Psychological Issues in the Military Context (ARI Research Note 90-117 Sept 1990)

Isabel Menzies Lyth, Social Systems as a Defense against Anxiety (1959)

Liesl Schillinger, The Cost of High Anxiety About Flying (New York Times Jan 2010)

Bruce H. Smith, Anxiety as a cost of commuting to work Journal of Urban Economics, 1991, vol. 29, issue 2, pages 260-266 (abstract only)

No comments: