Penny-Wise, Pound Foolish

Scott Francis
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Gary Comerford of Process Cafe recently noted that improving process is not always in the company’s best interest, as in cases where penalties and fees may be extracted from uneducated customers and users.  Despite the following process issues for a train system, the organization may not feel that it is economically advisable to address them:
1) They are notoriously unreliable in their timings. Trains are late more often than should be expected 2) There are delays for many, many unknown reasons. Leaves on the line and ‘The wrong type of snow’ are two examples 3) The ticketing system is completely nonsensical and misleading.
Gary points out that the organization is not incented to address problem area #3.  That indeed, much of their revenues derive from the ticketing system’s shortcomings:
So let’s examine this: The process of a rail company calls for multiple, confusing fares which the customer has to decipher and understand. The penalty for buying and using an incorrect fare is a spot fine or the requirement to purchase a higher priced ticket to continue ones journey. Can you see how improving this process would help the customer but not the company? They would end up with passengers buying the right fares, penalty fares being reduced and higher-priced ticket repurchases being eliminated. The end result would be a reduction in rail-fare income and associated profit. Of course the rail companies are not going to go for this.
I think this is a classic case of penny-wise, pound-foolish.  Of course it looks like the train system is making more money.  And initial measurements of revenue will tell them that revenues increased when they implemented the new penalties and schemes.  Based on this information they’ll proceed forward blind to the reality – that they are undermining the very foundation of their business – the goodwill of their customers. When revenues eventually begin to decline, they’ll blame in on changing ridership patterns, changing economic conditions, etc.  They’ll never think to blame it on the fact that people would prefer not to use their service because it is a hassle.  When they need public-funded improvements in the rail line or station, they may be surprised when voters or elected officials fail to support them, further undermining their ability to serve customers well.   A difficult system also leaves people feeling that it is okay to cheat the system, because the system doesn’t seem to be fundamentally fair. That said, I would differentiate between changes in the process that provide better customer service, and changes in the process that “make things easier for the consumer.”  Mortgage companies in the US made things easier for the consumer in the last decade- it turned out to be horrible for both the consumer and the business, in the long run.

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  • Made a small update for typographical reasons. 

  • Anonymous

    Scott – Not sure how I missed this when you first published. Thanks for the link and the great additional thoughts and comments.

    Gary

  • Taj Grewal

    Scott- I’ll add this to support your point…

    “You may shear a sheep many times, but you can only skin him once”