"(T)o say that the individual is culturally constituted has become a truism. . . . We assume, almost without question, that a self belongs to a specific cultural world much as it speaks a native language." James Clifford
Showing posts with label business model. Show all posts
Showing posts with label business model. Show all posts

Tuesday, August 4, 2015

The Natural Wealth Model of the Modern Corporation: A Basis for Sustainable Organization

Going to the Humanities to construct a sustainable organization based on ecological theory, this essay presents a theory of the firm that is at odds with the profit-maximization premise. I draw on the notion of the natural wealth of the Golden Age as depicted by such ancient Western poets as Ovid and Hesiod—who assumed such wealth to be devoid of greed—as a basis for sustainable organization from ecological theory to produce an alternative theory of the firm.



Thursday, June 12, 2014

Trading Egalitarian Reputational Capital For First-Class Business: JetBlue Airline

It may sound trite, but managers really do compromise or expunge their company’s reputational capital altogether in order to chase down the additional revenue obtainable from a market segment that had been extraneous to the reputation. If the new advertisements have a Janus-like duplicitousness air, the source is not likely even to admit to the previously long-held principles. Indeed, the contrivance can be discerned from the way in which artful managers use words themselves—stretching them for an intended effect well past their respective meanings and customary usages. Unfortunately, the made-up diction can be contagious in a society that esteems organizational position.

I have in mind Jet Blue’s switch from its egalitarian single-class cabins to the first/coach bifurcated model. Left in the jet-wash is the company’s long-standing principle of egalitarianism, lost in the anticipation of more revenue from business travelers. Jami Counter at a website that includes reviews of airlines suggests that Jet Blue would no longer be “challenged winning their fair share of corporate and business contracts because they didn’t have a true premium experience.”[1] What, pray tell, is a premium experience? How does a true one differ from the mere garden-variety? In the case of JetBlue, the benefits to the business traveler include “the longest, widest flatbed seats” on any route within the U.S., and four “suites”—single-seat “pods” with their own doors.[2] The latter reminds me of the forts my elementary school friends and I used to make in the woods behind the school; each of us would pick a bush and use its base to build a tiny enclosed “fort.” It would seem that adult business travelers have the same instinct.

In any case, we don’t have to look far to see where verbal garbage like “a true premium experience” comes from. Perhaps the experience-warping complimentary “signature drink” before take-off and a “cocktail” before dinner might render experience itself transparent, such that the airline could indeed market “experience” itself. All the same, I would be more interested in the 100 channels on the seat’s 15-inch screen, and whether I could plug my laptop into it as I sit in my little fort as the elongated tin can careens forward at 30,000 feet at 500 miles an hour.

Jamie Perry, the airline’s director of product development, delivered a line as if on cue that the novelty would not be limited to the “Mint,” or first-class” experience; an “effort to reinvent the core cabin”[3]—where “core” is a cover for coach—boils down to bigger seats, power-outlets at each one, and up to 100 channels of television undoubtedly to placate perturbed pre-existing customers accustomed to flying egalitarian. Perry's linguistic over-reach—the larger seats and additional plugs hardly constituting an invention in any sense of the word (and reinvention being an oxymoron, like rebeginning)—points to a certain round-aboutness that is anything but up-front and transparent. 

Behind the "reinvented cabin" is a manufactured shift from the longstanding egalitarian premise to that of all boats rising—just not to the same level. The lack of equivalence is precisely what the fuzzy word-play is meant to blur. That is to say, the crafty wordplay—“core” for coach and “premium experience” for first-class service—dovetails with the wily switch from the long-held principle to one that allows for broader revenue streams. 

I disagree with Counter’s contention that JetBlue did not change its business model in the process; in fact, I would say that the first-class/coach standard fare deprives the airline of the more distinctive model, and thus of the associated reputational capital. To be sure, Counter does acknowledge that the change “could alienate the loyal JetBlue flier who now has to walk past (five) rows of a very premium experience.”[4] There we go again! How exactly does a person walk past an experience? Does a person say, “Hey, guess what—yesterday I was out doing errands and I drove right past an experience!” The response is likely to be, “Time for your medication again, dear.”

In actuality, the coach passengers are to walk past rows of more spacious seating arrangements and larger television screens. Putting the matter thusly, rather than artfully and without concrete substance, makes the cost to the airline’s reputational capital transparent—especially with respect to the loyal (i.e., long-standing) passengers who will of course instantly notice the unpalatable change. Such passengers need only look over at Southwest Airline, whose approach to attracting more business passengers was to expand to big-city airports and offer “business select” priority boarding, a free drink, and extra frequent-flier miles rather than introducing a separate class of seating.[5] That is to say, Jetblue managers could have went with alternatives to the old first-class/coach model. The principles that a company supposedly “stands for” are indeed expendable, particularly when they grind up against an untapped source of revenue.



1. Charisse Jones, “Egalitarian JetBlue Tries Out First Class,” USA Today, June 12, 2014.
2. Ibid.
3. Ibid.
4. Ibid.
5. Ben Mutzabaugh, “Southwest Finds Itself at a Crossroads,” USA Today, June 30, 2014.

Friday, June 17, 2011

Long Term Capital Management: An Institutional Conflict of Interest

By 1997, “after three years of strong profits for LTCM, the opportunities were drying up. There was too much money chasing the same investments. . . . In early 1998, LTMC decided to give a large portion of its capital back to its original investors because profitable opportunities were so hard to find. At the end of 1997, LTCM had nearly $7.5 billion under management, compared to $1 billion when it started, and it now returned $2.7 billion of that to investors. The partners also figured that they could, if necessary, simply leverage their portfolio further to compensate for the loss of capital, which would compound their personal gains. Greed was at the heart of what turned out to be a disastrous decision. . . . Unable to reproduce the returns of the first three years, LTCM took increasingly more risk, abandoning its purer arbitrage for the kinds of ‘directional’ investments Soros made and LTCM had so long disdained—such as trying to forecast interest rate and currency movements. More and more of these trades were unhedged.”[1] Furthermore, “LTCM’s risk models—VAR and related statistical tools . . . –were misleading.”[2] For example, diversification was little protection if there was a run on the banks. When Russia defaulted on August 17, 1997, LTCM’s hedges against its Russian investments were worthless. Furthermore, because all fixed income assets fell sharply in value, “diversification, it turned out, did not matter. The finely calculated relationships on which LTCM was built and which the firm always believed would hold started to come apart. VAR could  not account for such an unlikely but sweeping event—an event in which everyone wanted out at the same time and almost all investments fell significantly in price. The use of VAR itself precipitated much of the selling. Commercial banks under the jurisdiction of the Basel Agreements, which . . . set capital requirements based on the level of VAR (the lower the VAR, the lower the capital required), were forced to sell assets to raise capital.”[3] LTCM lost $1.9 billion that August. Eventually, fourteen banks, organized by the Fed, put together loans of more than $3.5 billion to purchase 90 percent of the firm.” LTCM “did manage to sell down assets in an orderly fashion and by early 2000 it was essentially out of business”[4] 


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

1. Jeff Madrick, Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present (New York: Alfred A. Knoff, 2011), 277-81.
2. Ibid.
3. Ibid.
4. Ibid.