My lost luggage and the global paradigm shift from efficiency to efficacy.

Or the what happens when you outsource your brand.

For the past several years, I’ve been forecasting a paradigm shift in business practices from extreme efficiency (globalized supply chains, asset light business models, just-in-time everything, financialization of the capital markets) to much greater efficacy (more vertical integration, more control over supply and distribution chains, resulting in greater resiliency, all at the cost of some operating margin). So far, the argument has fallen on deaf ears. In fact, the opposite is true. Most companies continue to outsource core and non-core competencies and focus on maximizing their financials, not their value chain.

On a recent trip to Europe, I had the opportunity to be proven wrong, yet again. This particular instance highlighted for me how much the outsource-everything model, while allowing a much greater range of goods and services, also creates brand risk for consumer-facing companies. Clearly, the brand risk has been worth it, as the branded companies understand and manage the trade off between extending their reach and managing their brand quality. But I expect that the pendulum will shift back more in the direction of greater control over outsourced services and even modestly more vertical integration in the years to come.

I’m a very frequent flyer on Delta Airlines. I prefer Delta because I feel I am treated well and they fly where I want to go. And I believe, perhaps naively, that the Delta employees I encounter actually care about providing excellent customer service. In this instance, I was traveling to one of Delta’s seasonal destinations in Northern Europe. As you probably know or could guess, the three major US carriers use their swing capacity—often older, long-haul aircraft—to fly East-West during the summer and North-South during the winter. The swing practice benefits travelers, by offering additional travel options where and when they want to go, and the airlines, by using capacity that would otherwise be mis-allocated or just unused.

The problem is the value chain in this arrangement. As the city I flew into is a limited-service destination (three flights daily in the summer, one daily-ish in the winter), Delta has few employees on the ground, just two in the back office. Everything else is naturally and appropriately outsourced. Were it not, no service could exist at all. That is the nature of modern air travel. Even at its home base of Hartsfield International in Atlanta, far from everyone serving Delta customers is a Delta W-2 employee. Indeed, most non-consumer facing services are outsourced. But at a remote destination, there are even fewer (if any) direct, fully accountable Delta personnel on the ground to serve the customers or to keep an eye on the outsourced vendors.

That’s the chink in the brand armor. Those vendors just don’t have the same interest in supporting Delta’s brand and customer experience. That weak link only becomes apparent when something goes wrong, like when a piece of luggage doesn’t show up on the belt. Although the Delta app showed the luggage from our flight being delivered to the correct carousel shortly after landing, it just wasn’t there. Delta’s baggage handler at this particular airport is …. well, let’s call them the We Just Don’t Care! company, or WJDC! for short. A privately held enterprise, WJDC! services numerous airlines at this airport and hundreds of others around the world. Like most service businesses nowadays, WJDC! is probably short staffed. That might explain why no one was at the luggage service office in the baggage claims area.  Instead, a piece of paper taped to the window directed passengers with lost luggage to scan a QR code with their phone to fill out a search form.  But it turns out that the app is not set up for Delta customers. So the customer tries to use the app, without success and without an alternative. Why doesn’t the app work? I don’t know. Perhaps because it is just not worth WJDC!’s time to integrate Delta’s mostly seasonal operation into their computer systems? If that is the case, why wasn’t there an alternative reporting mechanism taped to the window? Who knows? WJDC! has a contract with the airline by which the baggage handler gets paid whether a customer is satisfied or not.

So the question becomes, to what extent does Delta invest in making sure their customers get the Delta experience from non-Delta vendors? In our day and age, branded, consumer-facing companies are necessarily at the mercy of the outsourced non-branded contractors. While that is largely unavoidable in a complex business, what do corporations do to “back up” the brand when things go wrong?  How much do they spend keeping an eye on the contractors and the outsourced vendors?

Leaving the baggage claim area, we went searching for help. The security officer meeting the long-line at the Delta check-in counter indicated that the staff there were not actually Delta and could not help. They also work for WJDC!. He pointed us to WJDC!’s customer service counter. There stood another long-line of individuals wanting to report lost luggage, and presumably unable to use the app. When we got to the head of that line, the single, blasé employee gave us a form to fill out by hand. He indicated that the information would be entered into the computer and that they would get in touch when they found the luggage “in the warehouse.” He warned us that there is a lot there and could take some time…

Dispirited, we left the airport and went to our hotel. But a few hours later, we decided to come back. We were convinced the luggage had arrived with us and was behind the wall. There was no other reasonable explanation. Initially, the same WJDC! employee just shrugged his shoulders and indicated that there was nothing he could do. Though he worked directly for the baggage handling agent, he could not go back or send anyone back to the baggage area.

Then a miracle happened. A Delta-pinned WJDC! employee came up to the desk on his break. We pleaded with him to go back and take a look; we were certain our bag was there. He agreed, and 20 minutes later, we had our luggage. It had just fallen off the carousel and remained on the ground by it. In the understaffed WJDC! operation, it had not been caught, but our fellow found it.

It’s not reasonable to expect Delta to staff fully a seasonal, low-frequency destination. It is reasonable to ask Delta and all other corporations whether they have the right checks and balances in place to manage their brands, their efficacy, their resilience (rather than the prior focus on just efficiency.) with so much of their value chains outsourced.  My suspicion is that the answer is no and that incremental efficacy efforts will be required in the years ahead. Investors should welcome that incremental spending. In the end, it buttresses the brand and the value of the business.

(Image from the website.)