Economics has never been my strong point. In fact, anything mathematical leaves me without clues. I was once asked to do a job at the CIA that essentially amounted to editing the work of economists, and it was the one job I felt most insecure in doing. (Although I soon learned that most economists, like most–but not all–deep or single-threaded experts, need help in putting things in perspective and in understanding the noneconomic consequences of their findings.)
But it has struck me this week that there is an unhealthy trend manifesting itself in American companies that does not bode well for the vibrancy of the US economy. It is the explosion in using fees to bolster profitability, rather than doing things to make money the old-fashioned way, by earning it through increased productivity, efficiencies, and innovations.
This hit me quite personally yesterday when I went online to buy tickets for a Nationals game this weekend. As I started to check out, I realized I was being charged almost $15 in fees for the transaction, including a ridiculous, I believe it was $1.75 fee, to print the tickets using my own equipment at home. What is this I thought?! I’m being charged almost 15% in fees for online transactions that, by the way, have miniscule marginal costs. I immediately cancelled the transaction, and, as I was subwaying downtown anyway for a meeting, just wandered by the stadium and got my tickets there at face value.
But if you’re paying attention, you know that it’s not just baseball teams that are garnering additional revenues through the imaginative use of fees. Credit card companies were really champion performers here at least until recent legislation passed aimed at tempering them. Airlines, of course, are on a fee rampage. They made $8 billion dollars in revenues last year from fees. I couldn’t easily find an overall revenue number to compare that to, but for at least one airline the income from fees accounted for 20% of their total revenues. (By the way, we really need to get on the media for so often not providing context for the numbers they use. That is just sloppy journalism and analysis. We are often told that X activity is going to cost [insert here some really scary number], but are rarely told what percentage that number represents of total revenues or expenses. This is not an insignificant issue, because it is this very lack of context that obfuscates the real meaning of most developments. But I digress…)
And if you want to read about a really hideous example of using fees diabolically, read this story about the beloved owner of the Washington Redskins, Dan Snyder. It just sickens you.
And it also points out the real problem with American companies getting on the fees bandwagon. You’ll notice in the article that the company Dan Snyder was running, Six Flags, went bankrupt anyway despite its excessive use of fees. Companies seem to be using fees in lieu of other and much healthier ways of increasing revenues, such as through greater efficiency or innovation. As managers and leaders, we need to rise to the challenge of doing our missions better and not sink to employing clever machinations to compensate for substandard results.
You may not think as a manager of a small group, for example, that you collect fees rather than fix and innovate. But you may very well collect fees, they are just not monetary. Every time you impose some new control step in your process to guard against a recurring error committed by some, for example, you are collecting a fee and avoiding dealing with root causes of undesirable performance. Managing by rule-making is essentially managing through non-monetary fees. And just as reliance on fees threatens to stifle innovation in American companies, managing through rules does the same for any small group effort.
Your analysis did a much better job of putting Snyder & his ilk in context (and, ultimately one might hope, in their place) than my own F/B venting.