by Terrie Ellerbee/associate editor
As the founder and former CEO of Travelocity, Terry Jones knows about disruptive businesses. The travel industry is forever changed. Travelocity changed how the product, in this case travel, is priced—the cost is down, he said, about 20 percent since 1996—and it changed distribution costs with the elimination of airline commissions. It dramatically changed market share, allowing smaller carriers like Jet Blue and Southwest to compete with the larger players. It also put 18,000 travel agents out of work.
Jones lived in Dallas 20 years ago, and was in The Big D again May 1 to talk with FMI 2012 attendees about innovation, success and keeping up with change.
“I’m here because I represent an industry that has been through wrenching change,” Jones said. “Innovation is about putting ideas to work. There’s the thinker and there’s the doer. We have to ‘do’ because we live in a world that’s going to change even more.”
Along the way, he explained how the “dopeler (not Doppler, dope-ler) effect” and “bozone layer” hinder innovation. He defined the dopeler effect as the tendency of stupid ideas to seem smarter when they come rapidly, and he used failures like webvan and pets.com as examples. In a two-year period during the dotcom bubble of the late 1990s, more than 500 dotcoms died.
They failed, Jones said, because those businesses didn’t learn to take the one-to-one buyer-to-seller relationship online.
“That turned out to be a lot harder than anyone ever thought,” he said. “And yet today e-commerce is bigger than ever, bigger than it was in the bubble, bigger than it is supposed to be now.”
He said the timing has to do with the way technique follows technology. It isn’t always clear where technology will go.
“Alexander Graham Bell thought the telephone would be a tool for the deaf,” Jones said. “Edison thought the phonograph would be a dictation machine. They didn’t know exactly how their inventions would be used.”
People are getting the technique down now—more than 80 percent of homebuyers search first online and 60 percent of Americans bank online, he said.
“We’re changing, too,” he said. “We are wired. We have little time. We want to click and go. We buy food at gas stations. We take pictures with telephones. We eat meals in the car. We buy lettuce in bags—and you know better than anyone else why we buy lettuce in bags. It’s more convenient.
“Even our Windex multi-tasks,” he said. “We take out laptops on vacation and we shop in our pajamas,” and thanks to smart phones and other devices, “you are never, ever ‘out’ anymore.”
The balance of power has shifted to the buyer. Geographic barriers have been eliminated. Price information is everywhere and buyer experiences are shared. With the buyer so empowered, shirt circuits are occurring in traditional distribution.
Jones talked about his career as a travel agent, when customers would call him and he would call the airline. The short circuit is that people no longer go to travel agents. They go directly to the airline.
“Your bookstore, your electronics store, your video store—bankrupt, out of business or dramatically reducing their footprint,” he said. “We’re living in a time of dramatic and very fast change, and we have to keep up with it, because as Gen. Eric Shinseki (retired Chief of Staff, U.S. Army), said, ‘If you don’t like change, you’re going to like irrelevance even less.’”
But, he said, opportunities lie where old models are crumbling.
“We have to realize that in this world, customers are internet empowered, tech savvy, time starved, information rich. That’s a new customer. Innovation is the way to keep up. So let’s define innovation. Creativity is thinking up new things. Innovation is about doing new things, putting ideas to work.”
He gave attendees a couple of ideas for gaining success, including where good ideas start.
“It used to start at the top because the top had all the information,” Jones said.
Big ideas can come from the top, he said. It was a senior vice president at American Airlines who came up with the idea for the very first airline mileage rewards program, AAdvantage. He remembered sitting at the table licking Green Stamps and putting them in the book, and how loyal that program made his mother to her grocery store.
A lot of the information used to flow to the top but, today, ideas can come from anywhere on the corporate pyramid because information now moves in all directions.
The idea of paging someone if their flight is late came from a customer service representative at Travelocity. A programmer came up with the idea of sending an email to a customer when the price of a flight drops on a desired route.
“If you are going to deal with bottom-up innovation, you as a leader have to deal with the ‘bozone layer.’ The bozone layer is the impenetrable layer of middle management that stops bright ideas from moving upward.”
Innovation isn’t the Olympics, when you train from childhood for one shot, Jones said. It’s baseball. You get lots of chances, and “if you fail 70 percent of the time, you’re actually quite good.”
And failure isn’t fatal, he said, quoting Mike Ditka.
“You have to build a culture where you can experiment,” he said. “Don’t write ‘We will never change’ in the concrete outside your building. Write ‘we experiment’ in the sand and let the water come wash it away, and write it again, and experiment again. And fail fast. Don’t wait for the train wreck.”
It is OK to keep tweaking, he said. At Amazon, Jeff Bezos tried auctions, but it didn’t work. Amazon tried stores and that didn’t work. Bezos decided to play to Amazon’s strengths. Amazon was a community of book lovers, so he decided to sell used books.
“What a radical idea,” Jones said. “Who else sells new and used together, except maybe car dealers?”
Selecting a team is exceptionally important, Jones said. But this new world requires old world knowledge mixed with youthful exuberance. Innovation comes from many different points of view.
He said at Travelocity there were a lot of young people with a lot of zeal.
“They thought the industry was broken and only they could fix it, but they didn’t have any industry knowledge,” Jones said.
Meanwhile, the “suits,” he said “moved at a slow pace, but they had industry knowledge. He said when they put the two generations together, “they fought like cats in a bag.
“But out of that crucible came some really good ideas,” he said. “Of course we have to teach the old dogs new tricks, but we have to teach the new dogs the old tricks anyway.”
He also encouraged hiring people who don’t fit in. He said a lot of people wouldn’t hire Bill Gates because he’s “a little odd.”
But one person can make all the difference. He said a “persistent guy at Expedia” kept talking about the need to create air, car and hotel packages that people could discount themselves.
“Expedia, after a year of listening to that one man, doubled their sales in two quarters, and passed Travelocity like we were stopped,” Jones aid. “Travelocity never caught them. One person can make a difference.”
He also suggested keeping teams small. At Amazon, they have the two-pizza rules. If it takes more than that to feed a team, the team is too big, Jones said. Big teams spend all their time talking to each other instead of creating good ideas.
It is also important to have “sentries,” he said, people who listen to what’s happening. At Travelocity, there was a British phone booth and on the line was customer service. Everybody in the company had to listen to two customer calls per month and then discuss two things at staff meetings: 1. How do we fix the company so that people don’t have to call us with questions? 2. In the meantime, how do we give the help desk better answers?
One thing they did was to “give the pain to the people who caused the pain,” he said. So when there were problems at Travelocity, customer emails went to the programmers.
“It works. They fixed the bugs because they don’t want to hear from customers again,” he said. “It involved them with the customers.”
Innovation isn’t rocket science, Jones said. And sometimes it only affects one aspect of a business model. Consider contact lenses, which are still bought from an ophthalmologist, he said.
“You don’t have to change everything to create a very, very large company,” he said.
When there is a big idea, Jones suggests that the people who decide whether to implement it or not be in a different department than the ones who will actually have to do it. A mechanic came up with the idea of the jetway, which today keeps airline customers dry and warm as they go to board an airplane. But the maintenance department rejected the idea. Marketing and operations, on the other hand, thought it was great. Now everyone has them.
Jones talked about businesses large and small, and the differences between them. Travelocity, he said, was like a “victory of the Lilliputians … those little guys who tied down Gulliver because they moved so very fast. If you’re a big guy, look out.”
That brought Jones to talk about Walmart, the No. 1 retailer, which he compared to Amazon.com, which was the 19th largest retailer two years ago, and last year moved up to 10th place. Walmart leads in sales, but Amazon has more than four times as many e-sales. Walmart has approximately 200 million customers each week; Amazon.com has 137 million. Amazon.com is the No. 1 retail brand, and grew by 40 percent last year. Walmart is No. 2 and its growth in the U.S. is flat.
Jones’ last point was to do more with less. That’s the slogan at his new business, kayak.com, which resulted from a dinner between the retired presidents of Orbitz, Travelocity and Expedia. They found that customers would shop on their sites, but then buy on sites like United Airlines, Marriott and Hilton. Kayak allows a user to search everything, but when they click it’s a direct link.
Kayak.com now has as many visitors as Travelocity, but it only has 160 employees and no customer service department. In contract, Travelocity employs 3,000 people, grew through traditional branding, and has a big customer service department.
Jones is optimistic about the future, and believes the digital revolution has only just begun.
“It was Ronald Reagan who said, ‘We’ve come to the edge of our known world. We’re standing on the shores of the infinite.’ That’s where I think we are right now. We’re 15 years into the digital revolution. There’s more excitement today. There’s so much to do.”