The design of options

Photo by Toa Heftiba on Unsplash

The business of selling premium options can be tricky. The basic premise is that the buyer of those options is afforded special treatment, mostly having to do with improving the quality of their outcomes and experiences. It works because societies and its members are risk averse, as Daniel Kahneman and Amos Tversky have illustrated with their prospect theory. However, what if things don’t turn out to be that bad? Or, what if despite the insurance against needless aggravation, there is aggravation? Then the premium one has paid for turns out to be a loss.

The air travel provides us with a few useful examples. The option to zip through airport security using a fast lane. What if the airport isn’t busy at all at that hour? We pay more to depart within a certain time slot, sooner or later than a cheaper flight. But then the flight is delayed, arriving at the destination around the same time as a cheaper alternative. Is that option to board the flight before others really worth buying? The flight won’t depart until everyone has boarded.

Not everyone is a frequent flyer or an aviation geek (as I am), so they won’t know to first check on SeatGuru.com which aircraft the airline will be flying them on. They may pay for a seat upgrade without any idea of the actual configuration. Even the airline cannot always be sure which aircraft they will fly, subject to the vagaries of flight operations.

No worries, because you are flying on Southwest Airlines. Their entire fleet is of the Boeing 737 family of aircraft. You will always know what you’re getting into. Plus Southwest does not insist you pick a seat in advance and stick to it. You can purchase the option of picking where you want to sit after boarding and also not worrying about stowage for your carryon bags — that coveted space that sometimes leads to alterations.

EarlyBird Check-In is a low-cost option giving you the convenience of automatic check-in before our traditional 24-hour check-in. You’ll have the benefit of an earlier boarding position. As an EarlyBird Check-In Customer, you will have a better opportunity to select your preferred available seat and have earlier access to overhead bin storage for your carryon luggage. ~ Southwest Airlines

So you board early, see what is available, and situate yourself away from the window or the aisle, based on your preferences. If the airline has put enough thinking into its designs, you will most likely get what you paid for. In general, service providers design their services to maximize net value for their customers, subject to the constraints of outcomes, experiences, and price. It is a non-linear optimization problem.

But even the best airlines provide public transportation. That means you don’t get to choose who else should be on that flight (let’s not go there), how much they choose to pay, and therefore where they get to sit. If you do, then you are on a private jet. Besides, be happy there are many others who have the same idea about flying at the same time on the same day. If airlines don’t make enough money over time, they discontinue the service.

The boarding continues. The early birds have caught their worms. The rest of the passengers survey their limited options. They aren’t many, so one of them occupies the seat next to you. Then it happens. The sheer expanse of their human self, causes the net value of your prepaid option to dramatically contract.

Surely the early bird option isn’t just about having the privilege to pick a seat as if people are driven purely by self-conceit. It is also a matter of personal comfort, especially on long flights. Those who pay for the option are justifiably upset to see its value diminishes all of a sudden. When seats are assigned, having an empty seat next to you feels like a gain. When you pay to pick any seat you want, finding that seat more than occupied, feels like a veritable loss.

Nobody is at fault here. We can optimize designs only to an extent beyond which they becomes entirely different designs. Some problems are simply difficult to solve. Unless airlines start weighing passengers during the check-in process, such situations are likely to happen. Doing so would be onerous, outrageous, and unethical. Thus are some of the challenges of human-centered design.

The more human-centered the design is, the greater the ethical considerations. Airlines need to make money. Many of their flights hardly make any. Price comparison sites like Priceline, Kayak, and Skyscanner have made it convenient to find cheaper fares. Low-fare airlines have forced legacy carriers to offer the basic economy fare. Most people aren’t above paying for exclusivity based on the packaging of privilege and the merchandizing of pain.

Services are sets of promises.

Promises of performances and affordances. Everybody on that flight will enjoy the same performance — modification of their physical coordinates from one set to another, within a certain timeframe. But they will not enjoy the same affordances — due to the differences across the seat map. Since the airline is profiting from price discrimination, they should factor in the probability of failing to keep the promises, into the designs of the performances and affordances.

Designs are closer to perfect when they incorporate the handling of exceptions. If a person has paid extra for the privilege to pick a seat, which they are then forced to give up, then they should be given a refund without having ask for it. Designs should fully leverage the power of human intelligence. Airlines should give flight attendants the discretionary authority to initiate the process.

TCU

The total cost of utilization (TCU) is the idea that customers pay over and above the price of the service.  To make use of the service, they may incur other expenses or suffer hidden fees and penalties. Or, they pay in terms of the additional time and effort for enrolling or signing up for the service, using it, and making the sure promises are kept.

Some services require costly installations, including changes that need to be made to things customers own. Others require additional purchases, such as Internet broadband to use Netflix, or taxis and train tickets to airports from where low-fare airlines fly. Airlines fares include significant amounts of taxes and fees. Some services require customers to allow access to their personal date, as part of the end user agreement.

When a service is poorly functioning at degraded service levels, customers may suffer a loss of benefits from downtime and disruption for which they may not be compensated. Worse, they have to resort to temporary solutions or alternatives to get by. Enforcement costs, which include getting help and assistance to fix service disruptions are costly for customers as well, and poorly designed recovery processes place an undue burden on customers.

All of these costs add up. For a given price, the TCU is the ratio of price and quality of experience. The TCU is high when the quality of experience is low. It is low when the quality of experience is high. When their TCU is high, services become less attractive because of a lower net value. When the costs are low, service offerings become more attractive.

When transaction costs are high, they eat into the benefits. The totality of these costs has the effect of reducing perceived benefits, and driving down the willingness of customers to pay for and use a service. So, the ability of a service provider isn’t just about having capabilities and resources, but also deploying them in a manner that does not erode net value.

Higher levels of quality assurance can also reduce unnecessary and unexpected costs. Goodwill and trust of service providers, in the form of discounts and rewards, can also reduce the TCU. For a fixed quality of outcomes, any reduction in TCU results in an economic surplus (also known as consumer surplus) that in turn generates goodwill and trust towards the service provider, thus completing the feedback loop.

The meaning of services

Photo by Jon Tyson on Unsplash

To understand something is not to be able to define it or describe it. Instead, taking something that we think we already know and making it unknown thrills us afresh with its reality and deepens our understanding of it. ~ Kenya Hara

This applies to the notion of ‘service’ – a widely used word that have so many meanings, many of them quite narrow. I recently gave a PechaKucha talk in Brussels. My aim was to broaden the meaning and thus deepen it. Twenty images in twenty seconds. Here I have posted the images with additional commentary.

Most of us may not recognize this handsome young man, minus his mustache, make up, and costume. Similarly, minus the folksy framing and dandy definitions i.e. consulting jargon, descriptions of services are unrecognizable.

This is where Kenya Hara’s advice of making it unknown is useful. Gaining a deeper understanding of what services are, what they can be, and why they even exist, helps us understand why they often fail in the most unexpected ways, despite efforts to design them well. That is Charlie Chaplin in that picture, by the way.

It is axiomatic that the eye sees only what the mind prepares it to see. The hunter sees the rabbit, the birdwatcher the bird, and too may tourists see only the motels and gas stations.” ~ George Carter, Johns Hopkins University, writing in the @baltimoresun
in 1963

In the previous picture what do you see is happening? What do you first notice. What service first comes to mind? Do you first notice passengers boarding their flight? Or do you first notice the airport ground services preparing the aircraft for a timely departure?

When we say #servicedesign is all encompassing, holistic and “end-to-end”, what do we fail to see? Without ground services, the passenger boarding process is an exercise in futility. Think of all those cases of delays on the tarmac. In many services, the airlines are the customers. Pilots and cabin crew are the users. Next: Coinciding coordinates and coordinated coincidences.

There is a lot of asphalt in the world. But only one stretch matters to the pilots during the final approach. Airlines pay a lot of money for time slots at busy airports, when and where hundreds of people want to fly.

Runways are perhaps the most expensive real estate in the world. Aircraft get to stay for barely a minute during take-off, a little longer during landing. Airports are the hosts.

Airlines promise on-time performance. This @Boeing 777-200 moves over 300 passengers at a time over 5000 miles. Passengers pay for seats that safely move through time and space — in arcs of controlled movement that connect time slots through controlled airspace a.k.a. the route.

The same aircraft deployed on a different route creates a different affordance, again between two time slots. Think of an airline’s route map and schedule as their portfolio of promises. Promises of on-time affordance. That’s what passengers pay for. Services are sets of performances and affordances. The airline industry’s core metric of available seat miles (ASM) captures this duality. Revenue/ASM and Cost/ASM make or break an airline’s strategy. This is also #servicedesign although not commonly seen that way.

An Air Force C-130J Super Hercules assigned to the 36th Airlift Squadron flies over Yokota Air Base, Japan, Jan. 8, 2019 during a training mission. C-130Js assigned to the 36th AS regularly conducts training missions to remain proficient in necessary skills to support any contingency. (U.S. Air Force photo by Yasuo Osakabe)

Designs of performances and affordances are in harmony with the artifacts and events that create the need for the service. This C-130J Super Hercules flying past Mt Fuji can transport troops and equipment to hot spots and through hostile environments. In Japan though, it is in friendly airspace. It can take-off and land from USAF bases. Thus in the business of military transport, treaties, leases, and diplomatic relations are part of the design. Parts that have to put in place ahead of time. Can’t “move fast and break things”.

Here we see a fighter jet covering Chicago with a security blanket after a terrorist attack in New York. It wasn’t clear at the time if other attacks are imminent. People on the ground had to feel safe. Performance in the air, affordance on the ground.

Also an example of taxpayer-funded services producing pure public goods — namely, safety, security, and sense of calm — that are non-rivalrous and non-excludable i.e., enjoyed by all, the homeless and the billionaires, those who are for tax cuts and against.

A demonstrator protesting the shooting death of Alton Sterling is detained by law enforcement near the headquarters of the Baton Rouge Police Department in Baton Rouge, Louisiana, U.S. July 9, 2016. REUTERS/Jonathan Bachman

The police arresting a protester in Baton Rouge. Who is using this service? Who are the customers? Are they happy with the outcomes? Are the users happy with their experiences? If not, what are the policies for cancellations and refunds?

The beauty of the ballot. It converts opinions into votes — counting towards totals that peacefully transfer power, or make nations lurch towards an exit. The simplest of designs can have the greatest of impacts. The greater the impact, the simpler the design should be.

People can expression their political opinions any which they want on any forum. But when they do so on the ballot paper, a special material called public confidence converts their opinions into votes. And only when those votes are captured in a ballot box supervised by officials, do they count towards the totals that bring parties into power or keep them there.

Services are built-environments acting on the physical world to address human needs, conducive to demand meeting supply. Needs and anti-needs. Demand and supply provoke each other. Do meetings cause rooms, or rooms cause meetings?

Empty chairs in empty rooms do not make economic sense. Not for long. Who owns and operates these built-environments within which demand meets supply? Who bears the risk that the meetings may not happen? The answer to these questions determines where or not they are part of a service.

Services are guilt-environments acting on the spiritual world to address human needs, conducive to the Man meeting the suppliant.

Joking apart, Sunday services spark joy, helping people get rid of the clutter in their lives, to make room for what is important. Faith-based and religious organizations offer another valuable service: Convert goodwill and trust into food, shelter, and clothing for the needy. Disaster recovery for dignity. #GodFundMe

Every saved soul needs to eat. This vault holds over 14 million seed samples, to protect biodiversity in the case of a cataclysmic event. The greater the impact, the simpler the design should be. Thus the affordances of the Norwegian permafrost. Cheap and reliable cooling.

Irony defeats design. Global warming causes Arctic temperatures to rise. The melting and heavy rain send water into the tunnel entrance. While no seeds were lost, this brings into focus the need for systems thinking and designs to have greater foresight.

Closer to civilization. Infrastructures services we often take for granted. Roads, power grids, and pipes supplying water and gas, and those removing sewage. The designs of markets, economic policies, and incentives shape the designs of services of such services.

The way our societies have evolved, not a single day goes by without paying for or making use of services. Infrastructures services by definition are below the surface. They support economic activity, lifestyles, and cultures. They aren’t designed so much for individuals as for populations.

Grocery stores are content delivery networks. Based on past purchases, they know what you’ll most likely need next, fetch it from suppliers, and put it within easy reach. If it isn’t on your kitchen shelf, your hand extends through the wall, across the streets and there it is!

It’s as if you and your neighbors have a shared off-site storage to hold excess inventory, from which you can claim items as and when the need arises. They’re yours! Private stocks on public shelves. The store charges fees for stocking and claims processing.

Waste removal services do the opposite — they supply empty space. There isn’t enough emptiness in our lives. There is a constant need for it. So we subscribe to drop boxes, recycle bins, and shredders, from which we are happy when things disappear.

Services supply goods. They also remove ‘bads’. Less is more. Removing waste of all kinds recovers the capacities and restores the conditions of valuable assets such as living and working spaces. Excessive consumption leading to waste, is of course an unintended consequence.

ATMs are loaded with cash and exposed to the elements, for when you feel emptiness in your wallet. For your convenience, they keep them stacked at thousands of locations, not knowing where you may need to make a withdrawal next.

Often, your bank balance is useless if it is isn’t in the form of currency notes. But do you want carry those around until you really need them? Cash withdrawals convert a portion of your balance (performance) and makes it available in various denominations (affordance). #teletransportation

A technician will carefully wrap antenna coils around this little cutie to capture subatomic vibrations caused by extremely powerful magnets, in tissues within the dermatomes her doctor specifies. The outcome is an MRI scan that provides insight into a health condition.

It is a frightful experience to be made as short as possible. The means to an end. No matter how much we improve the experience we’re not going to put this baby through it if not for the outcome of insight into her health. Experience, we go through. Outcomes, we get. MRI scans of 6-12- month-old infants at high-risk of autism were able to predict a diagnosis at 24 months of age or later.

Outcomes are what you pay for. Experience is what you pay with. A choice of freshly brewed beverages, seven days a week, from 8m to 3pm, etc, define the quality of outcomes. Truck! Right outside. No walking. No waiting. Pay by phone, etc. define the quality of experience.

Better experience means fewer burdens and therefore paying less over and above the price, in terms of physical or emotional effort. The ratio of price and quality of experience is the total cost of utilization or TCU. We can also understand this with low-fare airlines.

Design is geographic. A single system covering millions of miles, reaching every corner, including every part of small town and rural America. The US Postal Services delivers letters and packages for a very low fee no matter where.

This is why you should never compare the quality or the cost of similar services offered in smaller geographies like Dubai, Denmark, or Estonia, to those in the US, India, or China. It is illogical. Not just economics. Also physics.

So you see, so many kinds of services, with so many different shapes and sizes. Which is why we have to careful in using words like holistic and end-to-end when talking about their designs. We have to use our imaginations to see services for what they truly are and can be.

The ‘Cosmic Thing’ by Damian Ortega is, both, a work of art and a technical concept that everyone in manufacturing understands — from product designers and industrial engineers to cost accountants and purchasing officers. It is a ‘bill of materials’ explosion.

It is important for designs to show how everything fits together to form “a whole that is other than the sum of its parts”, allows us to create products that achieve “a condition of harmonious, orderly interactions”. Yes, designers are systems thinkers by design.

It’s possible to similarly see the designs of services. It does require a leap of imagination. Every service no matter what kind, that ever was or will be, has exactly 32 parts (2^5) that interact with each other harmoniously to produce outcomes and experiences.

Think about it. Read about it.