Mayor Mike Bloomberg’s plan for New York City with hurricane Irene bearing down on the Big Apple was to evacuate residents and force businesses to close in low-lying areas. Move in with friends and relatives on higher ground and stay out of the way so government’s first responders handle real emergencies was his message. The result, as one of my friends who lives in Manhattan wondered,”they closed down the city because of a rainstorm?”
Meanwhile as Irene ravaged the eastern seaboard, causing millions to be without power, the eatery of last resort, Waffle House, kept its doors open in many locations using generators and serving a limited menu designed specifically for emergency situations. “Hurricane Irene knocked out power in Weldon, N.C.,” writes Valerie Bauerlein for the Wall Street Journal, “on Saturday evening, but as the sun rose on this tobacco-farming town at 6:30 the next morning, the local Waffle House, still without electricity, was cooking up scrambled eggs and sausage biscuits.”
The venerable Waffle Street has learned a thing or two about responding to crisis, given their locations up and down the eastern seaboard. Panos Kouvelis, PhD, the Emerson Distinguished Professor of Operations and Manufacturing Management and director of the Olin’s Boeing Center for Technology, Information, and Manufacturing explains, “The companies that are most frequently exposed to supply-chain disruption are the ones that have the best risk management plans.” Kouvelis instructs his students about the “Waffle House Index” first coined by Federal Emergency Management Agency Director W. Craig Fugate in the wake of the Joplin, Mo. tornado in May this year. If the index is green, Waffle House is open with a full menu. If Waffle House is only serving a limited menu, the index is yellow, and if Waffle House is closed, the index is red. Waffle House management doesn’t like to close, so a red index is rare. “They know immediately which stores are going to be affected and they call their employees to know who can show up and who cannot,” Kouvelis says. “They have temporary warehouses where they can store food and most importantly, they know they can operate without a full menu. This is a great example of a company that has learned from the past and developed an excellent emergency plan.”
What professor Kouvelis leaves out is the Hayekian insight that Waffle House gains its knowledge through market mechanisms for discovery, communication, and use of knowledge in the allocation of productive resources. Waffle House can only serve customers and make money if they are open. The company does little advertising and doesn’t hold press conferences. The secret to its success is good food and always being open. “I hadn’t had a hot meal in two days, and I knew they’d be open,” Nicole Gainey told the WSJ. Meanwhile, Mayor Bloomberg has no market mechanism to punish him or city government if he overreacts.
While private citizens were inconvenienced and local businesses lost revenue, the mayor frequently mugged for cameras, issuing warnings in English and Spanish. City hall didn’t lose a thing and pats itself on the back for being prepared. With no market to compete in, New York City government doesn’t worry about developing good will. Waffle House, on the other hand, “has built a marketing strategy around the goodwill gained from being open when customers are most desperate,” writes Bauerlein.
