Boeing vs Boeing’s Stakeholders

The Boeing corporation has had a special place in my heart since I was young, even though I have spent much of my career working for their European rival. As my last assignment on the Sloan programme I was very happy to cover Boeing, delve a little into its current problems, and offer some insight into how it might recover. I enjoyed the research on this topic so much that I decided to share it with you. Unfortunately a lot of it doesn’t make pretty reading, as you might expect..

747

A brief history of Boeing

Boeing came into prominence as a commercial aircraft manufacturer in the mid-1950s when it saw a market opportunity to leverage its expertise and create commercial jet powered airliners. At the time this was considered a bold move; several European manufacturers had already tried and failed, some with catastrophic results. However, perhaps more importantly, key customers were very sceptical. C.R. Smith, CEO of American Airlines stated that “the time was not yet ripe for jets, and that nobody would ever buy a Boeing jet” (Leonard, n.d.). The CEO of United Airlines went one step further and placed an order with the then market leader; Douglas, that was purposely large enough to incentivise them to delay jet engine development in favour of maintaining the production of piston engine airliners.

Boeing’s gamble paid off, which resulted in a prolonged period of market domination, effectively monopolising the airline industry and holding a market share of over 90% well into the mid 1980’s (Thomson Reuters, 2012). During this time, Boeing gained an unparalleled reputation for building the best aircraft in the world, which reflected its core focus on engineering excellence (Kay, 2004).

Airbus v Boeing

Figure 1: Boeing vs Airbus market share, 1973 to 2010 (Thomson Reuters, 2012)

Since the 1980’s, Boeing has seen its market share slowly eaten away by Airbus (Refer to Figure 1 above) and the two organisations now share a market duopoly. In March 2019 Boeing entered perhaps the most difficult period of its celebrated history when the latest version of its 1960’s designed 737 ‘MAX’ aircraft was deemed unsafe to fly. There is a strong argument that Boeing’s current predicament has been brought about from an approach of prolonged radical shareholder primacy. A profoundly accurate warning against this approach was given by fortune magazine some 19 years ago:

doesn’t Condit (Boeing’s then CEO) ever worry that 20 years from now people will be writing about the big bet (the next new aircraft) Boeing failed to make? Does he ever wonder what his legendary forebears, who famously scorned bean-counting, would think of a company whose stock price flashes incessantly on the desktops of its executives and the walls of its leadership centre?” (Useem, 2000).

Boeing’s Shareholder Value

Despite relinquishing half of its market share to Airbus, between 2003 and 2018 Boeing’s stock price both outperformed its European competitor and significantly outperformed the S&P 500 (Refer to Figure 2 below). As of 7/3/19, Boeing CEO; Dennis Muilenburg, was credited with increasing market cap from $90bn to $243.9bn. Since he became CEO in 2015 shares had gained 210% (Siesluk, 2019). Most of the improvements were attributed to reducing costs (Siesluk, 2019), and minimising costs to maximise profits has been Boeing’s typical approach since the late 1990s (Irving, 2019).

S&P

Figure 2: Share price performance of Boeing and Airbus vs the S&P 500 (McBride, 2019)

March 10th 2019

Suddenly cracks started to appear, the house of Boeing was not all that it seemed. The product that made up 72% of Boeing’s 2018 aircraft production (Statista, 2019) was ruled as unsafe to fly. The 737 MAX was quickly grounded by airlines all across the world, and current predictions are that it will remain grounded until February 2020 (Finley, 2019). Boeing has set aside $5bn in compensation to cover the costs of these grounded aircraft (Isodore, 2019), which is more than the $2bn-$3bn cost to develop the entire aircraft (Ostrower, 2012). This event caused an immediate 18% drop in Boeing’s share price, and as of Q3 2019 the Boeing group’s top line was down 19% compared to the previous year. Boeing may now be “facing the worst crisis in its 103-year history” (Hemmerdinger et al., 2019).

Cause and Effect

There is strong evidence that by focusing only on shareholder value Boeing have mastered their own downfall. It is noteworthy that just one year after Boeing’s 1998 announcement that shareholder value is “the principle measure of our success” (Boeing, 1998), Airbus had its first year where it enjoyed more aircraft orders than Boeing (Spiegel, 2019). 20 years have passed since this watershed moment and looking at Boeing’s R&D investment over the last 10 years shows that they still haven’t been willing to invest to counter this now well-established rivalry. Boeing’s R&D spend as a percentage of sales has been less than half of it’s European rival since 2010 (Refer Figure 3 below).

R&D

Figure 3: R&D spend as percentage of group revenues for Boeing and Airbus (Statista, 2019)

Boeing’s lower R&D spend correlates when comparing the price and performance characteristics of the two organisations’ current single aisle aircraft. Even without the safety concerns surrounding the 737 MAX aircraft, for the same price you can purchase an Airbus A321 that can carry more passengers for a longer distance (Refer Figure 4 below). The 737 is the most popular aircraft in history; but chasing shareholder value has resulted in Boeing having an inferior product to its main rival in its most important market segment. Although being bridled with an inferior product is certainly problematic for Boeing, this is by far their only problem. As the next section illustrates, it is Boeing’s mismanagement of stakeholder relations that now needs fixing perhaps even more so than its aircraft.

Plane models

Figure 4: Boeing and Airbus’ current single aisle aircraft specifications (Cummins, 2019)

20 Years of Stakeholder Mismanagement

There are many aerospace protagonists that attribute the origins of Boeing’s current crisis to an event that occurred over 20 years ago; Boeing’s 1997 acquisition of McDonnell Douglas. The rationale behind the deal was sound; McDonnell Douglas was a specialist in military aircraft, Boeing was the commercial aircraft market leader. Combining the two organisations offered the corporation a capability to shift its operations to match the fluctuations in demand from one sector to the other, which tend to be counter cyclical. Additionally, Boeing had recently been shortlisted by the U.S government (at the expense of McDonnel Douglas) to provide their next generation military aircraft, McDonnel Douglas’ expertise with such products would assist Boeing’s aspirations to win this lucrative contract.

Another consideration was the low purchase price; McDonnel Douglas was struggling to remain solvent following the U.S government’s decision to not short list their proposal for their next generation aircraft. However, this is also the biggest point of contention for the commentators of the era. The fact that Boeing; a civil aircraft specialist, had been selected ahead of McDonnel Douglas to potentially supply a military aircraft indicated how just how much McDonnel Douglas had lost its way. This is even more pertinent when considering that the same commentators also attributed McDonnel Douglas’ decline to cost cutting and improving the bottom line at the expense of longevity. Thus, a business renowned for engineering excellence and courageous decision making (Boeing) was married to a business that was risk averse, focussed on operational efficiency and struggling to survive.

Ultimately, this marriage created a business that increasingly mirrored the McDonnel Douglas mantra “to maximize short-term shareholder value—at the expense of what’s good for nearly everyone but the shareholder” (Georgescu, 2019), culminating in the situation as described below from the perspective of Boeing’s relevant non-shareholder stakeholders.

Employees

“For many decades of Boeing’s history, most employees were immensely proud of where they worked” (Spiegel, 2019). If you consider that every commercial aircraft currently sold by Boeing, except the 787 models, was originally developed during Boeing’s ‘golden era’ of market domination, Boeing is still heavily reliant upon the historic achievements of its workforce during this period. However, this reliance on historic achievements is also what created the flawed 737 MAX aircraft. Perhaps more worryingly, a once celebrated working culture is now replaced by an environment where employees fear for their jobs if they raise concerns (Edmondson, 2019), these conditions are not conducive of innovation and creativity, at a time when Boeing needs it most.

The culture clash between Boeing’s traditions and those of McDonnell Douglas likely contributed to this change, as did the protracted conflict between Dennis Muilenburg’s predecessors; and Boeing’s unions (Spiegel, 2019). The Boeing union members “were fighting to save Boeing” (Useem, 2000), while the Boeing leadership moved the HQ out of the Boeing heartland of Seattle to Chicago, and half of the 787 production to North Carolina. North Carolina had no qualified mechanics and engineers in the region, but it also had the lowest union membership in the entire U.S.A (Spiegel, 2019).

Boeing used to count on its staff as a key organisational capability that offered it a strategic advantage. Much of Boeing’s brand identity came from the engineers within the organisation. Today Boeing is used as an example of what impact a toxic culture can have on a business (Edmondson, 2019).

a220.jpg

Competition

There is an argument that the commercial aircraft sector is large enough that both Boeing and Airbus could happily operate alongside one another without hostilities, collaboration could in fact benefit both companies. However, when Airbus emerged Boeing instead opted to go to war with them, using pricing, complaints to the WTO and public shows of one upmanship to fight their battles (Spiegel, 2019). What Boeing failed to do however was invest heavily in its R&D so that its products were superior to its bitter rival’s. The result is an ultra-competitive environment where Boeing are relying upon power to coerce stakeholders, rather than product quality, in order to secure their market share.

This approach has backfired recently. Boeing attempted to prevent Bombardier from selling its new aircraft into the U.S market, seeking 300% import trade tariffs to be imposed against them for alleged dumping. This ended up pushing Bombardier into the arms of Airbus. Bombardier was likely to sell 300 of its new Aircraft, but now Airbus plans to sell 6,000 (The Economist, 2019). This action has also had a negative impact upon some key customer and government relationships, as covered below.

Delta

Customers

Considering Boeing’s original brave move into the jet airliner market, it is somewhat ironic that at least part of the reason for persisting with upgrading the venerable 737 rather than producing a new aircraft was from the insistence of its customers. Keeping with the 737 was preferred by customers as it negates pilot training costs. However, it was similar short-termist pandering to customers that got Boeing’s main competitor into trouble in the 1950’s and enabled Boeing to seize a near monopoly. History seems to be repeating itself, but this time to Boeing’s detriment.

A combination of Boeing’s 737 safety issues plus its actions against Bombardier means that it is now facing loss of sales from many key customers, as concerns for both Boeing’s products and behaviour have provoked worldwide negative reactions. This has contributed to Boeing receiving orders for only 170 aircraft in 2019 compared to 603 aircraft ordered from Airbus (Katz, 2019).

Governments

Boeing has publicly aligned itself with the Donald Trump administration, backing Trump’s ‘America first’ rhetoric, while also having him unveil their 787 Dreamliner. Not surprising when considering that Boeing has received $14bn in subsidies from the government over the last 20 years (Helmy, 2018), however being so publicly aligned to protectionist policies is also harmful for a company that relies on exports for 66% of its sales volume (Statista, 2019).

The U.S vs China trade war, combined with the Chinese airline Lion Air 737 MAX crash in 2018 have  placed a serious dent into new orders for Boeing in a market that accounted for 25% of its sales volume in 2018 (Statista, 2019). Conversely Chinese Airlines alone currently accounts for 50% of Airbus’ aircraft orders in 2019 (Adams, 2019). Additionally, Boeing has alienated the Canadian and British governments through its treatment of Bombardier, both of whom have vested interests in the company. This has resulted in Canada cancelling a $5bn order with Boeing for military aircraft, choosing instead to purchase older alternatives from the Australian government (Pugliese, 2018). Comments given in the same press conference from the Canadian prime minister; “We won’t do business with a company that’s busy trying to sue us and put our aerospace workers out of business” and the UK’s defence secretary:  This is not the behaviour we expect from Boeing, and it could indeed jeopardize our future relationship with them”(Aleem, 2017) shows their united dissatisfaction with Boeing.

Regulatory

As the 737 MAX saga continues to unravel, there are numerous reports that Boeing’s management were aware of the potential safety issues but failed to notify the Federal Aircraft Administration (FAA) as they were so desperate to get the upgraded aircraft onto the market. The integrity of the FAA is now being questioned along with that of Boeing. Regardless of blame, the FAA will be very keen to prevent any similar issues in the future, and thus it is unlikely Boeing will enjoy the freedom and trust that they have previously enjoyed (Reynolds, 2019).

peace

Stakeholder management

Just as Boeing’s focus on shareholder value is starting to show serious flaws, the U.S’ business roundtable; an organisation that represents the leaders of the U.S’ largest businesses, has made a statement of intent to move away from shareholder primacy (Business Roundtable, 2019). This is a very different sentiment to the statement that it released in 1997: “The principle objective of a business enterprise is to generate economic returns to its owners.” (Crilly, 2019).

Boeing is well advised to follow suit, moving away from radical shareholder primacy approach and towards a stakeholder capitalism approach. Using the criteria shown in the stakeholder assessment model in Figure 5 below it is possible to assess the importance of each stakeholder, helping with prioritisation. A proposal for Boeing’s priorities and approach with regards to their stakeholders is given below.

Framework

Figure 5: Stakeholder attributes (Crilly, 2019)

Priority 1. Regulators. Power: High. Legitimacy: High. Urgency: High

Boeing’s number one priority is to restore trust in the certification authorities, without their co-operation they stand to lose 72% of their aircraft sales. This can only be done by being voluntarily transparent, which will require a measure of psychological safety provided to Boeing’s staff.

engine

Priority 2. Suppliers. Power: High. Legitimacy: High. Urgency: High

Although Boeing are part of a duopoly in the aircraft market, aircraft production is limited by the availability of key components, such as engines and high-performance materials. This is a critical time for Boeing as they have had to lower their 737 production to 26% below forecasts (Youn and Kaji, 2019). If Boeing’s suppliers opt to re-channel deliveries to Airbus, then this will offer the European firm the opportunity to increase its production volume and thus market share. It is in the suppliers’ long-term interests that neither Boeing or Airbus gain enough market share to get monopolistic control of the market. Boeing need to use this to gain support from its suppliers during its current tough times.

Priority 3. Employees. Power: High. Legitimacy: High. Urgency: Medium

Boeing’s fall from innovation leader due to questionable integrity and product quality mirrors the worsening relationship between its leaders and employees. Aerospace engineers the world over still aspire to work in the U.S. (ECORYS, 2009). Boeing should take advantage of this, becoming an empowering place to work, and regaining the internal brand identity that previously brought success.

comac-c919

Priority 4. Competitors. Power: High. Legitimacy: High. Urgency: Medium

Airbus and Boeing would benefit from more collaboration rather than higher competition, and Boeing should be strong advocates of this, not least considering the imminent market entry of the Chinese and others. A good example to follow is the German automobile industry; participants have collaborated with one another to improve their capabilities, becoming stronger both together and in their own right.

Priority 5. Governments. Power: High. Legitimacy: High. Urgency: Low

A balance needs to be set by ensuring the U.S government is engaged enough to provide Boeing the support it needs, but without alienating foreign governments, and thus jeopardising exports. Boeing’s defence division may depend increasingly more upon exports for revenue, as the U.S government is moving away from the Boeing F-18 aircraft, replacing many with Lockheed Martin’s F-35.

f35

Priority 6 Customers. Power: Medium. Legitimacy: High. Urgency: Low

In a market of low elasticity of supply and high demand, customers have little choice but to purchase from Boeing unless they choose to wait several years for an Airbus aircraft (Pfeifer and Spero, 2019). With this considered, Boeing need to recapture their visionary spirit with which they once transformed the aircraft industry, rather than cater to customers short term requirements. History has shown that airlines will ultimately pick superior performance and efficiency over short term convenience.

cash

Priority 7 Shareholders. Power: High. Legitimacy: High. Urgency: High

Shareholder value is likely to be high on the Boeing management’s agenda, and it is also likely that the board are having to answer some very difficult questions asked of them. However, as the four largest shareholders sit upon the Boeing board (Maveric, 2019), they should use their influence to gain confidence from other shareholders, offering assurences that their long term interests are aligned. The key will be convincing investors that short-term pain may be needed for long term gains, but never in Boeing’s history has there been a stronger case for change. It is up to the board to sell how important rebuilding Boeing’s brand image and cultivating strong bonds with the other stakeholders will be for their recovery.

Conclusion

Boeing is facing many challenges. There is strong evidence that attributes these challenges to their change in philosophy over 20 years ago; away from excellent products, and more towards cutting costs and providing shareholder value. This philosophy change can in part be justified; Boeing have seen intensified competition in the years since, due to becoming one half of a fiercely contested duopoly. However, there is a difference between saving costs through operational excellence and gaining profits and enterprise value for shareholders at the expense of all else.

To recover from this crisis, Boeing will need to convince more than just the financial analysts that they are making meaningful changes. Once again, they will need to change their philosophy, this time to one that considers all stakeholders. Such changes will not be easy, and will not be quick, due to the time lag in product lifecycles it could once again be 20 years before these changes fully take effect.

plane

References

Adams, C., 2019. AIRBUS INKS MULTIBILLION DOLLAR ORDER WITH CHINA [WWW Document]. Independent. URL https://www.independent.co.uk/travel/news-and-advice/airbus-aircraft-boeing-china-chinese-airlines-737-max-a8840096.html (accessed 11.6.19).

Aleem, Z., 2017. The US just picked a nasty trade fight with Canada — and it’s likely to backfire [WWW Document]. Vox. URL https://www.vox.com/world/2017/9/27/16373156/boeing-tariff-bombardier-canada (accessed 10.30.19).

Boeing, 1998. Boeing Adopts Measures for Attaining Increased Shareholder Value [WWW Document]. Boeing. URL https://boeing.mediaroom.com/1998-07-23-Boeing-Adopts-Measures-for-Attaining-Increased-Shareholder-Value (accessed 11.11.19).

Business Roundtable, 2019. Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans’ [WWW Document]. Business Roundtable. URL https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans (accessed 11.6.19).

Crilly, D., 2019. Corporate Governance and Stakeholder Relations.

Cummins, N., 2019. The Boeing 797 Could Transform Low Cost Carriers In Ways The 787 Can’t [WWW Document]. Simple Flying. URL https://simpleflying.com/boeing-797-low-cost-travel/ (accessed 10.30.19).

ECORYS, 2009. Competitiveness of the EU Aerospace Industry (No. Ares(2015)2205905-). European Commision.

Edmondson, A., 2019. Boeing and the Importance of Encouraging Employees to Speak Up. HBR.

Finley, M., 2019. Boeing 737 MAX Expected To Fly Again In Europe By Feb 2020 [WWW Document]. Simple Flying. URL https://simpleflying.com/boeing-737-max-expected-to-fly-again-in-europe-by-feb-2020/#:~:text=Boeings%20grounded%20737%20MAX%20is,the%20air%20by%20February%202020. (accessed 11.5.19).

Georgescu, P., 2019. Boeing and Business Governance [WWW Document]. Forbes. URL https://www.forbes.com/sites/petergeorgescu/2019/04/17/boeing-and-business-governance/#3e17f2977d98 (accessed 11.6.19).

Helmy, S., 2018. Airbus Bites Boeing By Advancing On Alabama A220 Assembly Line [WWW Document]. Simple Flying. URL https://simpleflying.com/airbus-bites-boeing-by-advancing-on-alabama-a220-assembly-line/ (accessed 10.29.19).

Hemmerdinger, J., Wolfsteller, P., Reim, G., 2019. Why Boeing faces its worst crisis in its 103 year history [WWW Document]. Flight Global. URL https://www.flightglobal.com/news/articles/analysis-why-boeing-faces-worst-crisis-in-its-his-461748/ (accessed 11.5.19).

Irving, C., 2019. How Boeing’s Bean-Counters Courted the 737 MAX Disaster [WWW Document]. The Daily Beast. URL https://www.thedailybeast.com/how-boeing-bean-counters-courted-the-737-max-disaster (accessed 11.6.19).

Isodore, C., 2019. 737 Max grounding will cost American and Southwest Airlines more than $1 billion [WWW Document]. CNN. URL https://edition.cnn.com/2019/10/24/business/american-airlines-southwest-boeing-737-max-costs/index.html#:~:text=New%20York%20(CNN%20Business)%20The,through%20the%20end%20of%20September. (accessed 11.5.19).

Katz, B., 2019. Airbus Pulls Far Ahead of Boeing in New Jet Orders, Deliveries [WWW Document]. Wall Street Journal. URL https://www.wsj.com/articles/airbus-pulls-far-ahead-of-boeing-in-new-jet-orders-deliveries-11572369091 (accessed 11.6.19).

Kay, J., 2004. Obliquity.

Leonard, J., n.d. Overwhelmed by Success: What Killed Douglas Aircraft. Haas School of Business.

Maveric, J.B., 2019. The Top 4 Boeing Shareholders [WWW Document]. Investopedia. URL https://www.investopedia.com/articles/insights/052116/top-3-boeing-shareholders-ba.asp (accessed 11.6.19).

McBride, S., 2019. How We’ll “Get Rich Slowly” from the China Trade War [WWW Document]. Risk Hedge. URL https://www.riskhedge.com/post/how-well-get-rich-slowly-china-trade-war (accessed 11.4.19).

Ostrower, J., 2012. Boeing Disputes 737 MAX Cost Estimates [WWW Document]. FlightGlobal. URL https://www.flightglobal.com/news/articles/boeing-disputes-737-max-development-cost-report-367504/ (accessed 11.5.19).

Pfeifer, S., Spero, J., 2019. Airbus cannot build fast enough to replace Boeing’s 737 Max [WWW Document]. Financial Times. URL https://www.ft.com/content/a495bc06-49a6-11e9-bbc9-6917dce3dc62 (accessed 11.6.19).

Pugliese, D., 2018. First used Australian fighter jets now flying in RCAF colours with more to come [WWW Document]. National Post. URL https://nationalpost.com/news/canada/first-used-australian-fighter-jets-now-flying-in-canadian-colours-plans-underway-to-extend-jet-fleet-to-2032 (accessed 10.30.19).

Reynolds, M., 2019. Boeing had too much sway vetting its own planes, FAA was warned [WWW Document]. Bloomberg. URL https://www.latimes.com/business/la-fi-boeing-faa-warnings-20190317-story.html16/11/19

Siesluk, K., 2019. We Examine Boeing CEO Dennis Muilenburg’s Strategy For Improving Profitability [WWW Document]. Simple Flying. URL https://simpleflying.com/we-examine-boeing-ceo-dennis-muilenburgs-strategy-for-improving-profitability/ (accessed 10.29.19).

Spiegel, 2019. Boeing’s Crashes Expose Systemic Failings [WWW Document]. Spiegel. URL https://www.spiegel.de/international/business/737-max-boeing-s-crashes-expose-systemic-failings-a-1282869-2.html (accessed 11.6.19).

Statista, 2019. Airbus and Boeing Dossier (Dossier No. did-9503-1). Statista.

The Economist, 2019. Why Airbus’s tie-up with Bombardier is so damaging for Boeing [WWW Document]. The Economist. URL https://www.economist.com/business/2017/10/19/why-airbuss-tie-up-with-bombardier-is-so-damaging-for-boeing (accessed 11.6.19).

Thomson Reuters, 2012. Airbus market share pitted against Boeing [WWW Document]. Thomson Reuters. URL https://blogs.thomsonreuters.com/answerson/airbus-market-share-comparison-boeing/ (accessed 10.30.19).

Useem, J., 2000. Boeing VS. Boeing America’s export champion is going head-to-head with a company even tougher than Airbus: itself. Fortune.

Youn, S., Kaji, M., 2019. Boeing may halt 737 MAX production if planes stay grounded through 2019 [WWW Document]. ABC News. URL https://abcnews.go.com/Business/boeing-halt-737-max-production-planes-stay-grounded/story?id=64536463#:~:targetText=Boeing%20may%20halt%20737%20MAX%20production%20if%20planes%20stay%20grounded%20through%202019,-By&targetText=Aerospace%20company%20Boeing%20has%20not,CEO%20Dennis%20Muilenburg%20said%20Wednesday. (accessed 11.7.19).

 

eVTOL, interview: Simon Scott. Founder and Owner of Esprit Aeronautics

As a first for my blog, see below for my interview with Simon Scott; owner of Esprit Aeronautics espritaero.com a business focused on developing a manned vertical take-off aircraft. Simon has been active within this sector since the 1990’s, long before eVTOL and drones became media trendy.

Lancer3

This interview follows on from yesterday’s eVTOL blog entry: So are we finally going to live like the Jetson’s?? 

Nick: Hello Simon, firstly thank you for agreeing to the interview.

Nick: First off, please could you give a little detail upon your background, and how you became interested in the eVTOL sector?

Simon: Both my grandparents had served in or supporting the Royal Air Force and my youth was spent either making model aircraft or visiting air shows and museums in Europe. After leaving school at 15 I studied engineering before becoming an assistant metallurgist for a specialist castings company that supplied the aerospace industry.  At 19 years of age I joined the military as a guided weapon’s controller before working closely with the Army Air Corp on several operations. On leaving the military in the late 90’s my fascination had not diminished and I started to look at the research being done by Mark D. Moore (currently UBER Engineering Director of Vehicle Systems) when he was at NASA Langley Research Centre and following several email exchanges I started my own research into Personal Air Vehicles which led me towards hybrid propulsion and electric aircraft in the early 2000’s.

Nick: So this is not a recent venture for you, this is an area that you have been working upon for many years. You also have significant experience in the creation of drones. Does your ePAV carry a lot of design heritage from Esprit Aero’s drones? What are the key differences?

Simon: I’ve always been a believer in building something, not just a nice 3D CAD rendering. It is also better to build and test a real platform in nature as CFD (Computational fluid dynamics – used for aerodynamic analysis) may be a very useful tool but nature is unpredictable in many cases. I’ve also carried out testing at higher elevations, usually starting at 500m ASL unlike many which tend to test at scale and at sea level.

You learn a great deal from failure and I have experienced plenty in the early years with drone flight controllers and sensors far less capable than current versions, but I have also seen my designs carry out flights lifting payloads far greater than even some of the well-known drones of today cannot handle.

As far as heritage goes, if you can fly a conventional quad copter drone competently today you could fly one of our eVTOL platforms, it is that simple to fly.

Finally there are many differences between drones and manned vehicles, most notably, safety is of utmost importance, when carrying a “Live” cargo.

Nick: I think most will agree that public awareness of the future eVTOL market has rapidly increased in recent times. This awareness has been amplified due to the concept designs shown at this year’s Paris Airshow, and claims that cities such as London will be serviced by air taxis as early as 2025. Do you think that these 2025 claims are realistic?

Simon: I will say I am very sceptical of timelines as I have first-hand experience of just how long it takes to turn ideas and concepts into reality. There are far more barriers to market for eVTOL air taxis in the Urban Air Mobility sector than many openly admit to.

Obviously there are some exceptions when it comes to platforms we are already seeing in test videos online but we have yet to see any fly in an urban environment never mind carry a fare paying passenger between two vertiports in a city.

Nick: What do you think are the main barriers to achieving this 2025 target?

Simon: Obviously legislation requirements, not only for vehicle certification but also flight restrictions, noise levels and flight corridors over populated areas.

Social acceptance is key so safety requirements need to be much higher and the costs associated with using such means of transportation needs to be cost effective for passengers. Most people would enjoy saving an hour a day travelling but not if it costs them twice as much as using conventional means, which reduces the potential passenger numbers willing to pay for that time saving.

Lancer2

Nick: So legislation and regulation will be key, unsurprisingly, but you also consider that there is high risk of the short to mid-term business case being unviable. With such significant barriers remaining before city air taxis are accepted for use, and with the recent rapid increase in eVTOL businesses across the world, it looks like at least some of these ventures will not end with success. Considering this, what is Esprit Aero’s planned product and service offering?

Simon: We are targeting Rural Air Mobility (RAM) and at first, we are looking at the use of single and dual seat platforms for first responders. Many rural areas are receiving very little support from emergency services due to budget cuts and low staffing numbers. Smaller ePAV solutions are force multipliers and allow a greatly increased response time.

Nick: So, you are looking to provide highly mobile transport solutions for emergency services in remote locations where there is a high need. In affect you are proposing to offer a smaller, quieter, more cost-effective and easier (safer) to fly, alternative to a helicopter? If the eVTOL consumer taxi market is delayed, do you see this space being targeted by the eVTOLs taxi companies, while we wait for the certification and regulation hurdles to be overcome?

Simon: Most of the air taxi designs could be modified but the focus by the main player’s remains air taxis. Would a local authority pay £4,000,000 GBP for an eVTOL air taxi platform when they could purchase a dual seat ePAV for less than £200,000 GBP? There is also the platform footprint to consider as some of the eVTOL designs being developed are nearly as large as conventional helicopters.

Nick: Regarding the seemingly booming eVTOL industry, have you found that this has helped or hindered your business development strategy? Are you finding it easier to find both customers and suppliers now than say two years ago?

Simon: We tend to get far more suppliers interested in us now as many read the analysis & market predictions believing it to be a good opportunity for them at an early stage. Customer interest is growing but many are “tyre kickers” and are wisely waiting until they see the real platforms working before committing.

Nick: With so many different types of eVTOL being developed, do you think that there will be key areas where parts will become homogeneous? Are there any of these products that you plan to specialise in, or in fact outsource to a specialist supplier, rather than create yourselves?

Simon: We have a plan and that has to be flexible as nobody can predict the future so we will keep a keen eye on the industry & market and react accordingly.

Nick: What do you see as your key objectives in the mid-term, once you have achieved certification and the ePAV is in use in the UK? Do you plan to develop business overseas? Also, are you planning to develop any additional vehicles to the ePAV in the future? If you were to develop an additional product offering to the ePAV, what differences would it have (eg. What do you see as a strong second market)?

Simon: At this stage we are focused on finding the right investment for us and our plans to get our designs into the air safely and legally.

Obviously there is international interest and due to our experience with international suppliers and the wider aerospace industry we can visualise dealerships across the globe in the future as well as the international support infrastructure that will be needed.

We are aware that certain clients require bespoke solutions that will need to be built “in-house” for security reasons.

Nick: So it sounds like you will need at least a small manufacturing facility, with the option of outsourcing high volume orders on build to print licences as and when customer demand deems it necessary.

Many thanks for your time Simon, it has been very interesting to speak with you. I think considering the current market, your business development strategy is smart; offering a product with low unit cost that offers clear advantages over existing products (e.g. helicopters), and will also open the market to users who may not have previously considered flying vehicles as a viable option. I look forward to hear about further developments!

Lancer1

For those who are reading this blog, if you would like to learn more about what Simon and Esprit Aeronautics are developing, please check the links below:

The business case for Rural vs Urban air mobility: https://www.espritaero.com/ram-rural-air-mobility

The ‘barriers’ to Urban air mobility: https://www.espritaero.com/are-evtol-air-taxi-s-the-only-solution

A problem shared is a problem solved when utilising the adjacent possible

Want to solve a problem? Well you had better talk to someone about it!: My insights taken from the book: Where Good Ideas Come From, written by Steven Johnson…

Where Good Ideas Come From

I was strongly recommended this book by a successful entrepreneur, and I’m glad I took the time to read it as it has had a profound impact upon how I approach problem solving. It certainly isn’t a self help book, and it might not give you the magic formula needed invent the next big thing, but it does give a good blend of historical and behavioral analysis on what things tend to help cultivate ideas.

There are several good summaries of this book online, one of which that I particularly like, written by Phil Gyford, is linked here.

ligh bulb

 

The Adjacent Possible: The idea creation aspect that really struck me, and for me feels like the most useful tool to engineer yourself a solution, is the idea of utilising the adjacent possible. This explains the rationale that inventions and innovation can only happen one step at a time, and on reflection it is very true. Google couldn’t have been created until the internet was created. Facebook’s success depended not only on the internet, but also on the creation of the digital camera, and it really started its rapid rise to prominence with the invention of the smart phone.

smartphones

For me, making use of the adjacent possible is exploring the use of current new innovative ideas in alternative domains to what they were created for. An example given in the book is the use of old car tyres to create soles for sandals. This concept can be used for applications in all walks of life. For instance, Deliveroo is a very successful start up that has disrupted the fast food industry, could this delivery service model be used for other purposes? Some ideas that spring to mind are delivery of parcels and special delivery mail from logistics companies. Riders could collect from the delivery depot, and deliver on demand when you are at home, within 30 minutes. Will people pay the extra delivery fee to have their parcels delivered out of hours (something many logistics companies can’t do)? Not everyone will, but depending upon the urgency of a parcel, I’m pretty sure some people will.M&S

Keeping on this train of thought, M&S are in the process of entering into a Joint Venture with Ocado. A deal that will be very intriguing to see how it plays out. Ocado are fantastic at delivering people’s weekly shopping, and they are looking at offering a ‘delivery within the hour’ service. However, no matter how brilliant new service, it will once again be focused on weekly shopping. Shopping that involves pre-planning from looking at the full week ahead.

M&S over the last couple of years have had a focused drive to open many convenience sized stores, and these stores very much focus on very fine quality, pre-prepared meals. Meals that are cooked at home with the little time or fuss, made from fresh ingredients, that everyone trusts. Could M&S successfully collaborate with Deliveroo, offering a ‘heat at home’ food delivery service? I wouldn’t bet against it..

The adjacent possible is like shuffling cards, until eventually you get two cards that pair up to offer an innovative idea that hasn’t yet been implemented. Simple!

empathy2

A problem shared is a problem solved: The other key insight the book gave me was the environment in which most ideas are created, and most problems are solved. A profound discovery was made in the early 20th Century when a stop-motion study was performed in a research laboratory.  The discovery was; that most ideas did not come from Eureka moments by individuals, but when one researcher spent time discussing their problems with another. Their fresh perspective often resulted in fruitful discussions and even more fruitful idea creations.

The effect of collaboration is all the more visible when you look at the history of innovation. In shear quantities, there have been many more key inventions to come from organisations that are not driven by financial incentives. Why is this? Surely inventors will be more keen to see their ideas realised if it will result in life changing financial fortunes? Of course it will, but where there are financial incentives, there are often patents, intellectual property, and closely guarded secrets. This process is not wrong, inventors need to be able to gain from their ideas and hard work. But it does show that collaboration is (far) more effective in creating ideas than financial incentives for individuals.

light bulb moment

This was a bit of a revelation for me, previously if I had a problem that I was working on, I had a tendency to hatch down and go into individual problem solving mode. What I should be doing more of is talking to as many people about my problem as possible. This will give me new perspectives, and might introduce me to people who have similar problems (or even better; solutions).

This new mantra has led to the creation of a new blog category: ‘innovative problems‘, in which I will share a perspective upon my own and other peoples’ problems. As the reader, you may be able to empathise with these problems from an adjacent domain. Even better, they may inspire a brand new solution to a problem that you were previously unaware of. My first post of this type was created a few weeks ago: Digital transformation in the aerospace industry… Really?? and has resulted in several follow on discussions with people of how this concept can be developed. Without this post, these discussions would never have happened.

cards

So in summary, shuffle the cards of possibility, and share your findings with all and sundry. Who knows, there might be an Einstein or Newton inside you somewhere…

 

 

 

 

Globalisation, International Teams, and the Triangle of Trouble

I’m sure you have been on the receiving end of a botched attempt of getting two teams in distant locations to work in harmony. You may have even attempted it yourself. The good news is that as humans we are hardwired to struggle in these situations, so don’t be too hard on yourself. The bad news is that it’s pretty difficult to overcome…

Cultural-Boundaries

As globalisation has increased the need to integrate international teams has also increased. However, humans do not naturally find cross cultural integration easy, not least when we have to do so via modern communication technology and when located thousands of miles from one another. This article combines a couple of popular theories to explain why we find this so tricky, and offers some advice on how you might be able to overcome such a hurdle.

Triangle of Trouble

The Triangle of Trouble…

CULTURE: First off, let’s not underestimate how a person’s background affects their social norms. One culture’s polite is another’s rude, and what may be considered friendly in one culture may be considered disrespectful in another. Dutch and Russians are renowned for being direct in their communication, but also appreciate the honesty of direct feedback from others. On the other hand Chinese and Japanese are notoriously unobtrusive  with their feedback, but are intuitive enough to be able to read another’s subtle body language to observe their opinions. Where does your social norm fit in with the culture that you are communicating with? If you don’t know then you may be offending them even as you feel you are rolling out the charm offensive.

Global diferences

AWARENESS: This is a simple appreciation that we humans have an incredible propensity to think that anything in which we don’t know the detail is far simpler than it actually is. Once again I’m sure you are all familiar with having to complete a task that is far more complex than those asking for its completion can comprehend. A common example is the introduction of a new software that promises to fix a set of business problems. What usually happens is that the software introduction makes the problems worse; once the software is installed people stop trying to work in such a way to mitigate the old problems, thinking that the software has taken away this need. In reality the software will need to be built carefully into existing processes in order to improve them.

Outsourcing and cross culture working is very similar to installing software. If a business is considering outsourcing something or collaborating with a distant team, then it’s likely that the their current state of operations is not satisfactory. But throwing problems over to a third party and expecting them to intuitively know how (or indeed want) to solve your problems is not realistic. When this utopian and low maintenance solution turns out to not be more of a problem than a solution, then who’s fault is it, yours or theirs?

simple complex

EMPATHY: This is perhaps the biggest barrier to successful integration, and is an effect of cultural divisions and a lack of awareness. We as humans tend to be emotionally switched off to those that are either culturally different to us or geographically  distant. When we are talking down the phone to someone who we can barely understand, who seems starkly dissimilar to us and other people we know, and is thousands of miles away, then we tend to diminish their importance and relevance. Naturally we will see our opinions as more insightful than theirs, unfortunately they will be thinking the same thing about us.

empathy

…Knowing that you are not alone with your international integration problems is comforting up to a point, but how do you overcome these problems? Being aware of how difficult successful integration can be is the first step; and in cases where team integration over the short term is critical, or if you are not committed for the long haul, it is probably safer to keep within the same team. This will not always be possible or practical, and where integration is necessary, knocking down the three pillars of the triangle of trouble will be key. How do you increase the empathy between the two teams? Increasing their awareness of one another, and creating an appreciation of one another’s cultural norms, while also sharing some common ground.

In my personal experience this is best (and most time efficiently) solved through face to face contact. An exchange programme on a rotation basis is a good option; relocating team members for a set period of time. The team members who are relocated are also best placed to act as a communication bridge between their new team and their familiar team back home. They will know how their original team think and work, and so communication with them will be more effective. Also necessary is educating each team of the other’s cultures and behaviors, perhaps even some history lessons. If intuitively you feel that the these actions will not help, then it’s likely that the integration period will be all the more difficult. But in any case, over time the two teams should grow to know one another better, and will eventually start to work as one.

empathy2

Achieving success is no easy task, and productivity may initially fall before it begins to rise, but this is not surprising when you consider the forces against. The most important factor is the simple realisation of how difficult the integration process can be; if you fail to take this issue seriously then you will likely be throwing away valuable time and resources, at the expense of productivity and the morale of your team members.

Digital transformation in the aerospace industry… Really??

1451305867_Airbus-A350-XWB-

A brief post to offer some musings to my comrades in the Aerospace industry. Hopefully you’ll find this helpful, and if not immediately helpful, then at least it will offer some food for thought…

marketing 101

One of my first subjects on the LBS Sloan programme has been ‘Leading the Market Driven Organisation’. I won’t shy away from the fact that I didn’t get much exposure to the principles of marketing while in the aerospace industry; most clients are either government or large multi-national organisations. You don’t often find people wanting to buy an aeroplane, or an aeroplane  component, because they have just seen an advert on SkySports, or because someone dropped a leaflet through their letterbox.

Considering the above, you can forgive my initial response to the recommendation to “transform my industry through digitisation”, as stated in my course text book. I’m sure many of you currently in the industry would agree; this sort of thing doesn’t apply to aerospace… Or does it…

P180

…It was only a little later in the day when I started to think about pain points and problem areas when I had a Eureka! moment. For my last client, on my last project, by far the biggest pain point was managing suppliers and late delivery of purchase orders. Unfortunately there are suppliers out there who seem very intent on winning orders and making promises, but not so good at delivering parts. One particular supplier we used had promised some components within 10 weeks, but we were still pulling our hair out due to non-delivery way beyond this time.

In the business to consumer world there are simple tools available to prevent poor supplier performance. For individual consumers, consider the ratings systems put in place by organisations such as Amazon and Ebay. For suppliers offering loans and mortgages, consider credit rating platforms such as Experian and Noddle.

This is when the penny dropped. Why isn’t there a business to business rating system? Even better, a transparent tracking system that links to each business’ MRP system and shows what orders are overdue. If banks and financial institutions can do it with individuals’ bill payments for credit ratings, then it must be possible for other industries. This application would have a profound affect; as businesses that were unable to fulfill their orders as promised would not likely win future work. This would reward productive and well run organisations and encourage other businesses to follow suit. I predict that over time this system would improve productivity of the entire industry value chain…

image (1)

…After all, we can put man made objects into space, and fly objects around the globe heavier than  double-decker buses, with an unparalleled safety record. So  surely we can  create a simple system that protects buyers, and drives all suppliers to improve productivity?

This problem is crying out for a solution that could completely transform the aerospace industry; and through the simple use of tech that has been readily available in everyday life for over a decade. Maybe this is a business venture that I will explore once I am finished with my studies…

selection

So thinking a little smaller and immediate, how can the ‘individual’ take advantage of this ‘problem’ right now? Well while the industry waits for an encompassing platform to arrive, there will be demand for small consultancy services that organisations can use to provide supplier due diligence prior to placing critical purchase orders. This process happens already, but it usually happens in-house and is focused on how solvent a supplier is – will they go bust before they produce my parts? We should also concentrate on how many of a supplier’s current orders with other clients are overdue – if they can’t fulfill current orders, then they will not likely fulfill ours either. The key to this challenge is where do you gain access to such information? The fact that sourcing this information is not easy means that organisations will be willing to pay for it.

Finally, a low hanging fruit to consider when you are writing proposals and responding to client’s request for quotes: If you are a well run productive business; why not place some data at the back of your next proposal that shows your historic delivery performance? I have never seen this in a bid for work from a supplier, yet when I am mid project with muck and bullets flying all around me, time is the most important consideration. Why not try this approach? If you win more work, feel free to buy me a beer!

danielscareers-careerladder

The above is all a brief brain dump of my thoughts. I would be really happy to talk further on the topic, or discuss any similar ideas that you readers may have in relation to this. Do you think you could help make any of the above a reality? Then please drop me a message.

Review of Coursera.org, online management and energy courses

This is my first of many intended posts that will cover my reviews of courses and other educational content that I have used or read. This particular post covers several of the online courses provided by coursera.org that I have completed. Reflecting my aspirations beyond Sloan, these have been a combination of management and energy courses. 

coursera

 

Managing the Company of the Future. Created by LBS | Julian Birkinshaw.

managing the company of the future

This course was fresh and insightful while being light enough to easily digest. It covers the different organisational structures used by modern companies, ideals used to motivate staff, and common problems encountered by businesses due to inappropriate organisational structures and processes. It is worth saying here that Julian is a very highly regarded professor as well as the deputy dean of London Business School, so considering that this course is free I would strongly recommend it.

 

The Manager’s Toolkit. Created by Birbeck University of London.

managers toolkit

This course for me was not so crisp, there were some useful areas covered, such as conducting interviews, giving feedback, and facilitating meetings, however the content seemed a little tired and dated. I would strongly recommend the Managing the Company of the Future course ahead of this., as they are both free.

 

Global Energy and Climate Policy. Created by SOAS University of London.

global-climate-policy.jpg

This course was fairly decent, it offered a lot of reading material around the subject, and went into some detail as to how energy policy is changing around the world, and what structural changes are necessary in order to ensure transition to a sustainable society. My only gripe is that because it is political in nature, the content is fairly high level and conceptual in nature, although that said there are some quote insightful interviews etc so if you are interested in this subject I would recommend you having a look.

Our Energy Future. Created by the University of California San Diego.

our energy future

I have saved the best until last here, I really, really enjoyed this course and found the content incredibly informative. I would recommend everyone at least watch the opening two videos on the first module, these were superb. The only downside to this course was it was quite time consuming – I think it may have taken around 15 hours of my time by the time I finished, and this is without considering any of the written essays (if you opt to take them – you can just opt to watch the video content).

Key take homes for me were:

  • The world’s population increase over the last century or so is due to a dramatic increase in agriculture productivity, which in turn is due to harnessing the power of fossil fuels. Without these fuels or alternatives we will not even come close to sustaining the world’s current population, let alone future forecasts.
  • Fossil fuels (especially oil) are so energy dense and cheap to process into a usable substance, that it is incredibly challenging to create alternative energy sources that are viable alternatives. For instance, modern batteries contain several times less storage capacity as the same weight and volume equivalent of oil. This is why fossil fuels are so popular and hard to remove from everyday life.
  • Several bio fuels are being developed that will extract CO2 from the atmosphere, meaning that there use will actively reduce CO2 in the atmosphere over their total lifespan. These products can be used with existing oil refinery infrastructure. Considering this, we may find more cars move across to this type of fuel rather than moving to completely electric.
  • Approximately 40% of today’s global warming is due to ‘black carbon’ which is released into the air when burning wood and other materials used for cooking in the developing world. Black carbon only stays in the atmosphere for approximately 2 weeks, so if we could provide alternative cooking methods to the developing world, we could dramatically reduce global warming. Now there;s food for thought…

 

 

Pre-programme prep continued: LBS Sloan Next Steps..

Following on from my written piece on my ‘intended’ preparation work, this article covers the main tasks of note that MUST be completed by a Sloan Fellow prior to starting on the course..

next steps

At this point it is probably a good idea to point out that as I was a British Citizen already living in the U.K when I enrolled onto the Sloan programme, I have not had to go down the U.K visa application process, and therefore I can’t advise on this area. However, if you do need some advice then I will be  more than happy to put you in contact with one of the many fellow Sloan candidates that did go through this process. Contact me via email or LinkedIn and I will be happy to help.

So of the main tasks given by LBS that are needed to be performed other than obtaining a U.K visa, we can break these down into two main groups: 360 degree feedback and traits questionnaire, and pre-course study material.

360 feedback

360 Feedback and traits questionaire

You will receive access to these around November time..

The ‘5 Step Traits’ questionnaire is simply a quick quiz asking how you sit on various items. Your answers to these questions will create a personality profile that you will use to identify any personality areas that you would like to develop while on the Sloan programme, so it is advisable to answer these as honest as possible. Other than having to honestly assess yourself, there is nothing to be concerned of here.

The 360 degree feedback process is a little more involved. You may have already completed a 360 feedback as part of your organisational performance assessment. I hadn’t, and so this was a new experience for me. The crux here is that you are relying on your fellow colleagues and other stakeholders (clients etc.) to fill out a feedback form for you. To add an element of complexity, the feedback is anonymous and so you wont know who has and who hasn’t completed the feedback. You will need a minimum of seven responses in order for the feedback to be valid, and up-to twenty. I would suggest pick as many people as possible, and try and pick people who are more likely to complete the feedback, thus to minimise the risk of you not having enough respondents.

online learning

Pre course learning materials

You will received these around Mid-December, meaning that you will have around three weeks to complete them…

Plagiarism, this course is fairly straight forward, and very useful, it covers how you need to reference researched materials in all of your assignments to ensure that you don’t get disqualified for using other peoples’ work. I fully expect to go back and use this course as reference material (no pun intended) throughout my study year to ensure I stick by the rules. This course doesn’t take long (approx 2 hours) and is very straight forward.

accounts

Accounting, OK so this is also an area where I can’t really give much feedback, this is by far the most time consuming course to complete, but I didn’t actually complete it! This course takes approx 12 to 15 hours to complete, and there is a minimum pass mark that you must achieve. I didn’t take this course, because there is also an option of an accountancy competency test, if you pass this brief  test (approx 30 minutes), then you are done, happy days.

Before moving on, it is worth me saying that I haven’t had much exposure to accounting in my professional life, and I attribute my pass grade to the fact that I had spent the last financial year compiling the accounts for my business, but also from the knowledge gained from the accounting module in the London School of Economics MBA essentials course. So my advice here would be to jump on an online accounting course ahead of time (I’m sure that there are many out there that are free – try Coursera.org if you are stuck). This will likely mean you also pass the aptitude test, and won’t need to take this damned pre-course over Christmas when you are probably spending quality time with your loved ones before you fly to London for a year.

If you already have an accountancy background, well all the better.

Data analysis, this course is not mandatory, but it was quite brief and light so if you have a spare hour or two you may as well go through it. This course is fairly straight forward, and goes through the principles of data collection and statistics, covering the terms used (mean, median. mode, standard deviation etc.) and what they mean (again, no pun intended).

So in summary, nothing to be too worried about here, your main concern will be ensuring you get enough respondents for your 360 degree feedback, and that you pass the Accountancy aptitude test.