I have been working with students who are finishing their Master’s of Science degree at Warner Pacific College. This is my first opportunity to be able to do this, and I must admit it is fun. Thinking about how to write a thesis and helping students grasp what a theoretical framework is has been invigorating. Two of the research projects are especially interesting to me, both involving the implementation of process improvements. Large manufacturers are recognizing the importance of efficiency, and many are going down the Lean road; implementing the Toyota Production System. Two companies in particular, Boeing and Airbus, are recognizing that even though they have eight year backlogs, they need to become more efficient.
Last week Airbus flew its A350 for the first time. This airplane will be a direct competitor with the 787. Both planes promise higher levels of efficiency, and both companies are predicting these new airplanes will be quite popular. However, Boeing and Airbus recognize their duopoly may be coming to an end. Russia, China, Canada, and Brazil are all developing aircraft that will compete with Boeing and Airbus. The airline customer will benefit with additional competition, therefore, resting on laurels will not be tolerated by both companies; they will need to continue down the road of change.
Airbus is on track to more than double its profit margin by 2015. This was reported by the WSJ this morning. Boeing reported last year that its net profit margin was 4.8% on revenue of $82 billion, and its commercial airplane unit posted an operating margin of 9.6% on sales of $49 billion. As one can see the aerospace industry has low margins, therefore efficiency is important.
The new CEO of Airbus said, “he was confident that Airbus would increase its operating margin within two years to 10%, excluding the onetime cost of launching the company’s new A350 jetliner.” I would be interested to see what Boeing’s profit less the cost of launching the Dreamliner? Both companies have the luxury of knowing what they have to produce for the next 10 years; therefore, they can focus on how to produce their products more profitably.
The question that comes to my mind is how do organizations create the necessary change needed to gain required profitability? There are many change processes promoted by academics and consultants. There are eight steps; ten commandments; or Lewin’s unfreeze, change, and refreeze methodology, analyzing forces that are either for the change or against the change, then using the information to understand the best way to attack the required change. Each of these theories has their proponents, but do they work?
I think in any given situation these formulas can work, but much of it involves how the change is approached. In other words, how the change agents approach the people who are affected by the change. Often change agents forget about all of the elements involved with a system. They focus instead on what is good for the organization. They ignore the work, informal organization, and the people, and only focus on the formal organization. Change involves congruency, which means ensuring the organizational elements are moving in the same direction with the macro-environment. Severe discontinuities only encourage organizational failure.
Therefore, change agents must deal with the inputs and transformational processes to get better outputs. I am sure that Boeing and Airbus have smart people telling them this, but large organizational hubris often gets in the way. Change agents, many times managers, think they know more than the people who do the job. Successful change requires hard work; hard work that involves large amounts of listening. I hope these large entities are successful for the sake of the thousands of employees that work for them. If they aren’t successful, then I hope Canada, China, and Brazil will tell them “thank you” when they take market share from the leaders.
And that is my thought for the day!