Commonality is Economy…

No Such Thing as a Free Lunch...

Something caught my eye recently, the grounding of approximately 80 Boeing 737 aircraft on behalf of Southwest airlines.  For those which might have missed this, flight WN812 between Phoenix and Sacramento was diverted to Yuma after a loss of cabin pressure and deployment of oxygen masks caused by the tear of a 5 foot hole in the plane’s fuselage.  Appears there was some weakening in the aluminum skin which led to this unfortunate event, thus forcing the grounding for inspection and potential repair of these aircraft.

However what does this have to do with the concept of “commonality drives economy” with in the business model? For starters, the Boeing 737 is the only plane which Southwest flies.  The concept is they only have to stock parts for one aircraft, train pilots, mechanics, and flight staff again on only one platform saving the company money.  Also saved by the practicality of the forced conformance model is time which not only impacts the cost line, however more importantly the top line of the company’s profit and loss statement in the form of revenue.  As in the transport arena, time is money in the form of receipts as the more paying products be it human or cargo; the greater the firm’s ability to boost sales.

So all would seem good in this model as commonality clearly gives Southwest the competitive advantage over their diverse counter parts such as Delta, United and American Airlines.  However what happens when a “Black Swan” rears its ugly head as happened here, as no one planed for gaping hole mid flight in the top of an aircraft.  However this mishap created a causal event in that the majority of the fleet now had to be earth bound leaving Southwest with the need to cancel over 300 flights losing the revenue from those customers who had purchased tickets, the cost to compensate the passengers left stranded and let’s not forget the brand impact (due to the canceled flights).

So was this a good idea after all, as we also know from Darwin is that without diversity, natural selection does not work thus raising the likelihood of demise.  So in effect what Southwest has done via “commonality” is invoked the “operational” concept of “postponement“. Whereas Southwest Airlines instead of accepting diversity in their business models upfront, have in essence denied the costs thus exchanging it for “risk”.  However as with all things in nature, constrained pressures will seek to equalize, or balance themselves as there is no such thing as a free lunch.

While in this case the impact was large, Southwest was very lucky as this was a minor class problem which could be corrected returning the planes to flight relatively quickly.  However what if it was a major class problem which required a significant amount of rework or permanent grounding altogether?

Thus when assessing your business model it’s important ensure you not only factor in the positive aspects of “postponement” such as cost savings.  However more importantly, it is critical to acknowledge the existence of this as a real risk to any business model…