Tuesday, 4 April 2017

Do You Really Understand Your Business?

 Every decision we make shapes our future and future of our organisation. We may not be aware of this because we are conditioned by traditional practices which are obscuring our views of interconnected reality. The bigger and more complex our company, the less competent we become, and our business more vulnerable to even the smallest unforeseen disturbances.  We are suffering from the pike syndrome.

Still we continue to believe that we are in control of our business by optimising parts of the system, summing up the results, and applying the step-by-step approach to resolve complex nonlinear problems. And when we end up with surprise losses and growing travel disruptions with epicentres at congested hub airports, there is always someone or something else to blame.

To test your competence, look at your last month’s management report and answer the following questions:
  • What was the impact of traffic expansion at congested airports on airline punctuality, cost, and revenue?
  • Which routes were exposed to the most costly disruptions and why?
  • What were the reasons for the unexpected rise in fuel and crew costs considering that there were no changes in fuel prices, traffic program, or crew counts?
  • What was the impact of unscheduled maintenance on crew productivity?
  • How much did external service providers contribute to the rise in disruptions and how did it affect passengers? Can these costs be recovered or invested in service improvements?
  • How efficient are schedule buffers at congested airports? Do they justify investment in additional aircraft capacities?
  • How many passengers missed their connecting flights, arrived late or didn’t arrive to their destination because their flight was cancelled?
  • How many passenger compensation claims were ignored by your airline and to what extent did the passengers’ comments and complaints on social media affect your company’s reputation?
  • What will you do about it?
If you cannot answer these questions, you don’t quite understand your business, which is why:
  • You may think that a combination of high load factors, high aircraft utilisation, and expansion at congested airports are performance indicators to be proud of, without knowing that they are the causes of hidden disruption losses in cost and revenue and sunk investments that surpass the expected benefits.
  • You may think that the crew shortage reported as the reason for frequent and costly delays may increase the disruption risk and are considering investing in more crew. This could be the wrong decision if you didn’t consider that crew shortage could have been caused by the lack of spare parts or some other reason - problems expected to be resolved within the next few months.
  • You may think that you will increase competitiveness by reducing air fares on routes where you are losing passengers, without knowing that even your most loyal customers will never come back because of the way they were treated during and after their disrupted travel and because of poor services and lack of care when it was most needed.
  • You may think that you can recover hundreds of millions in disruption losses caused by ground handling company which damaged your aircraft (unserviceable for the whole week) without being aware that this is not possible because your information systems are not designed to measure long disruption ripples and link them with authentic costs.
This is why most of the boardroom meetings look something like this:

No current information system nor the gut feeling can help you get these insights. To become a competent decision maker you must be aware how your business is  performing now, not six months or a year ago. At the end of each month you need to dig deeper beyond figures in management reports and keep repairing the broken links. 

It is essential that you constantly interrogate changes and measure their impact. This requires a method and technique that translate operational information into the language of senior executives.

If any of the points mentioned in this post resonate with you contact me at
jasenka@astuteaviation.com to see how I can help.