SOR 503 Profit Today Versus Profitability
Chris talks about what ‘profitability’ is … and it is not ‘profit today.’ Why is this distinction important? Because focusing on profitability takes care of all of your future ‘profits today.’ But it does not work the other way around. There are plenty of contemporary examples about how we can get this wrong – think Boeing and the ‘mess’ it is currently in. Want to learn more? Please listen here!
Join Chris as he discusses ‘profitability’ versus ‘profit today.’ Chris talks about the issues Boeing is facing today as a result of the catastrophic crashes of its 737 Max 8 aircraft. Aircraft that as of today cannot fly – even though airlines across the world have paid a lot of money for lots of them. Boeing can’t tell us when they will be back in the air because they don’t know what is wrong with these aircraft – aircraft that were once ‘certified as safe.’ So Boeing is in a state of turmoil right now. And it is all because it focused on ‘profit today.’
- Boeing phase 1 – 2013 to 2018. The then CEO was very popular with his shareholders and the board of directors. Boeing was making lots of money. But he was making his suppliers, relevant regulators, foreign governments and competitors unhappy (in a particularly negative way). Boeing’s ‘Partnering for Success’ imposed arbitrary cost reductions on suppliers. He tried to limit a competitor (Bombardier) from competing with Boeing in the market place. Problem was that the Trade Commission didn’t support Boeing’s claims. And so we have a somewhat unscrupulous approach to driving down costs and using mechanisms besides ‘just making better aircraft’ to increase market share. And this affects organizational culture.
- Boeing phase 2 – 2018 to now. Two of Boeing 737 Max aircraft crashed, killing hundreds of people. Both were (at least) partly caused by an ‘MCAS’ system malfunctioning, overriding the pilot controls with the onboard computer thinking that the aircraft was sharply diving when it was in fact not. And there is now a lot of evidence to suggest that Boeing rushed to get aircraft certified – perhaps jeopardizing ‘good’ engineering practices. And the CEO responded by (1) calling the US president and not the head of the Federal Aviation Administration or FAA (2) repeatedly setting and failing to meet deadlines for FAA certification of the proposed fix to the MCAS system – which as of now still hasn’t been resolved. It should be worth noting that the FAA controls its recertification schedule – not Boeing.
- Big picture? Airlines have lost confidence in Boeing’s ability to understand the problem – let alone fix the MCAS. No one knows what it will take to have these aircraft in the air. So airlines have ‘nothing’ for the money they paid.
- So what. Phase 2 is a product of Phase 1. Increasing ‘profit today’ is most easily done by not spending on the future. The second easiest way of increasing ‘profit today’ is changing the rules. Rushing through certification when a system has no right to be certified. Trying to bar competitors from your marketplace. Both are alluring options. Easy. Gouging money with no immediate effect. Trying to make rules apply to everyone else and not you. But the effect will come.
- It’s worse than simply ‘gouging money.’ Because those alluring options for maximizing profit today take you away from your core business. Designing safe aircraft. Manufacturing reliable consumer products. Making something that customers like. And so on. And this is the key to profitability.
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