I responded in a comment in the Post, followed by a shorter summary, which I present here in reverse order, and maybe I can get some comments or afterthoughts to this line of reasoning.
Short version:
I get too wordy, so I wanted to restate my prior post more concisely. Maybe, it's not possible to make lots of money for stockholders by treating both employees and customers like cattle, while treating top management like kings with no spending limit.12/3/2007 6:58:24 AM
Long version:
The odds of cascades of delays go up to 100% as the planes pass the maximum efficient load, which sounds like it's around 80-85% full. That's a fact of general systems and mathematics of Little's Law, which I discuss on my weblog in more detail. (see: Why are so many flights delayed). Nothing can be done to change that law, so there's no relief there.
The real question here, it seems to me, is why Southwest, which is known for having good human relations with employees and never forcing layoffs even in hard times, can make a profit while bigger airlines cannot.
Everything they taught us MBA's talked about "economies of scale." By that logic, Southwest should be broke. Instead we have dis-economies of scale. Same laws of physics apply, larger airlines should be able to get cheaper prices on almost everything.
So my reading is that what the large airlines are doing is destroying human morale and the economies caused indirectly by cooperation and collaboration, which are easy to see in the bottom line but hard to trace back to the causes. CEO's paid huge salaries while pilots and flight attendants and mechanics lose their pensions. There's a huge cost to that unfairness the US hasn't sprung to.
Toyota has, and they can do things much more efficiently than US auto companies. They know how to listen as well as preach, and they know how to make a workplace where employees enjoy working AND work efficiently.
Maybe this analysis misses something, but I think the question of how Southwest survives seems to be the only place with possible leverage here.12/3/2007 6:41:25 AM
The core issue here is a critical one and a central theme to this weblog -- what is the magic that makes a corporation thrive, or any adaptive collection of people, from a team to a nation?
It's not magic, it's "synergy" - the non-linear power revealed when people work together on purpose sincerely, as opposed to the silent, sullen, competitive model US industry grew up with and which is serving us so poorly today, compared to the Toyota model.
I've posted before how the "product" of two things ranges from zero to infinity, based on the "angle" or relationship between them, mathematically. If the relationships are kept in the "real number" range, the maximum product of A and B is A times B. If we can move into what are called "complex numbers", there is no upper limit.
The problem is that the world is so complex today that the only way to operate at a profit is to use your limited resources up in that hyper-productive range. The problem is that this means the wealth-generating power of the organization chart is actually in the white space, not in the little boxes.
If you restrict life to the boxes, there is a finite limit on resources available, and if the CEO or stockholders are going to extract more wealth from the living body of the organization, it comes out of the flesh of the organization and diminishes the remaining life.
The problem then, as my post on why flights are late shows in a chart, is that we get into a death spiral. The less life the organization has, the less efficiently it works. The less efficiently it works, the larger percent of operating capital is extracted to send anything to the CEO and the stockholders. The larger percent extracted, the less life is left in the organization.
The result of turning the nut or loop that direction is clearly predictable -- after extracting so much blood from the animal, it dies. This is a model that is about as enlightened as blood letting was, the kind that killed our first US President, George Washington.
But, the feedback loop doesn't care which way it goes. Whatever direction you get it moving, it will accelerate in that direction. So, it can just as easily go the other way, with CEO's taking less a percent out of the company, reinvesting more in the "white space" of human values and social capital, which can (if done correctly) make the whole beast operate more efficiently and effectively, which creates so much more wealth that the smaller percent is a larger sum of money, which lets the CEO take out a smaller percent next time, so it grows more, etc.
By treating companies the way our fishing fleet treated the Georges Banks, once the richest fishing area in the world, we are going to end up the same way the Georges Banks ended up - an underwater desert, of no value to anyone. We ate all the seed corn.
This world of synergy and distant, diffuse causality is a new environment and the learning curve of American industry is startlingly low -- even with models like Toyota in cars or Southwest with airplanes.
The only way out of the airline delay crunch is to have more planes, or to raise the prices so high that most people give up flying. The price raising strategy, pretty much GM's strategy for the auto market, only takes you so far, and you discover there is an upper limit to what people or businesses will pay for your product or service, and a finite number of really rich people, who can just "go around" and buy their own jets if commercial travel is going to be such a pain. Again, a death spiral in that direction.
Ironically, this feedback loop is doubled because one passenger on a private Lear jet takes up more airspace than 450 passengers on a 747, so every rich passenger or business that's driven away makes the congestion problem that much worse for everyone else, while apparently solving it for themselves, for the short run -- until everyone does it, and then the final state of man is worse than the first.
The "more planes" requires lower operating costs with the same size staff, which means getting into that "white space" of synergy. There's no question this is hard to visualize, but it's critical to figure out how to make this sufficiently solid and visible that it affects the way business measures itself. We've just been terrible at good accounting for "human factors" on an individual basis, and close to zero on accounting for "social factors" on a social capital level.
That has to change or the "obvious" choice for which way to run the spiral will continue to be wrong. And the worse things get, the more fixated and obsessive CEO's will get on layoffs and other "cost cutting" moves, or simply despair, grab their $20,000,000 golden parachute and bail out because, strangely, the "bigger whip" and "deeper cut" strategy just doesn't seem to be working. Then the Board can hire some gunslinger with an ever bigger whip who promises deeper cuts, and keep turning the nut the wrong direction.
To them, it "doesn't make sense" to go the other way, and is seen as "failure" to admit that the numbers all indicate the present strategy seems to be failing to help, or , God forbid, actually making things worse.
Not to worry, I guess. The planet will weed out all the "over my dead corporation" CEO's and replace them with younger, thriving, agile companies, probably Asian, like Toyota.
Unfortunately, as investors notice that profits are down in old-model companies and up in new-model companies, they'll shift their investments to the new ones, putting even more pressure on the old ones to "make a profit."
There is no more profit to be made inside that loop, stealing from Peter to pay Paul. The profit is off to the side, and the whole structure has to be rotated the other direction so it will spiral up the bolt instead of down it.
I wish there was a more vivid way to illustrate or animate that problem and process, but the headwinds of legacy thinking are very strong.
It's not magic, it's "synergy" - the non-linear power revealed when people work together on purpose sincerely, as opposed to the silent, sullen, competitive model US industry grew up with and which is serving us so poorly today, compared to the Toyota model.
I've posted before how the "product" of two things ranges from zero to infinity, based on the "angle" or relationship between them, mathematically. If the relationships are kept in the "real number" range, the maximum product of A and B is A times B. If we can move into what are called "complex numbers", there is no upper limit.
The problem is that the world is so complex today that the only way to operate at a profit is to use your limited resources up in that hyper-productive range. The problem is that this means the wealth-generating power of the organization chart is actually in the white space, not in the little boxes.
If you restrict life to the boxes, there is a finite limit on resources available, and if the CEO or stockholders are going to extract more wealth from the living body of the organization, it comes out of the flesh of the organization and diminishes the remaining life.
The problem then, as my post on why flights are late shows in a chart, is that we get into a death spiral. The less life the organization has, the less efficiently it works. The less efficiently it works, the larger percent of operating capital is extracted to send anything to the CEO and the stockholders. The larger percent extracted, the less life is left in the organization.
The result of turning the nut or loop that direction is clearly predictable -- after extracting so much blood from the animal, it dies. This is a model that is about as enlightened as blood letting was, the kind that killed our first US President, George Washington.
But, the feedback loop doesn't care which way it goes. Whatever direction you get it moving, it will accelerate in that direction. So, it can just as easily go the other way, with CEO's taking less a percent out of the company, reinvesting more in the "white space" of human values and social capital, which can (if done correctly) make the whole beast operate more efficiently and effectively, which creates so much more wealth that the smaller percent is a larger sum of money, which lets the CEO take out a smaller percent next time, so it grows more, etc.
By treating companies the way our fishing fleet treated the Georges Banks, once the richest fishing area in the world, we are going to end up the same way the Georges Banks ended up - an underwater desert, of no value to anyone. We ate all the seed corn.
This world of synergy and distant, diffuse causality is a new environment and the learning curve of American industry is startlingly low -- even with models like Toyota in cars or Southwest with airplanes.
The only way out of the airline delay crunch is to have more planes, or to raise the prices so high that most people give up flying. The price raising strategy, pretty much GM's strategy for the auto market, only takes you so far, and you discover there is an upper limit to what people or businesses will pay for your product or service, and a finite number of really rich people, who can just "go around" and buy their own jets if commercial travel is going to be such a pain. Again, a death spiral in that direction.
Ironically, this feedback loop is doubled because one passenger on a private Lear jet takes up more airspace than 450 passengers on a 747, so every rich passenger or business that's driven away makes the congestion problem that much worse for everyone else, while apparently solving it for themselves, for the short run -- until everyone does it, and then the final state of man is worse than the first.
The "more planes" requires lower operating costs with the same size staff, which means getting into that "white space" of synergy. There's no question this is hard to visualize, but it's critical to figure out how to make this sufficiently solid and visible that it affects the way business measures itself. We've just been terrible at good accounting for "human factors" on an individual basis, and close to zero on accounting for "social factors" on a social capital level.
That has to change or the "obvious" choice for which way to run the spiral will continue to be wrong. And the worse things get, the more fixated and obsessive CEO's will get on layoffs and other "cost cutting" moves, or simply despair, grab their $20,000,000 golden parachute and bail out because, strangely, the "bigger whip" and "deeper cut" strategy just doesn't seem to be working. Then the Board can hire some gunslinger with an ever bigger whip who promises deeper cuts, and keep turning the nut the wrong direction.
To them, it "doesn't make sense" to go the other way, and is seen as "failure" to admit that the numbers all indicate the present strategy seems to be failing to help, or , God forbid, actually making things worse.
Not to worry, I guess. The planet will weed out all the "over my dead corporation" CEO's and replace them with younger, thriving, agile companies, probably Asian, like Toyota.
Unfortunately, as investors notice that profits are down in old-model companies and up in new-model companies, they'll shift their investments to the new ones, putting even more pressure on the old ones to "make a profit."
There is no more profit to be made inside that loop, stealing from Peter to pay Paul. The profit is off to the side, and the whole structure has to be rotated the other direction so it will spiral up the bolt instead of down it.
I wish there was a more vivid way to illustrate or animate that problem and process, but the headwinds of legacy thinking are very strong.
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