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Allan Sayle's Comment

Column 4: 11 January 2006.

Understanding your market – always a high stakes game

Quality people correctly recite the importance of creating deliverables’ specifications on the basis of “customer requirements”. They then correctly advise the organization’s management systems (quality program et al) must ensure compliance with customer requirements. However, when one chats with most organizations’ quality departments’ folk, what quickly emerges is their (unwitting) inadequate involvement in the efforts that are supposed unearth and decipher what it is the customers, i.e. the market, wants. More crucially, what it will want. Their efforts still tend to concentrate on “compliance with specification”. But, as the last three decades’ several thousand delegates to my training seminars know well, I advise: what if the specification is flawed?

While preventing avoidable costs is vital in execution of orders and the organization’s activities (and the two are not the same thing), of the most dramatic avoidable costs is that associated with delivering what the market will not, does not want or never did, want. Even if the deliverable in and of itself is “defect free” in terms of meeting its associated specification, an un-sellable product is a 100% defect in and of itself. The actual monetary numbers can vary, but they are only a matter of scale. For every firm, it is a high stakes game.

Occasionally we witness truly enormous judgments on what the market will want. At present the most dramatic may well be the different strategies of Boeing and the Airbus component of the European Aeronautic Defence and Space Company, EADS. The latter will introduce into service, in late 2006, its fabulous A380, “Super Jumbo” aircraft that can accommodate up to 850 souls plus crew. (Despite rotten cabin service, so rife these days, I do still believe cabin crews possess souls!) It is designed to serve routes between large cities (a.k.a. hubs). Boeing, though, has eschewed a super jumbo in its product portfolio believing the future pattern of travel will dictate smaller jets traveling from point-to-point, as the highly successful low cost airlines, such as Ryanair, Southwest Airlines, Jet Blue choose. Those airlines, of course, lack any real presence in the international long haul sector and their buying patterns are not really the issue when it comes to this matter of super-sized sized, trans-global aircraft. Flag carriers, though, are recognizing the benefits of point-to-point for their intercontinental flights between populous cities. Small wonder Singapore Airlines will be of the first to fly the A380 given the geographic size of Asia, its exploding economic growth and Asia’s distance from Europe, Australia and North America.

Personally, it seems both plane makers’ arguments are right. We are witnessing the rise of mega cities around the world. Sao Paulo, Shanghai, Mexico City, and Mumbai, to name a few, whose populations will eventually exceed 20 million. Such numbers are greater than entire populations of some sovereign nations. If the correctness of Boeing’s 747 design was proved at a time when major cities, such as London, New York, Sydney, Johannesburg and Tokyo were in the 10 million region, simple extrapolation based on a doubling of city populaces and the fact that air travel is far more affordable than it was in the 1960s, when the Jumbo jet made its debut, sways me towards thinking EADS has correctly predicted the need for an aircraft holding about twice the number of passengers as the 747. And, I recall similar debates back then about how could an airline fill so many seats (400)! Well, it was a case of “build it and they will come”. And they did. And, for both firms, they will.

Boeing, too, has it right in that we are seeing expanding air travel between large and small (not mega) cities and large towns. People like to fly but the probability of 800 hourly passengers wanting to fly between Durban and Cape Town, or Dusseldorf and Glasgow, is small. (It is like the nonsense advocates of the Channel Tunnel spoke when they claimed the Chunnel would allow 400 people to travel every hour from Birmingham to Paris. One could not foresee some 9600 of Birmingham’s citizens doing that 365 days a year.)

Both EADS and Boeing place enormous bets on the outcome of getting their decision right. The A380, for example, is estimated as costing $15 billion in start-up and production costs, meaning the firm must sell about 250 units to break even. (At the time of writing it has secured around 160 units deliverable to 15 or so airlines. The customers include Richard Branson’s Virgin Atlantic: Sir Dick, its Chairman, apparently is vowing to install double beds for honeymooners, in the Virgin configuration, thereby bringing a new meaning of in-flight service for the mile high club.)

The underlying fact gathering, market analysis and decision making required by the plane makers is, obviously, vital. The quality of those processes must be uncompromising, given the numbers and risks involved. Their quality programs must embrace those processes. The outcome of the decisions will affect the firm’s capital investment and agility for years, if not decades, to come. Not to mention their various stakeholders.

You may not work for a Boeing or EADS, but the principle is the same. The risks are the same. If your quality program does not fully embrace those matters, the determination of market requirements, it must. If your audit program does not assess the structure and efficacy of the supporting management systems, it must. If you are not discussing such issues with your top management and asking them to uncompromisingly examine them, you should for, otherwise, you are failing in your duty. What you do know with certainty, in our globalized world, some firm somewhere will be addressing those matters as it tries to win market share and build its brand at your avoidable cost.

© 2005 Allan Sayle Associates. All rights reserved.

Web: www.sayle.com



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