D Design For F M the Marketplace
Stakeholder Value and the Evolution of Commercial Aircraft
Paul Collopy Engineering Economist DFM Consulting, Inc. D Design For F M the Marketplace Stakeholder Value and the Evolution of Commercial Aircraft
• Evolution of Commercial Aircraft
– Aerospace Products are Complex Adaptive Systems
• Stakeholder Value
– Who are Stakeholders?
– Surplus Value Theory
– Applications D Design For F M the Marketplace Motivation for this Research
• A simple paradigm for understanding success and failure in commercial air transport
• A guide to developing successful air transportation equipment
• A decision support model for airline strategies
• Basis for a technology evaluation model over the domain of aircraft, airlines, airports, etc. D Design For F M the Marketplace 2,500 BAe RJ BAe 146 EMB-145 Evolution in Commercial Aircraft 328 JET F-100 F-70 F-50 Beech 1900 Saab 340 2,000 Piston Props ATR 42/72
Turboprops Jetstream
Shorts 330 EMB-120 A340 Jets A330 1,500
A320
Concorde L-1011 A310 A300 BAe 748 Twin Otter 1,000 F-28 777 F-27 Electra 767
BAC 1-11 757
747
737 Aircraft manufactured per year Aircraft manufactured 500 727 Constellation Comet
707 CRJ 200/300 B377 DC-8 DC-2 B307 DC-7 DC-10 MD-11 CRJ 700 Electra DC-4 B247 880/990 DC-9 Boeing 80 DC-3 DC-6 0
1930 1940 1950 1960 1970 1980 1990 2000 D Design For F M the Marketplace BAe RJ BAe 146 EMB-145 Evolutionary Processes 328 JET F-100 F-70 F-50 Beech 1900 Saab 340 2,000 Piston Props ATR 42/72
Jetstream
Shorts 330 EMB-120 A340 Jets Failure A330 1,500
A320
Concorde L-1011 A310 A300 BAe 748 Twin Otter 1,000 F-28 777 F-27 Electra 767 Success Extinction BAC 1-11 757 747
737 Comet 500 727 Constellation
Aircraft manufactured per yea manufactured Aircraft 707 CRJ 200/300 B377 DC-8 DC-2 B307 DC-7 DC-10 MD-11 CRJ 700 Electra DC-4 B247 880/990 DC-9 Boeing 80 DC-3 DC-6 0
1930 1940 1950 1960 1970 1980 1990 2000 D Design For F M the Marketplace Evolution of Complex Adaptive Systems
Mature System Early System Life entrenched design fundamental innovation Increasing Value Value Landscape
per Stuart Kauffman, The Origins of Order and Kim Clark & Carliss Baldwin, Design Rules D Design For F M the Marketplace A Closer Look at Evolution
Turbofans
Turboprops
Concorde Piston Props
First Jets Metal Monoplane (Comet, 707) (Boeing 247) D Design For F M the Marketplace What Is Value?
Altitude in the Mountain Metaphor
• Net Value delivered to Stakeholders – Benefits minus costs or penalties
• Almarin Phillips (RAND) rule: – New DOC + Cost of Capital < Old DOC
• Questions Remain:
– Who are Stakeholders?
– How is value to particular Stakeholders combined? D Design For F M the Marketplace Stakeholders
• Passengers – Freight Customers • Airlines • Airports • Equipment Manufacturers – Airframes – Engines • Society (Externalities) – Noise and Pollution – Economic Growth D Design For F the Marketplace M Travel Speed Contract Stakeholders Passengers Flexibility Comfort Ticket Price Reliability
Oper Operating Airport Rent Airline Costs Costs
Price
Infrastructure Costs Manufacturers
Production Costs, Development Costs D Design For F M the Marketplace Single Firm Model
Transport Travel Speed Speed Flexibility Handling Freight Passengers Comfort Reliability Rates Ticket Price Reliability
Operating United Aircraft and Transportation Co. Costs
Infrastructure Costs Production Costs Development Costs D Design For F M the Marketplace Single Firm Model — Elaborated
Travel Transport Speed Speed Flexibility Handling Freight Passengers Comfort Reliability Rates Ticket Price Reliability
Payload Operating Surplus Value Costs Utilization
Infrastructure Costs Production Costs Production Volume Development Costs D Design For F M the Marketplace Surplus Value Theory
Transportation Revenue
The Profit Pie Aircraft Profit
Engine Profit Engine Mfg Cost
Aircraft Mfg Cost
Operator Profit Operating Cost Competition determines how the pie is sliced, but the bigger the pie, the larger the pieces D Design For F M the Marketplace Key Theorem of Surplus Value Theory
Any technology, product design, or strategy the increases surplus value will increase or not affect the profits of each contract stakeholder, assuming effective bargaining.
A rising tide lifts all boats D Design For F M the Marketplace Example: Surplus Value Maximizing Networks
• Lowest cost per mile traveled is on point to point service • Surplus Value maximizing networks concentrate traffic on point-to-point service by discounting nonstop flights • Revenue maximization, on the other hand, leads to – hub and spoke network – premium charge for point to point (what the market will bear) • In the long run, Surplus Value maximizers will drive revenue maximizers to extinction – or, at least, to small niche operation D Design For F M the Marketplace Some Implications for the Future
• Great leaps across the design space are difficult until we better understand optimal design – Blended wing body aircraft are out of reach • Passenger networks will tend more toward point-to-point – Aircraft designs that cater to point-to-point service will be more successful – Boeing’s 7E7 is better targeted than Airbus A380 • However, 7E7 does not seem to balance cost / performance to maximize surplus value (trade $250 mfg cost / lb. of weight) • Same argument suggests engine bypass ratio should be < 8 D Design For F M the Marketplace Evolution of Commercial Aircraft — Summary
• Commercial aircraft can be viewed as a community of complex adaptive systems – branching and extinction are common processes • Evolutionary success is determined by relative contribution to surplus value – Revenues minus costs around the boundaries of unified contract stakeholders provides a simple model of surplus value, the driving force for evolutionary success • Surplus value model provides a metric for comparing aircraft designs, prospective technologies & airline networks