Explanation of the Hub and Spoke Business Model

The hub and spoke business model was pioneered by the transportation industry, but the lessons that have been learned from those who have implemented this model have been adopted by companies in every industry. At its core, this business model works from a central hub. Out of this hub go several routes, or the spokes of a wheel, that lead to the end result.

The classic form of this business model is still seen in the aviation industry. Airline carriers will operate most of their fleet out of one central airport. They’ll service many different routes and visit hundreds of cities every day, but their base of operations and most of their assets remain at the one central hub. It becomes the foundation that helps the rest of the business continue spinning on toward profitability.

Why Is This Business Model So Useful?

What the hub and spoke business model accomplishes is centralization. Instead of having multiple leaders all trying to do the same thing, the hub model creates a hierarchy of control where centralized commands can be issued. From there, the orders filter on down through the spokes so that a maximum level of efficiency can be maintained.

Because everything is centralized, the policies and procedures of an organization can be implemented with greater accuracy. It also creates a more consistent product because there isn’t the natural individual variations that occur when multiple people are responsible for the same or similar responsibilities.

The structure is very similar to a traditional chain of command. In the military, orders are issued from a commanding officer in charge. The orders filter down to other officers, who then implement the orders based on the personnel that they have. If a general is a hub, then a major could be a spoke and the enlisted personnel would be the outer rim of the wheel that turns as they work.

This gives the hub and spoke business model one unique advantage: everyone is equal. There are different parts of the wheel with different roles, but in the end everyone is on the same wheel that is spinning.

Are There Problems With This Business Model?

The primary issue with the hub and spoke business model is that it relies on perfection. When everything is working in harmony together, then the entire system is incredibly efficient. If just one spoke were to get out of place, however, the entire model can start to experience problems.

There can be a number of issues that create problems outside of the central hub.

  • Employees might disagree with a decision and not implement the centralized commands, which would create inconsistencies along the supply chain and ultimately disrupt the business model.
  • Unexpected elements that are introduced into the system, like bad weather that strikes an airport, can create delays or cancellations that affect the entire hub and spoke system.
  • A breakdown at the centralized hub for whatever reason could potentially create a catastrophic, instant collapse of the business since it supports the entire weight of the organization.

To avoid these problematic situations, what organizations have started to do is to implement a multiple hub system. For the aviation industry, this would mean having different airports all having centralized control for their region. A central hub, a headquarters, would still control the entire system, but the lower level hubs would have the authority to issue commands within their region as necessary to keep the business operational.

Why Choose the Hub and Spoke Business Model?

Even when problems do strike the system, the hub and spoke business model is cheaper than most other models. Because everything is centralized, there is no need to pay for duplication throughout the entire organization. Instead of having 4 people overseeing the mechanic divisions of an airline, for example, just one person could do that.

The costs of maintenance and repair are also much cheaper. Transporting needed repairs to a centralized location allows for consistent training and oversight of skills. It is also more cost effective in the long term to send consistently trained people out along a spoke than it is to put someone on the spoke and train them locally.

The hub and spoke business model isn’t for every organization, but many do use some components of it. The lessons learned here are to centralize, be consistent, and organize so that delays can be minimal. If that would benefit your organization, then consider implementing this structure today and you might just see some cost savings as a result.