At the core of the Boeing business model, it seems like the process is pretty simple. Boeing designs airplanes and then sells them. That’s what many businesses do today to make money. When looking deeper into the success of this business model, however, it is interesting to note that Boeing has experienced a strong virtuous cycle thanks to the dominance of some of its aircraft for several decades.
What is a virtuous cycle? It is a series of decisions that leads a business to be able to effectively compete with its competition. For Boeing, it only has one primary competitor, so implementing a solid virtuous cycle has been remarkably simple. With the dominance of their 747 aircraft, Boeing has been able to corner the passenger transport market. Up to 70 cents of every dollar that Boeing has made since the 1969 introduction of this aircraft beast has come from the 747.
Knowing the virtuous cycle can help any business find the success that has been found with the Boeing business model. With a good virtuous cycle, the rest of the competition can be put into a vicious cycle and the result is better profitability that is experiencing virtuousness.
What Are the Key Elements of the Virtuous Cycle?
The components of the virtuous cycle are designed to promote a more efficient environment. The end result of each cycle is typically lower product costs through better manufacturing methods. It is not uncommon to see jobs lost as profits are gained because it takes fewer people to make the same products. Here are the 6 steps of each virtuous cycle.
Increased production efficiency.
This makes is faster and easier to produce the same products for the market than before.
As the workplace becomes faster and processes become more efficient, it becomes cheaper to produce the same goods.
Because goods are cheaper to produce, they can be sold to customers at lower prices without affecting the overall profit margin. Profits can actually increase while prices decrease in a strong virtuous cycle.
As the lower prices hit the market, customers want more of the product because they can better afford it. The result is an increase in orders as more customer segments have access to something they want.
A learning curve is implemented.
The increase in orders also provides an organization with information they can use later on. New customer segments have specific needs that could be met, for example, and this information can then be put into the product being manufactured.
The economy of scale changes.
Increased orders result in a higher demand on the workers manufacturing the product. This requires production methods to become more efficient so the increased orders can be handled.
A virtuous cycle will not stop unless there is an internal or external influence that affects it. For the Boeing business model, this would mean that their main competitor would need to design and manufacture an aircraft that could compete with the 747 or Boeing would have to stop selling it outright.
How Does Boeing Keep Virtuous Cycles Going?
To stay out of a vicious cycle, the Boeing business model continually looks at innovation, production methods, and alternative markets to create profitability. Passenger airlines aren’t the only place where Boeing makes money. They have a division that builds spacecraft. They consult with startup airlines with an internal accelerator program that may even supply Boeing aircraft for better brand recognition. Each niche of the industry has its own virtuous cycle.
There must also be enough flexibility to adapt to changing conditions. When Airbus introduced the 380 aircraft, it weakened the virtuous cycle of the 747 for Boeing. Recognizing that the cycle was weaker, Boeing focused their attention on other cycles that could be strengthened, such as mid-size aircraft or the 787 Dreamliner. The lesson of the Boeing business model is simple: add strength when weakness is sense and a company will stay strong.
With multiple cycles spinning strongly, profits are generated with every completed feedback loop. Boeing has recognized that the same cycles can spin within their employees as well to create superior services and quality products. With better training comes more empowerment. More empowerment develops a better service. Better services then create better customer satisfaction and ultimately higher levels of customer loyalty.
What comes with higher levels of customer loyalty? Better sales and more profits. That’s why the Boeing business model has been so effective. By focusing on each virtuous cycle and helping them to spin as quickly as possible, they will continue to dominate in their industry.
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