Slowing Growth and The Worlds Most Anticipated Aircraft

by Jörgen Eriksson on February 1, 2013

The airplane stays up because it doesn’t have the time to fall.

– Attributed to Orville Wright (1871 – 1948), U.S. aviator explaining the principles of powered flight.

This blog post is about technical innovation, its limits and what it means when it gets increasingly more difficult to bring out innovation, when technology becomes more complex and basic customer demands are already fulfilled.

Ethiopian_Airlines_Boeing_757-200Some weeks ago I was travelling from Rome to Addis Ababa in Ethiopia, and then onwards from Addis Ababa to Harare in Zimbabwe. I was going there for a few days of commercial due diligence work.

I was travelling with Ethiopian Airlines and from Rome to my transfer destination, I was on one of the oldest aircrafts that I have ever been on. It was a Boing 757, taken in use in 1991 and with the cabin most likely not renovated since. it was a long-haul flight but my seat was broken and there was no entertainment system in the cabin. Only the excellent service from the elegant and cheerful flight attendants saved the experience.

Later in the night I made my transfer and boarded the next plane for my end destination. I had little hope of a better experience, and  mark my surprise when I entered the most modern aircraft that I have ever been on. The surprise was complete as it was such a contrast to the previous flight.

Introducing the Dreamliner

Ethiopean DreamlinerThere I was, at the outdated and worn international terminal in Addis Ababa, and I was entering the most anticipated airplane of modern aviation history, the Boing 787 Dreamliner. The experience was immense.

The airplane is fully packed with innovation. It is built with new composite materials. It uses less fuel and is much less noisy that other aircraft. It has 30% larger windows than other planes and give you a clearer view outside.

What is even better it has higher ceiling height, allowing for a sense of volume of space, and the stowage bin is 30 percent larger than in other aircrafts,  allowing each passengers to store at least one large bag in an overhead compartment.

Inside the Boing 787 Dreamliner

Further, it has flat-bed recline, reading lamps, a sate-of the-art in-flight entertainment system, large LCD screens and enhanced gaseous filtration system. The cabin in the aircraft is pressurized to a match a maximum of 6,000 feet as compared to 8,000 feet in other aircraft. By keeping a higher pressure it reduces dizziness and headache for passengers. I could really feel this. I was more confortable during the flight than I normally am in other aircrafts. In short, travelling with the Dreamliner is an experience you look forward to return to.

Ethiopian were the first airline to bring jet service to Africa and they were also the first to bring this game-changing aircraft to the continent. They use the Dreamliner for triangular cross continental flights.  Below is a video about the comfort onboard.

 

The flip side of the coin

The Dreamliner entered commercial service on October 26, 2011. Already in the first year of service, at least four aircrafts suffered from electrical systems problems. In December 2012, Boeing CEO James McNerney told media that the problems were no greater than those experienced by the company with the introduction of other new models, such as the Boeing 777. However recently, the aircraft has suffered from more severe in-flight problems, such as its Lithium-ion batteries catching fire in-flight. Since  a couple of weeks, all existing Dreamliner’s are grounded until safe solutions are found.

Last week I met a friend and fellow parent at my sons school. My friend is a long-haul delivery pilot for Airbus and when I told him that I had been on the Dreamliner he was surprised and said he would not go near that plane for several years. He said that in the aviation industry it is critical that all systems are proven by many flight hours and that Boeing had packed too much innovation into their new dream aircraft. He concluded by saying he himself would feel safer in the 22 year old Boeing 757.

Boeing’s problems shows the traumas that increasingly complex high tech disruptive innovation can bring.

Through its existence, Boeing has stressed innovation and technology. During the 20th century, Boeing dominated jetliners thanks to its willingness to invest whatever it took to be the technology leader. The competitors innovations did not fare as well.

The British- made Comet, the world’s first passenger jet, flew in 1952, before designers at de Havilland Aircraft Ltd. fully understood metal fatigue. Two mid air Comet disintegrations killed almost 100 people. By the time de Havilland redesigned the plane, Boeing and McDonnell Douglas had overtaken as industry leaders.

AirplaneBy the end of the 1990s Boeing had for cost-saving reasons throttled back on innovation and was threatened as market leader by Airbus. The Dreamliner program was initiated in 2004 as a return to technology leadership. Boeing said the plane would leapfrog advanced technologies at Airbus. It was to be built from innovative materials and it would rely more on electricity to run its systems than existing planes, which used hydraulic and pneumatic power. The advances meant it would burn 20% less fuel and cost 30% less to maintain than current models, Boeing promised.

During the Dreamliner’s development, Boeing was focused on innovation in its supply  chain. The company came up with a plan in which suppliers would become partners and would finance and produce entire sections of the 787, taking on greater risk but also a larger share of revenue from each jet sold. Half a dozen main suppliers were put in charge of building big sections of the aircraft.

The plan was for Boeing to make 30 percent of each 787 and buy 70 percent. However by taking this approach, Boeing reduced its own control of risks. The company pays for this, at first with substantial production delays and now with problems that risk the public confidence in the construction.

Boarding passI am a frequent traveller myself and during my close to 20 years of weekly air travel, I have experienced only four major incidents. Once a flock of birds flew into and damaged the propulsion system on a two engine Boeing 737, forcing emergency landing. Another time the small turbo prop plane I was travelling with had to make an emergency landing in Basel due to heavy thunderstorms.

A third time, landing at Castries small airport on northern St Lucia in the Caribbean’s, the American Eagle plane I was on almost missed the end of the runway and came to a stop just in front of a large fuel tank. A fourth time I experienced an emergency landing in Hamburg due to a leaking fuel system. All these events were scary at the time of uncertainty, but not really dangerous.

Modern air travel is very safe and the incidents are infrequent and seldom lead to anyone´s harm.  Despite the current technical problems I look forward to travel with the Dreamliner again. In my recent flight the pilot made a turn over Mount Kilimanjaro and we got an excellent view of the snow-capped mountain from the planes large windows. Such experiences are rare in life.

The root to the problem

The Dreamliner’s problems reflect a trend in technical innovation. Innovation in already invented technologies in mature economies such as America’s seems stuck in a perpetual slowdown where each new iteration becomes harder and more costly to achieve. Companies are in situations of global hyper competition and in general they focus on incremental innovation on a broad front, rather than gambling with developing new radical or disruptive technologies.

It is true that there are new breakthrough innovations, such as the internet and many enhancements in information technology, bio- and nanotechnology, but for the most part development in the technologies that facilitates our everyday life is slowing down, after the incredible explosion during the 20th century. Even worse, radical new technologies are often blocked by companies and value-chains where they would cannibalize on the existing products and manufacturing processes.

Space-X taking offA few companies like  SpaceX and the electric car company Tesla Motors, both owned and run by Elon Musk, are the rare examples of recent attempts to leap forward boldly. However Elon Musk is generally not encouraged as heroically as the innovators of the 20th century were in their days, like Howard Hughes and Henry Ford.

The Economist published an article in the January 12th issue, labeled “Has the ideas machine broken down?” The article argues that innovation in United States has slowed down. According to the article, Peter Thiel, a founder of PayPal says that innovation in America is “somewhere between dire straits and dead” and that engineers in all sorts of areas share similar feelings of disappointment. The Economist also argues that a growing group of economists reckon the economic impact of the innovations of today may pale in comparison with those of the past.

Can it be that technological advancements in maturing economies are in fact slowing down, and that we on a macro level are entering the flattening stage of the S-curve?

What it really is about

The argument that the developed world is on a technological plateau is based on low growth statistics.  At the moment, in the rich world, it looks like there is less of it about.

Economists divide growth into two different component types, “extensive” and “intensive”.

Extensive growth is a matter of adding more workforce quality and numbers, more capital and input resources. These are the sort of gains that countries saw from adding women to the labour force in greater numbers and increasing workers’ education. This sort of growth is logically subject to diminishing returns. The first addition will be used where it can do most good, the tenth where it can do the tenth-most good, and so on. Thus, extensive growth is likely to be subject to diminishing returns. It is therefore often viewed as having no effect on per-capita magnitudes in the long-run. Reliance on extensive growth can be undesirable in the long-run also because it exhausts resources.

Intensive growth is powered by the discovery of ever better and more efficient ways to use workers and resources. This is the sort of growth that allows continuous improvement in incomes and welfare, and enables an economy to grow even as its population decreases. To maintain economic growth in the long-run, especially on a per-capita basis, it is good for an economy to grow intensively; for example, by improvements in technology or organisation, thereby increasing the production possibilities frontier of the economy. Economists label the all-purpose improvement factor responsible for intensive growth “technology advancements”, though it includes things like better laws and regulations as well as technical advance.

Utskrift

The overall rate of progress today really seems slow compared with that of the early and mid-20th century. The Economist writes:

Take kitchens. In 1900 kitchens in even the poshest of households were primitive things. Perishables were kept cool in ice boxes, fed by blocks of ice delivered on horse-drawn wagons. Most households lacked electric lighting and running water. Fast forward to 1970 and middle-class kitchens in America and Europe feature gas and electric hobs and ovens, fridges, food processors, microwaves and dishwashers. Move forward another 40 years, though, and things scarcely change. The gizmos are more numerous and digital displays ubiquitous, but cooking is done much as it was by grandma.

Or take speed. In the 19th century horses and sailboats were replaced by railways and steamships. Internal-combustion engines and jet turbines made it possible to move more and more things faster and faster. But since the 1970s humanity has been coasting. Highway travel is little faster than it was 50 years ago; indeed, endemic congestion has many cities now investing in trams and bicycle lanes. Supersonic passenger travel has been abandoned. So, for the past 40 years, has the moon.”

Developing countries are finally actually developing

The rise of the developing countries is the best reasons for optimism. The larger the size of the global market, the more the world benefits from a given new idea, since it can then be applied across more activities and more people. Raising Asia’s poor billions into the middle class will mean that millions of great minds that might otherwise have toiled in farming can instead join the modern economy and share the burden of knowledge with rich-world researchers. A sharing that globalisation and information technology makes ever easier.

Emerging markets still manage fast growth, and should be able to do so for some time, because they are catching up with technologies already used elsewhere. The rich world has no such engine to pull it along, and it shows.

Economists call this The Convergence Hypothesis, i.e. the productivity growth rates of poorer countries tend to be higher than those of richer countries. The idea behind the convergence hypothesis is that productivity growth will typically be faster where the initial level of productivity is lower. Low productivity countries will be able to learn from high productivity countries as scientific and managerial know-how spreads around the world.

PPP per capita

A country that is operating at the technological frontier can improve its technology only by innovating, and this at an increasingly expensive and slower rate as explained above. But a less advanced country can boost its productivity simply by imitating, which is cheap and quick. That I flew for the first time with the Dreamliner from Addis Ababa to Harare is a perfect illustration of this phenomena.

About Jörgen Eriksson :

Jörgen Eriksson is the founder of Bearing and is the Chairman of the firm since it was created. He has successfully expanded Bearing into covering projects on four continents. He is also Adjunct Professor of Innovation Management at the International University of Monaco and at Universitat Politècnica de Catalunya in Barcelona and he is an active member of the Founders Alliance organisation.

Working with consulting engagements across Bearings practices, he has over the past fifteen years participated in and supervised a large number of client projects, from innovation system development and place development and branding, to merger and acquisition assignments and leading edge research and business development activities for key clients.

His new book, Branding for Hooligans, will be published in 2015. It is about how innovation and branding are key survival factors in our modern times of hyper competitive markets.

Prior to Bearing, he was Director of Europe, Middle East, and Africa for Trema Treasury Management, a technology and consulting services provider, supplying financial software solutions for the global financial industry, Clients included The European Central Bank, Citibank, SEB, South African reserve Bank, Deutsche Bank, Abu Dhabi Investment Authority (ADIA), as well as many other large financial institutions and Fortune 500 companies.

Early in his career Eriksson was educated at the Stockholm School of Economics, where he studied economics, financial economics and philosophy. He then worked in Scandinavian investment banks and also for the Swedish Institute of National Defense Research.

You can contact Jörgen on e-mail jorgen.eriksson@bearing-consulting.com, connect on LinkedIn on http://fr.linkedin.com/pub/jörgen-eriksson/0/38/8a0/ and follow him on twitter on joreri508.

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