Three companies power the world’s jet aircraft: Rolls Royce, Pratt & Whitney, and General Electric
For decades the triopoly fought a war of attrition to increase thrust while reducing weight and fuel consumption. When one leapt ahead, the losers got back in the fight by cutting price.
Before long margins ran as thin as turbine blades.
Redefine the problem. Change the game.
The game changed when an outsider from GE Finance came over from the Leasing division. GE Finance leases planes to the airlines, and he was painfully aware of their vulnerabilities to repay their loans. He knew that planes make money in the air, and accrue costs on the ground.
He posed a radical proposition to a room full of rocket scientists.
“Airlines don’t need engines. They need up time.”
A partnership between GE’s leasing and aviation businesses proposed a new offering.
“Don’t buy our engines. We’ll keep them. We’ll maintain them. We’ll replace them. You just pay us for ‘up time’.”
GE Aviation transformed from a product vendor to a strategic service partner.
They retained ownership of their engines and leased them to their airline customers, but only got paid for “up time”. So they took the burden of proactive maintenance and replacement very seriously, becoming world experts in avionics data analytics, event prevention, and rapid-turnaround maintenance on the tarmac.
As you might expect, when you redefine the problem, you redefine your business.
GE eventually became agnostic about the engines, and offered to buy, maintain and eventually replace their competitor’s engines that were hanging under their customers’ wings. In effect they became the customer. GE eventually knew their competitors’ strengths and weaknesses better than they did.
By partnering with an outsider, GE was able to look at the problem from a new angle. They found the airlines’ pain by obsessing over their customer’s business model, rather than their own. GE elevated from the slugfest among three commodity vendors, to crafting a monopoly for a better solution.