Endowed Aviation Services
Category: Business Aviation and the Boardroom
Author: Pete Agur
Endowed Aviation Services:
Managing Your Aviation Services As A Business Unit
Aviation services are either endowed from on high or they are managed as a business unit. Which approach you are using may be the difference between the short- and long-term success of the department and its impact for the company, observes Pete Agur.
An endowed Aviation Department performs at the pleasure of its master. I once asked the chairman of a company with an endowed Aviation Department if they were service-focused. He responded, “Indeed they are. And the higher I got within the company, the more focused they have been.” Endowed aviation services reflect the personality and vision of that master - royal barge or egalitarian.
As in the case above, the master of endowed aviation services is usually the CEO. Due to the time constraints experienced by most top executives, the daily administrative tasks of the department may be assigned to a mid-level manager, but there is no doubt to whom the department reports. For better or worse, that reporting point removes the department from many of the corporation's normal checks, balances and resources.
The consequences of endowing aviation services include taking their existence and their performance off the formal corporate agenda. The top management team is expected to accept Business Aviation services as a given. The senior executive sanctions their costs and results. A visionary leader surrounded by operationally- focused executives may use endowment as a way to settle discussions about aviation services.
The operational risks of endowment are directly affected by the strength and competence of the Aviation Department manager. If he or she is an experienced and strong professional, there should be little concern. If the manager is immature or weak, however, there is reduced oversight and support to assure the performance of safety and efficiency of the department. Additionally, there may be unchecked pressures to push operational safety limits to achieve service results.
The organizational risks of endowment may be insidious and can have long-term effects. During the leadership term of the endowing executive, resentment among senior and second level managers can build due to their perception of elitism and waste. This negative atmosphere may be aggravated if the aviation manager flaunts his or her associative power. On the other hand, an insightful and skilled manager can build informal bridges to the rest of the company. The ultimate risk of endowed aviation services is they will be buried with their master. This is especially tragic when aviation services have substantive benefits to the company, despite the former master's style. If aviation services are not endowed, they are likely managed as a Profit Center, Cost Center or Service Center.
The Profit Center approach to managing aviation services typically is considered inappropriate because the department is normally not in the primary business of directly creating revenues. Some departments are used to facilitate sales (Steelcase, Hillenbrand Industries and IBM are well documented historic examples).
Furthermore, Business Aviation often is an integral element in achieving the company’s strategic objectives and implementing its business model. But, assignment of real revenue dollars to aviation department activities is difficult. Some companies charter their aircraft out to defray their overall costs. However, that does not make the aviation unit a Profit Center. Therefore, traditional Profit Center approaches to managing aviation services are rarely used.
Cost Center management is the most common approach used for aviation services. The goal is to achieve the desired outcomes while achieving controlled or minimal costs. Considering these goals, the Aviation Department may report to a financial manager, like the CFO or Controller.
One benefit of having aviation managed as a Cost Center includes the perception that the apparent high costs of this non-core business unit are being effectively managed. This approach works best when a strategically-focused CFO assures that the benefits of aviation services and use of company resources are aligned with the Board’s fiduciary responsibilities to shareholders.
An operationally-focused CFO can place extreme operational and service pressures on aviation services. As an example, the multi-million dollar aircraft can be viewed as a sunk cost while the staffing and development of the department can be managed as incremental costs that must be minimized.
The risk here is for the department to be understaffed, which can lead to aircraft being ready to fly but no one being available to fly them. Or, the staff (out of a sense of service or job responsibility) will fly the aircraft even when they are fatigued. When headcount is considered a cost to be contained, you can easily end up with department managers acting as key parts of the operational team. The result is a department that may not be effectively managed on a daily basis.
The most effective management model is to structure the Aviation Department as a Service Center. The goal of a Service Center is to achieve its support objectives using clearly defined policies, resources, processes and standards while aggressively managing its incurred costs.
One of our clients said it beautifully, “I want five things from our aviation services: Safety, Safety and Safety. I then want service that is in keeping with our business objectives and our corporate culture. Finally, I will treasure every nickel they save making that happen.” With those goals in mind, the most important factor in selecting the reporting point for aviation is the authority of the executive. Among others, the Chief Administrative Officer is a likely candidate.
The benefits of managing aviation as a Service Center are apparent. The department is not being forced into a structure that is designed for the core business’ profit and cost units. Instead, it is being managed as a unit that leverages the success of the strategic activities of the company by creating exceptional time-place positioning for key individuals and teams. The results accelerate the achievement of strategic and operational corporate goals.
In general, there are few risks associated with managing aviation services as a Service Center, but they are worth noting: There can be a lack of accountability due to the power of the passengers. Consider it an unearned halo effect. Another risk is, few aviation managers are strategic thinkers or business visionaries. Without those skill sets, the manager is apt to make operational decisions that are not necessarily supportive of the strategic direction of the company. The obvious responses to these risks are for the reporting executive to provide strategic guidance and cultural balance.
In closing, one of the most common complaints voiced by the executives to whom aviation services report is that this one department takes more of their time to oversee than any of their other responsibilities, by a large margin. This may be a direct reflection of trying to force-fit the department into an inappropriate management model, like a Cost Center. The vast majority of companies would be best served if their Aviation Department was managed as a Service Center. The results can have enduring positive impacts, strategically, operationally and organizationally.
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