David Rose

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On December 13, 2015, David Rose commented on TransDigm: Nothing Plane About It :

This a unique look into a B2B company that operates in a very lucrative space but gets little to no press. I would be interested to know more into how the company structures this unique management style to increase production efficiencies on its lines. As a company that has to deal with very large, slow-moving bureacratic entities such as the government and aircraft manufacturers, I’m amazed that it has managed to design a growth strategy that focuses not on repeat business, but rather on strategic acquisitions of suppliers that operate in the same space that TransDigm does.

I think that one difficulty that it may run into as it grows is that large entities become very careful not to rely on single-source suppliers so as not to give the supplier too much power. In the future, TransDigm will need to expand out of the long-time horizon aerospace and defense industries, and this will force changes in its business models as increased competition forces it to transfer more captured value to the customer.

This is a very interesting business model and allows the Nigerians the ability to capture more of the value inherent in their consumption of tomato paste. I see two primary areas that Tomato Jos must master after reading this summary. First, they must develop a tomato paste process which at least matches the competitor’s quality and efficiency of production. Second, they must master the distribution to overcome the inefficiencies of third-world infrastructure and distribution networks. The first and the second require different types of talent and capital to master. I think that it would be smarter for there to be two separate companies: one to master efficient quality production of tomato paste, and one to master getting the tomato paste and other possible value-add to local produce cheaply through the local infrastructure to the retail point, much like we saw with the ITC eChoupal case. With other oil-rich West African States facing the same issues with depressed import prices, Tomato Jos could easily export both models to neighboring countries such as Ghana or Liberia.

Very interesting points on how ASML structures its operational model to account for the seasonal up and downturns in the market. This allows the company to maintain a standard level of R&D investment, but it may also be that their unique capital intensive structure and dominant market share allows them the flexibility to match the timing of their capital outlays on infrastructure with periods of high profitability. You make the point about the importance of the entrepreneurial culture in the company, so I think it would interesting to see how the company structures its permanent and temporary structures to quickly pass this culture onto a large cohort of new hires.

I think that the future of innovation at ASML likely lies in its ability to balance advances in performance in chip structures while still maintaining the affordability and mass production capability of these chip structures. ASML’s real enemy may be the “Moore’s Law” that you talk about above. In order to continue to sell improved machines and equipment to its suppliers, ASML has to be able to justify that these machines are more powerful and just as cost-efficient as the last set that ASML sold them. As we approach the phsycial frontier of how small quantum mechanics allows transistors to be on chips, Moore’s law will ultimately collapse and ASML must prepare now for the changes and opportunities that this will present to its current business model.