SpaceX: Revolutionizing Space Travel

Company Overview:

SpaceX is a private company founded by Elon Musk in 2002 that manufacturers and launches rockets and other space crafts. [1] It’s currently headquartered in Hawthorne, California and has grown to 4000 employees as well as three launch facilities across the nation and one development facility. Today, SpaceX is the fastest growing provider of launch services and offers commercial businesses and government agencies the ability to purchase a launch contract for either of its manufactured rockets: the Falcon 9 and Falcon Heavy.  Astoundingly, in less than 10 years, SpaceX has created the world’s most powerful rocket with more than twice the payload-to-orbit capacity but at 1/3 of the cost of competitor rockets. [2] SpaceX has achieved this feat in large part due to its tight alignment between its business model and operating model.

Business Model:

SpaceX maximizes simplicity, low costs and reliability in its business model. As stated on the company’s homepage, SpaceX was created to “[develop] reusable rockets to transform space exploration at radically reduced costs.” SpaceX passes on value to its customers by charging lower prices enabled by its focus on reliable and low cost solutions to manufacturing rockets and providing launch services. Musk has reiterated that the company’s goal at this stage is not to maximize profits, but instead revolutionize space technology. [1] The company is profitable and is cash flow positive, but the value Musk wants to create is the ability to make space travel as affordable as possible. This mindset allows SpaceX to break away from the industry’s current “cost plus” contracting system, which provides little incentive for other companies to minimize costs as the system allows for higher price points. Additionally, SpaceX emphasizes collaboration with NASA, experts and commercial players as a way to further advance technology and create innovative solutions.

Operating Model:

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• Low costs across the company. Before founding SpaceX, Musk travelled to Russia several in an attempt to procure an IBM or Russian rocket. However, the cost of these outdated rockets were prohibitively expensive, and Musk became determined to create an affordable rocket on his own. In order to maintain the “mindset of low-cost frequent and standardized transport”, SpaceX takes a holistic view of minimizing costs, and identified potential cost cutting areas not just in the rocket manufacturing but also to overhead, support functions and developmental timelines. [3] Musk and his team created an overarching low-cost architecture, which enabled them to innovate at the same level across all functions instead of having to prioritize one action over another in terms of budget allocation. Furthermore, SpaceX took both a long term and short term view to lowering costs with its decision to create and manufacture its own rockets, minimizing costs at every step of the design process. Though a more costly upfront endeavor, this will enable them to sustain their business over the long haul.
• Manufacturing in house. 85% of the Falcon rockets and Dragon spacecraft is produced within SpaceX. [4] The emphasis on vertical integration affords SpaceX substantial control over its costs and allows them the ability to cut the launch price by a factor of 10 and still enjoy 70% gross margin. [4] Musk states that with this integration, he is “so confident that our performance will increase and our prices will decline over time, as is the case with every other technology.” [5] By focusing on aligning the company’s operating model with the business’ overall goal, Musk has taken the extremely niche and complex market of space travel and made it more manageable by viewing it as simply another technology company seeking to gain traction.
• Simple, proven designs. SpaceX further improved its operating model by creating designs that are simple and can be applied to various products. SpaceX created one type of engine family (the Merlin engine) that could be used for all of their manufactured rockets with small design tweaks. This decision helps to keep costs low and facilitates continued iteration and technological improvement across all of their end products.
• Emphasis on product development. SpaceX has done an excellent job navigating the tension between developing new products and keeping costs low. SpaceX management acknowledges that low cost is only beneficial to the company if it is able to still build more advanced products. SpaceX’s state of the art development facility and launch testing sites encourage rapid innovation and testing of new devices. The company has made a concerted effort to circumvent supply chain vendors because they believe in their established low cost, R&D processes. Instead of buying an overpriced contract for engine valves from and aerospace vendor, SpaceX dedicated R&D resources to develop an improved valve to fit their specific needs. This was accomplished in several short months, much to the astonishment of the vendor who had originally scoffed at the company’s plans to create the solution themselves. [2]

Conclusion:

Elon Musk is known for his strong will and unwavering commitment to an idea, and he is determined to enable travel to Mars. Though many may scoff at his grandiose idea of colonizing Mars, SpaceX has unambiguously generated spectacular results in reducing the cost of space exploration without sacrificing quality. Musk appears to realize that his company’s operating model is his strongest asset in chipping away at his ultimate dream; every action SpaceX has taken thus far is tailored to achieving alignment between the operating model and business strategy. Regardless of his ultimate success or failure in reaching Mars, SpaceX has demonstrated that operational efficiencies and commitment to a business strategy can be brought to any market, no matter how niche or obscure.

Sources:

[1] http://www.spacex.com/about/capabilities

[2] http://www.airspacemag.com/space/is-spacex-changing-the-rocket-equation-132285884/?no-ist=&page=2

[3] https://hbr.org/2013/04/what-spacex-can-teach-us-about

[4] http://www.airspacemag.com/space/is-spacex-changing-the-rocket-equation-132285884/?no-ist=&page=2

[5] http://www.spacex.com/about/capabilities

[6] http://www.spacex.com/about/capabilities

Images:

• http://www.space.com/23727-spacex-falcon-9-rocket-launch-photos-ses8-satellite.html
• https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwiMq-ON2c_JAhWCRz4KHaYyCKIQjRwIBw&url=http%3A%2F%2Fwww.spacex.com%2Fnews%2F2013%2F03%2F31%2Freusability-key-making-human-life-multi-planetary&psig=AFQjCNFW5lk-RUee5nKyK1uHLup2zy660w&ust=1449782027681988
• http://www.npr.org/templates/story/story.php?storyId=127237460