Strategic Management: The Case Of Boeing
The aviation industry has become one of the essential component for mobility in the current scenario. It has made travel between two places located at far distances, much easier and faster. For instance, travelling between Frankfurt and London, takes 1 hour and 45 minutes via air travel. Over the past years, many companies have established themselves for providing air travel services, for example Lufthansa, Emirates, British Airlines and the list grows. Product plays the biggest role for these airline companies to function. These products called ‘aircrafts’ are designed, manufactured and supplied by two well known companies- Boeing and Airbus. This paper is focused on Boeing and its strategies in the current scenario.
The company started its journey in the year 1914 when William Boeing took his first flight. In 1915, he founded the Pacific Aero Products Co. and renamed to Boeing Airplane Company in 1916. It was in the year 1919 when the first commercial aircraft flew between San Francisco to Chicago for the purpose of transporting mail. With the development of the Airmail business in the country, Boeing got its first funding in 1927. Boeing was making its in the military. The F-86 was the Boeing’s first successful jet which even outnumbered the USSR. Boeing stepped into the commercial airline business when it introduced its first aircraft, Boeing 707, in the year 1952. It also achieved a great deal in the aerospace business by taking in the Saturn V project, which took the first man on the moon. In 1970, Boeing design and built the first 747, making it the largest commercial aircraft in the entire world. Currently the company has an employee strength of 153,000 employees and revenue of 101 billion dollars. With its headquarter situated in Dallas, Texas, the company is the world’s largest aerospace manufacturer and has earned a name in the commercial and defence segments.
The tool used to analyze the current status of the company is called Strategic Gameboard. This tool was designed by one of the leading consulting firms, Mckinsey n Company. This tool uses three different categories under which the company can be analyzed- “Where to compete”, “How to compete” and “When to compete”. The following categories is explained below:
1. Where to Compete:
In this category, there are five dimensions under which the company is analyzed.
The customer of Boeing varies into Commercial, Defense, Aerospace and Air Cargo. Although the customers of defence and aerospace are majorly from the North American region with NASA as the largest aerospace company. With respect to the defence market, the United States military shares 60% and rest 40% is shared by its allies. In terms of the commercial market, the customers belong to the airline companies working with a FSNC or Full Service Network Carrier business model. For instance United Airlines, Lufthansa, Emirates are some of the airline companies which have a huge demand for large aircrafts with a seating capacity of 500-600 passengers. Boeing serves its customers based on the air traffic between regions for example the air traffic between North America and Europe is higher than the air traffic between the regions of Africa and Europe.
Over the past decade, Boeing has continued to offer a wide range of products and services in different sectors including commercial, defence, aerospace and air cargo as the leading segments. With reference to the commercial segment, the company have developed family of aeroplanes which has the 737, 747, 767, 777 and the 787 aircrafts with a seating capacities in increasing order. There has been new development efforts taken into improving the 787-10 Dreamliner, the 737-Max and the 777X. The company also takes its luxurious and business class passengers into account and developed the Boeing Business jet 737 which has a seating capacity between 25 to 50 passengers, offering a first class experience to its customers. The company also launched the one of its largest aircraft which was part of the 787 family i.e. the 787-10 Dreamliner with a seating capacity of 350 passengers. This aircraft earned a record of the world’s fastest around the world trip at 470 knots from Seattle to Dhaka. The company has also made its name in the defence sector. Some of the products offered by the company include helicopters (Apache AH-64), jets (F-15), bombers (B-52), autonomous systems, unmanned aircrafts, missile systems and the Air Force One. The company solely serves the US military and its allies in this segment. In the aerospace sector, Boeing offers products and services like global positioning systems, space stations, satellites and unmanned vehicles for Mars and Lunar missions. NASA is its largest customer in this segment.
Boeing has no geographic limiters in terms of its commercial and air freight markets. Although, with reference to the defence and aerospace markets, the company has geographic limiters based on its base of operation in the country of United States of America. Currently, the company have growing markets in the Asia and Pacific regions.
The company is highly active in social media platforms like Facebook and Google, to let the people have a look at the innovative approaches and developments in the field space and air travel. Although the company can survive without any interaction with the public, as the company follows the B2B or business-to-business model of doing business with its customers.
Degree of Vertical Integration:
Boeing owns different parts of the value chain based on the different business segments. On the commercial business segments, many of the parts are outsourced to third part suppliers whereas the final assembly, packaging and dispatch is taken care by the company itself. In terms of the defence and aerospace segments, data security plays a significant role. Under this reason, the company takes responsibility of manufactures some products and critical parts in its own facility.
2. How To Compete:
Value Proposition to customers:
Boeing has gained dominance in the commercial airline market with its wide range of products offered. Airbus is the only airline manufacturer which is at par with the company. With aircrafts having a maximum seating capacity of 400 passengers, Boeing has gained an advantage over its competitor. The higher number of aircrafts the higher the sales and revenue for the company. With its headquarters in the United States, the quality of the products is never compromised. Therefore, customers can rely on the products for quality and precision.
Boeing have a huge advantage over its competitors. Firstly, the company is leading manufacturer for four sophisticated segments which is commercial, defence, aerospace and air cargo. Secondly, with its headquarters and manufacturing units situated in the United States, the company gets many government based contracts for both defence and aerospace. This gives the company an undue advantage over its competitors to gain profits in the both the segments.
Although the customers started to lose their trust on the company with the development and failure of the 737 Max aircraft. Boeing has accepted the aircraft was designed and built due to competitive pressure.
Boeing has a partner like relationship with its suppliers.
The two stakeholders which will be impacted by the company is the US Government and the customers. The US government shares a huge percentage of the company’s market as Boeing is the second largest defence contractor of the US government. The company also develops products and provide services to the largest space research organization, NASA. Even the American Airlines buys aircrafts from Boeing. The other stakeholders are the customers which mainly includes the low cost carriers. The LCC companies have a huge fleet of aircrafts of the 737 family of aeroplanes having seating capacity of 150 to 200 passengers. Therefore, the business of these companies depends on the success of the company.
3. Where to Compete
Under this category, the company is analyzed under two subheadings, market entry/exit and Exercising options.
According to the reports of 2019, Boeing has made a total of 44,040 aircraft deliveries out of which 17,390 aircrafts were delivered to the Asia-Pacific region. This has led to an increase in the GDP by 2.7%. It is projected that the air travel market will become 2.5 times larger in the next 20 years. It has also been forecasted that there will be a 29% increase in the air traffic between the European and North American regions. With the growing of e-commerce sector, the airline company will also see a boost in the sales of air freighters over the next 20 years.
Boeing came up with the 737 Max in response to the A320neo developed by Airbus. The A320 neo had a 14 per cent fuel efficiency. The 737 Max was a similar aircraft giving a better fuel efficiency. Although, Boeing had to increase the size of the engine to improve the fuel efficiency. This destabilized the aircraft, which led two major crashes. The company had also installed a new software called the MCAS or the manoeuvring characteristics augmentation system. This software did not respond properly during the two crashes. The investigators came up with two reasons, firstly, Boeing rushed the production of the aircraft and secondly delayed software responsiveness and updates. These are the areas, where the company should exercise their efforts. Boeing has already taken steps to improve and upgrade the software.
Vision and Mission Statement:
The vision of Boeing is “Best in Aerospace and Enduring Global Industrial Champion”.
The mission statement of Boeing reads “Connect, Protect, Explore and Inspire the World through Aerospace innovation”
Is Boeing inline with its vision or mission statement or any corrective strategic action is required?
Boeing is inline with regards to the vision and mission statement. The aircraft manufacturer has set a benchmark for air travel at present and for the future. It is the only aircraft manufacturer that offers products and services to the major fields having air travel as the key factor. The company has a well developed market in commercial air travel and also supports air freight companies to transport expensive and sensitive goods to far destinations in a short duration. With the development of aircrafts with advanced technologies and autonomous systems, the company has enabled to connect people around the world through air travel. However, the failure of the 737 Max was a major setback for the company. The two crashes involved a death toll of 346 people. Due to this reason the aircraft has been grounded and the production of the 737 Max has been put on hold. This has also incurred many losses for the company. Boeing will have to upgrade the aircraft with the necessary safety precautions in order to regain the people’s trust. On the contrary, Boeing has kept its pace in the aerospace segment. On 22nd December 2019, Boeing’s CST-100 Starliner completed its first mission after orbiting for two days around the globe. The Starliner successfully completed objectives including deorbit, re-entry and landing. In this way, Boeing is living with its vision to be the best in aerospace.
As a strategic supply chain manager:
As a strategic supply chain manager, my first advice to the company would be to continue the production of the 737 Max aircraft. Instead of putting the production on hold, I would take the initiative of coming up with an internal investigating team to analyze the faults that led to the major incidents. With the results, strong actions would be taken to correct and upgrade the aircraft, with all the safety measures intact. I would highly recommend to train the pilots in different situations. With the manufacturing of each and every aircraft quality gates will be established before the final dispatch. I would also take into account the main customers purchasing this aircraft in the loop. I would also make sure of the manufacturing and assembly of the aircraft in our own facility, so that we can keep the aircraft as our priority. All the participant involved in the manufacturing of the aircraft will be kept in the loop. This will help us to regain trust between our company and suppliers involved in the process. These decisions will help the company to convert its failure into success.