MASTER OF BUSINESS B USINESS ADMINISTRATION ADMINISTRATION
MGT 6798
CASE METHODOLOGY:
An Individual Assignment
Submitted to:
Mr. Ayub bin Hj. Khalid
Submitted by:
Fakhrul Anour bin Abdullah
G1136857
0|Page
CONTENTS
1- ABSTRACTS
Page 02
2- INTRODUCTION
Page 03
3- PROBLEM STATEMENT
Page 07
4- SWOT ANALYSIS
Page 09
5- CONCLUSION
Page 10
6- RECOMMENDATION
Page 12
7- OTHER REFERENCES
Page 14
1|Page
ABSTRACT
“In a year filled with big events and changes, one of the biggest was this; we stopped thinking of ourselves as just an aerospace manufacturer and began to think of ourselves in a much broader way as a provider of integrated products and services to all of our customers.” — Phil Condit, 1999 (President & CEO)
B&W, first plane created and built by William Boeing seen here harbored at Roanoke Hanger, Lake Union in 1916. Government of New Zealand was the first customer used the B&W for airmail and pilot training.
Airline industry is an aviation business that consumed high cost with expected marginal return not less that million in order to survive its products and services maintenances. The history of BOEING® started as a hobby by a man who had made his fortune in lumber business with Greenwood Timber Company. Thus there’s no cheap entry for the industry but it is not an easy exit too, when considering the market share supply and also stakeholders’ demand along with government responsible of societal need — sustaining sustaining is another strategy with no ending plan! 2|Page
INTRODUCTION
Since BOEING® was founded in 1916 by William Boeing; it has become the world’s largest aerospace company, and
for decades had dominated the world’s commercial aviation market. But as the industry matured, the position as the market leader shifted down when for the first time of its existence, a rival, Airbus based in Europe outsold BOEING® in year 1999. By year 2003, the Airbus Company delivered more airplanes and that had given more pressure to BOEING®. With high competition of William Boeing (1881-1956)
Airbus against BOEING®, the pressure of being challenged
continued with business strategy of product differentiation between the airplane producers. Then the pressure continued with the terrorist attacks of September 11, 2001, which translated into rescheduled airplane orders.
► Conrad Westervelt (1879-1956), Navy engineer that assisted the hobby of William Boeing in building planes that then became a successful aviation business.
As respond to the pressure, new strategy, ‘e-Enabled’ was unveiled in June 2003 and by 2004, its leadership assembled a team at the BOEING®’s commercial airplanes division. Chris Kettering was appointed as the Program Director by Lou Mancini, Vice President of Commercial Aviation Services which then added another key player, and Scott Carson who was vice president of the Connexion by Boeing™ business unit at the time.
3|Page
BOEING® sales performance against Airbus throughout the years:
Year 1999 - Airbus outsells Boeing for the first time. While back in 1994, during Frank Shrontz as President and CEO, it was called BOEING®’s ‘annus horribilis’ (horrible year!) by Fortune magazine where earning shrank by nearly half, to $856 million, and slashed 9,300 employees from its payroll of ® 126,000. It was not the first slash when back in 1968, Thorton ‘T’ Wilson (the BOEING ’s president during that time) had to cut workforce from 105,000 to 38,000 accordance to ‘impending disaster’ after U.S. Congress cancelled the development funding of Super Sonic Transport (which would have been the country’s first supersonic commercial jetliner ) with the closedown of Apollo project.
When Frank Shrontz retired as CEO of BOEING ® in 1996, it was succeeded by Phil Condit who had 30 years of experience with the company and was president since 1992. During his tenure, he introduced ‘Vision 2016’ in 1996 annual report that called for BOEING® to become an integrated aerospace company and a global enterprise, designing, producing, and supporting commercial airplanes, defense and civil space systems by the 100 th anniversary in 2016. The vision strategy was centered on three initiatives; run a healthy core business, leverage strengths into new products and new services, and open new frontiers.
“We saw some pockets of need and how to fill those pockets. But there was no systemic, holistic view of how to add them together. (Our task) is to take these building blocks and allow them to work together to further increase efficiency.” — Chris Kettering, 2005 (Director of e-Enabled program)
4|Page
But the impact of employment downsizing during the Shrontz’s leadership has given hard
time for Condit to measure the right tune with his vision when in 1997 it faltered with a failure to meet supply with demand. Production delays caused BOEING® to take a loss of $178 million with a 90% drop of profits for the first quarter of 1998 — that that was the first red ink in 50 years. Then in June 2003 (under new open frontiers of Vision 2016), e-Enabled Advantage was introduced at the Paris Air Show where its strategy is to help airline cut costs, improve dispatch reliability, reduce delays and cancellations, improve passenger service, enhance aviation security and provide real-time situational awareness for both flight crew and airline operations centers.
e-Enabled Advantage
Hangars
Purchasing and Warehouse
FAA (U.S.) DCA (MY) CAA (U.K)
Operations Centre Maintenance Engineering
Real-time connectivity in every aspect of airline operations; flight schedule, maintenance, human resource, and regulatory agencies.
“To be effective, we have to take a consultative approach. We have to ask, what are an airline’s areas of pain or need, and what we do to help solve that? It can’t be, ‘I come bearing a gift of technology’, but ‘I’m helping you to examine what you need to become more efficient.” efficient.” — Tim Mooney, 2005 (Senior Strategist)
5|Page
With ‘e-Enabled’ Advantage and Environment attached to the company long-term strategy along with the ‘Vision 2016’, sponsored by the leaders of BOEING® Commercial
Airplanes (BCS) and housed within the Commercial Aviation Services (CAS), the program was activated with Chris Kettering on board as the director in February 2004.
Our vision of the future of flight is fundamentally linked with technology, services, and keeping customers flying. ® We believe BOEING and its subsidiaries will take a network-centric approach to flight operations and aircraft maintenance, to enhance airlines’ a irlines’ productivity. ► Lou Mancini, 2005 (Vice President of CAS)
With the two main strategy implemented, new model approached to heighten the profit making of the company to sustain its long run business. With services were given priority to sustain its products credibility, BOEING ® was looking ahead with ‘silver bullet’ effectiveness— a direct and effortless solution to a problem.
6|Page
PROBLEM STATEMENT
In the past, the airline industry was at least partly government owned. This is true when in 1916; BOEING®‘s first customer was Government of New Zealand to utilized its first airplane (B&W) for airmail and pilot training. Then in 1919, BOEING® received order for 53 B-1 seaplanes as the United States entered World War I. Within World War I and World War II, BOEING ® grew to be one of the largest aircraft manufacturers in the world. The government owned entity of aviation is still true in many countries, but in the United States all major airlines have come to be privately held. 1 This was explained by how BOEING® successfully entered the commercial aviation market with the Boeing 707 in year 1954. It was the United States' first production jet airliner, and the aircraft with which the US first gained the lead in commercial jet manufacture.2
► The first production airplane of the Boeing 707 commercial jet series made its maiden flight on 20th December 1957, with Pan American World Airways putting the airplane th into transoceanic service on 26 October 1958, and American Airlines following with transcontinental service on 25 th January 1959.
As the market matured, the airline industry exists in competitively intense market. In recent years, there has been an industry-wide shakedown, which will have far-reaching effects on the industry's trend towards expanding domestic and international services.1
“We’re asking people at BOEING and in the industry to do things differently. The biggest risks aren’t technical, they’re cultural.” — Scott Carson, 2005 (Vice President of Sales)
7|Page
This model is a part of the e-Enabled Environment program as a consultative approaches because the value of this program was not about the airplane; rather it is about improving the performance of people in the airline.
With the strategy implementation of Vision 2016 and e-Enabled program, most of the group meetings were usually about how to bear the challenge of putting ideas into practice. The main objective of Lou Mancini (Vice President of CAS) was to continue running a profitable business while integrating each business unit with the strategy. Chris Kettering (Program Director of e-Enabled) was tasked with coordinating the entire effort. While the main concern of Scott Carson was to break down the silos of communication among the different business units. Thus the statements of problem appointed with the case were given not based on the relation among the board of directors and management but how the new strategy may affect the long run sustainability of the company in decades ahead. 1) Could e-Enabling create the kind of sustainable advantage that the airplanes used to provide? 2) Would the advantage be able to withstand the competition so close at hand? 3) Would BOEING®’s transition into services prove to be the silver bullet— the the solution to the airlines’ financial woes and to BOEING®’s aggressive competition with Airbus?
“Getting e-Enabled operations to work in an organization involves personalities, it involves careers and culture.” — Chris Kettering (Program Director)
8|Page
SWOT ANALYSIS
“Whatever we do in e Enabling will never be the sole reason that people buy ® BOEING airplanes. But it will certainly help create a ® preference for BOEING airplanes in the marketplace.” — Scott Carson, 2005
STRENGTHS 1) World’s largest aerospace company 2) Wide product and service range 3) More complete e-Enabled system 4) Strong focus on R&D 5) Strong product in the form of e-Enabled services 6) Healthy financial performance
WEAKNESSES 1) Uncompetitive pricing of eEnabled services 2) Communication silos lack of effectiveness 3) Overly dependent on U.S. government contracts 4) Product differentiation against competitors 5) Labor issues
OPPORTUNITES 1) Air travel growing in popularity in Asia and Latin America 2) Increasing defense expenditure 3) Strengthen eEnabled suite 4) Invest in developing efficient aircrafts
THREATS 1) Increased competition 2) Slowdown in the U.S. and European aviation market 3) Volatile energy markets 4) Cyclical nature of aviation industry
S-O
S-T
As the internet has become widely used by people around the world, the IT consumption will strengthen the e-Enabled ® strategy that BOEING has implemented. Along with other global factors, the need of airline services has increased.
Competition has become a ® major factor to BOEING , yet as pioneer of aviation services and long-standing experience may benefit the company at certain level of business certainty. certainty. With With ® strong R&D, BOEING can overcome threats with ongoing growth planning.
W-O
W-T
Internal weaknesses of BOEING® most likely based on management issues that can be overturned with incoming opportunities to evaluate improvement. With more expenditure offers, labor issues can be solved.
The market competition is highly defined when compared to the uncompetitive pricing of its ® services. Thus BOEING needs to improve its communication stability by taking more global contracts to expand value.
9|Page
CONCLUSION
Though BOEING® has gone through quite a remarkable journey since its existence in 1916, the propelling factor for the airline company is the demand force for transportation services that can cut cost through time with exceeding revenue against supply. That factor incurs high intensive on continuous strategies that will increase leverage to strengthen its sustainable comparative advantage.
Preston Aviation Solutions (acquired in 1998) A comprehensive suite of IT solutions to meet the needs of aviation customers.
Jeppesen Sanderson Inc. (acquired in 2000) Provides a full range of print and electronic flight information services.
Continental Data Graphics Corp. (acquired in 2000) Customized information and documentation to airlines including illustrating and editing materials.
Hughes Electronics Corp. (acquired in 2000) Recognized as the world leader in space-based communications, reconnaissance, surveillance, and imaging systems.
SBS International (acquired in 2001) Provides powerful and flexible tools to manage crew scheduling in both regulated and deregulated environments.
MyBoeingFleet.com (acquired in 2001) Provides powerful and flexible tools to manage crew scheduling in both regulated and deregulated environments.
Through acquisitions, BOEING® has increased the value of its e-Enabled program by holdings companies that offered different advantages to support its IT credibility of the airline system and established a consumer-friendly website to increase airline technical a wareness.
10 | P a g e
After the acquisition, the company further expanded its IT-based strategy with e-Enabled to reach customers on feedback of how to improve the operational quality of BOEING® services by introducing ValSim in 2004. The Valuation Simulation program is a visual model of its customer's business structure using Microsoft Visio to demonstrate how the CAS software portfolio adds value to customer operations. 3
► Still Picture from a ValSim Video Simulation of Airport Activity.3
ValSim Solution — modeled modeled on the Customer Engagement Process, the ValSim interface is both familiar and easy for the sales force to use. Users can also easily connect their laptops to the server to securely download/upload shareable customer data. Now, when CAS sales representatives perform customerengagement work, they're doing more than making a sale: They're adding to the knowledge base of customer information – and and making Boeing that much better at serving its customers.3
Increasing operational efficiencies was seen as a key for the major airlines’ survival.
With the e-Enabled Advantage, many within BOEING® believed that it is the ‘silver bullet’ to deal with the pressures of cost against revenue on demand over supply and aviation competitive market. Also by looking at its e-Enabled Environment, the objective to ensure integrated solutions to services and products will be realized from time to time. As forecasted by analysts, BOEING® will have an average ~5% growth in passenger volume over the next two decades. Thus looking at financial position and e-Enabled performance integrated with the Vision 2016, BOEING® has proved a strategy that might not rapidly increase production of new aircrafts anytime soon, but it may sustain competitive advantage in the airline industry especially to differ against the Airbus.
11 | P a g e
RECOMMENDATION
By approaching the network based strategy via capability of internet in IT solutions, BOEING® has been considered as one of the airline companies that respond aggressively to the technological aspect of a business operations that will increase supply and at the same time may increase demand. The confident level of company’s strategy on such approved has proven effetive by
introducing the fully e-Enabled airplane, BOEING® 787 Dreamliner. Though on the weaknesses part that this airplane may have issues on safety, but the problem was easily traced to be countered through the effectiveness of e-Enabled Advantage Components.
12 | P a g e
Thus to advice the future endeavours of BOEING®’s e-Enabled programs and any other perspectives to venture ahead, analysis of this case has come out with this five factors of recommendation:1) Maintain and develop the integrated suite of e-Enabled solution as there more can be done to improve its existing components, especially on the e-Link, Core Network and Airplane Health Management to further improve the performance quality of airplanes like the Dreamliner.
2) While operating as a commercial aircraft manufacturer and defense contractor, BOEING® should start positioning itself as a solutions provider as well. It is because as a pioneer for the aviation industry, the experience garnered by this company has h as marked its potential to be main consultant on airline sustaining power for other aircrafts aircrafts provider.
3) Offer certain features and software on a free trial or discounted fee to allow airline operators understand the advantages and scope of e-Enabled services. The awareness and widespread of understanding may need to be improved through not only websites but also other source of medias.
4) Strengthen the consultative sales approach – adopt a more proactive strategy to inform airline operators of the e-Enabled advantage.
5) Streamline aircraft variants by reducing certain type of airplanes by increasing another in order to reduce cost maintenance and upgrade job effeciency of flight technical aspects.
Last but not least, ny looking at the financial statements of BOEING®, it has volatile sales to generate positive net income and operating cash flow with increasing total assets every year since 1999. It is consider a healthy balance to the company’s progress in sustaining profit
against loss. But to be precise of future performance, the company should look ahead to improve on its investment and financing activities by having havin g more inflows instead of outflows.
13 | P a g e
OTHER REFERENCES
“We can can increas increasee BOEING BOEING value value to our customers by offering services in addition to airplanes, we need to get involved with our customers and know where they’re going, where they are in their business models, and how we can help them be successful.” — Scott Carson, 2005
1
http://www.investopedia.com/features h ttp://www.investopedia.com/features/industryhandbook/airline.asp /industryhandbook/airline.asp
2
http://www.707sim.com/707history.html
3
http://www.aeroinfo.com/documents/ValSim%20success%20story%20PDF.pdf
4
http://siteresources.worldbank.org/INTTRADERESEARCH/Images/Boeing787.jpg
14 | P a g e
