Strategic Analysis of Airbus - Case Study Example

Table of Content Executive Summary 2 Critical Success Factor of Aerospace industry 2 Critical Success Factor met by Airbus 4 Porters Generic Strategies 4 Generic Strategic Choices made by Airbus 5 Supporting Key resources and Capabilities for the Strategic Choices 6 How do they generate sustainability? 7 Airbus Competitive Strategies and “Suitability, Feasibility and Acceptability” (SFA) 8 Reference 10 Bibliography 12 Appendices 13 Executive Summary Present report presents a critical analysis of Airbus which is among the leading players in the aerospace industry. The report attempts to analyze the strategic approaches of Airbus along with the global aerospace industry in the context of contemporary business environment. The study has identified the critical success factors needed to be considered by the aerospace industries and analyses the effectiveness with which Airbus has executed those factors. Apart from these factors Porter’s Generic strategies have been used to study the generic strategies which can be adopted by the organization to gain competitive advantage. Approaches adopted by the company for attaining sustainable growth have also been discussed in the report. The study has also taken into account the financial performances of the company in the recent years. A comparative study has been initiated to study the performance of Airbus with that of its other prominent competitors. Critical Success Factor of Aerospace industry The Industry: The aerospace industry has a close relationship with the airline industry and the relationship between them keeps on altering and restructuring itself. It had recorded its first downturn in demand after the incident of September 11, 2009 and observed the same with an increased rate of downfall. Among airline companies, low fare segment remained dominant in the industry and many of the larger brands filed for bankruptcy (ATKEARNEY, n.d., p.1). Competitive strategy and industry position: Airbus adopted a strategy of manufacturing high capacity aircrafts which will also be fuel efficient and comfortable. This resulted in the formation of super-jumbo aircraft category. Restructuring of the aerospace industry and European defence led the company to adopt the industry conditions accordingly (Spulber, 2007. p.60). Environmental factors: The industry has observed a gradual increase in the competition level with the entry of some new brands in the aerospace industry such as Bombardier, Jet blue and Embraer. To defend its market share, Boeing slashed its prices for some of its products. The prices were almost equivalent to that of the new industry players. Temporal factors: The larger players of the industry recorded heavy backlogs among which Airbus and Boeing remained most prominent (See Appendix-1). The demand for aircrafts is expected to increase by the next twenty years and according to the forecasted demand, Boeing has predicted its sales figure for next twenty years as 30,000 aircrafts whereas Airbus has estimated the same as 3,112 for the next twenty years. Both Boeing and Airbus are highly influenced by the regional jet industry which is evident from the fact that both the companies have curiously observed the Chinese ARJ21 program. By 2023 Boeing is expecting the demand for single-aisle aircraft to be 13,270 and Airbus has predicted it sales between 2002 and 2020 as 8,259 for aircrafts with seat ranging from 100 to 175 (Aerospace America, 2004, p.5). Managerial position: Global aerospace industry has completed its first century of existence with promising future ahead. Airbus has significantly dominated the industry and sustained its leading position with tough competition from Boeing (See Appendix-2). The Airframe accounts for highest revenue among the three major divisions of Japanese aerospace industry, i.e. Airframes, Equipments, and Engines (See Appendix-3) Critical Success Factor met by Airbus Air bus has remained as one of the dominant players in the industry with tough competition with Boeing. The company has set new standards in the field of civil aircraft manufacturing with special focus on different structural and security improvements of the aircrafts. During 1980s the company introduced its A300B in new version and also launched other significant models such as A310 and A320. To lead the industry, the company developed efficient engines for high capacity aircrafts to accommodate more numbers of passengers. The company also took care of environmental issues and controlled the impact of their product on the environment. The company emerged as the first in the industry with all of its sites awarded with ISO 14001 certificate statuses. For the growth purpose, the company adopted a highly systematized logistics system with highly specialized cargo aircrafts to move its parts and products all over Europe (Airbus-a, n.d.). Porters Generic Strategies Michael Porter demonstrated that organizational strengths of any firm can be influenced by two variables. They are cost advantage and differentiation. These strengths when applied to the specific market form results into three generic strategies which include cost leadership, differentiation, and focus. The figure given below describes the Porter’s Generic strategies in a diagrammatic form. Figure 1: Porter's Generic Strategies (Source: Siegemund, 2008, p.16) The generic strategy supports an organization in exploiting its strengths to generate more profitability and simultaneously defending its market share from different forces of the business environment. The core purpose of the generic strategies is to provide an organization with competitive advantage so that it can remain ahead of its competitors in the market (Siegemund, 2008, p16). Generic Strategic Choices made by Airbus Airbus keeps on expanding its product line with time. However this is also true in case of Boeing which has high level rivalry with Airbus. Both the companies have the tendency of expanding their product lines which poses adverse impacts on their existing product ranges with their price and features. This increases the sensitivity on the demands of the existing products of the companies. To defeat its rival Boeing, the company focused on wide body market which was also preferred by Boeing as its additional sales generate significant revenues for the organization. The company focused on commonality of the products which was further adopted by Boeing also. Regarding this Airbus has always compared the benefits of the new technologies with the purpose of commonality of its product ranges. Airbus, in the context of its product strategy keeps on improving its previous product ranges with additional features and launches them in new versions. The company equally emphasizes on diversifying its product ranges and maintaining the previous models as well. Airbus adopted aggressive marketing strategies against its U.S competitors and tried to identify the reasons behind the reluctant nature of airliners to switch to new suppliers which have recently entered the market place. As a result of these analytical efforts the company developed and implemented the latest technologies of the industry such as aerodynamics, application of materials, and improved aircraft systems into its products. These outputs supported the company to make its presence palpable in the industry. For product innovation the company made collaborations with NASA and other significant technological research institutions. Considering the safety needs of the aircrafts the Airbus has also developed its Automated Landing system and implemented the system in its product ranges (DIANE, 1995, p.2-16). Supporting Key resources and Capabilities for the Strategic Choices During 1996, when European Aerospace industry was lagging behind the U.S aerospace industry some of the European nations such as France, Germany, and United Kingdom jointly decided to encourage the aerospace industry. Highly networked business environment of European nations as a whole supported the company in acquiring essential resources for the product development activities. Some of the major European nations which had a share in Airbus Industry are United Kingdom and France who shared 37.5 percent each while Germany shared 25 percent of the company. This cooperative approach supported the organization to gain strength in terms of procuring essential resources for the business. Apart from them, the Government of Spain and Netherland contributed significantly to the formation of A300 in which 10 percent of the cost of production was borne by both of the governments. Some of the privately owned firms of aircraft manufacturing took part as the subcontractors among which Belairbus of Belgium and VFW-Fokker of Germany remained prominent. These small firms were not a part of risk sharing partners DIANE, 1995, p.2-14). Recent reorganization of the Airbus in 2007 supported the organization to revive its chain of commands and responsibilities for successful completion and organization of aircraft including all of its essential parts (Airbus-b, n.d.). By sourcing 4500 highly skilled employees into the Airbus team the organization formed its military unit as Airbus Military during April 2009. The military transportation division of the EADS, which is the parent company of Airbus, got transformed into Airbus Military. This indicates that EDA has considered the need for differentiation and entered the military and defence segment of the aerospace industry. This helped the organization to gain another major advantage in the global aerospace industry which helped the company to gain access to many global opportunity of expanding its business and serve multiple location clients (Airbus-c, n.d.). How do they generate sustainability? Clear understanding of the cyclical nature of the industry trend and underlying demand has empowered the Airbus with better understanding of the business conditions. The aviation industry has a strong relationship with the social, economic, and technological aspects of the market with additional focus on international coordination (See Appendix-4). The company strictly followed a sound strategic moves accompanied by long term plans for sustainable growth during the global financial crisis. The company perceived the crisis as an opportunity for the larger firms to lead the industry with their innovative approaches and serve larger shares in the market (See Appendix-4). The company signed agreements with Boeing to participate in the Environmental Summit at the Geneva during April 2008. This was done with an aim to develop better approaches for the Air Traffic management and its inter-operability with the companies to control the impacts of the air traffic on the global environmental condition. For improving its environmental concern Airbus has initiated several approaches with the expertise of the industry under the project of Single European Sky ATM (SESAR) programme. SESAR programme is a joint initiative taken up by the private –public partnership in European nations which aims at minimization of environmental impacts of the air transport system and increased air traffic around the world. Airbus is also contributing to the operational activities under the SESAR programme and supporting the Operational and Interoperability Standards development. The whole aircraft system work package of the SESAR programme is led by Airbus. The SESAR programme performs its research and development activities for improving the air traffic management on the platform of Airbus and measure the capabilities of the ATMs (Great Britain: Parliament: House of Commons: Transport Committee, 2009, p.231). Airbus Competitive Strategies and “Suitability, Feasibility and Acceptability” (SFA) Airbus has always shown a passion towards the aviation industry which is very much reflected in the continual improvements made on its product line. To assure such improvements the company performs extensive research for which it has adopted a collaborative approach towards learning and developing new technology. Since the company has its roots in the European nations, availability of resources was never a major issue but due to its controversial relation with U.S trade departments and major aviation companies of U.S origin it is now facing difficulties. One of the largest aerospace companies of U.S, Boeing, is a significant competitor of Airbus. Innovation and technological empowerment serves as the key competence for Airbus through which it has gained strength and expanded its business around the world. The company believes in the concept of growing together as a result of which employees from different backgrounds are selected which helps in exchange of ideas and development of expertise. The huge base of 52000 employees from different origins is considered as the most valuable asset of the organization and the employee base consist of people from more than 85 nationalities (Airbus-d, n.d.). For ensuring the sustainability of the organization, a well maintained governance system and a concern for enterprise risk management are present in the organization. Involvement in different environmental controlling initiatives describes the company’s concern for the environment. The SESAR programme is one of such kind of examples which proves that the company has effectively approached towards sustainability of the growth. In context of business strategies the company has always adopted effective strategies which suit the respective business environment. The company has made its entry into very-large-aircraft (VLA) markets where it needs to have a high end technological innovation practices skilled and efficient base of employees and other required resources. This collectively seems to be a costly affair for the organization as it already has outstanding loans from the nations of European region (Najjar et al., 2006). The company is capable enough to undertake projects without the governmental support. However lack of governmental loans might pose a risk since the backup cushion would be missing. This could be a risky affair for the organization and their chances of losing customer base to the rival organization may increase (Matlack, 2004). Airbus’s business receives the most potent threat from its rival Boeing, which has already produced options for customers against Airbus latest launches (Babej & Pollak, 2006). So the company needs to identify new areas of development by which it can gain competitive advantage against its rival organizations. Reference Airbus-a. No date. Airbus- corporate information- Innovation and technology. [Online] Available at: http://www.airbus.com/en/corporate/innovation [Accessed on April 15, 2010]. Airbus-b. No date. Airbus- Corporate information- People and Organziation- Centre of Excellence. [Online] Available at: http://www.airbus.com/en/corporate/people/centres_of_excellence [Accessed on April 15, 2010]. Airbus-c. No date. Corporate information- People and organization- Airbus Military programmes. [Online] Available at: http://www.airbus.com/en/corporate/people/airbus_military [Accessed on April 15, 2010]. Airbus-d. No date. Corporate information- Ethics and Commitment. [Online] Available at: http://www.airbus.com/en/corporate/ethics [Accessed on April 15, 2010]. ATKEARNEY. No date. The Shifting Roles of Suppliers. [Online] Available at: http://www.seaonline.org/docs/Restruct_aerospa-B5929.pdf [Accessed on April 14, 2010]. Aerospace America. 2004. Aerospace America- New competitors for Airbus and Boeing? [Online] Available at: http://www.aiaa.org/Aerospace/images/articleimages/pdf/beatapril04.pdf [Accessed on April 14, 2010]. Babej, M. & Pollak, T. May 24, 2006. Forbes- Boeing Versus Airbus. [Online] Available at: http://www.forbes.com/2006/05/23/unsolicited-advice-advertising-cx_meb_0524boeing.html [Accessed on April 15, 2010]. DIANE. 1995. Global Competitiveness of U. S. Advanced-Technology Manufacturing Industries: Large Civil Aircraft. DIANE Publishing. Great Britain: Parliament: House of Commons: Transport Committee. 2009. The use of airspace: fifth report of session 2008-09, report, together with formal minutes, oral and written evidence. The Stationery Office. Matlack, C. September 24, 2004. Businessweek- Boeing vs. Airbus: It's Getting Ugly. [Online] Available at: http://www.businessweek.com/magazine/content/04_38/b3900083_mz054.htm [Accessed on April 15, 2010]. Najjar et al. January 1, 2006. Boeing and Airbus: Competitive Strategy in the Very-Large-Aircraft Market. [Online] Available at: http://hbr.org/product/boeing-and-airbus-competitive-strategy-in-the-very/an/KEL022-PDF-ENG [Accessed on April 15, 2010]. OBG. 2009. The report: Saudi Arabia. Oxford Business Group. Siegemund, C. 2008. Blue Ocean Strategy for Small and Mid-sized Companies in Germany: Development of a Consulting Approach. BoD – Books on Demand. Spreen, W. 2007. Marketing in the international aerospace industry. Ashgate Publishing, Ltd. Bibliography Anonymous-a. No date. Critical Success Factors Examples; Reports on Different Companies. [Online] Available at: http://www.coursework4you.co.uk/essays-and-dissertations/critical-success-factors.php [Accessed on April 14, 2010]. EADS. No date. EADS. [Online] Available at: http://www.eads.com/1024/en/eads/eads.html [Accessed on April 15, 2010]. Hitt, M., Ireland, R. & Hoskisson, R. 2008. Strategic management: competitiveness and globalization : concepts & cases. 8th ed. Cengage Learning. Irwin, D. & Pavcnik, N. March 2003. Airbus versus Boeing Revisited: International Competition in the Aircraft Market. [Online] Available at: http://www.dartmouth.edu/~npavcnik/Research_files/airbus.pdf [Accessed on April 15, 2010]. Rodenberg, J. No date. Competitive Intelligence and Senior Management. Eburon Uitgeverij B.V. Spulber, D. 2007. Global competitive strategy. Cambridge University Press. Appendices Appendix 1 – Single-aisle order backlog February 2004 Manufacturer Aircraft type Backlog Airbus A318, A319, 973 A320, A321 Boeing 737-600, 737-700, 824 737-800, 737-900 (Source: Aerospace America, 2004, p.4) Appendix 2- The largest international aerospace companies (Source: Spreen, 2007, p.17) Appendix 3- Japanese Aerospace Industry (Source: Spreen, 2007, p.21) Appendix 4- Oxford Business Group taking to Tom Enders, CEO of Airbus (Source: Oxford Business Group, 2009, p.121) Read More