Financial Position of Boeing, Its Strategic Management - Case Study Example

BOEING Table of Contents Executive Summary 3 Introduction 4 Financial Position of Boeing 4 Four Year’s Financial Report Analysis of Boeing 5 Comparing Boeing with Industry 6 Contribution of Boeing 6 Porters Generic Strategies 8 Key Resources and Capabilities 10 Strategies Adopted by Boeing 12 Conclusion 16 References 17 Bibliography 20 Executive Summary Boeing is in to the business of aerospace manufacturing for both the commercial as well as defense purposes. The company is renowned in both the units. Boeing is one of the main suppliers of civil aircrafts in the countries like United State and United Kingdom. Civil aircraft comprises of helicopters, various aircraft components and parts, and aero-engines. Boeing played significant role in the success of civil aircraft segment in the last past five years. Also, the company faced many issues in these five years like mismanagement and adoption of wrong strategies which led it towards inability to stand in long run competition. Yet, the company could recover from the lapses with efficient and well – timed strategy. Introduction Founded in 1961 and headquartered situated in Chicago, Boeing is a renowned leader in the arena of aerospace, commercial jetliners and military aircraft manufacturing. It also runs its business on designs and manufacturing of electronic and defense system, satellites, rotorcraft, missiles, advance information and communication system as well as launch vehicles. The company also works with NASA as an operator of International Space Stations and Space Shuttle. Boeing has a total workforce of 1, 58,000 people. It operates in the countries of United States and in more than seventy other countries across the world. It has diversified its business into two major business units namely Boeing Defense, Space and Security and that of Boeing Commercial Airplanes, both are formally organized (Boeing, 2010). Financial Position of Boeing Financial report of Boeing in the year of 2009 shows that the revenue to be recorded at $ 69 billion. It clearly shows the efficient core operations of the company. Core operations of Boeing relates to high commercial deliveries and defense and space and security equipment manufacturing. The operating cash flow is $ 5.6 billion that reflects effectiveness of working capital management. The liquidity position is also analysed to be very strong for 2010 with marketable securities and cash of $ 11.2 billion. On the other hand the company has a backlog of $ 316 billion which is four times more than the current annual revenue. The earnings per share (EPS) have reduced from $ 3.58 per share to $ 1.84 per share. The revenue for commercial airplane of Boeing increased to $ 34.1 billion. This was due to increased demand of higher airplanes. Commercial Airplane (CA) has also posted $ 0.6 billion loss due to 787 and 747 announcement impacts. CA has 82 gross booked orders with 3,375 airplanes contracts valued $250 billion. It has also received 851 airplane orders from 56 customers in the quarter end of 2009 (Chicago, 2009). Four Year’s Financial Report Analysis of Boeing Last four year’s financial report analysis of the company shows that the revenue is on a constant rise except in the year of 2008 but the net income decreased in two consecutive years. The reason behind this is increase in operating expenses and decrease in operating income. Cash in operation increased but the debt ratio too increased in higher percentage than cash received form operation and debt and also the company faced loss on investments. But the net cash increased due to remarkable increase in cash from financing in 2009. This ultimately resulted in having high liquidity for 2010 (Bloomberg Business week, 2010). Comparing Boeing with Industry When compared with the industry with respect to certain ratios, it is analysed that Boeing is not performing at par with the industry. The five year’s annual average sales percentage for Boeing is 5.84 where as industry had 7.81. On the other hand, the net income is too less at - 6.01 for the company while industry has it positive at 15.14. Again, the dividend distribution ratio of the company is 14.60, which is more when compared, to industry to be at 12.96 (MNS, 2010). Contribution of Boeing Boeing, in collaboration with Airbus, is helping aircraft suppliers to deploy RFID system. This is done to make those manufacturing sectors to match their eventual implementation standards (Collins, 2004). In 2004, Boeing launched 757 and produced 1055 orders. In the year of 2005, Boeing launched 777 and also announced a new commercial airplane named 787 which were initially known as 7E7. It can carry 210 to 330 passengers and is the company’s most fuel-efficient airline. At the time of assembling in 2007, it was the fastest selling airline with total 600 orders. It had started functioning form May, 2008. In the same year, the company also produced 747 and 747-8 models in variants. 747 were produced for cargo carriers where as 747-8 for passenger airline. In the year of 2006, Boeing came up with a new version named 737 with 4000 airplanes unit hour which was earlier 5800 airplanes unit hour. The assembly time also reduced to 6 days from 11 days (The 737 Technical Site, n.d.). The new models were named 737-700 ER and 737-900 ER and both were passenger airlines. It had also launched new variant models of 737 and 777 jet planes. 777 models brought in huge revenue. With high sales of Boeing products, its financial future has moved towards a very strong phase (Ada, n.d.). Porters Generic Strategies Target Scope Advantage Low Cost Product Uniqueness Broad (Industry Wide) Cost Leadership Strategy 1. Boeing Pricing is linked to environmental analysis to achieve economies of scale. This is been achieved through horizontal integration. 2. Cost reduction in every product of Boeing is conducted by applying DCAC/MRM. 3. Leaving gate on time is also part of low cost strategy Differentiation Strategy 1. Customized product for meeting all criteria of all customers. 2. Produce innovative products in all segments like in commercial aircraft 777, 737 and 747 in defense Missiles named BOMARC, AGM-48 Skybolt and many in space X-20 Dyna—Soar, X-40, etc. Narrow (Market Segment) Focus Strategy (Low Cost) 1. New product developed within jet portfolio named 787 lowering cost on point to point route travels. Focus Strategy ( Differentiation) 1. Innovating new products in each market segment like low cost high capacity airline, high cost low capacity airline, and high cost low capacity airlines. 2. Sales processing strategy separated Boeing international Sales Corporation from all of the domestic sales of Boeing sales corporations. (QuickMBA, n.d.). Key Resources and Capabilities The primary focus of having apt strategy lies in matching resources and capabilities of firm with all of the external environment opportunities. Among the two basic factors, one is about the unstable industry environments of the firm which has turned out to be the base for formulation of strategy in the present day. In the changing scenario of today, internal resources and capabilities are more emphasized rather than external market focus. Secondly, competitive advantage has become the source of profitability rather than being mere industry attractiveness. (Itami & Noto, n.d.) Key resources Boeing used for supporting sustainability competitive advantage is differentiated into tangible and intangible resources. Tangible resources are the financial resources that can be measured by using financial ratios like current ratio, debt to current ratio, profitability ratios and many more. In today’s context, Boeing is very strong in its financial resource. The other important aspect of tangible resources i.e. organizational resource has been used for well management of operations in Boeing. Boeing’s intangible resources include human resource with total workforce of 1, 58,000 employees. It uses intranet to communicate with its employee in various parts (123helpme.com, n.d.). Innovation resource forms the new development as they developed world’s first commercial jet and many other aircrafts where as reputation resource is the goodwill that it has earned in this long period of existence among clients and peoples. These factors are also part of the intangible resources. Capabilities are divided into activities. First capability is that of a primary activity which consists of inbound logistics and deals with material handling, inventory control and warehousing, operations looking after assembling process, equipment maintenance and machineries, outbound logistics for process of collecting of products and then sorting it for distribution to right customers, marketing and sales department for branding and selling of Boeing products and service activities for providing after sale services along with other major services so that the customers can be kept delighted with the offered services. Second capability is that of supportive activity which is further divided into procurement activities for purchasing raw materials, technological development by engineers, human resource management for solving and delighting internal customers’ need and emphasizing on matching of such need with that of organizational needs and firm infrastructure. Third capability is regarded as the core competency of Boeing. They are the valuable capabilities as they provide low cost products compared to industry which helps in adding value to customers, which act as a differential advantage in their growth (Ljjasz, 2001). All this resources and capabilities are the overall need of any organization. Using all these resources strategically for increasing profit with reduction of cost, Boeing has gained market leadership in aerospace industry and its increasing growth which has been analysed through its financial performance, has proved its strong position in the industry for long period. Strategies Adopted by Boeing Existing strategies of Boeing is focused on existing clients. Boeing mainly concentrates on commercial aircrafts because of 60% of its revenue comes from this sector. Commercial buyers are also segregated into short distance airlines with lower capacity, long distance with high capacity and long distance with low capacity. Short distance with low capacity segment is more profitable because of the customers’ repeat purchase (123helpme.com, n.d.). In last five years, Boeing strategy has shifted from advanced technical performance to efficient financial performance. The company adopted strategies of cost cutting in all operations, shedding of all tangible and intangible assets and strategies for increasing reliance factors on its global customers. For this they have aimed a vision of lowering unit cost by innovative techniques on both labor and capacities which will result in gaining short term margins (Sorschert, n.d.). All these efforts have resulted into a critical issue that exposed the inability of Boeing to compete long term competitions. This issue was because of the steps taken for cost cutting and short term financial performances. These two strategies has costed them week information flow, fragmented communities in both technical ground as well as manufacturing ground. In the current scenario, Boeing is facing various major issues. It include surveillance standards developed in past need to be revised and extended, its existing ADS-B-Out equipment operational potential is limited, operational benefits should be considered during process of developing surveillance strategies, all airplanes is linked with single ADS-B link which is creating problem and there has been a pressing need of transition strategy. All this issues are been evaluated and concluded according to sustainability, feasibility and acceptability. The following table includes the major factors: Issue Sustainability Feasibility Acceptability 1. Mismanagement Change in strategy will focus on both short term and long term visions. Facilitating all stakeholders with short term interest of financial stock. Reduce attrition rate caused due to dissatisfaction among stakeholders. Motivate all stakeholders and create positive attitude towards company’s future growth. Stakeholders get reason to remain attached. 2. Targeting Existing Customers Financial and major trade publications mainly with its 737 family in commercial airplanes. Informative and attractive advertisements. Appeals major operators of low cost airlines. Educating customers Longer their planned stands in ground it is more costly for them. Low cost strategy. Knowledgeable customers. 3. Revised Standards Targeting customers on the basis of geography, changed from individual buying criteria of the customers. Economic growth is highly related to GDP growth More focused service. Reduction of cost to customers. Easy to solve issues and demands. Increase in the profitability ratio of customers. (123 HelpMe.com, n.d.) Conclusion Boeing is a world renowned aerospace giant. The company has its presence in all the sectors of aircraft manufacturing. It deals with commercial aircraft which is the most profitable segment financially and also in defense, space and the security segments. The client base of the company includes commercial aircraft buyers, government, government agencies and also NASA. In the last five years, Boeing has faced many issues like lack of skills and knowledge within the human resource of the company which was the result of lack of communication and impacted the technical and manufacturing grounds. It was primarily because of the changed strategy of the company to achieve short term financial gains. Majority of the business of the company comes from sale of commercial aircraft and presently Boeing is financially very strong for the future liquidity crises. In the recent past, the company worked hard towards meeting all criteria of customers and providing them with highly technical and low cost products for delighting their needs. References 123helpme.com, No Date. The Boeing Company. 123helpme. [Online] Available at: http://www.123helpme.com/view.asp?id=88896 [Accessed June 19, 2010]. Ada. No Date. Boeing Flies on 99% Ada. Ada. [Online] Available at: http://www.adaic.org/atwork/boeing.html#Top [Accessed June 18, 2010]. Bloomberg Business week. 2010. Boeing Co. Industrial Sector / Aerospace and Defense. [Online] Available at: http://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=BA:US&dataset=cashFlow&period=A¤cy=native [Accessed June 18, 2010]. Boeing. 2010. Home. Boeing. [Online] Available at: http://www.boeing.com/companyoffices/aboutus/brief.html [Accessed June18, 2010] Chicago. 2009. Boeing report Strong 2009 revenue & cash flow on solid core performance. Media. [Online] Available at: http://boeing.mediaroom.com/index.php?item=1043&s=43 [Accessed June 18, 2010]. Collins, J. 2004. RFID NEWS Text size: Help for Boeing, Airbus Suppliers. RFID journals. [Online] Available at: http://www.rfidjournal.com/article/articleview/1226/1/1/ [Accessed June 18, 2010]. Itami & Noto. No Date. Chapter 5. Analysis of Resource and Capabilities. [Online] Available at: http://www.blackwellpublishing.com/grant/files/CSAC05.pdf [Accessed June 18, 2010]. Ljjasz.E, V & R. 2001. The Boeing Commercial Airplane Group. Strategic Planning. [Online] Available at: http://www.industryweek.com/articles/boeings_innovative_approach_to_leadership_21078.aspx [Accessed June 18, 2010]. Mns. 2010. Boeing co: Key Ratio. Money. 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