Strategic management of Adam Aircraft - Essay Example

Strategic management of Adam Aircraft Adam Aircraft is an aircraft manufacturer which was founded in 1998 by John Knudsen and Adam Jr. However, the company was founded in a very competitive industry with much start up aircraft manufacturers having failed in the delivery of new products to both the small and mid sized markets. Despite the fact that countless start up air craft manufacturers had failed for the last 30 years, Adam Aircraft managed to be one of the two starts up companies which succeeded in the building of basic and single engine aircraft. Adam Aircraft has been a winner when it comes to market demand, product appeal and viability, financing potential, capitalization and in its management team. This included its progress in the making of complex and lengthy certification process. However, the company did not have enough finances needed to bring its new products to the market and to reach a positive cash flow. In this paper, a SWOT analysis and the Five Porter Forces of Adam Aircraft will be discussed as well as the strategic management used by the company in order to improve on its performance. The SWOT analysis will be carried on the company to determine the reasons behind its success, failures and to determine the management strategies used for the company to venture into the already competitive market. For example, the market had been quite desperate for products like plane performing flawlessly overhead and so this paper will analyze whether Adam Aircraft was able to succeed from where other companies had failed. 1. Introduction This paper is about the strategic management of Adam Aircraft. Adam Aircraft manufactures designs and eventually intends on selling aircrafts in the aerospace/aviation industry. Rick Adam is the successful entrepreneur behind this company and has identified a need in the market which made him venture into this industry. He has worked with computer engineers and pilots and this gave an insight of knowing the customer or the market needs. In this case, Rick Adam describes himself as a raging incrementalist who has chosen to taken a step by step in innovations. Marketing of airplanes has high barriers to entry and highly requires enormous amounts of capital due to the strict and very expensive policies which are dictated by the relevant authorities. Rick acknowledged all the pitfalls of being an airplane manufacture in the industry and these include building, designing, financing and long-term certification process. Rick also analyses the reasons as to why many companies have failed in trying to enter the market and why other companies succeed. From these market research processes, Rick was able to discover new ways in which he would approach the aerospace industry hence the success of Adam Aircraft. Adam Aircraft is a perfect example of a company in the aerospace/aviation industry which has defied all odds in the industry by escaping hurdles like competition from key players and technology capital to a point of success where it created A700 and A500. 2. SWOT analysis Strengths The ability to have great ideas on how to launch a new aircraft ahead of it competitors is a strength to Adam Aircraft The ten member executive team of Adam Aircraft are accomplished pilots and experts and with many years experience in the aviation industry. These accomplished pilots and experts have continued to build a ton of airplanes for the company The company understood that the only way to finance its new project budget is to cut on the development costs by at least 5% Adam Aircraft understood that the development of a new airplane project needs brilliant engineering and the development of a culture which is unheard in the aviation industry The company has had a large customer base ever since it flew its A500 The company plans on introducing A700 which will lead to a reduction in the cost per seat to a level where the average business traveler could afford the service. Rick is a specialist in computer science and IT this made him acquire the required skills for the industry Adam Aircraft involves it self in a thorough research prior to any innovation. This is done to ensure that the product is manufactured at the lowest cost of production and is up to date with the current technology In 1998, Rick brought a talented person into the company in order to ensure the production of quality products The maiden flight made in March, 2000 market the most rapidly maintained aircraft development program in the history of the company and the industry and this gave the company a competitive advantage Weaknesses In the early 19990s, Adam Aircraft did not have the required resources to develop an aircraft a head of the prevailing technology, though all the required ideas were in place The workers of Adam Aircraft for twelve hours with overlapping shifts. They are overworked and the company plans on increasing the working hours Opportunities There was a huge demand for new products in the airline industry in the early 90’s and this prompted Rick to strategize on how to launch a new aircraft company (Adam aircraft) to meet the growing market needs. In the early 90s, there was a huge demand for single engines, non-pressurized, fixed gear start ups in the market. With this potential market opportunity, no company had brought an innovative product into the market and this prompted Rick to venture into that market. Launching few entrepreneurial ventures for Adam Aircraft is a big business opportunity. This is because no one has pursued that opportunity and to Adam Aircraft, this is product differentiation. Entrepreneurial opportunities occur when a series of prior development makes it possible for one to accomplish what was thought to be unachievable. The products launched by Adam Aircraft were way too ahead of the prevailing technology. The great business idea behind this developments was good for the company to venture into the market The market and the pilots were in demand of a twin engine and this was good opportunity for Adam Aircraft to launch the twin required in the market In 1990s were financed firms were highly competing to introduce personal jets in the market. This was a good market position as Rick was prompted to think of how to design a single airframe which would accommodate jet engines as well as twin pistons The company wants to direct more traffic to the 5,000 underutilized regional airports in the country in order to increase its capacity Buying a used plane to use in the market was too unsafe as most of the aircraft accidents are as a result of using old design and old airplanes. This as quite an opportunity for Rick to venture into the market with the new designs. The solution to the aging factor of airplanes was an entirely new generation of products in the aviation industry. Threats The products launched by Adam Aircraft were way too ahead of the prevailing technology and this resulted into failures. The aviation industry suffered 95% decline in unit sales between 1978 and 1992 and this led to the loss of over 100,000 jobs Manufactures spent a lot during the same time to defend their product liability suits as they had spent in developing new aircrafts Competition was high in the middles 90s as the company’s were competing in the manufacturer of personal jets Adding certified new planes to the market may add layers to the market which requires a lot of time and money. The regulatory process and the process of certification in the Airline industry is quite involving and a greatest challenge to all companies 3. Porter’s Five Forces The Porter’s Five Forces are used to determine the profitability of an industry since they greatly shape the prices to charge on products and services. Risk of entry by potential competitors Potential competitors are those firms which are not currently competing with the company but have the potential to compete. Entry of new players in the industry increases the capacity of the industry, begins a competition for the market share and also lowers current costs. The length certification process is a threat to the entry of potential competitors in the aviation industry. This process is quite discouraging to potential competitors and this reduces the risky of entry into the market. The entry into the aviation industry requires a strong capital base as a start up capital. Enough capital is needed to bring new products to the market and to reach a positive cash flow. For example, the standard budget for a new plane is $250 million which is far to way for some entrepreneurs. This reduces the number of competitors entering the market as not all of them can obtain the required start up finances. The government polices and the regulation from the Federal Aviation Authority (FAA) behind the manufacture of airplanes is also a threat to new entrants in the market which causes a barrier to entry into the market. The aviation industry is coupled with different brands some of which are highly competitive in the market and others which are outdated. Brand identity is a barrier to entry for new and potential competitors as they have to come up with their own unique brands if they are to become competitive in the market. As a result, Adam Aircraft Company does not face a high risk from the threat of entry of potential competitors. However, companies like Cirrus and Lancair managed to over the barriers to entry, ended up being certified into the manufacture of airplanes. Rivalry among the current competitors Rivalry is the competitive struggle for the industry’s market share between firms. When extreme rivalry occurs, the current and the existing firms get a strong threat to their profitability. Brand identity, product differences, diversity of rivals, industry concentration, product differences and industry growth are some of the factors which increase the degree of rivalry among current competitors. There are numerous large firms in the aviation industry and this has highly increase rivalry as the firms compete for the same resources and customers. Most of the firms in this aviation industry almost have the same market share as they manufacturer different products and this has increased the degree of rivalry as the firms struggle to obtain a leadership in the market. Product differentiation is high in the aviation industry with differentiation on products being done on the engines, capacity and wings and products are also being differentiated to be in line with the technology. As a result, degree of rivalry is low as each of these firms has their own brand identities which constrain rivalry. The companies have different histories, cultures and philosophies which make the industry quite unstable and increase the diversity of rivalry. Rivalry among Adam Aircraft Company and its competitors is high due to the many factors contributing to a high degree of rivalry. Buyers bargaining power The bargaining power of buyers is ability of potential buyers to bargain down the prices of products or to increase the costs of the firm by demanding better quality products and services. Bargaining power of buyers is high in the aviation industry as the industry is high because there are few buyers with quite significance in the market share. Buyer bargaining power is also high as buyers can threaten to buy products from the rival firms. Consumers and pilots in the aviation industry are highly informed when it comes to makes the right choices of the airplanes. With this information, their bargaining power is very high. The products in the industry are highly differentiated and this gives consumers an increased bargaining power as they can choose to buy their choice of airplanes from any other firm. The aviation industry is quite competitive and this has resulted into a number of substitutes in the market. With the increased number of substitutes, the consumers have a high bargaining power as they have a choice to buy or to purchase the substitutes if Adam Aircraft Company does not perform to their expectations. There are two basic consumers for airplanes and they include the professionally flown and the owner flown. The two categories of consumers are highly informed about airplanes and with this information; they have a high bargaining power enough to influence the company. The owner flown evaluates the airplanes from the pilot’s seat and is bale to determine the quality of an airplane. The professionally flown are more focused on their clients needs and would require all the things which will make their customer comfortable. As a result, they are like to have a high buyer bargaining power otherwise they will source for the products else where. There is the need for each company in the airline industry to have absolute first rate service to all customers otherwise they will look for those services else where. Suppliers bargaining power Strong suppliers have the ability of extracting profits from the industry by increasing costs of the firms in the industry. There are several manufacturers in the aviation industry making a high supplier concentration. The supplier bargaining power in this industry is quite high as there is a credible forward integration threat by the suppliers. The suppliers are also concentrated and their consumers are quite powerful. However, the fact that there are many competitive suppliers in the industry makes supplier bargaining power to reduce as each product is standardized. Adam Aircraft Company has faced the increase supplier bargaining power in the industry given the fact there are several airplane manufacturers Threat of substitutes Substitute products refer to the ability of a product to satisfy the needs of customer effectively. Substitutes in the market pose a ceiling on the industry’s potential returns and this is through the setting of high limit on price in which the firms charge on their products. If an industry has less close substitutes, there is a greater opportunity for the firms in that industry to raise the prices of their products and earn increased profits. There exists close substitutes in this aviation industry and this constraints the firms ability to raise prices for their products. The threat of substitute’s experiences in this industry has high impacts in the industry when it comes to price competition. Adam Aircraft Company therefore, faces the threat of substitutes faced in the aviation industry and that is why the company has been working towards the differentiation of its products to ensure no close substitute. 4. Competitor analysis A powerful aircraft manufacturer known as McDonnell Douglas and has in the recent few decades developed a highly sophisticated modeling design tools which were powered by main fame computers. These tools gave the company a competitive advantage over other companies in the industry. For Adam Aircraft Company to compete with this company, the company coupled rapid application development with a 24 hour working environment. However, for this happen, the company needed to adopt a computer industry concept as its success would change the face of general aviation. In 1990s, well managed firms were competing in the introduction of personal jets into the market by 2006. With this kind of competition, Rick was prompted into thinking of how to design single fame airplanes which would accommodate jet engines and twin pistons. It was due to the competition in the market that Rick was able to develop new business ideas. Adam Aircraft has understood that there is the need to work ahead of its competitors when it comes to airplanes manufacture as any waste of time may make the information about that particular plane to leak to its competitors making it loose its cash. Companies like Beechcraft, Piper, Avocet, Eclipse, Safire and Cessna are the main competitors of Adam Aircraft and have been in the market for quite some time and have managed to build a ton of airplanes. However, their products have not been quite competitive in the market and this mainly because they do not have what it takes to convince their customers to purchase their products. To become competitive in the market and to attract more customers into the company, Adam Aircraft has been doing everything from delivery, flight training, to its services and parts in a way which proves to the customers on the main reasons as to why they should adopt the airplanes. As a result, the company has been able to acquire a competitive advantage over its major competitors. After a market study, the company found that the market used low flying airplanes. These planes do not give pilots enough and clear visibility of the tanker high and right. With this kind of market demand, none of the competitors was considering doing any modification on the said planes due to lack of the required resources and were not ready to take there risks. However, Adam Aircraft understood that for any business to grow risks must be taken and that is why the company decided to do take up the required modifications in the industry. 5. Conclusion It is quite evident from this research that Adam Aircraft has worked so hard for it to be where it is today. The company’s differentiated products, mission and vision, its marketing strategies and its increased research and development among other strategies are responsible for the current market position of Adam Aircraft. Strategic management is key to every company that plans to succeed in future in terms of its profitability and for those companies than wish to acquire a large market share and a competitive advantage. SWOT analysis helps the company in gauging its strengths, weaknesses and threat and in determining market opportunities. After the analysis is carried out, strategies are usually laid down in order for the company to acquire a competitive advantage over its competitors. Obtaining information about the strategies adopted by main competitors is quite helpful to a company as it helps the company re-devise its strategies in line with the competitors for the purposes of competitive advantages. Work Cited Jones, Gareth, Hill, Charles. Strategic Management: An Integrated Approach. Cengage Learning, 2012, pg 100-300 Oswald, S, Flouris, Triant. Designing and Executing Strategy in Aviation Management. Ashgate Publishing, Ltd., 2006, pg 170 Porter, Michael. Competitive Strategy: Techniques for Analyzing Industries and Competitors. Simon and Schuster, 1998, pg 200 Bensoussan, Babette and Fleisher, Craig. Business and Competitive Analysis Methods: Effective Application of New and Classic Methods. FT Press, 2007, pg 110-200 Henry, Anthony. Understanding Strategic Management. Oxford University Press, 2008, pg 200 Read More