Boeing and Airbus Strategy Comparison - Case Study Example

OPErations management al Affiliation) Key words: overall strategy, operational strategy, operational management Background Information The airline manufacturing industry has two firms; Airbus found in Toulouse France and Boeing found in Chicago. Two recent development and research moves at the firm provide an insight into the overall strategy specifically the operations strategy and operation performance objectives into the positioning strategy that each firm is taking to find a position in the future market place. The two organizations are accenting two genre markets with flagship products; neither of them competes against each other. This will enable the firms to stave off the competition in pricing in the future through product line differentiation, which is desired given the recent rise in the power of buyer gained by airlines with low cost. Airbus controls forty six per cent of the airline industry. The company was formed in 1970 as European aerospace firm’s consortium and the later it was integrated into one organization in 2001. The company was designed and developed by European countries in order to compete with large American Manufacturers and received incentives from the European government. The product line of the company extends from one aisle A320 to double aisle A340. On the other hand, Boeing naturally controls fifty four per cent of the industry for commercial airline in terms of delivered value and its commercial section took 30 Billion dollars in 2001. In 1966, company developed a 747 Jumbo jet which revolutionaries the air travel concept due to the large size and welcomed the era of vast air travel. Additionally, the company produces single aisle, medium sized and long range type of place. Boeing is also regarded as the weapon contractor, producing and designing attack satellites and aircraft. The company also maintains service group and launched connexions recently which offer internet access to passengers. Executive Summary The overall strategies of Boeing and Airbus are designed to achieve success and limit fail. The companies have done this through capitalization of the firm’s strongest capabilities and maximizing on the greatest opportunities, while minimizing the risk associated with the weakness and threats of the company. The early analytical phases of the process of strategic planning set the platform for more creative assignments to generate strategic options and designing and selecting the company strategies for the enterprise. Additionally, the operations performance objectives ensure that resources are appropriately allocated in operations so that the operation performance of the companies can be recorded, monitored, and reviewed. A crucial activity in this scene is identifying the appropriate performance measures that relate the external and internal factors pertinent to competitiveness of the organization. Boeing and Airbus has described various operational performance objectives which enable the organization to gauge the operations performance. The performance objectives of these companies include the speed, quality, flexibility, dependability, and cost. The paper discusses the elements significance to the competitiveness of the organization. From the perspective of the company’s clients the quality features include the aesthetics, performance, and reliability. From the viewpoint of the company’s operation, the quality is associated to how close the services and products meet the specification needed by the design called the conformance quality. The paper therefore, compares the overall strategy specifically the operations strategy and crucial operational performance objectives of Boeing and Airbus. Introduction Over the last ten years, the challenges the commercial airline industry is facing have been large. The terrorism attack that happened in September 2001 had a detrimental effect on the air travel in the United States. Additionally, the recent crisis in oil has jeopardized the airlines ability to offer services of low cost for the clients (Taylor, 1982). While the dynamic that have happened in the commercial industry had a greatest effect on the airlines. Other companies are also affected in the wake of these challenges (Dempsey & Gesell, 1997). Especially, Airbus and Boeing. Airbus and Boeing are two main providers of business aircraft worldwide are now in competition to garner the available business in the commercial airliners. Although the two companies operate in similar industry, the overall strategic plans used by the two organizations in attracting new business are quite different. Using this as the foundation for research, the paper demonstrated the differences the overall strategies developed by the two companies. Through a thorough consideration of what is said about the strategies used by the two organizations, it is possible demonstrating which of the two companies is better placed in becoming a clear winner in the competition. Additionally, looking at various strategies used by the companies a clear framework of how various organization approach similar challenges will be elucidated effectively (Taylor, 1982). Boeing Overall Strategy To start the analysis, it is important to consider some of the strategies that are developed by the two organizations. Taking note the strategies used by Boeing, some of the researchers have realized that approach of Boeing to the current airline industry is one focusing on the belief that the clients want flights that are direct rather than the layover flights that are always very expensive (Norris, & Wagner, 1998). The strongest argument for Boeing us that the market for air-travel is fragmenting. Clients prefer traveling direct to long-haul destinations but not squeezing into large planes before changing to smaller ones at hub airports that are crowded before reaching their final destination. Bearing this is mind; the company has a little interest to develop aircraft bigger than the current ones. According to researchers, Boing base its literature on the needs of aircrafts from their recent attempt to market stretched brands of its previous versions. The aircraft proposed by the company, while having the ability to hold more passengers, were not welcomed with favor from the companies (Munson & Swan borough, 1972). Using the experience as a foundation to develop strategic plan, the company has made decisions leaving the airline market of Jumbo; the company argues that if the market interest increase in future, the company will consider developing new and larger aircraft. Although the plan is seen having salient and solid basis, some of the researchers note that the decision of Boeing leaving the jumbo industry make it hard for the company to enter in case the interest rises. Long-haul airline having greater need are buying the new airbus and will have little incentives waiting for the company to emerge (Munson & Swan borough, 1972). The statistics that compare both the airlines beat Boeing based on delivery. The cost advantage of the position has allowed Airbus beginning expanding the midsize lines, providing airline a greater choice of Airbus products. While the specific operation strategies used by Boeing is one factor that must be considered when looking at the strategy of Boeing. Researchers noted there are various parameters to the company’s new strategy that also need to be considered. For instance, some of them consider the procedures taken by the company improving the general innovation of the company (Walsh, 2011). In specific, the company’s decision to outsource most of its activities and operation have steered considerable speculation from the analysts. This would be considered by majority to mean that the company used outsourcing strategies termed as unethical. The company tends to outsource its operations depending on who can offer the firm with the most solutions that are innovative. As such, the cost needed to acquire the innovation has no impact on the outsource decision. According to Holmes, the company had started developing the offsetting agreements with foreign nations. Under the memorandum, nations agreeing to purchase airlines will be considered manufacturing work. The measures have enables the company to tap into in the china airline market (Seristö, 1993). Tapping into the market, the company realized that it will be forced providing the nation some of the manufacturing work. In the effort to make the process more profitable for the company, Boeing decided that the agreements were the perfect solution in this scenario. The company had combined the offset agreement with the expansion of the company; the company has captured some section of the Chinese aircraft. Although the actions taken by the company appear to be perfect in improving innovation and technology, it is noted that the outsourcing strategy has saved the company additional cost. The company is now competing with efficient Airbus organization; the company had no alternative but to come up with innovative ways of reducing costs. Since the 2001 terrorist attack the company laid off thirty eight thousand workers (Walsh, 2011). To further outsource, most of the American workforce have been cut out of the payroll. Meaning despite the fact that the company looks for innovation, outsourcing serves one crucial goal for the company since it helps in saving money. Consequently, the company is using the organization’s power to ask the political leaders in EU to consider the deal signed in 1992 with Airbus. Boeing is contending that all the aircrafts that Airbus developed involved money from European Union government. The trade officials from United States believe the contractual agreement between EU and Airbus warrants investigation. To capitalize on the issue, the company has worked in raising the industry awareness that Airbus may close operation if the company is unable to control some of its loans. Presently, the European Union supports accountability from Airbus on 30 per cent of the company’s revenues (Seristö, 1993). Airbus Overall Strategy Just like the strategies employed by Boeing for development, the strategy for Airbus is also multilayered (Dempsey & Gesell, 1997). The company has grown from a joint-venture to a fully-fledged affair of the European, with Spain and Britain as the main shareholders and aircraft industry from Italy as the main suppliers. The CEO of the company has seen his responsibility to take the company a stage further, and turn into a global business. After the first visit in China, where the company has joint ventures with domestic aircraft manufacture. The Chinese government has been offered a risk bearing share of 5 per cent of the aircraft that is long –haul. Thus, the company is now facing the challenges to work from the European market. The company offers both the cooperative agreement with the Chinese government and it also considers developing new plant in the US. The efforts are based on the need to expand to operation of its business (Gunston, 1988). The main tenet of the company’s expansion has focused on the contracts that are risk being in which both the purchasers and suppliers takes the risk for the company decision in developing their country. The expansion projects in Asia and Europe need the federals of the nations to ignore some risks of carrying out manufacturing operation of the company’s products. While this techniques is helpful for the company in ensuring that that it will be in a position to bring its products to market after production, researchers outlined that after the terrorist attack, the Airbus suppliers cut back on the agreement of risk-sharing. Due to this, the company is finding too hard to manage the overall supply chains efficiently, If this happens over a long period of time, it could make it hard for the company to retain competitive edge and efficiency. In ensuring that there is long-term advantage, the company started scaling its production (Wright, 1984). The Airbus executives noted that the scaling of production in the company, the company will be in a position to regain its dominance in the industry after the terrorist impact. This shows that the company has not taken drastic procedures to overcome the challenges created from the attacks. Basically, the company is operating with the business as usual motive, which will shun the company from taking part in restructuring in future. Although, uncertainties are rampant in the sector, the industry growth will rise at a rate of 5 per cent per year. Unlike Boeing, the company has not laid off worker in order to save the company (Gunston, 1988). Comparison between Airbus and Boeing Both companies have used different plans to develop their operational strategies. Boeing has used reactionary approach in handling the company’s problem by cutting costs, downsizing the company, and outsourcing for innovation and efficiency. Airbus has decided to remain calm on the issue and has focused on systematically cutting down production and develops risk-sharing agreement that will make the company to reduce cost if some products fail. While it is hard to know which of the two organizations is best, scholars have concluded that Boeing was awarded contract from airline in Asia-Region accounting for more than 17 billion Dollars in sale. Additionally, the interest in 787 Dreamliner has raised the company’s 100 new sale. The boost suggests that Boeing is doing well in its operational performance objectives (Wright, 1984). Despite the Boeing recording higher sales in the recent past, researchers have noted that Airbus is in a position to outbid Boeing and offer the same aircraft at a price that is slightly lower. This means that Airbus will not be thrown out of the market in the near future. This is because Airbus has been recorded to provide its products at reduced prices, when comparing it with Boeing. There is a likelihood that Airbus could limit the Boeing ability to complete sales and garner a competitive advantage. If Boeing gains advantage from that point, Airbus will take several years to recover. It is therefore possible that Airbus could outshine Boeing in the later days of contract negations. The company experienced troubles to deliver mid-sized, 4 engine A340. The problems in delivery angered crucial companies. Since Airbus decide to minimize production as a way of minimizing costs, minimal production levels have made it hard for the company to produce efficiently. While the company’s need to maintain the production levels so that efficiency is maintained, the process is preventing the company for meeting deadlines. This connected with the idea that A340 is was identified as to be guzzling gas; this served the basis of diminishing the reputation of the Airbus (Slack & Lewis, 2008). 4V Diagram The diagram shows the 4V diagram for the airline industry. The elements include the passenger services, high aircraft utilization, and frequent Reliable Schedules, Short-haul, and Productive employees. The industries found in the airline industry use the parameter to gain competitive advantage over its competitors. Competitive advantage is profoundly measured in terms of cost minimization. The reduced costs are attributed to the labour, material, production, transport, and fuel cost. From the paper, Boeing Company has embraced the set strategies to gain the advantage over Airbus. Polar Diagram for the Airline performance The polar diagram shows the airline where the cost of performance is better or worse compared to the average cost in every cost categories; direct, airframe, material, engine, and labor. The Airbus and Boeing submit the annual cost in each category and the mean is derived. The cost are normalized for labor, flight length and airplane age. 4 stage Diagram and Product Life Cycle curve The product life cycle used by the Airbus and Boeing Company is as summarized in the table above. The life cycle in the airline industry consists of introduction, Growth, Maturity, and Decline. The operations of Airbus and Boeing follow the same phases as described in the paper. Conclusion Although the current research on the operational strategies for both Boeing and Airbus clearly shows that Airbus will be in a position to overtake Boeing, this is seen as not coming soon. Responding to the drastic changed that have happened in the industry, Boeing made the relevant changes that were crucial in ensuring the general organization development. Although the process was painful and challenging for the company at time, the actions appeared to pay off. Unfortunately, Airbus has made no crucial changes, despite the airline industry changing notably in the recent past. The overall strategies of Boeing and Airbus are designed to achieve success and limit fail. The companies have done this through capitalization of the firm’s strongest capabilities and maximizing on the greatest opportunities, while minimizing the risk associated with the weakness and threats of the company. Given the idea that Boeing has made remarkable changes in responding to the evolving industry and Airbus doing relatively little, it is accepted to argue that Boeing will eventually become the winner (Krajewski & Ritzman, 2002). Assuming Airbus responded with a non-caring attitude, it is possible that the Boeing prices will be undercut. Presently, it seems impossible. Reference Dempsey, P. S., & Gesell, L. E. 1997. Airline management: strategies for the 21st century. Chandler, Ariz.: Coast Aire Publications. Gunston, B. 1988. Airbus. London: Osprey ;. Krajewski, L. J., & Ritzman, L. P. 2002. Operations management: strategy and analysis 6th Ed.. Upper Saddle River, NJ: Prentice Hall. Munson, K., & Swanborough, G. 1972. Boeing. New York: Arco Pub. Co.. Norris, G., & Wagner, M. 1998. Boeing. Osceola, WI: MBI Pub.. Seristö, H. 1993. Airline strategies: deregulation of the European airline industry. Helsinki: Helsinki School of Economics and Business Administration. Slack, N., & Lewis, M. 2008. Operations strategy 2nd Ed.. Harlow: Financial Times Prentice Hall. Taylor, M. J. 1982. Boeing. London: Janes ;. Walsh, C. R. 2011. Airline industry strategies, operations and safety. New York: Nova Science Publishers. Wright, A. J. 1984. Airbus. London: I. Allen. Read More