Boeings Strategy for Value Creation - Case Study Example

Sub Department Genesis of the crisis Boeing is a multinational company that is involved in designing, manufacturing as well as selling of aircrafts, satellites, rockets and rotorcraft .Boeing offers leasing as well as product support services. It is amongst the biggest aircraft manufacturers in the world and the 2nd biggest defense contractor globally on the basis of 2013 revenue. Boeing is also biggest exporter in the US by dollar value (Yenne, 2005).Since the 1977 deregulation of air travel by the US government, more airlines entered the US market leading to severe price competition. Thus as airfares took a nosedive, more and more US passengers continued to rise per year from 240 million in 1977 to 640 million in 1999.On the same vein, manufacturers of commercial aircrafts in the US faced a lot of competition from their counterparts in Europe. Thus, for instance, Boeing having lost market share to Airbus was under immense pressure to choose between 2 basic competitive strategies; reduction of costs as well as the selling prices of their existing kinds of aircraft or design a new airplane so as to elevate income through creation of value (Tang & Zimmerman, 2009). This resulted in Boeing’s 2003 decision of concentrating on creation of additional value for its customers as well as their passengers by designing an innovative plane; the 787 Dreamliner(through the entire paper the term “787 Dreamliner,””787,” or “Dreamliner” shall be used interchangeably.)The first strategy for Boeing was value creation strategy for her passengers through enhancing their travel experience by redesigning the plane and providing considerable enhancements in comfort. Consequently, comparative to other planes, more than half of the principal structure of the Dreamliner (comprising the fuselage together with the wing) would be made from composite materials. Compared to the conventional material (aluminum) used in manufacturing of airplanes, the composite material would allow for increased pressure and humidity to be retained in the passenger cabin, providing extensive enhancements to the flying experience. In addition, due to the lightweight nature of the composite materials, the Dreamliner would now undertake long-haul flights. Accordingly, the 787 would enable airlines to provide nonstop/direct flights between any pair of cities devoid of stopovers, something that is preferred by nearly all international travelers. Boeing also redesigned the 787’s electrical system to be using lithium-ion batteries (Tang & Zimmerman, 2009). Secondly, Boeing’s strategy for value creation for its core immediate customers(the airlines) as well as its final customers (the travelers) was to enhance flight operational effectiveness by offering big-jet ranges to midsize planes while cruising at almost the same speed. This effectiveness would enable airlines to provide economical direct flights to as well as from more together with smaller cities. Additionally, with a capability of hauling between 210 to 330 travelers and a 8500 range nautical miles, the Dreamliner was deigned to consume 20% less fuel in comparison to today’s similarly sized aircrafts. Thus the 787’s cost-per-seat mile was anticipated to be 10% lesser than for any other airplane (Tang & Zimmerman, 2009). In addition, unlike the conventional aluminum fuselage vulnerable to fatigue and rust, the Dreamliner’s fuselages are on the basis of composite materials effectively reducing replacement as well as maintenance costs. So as to decrease the development time for the 787 from 6 to 4 years as well as development cost from 10 billion dollars to 6 billion dollars, Boeing decided to use an unconventional supply chain which was new to airplane manufacturing industry so as not only to develop but also produce the 787.This kind of supply chain was visualized to maintain manufacturing as well as assembling costs at minimum while at the same time spreading the developmental financial risks to Boeing’s suppliers. Because of the distinctive value that the Dreamliner offered to the airlines as well as their customers, the number of orders received exceeded expectations .By November 2008, Boeing had received a sum of 895 orders for the Dreamliner; with the 787 becoming the fastest retailing airplane in the history of aviation. Their share price rallied at an all time high and the C-suite got their bonuses. All this was wonderful stuff, if Boeing could only deliver. Apparently Boeing’s customers thought the company would (Tang & Zimmerman, 2009). Nevertheless, reality has finally since set in and unfortunately things did not work out as envisioned. Whereas, the first Dreamliner was initially planned to be delivered back in 2008, a series of cost overruns and delays meant that deliveries would not start until 2011.In addition; the project ran into billions of dollars over budget together with being 3 years behind schedule. According to Boeing’s Chief of Commercial airplanes, Jim Albaugh, the company spent so much money trying to pull through than it ever would have used had it endeavored to maintain the core technologies closer home. Boeing seemed to have turned the corner once the Dreamliner’s deliveries had began, however, since the launch the company became plagued with a series of high-status problems ranging from to overheating batteries, fuel leaks, fires to smoke in the plane’s cabin. The troubled manufacturer became grounded with global regulators on their neck seeking to find out whether their aircrafts would ever be safe to fly again.Boeing had undertaken one of the most widespread outsourcing campaigns that it had ever tried in the entire history of its existence-an endeavor that received extensive press coverage. Nevertheless, the cost-cutting manner in which Boeing conducted outsourcing both within the US as well as beyond did not comprise steps to alleviate or eradicate the predicted risks and costs that occurred. Thus, even with established technology, major risks do exist in outsourcing that various components will not join together as the aircraft is being built. So as to reduce these potential issues, it is important that the prime contractor gives on-site superior, supplier-management and at times technical support. Consequently, if this fails to be executed, the the prime manufacturer’s performance can never surpass the abilities of the least skilled of the suppliers. Such costs do not disappear simply because the work itself is not within sight (Allworth, 2013). Thus, Boeing failed to make adequate provision for such on-site support for its entire cohort of suppliers. Indeed, the company explicitly assigned this role to sub-contractors. As a result, when the subcontractors did not perform the prerequisite coordination, Boeing ended up providing the support anyway. Thus, Boeing sent its engineers to the sites of different Tier-1, Tier 2 as well as Tier-3 suppliers globally to resolve different technical issues (James) that seemed to be the core cause of the postponement in the development of the Dreamliner. Eventually, Boeing was forced to redesign the whole aircraft sub-assembly procedure, resulting to so many additional expenses which were not part of the project from the beginning (Donning, 2013).The Dreamliner involved key technological innovations that have never been proven in any other aircraft. For instance, would the use of Carbon fiber endure the severity of international flying? Would the lithium-ion batteries that are notoriously known for overheating leading to fires that hard to extinguish be used safely? No one for sure knew anything about these ground-breaking technologies. In addition, the Dreamliner contained numerous new electrical systems, distribution systems and power panels. Thus, the interactions amongst these new technologies, introduced at the same time, exponentially also increased innovation risk. The innovation risk meant Boeing ought to have been involved more in the developing as well as manufacturing of the Dreamliner. Surprisingly, Boeing opted to be less involved, in the process delegating a lot of the detailed procurement and engineering to its sub-contractors. This further resulted in unanticipated problems that kept recurring delaying the project the more as well as increasing the costs further (Tabuchi & Wassener, 2013).Complex products such as airplanes comprise of a necessary outsourcing degree, basically because the company does not have the prerequisite expertise in some aspects such as avionics and engines. Nevertheless, Boeing considerably increased outsourcing for the Dreamliner more than for its earlier planes such as the 737 and 747 which had been at about 35-50%.However, for the Dreamliner, Boeing intended to raise this percentage to 70%.The company therefore did not approach outsourcing as a wearisome necessity and instead just like several US companies, Boeing passionately embraced outsourcing in the Dreamliner as a way of minimizing time and costs of development (Tang & Zimmerman, 2009). Boeing should have adopted another superior approach so as to reduce extra costs as well as risks of big-scale outsourcing. This is because outsourcing does not necessarily cut costs and increase profits but instead drives knowledge and profits to suppliers in the process raising costs for the parent company. Consequently, not only is outsourcing done of the work only but also the profits related with the work are also outsourced as well. Boeing before arriving at make-buy decision ought to have defined what it really wanted and established the relative costs of the same. The company should also have put significant additional up-front endeavor in not only planning but also avoiding the circumstance where core sub-assemblies fail to fit together while doing the final assembly thereby increasing the costs and time by a big magnitude than was initially planned. Thus if Boeing had outsourced the construction and engineering of the 787 long before it was defined as well as established its relative costs; the company would have avoided billions of dollars in over budget and pushing its delivery schedule over 7 times. Thus the company delivered its first fleet over 3 years late (Sodhi & Tang, 2012).Moreover; Boeing further exaggerated these risks through adopting an outsourcing model that was new alongside a novel technology. Compared to its earlier airplanes, in which Boeing executed the conventional task of incorporating and assembling various parts together with subsystems produced by various suppliers, the Dreamliner’s supply chain was on the basis of a tiered framework that would let Boeing to cultivate partnerships with about 50 Tier-1 strategic collaborators. These strategic collaborators would act as “integrators’ assembling various subsystems and parts that Tier-2 and Tier-3 suppliers would produce. Nevertheless, Boeing later realized that some Tier-1 strategic partners did not have neither the know-how of developing various airplane sections nor the expertise of managing their Tier-2 suppliers. So as to reclaim control of the development procedure, Boeing had no other option but to buy Vought Aircraft Industries which was one of its Tier-1 suppliers so as to transfer the much needed expertise to the rest of the suppliers. In addition, Boeing had to compensate strategic partners for potential losses in profits arising from production delays. Historically, Boeing had worked with its subcontractors by providing them with comprehensive blueprints of the required parts-after Boeing has created them already. This implied that Boeing was tasked with the responsibility of designing all important aspects of the puzzle first. However with the Dreamliner, it seems Boeing attempted a very different technique; instead of solving the puzzle and requesting suppliers to supply a definite puzzle piece, Boeing requested suppliers to build their own designs for various parts. However, the puzzle had not yet been appropriately determined when Boeing requested suppliers for the various pieces. Therefore it should not come as a surprise then that as the pieces came back from faraway suppliers, for the pioneer plane ever built of Composite materials-those components failed to fit together as envisioned. Cost and time all blew out accordingly (Allworth, 2013). Crisis management can be described as a process through which a firm deals with a core event that threatens the very existence of the organisation. This event may threaten to harm the stakeholders, general public as well as the organization itself. The concept as well as the studying of crisis management originated from the occurrence of the 1980s large-scale environmental as well as industrial disasters. Crisis management is regarded as the most significant process as far as public relations is concerned. Usually there are 3 elements that are commonly found in a crisis; first and foremost is the element of threat, secondly is the surprise element, and thirdly is the limited or short time to spring into action. The other argument in crisis management is transformational process whereby the old way of doing things can no longer be sustained. This leads us to the 4th defining element of crisis management which is the need for the organization to change. If there is no faith required, the event could more correctly be defined as an incident or failure (Marchesani, 2014). As compared to risk management which typically comprises assessment of possible threats to looking for best techniques of avoiding such threats, crisis management on the other hand comprises addressing threats before they happen, during their occurrence as well as after they have happened. Crisis management is a field within the wider context of management comprising of techniques and skills needed to recognize, understand, assess and handle a grave situation, particularly from its first point of occurrence to the point that sees the starting of the recovery process. In addition crisis management can be described as a situation-based structure that comprises clear responsibilities and roles linked to organisational needs company-wide. The response generally comprises action in the following aspects; crisis prevention, assessment, handling as well as crisis termination. Crisis management aims at being adequately prepared for any possible future crisis, guarantee a fast and sufficient response to the given crisis, sustaining a comprehensible line of communication and reporting in the case of crisis occurring together with agreeing with various regulations for terminating the crisis (Tafoya, 2013). The importance of crisis management cannot be underestimated, especially after the 11th September 2001 terrorist attacks. Whereas managing a current crisis is crucial companies need to actively plan so as to avoid more crises. Crisis planning as well as proactively evaluating as well as tackling vulnerabilities to prevent or reduce the impact of crises, concentrates on the actions that should be tackled before any crisis ever appears. Proper planning for crises can reduce their impact in addition to creating competitive advantage while at the same time to expect all the unfavorable events that may take place in a firm and then planning for associated crisis approaches can be overwhelming and disheartening. Thus by adhering to the laid down steps of creating a team, analyzing vulnerabilities, forming strategies, working the plans as well as evaluating performance, supervisors can minimize their uneasiness regarding planning of crisis and increasing the likelihood that their firms will endure and probably profit from times of turbulent crises (Hough & Spillan,2005). Some of the theories associated with include structural-functional systems theory, diffusion of innovation theory as well as unequal human capital theory. The structural-functional theory usually tackles the complexities of information networks as well as command levels constituting the communication channel of an organization. Diffusion of innovation theory can also be applied in information sharing. This theory describes dissemination and communication of innovation via given channels over a definite time span. Finally the unequal human capital theory postulates that an institutional crisis can emanate from discriminatory lawsuits. This simply implies that discriminatory lawsuits may bring about negative response from the stakeholder, damage the reputation of the company as well as threaten the survival of the corporation (Lewis, 2006). Reference list Bill, Y.(2005) The Story of the Boeing Company. New York: Zenith, 2005. Dennis, T.(2013) Organizations in the Face of Crisis:Managing the Brand and Stakeholders. New York: Palgrave Macmillan. Gerald, L.(2006) Organizational Crisis Management:The Human Factor. New York: CRC Press. Hough ,M.& Spillan, J.(2005) "Crisis Planning:Increasing Effectiveness,Decreasing Discomfort." Journal of Business & Economics Research : p1-6. James, A.(2013) "The 787s Problems Run Deeper Than Outsourcing." Harvard Business Review : np. Sodhi, M, & Tang ,C.(2012) Managing Supply chain Risk. New York: Springer. Steve, D.(2013) "What Went Wrong At Boeing?" Forbes : np. Tabuchi, H.,& Wassener, B.(2013) "Deepening Crisis for the Boeing 787." The New York times: np. Tang, C., & Zimmerman, J.(2009) "Managing New Product Development and Supply Chain Risks:The Boeing 787 Case." International Journal Forum: p 1-14. Marchesani,V.J.(2014) The Fundamentals of Crisis Management. New York: Page Publishing,Inc. Read More