Boeing: Miscalculations on a Worldwide Scale, Case Study Example

Problem Statement

Boeing has traditionally enjoyed the reputation of being the top aircraft manufacturer in the world. But in the mid 1990s a series of miscalculations resulted in the airline losing its market share to Airbus its closest competitor.  These errors were caused by a combination of factors which included an unanticipated boom in the airline industry. The boom resulted in a surge of orders from airline companies which Boeing was not equipped to deliver.  An earlier restructuring during a lean period in 1993 had resulted in a number of redundancies. The company now found itself without the qualified technical staff to deliver this new surge in orders.  Also changes in supply management strategies resulted in a serious shortage of supply parts resulting in further delays. As compared to Airbus Boeing management did not adopt a strategy of minimizing costs and translating them into lower prices for its customers. As a result it could not offer its customers the price advantage that its competitor could,   resulting in an adverse effect in its market share.  By the end of the boom period in the airline industry Airbus had captured a significant chunk of Boeing’s market share Also an earlier acquisition of two major competitors had not gone well for Boeing and had resulted in losses for the company. This changed the equation and ushered in a period of cut throat competition which eroded both Boeings profit margins and market share. Airbus grew from strength to strength on the basis of its lower prices and accent on customer comfort. However the tide changed for Boeing in 2005 with the launch of its dream liner followed by the delay of Airbus’s biggest passenger jet. Airbuses woe became Boeing’s gain and it received a lot for its new range of dream liner aircrafts. But in 2008 another series of miscalculations attributable to outsourcing resulted in further delays for Boeings line of dream liner aircrafts turning the tide for the company and resulting in hurting both its reputation and its profit margins.

1. The onset of the Asian economic difficulties did not have as significant a impact on the fortunes of Boeing as did the boom that preceded the recession. The Asian economic boom resulted in a rise in the demand for aircrafts catering to the Asian sector and this resulted in an unprecedented increase in the demand for aircrafts. Boeing which was still reeling from a period of restructuring and downsizing was not sufficiently equipped to cater to this surge in orders resulting in delays cancelled ordered and loss of competitive advantage to Airbus. Thus the onset of the Asian recession which resulted in diminished demand did not have a significant impact on the company’s fortune and was not a major miscalculation on the part of the company.
2. Most of Boeing’s problems did not arise from the Asian market drying up. Instead they were caused by the company’s inability to deliver the large order for aircrafts that it had taken during the boom  period . The company did not anticipate the surge in demand that it was faced with in the mid 1990s and lacked the human resources, logistical capabilities and organizational skills to deliver all the orders. The result was a delay in the orders leading to cancellations and a loss of market share.
3. Yes I think the board would have been justified in firing the management after the debacle of the late 1990s. The management displayed a lack of foresight and the inability to adopt a proper strategy to make the company more efficient, cost effective and reliant on automated technology to deliver orders of such magnitude. If the management had adopted a strategy to minimize costs  translating it into a cost advantage for its customers and emphasized   customer comfort in its aircraft design like airbus it would not have lost valuable market share to its competitor. As late as the mid 1990s the company was still reliant on its human resource function for aircraft design and did not have an organized assembly and manufacturing unit which resulted in the delays. Also the management tended to show a uninformed and arrogant attitude in their dealings with customers
4. I think this statement is a valid representation of a share holder’s perspective. The shareholders of a company often focus on the bottom line and not the processes that are involved in achieving this profit. They are more concerned about increasing profits and returns on their investment. A shareholder would not take favourably to diminished profit margins and market share as a result of increasing competition with Airbus. They consider it the Management’s job to devise strategies to increase competitive advantage and would not be interested in hearing about the problems faced in losing market share to Airbus.
5. I don’t think that Airbus should abandon the A380 yet. For one a lot of the company’s resources have been poured to the project and the company would face serious financial losses if it was abandoned. Second the company stands to lose its goodwill if the project is abandoned as it had staked its reputation on it and had been promoting it endlessly for a lot of years
6. I think the company was justified in firing Stoneciphr for his affair with an employee because he was employed explicit to draft an ethical code of conduct which would prevent employees from indulging in any activity which would harm the company’s reputation Yet he himself broke one of the basic rules by having an affair that endangered both his reputation and that of the company. If he had not been fired the management would have succeeded in conveying a very negative message to the company’s employees.
7. Most mergers take place to exploit the advantages of synergy. These include running a larger operation with greater resources, combined market share and competitive advantage over the rest of the industry. However in the short run these advantages are almost impossible to achieve and require streamlining resources, combining operations, aligning strategies and establishing economies of scale that will result in more efficient operations in the future. The advantages of a synergy take far more time to materialize than expected. It may also involve considerable restructuring before the company starts showing financial and competitive gains.
8. The news of a layoff is liable to create a sense of fear and low morale in even the most motivated and loyal employees. To function efficiently and effectively employees need to be recognized for their contributions and layoffs give the message that employees are no longer valued by the organization. If I was a skilled mechanist and received news of another layoff, I would start searching for a new job as soon as possible, take the first favorable offer I receive and leave the company before I faced the axe.
9. I feel that Airbus did not do a wise thing my ‘placing all its eggs” in the A380 basket. It should have diversified its risks by investing in other projects as well as the Airbus therefore in the eventuality of the failure of one project it could still make profit on the other projects. However by focusing on one project it maximized the risks associated with this project and could lose profits and reputation if this project fails.
10. I feel that in every industry including the airline industry the company which seeks to understand the customer’s tastes and preferences succeeds in achieving competitive advantage. Airbus was more connected to the needs of the passengers than Boeing. It understood that passengers preferred comfortable seats and spacious interiors in long haul flights and sought to incorporate this need in their designs. When passengers realized that their needs were being catered to by Airbus customers they started switching over to these airlines creating a greater demand for the Airbus product. The result was an increase in the competitive advantage enjoyed by Airbus as compared to Boeing who took a long time to understand the needs and preferences of the long route passenger segment.
11. Arrogance in an organization can be combated by a greater effort to understand its target market. The company should undertake market surveys to gauge how customers feel about their products. Consumer’s preferences and needs must be taken into account to alter the product or strategy used to promote the company’s products. Arrogance can also be overcome by analyzing markets and anticipating future trends. This way the company can prepare ahead for any periods of increase or decrease in supply. This is especially important in the aircraft market which is characterized by routine periods of boom and slum.

Arrogance can be overcome by appreciating and motivating employees. Frequent redundancies and restructuring tend to de-motivate the work force. Management can make decisions and set goals but without staff input and performance these goals will be rendered useless and in-effective. It is very important to train, motivate and communicate with staff in order for managerial decision making to be effective. It is also essential to have clearly defined organizational practices such as reward and recognition procedures to value employee contributions. This will also encourage team-work and creativity to foster more productivity.

Hands on Exercise

1.As a management consultant aware of a possibility of demand rising in the future I would have advised management not to fire experienced key staff in the design and engineering section. Instead I would have advised them to reduce staff who had recently been hired and lacked neither the technical knowledge or experience to make a genuine difference in the department’s level of efficiency. I would have also advised management not to employ supply chain strategies which would result in eliminating key supplier relationships or alienating long standing and experienced suppliers. Another recommendation I would have made would be to decrease the company’s reliance on human input in its design and manufacturing function. This would serve to make the process both faster and error free.

Another prominent advice which I would have dispensed would entail adopting cost reducing measures and translating these into lower prices for the customer. This would help the company attain competitive advantage in the long run. I would also encourage the company to conduct market research in its key sectors to understand the tastes and preferences of its customers and use this information to strengthen its customer base in the future. My final recommendation to Boeing would be to re-organize its manufacturing unit and re-equip it with the latest technology to enable it to effectively cope with increased orders in the future.