BPR Strategy Essay

1.1 Summary

The questions the questions raised in the Boeing marketing position, concerning the ways information system was used to influence the competitive position of Boeing Corporation, and to better understand the significance of the role of information systems in achieving its business strategy.

Although Boeing recognized the need to implement dramatic measures to decrease the time it took to fill orders for new equipment, and was willing to thoroughly analyze their manufacturing process and was successful in coming up with workable alternatives including computerization and the standardization of parts.

However, the non-commitment of top management in managing the transition process was evident in their people and production problems. Clearly, the market is quite unpredictable, yet for a firm to be in vigorous pursuit of such business and IT strategies and have even the thought of hiring that many workers while retraining all the rest, seems to be, particularly in hindsight, fraught with excessive risk.

1.2 Answers

1.) Utilizing Porter’s five forces and value chain models to analyze Boeing competitive position and the impact of information technology.

a. Porters 5 Forces

i. Potential Threat of New Entrants

Economies of scale – Boeing was able to reduce the threat of new entrants by setting targets for reducing costs by 25%, defects by 50% and order-to-delivery time by half to ten months for its aircraft production. This was achieved through massive investments in IT, first with the development of the 777 using CAD (computer aided design) system, and the ERP systems.

Capital Requirements – The huge investment required to build manufacturing facilities to produce large commercial airplanes creates a significant barrier to entry for any competitor challenging Boeing. Boeing is still a world leader in missile defense, battle ; commercial aircraft. They serve customers in 145 countries, employ workers in over 60 countries and operate in 26 states. Sales in 2003 were $50.5 billion, total IT investments of $30 billion, 30 percent of which were international.

ii. Bargaining Power of Buyers

Differentiation (777: Unique Quality) – While Boeing’s main competitor, Airbus uses a two-axis system with the rudder controls being analog, Boeing was able to reduce the bargaining power of its buyers, by producing an aircraft (777) that was technologically superior in utilizing only two pilots and fewer engines, thus reducing operational costs and making it cheaper for airlines to operate. I addition, the 777 was designed to please its buyers / customers with higher ceiling, broader aisles and wider seats.

Switching Costs – Boeing was able to reduce the threat of its defense and commercial buyers with the merger of Boeing, Rockwell International Corporation and McDonnell Douglas Corporation. In an effort to meet its defense commitment in Delivering 120 C-17’s to the Air Force by the year 2004, Boeing had to install a Catalyst software for its warehouse support system, thereby resulting in an increased number of daily work orders being processed and considerable labor cost savings.

iii. Bargaining Power of Suppliers

Selection of Supplier (Engine) – Boeing was able to reduce the bargaining power of its engine suppliers, because it offers the 777 with engines from three manufacturers; General Electric, Pratt ; Whitney, and Rolls Royce. The three types of engines are designed to the same specifications and offer nearly identical performance giving each airline the option of using the manufacturer of their choice.

Threat of Forward Integration (Workers) – With the introduction of the computer aided design (CAD) and enterprise resource planning (ERP) software, operating costs were substantially reduced and there were massive job cuts, thus limiting the power of unionized mechanics and engineers, which was illustrated in the shrinkage of the workforce by 40,000 from 1991 to 1994. This workforce reduction is due in part to the increased efficiency brought on by the changes in Information Systems.

iv. Threat of Substitute products

Improve Price ; Performance – As the market evolves, its seems that both Boeing and Airbus are going in very different strategic directions with Boeing staying with “mid-sized” large jets such as the 777 or 787 while Airbus is entering and virtually creating the “super jumbo” jet market with the 380.

In response to this threat, Boeing was able to reduce the threat of Substitute products by its decision to utilize Information systems in cutting costs and make planes cheaper to fly.

Redefine Products ; Services – Through IT, the 777 was designed to fill a gap in the Boeing lineup between the 747 and the 767. It is advertised as the most comfortable aircraft flying; within most configurations there is more headroom, legroom, and seat widths than other aircraft. Further the airplane is pre-wired with fiber optic LANs that can handle everything from individual video screens for every passenger (even coach) to fully interactive stations including video games, FAX, phone, data, and shopping capabilities.

v. Industry Competitors

Market Share – Although at the moment Airbus Industries are current market leaders,

by the merger announcement date, between Boeing, McDonnell Douglas ; Rockwell international, Boeing had held approximately 65% of global sales, with MDC possessing 5% and Airbus 30%. Therefore, the merger had enhanced Boeing’s total market share from 65 percent to 70 percent.

Cost Effectiveness / Differentiation – However with the airlines new emphasis on cost and with Boeings new Information systems design parameters, which have shifted from being performance based to being cost based; these changes should substantially stabilize its manufacturing process and maintain the current market share.

b. Value Chain Models

i. Primary Activities – Define and Control Airplane Configuration/Manufacturing Resource Management (DCAC/MRM) – This was designed to streamline and simplify the processes of configuring and production of airplanes.

Interconnected off-the-shelf packages – IT plays a significant role in the overall “re-engineering” of the firm. Specially, by replacing 400 independent programs with 4 interconnected off-the-shelf packages for its primary activities, which include;

Primary Activity

Package

Inbound Logistics

Configuration

Operations

Manufacturing

Outbound Logistics

Purchase

Marketing & Sales

Inventory

Service – Each plane was assigned its own unique identification number that could be used to identify all the parts required on that plane. Each airplane would have only one parts list, and it would be updated electronically during the production cycle.

ii. Supporting Activities – It is often the supporting activities of infrastructure, HR, IT, and procurement that are the foundation for ‘how’ the primary activities are performed.

Procurement – Electronic Data Interchange (EDI) links with external suppliers and database links for internal suppliers, whereby the ERP system determines the need and where that supplier’s part needs to be delivered.

Technological Development

– Boeing made huge investments in technologies to produce highly differentiated products, a few of which include; forecasting software from i2 technologies, factory floor process planning software from calming, product data management software from structural dynamics research and a product configuration system from trio log.

Human Resource Management – Extensive use of subjective performance measures to sensitize and encourage worker creativity about the new systems in order to improve productivity. The steps taken include;

(1) offering an eight- week knowledge transfer training course on the new system

(2) Facilitating accelerated improvement workshops” where they brainstormed on ways to do their jobs more efficiently.

Firm Infrastructure – To facilitate the change and better understand the system, the previous organizational culture had to be broken down. Due to the fact that majority of its business units operated separately, hence the goals were to reduce the isolation of each of the various areas such as finance and engineering, and to help each to understand the impact of any change made by one department on the other department. On the assembly line the goal was to change to lean manufacturing.

2.) To what extent was is IS/IT a critical factor in achieving Boeing’s business strategy?

CAD Drafting / Electronic Linking

Information technology was essential to the 777 project and is vital to any continued success the company will enjoy. This was the case in the 777 aircraft as the entire design was not done in scale models as had every other airplane that Boeing had made. This was made possible through the use of computer-aided drafting techniques and as well as the electronic linking together of various teams, departments and functions that further enabled simultaneous/parallel work rather than sequential/serial that characterized many projects prior to the advancement of technology that allowed extensive information sharing.

Cost Cutting & Reduced Production Time

IT played a significant role in the overall “re-engineering” of the firm. Specially, by using IT to inventory parts and materials globally, inventories were dramatically reduced. Further cost and times savings were made be possible by utilizing data cleaned and optimized databases to all departments and even outside vendors to “talk” to one another. Overall, Boeing fundamentally began the process of reinventing itself to deliver aircraft faster and with fewer wasted and often idle, duplicated resources through leveraging technology to “digitally” produce the first “fly-by-wire” commercial aircraft.

IT Advancement: Airbus Entry

Further, the entrance of Airbus changes the nature of IT from that of potential competitive advantage to that of simply being essential for competitive parity. With the entry of Airbus to the market, it learned from Boeing’s, as well as Lockheed’s and McDonnell Douglas’, mistakes and it did not have 40 years of bureaucratic momentum to overcome.

The technological advances that Boeing has in place could enable it to do more, faster and with less notice in regards to a fickle marketplace. If Boeing does not maintain its IT investment, only failure will be certain.

3.) Discuss the “fit”, correctness and riskiness of Boeing’s business strategy and its IT strategy.

IT Strategy: Analysis

Within the division of commercial aircraft production, Boeing had the goal of utilizing state-of-the-art techniques to build the 777 and the additional goal of modernizing production. As this division of Boeing might be likened to a line-up between the 747 and the 767, the only way to achieve these goals was to closely evaluate how they worked. The means by which these business goals were to be achieved was to pursue a number of IT strategies including ERP systems, ‘digitizing’ work through CAD and other paperless systems, and process improvement techniques.

Business Strategy: Analysis

With regards to the business-level strategy of Boeing, they have taken a unique position in terms of what they believe the market will want. While arch-rival Airbus believes the market of the future will demand larger, super-jumbo aircraft, Boeing is placing its bet on “normal”-sized yet highly efficient aircraft such as the 777 and the 787 whose first flight is currently scheduled for 2006. These two strategies are radically different yet not totally mutually exclusive.

Rationale: Efficiency

While the Boeing marketing position does not indicate clearly the reasons that Boeing chooses its strategic path, it seems reasonable that as the fleets of carrier’s age and are being replaced, it would be logical to replace a plane with a more efficient plane of approximately the same capacity. The implications of the widespread adoption of super-jumbo aircraft are that there would likely be fewer arrivals and departures as the financial ramifications would necessitate a certain percentage of capacity before a flight would be profitable. Consequently, travel flexibility would decrease and the high revenue generating business flyer may not respond well to this limited window. Finally, many airports may not be able to handle such a large craft with regards to runway or ramp weight or the logistics of boarding through multiple entries or the time consideration of boarding five hundred or more passengers through a single cabin door.

Risk: Transition

Though the business strategy may have a good fit with the external market, thus reducing risk, the IT strategy is a bit of a problem and involves greater risk. In short, Boeing is a comparatively old, set-in-its-way company that employs many thousands of employees in functional silos for departments and the wide-scale; deep change of ERP implementation is often quite traumatic, even in “simple” applications. The key risks with this and other IT strategies is that, individually, each is “doable” but still not with out ‘issues’. Taken all together, in conjunction with a dynamic marketplace, merger & acquisitions and competitive pressures, a formidable obstacles lies before Boeing as they reinvent themselves for the twenty-first century.

4.) What problems would one expect to meet in the design of the 777? Discuss along with ‘hindsight’ recommendations.

i. People-issues / Established Culture

This mainly resulted from the fact that Boeing was over 75 years old and already had an established approach to its employees, organizational culture and IT. This level of inflexibility included issues such as a reluctance to change, fear of job loss, intimidation, and working out a familiar ‘comfort zone’ in which they felt pride and confidence in their ability to do what they have always done.

Boeing has always been a conservative company, which highly valued its privacy, and to change this decades old philosophy to one of idea sharing with suppliers and customers was not a simple task.

ii. Independent / Separate units / Isolation

Due to the fact that majority of its business units operated separately, a set pattern of productivity and information systems were already in place, which the employees were used to thereby making it difficult and increasing the possibility of resistance to change, which might affect staff motivation.

iii. Fear of Criticism / Resistance

Considering that Boeing had been used to almost 75 years of having separate isolated working units, the designing and building of the 777 required the use of a common CAD database meant that as soon as a designer released a drawing, everyone could access the design and modify their own designs to eliminate any problems. This must have led to fear, resistance and to the phenomena that no one released their drawing until the last possible moment for fear of criticism by others.

Steps it took to meet the problems

i. Team Approach: CAD

In designing the 777 with the computer aided design, the system supported a team based approach, teams that were initially isolated had to work together, which meant that as soon as a designer released a drawing, everyone could access the design and modify their own designs to eliminate any problems, thus eliminating the previous practice of working in isolation of “I can do it alone” was changed to “We can do it together”.

ii. Training

To deal with these, the response from Boeing included; (1) offering an eight- week knowledge transfer training course on the new system (2) Introduction of cross-functional training across departments with the aim of reducing the isolation of each department and to understand the impact of any change made by one department on the other department (3) Facilitating accelerated improvement workshops” where they brainstormed on ways to do their jobs more efficiently.

Steps it could have taken

i. Top management commitment – A supportive role from top management and positive leadership commitment would have been a catalyst for influencing all other members of staff to facilitate the change. With the committed leadership they would have been more likely to commit the resources and be actively involved in monitoring the change by talking to staff, investing sufficiently, propelling the drive, introduce initiatives, and enthusiasm which will serve as an inspiration to other members of staff.

Conclusion

Porter’s five forces and value chain model is a good means by which to begin to grasp many of the market and competitive forces of Boeing in the commercial airline industry. Though IT can be a source of competitive advantage, more often than not, it simply enables a firm to do what it does, better and faster.

IT was a critical factor in achieving Boeing’s business ; IT strategy, whereby the 777 aircraft was made possible through the use of computer-aided drafting techniques ; ERP systems.

However, the non-commitment of top management in production and managing the transition process was evident in their people and production problems and in the ultimate failure in fully implementing the ERP Systems.

1.4 Reference

1) Collis, D. and C. Montgomery. (1998). Corporate Strategy: A Resource-Based Approach. McGraw-Hill Irwin: Boston, Massachusetts, US.

2) Porter, M. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. The Free Press: New York, New York, US.

The corporate websites of Boeing and Airbus

3) http://www.boeing.com (Corporate Governance, investor relations, employment, boeing worldwide)

4) http://www.airbus.com (Operations, Airbus worldwide, Supply, procurement, A380 navigator, manufacturing)

Journals

5) The Airline Monitor 2004

6) U.S. International Trade Commission (USITC) publication: The Changing Structure of the Global Large Civil Aircraft Industry and Market