The strategy of my
company has undergone big changes in the past several months. Boeing is known
all of the world to be one of only two major commercial airplane manufacturers
in the world. Boeing is known for the quality and luxury that it designs into
its products, although these benefits come at a price that, in recent years,
has made it, difficult for Boeing to compete. Historically, Boeing has been
able to advertise to its customers that the increased price of its products can
be justified by the improved quality, customer service, and delivery
commitments that far exceed that of its major competitor, Airbus. But in recent
years, the tides have changed. Airbus has put a renewed focus on quality and it’s
becoming harder and harder for Boeing to differentiate itself from this
aggressive competitor. In response to this changing environment, a new strategy
was born.
The Global Services Market
Tom Stagliano,
Senior Aerospace Engineer, estimated that it costs close to $30 million per
year to operate a $260 million dollar aircraft. This means that in
approximately eight and a half years, the cost to operate the aircraft will
exceed the cost of the aircraft itself. Keep in mind that this figure likely
doesn’t take into consideration the sharp increase to operating costs as the
aircraft ages. Simply put, the cost of aftermarket goods and services in the
commercial aerospace industry is a serious factor in any company’s aircraft
acquisition.
Airline operating
costs go far beyond the staff, crew, and fuel that actually enable it to
deliver customers from point A to point B. Other operating costs include
maintenance, spare parts, software upgrades, data analytics, and training of
pilots, crews, and maintenance personnel. These costs are often referred to as
the “ground” costs, and they cannot be ignored. In fact, Boeing estimates that
the market for these services could grow to exceed $3.4 trillion dollars over
the next ten years (Farley, 2017).
Quite frankly, the
services market is a potential goldmine for anyone who is able to penetrate it
and prove themselves as a trusted partner to airlines and government agencies.
Who better to fill this role than someone who knows the airplane better than
any other services competitor ever could – the company who manufactured it in
the first place.
The concept of
providing in-service support to its airline customers is not new to The Boeing
Company. In fact, Boeing has worked to increase its presence as a competitor in
the post-delivery market for the past decade, starting with the launch of its integrated
fleet care product “GoldCare.” With the launch of GoldCare, Boeing began
marketing itself as the premium provider for aftermarket services; but this
marketing came with a price. Customers perceived Boeing’s aftermarket products,
training, and services to be priced like gold as well. Despite several hurdles,
Boeings suite of services grew to be successful over time and reached a point
where it services at least 60 customers and with over 2,000 aircraft between
them (Boeing, 2017). Unfortunately, Boeing’s current market capture is only at
9%, which is insufficient considering what a huge global player Boeing could be
(Bellamy, 2017).
The Launch of Boeing Global Services
Competitors in the
services market have had an advantage over Boeing in many ways, including the
fact that competitors have an easier time maintaining a lower risk profile. As
the original equipment manufacturer (OEM), Boeing had a different level of risk
– their services were directly tied to their role as the OEM. In addition, the
profits and losses (P&L) as a services provider were impacted significantly
by the successes and/or failures of the Boeing commercial and defence airplane
production and sales divisions. The inability for Boeing to differentiate
itself as a services provider from that as an airframe provider drove it to
consider a complete separation of the two business units.
Hamel (1998) suggested
that complete reinvention of its industry, not just its processes, is the only
way for a company like Boeing to make profound change in a competitive
environment. So, in late 2016/early 2017, Boeing leaders announced a shift in
strategy; it would divest both the commercial and military services portions of
its business and form a third company named Boeing Global Services (BGS).
Before this change, Boeing maintained a separate commercial leg and defense leg
of its business, and within each of these businesses it provided a mixture of
aircraft and services. Following the strategy change, Boeing Commercial
Airplanes would be responsible for manufacturing and delivering aircraft to
commercial airlines; Boeing Defense would be responsible for manufacturing and
delivering aircraft to governments and militaries; and Boeing Global Services would
be responsible for providing post-delivery services to commercial, defense, and
military customers. According to Boeing’s own website (2017):
“Global Services, headquartered in the Dallas area, was formed by integrating the services
capabilities of the government, space and commercial sectors into a single,
customer-focused business. Operating as a third business unit of Boeing, Global
Services provides agile, cost-competitive services to commercial and government
customers worldwide.”
As a part of this
change, Boeing re-branded its services package from its previous name “GoldCare”
to Global Fleet Care, attempting to revise its image amongst customers and competitors.
During the recent earnings call, Boeing Company CEO Denis Muilenburg voiced a
goal of growing its 9% market share in the services industry to a $50 billion
businesses (Bellamy, 2017).
Feedback and Strategy Formulation
One big issues with
Boeing’s change in strategy throughout the years is that it appears to be
completely conceived and launched from the top down. This approach to strategy
formulation aligns with a cross functional matrix organization, at best, but
does not at all align with a complex adaptive system (CAS).
If Boeing were taking
a CAS approach to strategy formulation, it would have a different perspective
on organizational evolution, and would put greater value on employee feedback. Obolensky
(2014) described feedback as a move from top down to 360 degree thinking, where
“the typical one-way process of boss to subordinate” feedback turns more fluid
and interactive (p. 28). Randall (2013) went on to state that one of the
biggest failures leaders make is spending “copious amounts of time creating the
strategic plan, often in isolation.” Employees need collaborative communication,
not barking orders, in order to maximize their productivity (Randall, 2013).
Boeing is a very large
company and it doesn’t have a strong reputation, in the eyes of the employees,
as a company that pulses the workforce before making strategic decisions. This
is one area that Boeing needs to focus on if they truly wish to embrace the CAS
approach, as business experts suggest they should.
The Boeing Company in 10 Years
The launch of BGS
became official on July 1, 2017 and is still in the process of being understood
and accepted by the workforce and the general public. The intent of the strategic
change is clear; the opportunity for growth in the services market is massive
and Boeing had to do something if it hoped to become a more serious competitor.
However, the approach, including the planning, communication, and initial
launch of the new BGS business was confusing to the workforce and appeared to have
a somewhat secretive connotation at the leadership level.
The effectiveness of these
changes is still months, perhaps even years, away from being understood. Over
the next 10 years, I believe Boeing truly will grow to be a major competitor in
commercial and military services. After all, Boeing has the knowledge, the manpower,
the global presence, and the history in the industry required to make it an absolute
expert. I predict that we’ll see the BGS side of Boeing’s business make a
deliberate effort to separate itself from the commercial and military aircraft
sides of its business in order to gain a stronger reputation as a training and
services provider. By 2030, perhaps even sooner, I predict revenues from BGS
will fiercely rival revenues from airplane sales, and profits will actually
exceed that of airplane sales. I hope to be a strategic leader within the
Boeing company by the time it begins to realize the impacts of this move, and
plan to help guide it down a profitable path to any extent I can.
References
Bellamy, W. (2017).
Boeing Global Services is open for business. Aviation Today. Retrieved from
Boeing Media Room
(2017). Boeing Global Services Begins Operations. Retrieved from http://boeing.mediaroom.com/2017-06-30-Boeing-Global-Services-Begins-Operations
Boeing News. (2017).
Boeing realigns Boeing Global Services total fleet care offering with Global
Fleet Care. Cision News Wire. Retrieved from
http://www.prnewswire.com/news-releases/boeing-realigns-boeing-global-services-total-fleet-care-offering-with-global-fleet-care-300475675.html
Farley, G. (2017).
Boeing outlines its global services division. King 5 News. Retrieved from http://www.king5.com/tech/science/aerospace/boeing-outlines-its-global-services-division/450383648
Hamel, G. (1998).
Strategy Innovation and the Quest for Value. Sloan Management Review. pp.
7-14. Retrieved from http://sloanreview.mit.edu/article/strategy-innovation-and-the-quest-for-value/
Randall, M. (2013). Employees
can’t help carry out a strategy if they didn’t help plan it. Business Insider.
Retrieved from http://www.businessinsider.com/involving-employees-in-strategizing-2013-6
Stagliano, T. (2015). How
long does it take for an airline to break even on a new airplane purchase?
Quora. Retrieved from https://www.quora.com/How-long-does-it-take-for-an-airline-to-break-even-on-a-new-airplane-purchase
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