Week 1 Case: Philip Condit and the Boeing 777
From Design and Development to Production
and Sales
Submitted by: Group E members
Jason Nowak
Ted Powell
Monica
Robinson
Fidel
Rodriguez
Ching-Feng Yu
OUTLINE
1. What are the dynamics of competition in the commercial
aircraft industry?
2. In what ways did Boeing limit the risks of the project?
4.
Following the introduction of
Boeing 777, where is Boeing still vulnerable?
During
1988 Boeing realized that to remain competitive in the aircraft manufacturing
industry, it was necessary to either upgrade their existing aircraft product
family or develop an entirely new aircraft.
This action was specially needed to react to Airbus, their strongest
competitor. Airbus had deployed two new
airplane models and was poised to take Boeing’s market share.
Phil
Condit, then Executive Vice President, met with a number of Boeing
customers to seek guidance. These
strategic review sessions led to the bold decision to embark on the design and
production of the most technologically advanced commercial airplane in the
market place, the Boeing 777.
With
the 777, its seventh commercial jetliner, The Boeing Co., Seattle, set a new
standard for designing and building a major aircraft. The result of the $6.3
billion investment and efforts of nearly 10,000 employees assigned to the development
program looks much like other two-engine jetliners. So what makes the 777 truly
one of the industrial achievements of the 1990s? The answer is in the new flight
technologies used in the 777, and in the design-engineering revolution that
stormed through Boeing. To design the
777, about 30 integrated-level teams at the top and more than 230
cross-functional "design build teams” were responsible for specific
products. The team in charge of the 777
project was led by a group of five vice presidents, headed by Phil
Condit. The teams used 2200
terminals and the computer-aided three-dimensional interactive application
(CATIA) system to produce a "paperless" design that allowed engineers
to simulate assembly of the 777. The
system worked so well that only a nose mockup (to check critical wiring) was
built before assembly of the first flight vehicle, which was only 0.03 mm out of
alignment when the port wing was attached.
Boeing
understood that for the project to succeed, the stakeholders had to be involved.
By the end of the project, achievements in airplane interior flexibility, aircraft design improvements, and manufacturing speed and efficiency stood out and cemented the company’s position as the world leader in the design, development, and manufacturing of commercial airplanes.
1. What are the dynamics of competition in the commercial aircraft industry?
With
the enormous risk of failure, the large commercial jet makers had been reduced
from four in the early 1980’s to two in the late 1990s. In the 1970’s, the Boeing 747 program helped
them solidify its position as the industry leader for years to come. At this point, Lockheed Corporation exited
the industry, leaving McDonnell Douglas and Airbus far behind. In the late 1980’s, Airbus had just launched
two new 300-seat wide-body models. They
did this in order to compete with Boeing Corporation. In August 1997, Boeing completed its acquisition of McDonnell
Douglas. The primary rationale for the
acquisition was to make Boeing more diverse and thus less vulnerable to the
cycles of the commercial jetliner market. Yet an important secondary rationale
was to bolster Boeing's position in that market, relative to arch-competitor
Airbus.
The
return on investment period in the industry is very long and the required
investment is extremely large. Aircraft
manufacturers can expect initial investments of up to $15 billion, lead times
of up to 6 years, and cash drain throughout the development phase. Even after successfully completing a new
product line, about 400 airplanes need to be sold with sustained annual sales
of at least 50 airplanes just for the company to break even.
The
dynamics of competition are also impacted by the fact that one airplane
component, the engine, can take longer to develop and cost as much as the
entire aircraft. Known engine
manufacturers are General Electric, Rolls Royce, and Pratt & Whitney. Without engines, not only are airplanes
unusable, but the very survival of the airplane manufacturer can rest on the
ability of their engine manufacturing partners to deliver. Boeing experienced this pain during the
early 1970s when according to T. A. Heppenheimer “The
Company went deeply into debt to fund its development and initial production
(of the 747 model). But it couldn't
deliver the early models, because their engines were not ready. Then the nation
went into a recession, and orders dried up. Boeing came close to going
bankrupt, but survived by selling improved versions of earlier jets, including
the 707 and 727”.
In
this industry, being competitive and innovative is very important. With the high cost of production and
research, the aircraft manufacturing companies need to match their competitor’s
products to succeed. Most importantly,
they need to satisfy customers needs and expectations. They must also anticipate environmental
changes such as increasing fuel prices, need for added security, increasing
government regulation, etc. As history
has proven, many companies can not compete.
2. In what ways did Boeing
limit the risks of the project?
This
project was basically an “all in” situation.
A failure of the 777 project would have eroded investor’s confidence,
reduced shareholder’s value, and threatened the survival of the company. We believe Boeing did an excellent job in
limiting risks. Following are some
examples:
3.
What were the weaknesses of the 777 program and what should the Boeing
Company do about these weaknesses?
Although
this project has proven to be a HUGE success for Boeing they still had some
weaknesses/ problems with the project.
· Unlike Airbus, Boeing was not able to implement lean manufacturing strategies with its suppliers to reduce inventory management and administration costs.
We
believe these weaknesses are not indicative of a project in trouble or failing
but rather an by-product of the level of difficulty such large-scale endeavor
entails. In spite of its weaknesses,
the company was able to complete the project, leapfrog the competition, and
solidify its position as a world leader in the commercial aircraft
manufacturing industry.
4.
Following the introduction of Boeing 777, where is Boeing still
vulnerable?
Boeing
needs to continue to face the competition head on and develop a “paranoid”
mentality regarding the survival of the company. They must not let Airbus continue to distinguish itself by incorporating
the most advanced technologies into its planes. By not taking a technology leadership role, the company is highly
vulnerable. During 1999 and 2000
research and development spending decreased considerably. Instead, the correct strategic move is to
invest in research and development with the explicit objective of once again surpassing
their competitors.
As we have learned, a competitive advantage only exists when other companies have tried to duplicate specific processes and have been unable to do it. Boeing must duplicate Airbus lean production manufacturing system techniques to reduce inventory, reduce cost, reduce manpower, and improve lead-time in order to neutralize this current vulnerability.
Boeing
was lucky in that they were able to sell over 300 airplanes from 1996 thru 2000
before world events drastically changed the dynamics of the airline industry
and hence, the aircraft manufacturing industry. To reduce environmental conditions vulnerabilities, the company
has diversified it’s holdings, acquired companies in new markets, and increased
their participation in defense and space spending allocations.
Ultimately,
this article is a testament to the vision and will of a strong leader, Philip
Condit, and his ability to change a company. The fact that he later became Boeing’s CEO attests to his
accomplishments. He made brilliant
strategic decisions and ensured his customers would be very satisfied with the end
product. He set out to change an
ingrained and outdated culture and he made great strides towards it. He introduced new leading edge technologies
and supported the changes as they matured.
Presently,
he continues to successfully lead the company.
According to Boeing’s website “Under Condit’s leadership, several
mergers and acquisitions have transformed the company into a broad-based,
global enterprise. The acquisition of Rockwell Aerospace, the merger with
McDonnell Douglas and the addition of Hughes Space & Communications has
established a company with great strength and breadth. Today, Boeing is
strongly positioned in commercial airplanes, defense, space, information
technology, financing, and communications”.
On the good news side, the company reports that during the second quarter of 2003 it:
But
on the bad news side, on July 23rd, 2003 the company “reported a net loss for the second quarter of 2003
of $192 million, or $0.24 per share, on revenues of $12.8 billion. This
compares with net earnings of $779 million, or $0.96 per share, on revenues of
$13.9 billion for the second quarter of 2002”.
Which side will ultimately
win? Time will tell. But if history is an indicator, Phil
Condit and the 160,000 employees of Boeing will manage to survive and
succeed.
The Boeing Co. website pages used for reference:
Retrieved on August 30th, 2003.
http://www.boeing.com/companyoffices/aboutus/execprofiles/condit.html
http://www.boeing.com/news/releases/2003/q3/nr_030723a.html
Heppenheimer, T. The U.S. Aircraft Industry - An
Overview. Retrieved from centennialofflight.gov on August 30th,
2003. http://www.centennialofflight.gov/essay/Aerospace/AeroOV1.htm
Hitt, M., Ireland R., and Hoskisson, R. (2003). Strategic
Management: Competitiveness and Globalization (Concepts and Cases) 5th
edition. Mason, OH: South-Western. C.63-C.77