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Blue Ocean Strategy: The Boeing 787

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Blue Ocean Strategy: The Boeing 787 INDE 599 November 1st, 2009 Situation Pre 787 Launch Duopoly with Boeing and Airbus commanding 100% market share in large ... – PowerPoint PPT presentation

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Title: Blue Ocean Strategy: The Boeing 787


1
Blue Ocean StrategyThe Boeing 787
  • INDE 599
  • November 1st, 2009

2
Situation Pre 787 Launch
  • Duopoly with Boeing and Airbus commanding 100
    market share in large commercial aircraft.
  • Boeing had just recently lost its title at the
    worlds largest supplier of commercial aircraft
    to Airbus and needed a game changer to gain back
    control.
  • Aircraft in pre 787 times were comprised of over
    50 aluminum material and only 12 composite
    material.
  • Operators were plagued by costly eddy-current
    inspections of rivets and structural joints.
  • The 767 airplane program is reaching the end of
    its 20 year design life cycle and slow sales may
    indeed doom that production line as the airframe
    and technology has become obsolete. Boeing has
    no other offering in the medium capacity jet
    market.
  • Perception of Boeing by its customers was down as
    Boeing displayed an arrogance towards
    revolutionary changes in their product line and
    structure. It was currently more important to
    increase share holder value instead of forming
    long term strategic plans to combat the rise of
    Airbus.
  • Aircraft were not designed with the passenger in
    mind. Reducing Noise levels and vibration
    standards, along with addition of in-flight
    entertainment systems and passenger comfort
    accessories were an after though as focus was on
    functionality for the operator.

3
SWOT Scorecard
4
Porters Five Forces Model Threat of New
Entrants
  • Low
  • Threat of new entrants in the aerospace industry
    is small as new startups in commercial aviation
    require billions of dollars to design, build, and
    certify products for commercial use.
  • New companies would need to create revenues on
    the order of 50 billion dollars annually to
    compete with either Boeing or Airbus across their
    multiple platform aircraft offerings. Boeings
    total revenues in 2002 and 2003 were 54 and 50
    billion dollars repectively.
  • Another major roadblock to entry are government
    regulations which control every facet of every
    part of the business. New entrants would not be
    given FAA/EASA delegation for aircraft
    certification as Boeing and Airbus have. Boeing
    and Airbus have both established a long history
    in regulatory agency certification of products.

5
Porters Five Forces Model Power of Suppliers
  • Low
  • Supplier power at the time of the 787 program
    launch was low as it was perceived that multiple
    suppliers across the world had capability and
    capacity to supply system parts for the aircraft.
  • Boeing employs a massive supplier management
    organization and suppliers are forced to meet a
    vast quantity of requirements before they are
    even considered for a contract.
  • Boeing also forces suppliers to share in any cost
    savings that are derived from a suppliers wish
    to reduce their delivered produce cost by
    redesign or lean manufacturing techniques.
  • However it should be noted that once a supplier
    is chosen for a contract the switching costs are
    extremely high for Boeing to seek out a second
    source for product due to the massive
    qualification effort that must take place to
    certify a product for commercial aerospace use.
    So in this instance the supplier have tremendous
    power, but again is it offset by the cost savings
    sharing requirements that I described above.

6
Porters Five Forces Model Power of Buyers
  • Extremely High
  • Simply put the customers in the aerospace
    industry are securing multi billion dollar
    contracts with Boeing and Airbus and have
    unbelievable negotiating power because of such.
  • This instance is further exacerbated for so
    called launch customers who are the initial
    customers placing the first orders for a new
    airplane product. Often these launch customers
    demand specific functionality and emotion with
    their wanted product and usually have quite a bit
    of control during the aircraft configuration
    phase of a program.
  • Buyers also weld extreme power over Boeing and
    Airbus as they are purchasing products with 20
    year design life cycles. This means that buyer
    can demand a bargain price also on ground service
    equipment, spare parts, and support for these
    products.
  • The switching cost for a buyer to go from an
    Airbus product line to a Boeing product line is
    also low forcing these companies to cut prices
    for large orders to get buyers to change over to
    their product. Many of the product offerings
    from Boeing and Airbus use common ground service
    equipment and airport gate equipment.

7
Porters Five Forces ModelThreat of Substitute
Products
  • High
  • Because are truly only two aerospace giants and
    the cost of development to create a competing
    product is massive the threat of substitutes
    products is high.
  • Simply put Airbus (outside of the freighter
    market) has an offering that comes close to,
    matches or even exceeds the performance
    characteristics of any Boeing offering.

8
Porters Five Forces ModelRivalry Among
Existing Competitors
  • Extremely High
  • Boeing and Airbus have competed as the only two
    makers of large commercial aircraft since the
    1997 Boeing/McDonald Douglas merger.
  • As recently as the year 2003 Airbus took the lead
    as the largest producer of commercial aircraft
    after deliveries of there products exceeded
    Boeings for the first time ever. That tread has
    continued throughout this decade.

9
Strategy Canvas Pre Launch
10
New Strategy Canvas
11
Four Actions Framework
12
6 Paths Framework
  • One basic strategic idea within the aerospace
    industry is the idea of an aircraft family line
    of offerings. Aircraft families are basically
    the same offering of the aircraft, just in
    different stretch sizes. Most often the wings
    and body design are identical, just extra body
    stations are added to increase capacity of a
    certain model. This allows aerospace companies
    to achieve cost savings through parts commonality
    and allows potential buyers to save on spare
    parts, ground service equipment, and employee
    training thus creating value for potential
    buyers.
  • Also by looking at the chain of buyers, Boeing
    realized that the end user isnt the operator,
    its the passenger. The 787 design was
    conceptualized to reduce passenger fatigue and
    overhaul the stereotypes of airline travel. This
    allows one to look into all forms of improvement
    for the passenger such as larger windows,
    increased cabin humidity, mood lightning, and
    inflight entertainment. This creates emotional
    value to the passenger and thus value to the
    operator.

13
6 Paths Framework Cont.
  • When looking at complementary offerings one thing
    stands out. All of the offerings at the time
    were comprised of more than 50 aircraft aluminum
    and were assembled in smaller sections using
    rivets that had to be inspected over the life of
    the aircraft. Value can be created by building
    an aircraft from composites with larger major
    join sections therefore reducing inspection and
    maintenance costs.
  • Increased trends in in-flight entertainment
    options and ergonomics allow for a better
    passenger experience which in turn creates
    perceived value to the operator.

14
Risk Analysis
  • Creating an aircraft from start to finish is a
    huge risk mostly due to the simple fact that
    capital cost is massive and the support costs for
    a airplane program are even higher.
  • The total Boeing 777 Program Non-recurring Cost
    to date is over 120 Billion.
  • One could expect much the same or even more to an
    entirely new aircraft designed with new composite
    materials and a host of other new technologies.

15
After Launch
  • It can be clearly shown that Boeing has failed in
    its attempt to streamline operations through the
    use of its supplier network. Simply put,
    suppliers did not have the capability or the
    capacity to undertake such a challenge. Given
    this fact Boeing is now over two years behind on
    the 787 program.
  • On a positive note, even given the two year
    delay, the launch of the 787 has been the most
    successful in commercial aviation history.
  • Currently orders stand at 850 aircraft from over
    57 different operators across the globe.
  • What remains to be seen is whether Boeing can
    deliver on their lofty performance promises for
    this new aircraft. Only Flight Testing can prove
    this.
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