Case StudyThe Boeing Company737 Programs and Renton Wash. Site – A Strategic Analysis

Presented By: Group 4

Sajjad Gul, Precious K. Horvidalla, Lowell John J. Fetizanan, Marj, Christopher

Presented to: Dr. Tabassam Raza

Policy Management - MBA

Introduction:

Boeing is the world's largest aerospace company and leading manufacturer of commercial jetliners and defense, space and security systems. A top U.S. exporter, the company supports airlines and U.S. and allied government customers in more than 90 countries. Boeing products and tailored services include commercial and military aircraft, satellites, weapons, electronic and defense systems, launch systems, advanced information and communication systems, and performance-based logistics and training.

Boeing has a long tradition of aerospace leadership and innovation. The company continues to expand its product line and services to meet emerging customer needs. Its broad range of capabilities includes creating new, more efficient members of its commercial airplane family; integrating military platforms, defense systems and the war fighter through network-enabled solutions; creating advanced technology solutions; and arranging innovative customer-financing options.

With corporate offices in Chicago, Boeing employs more than 159,000 people across the United States and in 70 countries. This represents one of the most diverse, talented and innovative workforces anywhere. More than 123,000 employees hold college degrees -- including nearly 32,000 advanced degrees -- in virtually every business and technical field from approximately 2,700 colleges and universities worldwide. Our enterprise also leverages the talents of hundreds of thousands more skilled people working for Boeing suppliers worldwide.

Boeing is organized into two business units: Boeing Commercial Airplanes and Boeing Defense, Space & Security. Supporting these units are Boeing Capital Corporation, a global provider of financing solutions; the Shared Services Group, which provides a broad range of services to Boeing worldwide; and Boeing Engineering, Operations & Technology, which helps develop, acquire, apply and protect innovative technologies and processes.

Boeing Commercial Airplanes has been the premier manufacturer of commercial jetliners for more than 40 years. With the merger of Boeing and McDonnell Douglas in 1997, Boeing's leadership in commercial jets, joined with the lineage of Douglas airplanes, gives the combined company a 70-year heritage of leadership in commercial aviation. Today, the main commercial products are the 737, 747, 767 and 777 families of airplanes and the Boeing Business Jet. New product development efforts are focused on the Boeing 787 Dreamliner, and the 747-8. The company has nearly 12,000 commercial jetliners in service worldwide, which is roughly 75 percent of the world fleet. Through Boeing Commercial Aviation Services, the company provides unsurpassed, around-the-clock technical support to help operators maintain their airplanes in peak operating condition. Commercial Aviation Services offers a full range of world-class engineering, modification, logistics and information services to its global customer base, which includes the world's passenger and cargo airlines, as well as maintenance, repair and overhaul facilities. Boeing also trains maintenance and flight crews in the 100-seat-and-above airliner market through Boeing Training & Flight Services, the world's largest and most comprehensive provider of airline training.

Boeing Defense, Space & Security (BDS) provides end-to-end services for large-scale systems that enhance air-, land-, sea- and space-based platforms for global military, government and commercial customers. In addition to designing, producing, modifying and supporting fighters, bombers, transports, rotorcraft, aerial refuelers, missiles, munitions and spacecraft for military, civil and commercial use, BDS is developing enhanced capabilities through network-enabled solutions, communications and intelligence, surveillance and reconnaissance technologies. BDS also supports the U.S. government as a system integrator on several

programs of national significance -- NASA's space shuttle and International Space Station programs, the Missile Defense Agency's Ground-Based Midcourse Defense program, the Army's Brigade Combat Team Modernization program and SBInet, a critical component of the Secure Border Initiative managed by the Department of Homeland Security .

Boeing Capital Corporation is a global provider of financing solutions. Working closely with Commercial Airplanes and Defense, Space & Security, Boeing Capital Corporation arranges, structures and provides financing to facilitate the sale and delivery of Boeing commercial and military aircraft, satellites and launch vehicles. With a year-end 2009 portfolio of approximately $5.7 billion, Boeing Capital Corporation combines Boeing's financial strength and global reach, detailed knowledge of Boeing customers and equipment, and the expertise of a seasoned group of financial professionals.

Engineering Operation & Technology enhances Boeing's growth and productivity by driving technical and functional excellence across the enterprise. Its primary objectives are to support the company's business units by delivering high-quality, low-cost technical services in information technology, research and technology, and test and evaluation; integrated enterprise strategies that ensure technology is ready when needed, competitively protected and environmentally progressive; and highly disciplined and efficient engineering, operations and supplier management support that ensures program success. The organization pays particular attention to ensuring the success of development programs, and strives to attract, develop and retain a world-class technical and functional work force.

Shared Services Group allows business units to focus on profitable growth by providing the infrastructure services required to run their global operations. The group provides a broad range of services worldwide, including facilities services, employee benefits and services, staffing, recruitment, wellness programs, security, fire protection, site operations, disaster preparedness, construction, reclamation, conservation programs, virtual workplace, creative services, transportation, business continuity and the purchase of all non-production goods and services. It also offers comprehensive travel services to Boeing employees and manages the sale and acquisition of all leased and owned property for Boeing. By integrating services, Shared Services Group delivers greater value, creates "lean" processes and operations, leverages buying power and simplifies access to services for all of Boeing.

The Vision

The Boeing Vision is: People working together as a global enterprise for aerospace leadership. How will we get there?

Run healthy core businesses Leverage our strengths into new products and services Open new frontiers

Culture and Values

Boeing is committed to a set of core values that not only define who they are, but also serve as guideposts to help them become the company they would like to be.

Boeing is a company of amazing people working in one of the most exciting industries in the world. When you consider their many accomplishments -- from designing and building the earliest biplanes to creating and supporting today's supersonic aircraft and spacecraft -- you might think they would be content with how far they’ve gone. But a company of their size and scope doesn't succeed by resting on its laurels; they are constantly

re-examining their capabilities and processes to ensure that their company is as strong and vital as their heritage. In fact, their culture mirrors the heritage of aviation itself, built on a foundation of innovation, aspiration and imagination.

Executive Council – The Boeing Company

James F. Albaugh Executive Vice President, The Boeing Company President and Chief Executive Officer, Commercial Airplanes

James A. Bell Executive Vice President, The Boeing Company Corporate President and Chief Financial Officer, The Boeing Company

Wanda K. Denson-Low Senior Vice President, Office of Internal Governance, The Boeing Company

Thomas J. Downey Senior Vice President Communications, The Boeing Company

Shephard W. Hill President, Boeing International Senior Vice President, Business Development and Strategy, The Boeing Company

Timothy Keating Senior Vice President, Government Operations, The Boeing Company

J. Michael Luttig Executive Vice President, General Counsel, The Boeing Company

Dennis A. Muilenburg Executive Vice President, The Boeing Company President and Chief Executive Officer, Boeing Defense, Space & Security

Richard Stephens Senior Vice President, Human Resources and Administration, The Boeing Company

John J. Tracy Chief Technology Officer, The Boeing Company Senior Vice President, Engineering, Operations & Technology

Analyzing the Situation and Problems

The magnitude 6.8 earthquake that struck the Seattle area in February 2001 rattled peoples' nerves—and shook the status quo at Boeing's Renton, Wash., site. And the aftershocks are still being felt.

That earthquake gave then site leaders Carolyn Corvi and Pat Shanahan the impetus to act on an idea they'd been kicking around for some time—a vision of a streamlined production system where product designers and support employees work side-by-side with product builders.

"The earthquake pretty much destroyed our 10-85 building," said Corvi, now 737/757 programs vice president and general manager for Boeing Commercial Airplanes. "We couldn't reoccupy it, so literally over a weekend we moved 1,250 employees into new work spaces in and adjacent to the site, and had them up and running. Afterward, we realized that if we could do that, we could certainly move everyone out into the factory and make the most out of that space."

Commercial Airplanes' Renton site, located at the south end of Lake Washington, is the birthplace of the jet age, where Boeing has built the 707, 727, 737 and 757 in record numbers. In recent years, Lean manufacturing principles and a moving 737 production line have improved productivity, which in turn has cut the need for inventory and freed up floor space throughout the cavernous Final Assembly buildings. Indeed, Corvi said the Renton team has reduced the amount of square footage to support airplane production by more than 40 percent.

Corvi and Shanahan decided to convert unused factory space into office space to bring the people who really need to be near the airplanes as close as possible to the products they design, build or support, instead of being scattered around the nearly 300-acre campus.

Thus a project dubbed "Move to the Lake" was born. The initiative not only represents a more efficient use of assets such as land and inventory, but it creates a new way to work. "This isn't intended to be just a facilities move," Corvi said. "Move to the Lake is an opportunity for us to do things differently. We want to change the way we work together, to create a linkage between builders and designers, and get people to connect in ways that will help us better communicate, operate more efficiently and become even more competitive."

The first groups made the move in January. By the end of 2004, more than 2,500 employees from engineering, finance, program management and other groups will be relocated from remote buildings into the Final Assembly buildings. Others will move into soon-to-be-refurbished buildings nearby.

Before employees could begin their move, a lot of work needed to be done. Boeing recruited three partners to help: NBBJ, the architectural firm that designed Safeco Field, Seattle's heralded baseball stadium; Turner Construction, one of the largest construction firms in the United States; and Steelcase/BarclayDean, an office furniture firm that provides product solutions that promote employees' working-together relationships.

"We knew going in that we wanted to create something totally unique to Boeing," said Mark Garvin, program manager for the Move to the Lake project. "We wanted to intentionally design it to be flexible, mobile, technologically advanced and set up to foster a culture of collaboration, communication, efficiency and agility."

In 2002, Boeing and its partners conducted studies on how employees work and interact. The team then recruited 35 engineers to participate in a 12-week Move to the Lake pilot project that required them to leave their offices to make a temporary home in a work space in Final Assembly. The pilot team identified a number of key issues that helped improve the design of office work spaces in a factory environment. After overcoming some initial apprehension, the engineers found that being close to the airplanes "made it much easier for them to get together with mechanics to discuss issues affecting quality, installation and assembly," Garvin said.

The design developed by architects at NBBJ called for office areas separated from factory space by a translucent wall with windows, so employees in the offices can see the product at all times. Work spaces were designed with equality and openness in mind: no hard-walled office areas for anyone, and plenty of room for spontaneous collaboration, as the plan called for groups who need to work together to be seated near each other.

NBBJ proposed a vibrant color palette for the building interiors, a stark contrast to the drab interior paint dating back several decades. In fact, visitors as well as employees at Renton can identify what type of space they're in—conference room, arrival zone, restrooms, etc.—by the color of the walls.

Another key design element intended to enhance the employee experience is something many take for granted: windows. One of the first things Turner Construction did—with dramatic results—was install dozens of windows along the east wall of the building.

Boeing also is taking advantage of its waterfront location to create an employee dining center with walls of windows, which will showcase impressive views of Lake Washington, Mercer Island and the Seattle city skyline.

The Move to the Lake team also is using the latest technologies in workspace design to ensure employees have the tools they need to accomplish their jobs. For example, the facility design incorporates areas for collaboration, "knowledge cafés" and open meeting zones, as well as leading-edge technologies such as Voice over Internet protocol and wireless areas. This helps create a work place that embodies the qualities desired for people to bring to their work: flexibility, innovation, and a focus on customers and the end product—airplanes. "The changes we're making to typical work spaces will improve everyone's ability to do his or her job," Garvin said.

As Renton consolidates its operations, Boeing will eventually sell the older buildings it vacates. The forthcoming end of 757 production combined with the sight of wrecking crews demolishing unoccupied buildings on the site and have spurred speculation—inside the company and outside—about Boeing's future in Renton.

Corvi has heard the speculation but emphasizes the fact that the Move to the Lake project currently is Boeing's largest capital improvement project in the Puget Sound region. "With more than 900 737s in backlog and excellent sales prospects, we plan to build 737s in Renton as long as the world wants them, and we continue improving our productivity," she said. "Move to the Lake represents a significant commitment to the Renton site, its people and products."

SWOT Analysis of Boeing

Boeing Strengths

The Boeing Company is the largest aerospace firm in the world The Company has been the world’s leading manufacturer of commercial aircraft for the last 20 years The Company is the largest contractor for NASA The Company has two strong main business units namely; The Commercial Aircraft and Integrated

Defense Systems The Company is responsive and innovative when it comes to technology and systems development

and in fact has two new flagship innovations to wit:

Connexion by Boeing; that is a dynamic breakthrough in consumer and commercial airline service that is beginning to provide air travellers an unparalleled array of high speed data communication services via space-based networks.

Air Traffic Management; that will replace the current ground program.

The Company is a major player in the field of Military aircraft and missiles and is leading in the development of Integrated Defense Systems

The Space and Communication segment or business unit which is engaged in the development of integrated battleship, missile defense, human space flight and exploration, launch and satellite, and homeland security is the company’s new and fast growing venture.

The Company through its Boeing Capital Company (BBC) offers financing arrangement by leasing and extending loans to commercial and military customers.

The Company’s ability to streamline its aircraft production operation has significantly reduced its production time and ultimately reduced its production cost and expenses.

Boeing Weaknesses

The Company production backlog have average about $78 Billion over the past (5) years. The Company Organizational Structure is too stiff and is restrictive with respect to function and

responsibility distribution Based on the Company’s financial information, the Company’s high debt-to-asset ratio and high

operational expenses puts the company at a risk and susceptible to financial collapse.

Opportunities

The Company’s innovations, particularly Connexions and Air Traffic management provide a competitive edge over existing competitors.

The Depletion of Worldwide supplies and inventory of aircraft, missiles and other aerospace products as a consequence of the war “Enduring Freedom” will increase the market demand for the Company’s products.

The airline passenger business and air cargo business is expected to double over the next 20 years hence, which means if the company would be able to convince and capture future market, it has the opportunity to double its revenue.

Increased demand for passenger non-stop travel between cities

Threats for Boeing

Decline in orders of commercial airlines due to increase in security and safety concerns High Production Cost Competitors: AirBus or (EADS) European Aeronotic Defense and Space Co. for Commercial Airlines,

and Lockheed Martin, the Major competitor for Boeing Integrated Defense System

SWOT Analysis / Segment based

Business Units/Segment Issues Identified based on SWOT Analysis

Recommendations

Commercial Aircraft There was a decreasing demand on commercial aircraft

Boeing should pursue its plan to address the increasing demand for passenger nonstop travel between cities. Since Air Traffic

Management (ATM) system is relatively inexpensive, the company should implement this to increase revenue and be able to compete with other aerospace players.

Integrated Defense Systems There was an increase in Contractual back-log of orders for four consecutive years

Lockheed Martin, the major competitor of Boeing IDS, also produces military aircraft, rocket launchers, and other space equipment.

To expedite the production, Boeing should hire additional staff that is competent to produce the quota of equipment assigned to per staff.

Boeing should produce IDS equipment that is of high quality and competitive price to be able to cope with its competitors.

Space and Communications Increased in contractual back-log of orders Increase workforce to expedite production

Boeing Capital Corporation-Capital Financing

High interest rates could possibly make the segment having a low profit.

Boeing should factor-in a competitive rate on their capital financing to engage more customers which consequently make the segment profitable

Comparative Production Analysis

2003 2002 2001 2000Backlog of orders $63.9b $75.9b $89.8bUndelivered jetcraft units 1083 1598Expected jet transport deliveries 381 489Orders 178

Analysis: As shown in the above table, there was a reduction in backlogs of production delays by rapidly ramping-up the production process which resulted to decreasing the number of undelivered jetcraft units.

A. Internal Analysis of Boeing

Boeing has many strong competitive advantages, and internal resources that help define its core value. The main source of Boeing’s competitive advantages is its core competencies, which help develop Boeing’s resources into strong competitive advantages in the airline manufacturing industry. Boeing also has `operational strength internally, which allow them to better manage and sustain their competitive advantage in the market. Boeing has a strong set of competitive advantages at which it uses to market share and the airline industry, as we will analyze Boeing’s unique competitive advantages in the airline industry

Core Competencies are unique, in that way the retain value is expensive to imitate, and cannot be substituted.

Repeated effort to meet the customer demands and needs (Core competencies-Boeing.com) Boeing commits to understanding and responding to what its customers would like in an aircraft; and designing and implementing specific needs or demands. One of Boeing’s unique business structures is to design the product according to customer wants, and has it waiting for them to buy. This builds a strong competitive advantage, as it notifies the customers that Boeing will design aircrafts according to their needs, and allows them to build stronger relationships with their customers.

Ability to implement large-scale implementation systems (Core competencies-Boeing.com). Boeings extensive research and development is a strong core competency, with its unique knowledge of wing technology and new lightweight composites being one of its stronger manufacturing core competencies. Boeing has begun to build stronger bonds with its suppliers, as they are beginning to research with their suppliers to integrate and design better aircrafts. With some of their research and development being done outside the company, they are able to design and build better aircrafts.

Unique contracts and agreements with both NASA, and The United States Air Force. The strategic partnership with both of these two organizations allowed Boeing to become the world’s largest space and Communications Company, as well as helped it become a large leader in the aircraft manufacturing market. These two partnerships allow for Boeing to grow into the aerospace industry, and allow Boeing to have a wider range of products for a wider range of customers.

Competitive Advantages

Boeing has a long list of competitive advantages that it uses to gain an advantage over its competitors, mainly Airbus. One aspect of the airline industry that is highly regarded is market share, which Boeing has consistently had an advantage of. One of the main reasons Boeing has most of the airline manufacturing industry market share is due to its long history of excellence in designing aircrafts for over 90 years

Boeings strong name and brand allows for a strong hold on the airline manufacturing industry, which has now become a duopoly between Boeing and Airbus. As one can see, the culmination of both Boeings core competencies and operational strengths allow it to build upon different competitive advantages in the airline industry.

One of Boeings greatest competitive advantages is its unique strategy to work more with both its customers and suppliers, to design and build the best aircrafts on the market.

One of Boeings largest competitive advantages include its unique research and development departments which are able to design and implement better aircrafts without incurring large amounts of costs. This would allow the company to produce better aircrafts more efficiently with fewer costs than the competition, giving Boeing a strong competitive advantage over its competition.

Strong global network

The company has strong international operations with customers in around 145 countries, employees in more than 60countries and operations in 26 states.

Worldwide, Boeing and its subsidiaries employ close to 188,000 people with major operations in Washington State; Southern California; Wichita, Kansas; and St. Louis, Missouri. Boeing enjoys the ownership of a brand with good and far reaching awareness on a global scale. Strong relationships with business partners

Boeing enjoys many strong alliances with many other globally powerful companies. In defense projects Boeing works closely with Northrop Grumman in programs such as the joint common missile program.

Boeing is also a 50-50 partner with Lockheed Martin in the United Space alliance. Boeing also works with many other organizations such as NASA in close relationships, which strengthen the company’s position in other markets.

Broad product line that covers most major market niches / R&D development

Boeing Company offers a wide range of product lines. For main commercial product such as aircraft, Boeing has 717, 737, 747, 757, 767, and 777 families of jetliners and the Boeing. The company has more than 14,000 commercial jetliners in service worldwide, which is roughly 75% of the world fleet. Its product line is continuing to expand, creating new versions of its family of commercial airplanes. This pioneering technology development helps ensure Boeing stay a leader in the industry. To remain competitive, Boeing must invest in developing the latest technologies. Thanks to its strong R& D, Boeing has been on winning side in the head-to-head competition with Airbus so far. Total research and development expense in 2003 was $1.7 billion. The company expects research and development expenses to be between 3.25% and 3.75% of revenue in 2004 and between 3.5% and 4.0% in 2005 as spending increases on the 7E7 program.

Good Customer Service

Regional World centers provide proactive, value-added maintenance, parts and training, and provide ready access to parts and training using the web and ED-ROM technologies.

MyBoeingfleet.com- website; Information on parts, maintenance, engineering and operational data are provided for customer.

Strong economies of scale

Boeing Capital Corporation (BCC) Connexxion by Boeing

Operations

Boeings operational strengths include its unique level of management, as the managers are able to allow the company to run smoothly. Boeing is able to implement a strong management force with its unique and strong culture (Core competencies- Boeing.com).

B. External Analysis of Boeing

Slowdown in the commercial jet market; No industry was hit harder than airline industry after the 11th Sept. Boeing and Airbus as well have to suffer big losses in revenues from 2001. Recently, there are some good signals recently for both of the companies with the increase of order number. The demand for international tourism and delivery is increasing. However, it still does not reach the level before the terrorism event.

New aircraft to gain market share; with the impressive show of Airbus A380 recently, Boeing also plans to release its powerful weapon in the competition with Airbus. The new version Boeing 787 which inherits the most advanced technologies and advantages of the previous models is hoped to be a big hit to the airline industries. At the moment, Boeing has received a number of orders for Boeing 787-

Increase demand for point to point routes; this is related to the booming market of low-cost airline. All the low-cost airline companies use point to point routes in order to reduce the costs substantially. Fortunately, this is suitable with the strategy of Boeing as mentioned in the previous parts. Airbus A380 is still unsure about its future because most of the big airline companies at the moment are not gaining profit.

Extremely Competitive Rivalry between Existing Players; Low cost airlines in Europe and Asia

Airbus- commercial jet- focus on A380 to get market share of super jumbo liners Lockhed Martin- Integrated Defense systems

Increase pressure to reduce price of products

Strategic Plan Frame Work

Goals Strategy Activity

To provide a more secure, safer & environmental friendly (fuel-efficient) commercial and cargo airlines

Strengthen Management Core Competencies

Innovate Security and Safety Systems and Protocols

Outsource Technology Information and Skills

Aggressive customer based security and safety campaign and advocacy

Restructure the Organizational and create additional department such as Public Policy & Safety Standards Compliance Departments

Develop and produce systems that will ensure passenger safety such as early detection device, anti-hi-jacking device and protocols, etc.

Improve customer relation and information

Conduct Safety Trainings and programs

To take advantage of the increased demand for Integrated Defense System

Aggressive Strategy as to development and production of Military and defense products

Competitive pricing and low production of Military and war supplies

Develop responsive and innovative aircrafts and military missiles

Conduct Research as to the needs and demands of Military related activities

Conduct of Trainings and Programs

To go one step ahead in innovating future aerospace and military products

Strengthen Management Core Competencies

Focus on Research & Development of new and innovative concepts and (frontiers) products

Outsource Technology Information and Skills

Increase Networking of knowledge

Employment of maverick scientists and researchers

Develop new products appropriate to future supplies and resources

Finance education of employees

Fund experiments and researches

To decrease backlogs and reduce production cost

Streamlining of production operation

Outsourcing

Development of machines and systems which will reduce production time

Outsourcing labour and assembly of materials and parts

Conduct of Trainings and educational programs

Analysis and Conclusion

The Forc vbmjbgymh ntuitous event such as the terrorist attack which triggered “War Enduring Freedom” definitely has strong impact on the airline industry.

Fortunately, Boeing Company’s diversified business, being engaged in the development and production of Commercial Aircraft and Integrated Defense Systems, help cushioned the prejudicial consequences of such tragic event to the company.

Withstanding the raising temporary concerns on passenger safety by sceptics that brought about the reduction of Commercial Airlines Production demands, the worldwide declaration of war against terrorism paved way to a massive opportunity for Boeing to develop, produce and market its Integrated Defense System product lines.