Turbulence Ahead:

The Boeing Dilemma

Andrew Buttz | Chloe Cook | Christina Hayes | AJ Konopaski

May 14th, 2015

Business 499-03 Capstone – Strategic Management

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Table of Contents

Introduction

About the Boeing Company……………………………………………………………....2

Boeing’s Business Model…………………………………………………………………3

Company Issues and Implications

Human Resources………………………………………………………………………....6

Financial Health…………………………………………………………………………...9

The 787 Production and the Risks of Outsourcing………………………………………10

Competitive Rivalry…………………………………………………………………...…12

Recommendations

Human Resources………………………………………………………………………..16

Financial Health………………………………………………………………………….16

The 787 Production and the Risks of Outsourcing………………………………………17

Competitive Rivalry……………………………………………………………………...19

Conclusion....................................................................................................................................21

References……………………………………………………………………………………….23

Appendices

Appendix A – Porter’s Five Forces……………………………………………………...25

Appendix B – Approaches to Employee Relations Strategy.……………………………27

Appendix C – Five Imperatives to Winning the Talent War………………………….…29

Appendix D – Employee Value Proposition.…………………………………………….31

Appendix E – Financial Health Metrics………………………………………………….33

Appendix F – Boeing’s Annual Report (Select Financial Data)…………………………35

Appendix G – Boeing SWOT Analysis………………………………………………….40

Appendix H – Airbus SWOT Analysis…………………………………………………..42

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Introduction

About the Boeing Company

According to the company website, Boeing is the leading manufacturer of commercial

airplanes as well as defense, space and security systems. Although about half of its business is

achieved domestically in the United States, Boeing also supports airlines and customers in over

150 countries. Boeing has products and services that 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 in Brief,” n.d.).

With corporate offices in Chicago, Illinois, Boeing employs over 165,000 people across

the United States as well as having employees in more than 65 countries. Boeing is organized

into two main business units: Boeing Commercial Airplanes and Boeing Defense, Space &

Security. For the purposes of this paper, the focus will be on Boeing’s commercial airline

business sector. Boeing has been the premier manufacturer of commercial airplanes for over 40

years. There are over 10,000 Boeing-built commercial airplanes that are in service worldwide

which accounts for about 48 percent of the world fleet. In addition to its commercial airline

services, about 90 percent of the world’s cargo is carried on board Boeing planes.

A member of the prestigious Dow Jones Industrial Average stock market, Boeing has

long been considered one of the safer stocks in the market. Achieving over 90 billion dollars of

revenue in 2014 as well as expecting a market growth rate of five percent per year over the next

20 years, Boeing looks to be a consistent player in the aerospace market for years to come

(“Boeing Annual Report,” 2014).

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Boeing’s Business Model

The Boeing Company values their stakeholders to be able to make strategic decisions and

create a competitive advantage for their company. Boeing has four main segments in their

current external environment including political, economic, social, and technological factors.

Each of these domains create a challenge for the Boeing Company since they have to scan,

monitor, forecast, and assess each segment in order to predict their effects on it. For example, the

political domain includes government regulations and policies such as those that the Federal

Aviation Administration implements to oversee equipment standards. Boeing will need to

monitor and assess the economic segment closely because the insurance costs and high security

equipment. However, for the social and technological segments the Boeing Company will mainly

need to scan and forecast due to the opportunities of potential demand and new lightweight

material for aircrafts.

The airline industry often has a strategic affect when compared to the external

environment, which can be directly related to Porter’s Five Forces. Starting with the analysis of

the five forces model, the airline manufacturing industry is well established in the fact that there

are only a few main competitors in the industry. According to Dhungel, “Global aircraft

manufacture is dominated by strongest duopolies: Boeing and Airbus. Also known as ‘Big boys

club’, these two gigantic companies have dominated the market tremendously and thus have

created significant barrier to entry,” (Dhungel, 2014). Therefore with existing loyalty to major

brands and extremely high fixed costs, the threat of new entrants is low. Without as many

resources or capital it would be very different to enter into the commercial aerospace industry

with existing firms already using differentiation strategies. Next in regards to the power of

suppliers, this is low to moderate due to the diverse supplier portfolio and economies of scale.

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Since there are many different suppliers to choose from, the Boeing Company has the flexibility

and the power to choose whichever one. The bargaining power of buyers is also low to moderate

for the airline industry. There are high switching costs involved with airplanes and the buyers

usually have to agree to a long-term contract where it is hard to negotiate the price. However,

when the buyers are able to purchase in bulk it creates a more moderate level since they are

gaining power by negotiating the deal. Next, the threat of substitute products or services can be

either low or moderate. The threat becomes low because of an airplane’s unique qualities in

speed and travel. However, there are more and more different forms of transportation out there

compared to the airline industry that creates a threat, especially for short distances over land. The

last force that will be discussed is the rivalry amongst competitors. The force of competitive

rivalry “Examines how intense the competition currently is in the marketplace, which is

determined by the number of existing competitors and what each is capable of doing,” (Arline,

2015). The rivalry amongst competitors is very high because of the competition between Airbus

and Boeing. For additional information regarding the analysis of Porter’s Five Forces, please

reference the chart in appendix A.

The Boeing Company really strives on how diversified they are between their five main

sectors; commercial airlines, military and defense, space, security, and the Boeing Employees

Credit Union (BECU). One of the main reasons why Boeing has become so successfully

diversified is from their merge with McDonnell Douglas in 1997. They were able to create

specific levels of diversification as well as creating value, which “Apart from manufacturing

airplanes, Boeing’s capabilities also encompass the development of missiles, helicopters,

satellites, and a wide range of other technical products used in the defense and security segment

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(Schmidt, 2015). Not only is Boeing a well-diversified culture of business, but they are also

known for their multiple core competencies to make their company successful.

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Company Issues and Implications

Human Resources

The Boeing Company is experiencing a strategic issue regarding labor and union

relations, and more specifically in their relationship with the International Association of

Machinists and Aerospace Workers (IAMAW). IAMAW has made efforts to mobilize

machinists at Boeing’s 787 Dreamliner manufacturing plant located North Charleston, South

Carolina. Recently, the Machinists union canceled a vote to organize approximately 3,000

employees, citing that Boeing’s management had been hostile toward them and created a “toxic

environment” (Gates, 2015). Furthermore, IAMAW filed unfair labor-practice charges with the

National Labor Relations Board against the aerospace giant. This is in response homeowners to

answering doors with guns in hand and ordering the union representatives to remove themselves

from the property.

Management at the Boeing plant in South Carolina opposed union representation and led

to a campaign against the union effort to organize the machinists. Not having 51% of the votes

secured, IAMAW decided to cancel the vote. IAMAW lead organizer Mike Evans attributed the

failure to raise enough votes to the “hostile environment” that “has intimidated workers to the

point we don’t believe a free and fair election is possible” (Gates, 2015).

Cynthia Ramaker, a leader of the anti-union effort, said employees were given the chance

to hear direct experiences of when the IAMAW succeeded in securing a similar vote in 2008

when Vought, a Boeing 787 partner, owned the plant. During this vote, Ramaker supported

IAM’s efforts and was even elected to be the union’s local president. IAMAW hastily pushed a

contract through and worker attitudes shifted. After Boeing acquired Vought, IAMAW was

decertified to represent the machinists.

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Evans claims the goal of organizing is only delayed; they will still pursue the machinists

at the Boeing plant in South Carolina six months from now. Evans stated that Boeing workers

contacted IAMAW initially “To be treated fairly on the job and build a better, more secure life

for themselves and their families,” (Gates, 2015). Michael Armstrong, a Human Resources

practitioner, defines four approaches to employee relations strategy. The adversarial approach to

employee relations, where the company decides on policies and procedures and expects

employees to fit in, is exhibited through Boeing’s history with employee strikes and union

organization (Armstrong, 2011, p. 274).

In addition to issues between management at Boeing and IAMAW, Boeing Research &

Technology (BR&T) faces a talent management issue with repositioning thousands of

engineering jobs to South Carolina, Missouri, Alabama, and California. BR&T is Boeing’s

technical design, testing, and support hub for Boeing’s commercial, defense, and space units.

As Boeing announced the big move, management collected employee feedback to gauge

how employees felt about relocating. Thus far, employees have been less than impressed.

Employees are not satisfied with the reasoning for the big shift; BR&T Vice President Greg

Hyslop gave a vague explanation for why the executive team is implementing the move, stating,

“We are enhancing our ability to provide effective, efficient and innovative technology

solutions” (Gates, 2014). Employees do not feel that this is a good reason to uproot thousands of

lives, and some even believe that the way management is explaining the move is insulting to

their intelligence. One employee expressed that “What management is saying are the reasons is

actually insulting to our intelligence. We are smart and the reasons don’t make sense” (Gates,

2014).

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Due to the uprooting of thousands of engineering and information technology jobs in

Washington State, much of Boeing’s top talent is heading for the hills. Older employees are

retiring since Boeing has historically had a great retirement plan. Younger employees that are the

top performers and thinkers (or the A players) at the company are leaving and finding careers at

other firms in the Greater Seattle area to avoid moving. The employees who are B and C players

performers are the ones who are more likely to be subject to the move.

From a talent management perspective, Boeing is in the middle of a nightmare.

Armstrong discusses five imperatives all companies must work toward satisfying in order to win

and keep top talent (especially as it relates to succession/management planning). For a full listing

of these imperatives, refer to Appendix C. Through BR&T’s relocation of thousands of

engineering and information technology (IT) jobs across the United States, Boeing is essentially

reducing their ability to fulfill the first imperative—being an employer of choice through

communicating a successful employee value proposition (see Appendix D). In their inadequate

explanation to employees of the reasons for BR&T’s move, Boeing has deteriorated the

attractiveness of staying with the company throughout one’s career and the level of respect for

the knowledge and consideration of its employees.

As human capital and information technology are two of Boeing’s key core

competencies, the move may spell disaster for Boeing’s future. Before the repositioning, Boeing

managers are already seeing a drop in morale. Low morale in the BR&T unit affects Boeing’s

ability to be innovative, a core competency Boeing uses to create value for its customers. Boeing

is damaging their competitive advantage by relocating because they are losing top talent and

experiencing morale issues. As a result, their innovation will wane.

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Financial Health

As stated earlier, Boeing has long been considered a “blue chip” stock. Despite its

relative stability in the stock market, it is imperative to evaluate Boeing’s current financial

situation to see what the firm needs to improve upon over the next five to ten years. This will be

achieved by looking at Boeing through three different spectrums of financial health: profitability,

debt and capital, and operating efficiency (Williams, 2012). There will be nine different financial

equations utilized to explore these three spectrums. Based upon whether or not Boeing “passes”

or “does not pass” in these areas, a better understanding of where Boeing is financially strong as

well as where Boeing is financially weak is established. For the purpose of brevity, the focus is

on the metrics where Boeing does not pass, but all the metrics can be found in Appendix E

below. In addition, all numbers utilized can be found in Appendix F which was taken from

Boeing’s Annual Report of 2014.

The first place illustrating where Boeing is having a financial issue is in its liabilities.

There are two metrics we want to focus when it comes to Boeing’s liability issues: Total

Liabilities to Assets (TL/A) and Working Capital ratio. TL/A is a measure of a company’s risk

by measuring how much of its assets are financed by debt (Williams, 2012). In 2013, Boeing had

a TL/A ratio of .838 which means that for every dollar of assets that Boeing owns, 83 cents of it

is funded by debt. As if this was not concerning enough, Boeing’s ratio got worse in 2014 with a

ratio of .911. Furthermore, Boeing’s liabilities increased by over 16 percent from 2013 to 2014,

while its assets only increased by a little over seven percent. The idea of being funded by

primarily debt is not entirely foreign, as competitor Airbus had a TL/A ratio of .926 in 2014, but

the fact that over 90% of Boeing is financed by debt has to be a concern for creditors.

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Another area of concern for Boeing’s creditors is found by calculating its quick ratio. A

quick ratio helps give insight as to what the margin of safety or cushion available to creditors is.

Boeing’s current ratio decreased from 1.2639 in 2013 to 1.195 in 2014. This means that Boeing

has a smaller margin of safety to pay creditors with than it did in the previous year. Again,

Boeing is in better shape than Airbus with Airbus’ ratio barely eclipsing one, but the fact is that

both Boeing’s short term and long term debt situations are trending in the wrong direction which

is a cause for concern.

The final metric that we looked at for assessing Boeing’s financial health is its Asset

Turnover ratio. This ratio indicates how well Boeing is using its assets to generate revenue.

Boeing’s revenue grew by 4.778% from 2013 to 2014. Conversely, Boeing’s assets increased by

7.05% in the same time frame. Since Boeing’s assets grew faster than its revenue, it means that

Boeing is generating less revenue from its assets than last year. This coincides once again with

Airbus, who had assets increase by 6.46% but only had revenue increase by 5.47%.

Despite the fact that some of these ratios utilized seem to reflect an industry wide trend,

Boeing’s increasing dependence on debt coupled with the fact it is doing a worse job of

generating revenue from its assets must become a point of emphasis for Boeing in the near and

distant future.

The 787 Production and the Risks of Outsourcing

Boeing’s most recently produced commercial airplane in service, the 787, has served as an

example of how offshoring and outsourcing manufacturing does not always translate to lower

costs. When Boeing produced the 787, their goal was to design a plane that created value for its

airline customers as well as the ultimate customers, the passengers (Denning, 2013).

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In order to improve value for the airline passengers, Boeing tried to improve customer

experience by first looking to advance the conditions within the passenger cabin. The plan to do

this was by switching from aluminum, the traditional material used in manufacturing airplanes,

to a composite material comprised of carbon fiber, aluminum and titanium. By switching to this

material, Boeing felt that it would allow for increased humidity and pressure control in the

passenger cabin which would then translate to a better flying experience. Additionally, this

composite material would make the overall weight of the plane light enough to enable planes to

fly between any pair of cities without layovers.

As for Boeing’s immediate customers, Boeing looked to appease airline companies by

improving efficiency in its planes with the previously mentioned composite materials and

utilizing an electrical system powered by lithium-ion batteries. The result of this combination

would be 20 percent less fuel for comparable flights and a cost-per-seat mile that would be 10

percent lower than any other aircraft on the market. Boeing also stated that using composite

based fuselages would reduce airlines’ maintenance and replacement costs due to its ability to

last longer than the currently used aluminum fuselages. With all of these improvements and a

few more, the 787 became the fastest selling plane in aviation history and appeared to allow

Boeing to maintain its status as the market leader.

With the hopes of lowering costs and accelerating development, Boeing looked to utilize

outsourcing in its manufacturing process. By outsourcing their manufacturing to both domestic

and international customers, Boeing believed that they could cut the 787’s production time from

six to four years as well as cut costs by $4 billion. However, despite Boeing’s good intentions,

the project is billions of dollars over budget and three years behind schedule. Despite the 787

line of airplanes carrying over “1,000,000 passengers safely to destinations around the world,”

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the line was forced to ground their entire fleet in 2013 due to brake problems, fuel leaks, and

“alarming overheating” from its lithium-ion batteries (Denning, 2013).

There were a variety of issues that caused Boeing’s outsourcing debacle. The first

mistake that Boeing made was that they did not implement quality control in its outsourcing.

Boeing did not provide on-site support for its suppliers to ensure quality and provide technical

support. This in turn left the responsibility to the sub-contractors and resulted in uncoordinated

production between different sub-contractors. As a result, Boeing sent “Hundreds of its engineers

to the sites of various…suppliers worldwide to solve various technical problems” (Denning,

2013). This resulted in large additional expenses for Boeing that were accounted for in its

original budget as well as increasingly delayed production.

The second mistake that Boeing made in its 787 production is it outsourced the production of

unproven innovations in commercial airplanes. Not only were they unsure if the new composite

material could survive the rigors of international flying, but they were also unsure if using

lithium-ion batteries, which are notorious for overheating and causing fires that are difficult to

put out, could be safely used long-term. Despite the risks of these unknowns, Boeing opted for

lesser involvement in the detailed manufacturing of these products by again delegating the

responsibility to its sub-contractors. As a result, Boeing experienced repeated and unexpected

problems that continued to drive up costs and delay production and ultimately caused the

temporary grounding of its 787 line.

Competitive Rivalry

Competitive rivalry is the “ongoing set of competitive actions and competitive responses

that occur among firms as they maneuver for an advantageous market position,” (Hitt, Ireland,

&, Hoskisson, 2015, p. 136). The most well-known current competitor to Boeing is Airbus.

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Boeing and Airbus compete in terms of multimarket competition, since they compete in both

commercial aircraft and military equipment as well as in a variety of countries throughout the

world.

In order to evaluate Airbus as a competitor, it is vital to understand the market

commonality and resource similarities between their firm and Boeing. Airbus was founded in

1969 as a collaboration between European countries and is presently headquartered in Toulouse,

France. The Airbus workforce is approximately 58,000 people worldwide, which is divided into

two divisions – Airbus Commercial Airplanes and Airbus Military. In regards to the commercial

airplane product lines, Airbus currently has five families of airplanes, which encompasses

offerings of planes that range from 100 to over 500 seats. Boeing is somewhat similar to Airbus

in regards to their firm divisional structure and commercial aircraft product lines, while differing

in areas such as the breadth of the employee base. As a whole, Boeing is also divided into two

divisions, with one focusing on commercial airplanes and the other on defense, space, and

security, thus encompassing a larger scope outside of their commercial division in comparison to

Airbus. Like Airbus, Boeing also currently has five families of airplanes, which offer a variety of

sizes and additional options for addressing the variety of needs of customers. However, the

greater resource dissimilarity is shown with how Boeing has a much larger base of employees,

which encompasses approximately 165,000 individuals worldwide.

Given the customers that Airbus and Boeing are attempting to attract and the similar

structures and resources of their individual firms, the competitive analysis illustrates that these

two firms share both market commonality and resource similarity. In terms of market

commonality, it is “concerned with the number of markets with which the firm and a competitor

are jointly involved and the degree of importance of the individual markets to each,” (Hitt,

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Ireland, &, Hoskisson, 2015, p. 141). Resource similarity reflects “the extent to which the firm’s

tangible and intangible resources are comparable to a competitor’s in terms of both type and

amount,” (Hitt, Ireland, &, Hoskisson, 2015, p. 141).

When reflecting upon the SWOT analyses, Boeing and Airbus also share many

similarities there as well. Please refer to appendices G and H for further details regarding the

SWOT analyses for Boeing and Airbus respectively.

Factors affecting competition include awareness, motivation, and ability. For Boeing and

Airbus, the awareness is at a high level because “Awareness tends to be greatest when firms have

highly similar resources (in terms of types and amounts) to use while competing against each

other in multiple markets,” (Hitt, Ireland, &, Hoskisson, 2015, p. 144). The level of motivation

of each of these firms seems to be moderate at best due to the fact that “A firm may be aware of

competitors but may not be motivated to engage in rivalry with them if it perceives that its

position will not improve or that is market position won’t be damaged if it doesn’t respond,”

(Hitt, Ireland, &, Hoskisson, 2015, p. 144). Regarding the ability factor, since Boeing and Airbus

have much commonality in their resources, their respective abilities to attack the other firm are

approximately equal.

The type of competitive cycle Boeing and Airbus engage in is a slow-cycle market.

Reasons for this include how difficult and costly it is to make even slight changes to the design

and manufacturing of an aircraft. Additionally, the commercial aircraft industry also in many

ways benefits from patent laws and heavy regulations, which are a paramount to slow-cycle

markets.

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Overall when looking at Boeing and Airbus and how they share many similarities, “Being

fierce competitors, they often push the technological boundaries on the new airplanes to get an

edge over each other,” (Pandey, 2010, p. 210). However, by being such fierce competitors with

one another, it can lead to creating competitive blind spots in that the focus is only on specific

competition and not the larger market as a whole. This is important since according to some

aircraft “Within and beyond Airbus there is an awareness, as distinct form an immediate concern,

that an Asian Airbus might one day emerge,” (Newhouse, 2007, p. 173). Therefore, even though

Airbus appears to currently be the only other major player in this industry, it is still very

important for both Boeing and Airbus to be aware of any new and growing firms within this

market.

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Recommendations

Human Resources

To address the labor union issue between Boeing and IAMAW, Boeing needs to shift

from an adversarial relationship to a partnership relationship between management and

employees. A partnership approach aligns the goals of management and the union to collaborate

for their mutual advantage. Changes would be introduced in more amicable ways such as

discussion and compromise instead of through coercion and power struggle. A partnership

strategy would involve employees in drafting organizational policy, effectively giving them a

voice that is heard and valued. Boeing management would be freed from dealing with union and

labor issues and could focus on running things to be more innovative and efficient.

Concerning BR&T’s move, Boeing management needs to provide employees with a

thorough and honest explanation of the reasons for moving. Otherwise, employee trust in

management will falter. Developing a positive psychological contract based on communication

and trust is the best step forward for BR&T in dealing with talent management issues through the

move. Essential to any talent management strategy, a positive psychological contract helps keep

the employees feeling represented and valued within the firm, ensuring that employees stay

productive and trust that management has their best interest in mind.

Financial Health

As for Boeing’s debt and financial issues, the firm must appease their short term

stakeholders by continuing buybacks of their stock and reducing their debt long term by cutting

costs. Although some may argue that stock buybacks could be a mask for underwhelming

performances, this solution is one way for Boeing to keep its stockholders happy as it continues

to improve the production process of its 787. According to Seeking Alpha, Boeing still has over

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$9.5 billion dollars in its buyback program even after spending $2.5 billion on 17 million shares

in the first quarter of 2015. By doing this, shareholder value is increased which will keep Boeing

afloat in the short-term, but it will also give Boeing some time to fulfill orders which will help

bite into its debt.

As for thinking long-term, Boeing must continue to drive down the costs of 787

productions. As of late 2014, Boeing was producing its 787 at a 25% cheaper production cost

than its first plane. Considering that Boeing has 1,105 orders of the 787 already booked with

over 800 more orders on backlog, plus the new 35 billion yen facility that is opening in Nagoya,

Boeing has an incredible opportunity to make a lot of money very quickly.

Outsourcing

The early failure of Boeing’s 787 was due to failure in two key management concepts:

cooperative strategy and strategic controls. It has been established how outsourcing the

manufacturing of the 787 did not work out as planned; however, eliminating outsourcing is not

the solution. Rather, improving the management and communication between Boeing and the

sub-contractors is essential in ensuring successful outsourced manufacturing in the future.

The first thing that Boeing needs to fix is its cooperative strategy. Defined by the text,

Strategic Management: Competitiveness & Globalization, cooperative strategy is “A means by

which firms collaborate for the purpose of working together to achieve a shared objective,” (Hitt,

Ireland, &, Hoskisson, 2015). It is essential Boeing implements a system where third-party

manufacturers have the ability to effectively and safely make airplane parts. Boeing has a lot of

manufacturing that still needs to be done in the near future. Furthermore, Boeing does not have

the labor force to effectively keep up with the amount of orders that Boeing receives on a yearly

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basis. Finding and maintaining cooperative relationships with sub-contractors, especially those

who are internationally located to keep costs low, would be one way that Boeing could keep up

with demand.

Even with continuing to outsource some of its manufacturing, Boeing needs to adjust its

strategic controls so that the quality of its products becomes more consistent. It is obvious that

Boeing’s original strategy for the 787 was not appropriate and was unable to promote the

competitive advantages that the 787 was supposed to offer. This can be fixed in two different

ways.

First, we know that Boeing is and should continue to use international manufacturers in

its outsourcing. However, it is imperative that Boeing give the managers of these sub-contractors

more resources to produce a consistent and quality product. While in the past they chose to less

involvement and left discretion to the third party managers, it would be wise to put people who

have expertise in the production process at these third party locations to ensure quality control. It

is recommended that Boeing rotates managers and engineers on a semi-regular basis throughout

all of the third party manufacturers to ensure consistency and quality. By doing this, every sub-

contractor is making the parts the same way and the right way which should in turn lead to fewer

problems in the production process.

Second, Boeing should relocate the manufacturing of “mission-critical” components to

the United States. When Boeing first tried to outsource the production of its 787, they outsourced

essential parts of the plane such as the lithium-ion battery that was caused so many issues. By

bringing production of these important and sometimes unproven parts back the United States, the

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engineers can continually test the feasibility of these parts long term as well as make adjustments

without having travel across the world to fix it.

Competitive Rivalry

The long-standing rivalry between Boeing and Airbus is not something that is going to be

going away anytime soon. They have relied on each other’s movements and innovations in the

airline manufacturing industry as a means to stay competitive. Given this, the benefits of being

the first mover in the marketplace is critical to illustrate industry leadership. Benefits of being the

first mover include gaining the loyalty of customers who may become committed to the firm’s

goods or services and gaining market share that can be difficult for competitors to take during the

future competitive rivalry. These benefits do not simply arrive to a company, but they are

established from the planning and allocation of funds towards research and development as well

as product innovation.

That being said, innovations in fuel efficiency are an aspect within this competitive

rivalry for Boeing to concentrate its resources into. With Boeing’s latest product, the 787, not

only does it deliver the highest fuel efficiency in its class but it also enhances the in-flight

experience. The in-flight experience is enhanced through features such as more space, larger

windows, better air filtration, and fancy lighting. Boeing has created this aircraft to meet the

growing concerns of developing more fuel-efficient options to customers. The growing concerns

to create more fuel-efficient options has grown due to the fluctuating prices of oil. Even when

the price of oil drops and the demand for fuel-efficient planes lowers, Boeing cannot focus on the

short-term fluctuations in fuel prices. In a New York Times article by Nicola Clark regarding the

challenges the commercial airplane manufacturing industry faces with falling oil prices, Clark

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cites how Michael O’Leary, a chief executive at Ryanair, one of Boeing’s largest and fasting-

growing customers, “Emphasized that investing in a more fuel-efficient fleet now ‘is a huge unit

cost advantage for us in five years’ time that nobody else will have,’” (Clark, 2015). Therefore, it

is recommended that Boeing focuses on innovating and creating fuel-efficient planes rather than

gas guzzling versions to enhance long-term performance.

Lastly, it is recommended that Boeing attempts to not get too caught up in their

competitive rivalry with Airbus and that the firm keeps a watchful eye on emerging economies.

Many industry professionals and analysts believe that there will eventually be a company such as

Boeing or Airbus that emerges in Asia, in part from the increasing international product

outsourcing.

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Conclusion

Boeing has potential for growth given their resources and ability to provide great value to

its customer through innovation. Although the possibilities are endless, Boeing does have key

strategic issues. The key issues Boeing faces concern adversarial union relations, Boeing

Research & Technology’s move, financial health through debt intake, outsourcing management

issues, and competitive rivalry.

To address the union/labor relations issue, we recommend that Boeing work to move

from an adversarial relationship to a partnership relationship. This transition will include

employees in the drafting of policy and give them a voice, but management will retain the ability

to manage and make final decisions. Concerning the BR&T move, Boeing needs to develop a

positive psychological contract with its employees built on a foundation of trust and

communication. Through a reasonable explanation of the move of thousands of jobs, Boeing

management could start chunking away at the distrust employees are experiencing.

To fix financial issues, Boeing should continue stock buybacks to appease shareholders

in the short-term. Boeing should also focus on minimizing cost in the production of their aircraft,

especially the 787 Dreamliner, in addition to increasing their production capabilities. To get

outsourcing back on track, Boeing management needs to improve its strategy. This can be done

through a cooperative strategy where Boeing management works with the third party

manufacturers to maintain quality and communication. Boeing should also implement strategic

controls to help maintain quality of the 787 Dreamliner by having a rotating management.

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To put itself ahead of the competition, Boeing should keep striving to be the first-mover

in the market. Boeing should also try to find new ways to make their airplanes more fuel-

efficient and capitalize on emerging markets.

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25

Appendix A –

Analysis of Boeing using Porter’s Five Forces

26

27

Appendix B –

Approaches to Employee Relations Strategy

28

Approaches to Employee Relations Strategy

There are four approaches to employee relations strategy:

1. Adversarial: the organization decides what it wants to do and employees are expected to fit in.

Employees only exercise power by refusing to cooperate.

2. Traditional: a good day-to-day working relationship, but management proposes and the workforce

reacts through its elected representatives.

3. Partnership: the organization involves employees in the drawing up and execution of the

organization’s policies, but retains the right to manage.

4. Power sharing: employees are involved on both day-to-day and strategic decision making.

Armstrong, M. (2011). Armstrong’s Handbook of Strategic Human Resource Management. London: KoganPage. (Page 274).

29

Appendix C –

Five Imperatives for Winning the Talent War

30

Five Imperatives for Winning the Talent War

1. Creating a winning employee value proposition that will make your company uniquely attractive

to talent.

2. Moving beyond recruiting hype to build a long-term recruiting strategy.

3. Using job experiences, coaching and mentoring to cultivate the potential in managers.

4. Strengthening your talent pool by investing in A players, developing B players and acting

decisively on C players.

5. Central to this approach is a pervasive mind set—a deep conviction shared by leaders throughout

the company that competitive advantage comes from having better talent at all levels.

Armstrong, M. (2011). Armstrong’s Handbook of Strategic Human Resource Management. London: KoganPage. (Page 239).

31

Appendix D –

Employee Value Proposition

32

Employee Value Proposition – a statement of what an organization will provide for people that they will

value. Can include (but is not limited to) the following non-financial factors:

Attractiveness of the organization;

Responsibility – corporate conduct and ethics;

Respect – diversity and inclusion;

Work-life balance;

Opportunities for personal and professional growth.

Armstrong, M. (2011). Armstrong’s Handbook of Strategic Human Resource Management. London: KoganPage. (Page 225).

33

Appendix E –

Financial Health Metrics

34

Boeing Financial Health Measurement- Profitability Metric 2013 2014 Change Good/Bad Explanation

Net Income $4.585 billion

$ 5.446 billion

18.78% Good Increased Net Income

by almost 20%

Operating Cash Flow $6.562 billion

$7.473 billion

0.1806 Good Operations generating

money

Return on Assets 0.0494 0.0549 0.0055 Good Generating more money

from assets than 2013

FQuality of Earnings (ratio) n/a 1.37 n/a Good

As long as Operating cash flow is larger than

net income, Boeing passes

Boeing Financial Health Measurement- Debt and Capital

Metric 2013 2014 Change Good/Bad Explanation

Total Liabilities/ Assets (ratio) 1.19 1.09 -8.00% Bad Liabilities growing faster

than assets

Quick Ratio 1.26 1.2 -4.80% Bad

Shrinking margin of safety or less money

available to pay creditors

Shares Outstanding 747.4

million 706.7

million -40.7 Good

Buying back shares means revenue is

organic

Boeing Financial Health Measurement- Operating Efficiency Metric 2013 2014 Change Good/Bad Explanation

Gross Margin 5.30% 6.00% 0.70% Good

More efficient than

2013

Asset Turnover (2014)

Assets grew 7.05%

(2014) Revenue

grew 4.778%

n/a Bad

Assets grew faster than revenue, signaling

Boeing got less revenue from assets

35

Appendix F –

Boeing’s Annual Report (Select Financial Data)

36

5 Year Summary

37

Statement of Operations

Income Statement

38

Balance Sheet

39

Statement of Cash Flows

Boeing Annual Report 2015. (n.d.). Retrieved April 3, 2015, from

http://www.sec.gov/Archives/edgar/data/12927/000001292715000011/a20141

40

Appendix G –

Boeing SWOT Analysis

41

Strengths Weaknesses

- Broad product portfolio/variety of

product offerings

- Strong R&D

- Strong corporate culture of innovation

- #1 in commercial airplane delivers in

2014

- Viewed as a “Blue Chip” stock

- High dependence on U.S. government

contracts

- Large dependence on sub-contractors

- Work force issues (including tension in

relations with the labor union, work

stoppages, and demographics of the

workforce)

- Large amount of debt

- Manufacturing defects of 787

Dreamliner

- High R&D spending

Opportunities Threats

- Growing global aerospace and defense

market

- Increasing demand for commercial

airplanes

- Increasing international travel

- Intense competition with Airbus

- Fixed-price contracts could lead to

losses later down the road

- Government regulations

- Environmental regulations

The Boeing Company SWOT Analysis. (2014). Boeing Company SWOT Analysis, 1-10.

42

Appendix H –

Airbus SWOT Analysis

43

Strengths Weaknesses

- Broad product portfolio/variety of

product offerings

- Benefits from strong financial base and

market position of its parent company,

Airbus Group

- #1 in orders in 2014

- Manufacturing defects in Airbus A380

- Current production and delivery delays

- Less market share than Boeing when it

comes to aircrafts with more than 100

seats

Opportunities Threats

- Growing global aerospace and defense

market

- Increasing demand for commercial

airplanes

- Increasing international travel

- Intense competition with Boeing

- Fixed-price contracts could lead to

losses later down the road

- Government regulations

- Environmental regulations

Airbus S.A.S. (2015, March 5). Retrived May 1, 2015.

http://search.ebscohost.com.ezproxy.plu.edu/login.aspx?direct=true&db=dmhls&AN=83575D52-EC4F-41A3-AF62-

6771ADF2726A&site=bsi-live