Strategic Management: Implementation of Strategies at Airbus
Airbus SAS is the world’s leading commercial aircraft and military aircraft builder. The company is a subsidiary of European Aeronautic Defence and Space Company (EADS) and it operates plants in Europe, Middle East, Africa, Americas, and Asia-Pacific from its Blagnac, Toulouse (France) headquarters. The company employs about 52,000 workers in its 16 sites situated in France, UK, Germany, Spain, and China and commands a share of about half of the global commercial aircraft and military aircraft markets. The company has achieved phenomenal milestones in its history, for example, it was the first company to produce the first fly-by-wire aircraft and the largest aircraft, the Airbus A380 (Szymanski, 2011). The company has also enjoyed immense financial performance in its history, for example, in the 2011 financial year the company recorded 49.1 billion in revenues, a 7 percent increase over the 2010 financial year despite fierce competition from Boeing. This phenomenal growth is a reflection of the company’s mission “to create the best and safest aircraft and the company prides itself on listening to customers and responding to market needs”, and a vision to be the “creating the best and safest aircraft” (Airbus, 2012). Analytically, these are future-oriented strategic drivers can be interpreted to mean that the company endeavours to achieve a strong and sustainable growth in a bid to stay keep at bay, competition from Boeing.
2.0 External and Internal Environment Analysis of Company
2.1 PESTLE Analysis
Both Airbus and Boeing enjoy political patronage from the European Union and the United States government respectively. Airbus was given a hefty “launch aid” by the EU when it started and continuously receives loans, tax breaks and R&D grants from the EU to boast its activities. Boeing too is regularly awarded tax breaks by the US government. For example, it recently received a $3.2 tax relief by the State of Washington (Uwagwuna, 2011).
Both companies have accused each other following these regular financial aids by arguing that each enjoys unnecessary favouritism from the two respective governments. They both accuse each other of engaging in unethical business practices that stifle competition and they have escalated the issue to the World Trade Organization for arbitration (Uwagwuna, 2011). It is expected, the companies will continue receiving these political grants as they have huge economic influence on the respective economies they operate in.
Analysts foresee a growth in revenue-per-passenger growth of between 4.8 and 5.3 percent in 20 years as a result of increase consumer purchasing power in upcoming economies such as China and India. Both low-cost such as Ryanair and legacy carriers such as British Airlines are expected to experienced increase customer numbers. A total of 16,000 new aircrafts worth about of two trillion dollars will be required to accommodate this growth according to analysts. The cargo sector is also expected to grow tremendously during this period due to increased business activities (Szymanski, 2011). It is expected that Airbus and Boeing will continue to receive more economic support from their respective governments in order to flex their activities particularly in risky projects such as the manufacture of super freighters.
The shrinking of the global economy has made large aerospace companies to revisit their corporate strategies. Both Airbus and Boeing have entered into operational partnerships with their stakeholders (governments, customers, suppliers, employees, and competitors) in a bid to reduce social costs. Airbus for instance, encourages innovation that is based on free-thinking while Boeing encourages a global team-work and collaboration. These are all attempts to offer low-cost services to a clientele that is more concerned on the cost of air tickets than the quality of services offered by airlines. The recent success registered by low-cost carriers is a testimony to this argument – even business class travel has dwindled in the recent years.
The influx of the internet technology has made it easy for passengers to embrace air transport due to the ease of establishing cheap deals and booking flights. A large number of households in Europe and America have access to the internet from their homes and can easily make transport arrangements easily.
Technological advancements such as computer aided designing and automated assembly lines have made aircraft manufacturing more easy and cheaper. Airbus and Boeing need not cancel orders due to lack of engineers as they can easily “staff” their assembly lines using modern technology such as computer modelling software (Mayer, 2008).
Jet repulsion technology has led to the manufacture of all-weather aircrafts that can navigate through bad weather. Modern aircrafts are bigger and can undertake long-range flights at faster speed while consuming fuel efficiently. This makes air transport efficient, cheaper and faster and hence the most preferred form of transport in the world when travelling overseas.
Five Forces Analysis
Threats of New Entrants
There are huge barriers to entry of new players. This is because of the huge capital required to make any meaningful investment, say, in a new design platform.
Airbus operates in a highly competitive world where large players such Boeing and small players such as Euro-copter can easily takeover its market share especially during a weak dollar like now.
Threats of Substitute Products Airbus faces low threat of substitute products as clients find it difficult to replace air transport with other forms of transport because of its costs, speed, and reliability.
Bargaining Power of Suppliers The company experiences high bargaining from suppliers of critical raw materials such as aluminium and titanium. Suppliers can hike prices of critical components such as aluminium.
Bargaining Power of Buyers The company faces a strong buyer bargaining power as the few buyers can cancels orders and make fresh new orders from Boeing. This makes Airbus more vulnerable.
Strong leadership philosophy – Airbus enjoys a leadership position in the commercial aircraft manufacturing. This leadership position is buoyed by the customer-oriented organisational philosophy where customers’ opinions are taken into account when developing new or modifying existing aircraft models. The company thrives in a culture of innovation and partnership where customers, suppliers, governments, and employees’ opinions form a critical in making critical innovation decisions.
Strong business strategy – as a 100 percent EADS subsidiary, Airbus corporate strategy matters are handled by EADS, a conglomerate with the largest share of the global aerospace and defence markets. This allows Airbus to pursue diversification strategy without the fear of incurring losses or prohibitive capital outlay demands as it is easy to venture into markets where EADS has dominance.
Strong differentiation capability – airbus encourages airlines to utilise the “Hub-and-Spoke-concept” a critical solution to the chronic traffic problem in major hubs and limited taxiing slots in these hubs. It achieves this by producing super carriers such as the Jumbo A380 that can stay in the air for longer period of time while utilising less fuel.
Delays in delivering the Jumbo A380 – Airbus started the A380 project many years back but the airline was not able to deliver the aircraft until 2007 – in between, it announced many delays which it pointed out to the shortage of engineers, switch to automated production lines, and shortage of production space following the collapse of acquisition deals. Airlines that suffered the delays demanded hefty compensations (Gow, 2008).
Lagging behind on mid-size and long-distance aircraft ranges – the over concentration on large-size aircrafts has cost Airbus a significant market segment for the mid-size and long range segment. Boeing has market dominance in this segment especially through its popular Dreeamliner 787. Though the company launched the A350, it has done very little in cutting Boeing dominance in this segment.
Increase demand for air transport and demand for large aircrafts – the growth in air traffic in major hubs has led to industry players consider utilising large aircrafts that carry many passengers over long distances as a strategy to reduce congestions. Being the only aircraft builder making the A380, Airbus stands to gain enormously.
Growth in demand for business aircrafts – wealthy businessmen are lining on aircraft builders order books for business aircrafts that they can use to criss-cross the globe when undertaking business trips. Analysts predict a 4.8 and 5.3 in revenue-per-passenger growth in the next 20 years (Uwagwuna, 2011).
Emergence of new markets in China and India – there is growth in air transport in upcoming markets such as China and India where consumer income has increased tremendously over the years. Air transport in these markets is becoming increasingly popular as characterised by the number of flights handled in major local hubs.
Increases in the prices of key raw materials – aircraft manufacturers have lately incurred huge production costs following the scarcity key raw materials such as titanium and aluminium. Depletion of titanium and aluminium mines as well as conflict in producing countries has led to increase their prices in the international market forcing aircraft builders to look for more expensive and unsustainable alternatives.
Growth of terrorist activities – aircraft manufacturers incurs huge costs when airlines are forced to cancel orders due to reduced demand for air transport following terrorism scares such as the September 11 incident. There have been many cases of flight cancellation every time an airline reports a potential terrorist act (Uwagwuna, 2011).
Strategies Adopted by the Company
3.1 Corporate Level
Airbus adopts a futuristic and people-oriented corporate strategy. The company boasts of having solid plans that are laid in good time to reflect a long-term strategic direction of its key people, employees, customers, government agencies, and suppliers. It believes that though future market wars in the aerospace industry will be decided on cost factor, there is need to deliver comfortable aircrafts to its customers.
As such, the company gives its key people the opportunity to make contributions regarding aircraft designs or even organisational strategy. Ultimately, the company has adopted an internationalization and globalization stance when addressing all corporate level issues by taking into consideration, the needs of its global partners, the ways of lives, and their economic capabilities (Szymanski, 2011). Consequently, the company has acquired a competitive advantage over Boeing, as it can now deploy its culturally diverse workforce into meaningful organisational activities as well as maximise its core competencies such as manufacturing super carriers or fly-by-wire aircrafts.
Airbus has decentralised business level strategy. It believes in distributing its production facilities in several countries so as to tap the unique resources available in these countries. The company has 70 design and assembly facilities distributed in France, Germany, Spain, UK, and Belgium. In addition, there is an engineering unit in Moscow, Russia as well as 35 global offices in various countries including China, India and the US that coordinate supply and development of critical resources and projects (Airbus, 2012).
This is a core competitive advantage for Airbus especially when compared to Boeing whose operations have until recently been limited to the US. As a matter of fact, the company enjoys economies of scale and hence reduced production costs when it partners with major markets such as China (Norris & Wagner, 2010). Moreover, the company is in a position to deploy all its core resources into productive activities when it separates businesses and projects.
Airbus functional level strategy is based on the need for the company to deliver the best aircrafts that utilise modern technology and that fulfil consumers’ mobility and security needs in a responsive and effective manner. The company believes that critical functional areas such as leadership, management, marketing, and R&D should be guided by modern innovations where employees and customers are encouraged to come up with new ways of maximizing resource utilisation.
The company believes that mobility and security needs are cross-cutting in nature and hence require cross-cutting leadership programme that encourages employees to be creative and dynamic. Specifically, the company created the Power 8 programme to champion for efficiency, quality, customer responsiveness, and innovation through partnerships. The EADS Global Innovation Networks, a procurement and supply network has helped the company to create and disseminate information easily (Szymanski, 2011).
4.0 How Airbus Implement the Strategies
The implementation of strategies is done as per basic management guidelines such as planning, structuring, production, and supply chain. The “Transformation” process, a proprietary programme that consists of four “I’s” that seeks to encourage integration and innovation within EADS group through the improvement of the existing aircraft designs so as to venture into the international markets and effectively compete against its rivals.
Arguably, Airbus implements strategies by rolling out both behaviour and skill change among its workforce and suppliers. For instance, through the use of both the Transformation and Power 8 Programmes, the company has succeeded in encouraging innovation, integration, improvement, and internationalisation since programmes give stakeholders a clear picture of what is supposed to be done and who is supposed to do it.
Airbus enjoys market dominance in both the commercial and military aircraft aerospace segments. The company leads in innovative platforms such as fly-by-wire and super carriers courtesy of the corporate patronage it enjoys from EADS and the EU. However, the company experiences constant delays in delivering aircrafts as was the case of A380 super carriers. There are many opportunities that Airbus needs to exploit in order to maintain this market dominance – the company can partner with Chinese and Indian airlines which will most likely order more aircrafts due to the growing demand on air transport. However, to achieve this, the company will have to shake-off competition posed by Boeing as well as upcoming aircraft builders such as Euro-copter. Airbus will also be required to improve its corporate, business and functional strategies to make them responsive to the changing mobility and military needs.
Airbus SAS (2012). Corporate Social Responsibility. [Online]. Available at: http://www.airbus.com/company/corporate-social-responsibility/ (accessed July 12, 2012).
Gow, D. (14 May, 2008). Airbus customers face further delays for A380 superjumbo. The Guardian. [Online]. Available at: HYPERLINK “http://www.guardian.co.uk/business/2008/may/14/eads.theairlineindustry/” http://www.guardian.co.uk/business/2008/may/14/eads.theairlineindustry/ (accessed July 12, 2012).
Mayer, S. (2008). Airbus versus Boeing – strategic management report. Germany: Grin Verlag Publishers.
Norris, G. & Wagner, M. (2010). Airbus A380: Superjumbo of the 21st Century. Zenith Press Publishers.
Szymanski, A. (2011). The competitive analysis of the commercial aircraft industry. Germany: Grin Verlag.
Uwagwuna, C. (2011). How the macroeconomic environment of the airline industry affects the strategic decision of Airbus vs Boeing. Germany: Grin Verlag.