Boeing Organizational Study
Suman Babu Choppala, Roll 160, Section A
Organizational Behavior
Contents
INTRODUCTION.................................................................................................................................................. 3 COMPANY OVERVIEW .....................................................................................................................................................3 PERFORMANCE INDICATORS .............................................................................................................................................3 Financial ................................................................................................................................................................3 News volumes .......................................................................................................................................................4 Deliveries ...............................................................................................................................................................4 Industry Ranking, Reputation quotient .................................................................................................................4 Conclusions ...........................................................................................................................................................4 ORGANIZATIONAL DESIGN ................................................................................................................................. 5 Vision.....................................................................................................................................................................5 Business Units .......................................................................................................................................................5 ORGANIZATIONAL STRUCTURE........................................................................................................................... 5 Key Executives .......................................................................................................................................................5 Matrix Structure ....................................................................................................................................................5 TECHNOLOGY..................................................................................................................................................... 6 Boeing 737, 787 ....................................................................................................................................................6 Vision 2016............................................................................................................................................................6 Learning organization ...........................................................................................................................................7 CULTURE ............................................................................................................................................................ 7 Illegitimate activities, unfair competition ............................................................................................................. 7 Turnaround ...........................................................................................................................................................7 ENVIRONMENT AND INTERACTIONS................................................................................................................... 7 Employees .............................................................................................................................................................7 Competition ..........................................................................................................................................................8 Suppliers ................................................................................................................................................................8 Customers .............................................................................................................................................................8 Boundary spanning ...............................................................................................................................................8 Strategic alliances .................................................................................................................................................8 Society ...................................................................................................................................................................8 SUMMARY ......................................................................................................................................................... 9 BIBLIOGRAPHY ..................................................................................................................................................10 APPENDIX .........................................................................................................................................................12 ORG. CHART ...............................................................................................................................................................12 VISION 2016 ..............................................................................................................................................................13
Introduction
Company Overview
The Boeing Company was founded by William Edward Boeing in 1916. Its international headquarters is in Chicago, Illinois, USA. The Boeing Company is involved in the design, development, manufacturing, sale and support of commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services. Boeing is the largest global aircraft manufacturer by revenue, the second largest by deliveries and the second-largest aerospace and defense contractor in the world. Its revenues are 61.5 Bn USD which recorded 2.2 Bn USD profits (Yahoo Finance, 2007). The leading companies in this industry are United Technologies Corporation, Lockheed Martin and Boeing from USA; European companies include EADS, BAE Systems, Thales, Dassault, Saab and Finmeccanica. The major competitor of Boeing in the aircraft manufacturing space is Airbus, a subsidiary of EADS. It is inevitable to talk about both the organizations while analyzing one predominantly due to their contrasting approaches. In December 2003, Boeing established a wholly owned subsidiary, Boeing International Corporation India Private Limited (BICIPL), to support the growing demands of India’s aviation, aerospace and defense industries.
Performance Indicators
Effectiveness outcome of Boeing can be measured using the following Performance indicators. Financial The following financial performance indicators for the trailing twelve months (TTM) can be used to analyze the company (Reuters, 2007). Table 1 Financial performance indicators TTM Company Industry Sector Growth Rates Sales Sales - 5 Yr. Growth Rate Efficiency Revenue/Employee (TTM) Net Income/Employee (TTM) Inventory Turnover (TTM) Valuation Ratios P/E Ratio (TTM) 12.06 1.12 431,500 26,045 6.54 18.86 15.10 10.45 325,028 23,394 10.17 20.06 13.56 11.89 388,884 27,190 8.49 21.25
The growth rates and valuation ratios are lesser than the industrial average. The higher efficiency ratios of Revenue/Employee and Income/Employee suggest lesser degree of labor intensity as compared to the industry; this could be attributed to the learning that the company has attained through the years. Low Inventory Turnover ratios suggest that the sales may be slowing, causing a growing stockpile. If that's taking place, the company will eventually have to cut production to allow stockpiles to diminish.
News volumes The company’s media visibility has been compared with Airbus using Google trends (Google, 2007). Figure 1 News volumes of Airbus and Boeing as generated by Google Trends (Google, 2007)
The Airbus has been generating more news volumes as compared to Boeing since the past 1.5 years. This could be attributed to the Airbus A380 buzz. Deliveries Airbus has taken over Boeing since 2003 in terms of number of Airline deliveries (Yesufu, 2007). Table 2 Deliveries Airbus Vs Boeing Year 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 378 290 320 285 305 281 303 381 325 527 311 491 294 620 229 563 182 375 126 271 124 256 123 312 138 409 157 572
Airbus 434 Boeing 398
Industry Ranking, Reputation quotient Boeing was ranked 10 in the top-performing US aerospace companies, by Aviation Week & Space Technology in June 2005 (Wikipedia, 2005). The Boeing Company was ranked 27 in 2006 as compared to 22 in 2005 based on reputation quotient by Harris Interactive (HarrisInteractive, 2006). Conclusions The indicators above have been used as a representation of several other PIs available in the literature. These PIs suggest that Boeing has been loosing ground to its competitors, especially Airbus, since the past few years. An organizational study can give plausible explanations to the symptoms that the PIs reflect.
Organizational Design
Vision The vision 2016 of the company is ‘People working together as a global enterprise for aerospace enterprise leadership’. Business Units The five Business Units/Services listed on the website have been represented in the following figure Figure 2 BUs/Services at Boeing
Boeing
Commercial Airplanes
Integrated defense system
Boeing Capital Corporation
Phantom works RnD
Internal Shared services
• • • • •
Commercial Airplanes – Manufacturer of commercial airplanes. Integrated defense system - end-to-end large scale defense systems. end Boeing Capital – Financing solutions working closely with Commercial Airplanes and Integrated defense system. Phantom works – Research and development wing of Boeing improving technologies and development processes. Internal shared services - provides the company's business units and Boeing Corporate with innovative and effective common services services.
Organizational structure
Key Executives The company website has a mention about the top management key executives (Boeing, 2007) in plain text. This information has been used to complete the matrix structure hinted. . Matrix Structure The company overview suggests that it has matrix structure woven between two businesses and nine corporate functions (Boeing, 2007) which has been represented as a dual authority matrix structure in Figure 3.
Figure 3 Dual authority matrix structure (2 Business lines x 9 Corp. Functions)
Jim McNerney
Shep Hill Scott Carson
Tom Downey
John Tracy
James Bell
Rick Stephen s
Laurette Koeliner
Michael Lutting
Wanda DensonLow
Tod Hullin
Finance / Shared Services / Boeing Capital
Engineering operations and technology
Commercial Airplanes
Business Development & Strategy
Human Resources & Admin
Internal governance
Communications
International
Public Policy
Law
Jim Albaugh
Integrated Defense Systems
Technology
Boeing 737, 787 Boeing pioneered innovation since its inception. Boeing 737 has been the most successful commercial airplane (The Travel Insider.com, 2007). Since then Boeing has been making minor improvements with its 737 and stopped innovating. From a thriving market leader it plummeted to a barely surviving company. The lack of an airline from Boeing in the super jumbo space gave the Airbus A380 a first mover advantage. The pinch was felt and Boeing and was forced to come up with its superjumbo, the 787. It has been forced to make process improvements. Boeing cut its production time of 737 from 22 to 11 days by integrating the design and the shop floor team and trying to reduce it further by half (Steelcase). Technology and innovation has seen a “start, stop & go” at Boeing. Vision 2016 Boeing has slipped from being a technology leader to a follower. It has been employing a Reactor strategy. There is a lack of strategy and not technology at Boeing. A turnaround in strategy in its product offering is necessary to put Boeing back on top. Boeing has formulated vision 2016 to fight back for leadership in aerospace.
Learning organization Boeing is learning Toyota’s way of lean development and adopting Kaizen quality systems by consulting retired Toyota employees (Emerald Insight, 2006). It is quite important to employ such strategic consulting and alliances with Eastern as well as European partners to cope up with challenges thrown by the industry trends.
Culture
The company works in an unstable complex environment. Managing a workforce of 159000 is a daunting challenge. The culture of the company and the size can not adapt quickly to the dynamic environment and might prove to be a deterrent in demonstrating the required agility. Apart from this Boeing has had its share of a different set of problems with HR and corporate policies. Illegitimate activities, unfair competition In an agreement with the Department of Labor in 1999, Boeing acknowledged having underpaid women and minority executives and forfeited $4.5 million in back wages and raises to settle the claims. A year earlier, the company agreed to a $15 million settlement of two class-action lawsuits involving current and former African-American employees. (Yesufu, 2007). In June 2003 Lockheed Martin sued Boeing for industrial espionage. In December 2003, allegations of corruption of a pentagon procurement officer Darleen Druyun resulted in the termination of then CFO Michael Sears and resignation of CEO Philip Condit. In March 2005 Harry C. Stonecipher, then CEO of Boeing had to resign as he violated the internal code of conduct. A clear lack of strong leadership was evident. Turnaround These fiascos have prompted Boeing to take internal governance seriously. The foibles of mechanistic organization could be clearly seen. To inculcate innovation and leadership into the company Boeing brought Walter James “Jim” McNerney onboard, in June 2005, who worked with 3M for 5 years and for 19 years in GE. The entry into the super jumbo market with 787 indicates innovations and leadership being favored.
Environment and Interactions
Employees The constant cuts in the budgets from Department of Defense (DoD) have forced layoffs in Boeing (Phillips, 1999). Layoffs in these cases do not increase the organizational efficiency as they do in the BPR context. The survivors’ syndrome (Appelbaum, 1999) can be witnessed in the form of decreased management credibility, decreased employee morale and increased absenteeism. Compensation structuring, reward policies and performance appraisal policies need to be uniform. The human resource reforms started during 1997 when Boeing faced problems with a militant union going
on regular strikes. (Lubove, 1997). Breaking the procedural culture and adopting an adaptive culture is a Human capital management challenge that vision 2016 faces. Innovation and idea exchange is done in informal cabins, which act as incubators. Boeing is known for its cross functional teams and is now also heavily relying on virtual teams. Competition Airbus and Lockheed Martin are the two prime competitors of Boeing’s two lines of business. Airbus is a nimble young competitor which was formed by European aviation firms to challenge Boeing’s monopoly and has been successful in clobbering Boeing. Boeing has been employing a reactor strategy when it comes to competition. Suppliers Resource dependence and control over supplier vagaries is achieved by supplier involvement in product development and by co-locating suppliers in the manufacturing facility (Twigg, 1998). Boeing further mitigated risks in inventory management by ‘vendor managed inventory’ system (Micheau, 2005). Customers Boeing is a B2B company; its 787 branding as ‘Dreamliner’ have been successful. Branding and brand communication has become an important aspect of differentiation (Pfoertsch, 2007). NASA, international space station and Department of Defense (DoD) are two prime customers of Boeing. Economic booms fuel Boeings profits and recessions hamper profits and lead to layoffs. Events like 9/11 which caused slump in air travel pose a threat to Boeing. Boundary spanning Boeing is under heavy corporate governance scrutiny due to the illegitimate actions in the recent past. Hence Boeing has to be heedful in boundary spanning. A meticulous flow of information across the boundary is of utmost importance. Illegitimate boundary spanning with pentagon officer in December 2003 had put Boeing under scrutiny. Strategic alliances May 2005 saw the strategic alliances formed between Boeing and Lockheed Martin in the rocket launching and air transportation systems (Lockheed Martin.com, 2005). Such alliances reduce R&D costs and maximize efficiency. End customer centric alliances are necessary even if no direct interactions are visible as Boeing operates in B2B space. The indirect spillovers of price wars in airways into the surrounding ecosystem demand for such alliances. Society Boeing partners with community organizations in 26 states, 14 countries and six regions outside the U.S. In 2006 Boeing contributed $51.6 million to organizations in communities where employees work and live. Boeing employees gave an additional $31.5 million through the Employees Community Fund, one of the largest employee-owned funds in the world. Employees also contributed more than $10 million
through a company gift-matching program, and volunteered thousands of hours of personal service. Boeing is also committed to energy efficient processes.
Summary
The immediate key areas of focus along the value chain for Boeing have been marked in red in the following figure. Figure 4 Value chain focus areas
Infrastructure Leadership HR Policies Employee culture/Corporate Ethics Innovation Technology, learning Procurement
Inbound Logistics
Agile, Lean Operations
Outbound Logistics
Marketing sales
Service
The launch of 787 has put Boeing back into the league of technological leaders in aviation forces. Jim McNerney’s leadership is infusing adaptive culture into the organization; however Vision 2016, which is a long term strategy, hints incremental change being adopted. Future looks positive if Innovation is assured through higher R&D investments translating into superior technology and a more effective Human capital management.
Bibliography
Appelbaum, S. H. (1999). Downsizing: measuring the costs of failure. Journal of Managemet Development , Vol. 18 No. 5, 1999, pp. 436-463. Boeing. (2007, October 27). Boeing Corporate Organizational Structure and Leaders. Retrieved October 27, 2007, from Boeing Corporate: http://www.boeing.com/companyoffices/aboutus/whq/ Boeing. (2007, October 30). Boeing Overview . Retrieved October 30, 2007, from Boeing: http://www.boeing.com/companyoffices/aboutus/overview/powerpoint/boeing_overview.ppt Emerald Insight. (2006). Strategic Direction VOL. 22 NO. 8 2006. Retrieved November 1, 2007, from Emerald: http://www.emeraldinsight.com/Insight/viewPDF.jsp?Filename=html/Output/Published/EmeraldFullTex tArticle/Pdf/0560220805.pdf Google. (2007, October 26). Google Trends. Retrieved October 26, 2007, from Google: http://www.google.com/trends?q=airbus%2C+boeing&ctab=0&geo=all&date=all&sort=0 HarrisInteractive. (2006, October 23). Reputation Quotient. Retrieved November 1, 2007, from Harris Interactive: http://www.harrisinteractive.com/services/rq.asp Lockheed Martin.com. (2005, October 24). Boeing, Lockheed Martin Continue Work Toward Launch Alliance Approval. Retrieved November 1, 2007, from Lockheed Martin: http://www.lockheedmartin.com/news/press_releases/2005/BoeingLockheedMartinContinueWorkTow .html Lubove, S. (1997). Take-off from human resource reform at Boeing. Management Development Review , 40–41. Micheau, V. (2005). How Boeing and Alcoa implemented a successful vendor managed inventory program. Journal of Business Forecasting , 17-19. Pfoertsch, P. K. (2007). Being known or being one of many. Journal of Business & Industrial Marketing , 357–362. Phillips, M. (1999). Agile manufacturing in the aerospace industry: an. International Journal of Agile Management Systems , 17-22. Reuters. (2007, October 29). Financial Ratios. Retrieved October 29, 2007, from Reuters: http://stocks.us.reuters.com/stocks/ratios.asp?symbol=BA&WTmodLOC=L2-LeftNav-16-Ratios Steelcase. (n.d.). Boeing case study. Retrieved from oneworkplace: www.oneworkplace.com/images/dynamic/case_studies/Boeing.pdf The Travel Insider.com. (2007, March). Airline MisManagement. Retrieved October 29, 2007, from The Travel Insider: http://www.thetravelinsider.info/2003/boeing4.htm
Twigg, D. (1998). Managing product development within a design chain. International Journal of Operations & Production Management , 508-524. Wikipedia. (2005, June 2005 30). Aviation Week & Space Technology. Retrieved October 28, 2007, from Wikipedia: http://en.wikipedia.org/wiki/Aerospace_manufacturer Yahoo Finance. (2007, October 23). The Boeing Company Profile. Retrieved October 23, 2007, from Yahoo Finance: http://biz.yahoo.com/ic/10/10221.html Yesufu, H. (2007, July 11). Avoiding the Traps That Can Cause Your Company to Self-Destruct. Retrieved October 29, 2007, from Knowledge@Wharton: http://knowledge.wharton.upenn.edu/article.cfm?articleid=1769
Appendix
Org. Chart
Jim McNerney
Shep Hill Scott Carson
Tom Downey
John Tracy
James Bell
Rick Stephens
Laurette Koeliner
Michael Lutting
Wanda DensonLow
Tod Hullin
Finance / Shared Services / Boeing Capital
Engineering operations and technology
Commercial Airplanes
Business Development & Strategy
Human Resources & Admin
Internal governance
Communications
International
Public Policy
Law
Jim Albaugh
Integrated Defense Systems
Vision 2016