Philip Condit and the 777 Project -Case Study Solution

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Philip Condit and the Boeing 777 Case Study

Project Management

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Table of Contents

1. 2.

Executive summary...................................................................................................... 3 Data Analysis................................................................................................................ 4 2.1. Problem (Issue) that arose ................................................................................... 4 2.2. The stakeholders affected by the innovation ...................................................... 6 2.3. Analyzing the numbers......................................................................................... 7 3. The alternative ............................................................................................................. 8 4. The decision criteria .................................................................................................... 9 5. Recommendations ....................................................................................................... 9

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1. Executive summary This case study is about a big airplane production company, well known as Boeing, which was facing an enormous risk regarding the development of the new Boeing 777. This project was expected do be very cost intensive. They were talking about a project which would cost them about 6 Billion dollars and for actually producing the product they needed up to 10.000 workers. At the point Boeing was thinking about starting the production of the 777 they were financially very strong and there was also a strong tendency towards why they should do such a risky project. Boeing, on the other hand knew that the demand for travelling will increase and in this respect, also more aircrafts which could transport more people on longer distances would be needed. As Boeing was a strong pole in the market they had to take up the risk in order to stay competitive in the market and offer a product which was demanded. The models they had at that time were not at the expectations of their customers, like for example the 767 which had no advantages to other aircrafts offered. The business strategy and philosophy had to make a change. The solution for this situation was to build the 777 and introduce a product which would revolutionize the aircraft industry On the other side, Airbus industries which developed to a mature competitor of Boeing, had already learned by a lot of mistakes which Boeing had done and changed their policies faster. The key benefit for Airbus was also that they had the advantage of government subsidies to back the cost of implementing best design practices and also latecomer advantages. In the 1990 there were only two major competitors in the market on the one side Boeing and on the other Airbus. Airbus was focusing more on the customer and made this strategy work with a line of aircrafts produced since 1986, which was flexible and opened for customizations. They had a strategy, which combined cost and technological leadership and therefore produced several models like the models A330 and the A340. Airbus was actually doing the opposite of what Boeing did, not producing aircrafts with a mass production system, which was reflected in the reducing order figures. This was one of the most important reasons for Boeing to start up the big project 777.

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2. Data Analysis 2.1. Problem (Issue) that arose When looking at the case data, we can clearly see that the main problem for Boeing was that Airbus had a strategy of producing aircrafts to the expectations of their customers in a very flexible way. This new strategy of Airbus was also putting Boeing behind in the sense of technological advantage. Philip Condit wanted to find out if the Boeing 767 would be a success; therefore he met with Jim Guyette (United Airlines Vice President) who advised him to give up the 767 and instead develop a brand new commercial jet. Frank Shrontz (Boeing CEO) has heard of similar suggestions and decided to abandon the 767 idea in favor of the new aircraft program. In December 1989 he announced the 777 project and put Philip Condit in charge of management of the new project.

Therefore, Condit had taken his position very serious and he wanted to create an airplane that was preferred by the airline at a price truly competitive, as well as focusing more on the “working together approach”. In order to accomplish his goal he introduced several innovations, both technological as well as managerial, in the aircraft design, manufacturing and assembly. He wanted to revitalize Boeing’s outmoded engineering production system as well as update manufacturing strategies.

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Airbus Industries’ increasingly larger share of commercial airliner market was a major force provoking this change in Boeing. Airbus had the advantages of government subsidies which helped them in the way that they did not have to worry about big costs when implementing best design practices as well as many other advantages that Boeing did not have. This new approach was a new opportunity for Boeing to design and configure a new aircraft which would be efficient for the customer and for the strategy of Boeing. Examples for this new approach would be the new cockpit design which was similar to the 747 and therefore a pilot could fly on both aircrafts without extra training. The project 777 was including many different nations like Japan, Britain, Australia, Italy, Korea, Brazil and Ireland, therefore the product could benefit from best suppliers in a way of know how and in terms of value for the produced parts of the aircraft. Boeing had over 20 companies from all over the world working on this project and bringing their knowledge and ideas into it. One of the strongest suppliers in this project were the Japanese who produced about 20 % of the total value of this new airplane, therefore they also sent out 250 of their best engineers to America in order to participate strait at the actual production place in Seattle. Teaming was another feature of the 777 program and Condit had to model a system, Catia, which allowed gathering as much input from the customer, the designers, the engineers and the assembly line workers. There were about 30 integrated level teams, organized at large sections of the aircraft and the design build teams were organized around small part and components. In both cases, the teams were cross functional. Each DBT included representative from six functional disciplines (engineering, manufacturing, materials, customer support, finance and quality assistance) and met twice a week for two hours. The DBTs had a high degree of autonomy from the management supervision that can be seen in the final design successful mixture of requirements that satisfied the needs of all parties involved. In this environment, people’s special talents and abilities could grow and were used to the benefit of the project. Contributions were incorporated in the process which gave people more incentives to provide innovative ideas and solutions. Under the 777 program, work was ruled by the Bar Chart , which was a large display panel placed at different work areas, which listed the name or each worker, the job description and the time available to complete the task.

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2.2. The stakeholders affected by the innovation Although trying to implement a new strategy into the consisting philosophy of the company was not easy. The project manager Philip Condit knew that this would be the only way to regain the competitive advantage against Airbus. This meant for Boeing re-education and restructure of the workforce as well as implementing the new technologies, concept changes in design and data exchange throughout the whole company.

While trying to implement these new ideas, higher resources were demanded as well as extensive practice. This new project had also a huge impact on the workers because they had to work together in teams under a high pressure, which was not a common tool in the company. Therefore the designers had to think of inventions which were accepted by the customer and not just implemented because Boeing thought they would fit into their new product. There were also changes in the designing methods, because there was an upgrade from 2D to 3D. In this case they had to retrain all their engineers using now computer for designing the aircraft. Therefore they also had to implement an open management style, which enabled them to share and get feedback about the project status.

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2.3. Analyzing the numbers Table 1: Market share of shipments of commercial aircrafts 1992 1993 1994 1995 1996 1997

1998

1999

2000

Boeing

61%

61%

63%

54%

55%

67%

71%

68%

61%

MD

17%

14%

9%

13%

13%

-

-

-

-

Airbus

22%

25%

28%

33%

32%

33%

29%

32%

39%

Table 2: Total number of delivered airplanes between 1995-2001 1995 1996 1997 1998 1999

2000

2001

McDonnell

18

15

12

12

8

4

2

Airbus A330

30

10

14

23

44

43

35

Airbus A340

19

28

33

24

20

19

20

Boeing 777

13

32

59

74

83

55

61

Douglas MD11

While looking at Table 1, we can analyze how the aircraft market went from 1995 till 2000 as well as understand the position of the competitors in the market. If we look at Table 2, we can see which airplanes were delivered between 1995 and 2001. We can use these two tables in order to compare the market share and deliveries from 1995 till 2000. We can also see that Boeing 777 was launched in the year 1995 and had two main competitor models, the A330 and the A340. In Table 2 we can see that in 1995 the highest amount of planes was delivered by Airbus and Boeing on the other hand had just delivered just 13 new 777’s. It is also to mention that there was another model made by McDonnell and Douglas Company which produced the MD11. This is a company which was later on bought by Boeing in 1996 and merged in 1997. In 1997 we can see that McDonnell Douglas lost a lot of orders and compared to Boeing which increased their orders from 32 to 59. Therefore Boeing bought the MD for 40 billion dollars and increased their market share.

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From this point of, the models of MD were sold under the name of Boeing, even though they still continued to be delivered till 2001. By merging with MD, Boeing became the largest airplane producer in the whole world. The highest market share Boeing had was in 1998, of 71% and the highest number of delivered airplanes in 1999 was in the amount of 83. From the launching of Boeing 777 in 1995 till the highest point of delivered airplanes, they had an increase in market share of 17% while Airbus lost 4%. It is also important to mention that Airbus focused not just on one model, but actually sold the A330 and A340 at the same time. After the Boeing 777 was introduced on the market the deliverables for the A330 decreased from 30 to 10 and for A340 increased from 19 to 28.

3. The alternative Even though Boeing made a great decision to start up the project 777 that gave the opportunity to restructure and upgrade the old company system, in our opinion it would have been the only alternative possible in order to regain its market share. While looking at the competition Boeing had at that time, we can clearly see that Airbus was offering two different models on the market while always investing and upgrading them to the newest technology. In this case Boeing had also the opportunity to continue the product line of MD in order to have another competitive product on the market. As a matter of fact they decided not to invest into a new product line, but only to continue with their own product, the 777. We can clearly see in Table 1 that starting with 1997, on the one hand the brand MD has vanished from the market and on the other hand, the orders for their product went down substantially. Therefore, in our opinion it would have been a better solution to keep MD in the market under its own name and brand, because having the ability to actually drive two different products is better than one. In the case of one product is not as profitable, the other one can complement the gap in revenue. Also looking at the identity of the company it is better to have different philosophies which apply to different customer expectations. In this respect they would have had the opportunity to cover a broader spectrum of customers and again increase their market share while offering two different products at a reasonable production price.

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4. The decision criteria Our decision criteria is based on the idea that we would like to spread the risk of one company going bankrupt and also to attract customers which were not in the target group of Boeing. We also wanted to focus on a productive communication between the two companies instead of having just one company. Also the market information from the two companies, acting with different philosophies would give both of them a competitive advantage towards Airbus. Boeing could have had also the opportunity to spread their costs in the way of sharing and improving their production line in a cost effective way. While having the MD as their customer and vice versa they could increase their value of the products and also cut production costs. Another benefit of keeping both companies would have been that Boeing could have drive the same strategy as they already did and try to implement their new ideas and philosophy in the smaller company MD. This means that MD could focus more on flexible and customized airplanes.

5. Recommendations All in all, we would recommend that Boeing should have kept MD in the market and try to benefit and bring innovations towards both companies. In our opinion, it is easier to change the philosophy of a smaller company and also less cost intensive, rather than making a change to a company which is already working in the same attitude for 75 years. In order to reach the level of Airbus in a financial perspective, maybe it would have been a good idea to try obtaining subsidies as well.