The Strategies Follows by Airbu - Term Paper Example

 Table of Contents Executive Summary 2 Introduction 2 The structure of the civil aircraft manufacturing industry 3 Critical Success Factor - Airbus 4 Porter’s Generic Strategies/ Bowman’s Strategic Clock 5 Bibliography 9 Executive Summary This paper discusses about the company Airbus which is a part of the EADS group. The paper further discusses the trends of the civil aircraft manufacturing industry and the strategies follows by Airbus which has made the company successful. Its Critical success factors are looked upon along with the strategies that it has followed over the years to maintain its Market Share in such a competitive industry. Furthermore, its financial result of the year 2009 is compared with one of its major rival competitor. Introduction “Airbus SAS is an aircraft manufacturing subsidiary of EADS, a European aerospace company. Based in Toulouse, France, and with significant activity across Europe, the company produces around half of the world's jet airliners. Some figures about Airbus are that is it’s a global company having 9 engineering design centers, 15 manufacturing sites, 20 languages, 24 hour customer support (365 days a year), 50 flight simulators, 88 nationalities and more than 5,300 aircraft delivered” (Linkedin, Airbus). American airline manufactures were the first ones to produce aircrafts in bulk quantity hence a competitor was required in Europe. As a response, three of the major European countries; France, United Kingdom and Germany joined together and built up the Airbus Industrie. This was a government initiative of the three above three countries to built up an organization that can give a proper competition to the American Airline Manufacturers such as Boeing, Lockheed, etc. Airbus came up with A300 as their first product; it was later modified to increase passenger capacity to more than 300 passengers and was known as A380. It was clearly evident that it was collaboration of three countries working together. Airbus’s engines were to be manufactured by Rolls Royce. Initially the company had to bear high development costs as their engines were produce by Rolls Royce. The engine designed by Rolls Royce was also facing major difficulties and delays. Later in 1972, A300 made its first fight and its first production model to start up a story of success and achievement of Airbus. Initially the orders received for the product were not so good because of a rival product “Concorde” but gradually it improved because its target market shifted to the American and Asian Continent. With the success building up for Airbus, it started picking up its ratings and now is rated as one of the top most civil airline manufacturer. Gradually, the company has increased its competition by creating modern aircrafts which are dominating the market (Davies, 2001; Airbus - Gathering Clouds, 2008). The structure of the civil aircraft manufacturing industry The aircraft sector has many competitors around the globe, with such intense competition it is difficult for each and every player in the industry to grab a major market share. Since the World War II, there had been a sudden decrease in the number civil aircraft manufacturing companies, many companies which could not handle the stiff competition were put out of the business sector (Seitz et al, 1985). Although the aircraft sector is a very profitable sector, organizations can only compete successfully if they innovate on a regular basis. The aircraft industry has always been on a rise; however it is not a stagnant industry. The biggest hit to the aircraft industry occurred after the 9/11 attack, the 9/11 attacks rattled the long term global growth of the industry. Commercial aircraft makers certainly felt the repercussions of the terrorist attacks. Even Airbus had to face the horror, one of their orders was back logged, and this order equaled six years of their annual revenue on September 30th. Boeing on the other hand had to face similar issues, they had to face steep downfall in their deliveries. Recent trends in the airline industry have suggested a catastrophic run for the airline service providers because of the high fuel costs that they would have to bear but this has not affected the civil aircraft manufacturers like Boeing and Airbus. Both these gigantic airline manufacturers are good at making fuel efficient airplanes and the demand for their products is such that they are fully booked till 2012 and hence may not be able to provide any new customer with their respective product before that time frame (Fojt et al, 2006). Critical Success Factor - Airbus Critical success factors are those factors which are highly admired by the customer. Critical Success Factors are performance requirements that are fundamental to an organization’s success, thus in this context, Critical Success Factors are those features of a product that are particularly valued by customers. Examples of Critical Success Factors in an airline manufacturing industry are the passenger capacity that the company has to offer, its performance, the organization’s reputation, etc. Airbus has been a leader in civil aircraft manufacturing for a decade or so in Europe and globally too it is recognized as a market leader along with Boeing, Lockheed, etc. All this is because Airbus has been very good when it comes to innovation; it has always kept a look out for its customer’s requirement and has produced their product accordingly. Innovation is an important reason behind strategic success of any organization. There are many resaons that a company need to be innovative because the environment is so dynamic that to remain competitive in any industry, an organization should be outward looking i.e. it should accept the reality of constant change and reviews and should always look towards new markets, better designs, new processes, improved quality and increased productivity by breaking through via innovation. Airbus have always been innovative when producing the aircrafts, it has always changed the design of the product either by increasing the passenger capacity or by producing better quality products such as A380 which was a response to the competition that Airbus had faced all along its business tenure by Boeing. Besides this, the company was recently involved in flying the first alternative fuel flight, the flight ran on 60% kerosene and 40% Gas-to-Liquid in the engine. This flight did not reduce the carbon emission but it was sulphur free. The other thing that makes Airbus in a better market position in the airline industry is the fact that it produces fuel efficient aircrafts and it is because of this reason that the aircrafts deliveries for Airbus are booked till 2012 even when many airline service providers are in need of fuel efficient aircrafts urgently. Processes too adopted at Airbus are quiet efficient like the SAP solution technique being used by Airbus addresses their entire infrastructure management needs while keeping their risk and costs reduced. This system has also helped the company to be time efficient as it has the ability of detecting any error within two minutes. Besides such time efficiency, the system has also helped in a reduction in malfunctions reported by their customers (SAP Customer Success Story; Jacobs et al, 2000 ; "Airbus Success Boosts BAE." 2003). Porter’s Generic Strategies/ Bowman’s Strategic Clock According to Porter’s Generic Strategies, the strategy followed by Airbus is the Product differentiation strategy. Airbus has kept up its brand image in the eyes of the customers by creating such qualitative products. Airbus and Boeing create many products with larger passenger seating capacity unlike many of its customers. Although the products offered by Airbus are expensive but they have a very good market for them because of the different nature of the products that it has produced. Airbus has kept a diversified portfolio when it comes to producing aircrafts. The other competitive edge that Airbus enjoys is the fact that it produces fuel efficient aircrafts and such aircrafts are in huge demand currently because off the manner of cheap airline service that are offered by airline service providers. Although Airbus follows a differentiation strategy, it has kept an effective and efficient information technology system within its business environment that it helps in reducing costs for the company along with providing best information services for its customers (Akan et al, 2006) According to the Bowman Strategy Clock, Airbus follows the differentiation or a focused differentiation strategy where it charges a high premium in return for a high degree of differentiation. It produces aircrafts that have higher passenger capacity. Besides this, it always innovates in the airline industry and is currently involved in researching and developing a bio-fuel that could be used by 2030. This innovative research and development scheme of Airbus is being carried out in collaboration with Jet Blue Airways. Sustaining Differentiation is difficult. It is more than just being different, the point is that difference should be valued by the customers, except that if a company tries to innovate and be different, such differentiation would only be profitable if it is inimitable. The use of proper information technology systems clearly show that Airbus is working on its differentiation strategy very seriously and with the help of such systems it would be able to sustain differentiation and gain a competitive advantage over its rivals. Besides this the company has also expanded by opening a manufacturing plant in China, this way it would also be able to grab the market share in the Asian airline manufacturing sector. During the year 2009, Airbus also came up with a new aircraft A400M clearly showing Airbus’s ability to innovate in new lines of product. Besides the civil aircraft manufacturing, Airbus has also been hugely involved in its military aircrafts as well making military aircraft manufacturing also a major portion of their business as well. (Reilev et al, 2008) The other thing that the company has done to meet the excess demand for its product is by increasing its production rate by 34 to 36 aircrafts per month. This has all been done to take advantage of the extra demand of their products and a backlog of 3,488 aircrafts in Airbus. As a Group, EADS plans to reach a revenue balance between Airbus commercial, Airbus manufacturing and other businesses by 2020 (Report of the Board of Directors, 2009) The company has also used SCADE technology on many of its aircrafts, this technology has helped them in reducing coding errors, improved traceability and a major help with the improvement of software used on many of its aircraft (Esterel Technologies) The company is also involved in heavy research and development and is planning to finish its Planning8 programme by 2010, by that time it would work on its Power8+ savings programme. These Power8 programmes would help Airbus to avoid any losses that the company may have to bear because of depreciation in the value of the Dollar. This programme will further help in sustaining competitive advantage over its rivals (Power8 prepares way for "New Airbus”, 2007) The unaudited financial statement of the EAD seems alarming as it shows a loss of €763 million in 2009 as compared to a profit of €1,572 million in the year 2008. Airbus has invested more into their research and development sector by investing €2,766 in 2009 as compared to €2,605 in 2008. This excess research and development cost has been tolerated by the company because of their innovative nature. Besides these figures, Airbus Military division has faced losses in both the years as this division still needs time to properly develop, hence the loss incurred by the Military portion are set off by the profits gained from other sectors but these losses have been so huge in 2009 that it eventually lead to a loss for the entire group (Year 2009 Report, Financial Statements, Unaudited). On the contrary, Boeing, Airbus’s main competitor has worked up well financially in the year 2009. There is a 12% increase in its revenue as compared to fall in EADS revenue. Boeing’s income for the whole year fell by 51% in the year 2009 as compared to EADS fall in income of 53%. This financial comparison of the companies suggest that Boeing’s financial result are slightly better than Airbus but with Airbus’s promising future prospect and innovative strategies like Power8 approach and many others, it may be possible that Airbus may overcome its competitor. (Boeing Reports Strong, 2009) Bibliography AGM 2010, Report of the Board of Directors, EADS, 2009 http://www.eads.com/xml/content/OF00000000400004/1/52/42687521.pdf "Airbus - Gathering Clouds." The Economist. 387. 8585 (2008): 93. "Airbus Success Boosts BAE." FLIGHT INTERNATIONAL. 4899 (2003): 30. Akan, Obasi, Richard S. Allen, Marilyn M. Helms, and Samuel A. Spralls III. "Critical Tactics for Implementing Porter's Generic Strategies." Journal of Business Strategy. 27. 1 (2006): 43-53. Arping, Stefan, and Gyöngyi Lóránth. Corporate Leverage and Product Differentiation Strategy. London: Centre for Economic Policy Research, 2002. Boeing Reports Strong 2009 Revenue & Cash Flow on Solid Core Performance http://boeing.mediaroom.com/index.php?s=43&item=1043 Davies, CA 2001. Plane Truth: A Private Investigator's Story. Algora. New York. Elzas S. 2008. Airbus bids to over bid for US Air Force contract http://networkeurope.radio.cz/feature/airbus-bids-to-over-bid-for-us-air-force-contract Esterel Technologies, After the successful use of SCADE on the A340, AIRBUS adopted it for several A380 projects, Airbus. http://www.esterel-technologies.com/technology/success-stories/airbus Evans, N., Campbell, D., & Stonehouse G., 2003. Strategic management for travel and tourism Reprint Illustrated ed. Butterworth-Heinemann, 2003 Fojt, Martin. The Airline Industry. Bradford, England: Emerald Group Pub, 2006. . Jacobs, E. N., & Frambach R. T., 2000. Creating customer value through strategic marketing planning: a management illustrated ed. Springer Linkedin, Airbus, Overview. http://www.linkedin.com/companies/airbus Power8 prepares way for "New Airbus”, Press centre/Press releases, 2007 http://www.airbus.com/en/presscentre/pressreleases/pressreleases_items/07_02_28_Power8_Press_Conference_EN.html Reilev, M., & København, H., 2008. Sustainable competitive advantage in the airline industry: SAP Customer Success Story, Aerospace and Defense – Aircraft Manufacturing www.sap.com/contactsap Seitz, Frederick, and Lowell W. Steele. The Competitive Status of the U.S. Civil Aviation Manufacturing Industry: A Study of the Influences of Technology in Determining International Industrial Competitive Advantage. Washington, D.C.: National Academy Press, 1985. Unaudited Condensed Consolidated Financial Information of EADS N.V. for the year ended December 31, 2009 http://www.eads.com/xml/content/OF00000000400004/6/33/42678336.pdf Woods, George Bryant. The Aircraft Manufacturing Industry, Present and Future Prospects. New York: White, Weld & Co, 1946 Read More