Company Strategic Review

Company Strategic Review: Boeing Company

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Company Strategic Review: Boeing Company

Introduction

The success of any company is highly determined by its strategic management approaches. This paper focuses on evaluating the strategic operation of Boeing Company; an American based multinational aerospace company that focuses on designing, manufacturing and selling of commercial airplanes and defense equipment. The paper provides the company profile summary, PEST and industrial analysis, portal five forces model, business model and management strategy analysis, financial analysis, and strategies that the company has employed to manage financial related risks. The paper finally provides summary of the key finding in the analysis and recommendations to enhance effective operations in the company.

Company Profile

Boeing is the biggest aerospace company in the globe following the MaDonnell Douglas Corporation merger in 1997, and Rockwell International Corporation defense and space unit purchase in 1996. Boeing is the main producer of security, space and defense systems, as well as commercial jetliners. It was established in 1916 by William Boeing and adopted the name Boeing Airplane Company in 1918. The company was later incorporate in 1934. Since then, the company has developed to a multinational corporation that is basically involved in selling, manufacturing, and designing satellites, airplanes, rockets, and rotorcraft, defense and electronic systems, advanced communication and information systems, launch systems, and performance-founded training and logistics internationally (Reference for Business, 1998). It is currently the largest American manufacturing exporters, with its headquarters in Chicago, Illinois. Boeing supports US government and its allies, as well as airlines in over 150 nations. It has a long history of aerospace innovation and leadership. Boeing continues expanding its line of services and product to meet the upcoming consumer needs. The company employs about 160000 individuals cross 66 nations which include the United States. The company is structured into five principle segments that include security, space and defense, with three segments that include global services and support, network and space systems, and Boeing military aircraft. Others segments include commercial airplanes and Boeing capital. The segments are supported by Boeing Capital Corporation, an international financing solutions provider, shared services group that offer a wide range of services internationally to the company, as well as Boeing Engineering, Operations & Technology that assist in developing, protecting, acquiring, and applying innovative processes and technologies (Boeing.com, 2016b).

PEST and Industry Analysis

Boeing Company PEST Analysis

Political Factor

Government policies, regulations, and laws can have important effects on any firm. Boeing has made strong agreements and deep relations with the Federal Aviation Administration and the US government. Thus, the US government policies might highly influence the company’s sales particularly in the defense, space and security unit. For instance, the company has restriction on selling particular war equipment to certain Middle East countries such as Iraq, Pakistan, Iran, and Afghanistan. Similarly, the company has also received governmental support through policies that allow it to operate its commercial segment free of tariffs as from 1979. In addition, the company is required to meet all governmental regulations set by different countries to be able it sell in those countries, this include the environmental laws. The company is also impacted by the political environment of the countries where it sources its raw materials or sells its products. For instance, the company sources titanium from Russia and Ukraine, and although it was not affected by the political unrest between the two nations, the aggravation of the matter can highly impacts its manufacturing process (S2.q4cdn.com, 2015, p.25).

Economic Factor

Boeing operates internationally and thus, it is subject to be impacted by change in economic climate in various nations. For instance, the recent global recession; 2008, impacted the operation of airlines and thus, influencing its rate of sale of most of its products, particularly in Europe and United States. The volatile nature of economy in different countries impacts the company’s sales or prices, interfering with its profitability. The company is also affected by change of fuel prices in the airline industry. The company operation is highly impacted by the airline industry operations and thus, any aspect that would slow their business highly impacts the revenue of the company. Subsidiaries also play a great part in determining the company’s operation, particularly the 2010 subsidiary dispute with Airbus. Most of the company’s transactions are done using the US dollars. This subject the company to revenue loss risks emanating from fluctuations of exchange rates of the international currency (Bga-aeroweb.com, 2016).

Social Factor

Boeing operates at international level and thus, it has to consider various cultures that can impact its way of conducting business. This include people travel culture that would influence commercial airline travel and hence increasing its chance of making more sales for instance, Christians Christmas and Easter travels, Muslims Makkah pilgrimage. Others include holidays travel by western people during winters among other social aspects.

Technological Changes

Aerospace industry is experiencing change in manufacturing technology following the change of taste and preference of their consumers, and also based on the change of various governmental and environmental regulations. The recent environmental limitation regarding the level of emission has highly influence the design and manufacturing of the commercial airplane in Boeing, and its competitors. There has been a demand for less emission and thus, demand for the change in the engine development. Technological changes are playing a great part in fostering the competitive advantage of companies in aerospace industry. In this regard, Boeing has established a research and development sector to enhance its level of innovation. New aircraft are focusing more on oil efficiency, speed, and safety. Technological change is also anticipated to continue influencing the aerospace manufacturing and designs in the future (Bga-aeroweb.com, 2016).

Industrial Analysis

The airline industry and market of commercial jet airplane remain highly competitive. The Asia and Europe market liberalization is allowing low-cost airlines to gain market share progressively. These airlines are augmenting the airfares pressure. This makes all airlines to experience continuous cost pressure and thus enacting pressure on the prices of Boeing products. The aerospace industry is currently contains aggressive international competitors that focus on increasing their global market share. They provide competitive products and contain access to strong suppliers and customers as Boeing. Some are highly doing well with the support of their governments, particularly financial support. This has augmented the level of industrial competition (Boeing.com, 2016a).

Portal Five Forces Model

Buyers Bargaining Power

The company’s buyers contain low bargaining power following the fact that plane from different produces have different control. In this regard, change of manufacturer would imply using high capital since more would require to be changed in the system. This would also mean retraining the pilots to ensure that they can effectively operate with the new product which is considerably different from the other. This reduces the buyers bargaining power and in most cases forces the buyer to retain the initial manufacturer even when they feel that they need a change.

Suppliers Bargaining Power

Boeing suppliers contain high bargaining power following the growth of the industry. Moreover, the company has considerably lost its control over suppliers where by most of their production are highly delayed to suppliers inability to meet the supply requirements on time. The company has also acknowledged that some products are hard to find and thus, suppliers require able time to source them. This gives the company suppliers an upper hand in business. This means, the company’s suppliers may highly interfere with its future growth in case the company considers expanding their line of products (Bga-aeroweb.com, 2016).

Competition Rivalry

The airline industry and market of commercial jet aircraft remain highly competitive. Boeing is experiencing great international competition from other companies in the industry focusing on enlarging their market share. These companies include Bombardier, Embraer, and Airbus. The high level of competition is forcing Boeing to center on enhancing its process and putting more efforts on cost reduction. This pushes the company to enhance on the value of their support, services, and products to remain competitive in the industry. Boeing also faces intense competition from its defense, space & security in all its three segments basically from General Dynamics, Lockheed Martin, Raytheon Company, and Northrop Grumman. Other non-U.S. companies that include Airbus Group and BAE Systems continue to develop strategic presence in the United States market, by creating partnership with U.S. defense companies and strengthening their operations in the North America. In addition, Various Boeing competitors have teamed up occasionally to enhance their ability to address the consumers’ requirements. Thus, Boeing is currently experiencing a high competition, and this may continue happening in the future following the growth and expansion of new companies from Asia in the industry (S2.q4cdn.com, 2015).

Threat to New Entry

Aerospace industry requires large capital to start and a lot of investment in research development, and quality assurance among others. It also faces a high level of governmental regulation due to the safety measures involved. In this regard, it faces low threat from new entry. Nevertheless, the aerospace industry has turned to be highly competitive with young Asian companies fighting to gain international market share. This creates a considerable high threat to existing companies in the industry. Companies from Japan, China, and Russia are growing to produce large commercial planes with 90 seats. These companies are also getting financial support from the government. This adds to their power to develop at global level and thus, posing new entry threat to the aerospace in the market (S2.q4cdn.com, 2015).

Threat to Substitution

There are various substitutes to air travel which include trains, buses, ships, and personal cars. Trains are becoming much faster with invention of electric airlines. They are also turning to be cheaper and convenient particularly for shorter distances. Nevertheless, airplanes remain the most preferred for international travel due to their faster speed and high level of convenience. This means the company is facing moderate threat to substitution from other means of travel.

Business Model and Corporate Strategy

Boeing has adopted a simple business model that involves designing, producing, and selling aircrafts. The model has been going virtuous cycle of change with intentions of enhancing the general efficiency of the company’s operation. These cycles focus on lowering the cost of production by employing more improved manufacturing techniques. The company has been focusing more on making their production process much easier and faster. This is intended to reduce the prices of their products in the market, following the reduction of the production costs. With this model, the company is anticipating to increase its sales and to attract more customers with new preferences and needs. This provides the company with an opportunity to gain more knowledge through research, as they fight to address the changing customers’ needs. This is also anticipated to enhance the company’s competitive advantage through advancement in its level of innovation. The company business model virtuous cycle enhances continuous effort in enhancing production methods, innovation, and alternative market to generate profitability in the company in both commercial airplanes and defense segments (Gaille, 2015). The simple business model also assists in identifying weaknesses in the existing company’s designs. This assist in developing new strategies to fix any previous era that make their brand to appear weaker compared to the competitors brands. The company business model has also tried to cut on outsourcing. Although the model literally demonstrate success, the cost cutting aspect and shortening of profit cycle can highly impact the technical manufacturing part which is not as easy as demonstrated by this model. Airplane manufacturing is characterized by heavily engineered products that are complex, very long operational and production cycles, intense learning curves, and critical mass of experience. All this makes the entire manufacturing process considerably complex to enhance the current business model that focuses on easier and faster production techniques (Sorscher, n.d.).

Boeing is based on the vision of inspiring, connecting, exploring, and protecting the world via aerospace innovation. It aspires to be the best company in aerospace and to endure international industrial championship. The company employs three main enterprise strategies that include accelerating and sharpening to win, creating strength on strength, and working as one Boeing. The company has highly embraced safety, quality, integrity, inclusion and diversity, respect and trust, corporate citizenship, business imperative, and stakeholder success as its core values. All these strategies have highly facilitated growth and development of Boing Corporation in the market (Boeing.com, 2016b).

Boeing Company Financial Analysis

Boeing has been performing effectively in the market, with about 70% of its revenue coming from the commercial airplane segment, 27% from contracts with US government, that include military sales to foreign countries via US government. The company has been demonstrating a growing positive curve in its revenue where in 2015 it managed revenue of 96114 US million dollars, and net income of 5,176 million dollars, which was slightly low compared to 5446 million dollars registered in 2014. Both the company’s assets and liabilities have been growing steadily in the last few years. It recorded total assets of 94408 million dollars compared to total liabilities of 88073 million dollars in 2015. The company’s current assets were considerably higher compared current liabilities, demonstrating that the company was effectively able to take care of its operational cost without strain (Google.com, 2016).

Comparison of Financial Ratios of 2014 and 2015

The company has demonstrated steady positive financial growth for a number of years. This section compares the company’s financial performance for 2014 and 2015 using financial ratio.

Liquidity

The company’s liquidity is measured by current ratio. Based on Morningstar.com (2016), the company current ratio in 2014 was 1.20 and 1.35 in 2015. The company demonstrated a higher current ratio; more than one, and hence a higher ability to pay for its short-term debts for both 2014 and 2015, and increase in this ability in 2015.

Solvency Ratio

Solvency ratios evaluate the company’s ability to handle long-term duties. It is measured using debt-asset ratio, debt-equity ratio, and debt-capital ratio. The debt/equity ratio for Boeing Company was 0.94 and 1.35 for 2014 and 2015 respectively. With this, the company demonstrated a higher debt-equity ratio in 2015 compared to 2014. This means the company used a higher leverage and hence demonstrating a decline in its equity position in 2015 (Morningstar.com, 2016).

Profitability

Profitability ratios give information the amount earned for every dollar sales. This will be measured on return on equity, and return on asset. The company’s return on assets in percentage was 5.67 and 5.38 for 2014 and 2015 respectively. This demonstrated a decline on the amount the company earned from each dollar invested. The company’s return on equity in percentage was 46.22 and 68.99 for 2014 and 2015 respectively. This demonstrated an increase in the amount earned for every dollar invested on equity. The gross profit margin of the company was 15.44 and 14.59 for 2014 and 2015 respectively, while net profit margin was 5.99 and 5.38 for 2014 and 2015 respectively. This demonstrated a decline in the company’s profitability in 2015 compared to 2014 (Morningstar.com, 2016).

Key Financial Risks and Risk Management Methods in Place

The company demonstrated a high financial risk in its profitability. Despite of collecting higher revenue in 2015 than in 2014, the company net income in 2015 was considerably low, affecting its profitability. The situation can be explained by increase in the cost of operation in 2015 compared to 2014, and thus, causing a decline in the net income despite a higher revenue. Although the company shows a high ability to handle it short-terms operation, based on its liquidity ratio, it demonstrates a lower ability to handle its long-term operations following a higher dependency on debts rather than equity. This means, any financial crisis in the company could easily result to loss of assets, since the creditors will be out to recover their money. The company current business model is focusing on reducing the operation cost, by increasing efficiency and enhancing methods of operation. This may highly enhance the company’s profitability in the future.

Evaluation of Strategies

The company is employing various strategies to enhance its growth, and more to enhance the successful attainment of its cost reduction mission. The company has currently partnered with over 500 suppliers to ensure successful reduction of operation cost, and enhancement of quality, and reliability of component. The company is also focusing on breaking the development upward spiral by making its engineering team to center on designs which are extra producible by use of more common parts and systems, while adhering to the gated, disciplined development processes (Materials.proxyvote.com, 2014). The company has also enhanced its growth through mergers and acquisitions. It in 2014 acquired Ventura Solutions, software and hardware engineering company which offers custom services and products for government customers. It also acquired AerData Group B.V. an integrated software products from Nertherland. Although the previous mergers in the company has highly facilitated to its growth, the success of current mergers is highly determined by how well the companies are integrated in the system (Vault.com, 2016).

Summary of the Key Points

Based on the analysis, Boeing has demonstrated great level of development since its establishment, with its international position being attributed to 1996 merger. The company has been producing quality commercial and defense airspace products that are sold at international level. The company operation is highly influenced by international volatility of political, and economical, change of technology in the industry and social factors. The company is currently experiencing high competition from its rival, high threat to Asian companies’ entrance to international market, and threat from suppliers bargaining power. The company has been doing well financially, though it experienced a decline in its profitability in 2015. The company is trying to employ various strategies to enhance its competitiveness which include cost reduction strategies. To enhance a higher competitiveness, the company should consider employing more effort in research and development, and suppliers. This will enhance adoption of new production measures that will enhance efficiency, and also ensure all materials needed are available to enhance reliability in their production.

References

Bga-aeroweb.com, 2016, The Boeing Company (NYSE:BA). [online] Available at: < http://www.bga-aeroweb.com/firms/Competitors/Competitors-Boeing.html> (Accessed on 5th August, 2016).

Boeing.com, 2016a, 1916 to 2016, 100 years of Boeing. [online] Available at: < http://www.boeing.com/resources/boeingdotcom/company/general_info/pdf/boeing_overview.pdf> (Accessed on 5th August, 2016).

Boeing.com, 2016b, Boeing in brief. [online] Available at: < http://www.boeing.com/company/general-info/index.page#/overview> (Accessed on 5th August, 2016).

Gaille, B, 2015, Boeing business model and their strategy. [online] Available at: < http://brandongaille.com/boeing-business-model-and-their-strategy/> (Accessed on 5th August, 2016).

Google.com, 2016, Boeing co. (NYSE:BA). [online] Available at: < https://www.google.com/finance?q=NYSE:BA&fstype=ii> (Accessed on 5th August, 2016).

Materials.proxyvote.com, 2014, The Boeing Company 2014 annual report. [online] Available at: < https://materials.proxyvote.com/approved/097023/20150226/ar_235328/pubdata/source/the%20boeing%20company%202014%20annual%20report.pdf> (Accessed on 5th August, 2016).

Morningstar.com, 2016, Boeing Co. [online] Available at: < http://financials.morningstar.com/ratios/r.html?t=BA&region=usa&culture=en-US> (Accessed on 5th August, 2016).

Reference for Business, 2016, The Boeing Company – company profile, information, business description, history, background information on the Boeing company. [online] Available at: < http://www.referenceforbusiness.com/history2/25/The-Boeing-Company.html> (Accessed on 5th August, 2016).

S2.q4cdn.com, 2015, The Boeing company 2015 annual report. [online] Available at: < http://s2.q4cdn.com/661678649/files/doc_financials/annual/2015/2015-Annual-Report.pdf> (Accessed on 5th August, 2016).

Sorscher, S, n.d., Challenge in aerospace leadership. SPEEA Business Critique. [online] Available at: < http://www.speea.org/new_temp_items/SPEEA_Challenge_in_Aerospace_Leadership.pdf> (Accessed on 5th August, 2016).

Vault.com, 2016, The Boeing Company. [online] Available at: < http://www.vault.com/company-profiles/aerospace-and-defense/boeing-company/company-overview.aspx> (Accessed on 5th August, 2016).