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Strategic Management – Case Study of Airbus
Corporate Strategy
Executive Summary
Airbus is one of the world’s leading manufacturers of commercial jetliners and military airlifters and is world’s first twin engine wide body jet since 1974. The key success factors of Airbus have been helpful in achieving the objectives and improve the overall performance of the company, financially and physically. The company strategy is based on differentiation strategy of Porters generic strategy while providing airplanes with innovative design and technology. However the key resources and capabilities have also been supporting the strategic decisions of Airbus in its design, technological innovations which would not have been possible, if not with the help of 52, 000 employees working with Airbus and its high end technology and support of customers and suppliers. The strategy is best suited to Airbus for the future directions as per Suitability, Feasibility and Acceptability (SFA).
Introduction
Strategy is the direction and scope of an organization over the long term which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations. An organization’s strategy is concerned with matching the external environment to the organizations internal environment in order to add value to its products and services and enable it to beat the competition (Partridge and Sinclair- Hunt, 2005:4). It is further stated that strategic management’s increasing importance is the result of several trends like increasing competition, modern and cheaper transportation, communication and technological development (http://media.wiley.com). Airbus is one of the world’s leading manufacturers of commercial jetliners and military airlifters and is world’s first twin engine wide body jet since 1974 (www.airbus.com). The organization has grown since its establishment on the basis on mission, vision and passion of its employees. The present papers present the strategy of Airbus identifying its critical success factors, resources and capabilities and assess the future competition for the organizations.
Critical Success Factors – Five year analysis of Airbus
According to McCabe (n.d.), the key success factors have several direct and possible uses for any business unit for profit or non profit and initially appear as tools for making analysis in examining the character of the industry. Much often key success factors act as the element of competitive strength assessment as compared to its competitors in the industry. As mentioned by Ferriri (2003:113), it is assumed that design; economies of scale, cost cutting strategies, acquisitions and operations, demographics, networks, passengers and timing are the critical success factors in the airline industry. Regarding Airbus, which was created in 1970 by Groupement d’Interet Economique (GIE) was the first wide-bodied twin engine aircraft has been leading the manufacturing sector with its innovative design and technology which offers fuel saving and maintenance advantages over its competitors. Till the end of August, 2009; Airbus has designed 13 models of aircraft and sold 9,340 units with the strong customer base around the world which makes it passenger friendly using high technology (Leahy, 2009). A critical analysis of the annual review of last five years for Airbus, under EADS group; reveals that the company has been able to significantly achieve growth in revenue year over year from £22,179 million in 2005 to £27,453 million in 2008 (Annual Review, 2005 – 2009). Further in regard to the net order share for the last ten years, Airbus has let behind Boeing in the race with 64% market share while Boeing is left with only 36% as of in the year 2009 whereas Boeing occupied 54% market share as compared to 46% by Airbus in 2000 (Ferreri, 2003). This shows that Airbus has strategically moved ahead in terms of its design, technological innovations in the product and financial improvement with Airbus attracting more orders than Boeing in 2009. Further the order book of Airbus reports increasing rate of backlogs with rare order cancellations, however there were lesser number of order backlogs in 2009 as compared to previous year (Leahy, 2009). The development cost of Boeing is estimated at around $12 billion as compared to $16.2 billion of Airbus. Though Boeing has sold more number of planes than Airbus, the latter has been gaining advantage in terms of yearly sales with more number of sales per year with 398 Boeing aircrafts sold against 434 Airbus planes in 2006 and this trend has been increasing since then (Annex I). And the same trend can be seen in terms of orders being received from its customers. Airbus has been able to achieve considerable success to due to its strategic decisions and supply financing at attractive terms for the purchase of aircraft to those airlines that cannot fund their purchase, which is an added advantage over its competitors. Regarding designs and technological innovations, Airbus introduced fly-by-wire, cockpit commonality and configured the airplane engines for longer and shorter routes that resulted in higher sales and increased rate of profit as compared to its rival (Cook, 2008). Thus, Airbus has been able to achieve considerable success over its competitors in the last five years in terms of orders, design, economy, financially and product differentiation.
Airbus – Generic Strategies
Porter argued that strategies allow organization to gain competitive advantage from three different bases: cost leadership, differentiation and focus which are identified as generic strategies. According to Porter, the cost leadership strategy aims at producing products keeping the customer in view and manufacturing products at low cost per unit so that customer could afford that particular product. The differentiation strategy suggests that products and services should be unique with different and innovative designs and those products should be targeted towards the customer who are intending to buy low priced goods. Finally, focus strategy is aimed at producing goods and services for low consumer group (David, 2006:176). However with regard to the generic strategies followed by Airbus, it is pertinent to mention that Airbus Industries comprises an alliance of aerospace companies from Britain, France, Germany and Spain competing against Boeing in designing and manufacturing huge commercial aircraft for worldwide markets (Miltenburg, 2005:136). Airbus has implemented differentiation strategy at its core from time it has been established with the production of first wide bodied twin engine aircraft making it stand apart from its competitors. However, the innovative designs also facilitated cost saving alternatives like fuel saving and maintenance advantage over its rivals. The company had manufactured products targeted towards the customer with aircrafts like A-318 in the 100 seat segment, A-340-500-600 for long range segment and them A-380 family in very large segment (Ferreri, 2003:115). The newest aircraft A350 XWB long range has won 478 net orders from 29 customers and the aircraft possesses new architecture with detailed definition freeze review and has single, unified digital mock up (DMU). Apart from aircraft, Airbus has started manufacturing military transport like tankers which dramatically increased the sales and revenue. Airbus is involved in producing products that are unique in design and architecture using high end technology, so that orders pour in from the customers. However the company implies focus strategy by producing goods for military, a particular group, designed for military and at lower cost (Annual Report, 2008). Thus, in reference to the Porters generic strategies of low cost, differentiation, and focus; Airbus uses differentiation strategy in aircraft segment and focus strategy in military units. Therefore it is known that there is mixed strategy in Airbus, with different strategy adopted for various units of production.
Resources and Capabilities – Airbus
Strategy is concerned with matching company’s resources and capabilities to the opportunities that arise in the external environment. It is further mentioned that increasing importance on the role of resources and capabilities as the basis for strategy (Grant, 2005:132) Airbus’ main goal is to meet the needs of airlines and operators by producing the most modern and comprehensive aircraft family on the market, complemented by the highest standard of product support (www.airbus.com). Over the years, Airbus has been providing aircrafts ranging from short to long seated capacity along with huge aircraft according to the convenience and as per the orders from the customers. The Airbus has been producing aircraft which are unique in its design and use high end technology installing fly-by-wire, cockpit commonality design and other innovative designs attracting orders from its customers. Though the Airbus is mainly committed to provide aircraft services to commercial needs but it has not distanced itself from providing services to military department. The Airbus also manufactures products suiting to the needs of military with use of advanced technology. Over the last five years, the company has been able to deliver 2246 aircrafts (2005-09) and the order backlogs are increasing over cancellations which are very rare. In military category, Airbus has received orders for military aircraft and tankers worth £5 million. The capability of Airbus lies in manufacturing aircrafts which are unique in design and are advanced on the technological aspect as compared to its rivals (Annual report, 2009). Additionally the company is also capable of dealing in military aviation requirements adopting focus generic strategy (Ferreri, 2003:113). The capabilities of Airbus has made it possible to achieve the goal set out in the mission statement to produce most modern and comprehensive aircraft with the help of its valued resources like culturally diverse employees, its customers, contractors, suppliers; whom it considers as partners and develops new aircraft only in consultation with its customers (www.aribus.com). The resources and capabilities have resulted in continuous growth and sustained competitive advantage over its rival in terms of technology and design.
Suitability, Feasibility and Acceptability
Jeffs (2008:104) mentions that implementing a particular strategy includes change and change necessitates some kind of risk, therefore a strategy need to satisfy suitability, feasibility and acceptability. Suitability refers to its adaptability to mission of the organization; feasibility is considered with the resources and capabilities of the organization for the present and future and acceptability is concerned with relative risk and anticipated stakeholder reactions. The strategy of Airbus is mainly emphasized on design commonalities among planes and aggressive use of advanced technology (Diane Publishing Company, 1995:2-16). The Airbus strategy was straightforward and the objectives were simple while offering the airlines a full line of products presenting the most extensive commonality possible in order to make training, operations, and maintenance easier and less expensive for customers (www.airbus.com).
The suitability of present strategy is assessed on the basis of its strength wherein the company has the capability to design aircrafts which are unique in design and can also provide military aircrafts and tanker, through which the company is gaining huge number of orders (Annual Review, 2008). The company offers financial assistance to those who are not able to fund their purchase which adds goodwill to the Airbus accounts and subsequently results in retaining the trust of customers and future orders. The increased fuel prices and travel costs may tamper the low cost product offering by Airbus to its customers and threaten to change its engine design which may consume lesser fuel, which is a consequent threat to the company (Ferreri,2003:113). The company can utilize the opportunities in emerging economies like Asia where more people are able and wanting to fly everyday and growing urbanization in Asian regions throws the best opportunity to grab the market share. Further it is important to mention here that Asia is predicted to lead the world traffic by 2028 (Leahy, 2009).
Airbus has the capability of producing aircraft with unique design and commonality cockpit at lower cost as a result of which Airbus has left Boeing behind in the number of deliveries for the past few years. The Airbus has enough resources with culturally diverse employees, money to offer finance to its customers, technological innovations, market, materials i.e. suppliers and organization background. Technologically, Airbus is able to provide unique designs in the airline industry duly supported by 52,000 employees with good market filled with trusted customers, with revenue of £27453 million (2008) and suppliers (www.aribus.com). The strong organizational structure has made its presence invincible in the market and it is estimated that the airline industry may require 24,951 Airbus aircrafts for the next twenty years with 16,977 single aisles, 6245 twin aisles, and 1,729 very large aircraft planes (Leahy, 2009)
With regard to acceptability, Airbus has reported positive results for the past five years with increased revenue growth and deliveries (Annual Review, 2008) and more number of order intakes with less number of order cancellations over the past ten years (Leahy, 2009) Regarding the acceptability of shareholders in respect to present strategy, it is mentioned that all the four shareholders are the one who led the consortium of Airbus which eliminates the risk of unacceptability of strategy. Thus with regard to increased sales, growth in revenue and customers and estimated demand for the near future, conclusion is drawn that product differentiation strategy is best suited and has proven to be successful and will continue to foster success in the long run.
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About the Author
Gopal Pottabathni
gopalpottabathni@gmail.com
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Model Airplanes Suppliers Questions
best illustrates the circular flow model in action?
Which of the following best illustrates the circular flow model in action?
1) Bobbie goes to work and builds cars, and uses the income she receives to buy food at the grocery store.
2) Evan buys a new couch; the owner of the furniture store uses some of the money from the sale to pay her supplier, and uses the rest to take her family out to dinner.
3) Boeing experiences a surge in orders for new airplanes, prompting the company to hire more workers.
4) All of the above
Physicists tend to think of anything circular as having the beginning and end points collocated, which none of these examples does. I mean, #1 should end with the grocery store owner buying a car, right?
Obviously I’m no economist, but I’ll bet all 3 examples illustrate the model (equally poorly, in my mind!), because in each, money “flows through” the significant entities. Post this question where physicists can’t see it, and maybe you’ll get a better answer.
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