Development Of The 7 E 7 example essay topic

Boeing is faced with a set of decisions that are critical to the health and ultimately survival of the firm. The issues they face are both short and long term. Their strategy regarding the 7 E 7 market requires that decisions be made and that tactics be defined which propel the company in the short run. Longer term, Boeing must enact a strategy that truly defines its existence as a diversified multi unit firm.

On the surface, the framework of the 'develop versus diversify' debate is positioned as a mutually exclusive decision that implies little room for compromise. However, this paper will propose a potential strategy that seeks to mitigate this constraint. Boeing should define a strategy to fund the development of the 7 E 7. The company has thrived in the past by successfully gambling on cutting edge jet design. This strength in profitably bringing innovative commercial planes to market indicates a prospective competitive advantage that customers, analysts, and some board members feel Boeing should leverage.

In some ways, this skill may also be viewed as a core competence that could prove fruitful if they further pursue diversification. McDonnell and Stonecipher's conservative approach to development was partially blamed for McDonnel Douglas' historical demise. Even though their apparent focus on short term stock appreciation is curious given their large personal stakes, the fiscal disciple they seek to institute could have a positive effect on Boeing's global position. From a 'comparative's tandpoint, Airbus may have the advantage given the government subsidies, but from a 'competitive's tandpoint Boeing could reap massive global rewards if they could find inventive ways to develop planes for less.

In light of McDonnell and Stonecipher's very aggressive development savings goals, it's likely infeasible that the 7 E 7 could be introduced for less than 40-60% of the 777. Therefore, Boeing should strive to find the answer that is somewhere in between. The key to their short term strategy is to find a way to fund the jet for less. If they are able to do so, they will have funds available for new ventures longer term. Although typically reserved for business unit rationalization, the growth share matrix provides a useful structure to evaluate Boeing's existing fleet of jets. The matrix ignores various industry and unit characteristics obviously evident in this case, but with some analytical liberties, it helps frame some key concepts.

Specifically, if Boeing does not develop the 7 E 7 into a star, than it is very difficult to envision a strong financial future in commercial jets. So, if the 747,757, and 767 are than dogs apt to be naturally divested via superior replacement planes, than the 737 and 777 can be viewed as quasi cash cows in light of the low growth rates of the existing lines. McDonnell and Stonecipher's goal of developing 737 and 777 derivatives as the next product offering may not be the best choice. The limited case data indicate the chances of "wowing" the market and redeveloping these lines into stars is bleak. This makes the question mark status of the 7 E 7 a critical point. When Boeing merged with McDonnel Douglas, the company took a giant step towards diversification.

In this context, Boeing has already broached many of the 'new business for the firm' and 'firm for the new business' questions. Therefore, the pending issues than relate to the success they can reap from their diversified firm, the degree to which they should continue to diversify, and with the luxury of hindsight, the evaluation of their original motivations to merge and diversify. In order to justify diversification efforts, the incumbent venture should be gauged against three important criteria: revenue & earnings growth, risk reduction, and the repositioning of a core business. In terms of corporate growth in revenue alone, the historical addition of McDonnel Douglas was a wise choice. Although the immediate earnings impact is suspect, the merger immediately impacted the top line by contributing over half of the 2003 projections. But what else can the McDonnell Douglas units add?

Stonecipher and McDonnell, key proponents of diversification, have pushed for continued expansion into less volatile areas. Because this motivation alone is insufficient to justify diversification, the duos true motivation is determined by semantics and interpretation. Since cash conservation appears to be their key goal, it is doubtful they seek the relatively expensive option of investing in new units solely to reduce their financial risk. Instead, they probably wish to shift their capabilities to less expensive units with more stable cash flows; which is different than reducing systematic portfolio risk. Boeings diversification dilemma is ripe with pros and cons.

The combined company has a powerful skill set that could add a lot of value to the growing units. For example, many similarities exist between commercial and military planes, and both economies of scope and scale may exist. Scale economies could materialize with the introduction of bigger plants producing common materials with a lower per cost unit. R&D efforts could also benefit from scope economies if certain research could be shared resulting in lower costs than two independent efforts. However, pursuing diversification and shifting their focus away from their primary product could also have devastating effects. Boeing currently owns 50% of the commercial jet market and halting development of the 7 E 7 may send a negative message.

This perception of sacrificing jets for new ventures may indicate a form of surrender to the competitors and stockholders, especially those interested in the commercial sector... Although savings generated from not developing the 7 E 7 could also position them to win price wars on existing jet lines, Boeings established core competence in bringing innovative commercial planes to market is forgone. This unknown opportunity cost is the essence of their dilemma. Boeing is faced with an extremely difficult situation. The "catch 22" scenario of choosing one option, which effectively closes the door on another option, is precisely what they must combat. The upside of further diversification, coupled with a stellar new product offering, could enable Boeing to soar to new heights.

Since pursuing both choices may seem infeasible, the plane development, albeit a cheaper one, should take precedence with residual funds shifted towards new ventures. The strategy required to make this happen will require tremendous thought and precision execution. The keys to success include: pioneering development processes to introduce products for less; continuing to leverage their competence in designing industry leading commercial planes; defining the minimum seed investment for new ventures; effectively applying their managerial competence to new markets; and continuing to develop the management structure and transfer policies for the expanding new ventures.