Transforming of the Airline Industry - Case Study Example

University Name Department Student name & admission number Course name Course code Lecturer Submission date BM203 PROJECT MANAGEMENT Overview of the case study project (2marks) The Boeing 787 Dreamliner is geared towards managing new product development and supply chain which so as to stimulate revenue growth and market response. Nevertheless, management efforts and capital investment of Boeing 787 has improved steadily besides a series of delays in maiden flight and plane delivery to customers. Business nowadays has seen a rise in competition, in both national and international markets, something that has exerted pressure on companies to come up with ways of delivering value to consumers (Tang & Zimmerman, 2009). In many industries, it has become clear that change is needed in order to cope with the global market competition. The case study evaluates the Boeing’s rationale for the 787’s unconventional supply chain by illustrating the experienced challenges of managing the supply chain and recommends key issues to be considered while designing new product development in supply chains. The key issues experienced (5marks) Since the inception of Boeing, many airlines have entered the market causing cut throat price competition in the market. As the prices continue to go down, passenger number continues to surge in U.S. This forced the firm to focus on two basic competitive strategies to minimize the costs of existing types of aircrafts or venture into new aircrafts to increase revenue through value creation. The value-creation strategy entailed passengers was to perfect their travel know-how through redesigning of the aircraft and offering significant improvements in comfort. As a result, the Dreamliner permits the airlines to avail direct flights between cities without layovers, a move that is preferred by most international travellers (Tang & Zimmerman, 2009). In relation to the market and airport’s location of new development, weaknesses may comprise the operation of the firm is good, although not amazing in terms of its subsidiaries numbers as well as its entrance to development and trigger for new projects. Despite the fact that physical surrounding will be provided in the firm’s development plan, the present features for certain locations of the downtowns space and lack of infrastructure and storage facilities for its clients is a problem. The second strategy entailed value-creation strategy for its key immediate customers and its clients which was meant to improve flight operational efficiency by provision of big jets with varying sizes that flew same speed. Besides the capacity of 210-330 passengers and a range of up to 8500 nautical miles, the 787 Dreamliner is modelled to use 20 per cent less fuel compared to nowadays airplanes. As such, the unique value that the 787 offers to the airlines and passengers exceed their expectations (Tang & Zimmerman, 2009). The Dreamliner is the largest aerospace around the globe. The 787 airlines comprise of Virgin Atlantic, Continental, Kenya Airways, Emirates, Singapore and Saudi Arabian Airlines, whereas the charter operators includes MyTravel, First Choice Airways, Thomsonfly and Thomas Cook. The airline has a great impact on both the local and global arena, as the management strives to be proactive, listening to as they work with locals and other industry partners and stakeholders to bring success in all sections of the society. Dreamliner acknowledges threat their future growth depends on the approach they take in handling the adverse effects of its operations. The way the airline manage resources will be paramount to organizational success. As such, corporate responsibility and sustainable development will therefore remain to be a central consideration in decision making and business planning. Boeing has now to embrace product diversification as a major strategy in new market penetration. The pricing issue is going to be a vital weapon of fighting competitors in the new market. The cost of production units is likely to be low owing to possible mass production plants, thus making the general cost of production much lower. This means the business will be in position to sell their sport products much cheaply and still stay cost-effective. The businesses and management that employ a stakeholder approach commit to serving broader goals, in addition to economic and financial interests, of those whom they serve, including public. Therefore, the Airlines stand to benefit hugely by incorporation decisions from all its stakeholders. In the microeconomic price allocation theory, pricing can be considered as one the major element of concern for deciding the business strategies (Tang & Zimmerman, 2009). Pricing definitely provides the direction for the financial modeling of the business and it is another key factor for the marketing mix which is a major tool of the companies to position themselves in the market. In case of the marketing mix, pricing is the tool which computes the revenue constituent from the other factors of the four P’s of marketing, which are otherwise the cost centres for the companies. Possible alternative approaches for each of the key issues (5marks) Several approaches have been recommended as key improvement to existing issues that may enable more earnings from the Dreamliner. The approaches include outsource more, reduce direct supply base, delegate more, and focus more; reduce economic risks and rise in production level without incurring additional costs (Dabscheck, 1995),On outsourcing, it intended to outsource 70% of the growth and development as well as production activities under the 787 program. The Dreamliner can shorten the development time by leveraging suppliers’ capability to build up diverse parts at the same time. Additionally, the Boeing may be able to trim down the improvement cost of the 787 by exploiting suppliers’ expertise. Things that may also be outsourced include communication and coordination between the Dreamliner and the suppliers. Boeing also adopted a web-based tool called which is a business technology (Tang & Zimmerman, 2009). It could focus its attention and resources on working with tier-1 suppliers rather than with raw material procurement as well as early component subassembly (Tang & Zimmerman, 2009). The rationale behind a shift in strategic suppliers was to develop and produce different sections in equivalent so as to trim down the expansion time. Concerning cutting down financial risks under the new 787 program, Boeing instituted a new risk-sharing agreement under which no premeditated suppliers will receive payment for the development cost until Dreamliner delivers its slated to be ANA airlines. The contract payment term was intended to collaborate and coordinate their development efforts. Decentralising the manufacturing process would allow Boeing to outsource noncritical processes. The aim is to trim down the capital investment for the 787 development program. The new largely composite design and innovative next-generation jet engines allow the wide-bodied plane to fly long distance on less fuel. The new design program makes the airline a success at the market because of combination of new technology and production strategies. Issues like market forces, competition, business models and industrial changes have been well comprehended Dreamliner as it strategically position itself in a given market. In positioning strategy, penetration pricing have been applicable and is considered to be another pricing instrument which sets a comparatively low down preliminary entry price which is frequently lesser than the eventual marketplace price so as to attract the potential customers for the products and services (Tang & Zimmerman, 2009). The penetration pricing strategy is mostly based on the assumption that the customers would switch to the new brand entering the market so as to avail the lower price for the products and services. Market penetration strategy could be adopted by Dreamliner as one of the product-market growth strategies proposed by Ansoff which indicates the effort of the company to penetrate a market where its airlines have already been offered in order to attract new customers. On the other hand, management scholars suggest that penetration pricing is one of the pricing strategies in which a relatively low price is set for entering a market which is even lower compared to the eventual market price of the product Easton, M. and Shaw, J. (2010), Marketing aims at attracting new customers. The foundation of the strategy is the belief that customers would switch to new Dreamliner brand driven by the lower prices offered. Nowadays, the impact of sustainability on the decision making process is paramount to success of any business. The Dreamliner has been called upon to integrate their sustainability and corporate social responsibility on the decision making process. Shareholders and other stakeholders within a particular segment not only pride in their influence on firm’s decisions, but also play a key role in solving the challenging problems in societies. Presently, the Aviation industry function in a dynamic surroundings because of rapid changes in environment, inform of technology, legal system, social system and political matters with cut-throat competition among stakeholders (Tang & Zimmerman, 2009). Recommendations for future projects (8marks) There is need for serious revamping of the airline by concentrating on best strategy. Based on the present situation of airline, differentiation strategy may suit the business at the moment, as it is likely to lead to profitability. This is because; differentiation may lead to exclusivity in provision of services as a result of customer loyalty. Differentiation strategy is suitable where target customers are not price-sensitive, in competitive markets, and places where customers have specific needs which are common in airline industry. Given that cost leadership strategy requires a firm to be a cost leader, it may not suit Dreamliner since the airline is still in vying position. Moreover, the cost leadership may work well where the airline is the best and in reality Dreamliner is not. On the other hand, focus strategy may not fit in Dreamliner situation as it calls for serving special group of clients, which is not a reality in the airline industry. Considering all this factors in a ferociously competitive airline industry, high service standard for customers and good industrial relations for cabin crew are essential (Easton & Shaw, 2010). Dreamliner is well known worldwide for service excellence. It’s absolutely to do with good relations between its management and employees, and between employees (cabin crew) and customers (passengers). Besides the escalating problems, a number of industrial relations issues have contributed to the satisfaction of customers and employees of Dreamliner, which includes provision of quality service, flexible working arrangements, good remunerations package, and collective bargaining power and so on Porters, M. (2004),Dreamliner management must also be sensitive and sympathetic to their employees in all working situations. Cabin Crew like other customers and employees, come from diverse backgrounds, should also be treated fairly and their rights be respected. In contemporary business world, a strategy of any venture may be focused to one of the three that were fronted by Michael Porter, namely cost leadership strategy, differentiation strategy and focus strategy. In cost leadership strategy, Boeing may resolve to become low-cost airline in the industry (Waring, 2012).This may be achieved through provision of flight services at a much low cost compared to that of the competition. As such, the airline may avail the same service of the competitors and make huge returns. The emphasis of this strategy is concentration on lowest cost and not sells at lowest price. Cost leadership calls for minimization of operational costs and pursuit of efficient scale of facilities. With a changing marketing environment, it is becoming necessary for Boeing to make the use of articulate means to engage customers and to attract them towards themselves. It might be believed that some of the customers are tired of being marketed to and hence need a change; this change has to come from the producers themselves by analyzing the marketing environment through market research while making strategic decisions at the market. Boeing have positioned itself strategically while entering the new market so as to come at par with their competitors and matching their points of parity far create some type of point of differentiation. References Burgess, J. and Macdonald, D. (2009), Developments in Enterprise Bargaining in Australia, Tertiary Press, Croydon Victoria Dabscheck, B. (1995), The Struggle for Australian Airline Industry, Oxford University Press, Melbourne. Easton, M. and Shaw, J. (2010), Transforming of Airline Industry, Lloyd Ross Forum, Labour Council of NSW, Pluto Press, Leichardt NSW Porters, M. (2004), Porter’s Generic Strategies. Auckland University Press, Auckland, pp.159-172 Tang, C.S. and Zimmerman, J.D. (2009), Managing New Product Development and Supply Chain Risks: The Boeing 787 Case. UCLA Anderson School. Waring, P. (2012). The Future of Bargaining Structures in Australian Airline Industry, Work Futures Conference, Cardiff Business School 15th Annual Employment Research Conference Cardiff, Wales September 6-7th Read More