Strategic Management (Mini-Case)

Was There Strategic Leadership Failure at Boeing?

Boeing has historically been a global leader in manufacturing airplanes. However, in 2001, Airbus had
more orders than Boeing for the first time in their competitive history. In 2006, however, Boeing
regained its supremacy with 1,044 versus 790 orders for commercial aircraft. The main turnaround in
this battle for competitor orders has been most visible in the super jumbo category with Airbuss A380
versus Boeings 787 Dreamliner. Boeings 787 Dreamliner design focused on long-range efficient flight,
capable of transporting 250 passengers, whereas Airbuss strategy focused on long-haul flights with
A380 offering 550-plus seats. In their diverging strategies, Airbus focused on flying to larger airports that
use the hub-and-spoke system, whereas Boeing concentrated more on a point-to-point system in which
smaller airports are more abundant in reality, the Airbus A380 aircraft, because of its size and weight, us
currently able to land at only about 35 airports. The Boeing aircraft, on the other hand, can land at many
airports around the world and the number is growing in emerging economies, such as Eastern Europe
where smaller airports desire international connections.
Airbus won the competitor battle that occurred between 2001 and 2005 because it focused on the
midsized market as well, using the A320 strategy, which competes with Boeings 737 and 757 aircraft.
The A320 was more efficient than the aircraft used by Boeing, and Boeing did not respond to customer
demands to create new, efficient aircraft. In fact, it had slowed its innovation process in regard to new
models. Besides the lack of models, the commercial aircraft business was sluggish; new orders ebbed
significantly due to the complications associated with the terrorist attacks and the subsequent
recession. It was a bleak time for Boeing relative to Airbus.
One analyst described Boeings problems as a flawed strategy, lax controls, a weak board, and
shortcomings in leadership. Philip Condit ascended to CEO in 1996 and became board chairperson in
1997. His time as CEO and board chair was characterized by a number of mergers and acquisitions as
well as struggle with increasing competition with Airbus. Condit was forced to resign in 2003 amidst
corruption charges involving his freezing of contract with the U.S. Air Force. Condit was described as
brilliant engineer with excellent problem-solving skills and a capability to envision elegant designs. Such
good decision-making skills and creativity are valuable in a formal leadership role. However, as CEO,
Condit did not seem to display those skills.
Some described Condit as indecisive and isolated from Boeing operations. Condit and his management
team failed to understand the determination of the firms major competitor, Airbus, which by 2003, for
the first time ever, had more orders for aircraft than Boeing. Condit and his team also had lapses in
judgment, and their actions raised questions of unethical actions. For example, controversial allegations
were made about inappropriate contact with pentagon officials to obtain knowledge about a lower
Airbus bid on contract. In turn, the official providing the information was allegedly offered a job at
Boeing. Additionally, the Pentagon placed an indefinite ban on bids by Boeing for military satellite
launches because the company possessed documents about rival Lockheeds activities, helping Boeing
win contracts.

Harry Stonecipher was the president and CEO until 2003, when he filled the shoes of recently resigned
Phillip Condit as CEO. In 2005, however, Stonecipher resigned at the request of the board after news of
consensual relationship with a female board member (violating Boeings Code of Conduct). The ethical
lapses in governance and the defense contract business were especially harmful. In mid-2005, James
McNerney was hired from 3M to be Boeings CEO and to inject the firm with a fresh culture. The new
top management team moved quickly to overcome the ethical problems and restore stakeholder
confidence. Boeing now has an Ethics and Business Conduct section on its Web site. Included in this
section is an Ethics Challenge that employees are encouraged to take.
The new top management team also decided to speed the development of the 787 Dreamliner. In
making its decision to move ahead with the 787 Dreamliner versus a more jumbo aircraft comparable to
the A380, Boeing made a more concerted effort in connecting and getting input from its airline
customers, as well as the ultimate customers, the passengers. Overwhelmingly, the passenger in
particular, and thereby the airlines, preferred smaller aircraft that would enable them to get to smaller
airports quickly, without as many transfers on a point-to-point system. Additionally, Boeing followed up
with the ultimate creditors, the leasing agents who fund airplanes for many airlines, and asked what
they would prefer as far as risk were concerned. Again, the leasing agents preferred a smaller aircraft to
reduce their risk in financing versus the large super jumbo A380. Boeings orders for 787 have been
exceeding those for the Airbus A380.
Interestingly, much of the 787 will be produced through a large outsourcing program. Engineers in
Everett, Washington, where Boeing is based will in effect snap together the parts that are produced by
risk-sharing partners from Japan, Italy and elsewhere in the United States. This approach is made
possible by a switch to and wings. The material creates an aircraft that is light and strong and will
thereby improve fuel efficiency and cut maintenance costs associated with metal corrosion. The plastic
pieces are built in huge sections, baked in an even, and shipped from partner plants for final assembly in
Everrett.
In pursuing this approach, Boeing sought to balance financial controls (to improve its performance
today) with strategic controls (to develop innovative products and processes, associated with the 787
Dreamliner) in order to create and improved success.
Questions
1. What are the strategic leadership failures in Boeing that you can identify?
2. Will the actions of Boeings new top management team resolve the firms problems? Why or
why not?
3. If you were Boeings CEO what additional actions would you take to continue to improve the
firms position?

Source/Lifted from: Business Strategy Theory, 2nd Edition, Hoskission, Hitt, Ireland. South- Western, a
part of Cengage Learning. 2009.