Legal and ethical violations shaping Boeing's strategic planning functions

¶ … Boeing

Planning Function of Management

The intent of this paper is to identify and analyze the legal, ethical or socially responsible factors that impacts Boeing Corporation in addition to three factors that influence the company's strategic, tactical, operational or contingency planning functions. As Boeing Corporation continues to be the global leader in commercial, defense, and special purpose aircraft and their maintenance, repair and operation (MRO), there are many market factors to consider for this latter set of elements impacting strategic decision making. At the center of this analysis are the ethical violations that Boeing has been convicted of, and the reactions to these violations by the Justice Department in their continual monitoring and auditing of the company. The appointment of Vice President and Internal Governance Officer Bonnie Soodik, who reports directly to the Board of Directors to manage governance and ethics has made a significant improvement in devising strategies to get a higher level of ethical conduct adopted as part of the Boeing "win at any cost" culture (Sachdev 2006).

Factors influencing Boeings' Strategic and Contingency Planning Functions

Of the many factors influencing Boeing's strategic and contingency planning areas of their business, the following three are of the most importance. First, the most important factor is also the one that potentially could deliver the greatest growth to the company, and that is the rapidly expanding commercial jetliner market. According to Boeing Market Forecasts (2006), the commercial jetliner market had grown to $2.1 trillion by 2004. According the latest company information as defined in their filed documents with the Securities and Exchange Commission, at the current production run rate, the global commercial airplane fleet is expected to double. Boeing also does a forecast of passenger traffic as part of their econometric and statistical modeling of airplane demand, and is predicting traffic conservatively will increase 4.8% annually (or at a compound annual growth rate) through 2024, which equates to the need for 25,000 new commercial airplanes. The econometric and forecasting models that Boeing uses to predict airplane demand are indicating that single-aisle commercial jetliner configurations will be the most prevalently demanded. This directly contradicts the decision of Airbus to pursue their mega-liner A380 strategy which has since faced major delays in production. Boeing sees the future of commercial aircraft demand as being primarily single-aisle, high efficiency jets for regional and national routes. This major difference in strategy with Airbus has actually helped Boeing be more successful from a Sales standpoint as the majority of airlines want to build out their routes to new locations in existing nations, as not many airlines are looking for a global strategy that could support an Airbus A380 investment.

A second major factor affecting both the company's strategic planning and contingency planning is the burgeoning spending on business jets. Partially driven by the unmet needs of business travelers to travel routes not supported by commercial airlines on the one hand, and the many time constraints and time drains of waiting in lines for security screening, and the fear of another attack on the other, more and more companies and wealthy individuals are opting for business jets as the method of both personal and business travel. Prior to the attacks of September 11, 2001 nearly every one of the Fortune 500 companies had at least one if not more business jets for both staffs and executives to use for traveling to customers, and meetings with suppliers and other members of the organization. The market conditions for this second factor of high growth in business jets is illustrated by the fact that between December 2005 and may 2006, Boeing received orders for 108 of their Business Jets. 40% of these orders came from private individuals, 37% from government heads of foreign nations and domestic agencies, and the remaining 23% divided between corporate and charter operators. Clearly this second factor is a strategic priority for the company, and also one that needs to have a contingency strategy associated with it, as this is a competitive dynamic the company must monitor and capitalize on with their own product development, marketing and selling strategies.

The third factor that affects all Boeing business units, their strategic plan and also has a contingency plan of its own is the company's supply chain management, supply chain forecasting, manufacturing scheduling and fulfillment strategies. While these key process areas affect every product that Boeing produces, it is most visible in their efforts on the 787 Dreamliner, scheduled for first flight in 2007. Boeing estimates this new commercial jetliner will sell 3,500 units over 20 years of production and generate $400B in sales and service over its lifetime. Current proposal activity is with 30 customers, and over 500 airplanes are being proposed in these sales cycles now in progress (as of February 2007). What is critical for the production of the 787 and future aircraft are composite materials, which contribute to the ability of this next-generation commercial aircraft being able to use 20% less fuel and travel at speed comparable to the fastest wide body commercial jets at Mach.85.

Boeing has eight contingency plans for the 787 production schedule based on various scenarios according to their latest annual reports and filings with the Securities and Exchange Commission (SEC). What is critical is the sourcing of key composite fuselage subassemblies to reduce the cost and time to manufacture.

In addition there is the current strategic sourcing and procurement of jet engine assemblies that will make it possible to attain the fuel and distance efficiency rankings claimed by the company. The eight contingency plans all are centered on fulfilling the growing backlog of 787s, which as the graphic shows, are sold out through 2010, as of September, 2007. When the entire backlog in commercial aircraft is considered along with the role of supply chain integration, planning, fulfillment, and manufacturing scheduling, the importance of these key process areas and their contingency plans is seen.

The company is on track to deliver the first 787 next May, 2007, and first flight is still scheduled for the end of August of this year. Of the eight contingency plans the company accounted for earlier in 2006, one was enacted and others are on standby. The Large Cargo Freighter (Dreamlifter) delivered major assemblies in the first half of 2007, and the company expects final assembly of the first 787 later in the second quarter of 2007. Boeing also expects to fly 787 engines on an airplane test bed sometime in the first quarter of 2007.

In summary, the three dominant factors of commercial aircraft demand, business jet demand, and supply chain planning, forecasting, and manufacturing fulfillment are central to Boeings' strategic and contingency planning. In addition to all of these significant new opportunities, the role of the Internal Governance Officer to provide a higher level of oversight and ethical guidance is making the audits from the Justice Department less intrusive on daily work in the company. The governance office now has 90 employees full-time working on ethics programs and preventative action plans to keep the company out of the ethical problems faced in the past, using data mining and other advanced software applications to find potential areas of internal fraud and illegal activity as well (Sachdev 2006).