FACULTY OF ARTS & SOCIAL

SCIENCES
INDIVIDUAL COURSEWORK COVERSHEET

Coursework Details
Module Name and Code MANM407 Global Strategy

Coursework Title Individual Assignment

Deadline 26/03/2019 Word Count 2948

Student Details
Student URN Student
6563604 Azmain Hossain
(7 digit number on Uni card)
Name

Programme International Business Management MSc.

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 Contents

Introduction 4

Company History 5

External Analysis Methods 7

External Analysis of Boeing 16

Corporate Level Strategies 20

Boeing Corporate Strategies 27

Business Level Strategies 30

Boeing Business Strategies 36

Conclusion 37

References 38

Introduction

This report will aim to provide a succinct discussion of the steps which a company needs to take in order to formulate
strategies for both the corporate level and business level. Corresponding with the theoretical explanation, the
strategies discussed will be applied to a real world business – The Boeing Company.

The report will begin with a discussion of ways in which a firm could analyse their external environment before strategy
creation – and Boeing’s environment will be analysed. Following that will be a discussion of two scholars classifications
of corporate level strategy, and then business level strategies. In both cases, strategies will be suggested for Boeing
which correspond with their industry environment, with business level strategies corresponding to the corporate level
recommendations.

The strategies which will be discussed in this report are not exhaustive and there are scholars who suggest different
strategies based on a company’s history and market conditions, however the one discussed in this report are some of
the most common and useful strategies used in the business world.

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Boeing is the world’s largest aerospace company.
Having recently celebrated a century of conducting
business, they aim to maintain and improve their
top position in the commercial aerospace market
(Figure 1). In addition to the commercial aircraft
sector, they are also heavily involved in Defense,
Space & Security (DSS) work for the U.S.
government. Boeing operates in an industry which
deals with a multitude of internal and external
concerns which can directly affect their business
and strategy. They operate on a truly global scale,
encompassing not merely multiple countries, but
continents. Their successful navigation of the
various forces that have been at play over the past
several decades have allowed them to rise above
their competitors and maintain a winning business
model. Going forward Boeing have made a
commitment to continue innovating and unveil
products which satisfy the demands of their
customers – offering more market coverage and
revenue capability than their competitors.

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 Figure 1: Aircraft manufacturers by revenue

Figure 2: Projected Growth Rate of Figure 3: Boeing Commercial

Commercial Fleet Composition Aerospace Business

Founded in 1916, Boeing has been involved in the commercial aerospace manufacturing since the end of WW2, starting
with the debut of the 707 model in 1957. Boasting safety, reliability and comfort, the 707 helped build the reputation for
Boeing which they utilised when launching their next major airplane, the 747 – the largest civilian aircraft in the world when
launched, and at use even today. Moving forward they are working to introduce new models such as the 787 Dreamliner in
the mid-size category and the 777X for the long-range, wide-body market. Both these models are more eco-friendly than
existing direct competitors and offer more range and fuel cost savings.

Boeing’s commercial airline division has led the industry in deliveries for the sixth consecutive year. Company executives
remain focused on identifying trends which will affect future markets and building core competencies which will serve them.
Due to this, it is important for the company to maintain a comfortable buffer of order backlog to ensure profit generation
is not affected to a high degree. Boeing’s current backlog of $421 billion is sufficient to occupy production for the next 7
years (Boeing, 2019) at current rates and this will allow the commercial division to continue working on existing projects
while also investing in R&D for future products.

Figure 2, taken from Boeing’s Commercial Market Outlook Report 2018-2037 report shows the projected growth of different
types of aircraft. Single aisle aircraft are poised to increase in demand to 74% of the market, largely due to the ongoing
growth of intra-US and intra-China flights being in demand. Boeing, recognising this, has pursued constant improvement in
their short-haul 737 single aisle model to ensure that orders of the aircraft is highest of all their product offerings (Figure
3).

Boeing’s understanding of their turbulent market, and culture of looking ahead to make decisions on strategy and
investment has led to their continued success. They are one of the largest companies in the world, and their global strategy
is attuned to their size and expertise to such an extent that even with heavy competition from Airbus, Lockheed Martin,
General Motors, they continue to lead the sector.

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Analysis of a company’s external environment is crucial before
strategy formulation as it sets up the situation in which the
company must succeed. The concept of an organisation adapting
to their environment has been confirmed by scholars (Emery &
Trist, 1965; Terreberry, 1968). External analysis can be done using
a number of different models, some focus on the political and
legal factors of a location, while others focus on the industry or
the business life cycle. Three known analysis methods will be
explained in this section, followed by one of the frameworks
being used to analyse The Boeing Company

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 Porter’s Five Forces

Originally published in the Harvard Business Review in 1979, Michael Porter’s Five Forces analysis method has been a
mainstay in strategy management and formulation since the 1980’s. Its power lies in how Porter distilled existing
macro-economic research into five easy to understand variables which help to explain levels of performance in a
company. Boldly declaring that competitive forces “are of greatest importance to strategy formulation” (Porter, 1979),
he set forth his model in that vein, to focus on industry characteristics and attributes which can help a company to
understand its place in the market and develop adequate strategies. Porter’s model is simple at first glance, containing
4 symmetrical forces which all lead to the fifth force, industry rivalry. The 5 forces are visualised as:

(Graphic taken from M. Porter’s book Competitive Advantage: Creating and Sustaining Superior Performance (1985), p. 5)

The following table will explain each of the Five Forces in more detail, explaining why they are important and how
they affect the organisation:

Suppliers are in the unique position of being able to exert their power on the buyer by
raising or lowering prices or quality of goods produced – and thus affect the overall
profitability of the whole company
How does bargaining power grow?
Bargaining Power of ❖ The supplier industry is far more monopolised than that the buyer industry – leading
Suppliers to buyers having limited choice in who they choose as their supplier
❖ Suppliers have built up switching costs for the buyers – either due to technical
capabilities by the supplier or over-reliance on the part of buyer on one supplier
❖ The industry is such that there is a realistic threat of the supplier expanding into the
buyer’s business through forward integration
Customers can exert enormous amount of pressure on a company to “force down
prices, demand higher quality or more service”. To do this they often pit multiple
companies against each other to see who can best serve the customers’ needs
How does bargaining power grow?
Bargaining Power of ❖ The products being bought are standardised to an extent that switching costs is low
Buyers for buyers, by definition, they have more power over the supplier
❖ If the product being supplied represents a large cost, buyers are much more likely to
try out alternatives
❖ The sheer volume being purchased by the buyer gives them power to dictate terms

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 New entrants come with a drive to gain market share, bringing their capabilities and
often considerable resources with them. If big enough, they have the ability to affect
the entire industry.
How to mitigate this threat
❖ Threat of new entrants can only be mitigated by strong barriers to entry. There are 6
as described by Porter (1979):
o Economies of Scale – when a new entrant must either enter the market in a
large scale or accept a disadvantage in terms of cost
o Product Differentiation – creation of a strong brand identity and brand
awareness can deter potential entrants
o Capital Requirements – when the entrant must pay large amounts of upfront
Threat of New Entrants fixed-costs
o Cost Disadvantages – Existing companies in an industry may have built up
competitive advantages through the learning and experience curve, and cost
advantages through access to raw materials, government subsidies, location
economies etc.
o Access to Distribution Channels – Presenting a situation to an potential entrant
where they would struggle to find any distribution channels, or create one
themselves poses a serious barrier to entry
o Government Policy – License requirements, environmental standards or limits
to raw materials are all examples of how government policy can pose an entry
barrier
Threat of Substitutes Substitute products threaten the profits of an industry in boom and difficult times –
and can hamper the growth of the whole industry. They essentially leech profits away
from the main industry and can be difficult to address
How to mitigate this threat:
❖ Understanding that substitutes only grow in power when their price-performance
trade-off is better
❖ Substitutes can be defeated through quality upgrade of the product or through
another method of differentiation such as marketing
❖ Porter notes that substitute products which pose the most risk are:
o Products with trends which will improve the price-performance trade-off
o Products produced by industries earning large profits
Industry Rivalry Using tools such as economies of scale, product reveals and price competition,
company’s “jockey” for position in the marketplace, as Porter puts it. The 4
predominant forces make up the fifth, and all 5 contribute towards the shifting
landscape businesses must navigate. In a nod to the Industry Life-Cycle theory he does
note that as an industry matures, growth falls and companies fail, but posits that using
the five forces model a company may have some “latitude for improving matters
through strategic shifts”.
Table synthesised from How Competitive Forces Shape Strategy; Harvard Business Review, Porter (1979)

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 PESTEL Analysis

Originally proposed by Aguilar (1967) as the ETPS (Economic, Technological, Political and Social) system for analysing
the business environment, and later re-organised into a variety of acronyms such as STEP or PEST. The tool offers an
analyst the ability to go through the most important external forces which can affect a business, and as noted by
Carpenter & Dunung (2012) is especially useful for a business when considering entering a foreign location. Much
like Porter’s Five Forces, PEST analysis is a qualitative method and does not provide for a solid quantitative basis of
analysis. Over the years scholars and management professionals have added more variables to the model to
represent elements of the external environment they deem to be important. These include:

• E – Ecological/Environmental
• L – Legal/Legislative

It has been argued by Hill & Westbrook (1997) that PEST analysis can overcome a lot of the shortcomings of a related
analysis model – SWOT. They argue that SWOT by itself is not sufficient due to its narrow scope and view of the
external environment. They suggest that the 2 models working in conjunction provides a holistic analysis outcome
which gives the strategist both an internal and external view of the organisation. This follows the process described
by Gupta (2013) that for external analysis to be truly useful, it must be coupled with internal analysis of the
organisation’s capabilities, because it is the fit between the external environment and the internal capabilities which
allows an organisation to react to changes. This approach has been used already and documented by Mugabi et al.
(2007) and Srdjevic et al. (2012) for strategic planning in water distribution systems. The combined model they use is
shown below in visual form:

Figure 4 – Combined SWOT/PEST

(Taken from Srdjevic, Bjcetic & Srdjevic, 2012)

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The following table will go through the main 4 and additional 3 factors of the PEST model and explain how each of
them should be used to conduct the analysis:

- Factors which are related to the current political situation in a location.

- These are issues which a business usually has little control over and must live by, and thus are
the least predictable
Political - Political factors affecting business carry bring large amounts of risk and potential for major
losses
- These factors include not only government position, but also legislation such as employment,
environmental, disability laws
- Corporate tax rate is a major concern for certain companies

- For the model it is important to look at the state of the economy itself rather than just the
economic factors which will affect the company. Some examples are:
- Interest Rates: Very important for financial institutions, but also for any other organisation
considering borrowing
- Taxes: Not just the overall corporate tax but also a slew of other taxes such as income tax,
sales tax, tariffs; which a business must account for
Economic - State of Economy: The overall state of the given economy has to be looked at and gauged
whether there is enough growth and market potential not just to move to a location, but that
it will also be sustainable in the future
- Exchange Rates: Of primary concern to those who are using offshore suppliers and to
export/import businesses; but also important for businesses looking to move profits back to
the home country or paying employees in a different currency

- Factors in the existing external society and of their relevant industry which will affect their view
of the business and its offerings
- Analysis of the social factors of an environment will need to be detailed to understand
Sociological demographic and behavioural changes happening in a market
- Companies must go beyond looking at market growth, population growth and demographics to
looking at people’s attitudes towards products and services and how they can appeal to them

- Factors which will affect businesses from the technological aspect, whether it be disruption from
new technologies or use of technology to improve the company’s performance
- Difficult to predict due to the uncertain nature of new technology release and usage by
Technological consumers. Example: MP3 manufacturers didn’t see the release of the iPod as a big threat, but
due to usage patterns of consumers it became a success
- Due to the difficulty of predicting future breakthroughs, it is necessary for technological analysis
to be thorough and frequent so as to allow a business to be up to date with trends

- Both a potential locations environment and larger environmental concerns must be analysed in
this section
- For a particular location, average temperature, rainfall, pollution and environmental laws will be
of importance to analyse
Environmental - For general analysis, factors which affect the business itself should be looked at. For example, an
oil company will focus on the availability of non-renewable resources, but a livestock company
will care about the CO2 emissions from their bovine herds and how to mitigate them

- Closely related to the political factors described above, the often used ‘Legal’ factors segment the
legislative parts of political factors into its own separate section
Legal - Analysis of these factors are more important in certain industries than others, and can also be
used by businesses to analyse one type of legislation pertinent to them; such as the importance
of employment legislation to HR recruitment companies

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 Industry Life Cycle Theory

The Industry Life Cycle (ILC) theory developed from work done in the mid-20th century to help explain the changes in
technology and business structure which take place over the course of the US auto industry’s life cycle. Pioneered by
several papers; Utterback & Abernathy (1975), Abernathy & Utterback (1978), Abernathy & Clark (1985),
conceptualised fully and explained in W.J. Abernathy’s 1978 book, Roadblock to Innovation in the Automobile Industry.
The graphic below is taken from said book:

Graphic taken from: Productivity dilemma: Roadblock to Innovation in the Automobile Industry; W. J. Abernathy (1978), p. 72, Figure 4.1.

Since then the ILC has become an established theory in business management, gaining alternate names such as the
‘product-process life cycle model’ or the ‘Abernathy-Utterback ILC model’. The premise of the model posits that the
beginning of an industry is started by the invention of some new technology, which is followed by rapid innovation of
the product. Eventually, all these innovations are coalesced into one design, known as the ‘dominant design’. The
model states that after the emergence of this dominant design, the industry as a whole will change, as the focus of
competitors become competing on a cost basis rather than a product function one. This cost based focus shifts
resources from product innovation and into process innovation, attempting to gain advantage through factors such as
learning and experience curves.

Porter (1980) played a large role in expanding the reach of the life-cycle model in his book ‘Competitive Strategy’ under
the title of ‘industry evolution’. Porter openly admits that he is using the stages prescribed in another popular life-
stage based model – The Product Lifecycle (PLC), popularised by, among others, Levitt (1965), Vernon (1966) and Cox
(1967) notes that perhaps “the description of industry evolution in the PLC is popular because it resonates with our
understanding of how many industries have evolved”.

Graphic taken from: Competitive Strategy; M. Porter (1980), p. 158, Figure 8-1
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The following table will go through the 5 stages of growth an industry experiences and explain factors in each stage
which will be important for startegic decision making:

The process of using the ILC for the purposes of external analysis to aid in strategy formulation is two fold. The phases
of the model must be first understood, what happens in each phase and how does it affect the company; second,
the structural elements which shape these phases must be understood, so as to be exploited through strategic
actions. Only after this is done can the analysis help with startegy creation.

- The initial beginning of an industry usually occurs following some form of technology innovation
- Strategic key point is that there are no established rules
- Technology R&D and innovation are crucial here
- This stage is rife with strategic uncertainty, new entrants into the market, high advertising costs, no
product standardisation and host of other factors
Key Factors:
- Key strategic decision to be made at this stage is Time of Entry (ToE) (Glova et al., 2013)
- ToE can come in the form of a pioneering strategy, or a late-entrant strategy
- Being a pioneer offers the oppurtunity to gain rapid market share and stamp brand identity into the
Start-Up consumers psyche. But it also comes with high costs, customer education responsibilities, risk of
failure and often a steep learning curve (Robinson et al, 1992)
- Being a late entrant allows a firm to observe the pioneer, gaining experience and knowledge, and
exploit mistakes they make. Late entry may effect a firms ability to become the market leader, but by
using and improving processes used by the market leader, a firm can still generate healthy profits
{{REFERENCE}}
- Phase is characterised by rise in product popularity and customers
- Driven by continued purchase and a change in the consumers relationship with substitute products
(Day, 1981)
- New technology will add more features into the product to provide more value to customers
- Reliability of products becomes a key factor (Porter, 1980)
- Costs for R&D, marketing, and other functions remain high
- Rapid growth in size and revenue means many firms begin to expand geographically
Key Factors
- The growth stage represents a good entry point for potential competitors due to the uncertainties
Growth associated with early entry now being mitigated (Day, 1981)
- Larger competitors entering the market poses serious risks (Scott & Bruce, 1987)
- Strategic segmentation of the market will be necessary (Anderson & Zeithaml, 1984) to efficiently use
resources
- Competition will be high, and product modification will be an important factor in gaining market share
- There must be a move towards seeking efficiencies in the areas of business such as R&D which are still
the source of a lot of expenditure
- Preparation must be made on saving resrouces in preparation for the next stage when firm exit is
common (Day, 1997)
- A shakeout is defined by a period of consolidation of companies and exit of low performing firms within
an industry (Argyres & Bigelow, 2007)
- Majority of industries go through this stage after the rapid growth stage as the most successful firms
from the growth stage go on to become the largest consolidators (Day, 1997)
Key Factors:
Shakeout - Change in management style will be needed during this phase. The management practices of the start-
up and growth phases are likely to be inadequate to naviagate the shakeout stage (Day, 1997)
- Resources must be planned out from the previous stage to allow for the squeeze in revenue expected
during this stage
- Knowing of ones own dificiencies is crucial. During the shakeout stage problems should be anticipated
and prepared for (Day, 1997). The best way to do this is to conduct internal analysis on the
organisation find its faults and mitigate their faults, even if complete eradication is not possible
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Maturity
- The industry reaches a point of saturation of the product, and sales growth slows down (Day, 1981)
- The focus of firms move from product innovation to process innovation, seeking scale economies and
efficiencies (Abernathy, 1978; Anderson & Zeithaml, 1984; Utterback& Kim, 1985)
- Increased market segmentation and product differentiation is needed to maintain growth (Anderson
& Zeithaml, 1984)

Key Factors
- This stage is not one of stability, forces of cost-based competition and efficiency seeking methods
become the focus (Day, 1981)
- Hall (1980) described two strategies a successful firm at the maturity stage could take:
- Aiming to achieve the lowest possible cost position, while maintaining acceptable levels of product
quality and a pricing model which allows for market share growth
- Position the firm by differentiating it as the highest product quality available, while maintaining a
cost structure and pricing model to fund the level of investment into the product
- Hall (1980) does point out that the best companys in any industry will use both strategies
simultaneously to oumaneuaver their competition
- Despite the percieved market stagnation in the maturity state, growth is not impossible. Through
efective segmentation and demographic analysis, shifting trends can be detected and exploited to
increase the customer base (Day, 1981)

Decline
- The final stage of an industry represents a fall in growth, profits, market share, and generally signals
the end or stagnation of an industry
- Industries can decline at varying levels, and knowing what kind of decline is taking place can help the
firm decide when to exit and preseve the most value (Harrigan, 1980)
- Michael (1971) proposed a stage after the decline stage called ‘Petrification’; described as a situaiton
where demand has fallen, but stabilized at a much lower level
- The severe lack of literature on strategies for businesses in the decline stage has been noted by
authors decades ago such as Anderson & Zeithaml (1984) and Briou et al. (1998)

Key Factors
- Harrigan (1980), after a study on 80 companies in various industries identified the following 5 potential
strategies to use:
- Liquidating or ‘harvesting’ from the firms previous investments, regardless of what the investment
end position is
- Holding on any potential investments until uncertainties have lowered
- Increasing the level of investment to dominate a chosen competitive position
- Decreasing investment in products or market groups which are proven to be unpromising, and
increasing investment in areas and products which fall into a profitable niche
- Divest from the firm fast and dispose of existing assets in the most profitable way
- Harrigan (1980) states that: “more than 92 percent of the firms that followed its directions were
successful, while over 85 percent of those who violated its precepts failed” (p.21)

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 Similarities & Differences

- If used in conjunction with the industry life cycle, five forces analysis can provide added insight
into competitors current strategy and future moves
- PEST is best used in a focused area, such as a specific country, but it could be used to analyse a
specific industry too
- Each stage of the industry life cycle requries a firm to asses their current industry position, which
Similarities
can be done using the five forces
- All three of these external analysis methods will help to shape strategy, but are not full strategies
by themselves
- All of these frameworks ignores the factors important in the others, in a way which almost
requires the user to use them on combination rather than only one

- The PEST framework works on an opposite view angle to the industry based analysis methods
- PEST analysis allows for business to asses their external environment more openly than the other
2 methods
Differences - Industry life cycle ignores the factors which PEST analysis focus on, assuming that market forces
will have limited impact on the firm
- Despite both five forces and life cycle methods focusing on the industry, the life cycle theory
views the entire external environment in a static sense, whereas the five forces accept that
circumstances will change

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Now that different kinds of external analysis methods have been examined, in this section of those tools will be used
to analyse Boeing’s external environment. The analysis method to be used will be Porter’s Five Forces. The reasoning
behind this is that it provides the most scope when analysing an industry. Given Boeing’s large size and wide reach
geographically, any strategy they devise will have to start with industry analysis. The following table will go through
the 5 forces as they apply to Boeing.

Industry
Rivalry In the aerospace manufacturing industry there are two giants which compete for the lead at the head
of everyone else – Boeing & Airbus. With a rivalry going back decades, the creation of Airbus by the
European governments in the late 1960’s was a direct challenge to market control Boeing enjoyed at
High the time (Male, 1991; Neven et al., 1995). Boeing’s large portfolio of divisions mean they are also in
competition with Locheed Martin, Northrop Grumman and others in defense and space frontiers. In
the commercial wide-body airline market, Airbus is the primary competitor they face; with others
such as Bombardier, Gulfstream and Embraer only being able to challenge them in the small jet
market.

Despite the number of competitors being low, competition amongst the companies are fierce. This
can be seen as a remnant of a time when there were others in the market such as McDonnel-Douglas,
but through fierce rivalry their market share was consumed by the big two (Olienyk & Carbaugh,
1999). Writing two decades ago, Olienyk & Carbaugh (1999) has already labelled the industry to be a
duopoly. When looking at the product development startegies of these two companies it is plain to
see that they are directly competing with each other. As Neven et al. (1995) show, the success of the
Boeing 737, urged the creation of the Airbus A320, and the success of the Boeing 747 has led to
Airbus developing the A380 model.

As noted by Klepper (1990), aircraft manufacturers plan startegies with long time scales, as their
products will often be in production and use for decades. This means that the decisions made for
new models, new market segments to target, are thoroughly scrutinised before a decision is made.
These companies drive to directly challenge each other and take advantage of any competitive
oppurtunities that arise is the reason why rivalry in the dustry has been classsified as high.

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Threat of Due to the duopoly in the industry, and head to head competition between the 2 big manufacturers,
Substitues customers often find themselves with a direct substitute for Boeing’s offerings. The following graphic
shows the substitutes available for customers offered by Airbus in comparison to Boeing models:

Low

However, airline which purchase from manufacturers typically buy fleets fo aircraft, and over years
of operating these planes, they build up expertise, experience and systems to work with them. Due
to these reasons, switching costs for airlines is extremely high (Shaw, 2004). So, although there are
direct alternatives for each model from either manufacturer, the switching costs stop customers from
fluctuating. The reason for these very similar models could be the fact that customers are locked in
and demand an equivalent to the competitors offering.

When it comes to Boeing’s single-aisle models meant for short distance flights, a new set of
substitutes come into focus, beyond the competitors models. This threat of substitution from rail,
bus or other ground level public transport is even more acute in one of the largest markets identified
by Boeing – China. According to their Commercial Market Outlook Report 2018-2037, Boeing predicts
that the intra-China short haul flights will have the highest growth rate over the next 20 years:

Although the rising middle class of China offers a market for airlines who are Boeing’s customers; as
China continues to invest more in its infrastruture (Reuters, 2019) the option of rail or bus will
become a very viable and cheaper substitute to flights when it comes to in-country travel.

However this potential disruption by public transport still in the future and will only affect short-
haul flight. There is still no substitute for long haul flights. Due to the high switching costs of
customers, and the lack of ready alternatives, current threat of substitutes for Boeing is low.

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Threat of Aircraft manufacturing is an industry which requires a large amount of capital, experience and
New technical expertise to succeed in. For any newcomer into the industry to successfully get a foothold,
they need to have these 3 things in abundance. The idustry as a whole exhibits a lot of the classic
Entrants
barriers to entry explained by Porter (1979) in his original essay.

Low High amounts of initial capital are needed for manufacturing plants, raw materials and qualified staff.
It will also help to sustain the new business while it tries to make sales in a market where the majority
of airlines are contractually or logistically tethered to one of the big 2 manufacturers. Even if the new
company were to go into regional airline markets, those markets are also contested by the smaller
manufacturers such as Embraer and Bombadier (Bryan, 2019).

When it comes to the need for experience and technical knowledge in aircraft manufacturing, they
go hand in hand. The 3 primary ways in which experience effects help to lower production costs,
identified by Sallenave (1985), are in full effect.

- Economies of scale: Boeing’s history ensures they are adept at using economies of scale to their
benefit. This is something any new entrant will struggle with, and because they are unable to
bring their production costs down, they will have to either take a loss in sales, or mark up their
prices.
- Labour Efficiency: The classic theory of experience curve states that as workers spend time
performing their jobs they will become more efficent in it leading to labour costs falling. In this
area the new entrant would also struggle as they will have to either take the requisite time to
train their workers, or they will have to spend money to poach specialists from existing
companies.
- Cost of Capital: According to Sallenave (1985), as the company gets bigger and has access to
better and cheaper sources of capital. A new entrant will be struggling from the beginning of
their entry into the industry and due to the difficulties inherent with succeeding against such
established competitors, it is unlikely they will be able to to raise capital easily.

All these factors work in conjunction to ensure that the aircraft manufacturing industry is a hostile
and difficult industry to enter, and so the threat from new entrants is low.

Bargaining Boeing understands that that their suppliers hold significant bargaining power over them, as their
ability to meet the requirements set by buyers depends heavily on the perforamnce and capabilities
Power of
of their manufacturing subcontractors and suppliers of raw materials. In the yearly annual report,
Suppliers they state that in some cases they are reliant on a single source of supply for certain materials, and
any potential disruption such as political turmoil could result in financial difficulties for both the
Medium supplier and Boeing itself (Annual Report, 2017, p.10). One example that they provide is the
continous monitoring of the geo-political situaiton in the Ukraine and Russia which is a source of
titanium for some of Boeing’s suppliers.

Denning (2013) notes that during the development of the 787 model certain suppliers of Boeing did
not perform the needed levels of coordination. In response Boeing had to send hundreds of engineers
to the suppliers to solve the various technical issues which were present. Boeing’s engineers has to
entirely redesign the sub-assembly process, which took time and a large expense, but in such a
situation Boeing has no other choice. They have to ensure aircraft are delivered at the times agreed
with customers and if their suppliers hit any problems, it is up to Boeing to resolve them.

Despite these factors, suppliers of Boeing are quite attached to the company as their have built up
their technical experience working with the company and adhering to their strict guidelines to
become a Boeing Approved Supplier. This creates a situation where Boeing is responsible for fixing
their suppliers problems, but they don’t have a big threat of losing suppliers. Therefore, bargaining
power of suppliers has been classified as medium.
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Bargaining
Power of Boeing are keenly aware of the power that their buyers have to disrupt or affect the companies
performance. The unique risks which are posed by serving commecial airlines is noted first and
Buyers
foremost in their ‘Business Risks’ section of the annual report (Annual Report, 2016, p.6). Airlines are
affected by a multitude of different factors such as profitability, relationship between sovereign
High governments, fuel costs, environmental regulations etc. One or more of these factors working
together could lead to a situaiton where an airline cannot continue with planned purchase of Boeing
craft, or may have to end a sale agreement. Boeing also note that a ‘significant portion’ (Annual
Report, 2016) of their sales are made to a small number of commercial airlines. Added to this is the
fact that as a company Boeing does not have any gurantees that a buyer will fulfill the purchasing
commitments already made or purchase additional services from them.

The consolidation of airlines also poses a risk to Boeing as it both reduces the number of buyers in
the market while giving more bargaining power to the consolidated airline – and cause a significant
reduction in the companies revenues.

Due to these factors identified by Boeing, the bargaining power of buyers has been classfiied as high.

19
Corporate-level strategy (CLS) is the term used for strategic decision taken at the highest levels
of a business, those which concern the entire organisations direction, orientation and often long-
range planning. Hofer & Schendel (1978, p.27) in their book defined CLS as “concerned primarily
with answering the question of what set of businesses should we be in. Consequently, scope and
resource deployments among businesses are the primary components of corporate strategy” . In
this section 2 different CLS classifications will be investigated in detail; the first by Wheelen,
Hunger, Hoffman & Bamford (2017) and the second by Dessler (2016). In their classifications, 20
several different corporate level strategies are mentioned, and this section will look into the
strategies individually.
 Wheelen et al. (2017)

Wheelen et al. (2017) present the topic of corporate strategy in a similar way to Hofer & Schendel (2017), attributing
the same core responsibilities. They state that corporate strategy deals with 3 key strategy areas of the business:

- Directional Strategy
- Portfolio Analysis
- Corporate Parenting

In the following section of the report the directional strategies they prescribed will be examined. This is to ensure a
narrow scope for this report and because the other two are not major areas of strategic management,

Directional Strategy
Defines the orientation of a corporation – whether to expand or cut back, to diversify or concentrate, to expand or
use mergers and alliances. The following three tables will go through the key decisions in each strategy:

Growth Strategies
Wheelen et al. state that growth in a company can happen internally or externally. Externally, it can grow through
mergers, acquisitions, and strategic alliances. Internally, there are 2 basic methods of growth: Concentration &
Diversification
- Wheelen et al. (2017) posit that mergers are more likely between businesses which are
related in some way, such as similar size, or a ‘friendly’ relationship.
- Another way to determine a relationship between businesses can be the 3 requirements
suggested by Rumelt (1974), which has “clear consistency” according to Singh &
Montgomery (1987), with the criteria for relatedness used by Salter & Weinhold (1979).
According to Rumelt (1974) two firms are related if:
- They use similar production technology, or,
- They both exploited similar scientific research, or,
- They both use similar distribution to serve similar markets
- Acquisitions work differently than mergers in that there is usually a large size difference
between the 2 firms.
- Acquisitions can also be either friendly or hostile. During a hostile takeover the aggressor
takes control from the existing owner through share purchase or other means

- The key issue with M&A’s as a form of growth is their success rate in the field. Wheelen
et al. (2017) note that M&A’s are often a quick way to grow; however as shown by Barfield
(1998), 70% of M&A’s do not improve a firm’s performance in terms of stock price.
Mergers & - In addition, Jensen (1986) showed that shareholders of firms who acquire see clock to
Acquisitions zero returns.
- All these factors point to how difficult it can be to succeed with a M&A growth strategy
for the long term. Wheelen et al. (2017) themselves say that firms growing through M&A’s
typically do not perform as well as those who grow internally
- It has been repeatedly shown in academic research that one of the consequences of M&A
activity in a company is that they tend to introduce fewer products, and tend to be less
innovative (Hitt et al., 1990; Harrison et al., 1991; Hitt et al., 1996)
-
- Though difficult to implement M&A’s are not fundamentally flawed. Hitt et al. (1998)
found that while there are many more low performing acquisitions, the ones which were
successful generated large returns
- Due to this, Uhlenbruck et al. (2006) state that while mergers and acquisitions have the
potential to be profitable, they remain a high-risk strategy

21
 - These are agreements between two or more companies to cooperate and improve their
competitive performance and position through the sharing of resources (Hitt, Dacin,
Levitas, Arregle & Borza, 2000; Das & Teng, 2003)
- Despite the cooperative nature of alliances, some research has found that alliances tend
to have lower success rates than individual firms (Bleeke & Ernst, 1991; Kent, 1991)
- Some have also shown that around 60% of alliances are considered failures (Beamish,
1985; Das & Teng, 2000)

- As Das & Teng (2003) point out, a problem with the measuring of success for alliances is
Strategic Alliance
that there isn’t any established, agreed on methodology to measure performance
- Some prefer to use the partner firms strategic objectives as markers of performance (Yan
& Gray, 1994; Zaheer et al., 1998)
- Others prefer to use profitability and sale growth (Mohr & Spekman, 1994)

- In recent years the use of strategic alliances has increased, and it has become more
prominent in the research field, with most research focused on how the alliance can be
managed for competitive advantage (Ireland et al., 2002)
- Despite this, the subject of effective alliance management remains under investigated
(Spekman et al., 1998; Hutt et al., 2000)

Concentration strategy is best used when a firm has a product line with real growth
potential. The firm then concentrates its resources on improving the profiting from that
particular product. The 2 basic concentration strategies are:

- Vertical Growth
- Takes place when a firm gains control over a new function either up or down the value
chain, by starting to produce their own supplies or by distributing their own products
- Vertical growth can be achieved internally by developing the skills needed or externally
through acquisitions
- According to Wheelen et al. (2017), this vertical integration of new capabilities can be
either forward facing or backward facing
▪ Forward integration takes place when the firm moves forward in the value chain
towards a distributor’s role. This could be done to get more control over product
distribution
▪ Backwards integration takes place when the firm moves backwards, towards a
supplier. This could be done to lower supply costs or due to inefficient production
Concentration from the supplier

- Horizontal Growth
- Takes place when a firm expands its scope of operations. Either through new products
in their market or by seeking new markets geographically
- Some research has shown that firms which expand their product lines show better
survival rates (Dowell & Swaminathan, 2006; Sorenson et al., 2006)
- Wheelen et al. (2017) notes that horizontal growth is increasingly conducted today in
the form of geographic expansion
▪ This has resulted in a level of horizontal integration, where firms operate on the same
level of the value chain in multiple markets
- When expanding geographically a company has to choose between the established
methods of expansion based on their needs and situation. Such as exporting,
license/franchise, joint ventures, acquisitions, etc.

22
 Diversification usually takes place during the mature stage of an industry. When growth has
slowed significantly, and opportunities are difficult (Roberts, 2007). At this point companies
have reached the limit of horizontal and vertical growth and must spread out into different
industries (Wheelen et al., 2017). Firms have two broad ways they can approach
diversifying:

- Related (Concentric) Diversification

- Companies which are doing well in their current industry and have built up
competencies, can benefit from moving into a related industry where some of that
knowledge will be useful
- The more successful a firm is in their core business the more likely they are to succeed
using concentric diversification (Zook, 2004)
- The aim is to find a business model which will work in synergy with the core business to
generate more profits
Diversification - This can be done either internally or externally

- Unrelated (Conglomerate) Diversification

- When the current industry of a business is unattractive, it will want to move into a new
industry using a conglomerate diversification strategy
- Even if the firm does not have industry specific skills to transfer, it may be able to
transfer its management process to the new industry
- The focus on conglomerate diversification is often on value creation for the whole firm
rather than on creating product synergies

Stability Strategies
For companies who are successful in a predictable industry, it may make sense to forgo the growth trajectory and
instead focus on its own current operations without making moves in any direction (Inkpen & Choudhury, 1995;
Wheelen et al., 2017). These strategies are useful when used in the correct setting for the short term, but can seriously
compromise the firms competitiveness if continued for a long time.

- Is in essence a pause in the companies chosen direction. A chance to stop and gather
resources before moving again towards a growth or retrenchment strategy
Pause/Proceed
- The firm decides deliberately to make small improvements until a time when they will begin
with Caution in full force again
- This strategy can also be used when the industry environment becomes hostile or difficult
to operate/grow in for a period of time

- No change could be described as no strategy at all. As it prescribes nothing more than simply
continuing operations as is for the future with no end date
No Change
- This is only possible in an environment which is low on all of Porter’s competitive forces.
There cannot be any strong rivals, no threats to market share, no threats to profits from
suppliers of buyers.

- In a profit strategy, management of a firm attempts to artificially boost the profits of the
business by reducing expenses and investment.
- The strategy could be used to help a firm going through a temporary problem with cash
Profit Strategy flows but cannot be continued long-term
- Profit strategy may also be used ahead of being listen on the stock exchange and going
public as showing even artificial high profits will boost the firms share price

23
Retrenchment Strategies
Retrenchment strategies are used when a company is performing badly with its products to such an extent that it is
ready to undergo the pressures for efficiency these strategies bring. These intense pressures are to help identify
problems and weaknesses inside the company and cut them out.

- Focuses primarily on company operations and seeks to increase efficiency

- Consists of 2 phases the company must go through (Pearce & Robbins, 1994):
▪ Contraction: Consists of cutting back on costs and expenses across the entire company in
an attempt to ‘trim the fat’ from the organisation
Turnaround ▪ Consolidation: Once the unneeded costs have been cut, plans are developed to ensure
costs stay low and to cost-justify operational functions
- The consolidation phase of the strategy must be handled with care as if there is too much
emphasis on cutting costs and letting people go, it will create an environment where
performance could be hurt (Morris et al., 1999; Gandolfi, 2008)

- The aim of the strategy is to aim to sell the company to another firm in an attempt to get
some return for shareholders
- The long-term plan is that the new firm will have the necessary know-how to bring the
Sell out/ company back to profitability
Divestment - Divestment strategies are also to sell, but in the case of multi-business corporations where
one or two of the strategic business units may be sold
- Divestment is often used after conglomerates are acquired to get rid of businesses the new
owner does not want

- Liquidation occurs when the company cannot be sold to another firm because no one is
interested, and the owners decide to terminate the company fully
▪ All assets of the company are usually sold off to try and use the revenue to pay off any
Liquidation/ obligations the company has and to recoup shareholders
Bankruptcy - Bankruptcy occurs under similar situation, however instead of terminating the company, its
management is handed over to the legal courts and in return some money is recouped to pay
the companies debts and obligations

24
 Dessler (2016)

Dessler (2016) created a classification for corporate level strategies similar to the one by Wheelen et al. (2017) in
which he lays out 4 types of strategies:

• Diversification: Expansion through product line

• Vertical Integration: Expansion through moving up or down the supply chain to control another level
• Consolidation: The merging of different business into one identity
• Geographic Expansion: Seeking new markets in new locations

Due to Dessler (2016) not providing a lot of detail in his text about these 4 types of strategies, the following table will
examine them with help from outside sources:

- Diversification occurs under the same circumstances as explained previously –

when market growth has fallen, and the firm must branch out into new industries
- Diversifying can take place within a related industry or in an unrelated industry
from the core business
- Palepu (1985) found evidence that diversifiers who move into a highly related
industry from their primary one tend to see superior profit growth compared to
Diversification those to move into unrelated industries
- Diversification can take place internally through creating a new business in a new
sector, or externally through an acquisition
- Since the late 1980’s a large number of firms have use international diversification
strategies to seek out both new industries and markets (Kim et al., 1989)
- Some studies have shown that international market diversification has the added
advantage of stabilizing a firm’s profits (Rugman, 1979; Miller & Pras, 1980; Caves,
1982)

- Vertical integration can take place forward facing where a firm takes over control of
a function higher up in the value chain such as distribution, or can be backward
facing when a firm takes over for a supplier
- Outsourcing remains a viable option for those firms where they cannot vertically
integrate, or integration has led to complicated corporate structures
Vertical Integration - Harrigan (1984) notes that extensive vertical integration can lead to higher
managerial costs and bureaucracy
- Jones & Hill (1988) note that when bureaucratic costs and loss in structural
flexibility is the cost of vertical integration it provides diminishing returns
- Another option instead of vertical integration is strategic alliances, and the benefits
of choosing one the other has been discussed in many previous studies (Dyer, 1996;
Dyer & Singh, 1998; Rothaermel, 2001)

- Also known as a type of horizontal growth, this is the strategy when a firm moved
its operations to a new geographic region to find new markets
- A firm expanding internationally has several different strategies to choose from:
Geographic Expansion - Exporting
- Licensing/Franchising
- Acquisition
- Joint Venture
- Turnkey projects
- Green field development
25
 - Consolidation is the strategy of grouping multiple businesses under the umbrella of
a larger conglomerate structure
- This consolidation is usually done to improve efficiency in current business
operations
- The process involves cutting costs through getting rid of redundant staff and
Consolidation processes
- The two main types of consolidation strategy are mergers and acquisitions
- A large firm, given enough resources, could set out on a consolidation strategy to
acquire all smaller firms in their industry to reduce competition and gain a
monopolistic position in the market
- Consolidating multiple business can be the right strategy for the long term,
however it is often complicated and expensive to do

Comparison of Wheeler & Dessler Classifications

In this section the 2 classification systems explained above will be compared to one another to identify similarities
and differences.

Wheelen et al., 2017 Dessler, 2016

Similarities
- Of the 4 strategies mentioned by Dessler,
Wheelen et al. also recommends 3 of them
directly
- Considering the main types of
consolidation strategy is mergers and
acquisitions, it can be argued that
Wheelen et al. also covered them as part
of his classification
- The importance of licensing and joint
ventures are noted by both scholars as
important to horizontal diversification
- All four of the strategies presented are also
present in the list by Wheelen et al. Therefore
it can be inferred that both authors agree on
these 4 at least being important corporate-
level strategies
- Dessler discusses the elements of
diversification strategy (vertical/horizontal),
same as Wheelen
- While calling horizontal diversification
‘geographic expansion’, Dessler proposes the
same strategy as Wheelen and his colleagues

Differences
- Wheelen et al. provide a comprehensive
list and explanations for the strategies
they mention
- The author has gone through the different
strategies and organised them according
to the situations in which they are likely to
be used
- Wheelen discusses vertical/horizontal
diversification as part of the overall
strategy, Dessler discusses them as though
they are completely separate strategies
- Dessler mentions perhaps the most used
corporate level strategies, but not an
exhaustive list
- Mentioned vertical integration, but half omits
horizontal integration. Geographic expansion is
listed, but no mention of a strategy when a
firm stays in its home country but moves to a
new industry
- Listed strategies without any explanation of
what circumstances they are likely to be used

26
Analysis of Boeing has shown that the company faces risks and challenges from a few different directions. They face
a competitive landscape that is contentious, the only advantage being that they face direct competition from only
one other rival. The power which suppliers have over key deliverables of the company posses a constant threat of
overruns in time or costly actions to fix problems. Based on their industry position and market conditions, it is
recommended they undertake the following corporate strategies to improve their reach and revenues.

ACQUISITION OF
SUPPLIERS Boeing emphasise in their annual reports that it is vital for them to maintain a healthy
production system and achieve production rates necessary to delivery orders in the
agreed time (Boeing, 2018, p.6). Given their already large dependency on suppliers for
sub-part manufacturing and assembly, the company faces a threat of supplier delay
leading to product delivery delay that could lead to major financial implications. Given
Boeing’s rich history of manufacturing, a lot of problems could potentially be resolved
if they could bring the production and management of these suppliers under their
control. This only applies suppliers who are responsible for sub-assembly parts, not
natural resources such as titanium.

Due to this, one suggested corporate strategy is to begin acquiring suppliers who form
crucial parts of the production change. Parts which are non-critical can still be
outsourced to external suppliers. Analysis should be done to find which areas of the
production chain is affected the most by supplier problems, how often this happens
and the relative difficulty of resolving the issues. This should be done for each model
that Boeing are currently producing. Once the analysis is complete and the data can be
used to identify which suppliers are responsible for the most delays or issues. These
suppliers or their competitors can be targeted for acquisition so that Boeing can bring
the management and production of these parts under their own control and manage
them better.

This strategy of analysis and acquisition should be started with the models which
represent the future of Boeing– aircraft which have the furthest operating end date.
Currently the largest order the company has is for the 737, at 4708 units, followed by
the 787 at 604 units and the 777X at 326 units (Boeing, 2019), all of which fit this
requirement. Being able to increase efficiency and production speed for these models
will mean that they are both able to take on more orders in the backlog and will help
Boeing further up the learning curve for the production on the sub-assembly parts.
Given the important of the experience and learning curve’s in the industry and the fact
the 3 most ordered models are the newest ones, it will give Boeing an advantage for
the coming decades.

27
CONCENTRIC The theory behind concentric diversification put forth Wheelen et al. (2017) is directly
DIVERSIFICATION applicable to Boeing’s current industry standing. They are successful in the commercial
aircraft industry, while also possessing the capabilities to compete in other market
areas such as business jets and air freighters. According to Boing’s World Air Cargo
Forecast 2018-2037, the market for freighters will nearly double over the next 20 years.

Air cargo, while representing less than 1% of global trade by tonnage, transports more
than 35% of global trade by value. This lopsided figure represents the unique
advantages offered by air cargo. It is often used in transporting cargo which needs
speed and security. One of the major reasons for the projected growth of air cargo is
the rapid rise of e-commerce, first in the west, and now in China and other populous
South/East Asian countries (Orbeta, 2000).While it is difficult to directly tie the growth
of e-commerce with the rise in air cargo traffic, as packages are not labelled by
category, Boeing’s report finds there is reason to assume causality.

Boeing already boasts a robust freighter product range, but in order to fully leverage
the explosive growth forecast by their own report, they must take advantage of it.
Currently Boeing have good offerings for customers in the long, and short, haul air
freighter market. However, for the medium range sector, 3000-4000 nautical mile, they
have only the 767 (Boeing, 2019). With e-commerce growing at breakneck speeds
across South-East & East Asia, and more manufacturing operations moving to China; it
can be reasonably predicted that the use of intercontinental air freight across Asia will
continue increasing past 2037.

It is recommended that Boeing begin work on a new model of air freighter for the
medium, inter-continental market. This project will take several years to come to
fruition but should arrive in time to capture the growth in the market which will help
them cover innovation and development costs. Being able to make this aircraft as
efficient as Boeing has shown themselves to be capable of, with the 787 Dreamliner,
would help its marketability and attract customers for one extra reason – the fuel
savings it can offer over other competing models.

28
 This strategy is being suggested as a direct response to the two tragic crashes of the
Boeing 737 MAX in the past 6 months. The first was Lion Air Flight 610 in October
2018, and the second being Ethiopian Airlines Flight 302 on March 10th of this year. As
a result, nearly 50 countries have grounded the model; the following graphic is
accurate as of March 14th:

PAUSE / PROCEED WITH

CAUTION

Image Sourced from CNN. Graphic by Natalie Leung.

As explained on page 4 of this report, Boeing has forecasted that single aisle models
will be the most sought after in the next 2 decades. Having put considerable time and
money towards implementing their plan, these unfortunate accidents and
consequential groundings by the major countries of the world has seriously damaged
the reputation of Boeing – and of their rainmaker – the 737 model. Recent reports
from a wide variety of sources (Monaghan, 2019; Allen, 2019) are explaining that the
reason for the crash was Boeing’s decision to make 2 crucial safety features into
premium options customers had to pay extra for.

The effect of all this amounts to more than just a simple PR disaster – in an industry
where people’s lives are at risk in the even of faults, these revelations will have hurt
the Boeing brand. Although they may be saved from a rush of customers leaving them
due to Airbus’ reported inability to take on more orders for the rival A320neo due to
their production capacity already being full (Cropley, 2019), Boeing must for the
immediate future adopt a ‘proceed with caution’ strategy.

They should aim to work with investigators to find all issues which could have led to
these tragedies and work fast to resolve them – and then begin the process of re-
gaining customer confidence. The identification process may take a long time, and
during that time the company should continue its current production process and
innovation projects. But they should lower their public exposure and for the time
being, reduce the intensity of marketing the 737 MAX to customers. This strategy will
allow them to avoid any missteps on the heels of a bad situation, and provide the
outside world perceptive proof that Boeing are being humble and working to resolve
the problems as fast as they can.

29
Business level strategies are useful for large corporations to coordinate their strategic
business units and provide specific growth aspirations. When developing business level
strategies it must be kept in mind that they should coordinate and support the corporate
level strategies chosen by the parent company. Business level strategies are meant for
both independent firms and for SBU’s of larger corporations – and as the discussion of
two authors will show, vary more than corporate level strategies due to highly
functional nature of an individual business.

30
 Ansoff’s Matrix (1957)

Ansoff’s 4 business strategies were first discussed in his 1957 article published by HBR titled the ‘Strategies for
Diversification’. In his original paper these 4 strategies were described as ‘product-market’ strategies, as they can be
either product or market orientated. He stresses that these strategies are not meant to be static decisions, a
company should always be evaluating these strategies in context of their own environment to see which offers the
best advantages. Ansoff encourages businesses to try multiple combinations of these strategies depending on their
long-range plans. The graphic below shows the 4 strategies proposed:

Image sourced from SlideTeam: Complete Guide To Ansoff Matrix Model & Business Growth Strategies

The following table will go into more detail on each element of the individual strategies, the activities each
recommends for the business and how that will help the business to succeed.

Market Penetration
- A market penetration strategy calls for the business to primarily increase sales of
existing products.
- By staying in the existing product-market businesses should try to increase
number of sales to existing customers or seek a new customer base for the
existing product
- Involves segmenting customers to better market product to them, focusing on the
features they most prefer (Dickson & Ginter, 1987)
- The business could find a way to make their product more available to existing
customers – such as fast food business delivering to homes (Eagle & Brennan,
2007)
- In deciding which existing product to market or differentiate, the growth matrix
developed by the Boston Group may be used to calculate which investment will
provide the best return (Morrison & Wensley, 1991)
- Any market penetration strategy should be evaluated quantitatively by calculating
exactly how much of the products market share has been captured

31
Market Development - Market development strategy asks the business to branch out and find new
markets for an existing product. Closest in nature to the concentric diversification
corporate strategy discussed earlier.
- When he originally presented these 4 strategies Ansoff only advised that
businesses could modify their current products to make them appealing to new
customer segments.
- Since 1957 the opening of trade barriers has allowed for the market development
strategy to become the primary strategy for many businesses.
- Being able to go from growing in their native country to selling internationally
with ease has been instrumental in developing international markets for their
products.
- In their study Mishina et al. (2004) found that a market development strategy is
better for short term profit generation than product development strategy –
indicating that perhaps this strategy cannot be relied on for long term benefits
- Even without international expanding, market development can be done by
shifting the perception of a product through marketing and advertising, as done
by Lucozade by going from a product marketed as medicine to one marketed as a
sports drink. Or different versions of the product could be created through
modification which would appeal to previously uncommitted buyers.

Product Development
- Ansoff explained product development simply as when a business retains its
original mission and creates new products which have characteristics which may
be new or different from the current (1957).
- He did not go into the specifics of how to develop the idea for a new product, or
the steps to bring it to market and make the overall strategy to succeed.
- This was done later by other scholars such as Booz, Allen & Hamilton (1982)
who developed a stage-based model of how a business can go from
searching for to developing and releasing a new product
- Product development now composes a large portion of many businesses. The
growth in both market size and segments due to globalisation, has sped up the
number of products a business may have to develop.
- Following this strategy requires a business to understand what their customers
want and providing that to ensure their product has more value to the customer
than your competitors (Tang et al., 2009)
- The costs of following a product development strategy will often mean higher
costs and higher risk of failure, this implies that the strategy should be followed
when the business can take steps to mitigate some of those costs and risks

Diversification
Ansoff first explains the forecasting and planning which must be done before
choosing the diversification strategy and lays out 3 ways in which a business could
diversify if they choose.

- Vertical Diversification: A situation where the business takes over the supplier’s
role in the supply chain to bring supply and assembly under one management
system, so it can be coordinated. Ansoff explain that this move takes the company
both into a different product and market than previously.
- Horizontal Diversification: While diversification according to Ansoff is doing
something new in a new market – horizontal diversification is when the new
market or product is related to the business’s expertise and experience
- Lateral Diversification: When a company wants to move beyond their current
product line and market conditions – involves ranging far to find new direction

32
Ansoff recommends that businesses set quantitative goals to ensure their
diversification strategy is delivering profits. This can be done with target sales
numbers. Aside from sales, two other motivations for diversification strategy was
discussed in the original paper – growth and stability.

For each of these Ansoff writes that businesses should not have one set goal but
understand that circumstances change, and should have an acceptable range as
their goal. Examples of how the sales and stability objectives could be mapped out
were provided by Ansoff:

Graphs taken from “Strategies of Diversification” by I. Ansoff (1957) p.119 & p.120

Ansoff ends by reiterating the point that whatever strategy is choses, it must apply
to the business and its objectives. The choice of strategy is the crucial aspect to its
success, not the strategies themselves.

33
 Porter’s Generic Strategies

Three generic strategies are discussed by Michel Porter in his 1980 book ‘Competitive Strategy’ as being successful at
dealing with the five forces. Porter does not claim this to be an exhaustive list and did not formulate these strategies,
but rather took existing strategies and explained how they interact with his five forces and how they can give a
business an advantage in outperforming their competitors. The following table will go through Porter’s 3 generic
strategies and reflect his explanations for their use with the five forces:

Overall Cost Leadership - The business should aim to leverage experience and learning curves to achieve
lowest costs than competitors
- Requires that the business initially has to build facilities which are both efficient and
can produce at scale
- They must also bring costs under tight control and reduce it wherever possible, such
as R&D, advertising, service, marketing
- In an industry with strong industry rivalry, a cost leadership strategy will ensure that
the firm has above-average returns
- A low-cost strategy also defends the business from powerful buyers by already being
the cheapest option and from powerful suppliers by being able to absorb higher
material costs if needed
- Provides protection from new entrants into the market by having scale and learning
advantages over them
- A disadvantage of this strategy is the initial and sustained level of capital to achieve
the low cost position

Differentiation - Differentiation requires that a business use a combination product development,

marketing, customer service, technology, to set themselves apart from their
competitors in the customers mind
- Porter stresses that a differentiation strategy does not mean the business ignores the
rules of a low cost strategy – merely that cost is not the primary motivation
- Requires a high level of coordination between the departments which will work on
the strategy – R&D, marketing, sales
- Requires the business to analyse and learn their customers to know what they value
and are missing from competitor’s products
- Differentiation, like cost leadership, provides defences against the five forces
- Industry rivalry is counteracted by customer loyalty which lowers their
sensitivity to price
- Customer loyalty may allow for higher prices, meaning a low-cost position is not
needed – it is also a defence against substitutes
- Higher prices provide buffer from powerful suppliers; lack of similar product
from competitors protects from powerful buyers

Focus - Porter defines focus simply as a strategy which does not apply industry-wide.
- A focused strategy could be cost leadership, or differentiation – but will apply to a
smaller area such as a market segment, or a particular product line
- In essence Porter doubled his number of strategies but giving low-cost and
differentiation different perspectives
- Although he explains how the principle of focus works, there is no advice on how a
business chooses whether to follow the industry-wide or focused version of a
strategy
- For a framework on how to decide which strategy is right, businesses will have to use
a framework such a LINMAP designed by Srinivasan & Shocker (1973) which helps to
identify segments of customers
34
 Stuck in the Middle
- Stuck in the middle is Porter’s method of categorising businesses which are unable to
pursue any of his main strategies due to their circumstances
- Businesses stuck in the middle will lose both customers and profits to smaller and
larger firms
- Porter recommends that those who find themselves in this situation should strongly
attempt to move into one of the established strategies – even if that means they will
have to give up market share and total sales
- Porter stresses that what strategy a business needs to follow based on their current
situation is highly dependant on the industry in which they are in. The business
should aim to understand their industry before making a strategic choice

Risks of Generic Strategies

Cost Leadership Differentiation Focus

- Technological progress may
remove the advantages gained
through past investments
- New entrants with large capital
can challenge on the cost front
through imitation or buying
technical capabilities
- Losing ground to product or
marketing innovation by focusing
too much on cost
- Challenged by competitors
running a differentiation strategy
- Under constant pressure from
firms pursuing low-cost strategy
- If the buyers need for the
differentiation is reduced, the low
cost alternative will win out
- As the industry matures and
technology becomes standardised,
imitation can seriously erode a
firms differentiation advantage
- Cost advantages of serving a
smaller market share are
eliminated meaning the focused
strategy is now of no benefit
- Rivals segment the customer
market more efficiently and steal
buyers for the firms products
- The special factors of
differentiation which created the
segment of the market become
popular industry-wide

Similarities & Differences

In this short table, the similarities and differences of the two groups of business level strategies will be discussed.
Although both Ansoff and Porter present strategies which are valid and useful for businesses, there are gaps in the
recommendations of each. This will be a direct comparison of their approaches:

Similarities - Market development and product development, suggested by Ansoff, fall into the broader
category of differentiation proposed by Porter. When a company is trying to penetrate a market
or introduce a new product, their aim is to gain customers by representing their product as
different and better than competitors in some way
- The element of focus is in both set of strategies, where Ansoff suggests businesses focus on one
form of diversification or market penetration – Porter too discusses focus as narrowing the
scope of the overall strategy
Differences - Business strategies are less homogeneous than corporate strategies. Perhaps due to a business,
or a strategic business unit of a conglomerate, being functionally smaller and more nimble than
a large corporation. A business can take a higher variety of strategic choices
- Ansoff activity encouraged businesses to use a combination of the strategies depending on their
environment, Porter does not. Porters strategies are stand alone and were picked solely for their
relevance to the five forces
- Porters business strategies do not mention moves a business could make to move beyond their
current market and product
- Ansoff’s strategies can be used to build up a failing business, but Porters strategies require a
business be profitable already
35
As has been discussed, business level strategies come in different forms, attacking the problem of gaining a better
competitive position than your rivals from different angles. Ansoff suggests strategies which focus on the product-
market relationship, Porter recommends strategies which work best with the five forces analysis. Although external
analysis for Boeing was done using the five forces framework for this report, suggestions for business level strategies
will come from both scholars’ strategies. The aim of business level strategies is two-fold; to aid in improving the
position of the company in its industry, and to do so in support of overall corporate level strategies. The following
table will lay out suggestions for Boeing’s business level strategies:

Following the corporate level strategy recommended that Boeing should begin to
acquire the suppliers to their aircraft, the strategy at the business level should be to
achieve a cost leadership over what Boeing were paying to external suppliers before
acquisition. Ansoff described this kind of strategic move as vertical diversification,
Wheelen et al., (2017) also classified this as a form of diversification.
Overall Cost Leadership
/ Vertical Diversification While normally the measure of a strategy would be by sales and revenue, Boeing are
acquiring these businesses to supply their manufacturing process before anything else.
Therefore, the strategic goal for this strategy should be to achieve enough savings in
cost that production of supply parts is cheaper than what Boeing were paying out
previously. That is the primary way in which the newly acquired supply businesses can
both achieve the purpose of their purchase, but also contribute to the overall goal of
profit maximisation.

Concentric diversification was recommended for Boeing a the corporate level, allowing
them to use the knowledge and experience they have in commercial aircraft and apply
it to a new air freighter model. This strategy aligns perfectly with Ansoff’s product
development business level strategy. This strategy has the added benefit of aligning
with other corporate and business level strategies.

Boeing are staying in the same market they are catering to currently, as they have
Product Development several models of air freighters operational. What product development of a new
medium range air freighter will allow is for existing customers to have more choice in
choosing from Boeing’s selection, and potentially bringing in new customers. Design
and development of this new model should work in synergy with the companies newly
acquired suppliers. They could leverage the benefits of having the whole design to
manufacturing process in house to reduce costs and production time, and with fast
access to prototyping, development could be sped up too. During the development
process Boeing will be able to bring their considerable experience in designing aircraft
to the table.

36
 This strategy is suggested primarily for Boeing’s passenger aircraft business, and can
also be applied to their air-freighters. As recommended in corporate level strategies,
Boeing should stay out of the spotlight for the time being following the aftermath of
tragic air accidents. Following this period of silence from the company, once the news
cycle has passed, Boeing should emphasise safety one of the primary focus areas for
the business.

While this strategy is not for the explicit purpose of increasing sales, it is suggested to
ease the concerns of customers who may be thinking of cancelling orders already
placed. The backorder catalogue of the company is one of its biggest strengths, and the
profits generated from those orders will fund the other corporate and business level
Market Penetration strategies suggested in this report. Protecting those orders is of utmost importance.

The focus of advertising, marketing and sales on the companies focus on safety will
improve the company’s public perception too, and may lead to some new orders. So
the strategy is not purely to preserve the backorders, but that is its primary aim.

At the same time as the PR strategy, market penetration research must be focused on
segmenting the air freighter customer market more efficiently and finding potential
customers for the new medium range air freighter to be developed. With growing
number of businesses in Asia selling via e-commerce, air freighter companies will be in
need of fuel efficient mid-size air freighters.

Conclusion

The aim of this report has been to show the process of how strategy should be formulated in a company. Starting
with an analysis of the external environment, followed by setting up strategies at the corporate level which will help
the company improve its position in the external environment. Following corporate strategies, each individual
business unit should have their own strategy to give it a competitive advantage, while at the same time
corresponding and supporting the corporate level strategies. This process has been followed in this report and
applied to the Boeing company as a case study.

The corporate and business level strategies proposed in this report are based on a real world analysis of Boeing’s
current external environment and will no doubt help them gain better competitive position. As there is not a lot of
information available on the internal strategies Boeing are pursuing at the moment, it is likely that they have already
done this kind of analysis and are already following some of the strategies suggested here.

Regardless of this fact, the strategies discussed in this report applies to any company which is operating in multiple
industries or multiple markets as they will face similar circumstances to Boeing – especially if they are in the
manufacturing sector. The information found in this report show that even the biggest aerospace manufacturer in
the world can and should actively work to formulate strategies needed for the current market conditions.

37
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