The author uses a power generation metaphor to indicate that as increasingly reliable networks make the physical location of computers less important. Services traditionally provided by internal IT departments can be acquired externally from service providers. This shift, as the author points out, reveals a common pattern: Standardization and technology advances permit specialization by individual firms resulting in economies of scale and higher service levels. 

 

Microsoft senior VP of research Rick Rashid remarked that 20% of all servers are being bought by a handful of large Internet companies, including Amazon, Google, Microsoft, and Yahoo. It's evidence that, behind all the talk about cloud computing, there are huge investments in server infrastructure.

 

Sun's CTO Greg Papadopoulos a couple years ago came up with a similar "red shift" theory, in which a few companies account for a disproportionate amount of IT infrastructure and consumption. An elite group of companies are acquiring inordinate amounts of IT infrastructure, well beyond most other businesses, and their demand is growing exponentially."

 

According to Papadopoulos, the red shift phenomenon threatened to exceed the ability of Moore's Law to keep up. Cloud is the answer.

 

Microsoft and Google are building new data centers. The tens of thousands of servers going into these new and existing data centers underlie the Web traffic and content of not just the companies running them, but millions of consumers and thousands of business customers. Increasingly, through virtualization and multi-tenant architectures, they're being used in support of cloud offerings such as Amazon Web Services, Google Apps Engine, and Microsoft's Azure services.

 

Amazon Web Services has established itself as a leader in the cloud computing market, and Microsoft has been playing catch-up. However, as Microsoft's Azure cloud strategy falls into place, it's sounding more like these would-be partners are on a collision path.

 

As the cloud computing becomes more promising, I agree that how cloud services should interact with existing IT and organizational systems will be the subject of managiement.    

   

After doing more survies about Chapter 4, I found a more specific idea for which IT should do. It is on page 116-Development the Business Case for IT. It asks IT three questions, “Why this,” “Why now,” and “Why you.” As everyone knows, nowadays, the economic is very bad, so saving money is earning money. IT should know why they have to do this, if they think it is not necessary for the company, maybe they can save it and focus on more important project.

Also, I think IT should always think about what the important things they have to do now, if Boeing IT didn’t do this now, is it possible for causing some problems in the future. Like page 176, “In 2004, the leadership of Boeing’s commercial airplanes division assembled a team to begin analyzing how the new strategy would affect the airlines.” The “MyBoeingFleet.com” should be a good example for what Boeing’s IT did. Page 199 also mentions that “If the transition into the new frontier of services was risky, it was also inevitable.” I think it has another meaning beyond the words. It means if you didn’t take the risk, someone will, and if someone is successful, your company will disappear, so it is very important to think new.

 Finally, I think IT should think “why me,” it means I will be the person who change the company, if I do something new, I can achieve something different and something that no one have done before. It is a very important thing for Boeing IT to do.

The main point of these three concepts is that always thinking new and being creative. Boeing did a very good example when it made Boeing 747. Although, it spent a lot of money to develop this airplane, which almost let Boeing bankrupt, but it still insist to develop it. At last, it succeeds, and dominates the big airplane market for decades.

 

A business going concern operates based on business models. Business models consist of three generic components: value, strategy, and capability. These components interact together in a virtuous circle starting from value creation component. Value creation in Boeing's terms entails achieving aerospace leadership through people working together as a global enterprise.

Value. Boeing has experienced steady growth over decades as the world largest aerospace company holding 60% market share. But the business dashboard shows that the company is facing an intense competition in a matured market having transited to a consolidated phase with a plateau of $52 billion revenue in 2004. Revenue growth rate is -7% against the competition rate of 318%. Though the company’s sales volume is more than that of the competition, the main competitor, Airbus maintains a rapid growth rate with $39 billion sales volume in 2004. The degree of rivalry is intense. Follow the link below to view the financial dashboard.

http://conversation.cgu.edu/is329sp09/files/-1/2419/Business+Model+Dashboard+-+Boeing.pdf

In response to the competition and staying true to its vision of aerospace leadership, the company embarks on three pronged strategies: run a healthy core business, leverage strengths into new products and services, and open new frontiers. The company senses the need to offer a differentiated value to its commercial airliners, crews, ground controllers, travel agents, employees, indirect consumers, and stakeholders. Using IT, Boeing acquires real-time reports, feedbacks, customer surveys, and analytics for business intelligence. These data guides the company's time cycles and time to market. The company uses it to create new value or assets, optimize existing markets, and reach new markets. These markets include core airplane products and added value services: airport experience and air traffic management, fleet management, flight information and reservation services, crew scheduling, commercial aviation services, and solution consulting.

Strategy. In pursuit of the above value and strategic definitions, Boeing adopts a combination of granular strategies: acquisitions, internal R&D, lean methodology, low-risk innovation approach, modernization, and e-enabled advantage.

Through acquisitions of companies like Rockwell international, McDonnell Douglas, Preston Aviation, Hughes Electronics and SBS, the company leverages both internal R&D and external research project acquisition to build an infrastructure of execution for e-enabled advantage. Average financial leverage is 4.67 against competition ratio of 6.30, meaning the competition used more borrowed money. From 2001 to 2004 however, debt financing contributed more to the Boeing’s return on equity compared with the competitor’s financial leverage. 

The e-enabled advantage strategy gears the company towards service provision and advises capability building. But structure need to fit with e-Enabled advantage strategy. Thus the company adapts lean methodology and restructures itself into six service business units including commercial aviation services, airport air traffic management, and connection by Boeing.

As a strategy enabler, e-enabled advantage integrates, align, and sync processes thereby improving manufacturing uptime and asset efficiency. Average asset efficiency is 1.21 against competition ratio of 0.58. It rose sharply between 1995 and 1999 but stabilize at 0.96. Meaning the company utilize its assets more efficiently against the completion.

Capability. Having restructured to fit with strategy, the company modernizes its supply chains and inventory systems and streamline operational processes using IT including intranet, extranet, and internet. For example, the MyBoeingFleet.com, an extranet web portal, provides airplane data, maintenance, flight operation, cabin/passenger services, and applications. The e-enabled IT systems provide the real-time information reporting required to monitor an entire fleet.

While innovating and adding value to the existing core airline product, the company adopt the low-risk strategy of applying new technology to existing market while testing new market with familiar technology. Boeing 787 was built with a full e-enabled solutions including onboard local area network featuring electronic library system, wireless cabin communications, and electronic flight deck with cockpit/cabin interface.

The e-Enabled Advantage instantiates assets that directly drive return on equity through business application hardware and software including: SBS products, ACARS, solutions consulting, Connexion by Boeing, mileage programs, online reservation and e-tickets, check-in kiosks, and comprehensive aviation package. Average profit margin is 0.03 against competition ratio of 0.01. Average return on equity (ROE) is 0.15 against the competition ratio of 0.04, meaning the company is more profitable overall than the competition. However, the main competitor maintains a steady growth and might catch up with revenue generation with less debt financing.

The comprehensive nature of Boeing’s e-enabled advantage services is an advantage but will not be sustainable unless the company crosses the chasm. The company must package products, systems, or services in a manner that fit with the marketplace. Boeing wrestles with the problem of transiting fully into a service company. The company invests heavily in R&D creating a myriad of services under the auspices of e-Enabled Advantage program. But Boeing's model as described in this case has a weak link. e-Enabled Advantage offerings' benefits are enumerated in terms of cost savings. How about their associated cost burdens? How can we possibly validate, justify, and evaluate these offerings?

How well do you understand the key factors that drive business performance in your organization and industry?
Boeing's understanding that to maintain their customer base, they must provide th customer a way to reduce their costs when having a Boeing plane.  This is were e-enabled environment comes in where IT is used to support every aspect of the plane, as the case mentioned this was also done by Airbus, their biggest competitor.  One thing with Boeing is it has a clear understanding of the its market and its' customer.  With the international diversity of the customer, came multiple business ventures with many international companies, from Japan to Italy, to India, To Russia... etc.    Boeing is competing in the international market with its international team of partners, very smart.

What must be done well to reduce costs, grow revenues, improve asset efficiency and achieve sustainable advantage?
IT plays a critical role in the success of Boeing and in providing a strategic difference, this is done by providing added advantage to the customer when purchasing a Boeing vs. a competitor's plane.  When deciding on IT, we have to look at how this solution will drive the revenue growth, asset efficiency and cost savings.  The strategy and the choices made must be visionary of the future and the business goals.  While an IT investment has future rewards that may not be measurable today, they must still adhere and support the business goal and strategy. 

How can IT be used to improve business perfromance?

IT can be used in many ways to improve business performance for Boeing, providing management with right data at the right time to make the correct decisions is critical to even the most capable managers to support their decision making.  Knowing what their partners, customers and competitors are going through, can help lead them to better protect themselves against what the may occur in the future. Also, with the international market that Boeing has, providing a centeral location for customers / partners can go to get their questions answered. 

 

Following is my analysis in response to question 2.

1.    How well do you understand the key factors that drive business performance:
a. in Boeing’s organization?
As demonstrated over the years, Boeing must reorganize its vast enterprise to effectively run acquired companies as well as its core business and provide a single point-of-contact to its airline customers; overcome resistance to change and complacency; continually refine its production models to operate as a lean and agile competitor; ensure that Boeing’s vision is internalized and practiced throughout the entire organization.

b. in Boeing’s industry?
The airline industry is mature; there is no true differentiation between Boeing’s aircraft and its primary competitor’s (Airbus) planes. Boeing must therefore wrap the service component around its physical product (i.e. airplanes) in order to differentiate itself. Boeing must overcome price competition fostered by Airbus’ subsidies from European governments.

2. What must be done well to:
a. reduce costs?
Boeing must meet production schedules (for example delays cost the company $178 million in 1997); it must effectively right-size its organization in order to avoid cutting muscle while trimming fat; it should utilize IT effectively in all aspects of its operation such as design (e.g. 777).

b. grow revenues?
The company should expand into new markets; understand what its customers (airlines) and its customer’s customers (passengers) want and then deliver; and effectively use technology to lock-in airline customers by creating enough differentiation to avoid competing on a cost basis.

c. improve asset efficiency?
Boeing should reduce human interaction where appropriate (e.g. eTicketing, eReservations, electronic check-in kiosks) and reassign those human resources to more valuable/strategic work.

d. achieve sustainable advantage?
Boeing must help airline partners by providing services that reduce airline costs and help them survive short-term threats to their existence, and lock-in airline loyalty by providing revenue-generating services for up-cycle times; build end-to-end comprehensive solutions to counter competition from point-solution providers (e.g. IBM, Accenture).

3. How can IT be used to improve business performance?
Boeing must provide the solutions to address both its own and its airline partners needs. An example of an internal solution is computer-aided aircraft design as was used to design the 777. Partner solutions include the “e-Enabled Advantage” which was not a product per se, but a “way of doing things”. e-Enabled Advantage facilitated the following: kept a flying aircraft in an airline’s network seamlessly and helped improve dispatch reliability, reduced delays/cancellations, improved passenger service, enhanced aviation security, and provided end-to-end aircraft operational data which resulted in reduced aircraft maintenance costs.
   

This comment is based on Q2. 

The e-Enabled Advantage could prove to be the cure for the situation. The efficiency gains in Boeing’s day-to-day operations- made possible by the products and services of the e-Enabled environment- could help them survive in difficult times. At the same time, offering an integrated e-Enabled solution could help to develop its preference for Boeing’s jetliners. Boeing aimed to grow its services business around its core products. However, as Kettering put it, “Getting e-Enabled operations to work in an organization involves personalities, it involves careers and culture.”

 

I think Boeing in a market economy facing competition from Airbus, is concerned with delivering a service or product in the most profitable way. The key to profitability is to achieve a sustainable competitive advantage based on superior performance relative to the competition. Superior performance requires doing three things better than the competition. First, the firm must clearly designate the product/market, based on marketplace realities and a true understanding of its strengths and weaknesses. Second, it must design a winning business system or structure that enables the company to outperform competitors in producing and delivering the product or service. Third, management must do a better job of managing the overall business system, by managing not only relationships within the corporation but also critical external relationships with suppliers, customers, and competitors.

 

Within a given environment, marketing strategy deals essentially with the interplay of three forces known as the strategic three Cs: the customer, the competition, and the corporation. Marketing strategies focus on ways in which the corporation can differentiate itself effectively from its competitors, capitalizing on its distinctive strengths to deliver better value to its customers. A good marketing strategy should be characterized by (a) a clear market definition; (b) a good match between corporate strengths and the needs of the market; and (c) superior performance, relative to the competition, in the key success factors of the business.

 

However, strategic marketing decisions require inputs from corporate culture. Marketing strategists must take a close look at the perspectives of the organization before formulating future strategy. Strategies must bear a close relationship to the internal culture of the corporation if they are to be successfully implemented.

 

The key factors driving business performance for Boeing are the following:

·         Delivering values to its customers. Given the competitiveness of its industry and the difficulty in sustaining product differentiation advantage in its core manufacturing business, it has to redefine who its customers are and determine, on an ongoing basis, their business models as well as their pain points, and then work assiduously to provide services and products to help these customers become more efficient.

·         A less risky product mix to help reduce its dependence on the highly volatile commercial market sector.

·         Reducing costs. Cost reductions are critical if Boeing is to sell airplanes at prices affordable to its customers.

·         Maintaining access to foreign markets. Boeing has a sizeable, growing foreign market, which brings with it the strategic need for its company to have continued access there

·         Committed and well-motivated employees.

·         A culture conducive to knowledge-sharing and teamwork

·         A sound, long-term strategy, successfully translated top-down into KPIs and action plans, and implemented in processes, procedures and tasks.

 To reduce costs, grow revenue, improve efficiency, and sustain competitiveness:

·         Boeing has to streamline processes in order to enable a more agile and responsive organization even as we reduce costs at the same time.

·         It has to introduce processes for communicating its goals and directions not only throughout the organization, but also beyond to its customers and suppliers.

·         It needs a new approach to performance measurement. Most importantly, it needs measures that will trigger actions and show its progress towards its business goals.

·         Without its high performing employees, there will be no Boeing. Accordingly, the company needs to implement processes to ensure that its employees understand priorities and business imperatives; have the knowledge, training, and tools both for doing their job and performance appraisal; and are rewarded for their performance.

·         All business units, regions, and levels will be integrated and aligned to the overall strategic plan of Boeing.

  IT can help us improve performance in several ways:

·         Re-engineering its business processes

·         In gathering business intelligence concerning its markets, competitors, customers, and suppliers

·         By using such IT solutions as its e-Enabled Program to deliver aviation services to its customers that will help differentiate and create preference for its airplanes.

In respond to Question 2:

How well does Boeing understand the key factors that drive business performance in its organization and industry? What must be down well to reduce costs, grow revenues, improve assets efficiency, and achieve sustainable advantage? How can IT be used to improve business performance?

 

In June 2003, Boeing has revealed a new strategy to expand its services by integrating business services into the core products; the strategy is to take advantage of "E-enabled" operating environment so that all data and information systems would be integrated through IT and synced between airplane, airline, and maybe third party. In 2004, a team been formed to evaluate and analyze the affect of this new strategy; the result reported tough transition into services and great amount of coordination among business units. Thus, Boeing's understood the risk of not differentiating its services and stay vulnerable to cyclic industry threats. Transition took place and Boeing used IT to drive revenue growth by launching new services, products and to embed IT into its physical products. Boeing used IT to streamline processes and cut cost a head of its competitors to even engage in a long term value planning instead of short-term with its customers.

With e-Enabled environment, the airplane was connected to every aspect of prospective airline's operations. Now from security point view, I think if a system gets compromised somewhat then the airplane and the passengers will be at risk. One say, well there will be a multiple security levels of controls, defense-in-depth, embedded into e-Enabled components and transactions/processes are audited/trusted before assigning final commit or complete. The point here, security needs to be an integral part during the early planning stage of e-Enabled advantage.

6.         Has The Boeing Company considered ways to limit the scope of their projects?  Consider the 80/20 rule – you can achieve 80% of the benefit with 20% of the effort.

The Boeing Company set their sights on becoming a provider of not just airplanes, but rather “a provider of integrated products and services to all of [their] customers.”  Their vision came due to high competition, but was fortuitous to come right before an unlikely decline in the air industry (due mostly to 9-11).  Their main project concept, at least from an IT standpoint was the e-Enabled Environment, then it became the e-Enabled Advantage program.  At the infancy stage, the e-Enabled environment and all the departments responding to the new vision clearly demonstrate a lack of scope control.  In fact, Coughlin realized all the new programs and products were not all working together to form one strategy.  In this case, the vision itself was not being treated as the project – with a clear defined scope and objective.  Each department rather was working on their own solutions.  This silo effect was inhibiting them from making the e-Enabled solution a competitive advantage or being able to sustain it once they marketed the product.  Once Boeing formed a program to coordinate the initiatives, then they started treating the e-Enable solutions as one project with a scope, a beginning, revisions, and other applications.  So, yes, I believe that once the project was under one roof so to speak, they scope was determined and maximum benefit was reached for their efforts.

How well do you understand the key factors that drive business performance in your organization and industry?

I think Boeing had a clear feel for the pulse of the airline industry.  They realized that the industry by nature had its ups and downs and that it would be in their best benefit to diversify their ventures, going from strictly commercial airplanes to a restoring its balance by getting more into the defense field.

What must be done well to reduce costs, grow revenues, impove asset efficiency, and achieve sustainable advantage?

An interesting thing in the core competencies of Boeing are that not only does it support "large scale systems integration" but it also operates as a "lean enterprise".  This seems to be a major advantage if it can combine some of the characteristics of a big company (the large scale systems) with the agileness of a small company (lean, efficient processes with short cycles).  In general, they did a great job reducing costs, growing revenue, and improving efficiency by modernizing its inventory system and streamlining the manufacturing process.

How can IT be used to improve business performance?

The "silver bullet" is the e-Enabled advantage of Boeing.  This is made up of fourc omponents: The Connexion by Boeing  broadband data and Internet services system; a central onboard network integration cabinet; the Jeppesen Electronic Flight Bag (EFB); and advanced ground-based software applications.  These components combine to increase efficiency in the airlines day to day operations.  This integrated suite of e-Enabled solutions can also provide a reason for customers to choose Boeing (providing it with an edge over its competitors).