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Strategical Management of Technological Innovation

Essay by review  •  November 18, 2010  •  Research Paper  •  3,615 Words (15 Pages)  •  2,164 Views

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SONIC CRUISER

Boeing, the world leader in aerospace industry and also the largest combined manufacturer for commercial and military aircraft is currently developing a new midsize (200-250 passengers) jet called 'Sonic Cruiser'. The company which has the longest tradition of leadership and innovation in aerospace (Boeing, 2005) is attempting to build an airplane which radically change the way airline and passenger travel by air than it should be. (Schilling, 2005). The Boeing Sonic Cruiser or so called the 7E7 (attributed as efficient, economical, environmental friendly or even enabled) as described by Corliss (2003) reduces fuel travel time from 15 to 20 percent, speed between 0.95 to 0.98 near to the speed of sound and fly 10,000 feet higher than typical commercial airplane. The applied research of Boeing Sonic Cruiser is building an airplane for the demand of airlines and passengers that will save cost and reduce travel time, and at the same time reduce pollutions. It reduces the time-consuming transit and costly stops at major hub called point-to-point service. (Boeing, 2005).

The timing of entry of the innovation is a main concern for Sonic Cruiser to launch and being sellable in the market. Research and Development (R&D) of this radical innovation brought Boeing high expenses to develop which it also incur the complement goods that are still unavailable for Sonic Cruiser. Complementary goods for that technology are necessary to operate the Sonic Cruiser. The failure producing this new innovation could possibly reach up to 95 percent according to statistic, said Schilling (2005) because of the high expenses and risks. These complements consist of different types, the consistency to train pilots and engineers to ensure safety and airplane parts need to be kept in the inventory. Although the complement goods are available, it has not been fully developed to its purpose as seen in Figure 1, the S-curves in technological improvement.

Strategic Management of Technological Innovation. Schilling, 2005.

Briefly, the complement goods are still immature during the early stage. It may pose a barrier for this innovation to be adopted for the early movers. While supplies and distribution channels are still limited or unable to produce the Sonic Cruiser components. The firm can suggest putting it off by investing in development of its own component production plant. Steinke (2001) further explained that it entails a lot of pioneering work followed by high expenses of development and hence constitute a risky project. First mover will initially face market uncertainties of airline companies' requirement. For example, the airline company fears that its operating cost could cost more than operating its present Boeing 767 that it would replace. Passengers would be slow to accept the new ideas of air traveling and this fearsome radical innovation can be described in how the diffusion of innovation is adopted in Rogers' five adopter categories. The innovators will throw their own self to the new innovation initially and later lead by early adopters and followed by early majority, late majority and finally the laggards. (Surry, n.d.). Presently, Boeing is rivaling with a tough commercial plane competitor, the Airbus that able to learn the failure and weaknesses of Boeing for being the first mover in aerospace industry. The weaknesses learned from Boeing could help advance Airbus' technologies as it poses a main threat to Boeing's commercial jet market.

Despite of that, Boeing reputation is important to influence its best in timing of entry. In term of leadership and quality in innovation, Boeing stands stronger to attract its customers and suppliers. Thus, it gives an idea that Boeing has an additional factor that will attract its adopters. Boeing further explains that the company is premiered in manufacturing commercial jetliners for more than 40 years. It combined with the lineage of Douglas airplane on a heritage of 70 years of leadership in commercial aviation. (Boeing, 2005).

To make a firmer decision whether to continue developing and launching the Sonic Cruiser, Boeing have to assess its current position in the industry. The tools generally used to analyze the external environment are the Porter's five force model and stakeholder analysis. Sometimes a sixth competitive force occurred in the force, which is the government (12Mange.com, 2005). Boeing has a strong rivalry between Airbus which is launching a larger capacity airplane in year 2007 to compete with Sonic Cruiser (size versus speed). The existing aerospace industries are termed as oligopolistic industries because they are few large competitors to compete. The two major firms strongly anticipated that commercial jets demand will grow as much as $1 trillion by 2019. (Labi, 2001). When the demand increases, competitive pressure will become lesser. The two industries players are both equally in strength and size but Boeing is competing in speed while Airbus is competing with its size. Thus who will win to compete in their core competency is hard to predict.

Figure 2: Michael Porter's Five Force Model (12Manage.com, 2005)

The threat of potential new entrants does not likely to affect the development of Sonic Cruiser. Boeing airplanes represent three quarters of the world's fleet with 12,000 jetliners in service. (Boeing, 2004). To effectively compete with a large, well-established and efficient firm, new or current smaller firm requires a large scale of capital to manufacture, advertise and distribute in order to be competitive. However, this can be done through partnership by joining small firms together. Boeing strong selling points were quality, reliability, customer service and value for money. (Condom, 2005). It seems not easy for new entrants to grow and enter into the industries. The height of entry barriers is also the main obstacle for new firms to enter the industries. (Recklies, 2001). These are typically:

 High start up investment and fixed cost of new players.

 Boeing has higher experience due to the S-curves effect and development cost is depreciated.

 Boeing has good reputation to the customer.

 The intellectual property or license of product.

 Limited resources on new firms (e.g. skilled engineers and qualified staff).

 Legislation and government regulation.

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