July 2011 | When Strategy Is Up In The Air

July 2011

When Strategy Is Up In The Air

Over the years, Harvard Business Review has published several outstanding articles about decision-making under uncertainty. The big idea is that, in an uncertain world with incomplete information, companies can choose between several different and distinct strategic approaches including: 1. Fully commit to action and, in doing so, shape the market; 2. Cautiously and partially commit to limited action; and 3. Do nothing but continue to analyze for possible action in the future.

Airbus’ recent approach to the commercial airplane market versus Boeing’s is a textbook example of two of these approaches. Essentially, Airbus moved (Approach #1) while Boeing mulled (Approach #3).

Airbus made a decision that their customers would become concerned about rising fuel prices and increasingly strict environmental regulations and would thus want to buy new fuel-efficient and low-emission planes. So they developed the “A320neo”, an upgraded version of their existing A320 platform complete with new engines.

Boeing, instead, took the wait-and-see approach and for 2 years has been analyzing whether it would be better to change-out the engines in their existing 737s or build a brand new plane to be delivered at the end of the decade.

One airline http://healthsavy.com consultant described Boeing as “hemming and hawing” while Airbus had “stolen a march” on them. But a Boeing spokesman said that Airbus’ actions “will simply bring the A320 roughly on a par with the 737”. Gordon Bethune, the former head of Continental Airlines, says that Boeing could still “jump ahead of (Airbus)” if they build a new airplane rather than rework their existing 737.

Only time will tell which approach will prove best over the long term. But in the short term, at the Paris Air Show in June, Airbus booked a record-setting number of orders for the A320neo. A big deal when you consider that Boeing’s own forecasts show that total demand for aircraft with 100+ seats over the next 20 years will be 33,500 aircraft at a total value of $4.1 trillion.

Boeing’s and Airbus’ actions are intriguing examples of high-stakes business decision-making. As your company plans and adjusts its course, be aware that you do have strategic alternatives. And keep in mind that there may be actions you can take today that will shape the future – even in a constantly changing world and with incomplete information.