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NEW MARKETS ON THE HORIZON It's called 'market shaping,' and, if it's done right, it helps a company anticipate customer needs. In turn, the company can invest in the right technology, product or service at the right time. BY PAUL PROCTOR Picture IBM in the early 1970s: A great company with a highly skilled workforce building great computers. Dominant in its field, market-driven, with laser-like customer focus. Yet IBM ended up missing its chance of being a clear leader in today's $160 billion annual global market in personal computers. Why? Because IBM was so totally market driven it failed to look over the horizon and see upcoming business and technology trends. "They had a great team of trained people going out and talking to all their clients and asking: How would you like to have this PC," said Dave Swain, Boeing chief technology officer, Office of the Chairman. "And their clients said 'No.' Their customers told them they didn't want it." But IBM wasn't looking far enough ahead, nor asking the right audience. "Their clients were all big companies with big mainframe computers," Swain said. Although Boeing is "outstanding" at listening to customers and being market driven, for a business to be great it also must be able to shape the market. "You have to get out in front of your customers or you will never get to the point where you invest in the right technology or in the right new product" ahead of your competition, Swain said. What is "market shaping," and why is Boeing emphasizing it? "It's about understanding where your customer is going and where they will be in the future," said Chairman and CEO Phil Condit. It's about "doing those things which facilitate them getting there and facilitate [Boeing] getting them the right products when they do get there," he said. It is taking a Boeing core competency, detailed customer knowledge and focus, a step further. "It's about helping the customer be successful," said Shephard Hill, vice president for Business Development at Boeing's Integrated Defense Systems business unit. Paving the street What market shaping is not is a key distinction, according to Condit. It "does not mean understanding the world better than your customer understands it." Indeed, the term can "sound a lot like you are telling your customer what to do," he said. That's an arrogance Boeing cannot afford either internally or externally. Instead, think of the market-shaping strategy as simply "trying to get ahead [of the customer] and pave the streets," Condit said. Market shaping is not a new activity at Boeing. In the early 1980s, when it became obvious there were real advantages to having two pilots in the cockpit of commercial airplanes instead of a crew of three, Boeing played a major role on the issue. Today, all new, large commercial airplane cockpits are two-crew. Similar efforts continue at the company's Commercial Airplanes business unit today, Condit said. A case in point: Boeing has built a product strategy that features smaller airplanes capable of performing point-to-point services. That's because the company believes that given open markets, routes will continue to fragment and more passengers will be flying point-to-point. Boeing today is helping to shape the air travel market, Condit said, by promoting an advanced air traffic management system that will allow point-to-point operations to flourish. Indeed, Boeing established its Air Traffic Management business unit in November 2000 with the intention "not to build a bunch of ATM equipment," but to create an infrastructure that will enable the commercial airplane business to grow in response to market forces and not be infrastructure-constrained, said John Hayhurst, president of Boeing Air Traffic Management. From the outset, the job assignment for Hayhurst and his team has been to "create a vision of the future" for air traffic control. Today, ATM continues a process of helping stakeholders share their views on the future global air traffic management architecture, he said. "I think people would agree we've refocused the debate in Washington about what air traffic management should look like in the future," Hayhurst said. "We've influenced the thinking in Europe as well." The ultimate customer Boeing's market-shaping philosophy boils down to "thinking hard" about the ultimate customer, not necessarily the direct customer, Condit said, and planning over an appropriate time period. "Whether we're talking about an airline passenger or the war fighter, what is their life going to look like in the future? What will it be like to be a foot soldier in Afghanistan in 10 years?" Condit said. "What would be the perfect environment for an airline passenger? What are the things we can do, either in our products or in market shaping, to make traveling by air the preferred way to go from Place A to Place B?" How can we help our customers connect and protect? If Boeing people can imagine these things with enough fidelity, they can begin to shape the market, Condit said. "If we are correct [in determining] what the customer really wants, then the answer can be pretty positive for Boeing, even if all the in-between pieces aren't in place yet," he said. Setting an appropriate time horizon is key, Condit said. "You've got to go out at least 10 years. If you try to think about tomorrow strategically, the reality is we know too much." The problem with looking at something like this from the present time forward "is you tend to invest in things you know about: 'I know about aerodynamics, so I'm going to invest in aerodynamics. I know about propulsion, so I'm going to invest in propulsion.'" But by taking the long-term view, going out and then looking back, the big picture becomes clearer, Condit said. In the case of the airline transportation market, for instance, "You've always got to keep asking yourself: What is it in the end that the customer wants?" It then becomes apparent what matters is getting the customer to the airport, through the airport and to where they want to go rapidly, safely and with as little hassle as possible, Condit said. And in the long run, incremental advances in aerodynamics and propulsion, though important, likely will make little difference in giving the end customers what they really want. Once Boeing has a clear picture of a market and its challenges, better decisions follow naturally on how and where Boeing can best focus its time and energy. This also helps the company seek out and invest in the new technologies it needs to help the customer successfully reach its goals. Does that mean new businesses? It absolutely could, Condit said. Take, for instance, the $508 million Department of Transportation contract Boeing and partner Siemens Corp. won in June to install and maintain explosives detection systems at the 438 U.S. airports. Few would have imagined Boeing in that business five years ago. The contract has a $1.37 billion potential if five possible one-year extensions are won. Boeing's market-shaping effort also is helping some of its major customers through their own transitions. The Department of Defense is undertaking a massive transformation of the U.S. armed forces under the direction of Secretary of Defense Donald Rumsfeld. This effort, being coordinated through the Pentagon's Office of Force Transformation, is aimed at helping "prepare our armed forces for the threats and the challenges of the new century," Rumsfeld said. "Preparing for the future will require us to think differently and develop the kinds of forces and capabilities that can adapt quickly to new challenges." Rumsfeld's transitional goals include the ability for U.S. forces to communicate and operate seamlessly on the battlefield, with improved intelligence and rapid and decisive long-range precision strike capability. Ecosystem view Barry Nalebuff, the Milton Steinbach Professor at the Yale School of Management, is a proponent of the big-picture, or ecosystem outlook on business strategy and planning. Boeing's objective should not just be to care for the person or the plane from the time they depart to after they arrive, Nalebuff said. The company should "endeavor to care for the entire air transportation system from the ground up." "A lot of what Boeing has is data. If you think about what Boeing really is, [it's] the operating system for air transportation. … what Microsoft Windows is to software," Nalebuff said. "There are airlines out there who want to be virtual airlines. Boeing can provide the planes, the reserve planes, and manage the spares, maintenance and training." It can certify the pilots, and it can set the architecture for air traffic control, gates, and even baggage handling, he said. "It's Boeing's job to make air transportation work better," Nalebuff said. If the company sees something that doesn't work well, it can't take a passive role and wait for others to fix it. Boeing needs to take the lead, he said. "The best way to predict the future is to shape it." Renewed Connexion Connexion by Boeing also presents a compelling case for market shaping, especially after the Sept. 11, 2001, terrorist attacks on the United States, said Scott Carson, president of the business unit. Granted, there was a degree of market shaping following the formation of Connexion by Boeing in October 2000, he said. It primarily let the market know the capability of the new digital broadband communications technology for expediently transferring data to and from aircraft. However, the effect of the attacks on airline finances disrupted the business plan that was based on a U.S. launch of Connexion by Boeing as a pipeline for providing air passengers with real-time broadband Internet services in flight. Before the attacks, Connexion by Boeing had attracted four customers three of which had planned to take an equity position with announced plans to equip 1,501 jetliners with the Connexion by Boeing service. After Sept. 11, the three U.S. partners withdrew to focus on economic survival. Borrowing from the Working Together model established for the 777, the Boeing business unit formed the Connexion Working Together group with 15 airlines, including some carriers not immediately interested in the technology. The group went back to square one, asking: How do we use this technology to bring applications that will create economic value for airlines, for manufacturers and for passengers, Carson said. Discussions at the CWT meetings were thought-provoking, honest and candid, Carson said. The result was the start of a new and shared vision that is now wholly bigger than where Connexion began. The Connexion Working Together team identified a series of different problems that this technology's applications could help solve, opening up new potential markets. The opportunities this work is creating could shape key future markets for Connexion's sister business units. Primary among these is the capability to move aircraft and systems data from the aircraft in real time. This enables an airline to have the parts, the maintenance personnel and the right equipment waiting at a destination when an aircraft has an in-flight component or system malfunction. Currently, diagnosis doesn't begin until the airplane has pulled up to the gate. Potentially even more important, however, is that this capability can allow comprehensive predictive failure analysis to be performed by ground-based computers, so airlines will know when to replace or repair failing components before they cause an expensive flight delay, cancellation or turn back. Such a rich database also would allow manufacturers of aircraft, engines, avionics and components to more accurately predict warranty costs. With the latter information, airlines potentially could move more responsibility for ongoing maintenance back to the original manufacturer, Carson said, shaping possible new markets for Commercial Aviation Services. Another example is the potential to use Connexion by Boeing to transmit detailed medical information on and off aircraft, to help manage a passenger health crisis while airborne. Recently demonstrated two- and three-way video teleconferencing using a Connexion-equipped aircraft adds additional business opportunities, including improved in-flight aircraft security monitoring. The technology also has potential markets in moving data and communications on and off cruise ships, naval vessels, oil rigs and trucks. Boeing's approach to markets often has been to respond to what the market wants, Carson said. The difference this time was "to start imagining a future that is very different, very much bigger, from what any of us thought going in." The deep understanding of the technology, customers' needs and market opportunities fostered by the CWT team created "value everywhere you touch the system." Carson said. View from Washington On Capitol Hill, the company's Washington, D.C., Operations office spends much of its time working with the U.S. Congress, government agencies and international standard-setting organizations to shape regulatory policies that affect Boeing markets. Currently, a great deal of effort is being spent on trade issues, "leveling the playing field" so Boeing can fairly compete in international markets, said Ted Austell, vice president of International Policy. That includes supporting government efforts to come into compliance with World Trade Organization rules without placing Boeing at a disadvantage. The office also helps in shaping competition and financing policies, promoting "open skies" aviation treaties and, indirectly, supports initiatives by the airline industry aimed at returning carriers to financial health more quickly. In particular, the Washington office is supporting Boeing's Air Traffic Management business unit by working with government agencies and other stakeholders to develop a global air traffic management system that is safer, more secure and more efficient than the current system, Austell said. Market shaping is part of Boeing's new international business strategy, said Tom Pickering, Washington-based senior vice president of International Relations for Boeing. The need is manifested in a number of locations where defense markets, for example, are heavily influenced by defense thinking in the United States, and Boeing can play a role in relaying that thinking, Pickering said. "Our objective is to help customers build value. And by helping them build value, we're helping build value for Boeing as well," Pickering said. Boeing is revitalizing and expanding its international team and today has an established presence in about 10 countries and regions. Customer bandwidth At Boeing's newly formed Integrated Defense Systems business unit, the market-shaping process begins with intimately understanding the enduring needs of the customer early on. "With the U.S. Department of Defense, for instance, you can't wait for the Request for Proposal to come out. You have to get with the customer early on to determine their enduring needs precision, mobility, lethality, interoperability, as an example and how they apply to a given mission area," Hill said. Using this approach, Boeing and the customer initially work together to better understand market drivers and anticipate where a given market will go, and the capabilities needed 10 and 20 years in the future, Hill said. In the early phases "it's very important that you not try to sell a specific product or force a predetermined solution." In the next step, Boeing and the customer jointly brainstorm ideas, looking at "solution alternatives," Hill said. It's an interactive, mutually respectful process, with lots of give and take in determining what options can best satisfy the customer's needs, he said. This interaction allows Boeing to develop products and services that help guide and match customer needs as they develop requirements and issue RFPs, Hill said. In some instances a solution may entail the use of non-Boeing platforms or products, and Boeing's value to the customer is being the honest broker and the supplier of the best systems solution. "If we do this right, responding to the final RFP is simply a matter of taking a test we helped develop." The Boeing Integration Center has provided a major boost to IDS' market-shaping activities. Located in Anaheim, Calif., the BIC is a tool that helps Boeing develop and test how multiple systems can work together to create a "sphere" of real time information, or "integrated battlespace," offering improved situational awareness, communications, intelligence and ultimately decision dominance for military commanders. Indeed, the BIC was instrumental in Boeing's recent win of the key U.S. Army Future Combat Systems contract with partner Science Applications International Corp., Hill said. FCS has up to a $4 billion potential over the next five years. Beyond that, it could make Boeing the U.S. Army's No. 1 contractor. Working in concert with Boeing's Virtual Warfare Center in St. Louis, the BIC also has provided compelling demonstrations for other customers, sister business units and in support of related competitions. In June, the capability helped Boeing gain the U.S. Army's Joint Tactical Radio System contract, with a potential value of up to $2 billion. By working in close partnership with the customer to construct and test architectures and demonstrate new solutions, Boeing "came from relatively nowhere to win FCS," Hill said. Just four years ago, the integrated battlespace was a concept, a vision, to some just "pie-in-the-sky," Hill said. Today, the integrated battlespace market has an estimated $200 billion potential, and Boeing is an acknowledged market leader. IDS is applying similar market-shaping strategies with its NASA and commercial space customers. In the case of commercial launch and satellite customers, Boeing has a long history of being close to the customer and having detailed market knowledge. And although the market is changing somewhat with new, innovative initiatives under way that "will change how people buy satellites or launch services," Boeing remains a preferred provider, Hill said. NASA's leadership, too, is intensely interested in developing concepts and technologies and better ways to do business. Boeing is working closely with this customer in terms of focus, investment, technology and business operations to help shape and ultimately meet its needs, Hill said. Industry voice Market shaping at Boeing Commercial Airplanes comes in many different forms, said Nicole Piasecki, vice president of Marketing and Business Strategies. "We have a vision of how people want to travel," she said. However, due to its highly regulated and global nature, commercial aviation also has multiple constituencies it must satisfy. Commercial Airplanes' primary market-shaping activity is "providing new aerospace capabilities to address the fundamental needs of passengers" and allow them to do what they want to do, Piasecki said. In some cases, this effort involves doing what's right for the market as a whole, even if there's not an immediate payoff for Boeing, Piasecki said. Working with other business units, International Relations and Boeing's Washington, D.C. office, Commercial Airplanes is helping educate governments and their agencies around the world on the business unit's mission to provide a safe and efficient global air transport system. Part of this mission involves promoting the benefits of market fragmentation, or increased point-to-point services, for the passenger. The Seattle-based business unit also is working with airports and airport authorities worldwide to help ensure smooth and efficient passenger throughput, she said. Boeing also has a major role partnering with the U.S. Federal Aviation Administration, Europe's Joint Aviation Authorities and other certification agencies to better support Boeing's lean, competitive, global enterprise. It's important that the "FAA globalizes the way Boeing is globalizing," Piasecki said. According to Piasecki, Commercial Airplanes is playing a critical role in the market during this crisis. "We've already reduced production to address over-capacity," she said. "Our focus is on doing everything possible to make our customers more competitive, and sometimes that means allowing restructuring and consolidations to occur. We're also focused on being flexible and creative and providing our customers with airplanes, services and financing solutions." Forever new frontiers Market shaping is not easy. It's a continuing journey that requires a different mindset. The first time the Boeing board of directors asked senior executives to think about what customers really wanted, or what they're going to need 15 years out, "We couldn't wrap our thinking around the bigger problem," Condit recently recalled. But as Boeing continues its transformation into a balanced, agile and global aerospace enterprise, the company is working hard to look ahead and "pave the road" in front of customers to help them be successful. Because history has shown us companies that anticipate and shape the markets they serve, succeed. Those that do not are passed by.
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