SWOT Analysis of the Organization's Internal Control Mechanisms

A vital tool when regarding the internal analysis of an organisation is the SWOT analysis. This acronym stands for strengths, weaknesses, opportunities and threats. Strengths and weaknesses tend to be a result of internal factors, whereas opportunities and threats are usually a result of external factors. A major disadvantage of using this analysis tool is that it takes into too many factors which makes it difficult to consider them during the process of devising an organisational strategy (Grant Et Al, 2013).

Strengths

Strong Focus on Research And Development

A crucial strength for Boeing is the large level of focus that they place on their research and development department. This department focuses on innovative techniques, enhanced procedures and fresh product development. It offers Boeing with technical and functional capacities, including information systems, research and development, testing as well as assessment, technology strategy development, management of environmental remediation and the management of intellectual property. The research and development department also focus on creating new product lines in the commercial, defence and space sectors. As of the fiscal years 2015, 2016 and 2017, Boeing’s expenditure on research and development amounted to US $3.3 billion, $4.6 billion and $3.2 billion. The company is currently in the process a number of new products including safe, linked aircraft that enable analytical activities, integrated sound and light inside the cabin that enable airlines to strengthen their branding and present unique important data to travellers, developments in natural laminar flow that enhance fuel efficiency, stronger, lighter and more durable materials beyond carbon composites that decrease aircraft weight (MarketLine, 2019). This strength will aid Boeing in developing a competitive advantage over its competitors.

Diversified Geographically

Another strength for Boeing is that they do not rely on one specific market to generate a majority of their revenues. This is an important factor because relying on one market means that the company is left suffering and vulnerable when that specific market faces uncertainty. For instance, the market enters a recession in the economic cycle then revenues will drastically decrease as the company is heavily relying on the suffering market. “In FY2017, the US, the company's largest geographic market, accounted for (45.3%) of the company's total revenues, followed by Middle East with (13.2%); China with (12.8%); Europe with (12.3%); Asia and other than China with (9.5%) Canada with (2.4%); Oceania with (2.2%); Latin America with (1.6%); and Africa with (0.8%)” (MarketLine, 2019). These figures show the market diversity in terms of revenue collection globally for Boeing.

Weaknesses

Heavy Reliance on Suppliers And Subcontractors

Boeing depends on other businesses, including subcontractors and distributors, to supply and manufacture raw materials, embedded parts and subassemblies and manufacturing commodities, as well as some of the services it offers to its clients (MarketLine, 2019). In terms of risk mitigation, this is not a good move for Boeing as the failure of any of these suppliers or subcontractors to complete their tasks will immediately delay the product or service delivery to Boeing’s customers. For example, if Boeing’s suppliers are not able to source essential raw materials for aircraft production such as titanium or aluminium this would mean that Boeing has to start searching for new suppliers, which in turn would delay the production process. The result of such scenarios includes the loss of revenue, a decrease in company profitability and the loss of clients to competitors.

Damaged Brand Image

Boeing’s brand image and reputation has taken heavy hits due to their “737 Max” model of aircraft. This model had been in use with Indonesian airline Lion Air and Ethiopian airlines, where both flights crashed in the year of 2018 as well as 2019 which resulted in the deaths of 346 people. It is believed the crashes were a result of faulty software within the aircraft’s systems (Johnson and Rucinski, 2019). These incidents have resulted in the loss of trust by clients and sparked backlash as well as legal action by a number of stakeholders. This means that Boeing will see a decrease in clients, therefore a decrease of revenue, profits and brand value is fairly inevitable.

Reduction in Liquidity State

During the fiscal year of 2017, Boeing’s liquidity started to see a decline. A decrease in liquidity may signal that a company is finding it more difficult to fund its day to day activities. This would result in both a decrease of efficiency and effectiveness for Boeing. The organisation’s current ratio was 1.1 in 2017, possibly due to an increase in the firm’s current liabilities. Boeing’s major competitors such as Textron Inc and Northrop Grumman Corp reported much higher ratios (MarketLine, 2019).

Opportunities

Predicted Growth in Commercial Aviation Sector

The commercial sector of aviation is predicted to have positive growth over the next decade, therefore Boeing is presented with an opportunity that they can capitalise on. It is estimated that the 60-150 seat fleet will expand from 7,300 units in 2014 to 15,000 by 2034. The 60-100 seat vessels will rise from 2,900 units in 2014 to 6,900 units, and over the same period 100-150 seat fleets will rise from 4,400 units to 8,100 units. There will be a sum of 12,700 modern aircraft supplied by 2034, in accordance with Bombardier world (MarketLine, 2019). Boeing’s strength of focusing on research and development means that they will be able to offer innovative and efficient aircraft to clients over the next few years.

Increased Growth in Defence and Aerospace Industry

The defence and aerospace industry similar to the commercial sector of aviation is also predicted to experience growth in the near future. “global aerospace and defence market is expected to reach value of approximately $1,249.5 billion in 2021”. The products in this category include military aircraft, defence systems and defensive projectiles to name a few. Boeing is in the business of designing and producing such products apart from civilian aircraft, therefore this serves as an opportunity to secure orders and contracts which would in turn increase revenues as well as profitability (MarketLine, 2019).

Threats

Extremely Competitive Market

In the commercial aviation sector Boeing’s major competitor is Airbus who is intent on increasing their market share, which makes this sector of the industry a duopoly. Boeing can therefore not afford to lose any competitive advantages to their industry titan of a competitor (Michael A. Et Al, 2010). In the defence and aerospace sector Boeing also faces heavy competition from major players such as Lockheed Martin, General Dynamics, Raytheon and Northrop Grumman. Some of these competitors are more specialised in other areas that Boeing does not have a strong focus and companies such as Airbus are strengthening their position within the United States market, which may serve to be a problem in the future (MarketLine, 2019). Boeing having to face high levels of competition across different segments of the commercial, defence and aerospace industry may result in the loss of revenues, market share and profits.

Fixed Price Contracts

During the year of 2016, Boeing’s fixed price contracts accounted for approximately 71% of the organisations revenues. Fixed price agreements allow the firm to profit from improvements in efficiency, cost reductions and efficiencies, while at the same time putting Boeing at danger of decreased margins or losses if the business is unable to attain estimated expenses and income. For instance, if Boeing is unable to source raw materials such as aluminium at their estimated price rather at a more expensive cost then these costly materials will have a negative impact on Boeing’s bottom-line. Furthermore, fixed price contracts usually have penalties attached to them in terms of not being able to deliver the product as specified in the terms and conditions (MarketLine, 2019). Examples of this include modifying a product specification or late deliveries of finished products. This shows that fixed price contracts serve as a risky option for Boeing especially when it can account for a large share of the company’s revenues.

Reduce reliance on fixed price contracts in case liquidity state worsens. Competition may take advantage of damaged brand image to increase market share. Although the SWOT analysis is a useful starting point in discussing the internal state of an organisation, it can be developed further using the TOWS matrix which can help in the process of designing the organisational strategy. As seen in the diagram above, Boeing needs to implement different strategies to cover the different SWOT analysis sectors. The first sector being strengths/opportunities regards to how Boeing can utilise its strengths to exploit its opportunities. The recommended strategy in this case would be for Boeing to keep focusing on research and development in order to provide the future growing markets with innovative products such as more fuel efficient and lighter aircraft. This products would give them an edge over their competitors. The second sector of this matrix is weaknesses/opportunities. This sector refers to how Boeing can eliminate its weaknesses that are holding the company back from capitalising on their opportunities. In Boeing’s current state the suggested strategy would be taking more elements of the production process into their own hands in order to reduce their heavy reliance on subcontractors and suppliers. The company also needs to devise campaigns in order to regain stakeholder trust. This strategy will likely put Boeing in the preferred position to exploit their opportunities. The third sector deals with how Boeing can tackle potential threats using their strengths. The plan for this sector is to hold the strong focus on research and development as it serves as a great source of competitive advantage. The last sector of the TOWS matrix is weaknesses/threats. Essentially this sector deals with the question of which vulnerabilities are particularly susceptible to threats. Therefore, the strategy here would be reducing Boeing’s reliance on fixed price contracts as a major source of revenue as a safety measure for their low liquidity state. Boeing also needs to win back clients to deal with their damaged reputation otherwise the company will lose a large cut of market share to rivals such as Airbus.