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Impact in Strategy Analysis

Finding the Strategy Pivot-Points

How concerned would you be if your competitor had a copy of your HR strategy? Too often, the answer we get to that question is “Not very concerned, because ours probably looks a lot like theirs anyway.” Indeed, if you compare the HR strategies of two competitors, without indicating the names of the companies, it is often hard to tell which strategy goes with which company. Talent and organization decisions are often based on very broad and generic strategic goals, such as “increase innovation” or “provide world-class customer service.” Or they reflect workforce goals that are important but generic, such as “retain more baby-boomer technical talent,” “increase diversity,” or “build next-generation leadership.” These goals undoubtedly fit the organization and its stated strategy, but then they would fit any number of strategies. HR strategies are seldom specific or unique.

Consider this question: “Where does your strategy require talent that is better than your competitors?” Likely, you do not need superior talent throughout the organization; that would not be cost competitive. But you do need superior talent for aspects of your value chain that will enable you to create and sustain a competitive advantage. If you want to establish a competitively distinctive talent strategy, you need a process for determining the strategically important elements.

Impact: Connecting Strategic Success to Organization and Talent

Impact is the starting point for determining the talent strategy. Impact defines the relationship between sustainable strategic success and the performance of organization and talent. With a deep and logical understanding of these relationships, leaders have the necessary foundation to create truly innovative and distinctive talent strategies and to determine priorities. This chapter will focus on the key issues to consider when analyzing the business strategy to determine the talent implications. This level of analysis often is not done because it requires both line and HR leaders to dig deeper into the business strategy than is commonly done today. Our experience shows, however, that the insight that results from the process is worth the effort, not only for improving the talent strategy, but for implementing the organizational strategy. When there is a deep understanding of the strategy and its talent implications, HR can recommend programs and practices that are tangibly linked to the specific elements of the business strategy.

Figure 4-1 shows that in the HC BRidge framework, impact looks for pivot-points in sustainable strategic success, and then in the resources and processes (and other lenses that we will describe in this chapter) that define that success, and finally impact uncovers the talent pools and organization elements that must align with them. We separate the impact analysis into two steps: (1) finding the pivot-points within the strategy and (2) connecting organization and talent performance to these strategy pivot-points. In this chapter we will focus on strategy pivot-points, which are those parts of the strategy whose execution significantly affects the strategy’s success. In chapter 5 we will take the strategy pivot-points and determine how organization and talent performance affect them, which will complete our impact analysis.

FIGURE 4-1

HC BRidge framework: Impact

Strategy Traditionally Emphasizes Mature Decision Sciences

It is important to distinguish strategy formulation from strategy analysis. Most leaders and strategy writing focus on strategy formulation. Strategy formulation is a vital role of leadership within the organization. It typically considers the external environment, customer trends, competitive positioning, and internal strengths and weaknesses. Strategy formulation produces the strategic direction—that is, the plan to compete in the marketplace, which may be quite formal and last over long periods or highly dynamic and adaptive.

Analysis defines the crucial (or pivotal) elements for the strategy’s success. Analyzing strategy to reveal talent and organization implications is consistent with an emphasis on strategy execution. With a common understanding of the strategy pivot-points, leaders can help ensure that all resources, including the organization and talent resources, are deployed in relationship to their importance to strategic success.

Existing strategy formulation and analysis processes typically emphasize the decision frameworks of finance and marketing, which are well ingrained in the mental models of leaders and supported by strong analytical staff functions. Because most strategies fully reflect the logic of these more mature decision sciences, connecting finance and marketing decisions to strategy is a relatively straightforward task. As a result, marketing and financial tools are critical, but they differ little from one company to another. They are unlikely to create a competitive advantage precisely because they are so commonly understood.

When organizations analyze impact, they expand the scope of their strategy analysis to include talentship. Talent and organization implications are increasingly important for aligning the organization and achieving the strategic intent. Even a basic strategy in a moderately complex organization requires untold numbers of processes, resources, actions, interactions, and activities to make the organization work, much less thrive in a competitive marketplace. The key to organizational alignment is to find the pivot-points that we described earlier.

Distinguish What’s Important from What’s Pivotal

Having a more precise knowledge of the pivot-points than your competitors is a source of competitive advantage for executing the strategy. The key is understanding the difference between being important and being pivotal and applying it to the strategy. A good illustration of strategy pivot-points can be found in the 2004 U.S. presidential election between George W. Bush and John Kerry. Both campaigns quickly focused on the pivot-points, known as “swing states,” and heavily allocated resources toward them. As a result, Ohio, a key swing state, received more attention than New York and Texas, even though they had more electoral votes.

Similar illustrations of pivot-points often occur in parliamentary elections throughout the world, where small minority parties may hold the key to forming a majority coalition. Germany’s September 2005 election was inconclusive in part because neither of the largest parties (the Social Democrats backing former chancellor Gerhard Schroder and the Christian Democrats backing Angela Merkel) won a significant majority. Both parties attempted to build coalitions with the smaller Green Party and Free Democrats without success.¹ The smaller political parties were pivotal.

Leaders often believe they have an intuitive feel for the pivot-points in their strategy. However, particularly in regard to talent, their analysis often is neither rigorous nor systematic. While their hunches might be correct, their mental models can mistake things as pivotal when in fact those things are important but not necessarily pivotal. The lack of a systematic process also significantly jeopardizes the communication of the strategy to all levels of an organization. Strategic intuition is generally better near the top of the organization, where there is more sophistication and much more direct interaction with the strategy. As deployment cascades throughout the organization, the lack of a framework forces lower-level leaders to use their intuition to identify what’s pivotal. This is often the very leadership level where competitive advantages are built and leveraged. Using a structured process to cascade the strategy though the analysis pivot-points can help ensure alignment at all levels and a successful implementation of the strategy. Table 4-1 defines impact and highlights how it defines pivot-points, the vital decisions it addresses, and offers new questions that we have found valuable in creating improved discussions about strategy pivot-points throughout the organization.

Strategy Seen Through Four Lenses

We find it useful to frame strategy analysis in terms of several lenses, or perspectives, that help determine the strategy pivot-points. Using these strategy pivot-points, organizations can in turn identify their talent and organization pivot-points. Several strategy analysis lenses have emerged from our work, and we will highlight four of them here: strategic assumptions, competitive positioning, strategic resources, and business processes. Figure 4-2 shows how these lenses fit within the impact anchor point of the HC BRidge framework. In using these four lenses, leaders must dig deeper into their strategy than they typically do to determine the talent implications. At times participants get impatient with the strategy analysis process and want to take a shortcut to the organization and talent implications. However, we have seen that this is one place where time invested up front can pay huge dividends during strategy execution.

TABLE 4-1

Anchor point: Impact

Definition	Pivot-points	Decisions to make	New talent and organization strategy discussions
•   Describes the relationship between sustainable strategic success and the performance of organization and talent	•   Where specific improvements in talent and organization performance will most enhance sustainable strategic success	•   Where should you target talent and organization performance improvements so they have the biggest effect on sustainable strategic success?	•   Where does your strategy require talent that is better than your competitors’ for your strategy to win? •   What are the untapped pivotal talent and organization elements that your competitors haven’t recognized? •   When the strategy changes, how should you change your talent and organization? •   Where would improving organizational boundaries make you more competitive? •   What talent should receive disproportionate investment?

Earlier we used an example from the Disney theme parks to illustrate some of talentship’s key concepts. In this chapter and the ones that follow, we will provide a more complex strategy situation from the commercial airplane market, one that is more typical of the strategic challenges that face most organizations. The long-standing and continuing competitive dynamics between Boeing and Airbus provide a rich illustration of how applying the strategy lenses results in new organization and talent insights. This case is unique because of the strategic depth, widely available public information, and the tangibility of the product. We will show how each lens identifies pivot-points of the strategy and develop a rich set of implications for organization and talent, effectiveness, and efficiency.

FIGURE 4-2

Impact analysis process

Boeing Versus Airbus: An Introduction

The market for commercial airplanes with the capacity to carry more than a hundred passengers is dominated by Boeing and Airbus. There has been a great deal of competitive intensity between the organizations on several dimensions. Airbus has surprised many industry followers by rising to become the largest provider of commercial jets in the world.² Before the emergence of Airbus in 1970, the major commercial aircraft competitors to Boeing were Lockheed (which made its last L-1011 in the 1980s and exited the commercial airplane market after the release of the Lockheed Tristar) and Douglas Aircraft (which was acquired by McDonnell to form McDonnell Douglas, a company that later was acquired by Boeing).³ Airbus also has a unique organizational history that we describe in more detail in chapter 5, because how it was organized in 1970 still has substantial implications for some of the organizational pivot-points that it faces today.

Airbus’s Move to Compete with the 747

In the long-range, jumbo aircraft market, which mainly focuses on international routes, Boeing has held a virtual monopoly with the 747 ever since it was first flown by PanAm in 1970. Since the time of its introduction, the 747 has stood alone as the only aircraft with a passenger capacity of over four hundred seats. In addition, its range significantly exceeded other planes when it was introduced, and it nearly matches all other aircraft today. Well over a thousand 747s have been produced, and it has been one of Boeing’s most profitable aircraft. Figure 4-3 shows the position of the 747 relative to existing aircraft (existing aircraft are shown outside of the ovals, and proposed or pre-production aircraft are shown inside the ovals).⁴

In the 1990s, Airbus was a strong competitor to Boeing in the market for planes with one hundred to three hundred seats (the A330 in figure 4-3 shows this), but the super-jumbo market still belonged to Boeing with its 747, which typically accommodated 416 seats. In early 1991, Airbus started discussions with major international carriers regarding a super jumbo that would typically accommodate 555 seats. It was widely known that Airbus was exploring the super-jumbo market potential (in 1993 Airbus formally established a team to define the specifications for the A3XX), yet some experts were skeptical. Many senior leaders at Boeing did not expect Airbus to actually launch the program because they did not see a way that Airbus could create a return given the large upfront investment required. In the early 1990s, Boeing had joined the study group of Airbus partners in exploring potential demand for such a plane and determined that there was not sufficient product demand to justify the creation of so large a plane.

FIGURE 4-3

Aircraft positioning map—passengers and range

To the surprise of many in the industry, and likely some of Boeing’s most senior executives, Airbus decided to launch a new super-jumbo program to leapfrog the 747 on its most unique dimension: size. With the launch of the A380 program in December 2000, Airbus asserted its intention to build the largest commercial aircraft in the sky, a distinction previously held by Boeing. With estimated development costs in excess of $13 billion, the first test flight of the A380 occurred with great fanfare in April 2005. Pending flight certification, the first units destined for commercial service were scheduled for delivery to Singapore Airlines in late 2006. Figure 4-3 shows how the introduction of the A380 changed the aircraft competition, with the A380 in the upper-right of the diagram, alone in its capacity of over 500 seats and with a highly-competitive range.

Boeing’s Response to the A380 Launch

Boeing might have been expected to try to develop an aircraft to occupy the high-range and high-capacity territory of the A380, but they didn’t. Boeing had formally dropped its exploration of the 747X in 1997, when it decided to focus its efforts on planes with less capacity than 555 seats.

Boeing saw a different future in which the combination of increased passenger demand and constrained hubs would cause an industry shift. Hubs would become less central, and there would be a significant increase in the number of direct flights between cities that were not traditional hubs. In Boeing’s view, customers would increasingly prefer direct flights, such as nonstop flights from Portland to Brussels or St. Louis to Seoul. However, the demand for seats on flights between such new longrange city pairs would be lower, which meant airlines needed planes that could be efficiently operated at passenger loads of between two-hundred fifty and three-hundred passengers, smaller than the A380 and smaller even than Boeing’s 747 or 777. As figure 4-3 shows, Boeing had no aircraft in that class, because its existing 747 and 777 had higher capacities than anticipated as optimum for the new long-range flights. The only aircraft in that capacity range was the Airbus A340. However, while the A340 satisfied the size and range needs, it was an older four-engine aircraft that was not efficient enough to meet the emerging airline requirements that Boeing forecast.

In April, 2004, Boeing formally committed to launching the 787 Dreamliner program (then referred to as the 7E7). At that time, they also signed Al Nippon Airways to be the first customer, with an order of 50 planes, valued at $6 million. Figure 4-3 shows the competitive space that would be occupied by the proposed 787. The 787 Dreamliner was different from existing aircraft because it was to be built with advanced materials (such as composite materials for the shell of the plane) and to include other innovations that would improve fuel efficiency, lower operating costs for airlines, and increase long-haul customer satisfaction with features such as an improved cabin environment and larger windows.

Both Boeing and Airbus had the capital, engineering talent, and other organizational capabilities to build airplanes for either market. Airbus chose to allocate its engineering and production capabilities to build the A380, and if its projections were correct, it would have a market lead that would be difficult to overcome. Even if Boeing ultimately discovered that the demand was for approximately eight hundred of the super-jumbo planes, there still might not be room for Boeing to succeed as a second competitor in the super-jumbo market. Given the time and capital required to build a new airplane, combined with the high breakeven point for such an investment, if the Airbus demand projections were correct it would leave Boeing with few strategic options.

Applying the Strategic Assumptions Lens

The strategic assumptions lens uncovers talent pivot-points in strategy formulation by asking, “Where are we making important assumptions about the future of the industry that are different from our competitors?” These strategy areas represent pivot-points, where pivotal talent pools are associated with the analysis that supports those assumptions or with making the predictions.

Consider the strategic assumptions of Boeing and Airbus. Both companies saw a future with increased demand for air passenger traffic. One of the most significant drivers of the increasing demand was the economic growth of Asia, where there are large distances between many of the economic centers. In addition, general economic growth was increasing demand in all parts of the world. Also, both Boeing and Airbus recognized that the major hubs were significant constraints with limited incremental capacity (such as new runways or gates) available to meet the demand. It was at this point, however, that the companies diverged.

The Airbus market analysis showed that to meet the demands of increased passenger traffic with limited hub capacity, airlines would need to increase the number of passengers that could be carried on each flight. Airbus predicted demand of seven hundred units for the A380 over twenty years, and in some projections potential demand over the life of the plane went as high as eleven hundred or more. The breakeven point for the investment was estimated to be about five hundred units. Boeing accepted different market analysis that projected higher demand for point-to-point routes through less constrained airports, driven in part by increased passenger impatience with the delays and cumbersome procedures necessary to manage growing passenger populations flowing through a fixed hub-city capacity. Figure 4-3 shows that these strategic assumptions led Boeing to choose to design the 787 to compete in the lower oval of the diagram, rather than to compete directly with the A380 in the top-right.

Pivot-Points: Where Strategic Assumptions Differ

The strategy pivot-point from this lens for both organizations is their prediction of the long-term market demand for super-jumbo airplanes. The talent and organization pivot-points are those where performance most affects the accuracy and timeliness of these market predictions. The talent pools include jobs such as market economists, actuaries, statisticians, and data analysts. This is an extreme example, but it illustrates how important a small number of employees can be, often employees who are outside the organization’s traditional core competence. In this case well over $20 billion in investment capital—and many times that amount in market impact, reputation, and market capitalization—will be leveraged on the quality of demand analysis made by a relatively small percentage of employees in each organization.

The second application of this lens is to ask, “What can be done to help ensure our strategic assumptions are correct?” Both Boeing and Airbus have invested heavily in public relations and other activities to help persuade airlines and passengers alike that their vision of the aircraft industry’s future is correct. With potential clients and in the press, they are competing as fiercely for their view of the future as they are for their respective products and offerings. These strategies require careful attention to the talent implications required to execute them well.

Questions to Uncover Insight in Strategic Assumptions

Several key questions can yield insight from the strategic assumptions lens. They include:

• What strategic assumptions about the future does your strategy depend on?

• Which of these assumptions are the most uncertain? What impact would they have on your strategy if they changed?

• Where are you making assumptions about the future that are different than your competitors?

Applying the Competitive Positioning Lens

Strategy pivot-points related to competitive positioning help focus organizational resources on the elements that are most vital to successfully achieving and sustaining a chosen market position. As Michael Porter noted, “A company can outperform rivals only if it can establish a difference that it can preserve.”⁵ The competitive positioning lens focuses on the elements that are unique within strategic positioning and translates them into pivot-points that should receive incremental attention during strategy execution.

Why Generic Strategy Categories Alone Do Not Work

It is difficult to uncover the competitive dynamics or implications of strategy if you’re using general strategic positioning concepts, such as “differentiated” or “low cost.” Even dimensions such as “customer intimate,” “product leadership,” or “operational efficiency” don’t reveal the pivot-points. They are useful concepts, but they are not specific enough to identify strategy pivot-points that reveal talent and organization implications. Yet organizational leaders often attempt to connect precise talent and organization decisions to these broad concepts. Consider the service organization that wants to focus on being customer intimate and provides customer service training to everyone, even those in talent pools that do not, by design, interact with the customer.

One reason these concepts are inadequate is that several competitors are typically classified into the same strategic category. For example, Merck, Bristol Myers-Squibb, and Pfizer all have product leadership strategies and operate within the same industry. Should they have identical talent strategies? Given that the essence of strategy is to operate differently from others, additional insight is required through the competitive positioning lens to uncover pivot-points in the strategy that can reveal organization and talent implications of the relative competitive position.

When we refer to “competitive positioning,” we are speaking of the unique value proposition that is delivered to the marketplace. We think of this in terms of what differentiates a company’s offering from the other available alternatives. If an offering is undifferentiated, then you can expect to have a low-margin business, because customers can simply compare similar offerings from different providers and shop exclusively based on price. As the 2006 television commercials from IBM asked, “What makes you special?” The answer to that question is the essence of competitive positioning.

Questions to Uncover Insight in Competitive Positioning

When considering a strategy’s pivot-points, it is important to understand the intended competitive advantages. We find the following questions to be helpful in applying the competitive positioning lens:

• Where does the strategy require sustained differentiation from competitors?

• Where does it require a competitor’s differentiator to be neutralized?

• Where does it acknowledge a competitor’s differentiator but seeks other strategies to minimize that differentiator’s impact on targeted market segments?

For differentiators to create value, they must be valued by the customer, produced in scale, and difficult for competitors to duplicate.

The competitive positioning lens can be illustrated using the Boeing-Airbus example. We saw earlier that Boeing’s first decision was not to try to compete with an aircraft challenging the A380 seat capacity, but to go with the smaller 787. Figure 4-3 shows that the competitive positioning lens addresses how Boeing would differentiate the 787 from the planes that were competitive alternatives, in seating capacity class of between 250 and 300 passengers.

Boeing’s 787 Versus Airbus’s Alternatives

When Boeing initially launched the 787, it was called the 7E7. The E indicated that the clear value proposition was efficiency. The idea was that even at the lower passenger loads of point-to-point routes, the 787 could be operated efficiently enough to provide airlines with attractive total profits. The 787 was a direct competitor to Airbus’ established product, the A330, with the 787 offering longer flight range (nine thousand nautical miles for the 787 vs. six thousand for the A330) and improved fuel efficiency. Airbus acknowledged the longer range of the 7E7 but doubted that there was significant demand for it. Airbus publicly asserted that the proposed 7E7 was too small (the A330 held about 10 percent more passengers) and that this would offset the improved fuel efficiency because the 7E7 passenger capacity was too low to offer sufficient revenues, considering total operating costs, even assuming lower fuel costs per passenger. For these reasons, Airbus initially claimed that it did not see the offering as a threat to its larger-capacity market leading A330, which could also hold 250 to 300 passengers, and could offer greater revenues per flight, albeit with a shorter flight range. However, Boeing quickly succeeded in articulating the incremental value of the 7E7 over the A330, and the renamed 787 attracted orders at a brisk rate as customers were focused on operating costs and found the 787’s value proposition highly attractive.

Airbus’s Response with the A350

In late 2004 Airbus effectively acknowledged that the 787 was a viable competitor to the A330 when Airbus announced its intention to build a new airplane, the A350, to compete directly with the 787.

The proposed A350 differed from the A330 in at least three significant ways:

• Used new engines (the same fuel-efficient types as the 787)

• Extended the range to effectively match the 787

• Increased the use of advanced materials to reduce overall weight

As a result, two years before the first 787 was scheduled to enter service, the A350 proposal had neutralized two of Boeing 787’s most important differentiators over the A330: new engines and extended range. Boeing still strongly defended the other competitive advantages of its 787 offering, including:

• Lower overall cost of operation

• Better passenger experience

• Earlier production and a reliable delivery schedule, based on Boeing’s history

This analysis of specific aircraft offerings provides a good example of the deeper strategy insights that provide the basis for much deeper talent strategies. The contrast between the 787 and its competing aircraft reveals differentiators and how they must be valued by customers, delivered in scale, and protected from competitors. We use a graphical tool, called a differentiator map, to summarize such differentiators. The differentiator map for this example is shown in figure 4-4, specifically comparing the 787 to the A330 and the proposed A350.

The Differentiator Map

Each row in figure 4-4 is a dimension of differentiation. Each dimension is scaled, with the more strategically positive attributes or features on the right-hand end of the scale. For example, the top row shows small passenger capacity on the left and large passenger capacity on the right. Looking at figure 4-4, it is apparent that the proposed A350 brought Airbus into parity with the Boeing 787 in many key dimensions, particularly several where the A330 had a disadvantage. However, the bottom row of the figure reveals a significant disadvantage of the A350 over the 787 and the established A330. The A350 would not be available as soon as the 787 (the A330 was an established aircraft, available immediately). The differentiator map in figure 4-4 also shows that while the A350 brought Airbus to parity on many of the differentiators where the 787 had advantages over the A330, the A350 would not create any significant advantages over the 787 on any dimension. The A350 did not bring any significant new differentiators into the market. As we will discuss later in this chapter, the A350 concept was eventually dropped in favor of an entirely new aircraft design, the A350 XWB.

FIGURE 4-4

Differentiator map: Boeing 787 vs. Airbus A330 and proposed A350

How Competitive Positioning Shapes Talent Strategy

Using the competitive positioning lens to inform organization and talent decisions involves ensuring that the talent strategies are based on a shared understanding of the unique value that the business intends to create. For example, it is vital that engineers working on the Boeing 787 understand that delivering a uniquely comfortable flying experience, not just a lower cost, is a critical strategy element. If there is not a common understanding, each team may work toward valid goals, but collectively they will not align to support a unique value proposition.

We have frequently observed talent strategies that are aligned with the offering’s value proposition but lack a sufficient focus on what is unique about the positioning. This would happen, for example, if Boeing based talent strategies on its airplanes’ safety. While safety is clearly an important goal, it is not a sufficient basis for a distinctive talent strategy. Although it is a necessary condition for success, it is not differentiated from the Airbus offering on that dimension. We believe that this is one of the reasons that so many competitors’ talent strategies are so similar. Without a shared understanding among the leadership team of the distinctive elements of the strategy, it is difficult, if not impossible, to develop and sustain a unique talent strategy. In contrast, when the deep and distinctive strategy elements are uncovered, very unique and aligned talent strategies emerge, as later chapters will show.

Resource and Process Lenses

The second linking element in impact is resources and processes. As figure 4-2 shows, there are two strategy lenses that arise from this linking element. To create sustainable value, strategic positions must not only be unique but be difficult for competitors to duplicate. The key is to find the differentiators that can be protected from competitive attack for a period that is long enough to obtain the required return.

Research suggests two primary ways that unique competitive positions can be difficult to duplicate. One way is to build a strategy on resources that are valuable, rare, and hard to imitate or substitute.⁶ For example, drug companies have patents. Pepsi has more than sixteen brands that have sales over $1 billion annually.⁷ Drug patents and brands are strategic resources because they are valuable and difficult for competitors to duplicate.

The second way strategies can be difficult to duplicate is when they are built on networks of business processes that are difficult to duplicate on the whole. This could be a particular business process (such as a proprietary method of manufacturing), but often it is a network of processes that work together.⁸ As an example, Michael Porter notes that while any one part of Southwest Airlines’ operations can be copied, the entire series of business processes focused on a specific low-cost market position has been very difficult to duplicate—even by established carriers that have substantial resources and expertise in running airlines.

Often strategic resources and business processes work in combination to support the sustainability of a strategy. The lenses we describe here can be applied independently, but there are many important interactions between them, which is why they are combined into a single element—impact—in the HC BRidge decision framework shown in figure 4-2.

Applying the Strategic Resources Lens

Resources are things that an organization can create, acquire, grow, and protect to support sustainable strategic advantage. Resources can be tangible (such as legal rights in an oil field lease) or intangible (such as a brand). Resources are considered strategic when they form the basis for a valuable differentiator that is difficult for a competitor to duplicate. Identifying strategic pivot-points related to resources requires a consideration of how organizations compete in markets for the vital factors of production and services.⁹ As you will see, one of the key strategic resources for Boeing is the organizational capabilities (including patents) that are associated with composite technology, a key differentiator for the 787.

Consider the Boeing advantages for the 787—those that it wanted to protect over time and certainly those against the launch of the rival A350. Two of Boeing’s differentiators, next-generation engine and longer range, were eliminated with the announcement of the A350. If the Airbus program proved successful, Boeing’s earlier-launch advantage would also be temporary. Boeing needed to carefully consider how it would use resources and processes to establish and protect a competitive advantage long enough to pay off the investment.

Keep in mind that at the time Airbus had considerable flexibility because its plane was “still on paper”; it could redesign its plane to adapt to what it learned from the marketplace or from what it observed as Boeing developed the 787. Two of the key differentiators that Boeing was working to protect included total efficiency for the airline operator (lower total cost of operation per passenger mile over the plane’s lifetime) and higher comfort for passengers. What allowed these advantages to be protected? One of the key drivers behind each advantage was the greater use of composites in the aircraft body.

Strategic Resources Associated with Composite Capabilities

The 787 will make more use of carbon composites than any other aircraft ever made. While both the Airbus A350 and the 787 will have carbon composite wings, the 787 will also have a composite fuselage. The use of composites decreases an aircraft’s weight, which improves efficiency and provides additional passenger comforts. Boeing’s message is clear: a plane made of composites can have larger windows (because composites are stronger than metal), higher levels of humidity (because composites don’t corrode), and increased pressurization that allows the plane to maintain a lower effective altitude (because composites can handle greater pressure changes in more cycles without deteriorating). One of the tangible benefits is that passengers will experience less fatigue and less ear stress over the long flights the plane is specifically designed for.

We find that the following questions help apply the strategic resources lens:

• Considering your resources, what makes your competitive advantages difficult to duplicate?

• What resources (tangible and intangible) do you have that your competitors would most like to have?

The greater use of composite construction on the plane is a significant difference between Boeing and Airbus. It is directly linked to the 787’s unique value proposition. Based on the designs Airbus had presented, it is not one that the organization intended to duplicate directly with the proposed A350. What makes Boeing’s advantages difficult to duplicate? One of the strategic resources for Boeing is certainly its intellectual property related to composite technology.

Boeing has significant intellectual property (IP) regarding composite technology applied to airplanes in general and airplane bodies in particular. A recent scan of U.S. patents and applications yielded over 150 patents on the search “Boeing + composite + structure.” Boeing has built unique and important IP in areas as varied as modeling and repairing cracks in the body (a vital difference between composites and aluminum) and in devices that can support the nondestructive inspections of composite structures.

Analysis of the Strategic Resources Pivot-Points at Boeing

Strategy pivot-points are based on the critical issues associated with the strategic resource. Key follow-up questions that will help you identify the pivot-points associated with the strategic resource include:

• What can your competitor do to emulate your strategic resource?

• What can your competitor do to reduce the value of your strategic resource?

• What substitution options are available to (or are being pursued by) a competitor that could neutralize your advantage?

Regarding possible emulation of the strategic resource, Boeing will ensure that it has patents and other protections in place to avoid allowing Airbus or other potential competitors to use critical elements of the composite IP. This safeguard is more important with regard to composites than other IP because they are linked to so many of Boeing’s key differentiators. Considering that Boeing has thousands of patents, the ones that are most important to protecting the strategic resource are the pivot-point.

Airbus’s Response: Advanced Aluminum as the Alternative to Composites

During this time Airbus tried to reduce the value of composites as a strategic resource with public relations messages that raised questions about the technology’s safety. The company had openly questioned the soundness of the Boeing decision to build so much of the plane with the technology, and indeed, Boeing encountered some challenges related to safety in the early implementation of the new technology.

Airbus’s primary strategy, however, was to advance the state of the art of traditional aluminum technology. It has invested in new alloys and other processes to further reduce aircraft weight and to improve the structural properties of advanced aluminum. It referred to the composite as “nothing more than black aluminum,” indicating that it did not think much differentiation would result with the new technology, compared to its advances in more traditional approaches. The Airbus strategy was to substitute advanced aluminum technologies as an alternative to Boeing’s proposed composite advantage.

What must be done to turn the resources into a source of differentiation? What must be done to protect them from competitors’ attacks? Questions like these identify important strategy pivot-points that are vital to both strategy execution and to the organization and talent decisions that will follow.

Applying the Business Processes Lens

The final lens that we will use to look at strategy pivot-points is business processes. Processes are transformations that create new value; the results of a process have outputs that are more valuable than the inputs. For example, at the macrolevel, raw materials, labor, and capital go into a car factory and out comes a car.

The previous two lenses (competitive positioning and strategic resources) require comparing the organization to competitors, either in the markets for the ultimate offering or in the markets for the resources that are required to produce the offerings. In contrast, the business processes lens more typically applies an internal perspective. Questions for applying the business processes lens include:

• Where does the performance of a business process limit the organization’s success?

• Where does a business process require the most significant change to implement the strategy?

• What are the most important business process interfaces, either internally or with external organizations, such as suppliers or customers?

Linking Strategy Analysis and Quality Initiatives

An important motivator of process analysis has been the increased focus on quality and continuous improvement. Another major driver has been enterprise information systems. All of them produce very detailed process maps that are often used to cut costs or increase speed. Such process maps can also be used to find constraints, which often reveal key strategic pivot-points. Constraints exist where the capacity and/or quality of some process limits the entire system’s performance. Constraints are a familiar concept in engineering and operations management. It is a well-known principle that when a process is limited by one particular element, or bottleneck, removing that bottleneck improves performance overall. Operations engineering calculates “shadow prices” (the value of getting one more unit of performance from a constrained process or one more unit of a constrained resource) and has even proposed a theory of constraints as a key to improving manufacturing performance.¹⁰

Boeing’s Heritage of Constraints in Manufacturing Processes

Let’s apply the constraint principle of the business processes lens to the Boeing/Airbus example. At the end of 2005, Boeing had orders for 291 of its 787s from twenty-three different customers, a record for a new aircraft. As a result, all available delivery slots for the new plane were filled until 2012, well after Airbus’s A350 was anticipated to be in production. Unless Boeing could produce more aircraft before the A350 was available, it would exhaust its advantage in being first to market with the planes already sold. There were more customers that wanted this kind of aircraft, and if Boeing could produce more of them before the Airbus plane premiered, it wouldn’t have to compete with Airbus’s new aircraft. Yet increasing the speed or rate of production could be risky. Boeing had been hurt badly in results and reputation when it attempted to quickly increase aircraft production in the late 1990s, which eventually resulted in a virtual shut down of its production lines, missing significant customer delivery commitments and writing off over $1 billion.

Changes in Business Processes as Pivot-Points

In addition to applying the business processes lens from a constraint perspective, it is also important to apply it from a change perspective. When looking at business processes, key pivot-points include those that require the greatest change. At Boeing one of the most significant changes was its relationship with its suppliers. The new 787 was different from past planes in the amount of systems integration that occurred outside the Boeing organization. While the majority of parts typically are made by suppliers to Boeing, the 787 design required that large amounts of parts integration, including much of the systems integration, be done by outside suppliers that would then deliver major sections of the plane. Finally, these suppliers were distributed throughout the world since global sourcing is a critical issue for many governments, which play a critical role in the selection of commercial aircraft.

At the same time, the economics required that Boeing achieve unprecedented levels of productivity in the entire supply chain to produce an attractive return on the plane. The organization planned to do the plane’s final assembly in less than one week at the Boeing site in Everett, Washington. Given the urgency of the production supply chain and the significant size of the integrated sections that had to be assembled, the company chose to use air freight to ship the major sections from the suppliers to Everett. This required creating a special type of 747 freighter, one that could handle very large sections of the new 787. The 747 LCF (large cargo freighter) is a specially modified 747-400 that opens up 90 degrees from just behind the wing so that the large sections of the 787 can be loaded into its body and flown to Washington. This modified 747 required certification and was expected to be in service in early 2007, just in time to meet the production ramp-up for the 787.

Finally, production demands were so significant that Boeing planned to begin larger-scale production of the plane even before it was fully approved by the governmental authorities as fit to fly. This will result in an inventory of planes that sit on the ramp while the first one to fly completes the rigorous set of tests required of any new airplane design. One pivot-point here is whether significant issues are found during the certification phase. Given the highly integrated design required to achieve the performance standards for the 787, even minor redesigns required by certification testing could be both costly and a vital constraint in the supply chain. If there are required changes for planes that have already been produced, the costs could indeed be significant.

It is clear that Boeing had potential competitive advantages, but to realize them, the organization needed to systematically address the changes required and the potential constraints within the new business processes. Because Boeing’s advantages in large part would be based on its first-mover advantages with the 787, the speed with which it can execute the strategy has a direct impact on the final outcome. Boeing failed when it tried to ramp up production in the late 1990s. To experience success with the 787, it would need to execute well on the pivot-points that the business processes lens has identified.

Integrating the Strategy Pivot-Points

The four lenses combine to provide a picture of the pivot-points for the 787 strategy, as shown in table 4-2. These pivot-points are much clearer and more specific than typical high-level strategic statements such as “launch and market the new aircraft.” Our experience has shown that organizations need to analyze strategy this thoroughly if they hope to identify talent and organization pivot-points. An advantage of such deep analysis is that the strategy itself will be improved. It is not unusual for line leaders to remark that their HR counterparts are asking very good questions when those HR leaders analyze strategy in this way. In fact, we increasingly find that these strategy analysis techniques and strategic lenses become a valued part of the strategy process. We will return to this in chapter 10 when we discuss how to implement talentship.

TABLE 4-2

Key strategy pivot-points for the Boeing 787

Strategic analysis lens		Pivot-points
Industry analysis		Increasing the perceived value of point-to-point routes in the mind of: •   The flying public •   The industry •   Investors •   Vital government and regulatory stakeholders
Competitive positioning		Critical Boeing 787 differentiators: •   Lower total cost per passenger mile •   Greater passenger comfort •   Earlier production
Strategic resources		•   Intellectual property protection related to composites •   Ensuring all intellectual property can be used in commercial aircraft designs
Business processes		•   Fast production ramp-up to capture high initial demand •   Using more global suppliers in an integrated way •   Global logistics

Strategy Pivot-Points and Strategy Dynamics

One of the questions leaders frequently ask is “What do we do when the strategy changes?” The need for agility actually makes talentship even more valuable. In our work with organizations we find that the ability to quickly dissect and understand pivot-points actually allows the organization to respond more quickly to changes and to align resources to the changing competitive dynamics.

Even as authors, we have experienced just such rapid strategic changes. When we first drafted this chapter, the primary competition was between the 7E7 and the A330. As Airbus realized that the A330 was not competitive, it announced plans for the new A350, so we revised our original analysis based on that announcement and the actions that followed, and that is the version that is reflected in this chapter. By July 2006 Boeing had booked orders for more than four hundred 787s. Airbus realized that its strategy to upgrade the A330 to the A350 was not working and announced the new A350-XWB. The A350 was a derivative of the A330, but the A350-XWB is an entirely new plane, with estimated development costs in the range of $10 billion. The decision meant that the 350-XWB, which would compete with the 787, would not be available until at least 2012. At about the same time that Airbus announced the decision to switch to the A350-XWB design, it also announced that the A380 would not hit its original delivery schedule, causing some to wonder whether 2012 was a realistic date. Boeing could also offer a delivery date of 2012, but in view of Airbus’s failure to meet its A380 schedule and concern that Airbus was spreading its resources too thinly across too many new projects, Boeing’s perceived greater likelihood of meeting promised dates was now an even greater pivotal potential competitive advantage.

How does this change the pivot-points? A full analysis is not possible yet, but one of the differences is that the A350-XWB will be much more like the 787 in its use of composites to create a wider body. So Boeing will no longer be uniquely positioned on the advantages of composite over advanced aluminum, since Airbus now intends to match the 787 on these factors, just as it emulated the engines and range earlier. On-time delivery will remain one of the biggest pivot-points. Even if Airbus meets its 2012 target for the A350-XWB, Boeing will now have a near monopoly in this segment between the years 2008–2012, with demand well in excess of its planned delivery capacity. So increasing production capacity will become an even more significant pivot-point of the Boeing strategy for the next several years. These strategic developments also make protecting Boeing’s composite technology more pivotal as Airbus moves to use more composites. So, the talent pools pivotal to such protection (such as international patent attorneys and composite process design engineers) will emerge as even more strategic.

Notice how the detailed resolution of strategic issues provided by the lenses allows us to see more precisely where Boeing and Airbus need to change. Agility becomes more than a watchword; it is translated into specific pivot-points that have clearer talent and organization implications.

Conclusion

The impact anchor point of the HC BRidge framework provides one of the most challenging and one of the most potentially significant changes in how organizations approach their talent and organization decisions. We introduced these ideas a decade ago, and since then we have worked with many organizations to implement them.¹¹ Recognizing the importance of impact and using it to delve more deeply into strategies for insights about organization and talent resources has profound implications for several aspects of leadership and HR management. In our work with organizations, we encourage HR leaders that support business units or vital business function (often called business partners or generalists) to embrace impact and apply lenses to find the pivot-points in the strategy. The result is that these HR leaders facilitate very different conversations about strategy and how it is achieved and maintained.

But the strategy pivot-points have implications beyond HR. They are often useful for other functions, such as information technology, which also needs to understand the strategy pivot-points to determine where decisions can make significant differences. By posing the questions we have described in this chapter, leaders inside and outside the HR function develop a deep and shared language to produce more unique and specific functional strategies. One result is that the strategies about organization and talent decisions become much more specific, unique, and competitive, as we will see in chapter 5.