Boeing Frontiers
November 2002 
Volume 01, Issue 07 
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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.


Corbis imagePicture 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.

Connexion by BoeingHowever, 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.

cockpitWorking 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.

Then and now

ENIAC and Dell

Boeing's strategy is to look beyond the horizon at future markets and help pave the customer's way to them. Other companies have faced problems by not doing so. For example, shortly after the first computers were built, such as the massive ENIAC shown above left, IBM predicted there would be no large world market for computers. And the quick acceptance of the personal computer by consumers took IBM by surprise, causing the company to miss out on being the clear market leader. In 1980, about 25 companies sold 724,000 PCs for $1.8 billion, according to industry research firm Dataquest. In 1981, when IBM unveiled its first PC, more than 40 companies sold 1.4 million PCs for nearly $3 billion. In 1982, some 100 companies sold 2.8 million PCs for about $5 billion. Today, scores of companies, like Dell (above right) offer stiff competition to Big Blue when it comes to PCs.

Dave Swain: A 'big leaguer' from a small town

Dave Swain He dreamed an ordinary dream, a dream much like those of other teenage boys growing up in small-town America in the late 1950s. Dave Swain wanted to play in the big leagues someday. "I grew up on a farm, in a community where I was the best athlete," he said. "And I dreamed of being an athlete since I was a little kid." Today Swain is instead a key architect of Boeing's strategy to shape its future markets — and he didn't get there by dreaming. He realized early in life that success meant tempering his dreams with reality.

Being the best athlete in his hometown of Lizton, Ind., population about 372 at last count, Swain realized, wasn't going to be enough to carry him through college into professional sports. "I came out of high school more realistic, but not much, because I'd been beaten several times by better athletes at that point," he said. His first semester of college drove that realism home.

Swain attended Indiana's Purdue University because tuition at the state school was affordable. Realizing he was good at math and science "without working at it," and recalling his parents' advice about how good a job his distant engineer cousin had, Swain decided to major in engineering. The 18-year-old's decision on a major was easy; the first year of college, however, wasn't.

"I went out for the basketball team and got cut. I went out for the baseball team and gut cut," he said. "And I struggled through my grades — really struggled. Coming out of a small country school, I came into a situation where most students had a better high school background than I did, by far." But those experiences helped redirect him toward new goals.

Sometime during his freshman year at college, Swain realized he wasn't going to be an athlete. "So, I got that distraction off of my mind, and I worked hard and studied hard — but I still struggled," he said. "But the one thing [struggling] did was it taught me how to study. And I finally had to commit that this was the way of my life. And the more I committed, the more I enjoyed it."

By the end of his sophomore year, Swain had set himself solidly on an academic track and on the road to his future profession. "As I got into my sophomore year I enjoyed it more, and I finally made a transformation. [I realized] to be successful in college, I had to ask some people for help. It was a breakthrough for me because I never had recognized it before. So I got help from professors, from fellow students, and every year my grades improved," he said. Swain graduated in 1964 from Purdue with a bachelor's degree in aeronautical engineering, a highly marketable degree in the mid-1960s.

After college, he entertained job offers from 12 companies, among them such aerospace heavy hitters as Boeing, Lockheed, Martin Marietta and General Dynamics. "But I went to McDonnell Douglas in St. Louis because I wanted to work on the space program," he said. So, in 1964 he became an engineer on the manned Gemini project at McDonnell Douglas. It was the beginning of a distinguished career in aerospace that today spans four decades.

Swain held several positions at the company before taking on his toughest challenge in 1991 as vice president and C-17 program manager for McDonnell Douglas Aerospace. It was, he said, his worst job, but also his best. "Managing the C-17 program, I have never worked so hard or been under so much pressure," he said. "Corporately we were stretched financially, didn't have a lot of assets to throw at it, and were in a terrible political situation." But, he said, "My worst assignment was my best assignment, because we were part of the solution."

Swain worked seven days a week for three years to help ensure the program's success. "I worked 12 hours a day for five days a week, Sunday four hours and Saturday 8 hours. That was my normal work schedule," he said. "But it was my best assignment, because I've never seen a team that committed themselves under such adversity to overcome everything. And we made a huge difference. Thank goodness I didn't miss that opportunity. I mean, just thank goodness I didn't miss it."

In 1994, Swain moved on to hold several positions at McDonnell Douglas Phantom Works, the organization that was the prototype for Boeing's current research and development operation, before becoming president of Boeing Phantom Works and Boeing's vice president of engineering & technology and chief technology officer in 1999. He continues in that role today, responsible for developing and implementing the plans, policies, processes and resources for achieving Boeing's strategic technology vision, and for providing executive oversight to Boeing's key technology organizations — Boeing Phantom Works, Boeing Ventures, the intellectual property business and external technical affiliations.

Dave SwainSelected as a member of Boeing's Office of the Chairman in March 2002, Swain is now responsible for enhancing the long-term competitive position and business value of Boeing by establishing and implementing a strategic technology vision for the enterprise. For Swain, a man who has worked in, and has helped shape, the aerospace industry for nearly 40 years, this current role is a particularly well-suited one.

"I think to go forward, it's very important to look backwards," he said. Looking back on his own life, Swain said, even today he still carries parts of his long-past college experience with him. "The part I got out of college was the ability to learn," he said. "And maybe the most important part, as I call it, is the ability to be an active listener. Because once I understood I had to rely on other people to learn, I really listened hard. I still listen hard — and I don't get distracted." Swain claims that 90 percent of what he learned occurred after college; and, he says, "Almost all that learning is from fellow employees. I've learned so much from people I've worked with, it's incredible."

Now, after 38 years of marriage to his wife, Linda, four grown children, nine grandchildren and decades of aerospace experience, Swain's focus seems to be shifting a bit — from playing the game to coaching the game. "I think my main contribution from this point may be teaching others what I've learned, teaching about leadership, about running businesses, about what technology can do. That's high on my agenda," he said. "I've been so lucky to have a variety of experiences — in space, defense, commercial, small airplanes, big airplanes, weapons, technology programs. That variety gives me a perspective I need to leave with a lot of people. It's only a perspective, and I'm not right on everything, but it's a perspective.

"Demonstrating how technology improves the business plan, both through the technology and through the people around the business, I'd say that's second. And third maybe is in the context of an idea for a new business — creating a new business, a new opportunity, and being a part of that. I've spent a lot of my career on creating new businesses and products. Maybe there's one more out there."

Swain now holds one of the top positions in a company that last year had $58 billion in revenues. He is chairman of the NASA Aerospace Technology Advisory Committee, a fellow of the American Institute of Aeronautics and Astronautics, and a fellow of the Royal Aeronautical Society. He serves on the boards of directors for the National Action Council for Minorities in Engineering and for Chicago's Museum of Science and Industry. Most would say this ordinary farm kid from small-town America made the big leagues after all.

— Don Schmidt

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