Strategic portfolio management

Abstract

This paper is a case study in strategic portfolio management focusing on one example from the United States, the Boeing 787 and one example from EMEA, the EADS Airbus A380. The overarching learning objective of this paper and subsequent presentation is to highlight best practices that the attendees can bring back to their organizations to close the gap between strategy as developed by their executive leadership team and the actual results realized. This paper is organized as follows:

• The organizational context of strategic portfolio management.
• Closing the gap between strategy and results.
• A senior executive perspective on strategy development and the role of portfolio management in execution.
• A preview of The Standard for Portfolio Management - Second Edition.
• A closed-loop strategic portfolio management model designed with the chief executive and the executive leadership team in mind.
• Portfolio best practices as illustrated by the Boeing 787 Dreamliner, and the Airbus A380, the world's biggest jetliner.
• The impact on other Airbus aircraft programs as Emirates and EADS continue to invest in the A380 program.
• Conclusions: 1) Boeing 787 and Airbus A380, 2) The future of strategic portfolio management, and 3) Additional Research Opportunities.

The organizational context of strategic portfolio management.

Based on figure 1.3 in The Standard for Portfolio Management, Second Edition, 2008, Project Management Institute

Exhibit 1. Organizational context of strategic portfolio management.

Exhibit 1 shows the relationship between project portfolio management and organizational strategy. Organizations build strategy to define how their vision will be achieved. The vision is enabled by the mission, which directs the execution of the strategy [PMI, Portfolio Management Standard, 2008].

Exhibit 2. Leadership hierarchy by Jim Collins in his book, Good to Great.

Exhibit 2 is based on Jim Collins' bestseller, Good to Great (Collins 2005). When we talk about “The Key to the Executive Suite” (part of the title to this paper) we are referring to becoming Level 3 and 4 leaders, as defined by Collins: A Level 4 leader catalyzes commitment to and vigorous pursuit of a clear and compelling vision, stimulating higher performance standards.

A Level 3 leader manages people and resources toward the effective and efficient pursuit of predetermined objectives.

Closing the gap between strategy and results.

Exhibit 3. 2006 PMI Global Standard for Portfolio Management.

The Standard for Portfolio Management (PMI, 2006; 2008 Exposure Draft) offers a framework for introducing new strategies and structures for “closing the gap between strategy and results.” (Mankins, M. C. & Steele, R, 2005) From an executive perspective, The Standard for Portfolio Management is the most important publication to come from PMI in the last decade. The original project charter (June 19, 2003) provided guidance to the working group developing the Standard. The charter identified two types of portfolio management: 1) tactical, and 2) strategic.

Tactical portfolio management involves span-of-control supervision, very similar to program management, but of unrelated projects. Tactically, organizations must assure they are working on the right projects, resources are allocated optimally and the projects are on schedule and on budget.

However, as Exhibits 4 and 5 show there is a large difference between low performing organizations and high performers. Later in this paper we will see how poor strategic portfolio management impacted project resources, cost and schedule on the Airbus A380 program.

Exhibit 4. Strategic planning becomes meaningless in the absence of a disciplined, closed-loop process to execute planned strategies that assures the organization is working on the right projects – anything less is just wishful thinking.

Failure to execute on the A380 will decrease the ability of Airbus to invest at least $6 billion in future aircraft development.

Strategic portfolio management is conducted at a much higher level within the organization, where those involved are deciding if the projects and programs selected for execution align with the organization's strategies (is the organization doing the right projects given its strategy). Not surprisingly, as illustrated in Exhibit 5, there is a wide variation in the strategic alignment of projects between low performing and high performing organizations (39% versus 86%). And the low performers were 50% less likely to executive strategy according to plan (33% versus 83%).

Exhibit 5 Strategic Alignment and Execution.

This chart and the one above are the results of a survey conducted in November 2005 from a broad spectrum of 87 leading companies. (Cabanis-Brewin, J., 2006)

Although they might not use this exact terminology, organizations like Boeing and Airbus execute their strategies through the creation of “strategic initiatives,” comprising portfolios of programs and projects, which become the vehicles for executing the organization's strategy (Kaplan, R.S. and Norton, D.P. 2001).

A senior executive perspective on strategy development and the role of portfolio management in execution.

Pain and Pressure in the Executive Suite.

As the three forces of 1) globalization, 2) changing technology, and 3) demanding ownership (investors) have converged, many executives have concluded they have no choice but to equip their organization for rapid response to whatever changes may occur next in the competitive environment. Corporate executives have come to see the ability to change as key to organizational survival. Exhibit 6 illustrates the convergence of PMI standards and enterprise software solutions to produce a new capability similar those capabilities in enterprise resource planning, ERP, that began revolutionizing manufacturing organizations forty years ago.

Exhibit 6. PMI standards plus enterprise portfolio and work flow solutions are converging to provide a strategic portfolio management capability to organizations for rapid response to changes in the competitive environment. We are early in the strategic portfolio management adoption cycle.

Executives are scrambling to adjust to the new environment by demolishing traditional corporate policies and practices and introducing new strategies and structures, all with an eye to facilitating perpetual organizational transformation. (Friedman, 2005) The Boeing 787 program is an illustration of successfully adapting to this new environment.

Executive “pain points” frequently revolve around issues including shortfalls in strategy execution, getting product to market on time, capacity constraints, demanding ownership, global competition, changing technology, and regulatory compliance. The Airbus A380 program will be used to illustrate how some of these executive-level pain points play out in the real world. Additionally, these two brief case studies, presented later in this paper, provide examples of how the Boeing 787 and the Airbus A380 programs address return on investment, cost reduction, quality improvement, customer service, global collaboration, organizational effectiveness, and knowledge sharing to create new markets, develop a global presence and change industry and market practices.

The Ability to Change Is Key to Organizational Survival.

Both Boeing and Airbus made strategic decisions when their Boards of Directors authorized the 787 and A380 programs; decisions that will reverberate throughout their companies for several decades. These decisions were based on a wide range of factors. Some of the factors likely to have been considered include: 1) Technology (do we, Boeing, know how to make a composite fuselage?). 2) Do we, Airbus, want to keep our captive factories full? 3) What does the market demand? 4) Where will we find the greatest return on our investment? 5) How risky is the path we are considering? Is short, the senior executives of Boeing and Airbus were envisioning a preferred future state they wanted their companies to achieve in three to five years.

Envisioning a Preferred Future State.

One major functions of the senior executive team is to define the core initiatives designed to take the enterprise from its current business state to a preferred future state. It is often the case that a breakthrough platform is required as a foundation to the preferred future state, as illustrated in the Boeing 787 composite fuselage. The preferred future state may include any combination of new products, new business models, new markets, new channels, and new businesses. Exhibit 7 depicts six core initiatives developed by the executive leadership team. Exhibit 8 shows how one of these initiatives might be broken down into the programs and projects necessary to reach the preferred future state.

Exhibit 7. Six core initiatives to move towards the preferred future state of the enterprise.

Exhibit 8. Strategy articulation is the first step in identifying programs, projects, tasks, and resources.

A preview of the second edition of the The Standard for Portfolio Management.

Exhibit 9 is based the 2008 Exposure Draft of The Standard for Portfolio Management (Exhibit 1-4 in the Exposure Draft). Between the 2006 and 2008 editions of the standard, the number of processes in the portfolio management portion section of the exhibit was doubled from seven to fourteen processes. Four of the seven additional processes were added to address portfolio risk.

Based on figure 1.4 in The Standard for Portfolio Management, Second Edition, 2008

Exhibit 9. Cross Company Strategic Portfolio Management Flow. Note the addition of four risk processes to this 2008 Exposure Draft of The Portfolio Standard.

Strategic Throughput: Integrating Theory with Reality.

As shown in Exhibit 9 above, strategic throughput is directly proportional to the effectiveness of Executive Management, Portfolio Management, Program & Project Management, and Operations Management:

(SPM = EM*PM*P&PM*OM)

Weakness in any of the four elements on the right side of the equation diminishes strategic portfolio management throughput.

The Cabanis-Brewin research findings found only 33% of low performing companies were executing their strategy according to plan, as compared to high performers who achieved 83%. Table 1, mathematically suggests that incredibly high organizational maturity in four distinct domains is necessary to be a high performer. While this formula is overly simplistic, it illustrates the interdependence of capabilities in achieving strategic throughput. To illustrate: 1) a low score in executive management might indicate an inability to achieve consensus and support within the executive leadership team; 2) a low score in portfolio management may indicate an inability to implement and maintain a closed-loop feedback system; 3) a low score in program and project management might be caused by an inability to objectively measure performance using earned value; and 4) a low score in operations management could indicate conditions ranging from a lack of capacity to operational agendas conflicting with strategic direction.

Table 1. A rough-cut methodology for assessing readiness to achieve strategic initiatives.

A closed-loop strategic portfolio management model designed with the chief executive and the executive leadership team in mind.

The PMI Portfolio Standard Charter states strategic portfolio management is the responsibility of the executive leadership team of the organization, where those involved are deciding if the projects and programs selected for execution align with the organization's strategies. This paper goes beyond the Portfolio Standard by taking a broader strategic portfolio management perspective, as illustrated earlier in Exhibit 9.

The core of the closed-loop strategic portfolio management model is based on PMI standards. These standards include the Project Management Body of Knowledge (PMBOK ^TM), the Program and Portfolio Standards, with the entire process dependent on an organization's maturity as described in the Organization Project Management Maturity Model (OPM3^TM). See Exhibit 10.

Exhibit 10. Strategic Portfolio Management Model (see key in the following table).

Portfolio Objectives are unique to each enterprise and will vary considerably between public sector, non-profit, publicly traded and privately held enterprises. Portfolio objective selection begins with the vision leading to a mission that guides the overall strategy of the enterprise.

Portfolio Venues are the channels and organizations through which the portfolio objectives are achieved. Venues may vary depending on the type of enterprise. Programs and projects are often highly dependent on the same resources used by the operating entities of the enterprise. Resource availability and conflicting resource priorities become major challenges faced by individual projects and programs. If not detected early and remediated, they can ultimately impact the portfolio.

Portfolio Management – Closing the Loop is the heart of the Strategic Portfolio Management Model. It is based on four PMI standards. Enterprise maturity is arguably the single most important factor in achieving strategic breakthroughs. PMI standards are increasingly providing a globally recognized common framework transcending individual enterprises. The standards facilitate collaboration in a flat world (Friedman, 2006). The four standards are: the PMBOK® Guide, The Standard for Program Management, The Standard for Portfolio Management, and (OPM3®)

Portfolio Disciplines are the skill sets required for strategic portfolio management. What is often overlooked are the multiplicity of disciplines required for successful strategic portfolio management. In addition to the disciplines listed, operations management is critical to the success of strategic initiatives. Unless the organization is completely projectized (were all the assets are owned by project or program manager), the capacity of ongoing operations often becomes a critical success factor in achieving strategic objectives.

Both Boeing and Airbus made huge strategic portfolio bets on what the future of airline travel will look like, see Exhibit 11. Both Boeing and Airbus placed these bets while taking into account all the other opportunities and demands in their strategic portfolios – and these strategic bets could not be more different. And the outcomes of these decisions are reflected in the cumulative orders for each aircraft as shown in Exhibit 12.

Exhibit 11. The Airbus A380 and the Boeing 787 could not be more different from the perspective of strategic portfolio Management

Exhibit 12. Cumulative orders for the Airbus A380 and the Boeing 787 (Wikipedia)

Portfolio Best Practices: The Boeing 787 Dreamliner.

At Boeing there are portfolios within portfolios. Based on 2007 revenue, Boeing Commercial Airplanes represents approximately fifty percent of the overall Boeing Corporation portfolio. There are five aircraft programs within the Commercial Airplane portfolio. The strategic decision to proceed with the development of the 787 was made at the corporate level, a Board of Directors-level decision. Exhibits 13 and 14.

Exhibit 13. According to the 2007 Boeing Annual Report, Boeing revenue totaled $66 billion.

Exhibit 14. Commercial Airplanes accounted for approximately fifty percent ($33 billion) of Boeing Corporate revenue. Commercial Airplanes contributed sixty-one percent of Boeing's total profit ($3.6 billion of $5.8 billion total revenue).

Boeing Commercial Airplanes has a very clear, simple vision driving their strategy:

“The Boeing family of products and services deliver superior design, efficiency and support to airline customers and allow passengers to fly where they want to go, when they want to go.”

Using the Strategic Portfolio Management Model shown in Exhibit 10, we are able to map the Boeing 787 portfolio objectives to the Portfolio Outcomes in the model (these objectives are inferred by the author and do not come from Boeing).

Portfolio Objectives: Boeing 787.

Return on Investment: Clearly an acceptable forecast return on investment must been present to obtain authority to proceed from Boeing corporate Board of Directors (decisions of this magnitude are made at the board-level and sometimes represent “bet the company decisions”). With total firm orders for 920 aircraft as of March 15, 2008, and line positions sold out until 2014, the 787 program promises a long, high volume, production run. The market for a 787-type aircraft is large at an estimated 3,500 units over 20 years worth $400 billion. Boeing expects that more than half of those sales will be 787s, which translates into more than $200 billion in 787 sales. In addition to the 920 firm orders amassed by March of 2008, Boeing has also booked options for an additional 281 aircraft plus rights to purchase another 149, for a total of 1,350 aircraft (firm+options+rights). With a total of 1,350 787 aircraft on the books, in one of these three categories, Boeing already has 35% of the estimated 3,500 aircraft demand forecast for the next 20 years. See Appendix 1 for Boeing 787 aircraft ordered by customer.

Reduce Costs: By manufacturing one-piece, composite fuselage sections, Boeing eliminated 1,500 aluminum sheets and 40,000 - 50,000 fasteners. Before choosing Everett for the final assembly of the 787, Boeing also considered four other sites: Harlingen, Texas, Tulsa, Oklahoma, Mobile, Alabama, and Savannah, Georgia. Boeing was not tied to any particular final assembly facility, which as we shall outline later, was not the case with the Germans and the French on the A380 program.

Customer Service: The 787 provides 20% lower fuel costs; ease of maintenance; commonality of systems; access to 450 new city pairs; greater cabin comfort; quieter takeoffs and landings; and lower pollution levels.

Collaboration and Organizational Effectiveness: Boeing has selected best in class partners and second tier suppliers, rather than opting to keep as much work as possible inside, as is the case with to the A380. Boeing was not constrained to by location, by unions, or governments on either a final assembly location or partner selection.

Knowledge Sharing: Having a common development environment and set of design processes for all the far-flung partners was the foundation of Boeing's 787 design strategy and another way to reduce the reliance on data translation. It was the need for data translation on the Airbus A380 that was the major cause of the two-year delay.

Create New Markets: By adding 450 new city pair possibilities, the 787 creates new market opportunities for air carriers. The 20% improvement in fuel efficiency of the 787 will make older, less fuel-efficient aircraft uneconomical to operate sooner than would have otherwise been the case.

Develop Global Presence: By having major engineering and production facilities in companies around the world, Boeing has increased their global presence along with increasing the likelihood that host countries will be more likely to support the purchase of Boeing aircraft.

Change Industry & Market Practices: The first composite fuselage coupled with a dramatic 20% fuel savings gives Boeing a significant competitive advantage for the foreseeable future and is likely to be a barrier to entry into the arena of composite aircraft production for companies such as Airbus (Exhibit 15. Rollout in July 2007).

Boeing's Global Collaboration Environment. Partnership in Virtual Development: Alenia Aeronautica (Italy), Fuji Heavy Industries Ltd. (Japan), and Spirit Aerosystems Inc (USA), are not just building fuselage sections and the wing box on Boeing 787 aircraft. These three suppliers, along with 40 other global partners, are taking part in a ground-breaking development effort. Not only are they sharing the risk and design burden for their piece of the 787, they're also participating in a virtual development world where every aspect of the plane and its manufacturing processes is designed, created and tested digitally before anything physically moves into production. (Stackpole, 2007)

Exhibit 15. Rollout of the Boeing 787 in Everett Washington on July 8, 2007. First flight scheduled expected in 4th quarter.

Co-Location Rejected: In the past, Boeing would co-locate suppliers and partners in the state of Washington during the design stage to ensure consistency, but that approach wouldn't work for a project of the global scale of the 787. Boeing found it was not only expensive, but also was not feasible to have everyone located in one spot. Co-location of the design team defeats the purpose of having designers close to manufacturing. Boeing wanted to get the best collection of people to create the best airplane, so they needed to look globally. Boeing wanted something to enable their suppliers and partners to work as one team and be virtually connected.

Common 3D Development Environment: Having a common development environment and set of design processes for all the far-flung partners was the foundation of Boeing's 787 design strategy and another way to reduce the reliance on data translation (a two-year delay on the Airbus A380 was largely caused by the German side of Airbus using a 2D CAD system that was incompatible with the French 3D system). From the beginning, the Boeing team recognized it needed a common development environment for a project of this magnitude. It would help avoid the difficulties and errors introduced when trying to exchange information between different CAD tools. It was the only way to ensure the global team of 787 partners would have access to the same product definition data and be able to collaborate effectively on a 24/7 basis from their various locales.

Handing Off Design: Establishing a global team of partners responsible for the design was a business model shift necessary for creating the most competitive product. In the past, Boeing designed 70 percent of the aircraft and only produced 30 percent. With the Dreamliner 787, it handed off design responsibility to key suppliers, focusing instead on overall integration and configuration of the plane. Boeing had observed that when people doing the design are not close to manufacturing, trying to make improvements to the product is a long cycle. However, if the partners building parts are also responsible for designing parts, you end up with a more maintainable and lower-cost product.

Global Collaborative Environment: Boeing developed a Global Collaborative Environment (GCE), a set of computer and networking capabilities made available via the Web to every member of the 787 team, no matter what their location. The anchor of the GCE is Dassault's Product Life Cycle (PLM) suite: Catia V5 for CAD design, the Delmia digital manufacturing package for simulating how parts and components are manufactured on the factory floor, and Envoia is used to maintain the master repository of all information on the 787. There are also Boeing-developed applications comprising the GCE, as well as additional third-party programs for simulation and other specific design tasks. Accompanying the GCE is the Commonality Matrix, a document outlining standards for business processes related to development, along with specifications for more than 100 computer applications and training documents – all accessible to partners through a Web-based portal.

Using the GCE Was Not Optional: Using the GCE and adhering to the Commonality Matrix was not optional for suppliers. Partner contracts mandated the use of the standard environment and Boeing ensures everyone is up-to-date on the latest versions of the software by doing block point updates on a regular basis. Boeing worked with partners to come up with an agreed-upon set of tools and processes for the program.

Risk Sharing: The concept of risk-sharing with partners was a new business model for Boeing and its partners. Partners were asked to join the 787 program, invest money, and in many cases, change processes. While getting suppliers to change their way of working or, in some cases, to give up their preferred CAD tools is difficult, Boeing really didn't have an alternative. History has shown using incompatible CAD systems on a project of the size and scale of the 787 leads to troubling delays, as illustrated by Boeing's key rival, Airbus. Airbus was forced to delay its A380 next-generation aircraft by two years due to last-minute wiring problems that surfaced due to a global design team working with incompatible versions of their CAD software, also from Dassault.

Virtual Mockup: Being able to virtually simulate not just the parts, but the plane's processes has been a great boon for Boeing, giving them more flexibility to make adjustments during the design phase. A year ago, for example, the chief pilot for the 787 was doing a virtual test flight and was able to see some issues related to fin control. Using the relational capabilities of Dassault's V5 PLM suite, designers were able to evaluate 50 new possible fin configurations, test them and make the appropriate changes to the rest of the design in only about four weeks. With the old way of working, Boeing might have been able to evaluate only three or four new tail fin configurations and it would have taken at least three or four months to do that.

Cost and Schedule Savings: As a result of being able to virtually simulate not just the parts, but the plane's processes, Boeing has been able to shave one year off the development timeline for the Dreamliner 787. The cost savings associated with the effort have been on the order of a 20 percent reduction. (Stackpole, 2007)

A Case Study in Failed Strategic Portfolio Management: The Airbus A380 Mess.

“Dubai Fund Buys Into EADS In Airbus Recovery Bet. A Dubai-managed fund bought a 3.12 percent stake in Airbus parent EADS, betting on the success of a recovery plan for the world's largest plane maker after delays and management feuds.” [Reuters, July 2007]

The fifty-eight aircraft ordered by Emirates account for thirty percent of the 192 firm orders for the A380. The first flight of the A380 was in April 2005 (Exhibit 16). As of March 2008, three production aircraft have been delivered to Singapore Airlines. See Appendix 2 for Airbus A380 aircraft ordered by customer.

As Emirates and EADS investment in the A380 to cover the delays are resulting losses, these investments are likely to have a negative impact on the ability of Airbus to develop other aircraft, such as the A350, as rapidly as possible.

Exhibit 16. Airbus A380. The first flight of the A380 was on April 27, 2005

Two Years and $6.1 billion: Airbus' superjumbo jet program was launched before Boeing's big hit, the 787 Dreamliner, but as of December 2006 the A380 was two years behind schedule. The production delay will cost Airbus' parent company, European Aeronautic Defence & Space (EADS), $6.1 billion in operating profit over the next four years. As of March 2008 there were 192 firm orders for the A380. Airbus expects to sell a total of 750 aircraft, with an estimated break-even at 420 units. (Greising, 2006) Note, this break-even number is no longer quoted by Airbus, but they have not provided a new estimate of aircraft that must be sold to cross over into profitability.

Communications Problem: A380 engineers were bogged down by computers that could not talk to one another. One displays their work in three-dimensional images, the other is strictly 2-D. The breakdown fouls the effort to design a new part, get it built and get the A380 back into full production. The line won't run full speed until 2010, if all goes well. Biding their time until then, thousands of workers are idle or on part-time shifts.

European Politics: An examination of what has gone wrong is a much broader issue than parts that don't fit and computer systems that can't communicate with one another. Corporate and European politics are as much to blame for Airbus problems as the breakdown between computer-design systems in France and Germany. A bitter battle for control of EADS in the summer of 2006 came to a head when the A380's emerging crisis should have demanded top management's attention. French and German cultural issues also are at play – see the “The Blame Game” later in this paper.

Lack of Trust: Workers in France and Germany don't necessarily trust each other. French workers suspect the Germans covered up problems or ignored them to keep work for themselves. To move forward, the company has had to work out labor agreements in both countries, and a massive reshuffling at the top of Airbus has occurred. Politics have been part of Airbus from the time it was founded in 1970 as an example of European cooperation and technological wizardry. The A380 was supposed to be a crowning symbol of trans-European industrial glory. Instead, the A380 is becoming a symbol of monumental failure, as the Chicago Tribune found during a December 2006 visit by a reporter (Greising) to the Airbus hangars since the company announced its latest setback, a second one-year production delay.

Canceled Orders and Audits: FedEx canceled its order and turned to Boeing. Virgin Airways put its order on hold. Lufthansa also ordered a freighter version of Boeing's 747 jumbo jet. The largest A380 buyer, Emirates Airline, sent auditors to Airbus' plants and blamed management for delays that are putting Emirates' aggressive growth strategy at risk.

Control Issues: The trouble really began in 2000, as Airbus executives were working hard to resolve a control dispute among its German, French, British and Spanish owners by consolidating into a company jointly run by co-CEOs from France and Germany. The A380 was the first big project of the newly christened EADS. It had been conceived as one of the most ambitious undertakings of the Industrial Age. Nose sections would be built in France, fuselages in Germany, wings in Great Britain and tails in Spain.

Germany Balks: Then-Airbus CEO Noël Forgeard tried to unify operations by asking engineers in all the countries to work on a single design system, the Dassault Systemes' Catia 5, which is a cutting-edge workstation capable of delivering three-dimensional images of airplane parts (and as mentioned earlier, Catia 5 was also used by Boeing and all its partners). Those designs then can be entered into a central model of the plane known as the digital mock-up. But engineers in Germany balked. They continued working on an earlier-generation, Catia 4, that renders images only in two dimensions, risking a design mismatch. And worse yet, according to Tom Williams, head of production at Airbus, the German engineers placed their work into the digital mock-up in ways that distorted results.

Wiring Troubles: Those problems appeared in full bloom soon after the A380 migrated from the design phase into production in mid-2004. Some wires were too short to connect the main fuselage section to the nose. Some were too thick and couldn't make the bends that the design system said they could. For two years, Airbus downplayed the troubles.

Overweight: While Airbus attributes the delays entirely to wiring, the first A380 was around 5.5 tons heavier than intended. It is likely the weight-reduction design changes are also a big part of the delay.

Share Price Drop and Reorganization: On 13 June 2006, Airbus announced a second delay. The announcement caused a 26% drop in the share price of Airbus's parent, EADS, and led to the departure of EADS CEO Noël Forgeard and Airbus CEO Gustav Humbert. The new EADS CEO was Christian Streiff, who fired the A380 program manager. Days later, Airbus had another new CEO, Louis Gallois, an aerospace veteran who recently had run the French National Railways, and would take on the job of fixing the A380 and restructuring Airbus.

The Shutdown Option: Despite all this turmoil, at least one key question was settled by the time the new Airbus CEO, Louis Gallois took over. The production line would not be shut down altogether. EADS CEO Streiff had seriously considered that option. As he dug into the problems of the summer or 2006, he learned they went deeper than he had feared. Under pressure from directors at EADS, which had hired its own outside consultants, Streiff began to suspect a complete shutdown was the only solution. John Leahy, Airbus' top sales executive, argued strenuously against the shutdown, saying that once stopped, the line might not restart for two years and that many of the 166 firm orders [as of December 2006] would be gone if the line were shut down. Gallois opted to keep the line open saying he would announce a new restructuring program that would seek to find $2.7 billion in annual savings by 2010.

Realignment: Three of the program's eight main initiatives remained unsettled: how to optimize Airbus' final assembly lines; how to increase the role of outside suppliers; and whether the industrial structure of the company made sense. Airbus officials admit it is hard to defend, from a purely industrial standpoint, an Airbus system that builds a fuselage in Hamburg, ships it to Toulouse for attachment of the wings, nose and tail, then returns it to Hamburg for cabin installation and painting.

Potential Cost Savings: Tim Clark, president of Emirates has said, “With a process review and a re-engineering of Airbus, I've said you could produce airplanes 20 percent to 30 percent cheaper if you realigned.” Emirates is one of the fastest growing airlines in the world, flying to over 80 destinations, Emirates has ordered 58 A380s which accounts for thirty percent of the 192 firm orders cited earlier.

The Blame Game: Still, major restructuring is coming and fears about Gallois' plans are dividing unions at Airbus. French union leaders blame the Germans for not addressing the A380's problems more aggressively right away. “They wanted to hide it as long as they could. The Germans wanted to save German jobs,” said Jean-Francois Knepper, leader of the powerful Force Ouvrière union at Toulouse and co-head of the European workers committee at Airbus. “If Airbus is a tree, France has the thriving branches,” he said. “If there are dead branches to be cut, they're not in France.” (Greising, 2006)

Conclusions.

Boeing 787 vs. Airbus A380.

Full Disclosure: The following are solely the author's opinion. Further, the author is a resident of the state of Washington and receives a pension from Boeing because of his earlier career at Hughes Helicopter Company on the Apache program which is now a part of Boeing Rotorcraft.

Closing the Gap between Strategy and Results: Strategically the contrast between the Boeing 787 and the Airbus A380 programs could not be more stark. As of the completion of date this paper in March 2008, it appears Boeing has closed the gap between their intended strategy and results – but then, as of this writing, the first 787 has just been rolled out and has not yet had its first flight. And it would appear that EADS and Airbus have experienced a major gap between their A380 strategy and the results they expected. From an executive perspective, the contrast provides valuable lessons in strategic portfolio management.

Freedom to Choose the Best: In the author's opinion, Boeing moved its headquarters from the Seattle to Chicago to become a truly global company, no longer beholden to any one state (Washington). Although the 787 is being assembled in Everett Washington, Boeing seriously considered four other final assembly locations outside the State of Washington. This Boeing freedom to choose the best is in stark contrast to Airbus which is committed to support their factories and labor unions in Germany and France. As quoted earlier, the A380 could be produced 20 to 30 percent cheaper if Airbus realigned their production processes.

Collaboration Imperative: Boeing created the Global Collaborative Environment (GCE), a set of computer and networking capabilities and made it available via the Web to every member of the 787 team, no matter what their location. The 787 partners were not give the option of staying with incompatible CAD systems – as compared to the German A380 team members who refused to move from 2D to 3D CAD. This refusal by the German A380 team to upgrade to Dassault's Catia 5 3D CAD, the system their French counterparts has specified (and Boeing was using across the 787 program) is a prime example of a failure in strategic portfolio management, specifically governance. “Governance is the act of creating and using a framework to align, organize, and execute activities,” as described in the PMI Portfolio Standard. The refusal by the German A380 partner to use a compatible 3D system should have been escalated to the EADS Board of Directors. And if it had been, and the Directors did not insist on German compliance, the Directors were probably not acting in the best interest of the various stakeholders they represented.

Unanswered Questions: When did EADS and Airbus senior management first become aware of the looming problems in wiring, excess weight, and incompatible computer systems? The answer to this question requires further research and the answers may be difficult to ascertain. Independent of the A380 Program Manager, was there an oversight technical staff responsible for independently assessing cost, schedule and technical progress? Was a risk assessment performed to determine the likely consequences stemming from the incompatible German and French CAD systems? Was there an emphasis on earned value and performance measurement? To what extent were politics and factory jobs driving the senior management of EADS and Airbus? Was there an emphasis on properly staffing the A380 with trained project management professionals?

The Future of Strategic Portfolio Management.

Rapidly Emerging Discipline: Strategic portfolio management is a rapidly emerging discipline encompassing everything the enterprise undertakes, including ongoing operations. Exhibit 17 suggests that we are in very early stages of strategic portfolio management disciplines.

Exhibit 17. Evolution from DPM to EPM to SPM

Improved Strategic Throughput: Even a few percentage points improvement in strategic throughput can significantly improve enterprise performance (whether public, private, for profit or nonprofit).

Emerging Opportunities: There are new emerging opportunities where strategy becomes an integral part of portfolio management and when portfolio management is strategically linked to operations. There are opportunities in developing educational materials around strategic portfolio management, new consulting initiatives, and new paths in career advancement.

Additional Research Opportunities.

The Jury Is Still Out: Will Airbus be able to sell more than 420-plus A380 aircraft to breakeven (Airbus says the 420 number is no longer valid, but has not offered another estimate)? What will be the impact of the billions lost on the troubled A380 program on the ability of Airbus to fund future aircraft programs such as the A350, which is designed to compete directly with the Boeing 787?

Governance: What was the role of corporate governance in these two aircraft programs? What lessons can be generalized from their experience?

Program Updates: As the 787 and the A380 programs mature, what can we learn from their results? How do these actual outcomes compare with their original strategic visions for the programs?

Appendix 1. Boeing 787 Order Book as of March 15, 2008

Appendix 2. Airbus A380 Order Book as of March 15, 2008

Orders by Customer

	Customer	EIS	orders	Percent of Total Orders	options	Total Options and Orders	deliveries	Percent of Total Orders & Options
	Air France	2009	12	6%	2	14		6%
	British Airways	2012	12	6%	7	19		8%
	China Southern	2009	5	3%		5		2%
	Emirates	2008	58	30%		58		24%
	Etihad Airways	2013	4	2%		4		2%
	ILFC	2013	10	5%	4	14		6%
	Kingfisher Airlines	2010	5	3%	5	10		4%
	Korean Air	2010	8	4%		8		3%
	Lufthansa	2009	15	8%	10	25		11%
	Malaysia Airlines	TBD	6	3%		6		3%
	Prince Al-Walid	2010	1	1%		1		0%
	Qantas	2008	20	10%	4	24		10%
	Qatar Airways	2012	5	3%	2	7		3%
	Singapore Airlines	2007	19	10%	6	25	3	11%
	Thai Airways	2010	6	3%		6		3%
	Virgin Atlantic	2013	6	3%	6	12		5%
Totals			192	100%	46	238	3	100%