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Strategic Risk Management - A new Framework based on the Airbus A-380 crisis

Research Paper (undergraduate) 2011 24 Pages

Business economics - Business Management, Corporate Governance

Excerpt

Table of contents

List of Figures

1. Introduction
1.1 Setting the scene
1.2 Hypothesis and Research Questions
1.3 Methodology
1.4 Outline of the Paper
1.5 Airbus the company

2. Analysis
2.1 The A-380 crisis
2.2 Airbus risk landscape
2.2.1 Conclusion risk landscape
2.3 Risk Management at EADS
2.3.1 Conclusion Risk Management Structure
2.4. Culture at Airbus

3. Discussion
3.1 Risks that led to the crisis
3.2 Airbus current risk management (2003-2007)
3.3 What are the flaws (and how could the system be redesigned?)
3.3.1 Why culture matters
3.4 Suggestions for an culture embracing design
3.4.1 Applying SRC to Airbus

4. Conclusion

Reference List

List of Figures

Figure 1: SWOT Airbus

Figure 2: Revenue EADS 2005

Figure 3: Risk Management Structure EADS

Figure 4: Organizational Structure Airbus

Figure 5: Risk management organization as a function of complexity and interaction Source: (Andersen and Winther Schrøder 2010, 183)

Figure 6: Integrated risk management process Source: (Andersen and Winther Schrøder 2010, 179)

Figure 7: SRC Alignment Model
inspired by VCI-Model Hatch, M.J.; Schultz, M.

Figure 8: Characteristics affection corporate culture Adopted from: Gray and Larson

Figure 9: Chain of assembly - Airbus A380 source: (Wikipedia 2006)

1. Introduction

1.1 Setting the scene

The paper will outline major flaws in Airbus’s risk management and thereby identify reasons for the production delay of the Airbus 380.

The Airbus A-380 project was launched in 2000 and remains the largest project in the company’s history. The Airplane was designed to carry up to 853 passengers and offer 50 per cent more floor surface than any other passenger aircraft.[1] The total cost of development summed up to € 12 billion and it was planned to deliver the first aircraft to Singapore Airlines in 2005. In reality the first aircraft was delivered in 2007. The 2 years delay of the delivery of the first Airbus 380 eventually added up to an estimated sum of €4.8 billion loss in profit.[2] [3]

The reason for this delay was that the pre-assembled wirings produced in Germany failed to fit into the frame when the plane was to assemble in France. This misfit can be attributed to the fact that the German plant used CATIA 4 (CATIA is a computer-aided design software) which was only able to show the plane as a two dimensional model while France used CATIA 5 which displayed the plane in three dimensions.[4]

1.2 Hypothesis and Research Questions

The business press as well as the majority of academic research seem to regard this major error as an IT problem or a misguided IT management. (see as an example)[5]

Nonetheless even though this might be right the real question is how could such a dangerous misalignment occur in a company despite having a risk management system in place which is even regarded by the board of directors and the top management as ‘ a key management process to steer the Company and enable management to effectively deal with risks and opportunities ‘.[6]

- Airbus’s failure to deliver the A 380 on time can directly be linked to a misalignment between strategic risk management and the corporate culture.

Research Questions:

1. Which risks is Airbus exposed to, that lead to the crisis?
2. How did Airbus’s risk management during the crisis look like?
3. What are the flaws in Airbus’ risk management and how could it be redesigned to minimalize or eliminate them.

1.3 Methodology

The research in this academic paper will focus on the process of the introduction of the Airbus A 380 and the factors that affect this process therefore also the analysis will take its starting point in the year 2005 in the middle of the A 380 crises. By only focusing on one single event the writer of the paper intends to create a deep understanding of the involved risk management and what went wrong in the design of Airbus’ risk management. This is also in accordance to the limitations of this academic paper as otherwise only a broad overview over Airbus’ risk landscape could be given. The process of how Airbus handled the A 380 seems to be an ideal object to study and reveal how culture affects the business and furthermore how important it is to integrate culture in the process of strategic risk management.

The empirical data used in this academic paper is mainly gathered from secondary sources since it is unlikely to get primary data from a company on their failures. Therefor the primary data is confined to articles on the company’s website and annual reports, while there is to mention that because of the tight integration of Airbus in the EADS concern some of the information had to be obtained from the mother company instead of directly from the subsidiary. For further analysis and a deeper understanding and to unravel Airbus’s problems newspaper, internet and journal articles as well as case studies were used here especially a case study of Barry Shore[7] about the A 380 proof helpful.

1.4 Outline of the Paper

In the first part of the paper, the author attempts to outline Airbus’ risk landscape with a focus on internal risks. Following the author tries to give an overview over Airbus‘ risk management design during the crisis mainly be drawing on EADS information and articles due to the fact that information solely on Airbus were not available. Then Airbus corporate culture is assessed summarized. Followed by the discussion in which the author tries to answer the research questions and creates a model to in order to evaluate whether a strategic risk management is comprehensive or not.

1.5 Airbus the company

Airbus was founded in 1970 as a consortium by a government initiative of Germany, France and the UK and was joined by a Spanish partner in 1971.[8] The partners then were Aerospatiale Matra of France, DaimlerChrysler Aerospace (Dasa) of Germany, BAE Systems of the UK and Construcciones Aeronauticas (Casa) of Spain.[9] Despite of the fact that they operated together the ownership of the engineering and production assets was kept by the different partners and additionally financial information was not shared. These barriers led to the fact that Airbus in real only was a sales and marketing company.[10]

In 2001 the three major stakeholders of Airbus merged and founded EADS (European Aeronautic Defence and Space Company) with its headquarter in Toulouse, France, and Airbus became a subsidiary of this new company.[11] Airbus still retained a company widespread over Europe with a total of sixteen sites in four different countries namely Spain, France, Germany and the United Kingdom.[12] While there are further subsidiaries in Japan, the United States and India the assembly only takes places in France, Germany, Spain and additionally since 2009 in China.[13] Despite the merger one of the biggest challenges did not change, transforming Airbus from a conglomerate of separated companies into a truly integrated organisation.[14]

2. Analysis

2.1 The A-380 crisis

In order to successful complete the A-380 project and to fulfil its contracts Airbus had to deliver the first aircraft in 2005 but they failed to do so. In July 2005 Airbus publically announced that the A-380 project would be delayed due to wiring problems. This first delay was scheduled to 6 months but in 2006 Airbus postponed the project even further. This resulted not only in the resignation of the CEO’s of Airbus and EADS but also in a drop of the share by 26 per cent.[15]

Additionally Airbus costumers became more and more dissatisfied with the situation with led several costumers like Singapore Airlines and Emirates to seek for compensation and a shifting of their orders to the competitor Boing.[16]

In total until 2010 the crisis added up to a total loss of € 4.8 billion in profit.[17]

2.2 Airbus risk landscape

Not surprisingly for a multinational company as Airbus the SWOT-analysis reveals a broad variety of different strengths, weaknesses, opportunities and threats.

One of the aims of this academic paper is it to identify the key risks that Airbus was exposed to during the A-380 project in order to assess what led to the delay and thereby to the crisis. Since the reason for the delay is known, the failure to fit in the pre-assembled wirings, it is to identify which risks can be linked to this failure. The reason why the wirings did not fit into the frame is also known it was caused by a design flaw due to the use of different software.

This flaw clearly occurred on an operational level and can according to the risk management literature be counted as one of the operational risks which are associated with the production process.[18] Operational risks are part of the endogenous risk factors a company is exposed to which is why the analysis will focus on the internal corporate environment which in a SWOT-analysis is presented by the strengths and weaknesses.[19]

[...]


[1] (Airbus (b) 2011)

[2] (Business Week 2006)

[3] (Handelsblatt 2006)

[4] (Shore 2009), (Handelsblatt 2006)

[5] (Hampton 2009), (Handelsblatt 2006), (Geffers 2011)

[6] (EADS 2010)

[7] (Shore 2009)

[8] (Klußmann 2007, 404-408)

[9] (Done 2001)

[10] (Done 2001)

[11] (Done 2001)

[12] (Airbus (a) 2011)

[13] (Airbus 2008), (Airbus (b) 2011)

[14] (Shore 2009)

[15] (Clark, The New York Times 2006)

[16] (Clark, The New York Times 2006)

[17] (Business Week 2006), (Handelsblatt 2006)

[18] (Andersen and Winther Schrøder 2010, 78)

[19] (Andersen and Winther Schrøder 2010, 154)

Details

Pages
24
Year
2011
ISBN (eBook)
9783656315278
ISBN (Book)
9783656315667
File size
902 KB
Language
English
Catalog Number
v204406
Institution / College
Copenhagen Business School – Institute of Finance
Grade
1,0
Tags
Risk Management Strategic Risk Culture Airbus A380

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Title: Strategic Risk Management - A new Framework based on the Airbus A-380 crisis