From Wall Street Journal, Boeing is scrambling to solve its own delay problem for its new dreamline 787. The memory of the delay of Aribus Jumbo A380 is still fresh. And once cheering furtively, Boeing has to swallow the same bitter pill by itself.
Boeing took a different strategy to develop its new airplane model. In short, it spread billions of dollars in development costs among a large number of suppliers, while also streamling its own manufacturing. But the web of suppliers crisscrossing the globe has contributed to several delays for the twin-aisle aircraft, hitting Boeing's share price and stirring concern among customers.
Boeing, in its new bid to get the 787 Dreamliner back on track, said Friday that it will buy out Vought Aircraft Industries Inc.'s interest in an assembly plant in North Charleston, S.C. The facility, called Global Aeronautica LLC, is a joint venture between Vought and Italy's Alenia Aeronautica.
Dallas-based Vought is a key player in Boeing's attempt to reinvent its production process for the 787 by giving more responsibility to suppliers who design, produce and integrate large sections of the jet. In this case, Vought and Alenia join large sections of the jetliner together before they are shipped to the Seattle area for final assembly.
Some suppliers, including Vought, have struggled with the new responsibilities, contributing to chronic delays in the 787 production process. Boeing is trying to overcome those problems by taking a direct stake in the assembly plant.
The fiasco hitting both Boeing and Airbus reminds me the other giant project stumbling occurred in the Heathrow Airport expansion project and others. It appears to me that the mistakes seems to be inavoidable when the size of the project becomes large. It is like the more complicate the machine is, the easier it will malfunction.
The lessons have been learned:
1.Never make a promise when the uncertainty is too high. Remember, the forecase to the furture could never be correct.
2.Be wary of your innovative idea bears potential risks that will bite at later stage
3.Always do what-if analysis in the project planning. Having a plan B never hurt you.
4.When the schedule is slipping, don’t expect the problem would solve by itself. Jump over it immediately and sort it out before it festers
Sunday, March 30, 2008
Wednesday, March 26, 2008
Negotiate smartly
Our negotiation with a potential acquision target hit the snug. All the team members are very frustrated except me. It is true that our counterparty is tricky and he rolled back some common understanding both sides achieved in the last round negotiation. His sincerity to make a deal with us is questioned and at our side the energy to pursue this option is sapping, apparently.
In my perspective, I think otherwise. (But the problem is that I don’t know whether I should present my idea to the team at the point of time because I am going to leave the project soon. Besides, I had the precedent of putting out my ideas without a positive response from my teams). Anyway, I should write another blog about the survival rules in a Chinese-German team. Back to the topic, I think we should not let our emotion to make our rationale get hostaged. So far, we only get two plausible options, and this one is the most wanted. I exchanged some ideas about it with my MBA classmate. Her words enlighten some unknown aspects, to me and surely to my teammates too. She told me that usually the assets with intrinsic value would be inevitably in the radar screen of a few value seekers. So we are not only approaching them. The owner might be in the talk with multiple parties. Therefore, his behavior of rolling back has a good explanation. Probably he is buying time to decide his best option.
The focal clash between two sides are the asset owner’s request to secure a price premium over the market average price. (the hidden assumption is that the premium will gurantee his profit in the deal). Frankly speaking, it is understandable at the first glance (benefit maximization). However, one question dwelling in my head is that as long as we are on the same boat (JV), the profit us will also means the profit for him, why he wants this kind of insurance in the contract which seems unrealistic? (at the end of the day, no such a business can gurantee profitable, not mention the price pre-fix in a M&A deal. The common sense is that the price should be set according to the market condition) My guess is that since our company will act as the sole sales agency to sell the product in the market, he worries about part of the profit we might block before it transfer to the JV. (actually this would be the case, because all the revenue will go back to JV directly). I raised this topic and want the team to calarify it with the asset owner, but my suggestion is ignored.
A fruitful negotion requires patience, hardwork and a somber mind. But what I can see is that the emontion is taking the front seat. The stamina is in short to bring the negotion into the direction we prefer. The team is too judgemental on the countparty’s personality to lose the sight of the big picture, what we want to get from this deal.
On 12-12-2007, I made my proposal in an e-mail as follows:
Refocus on the big picture
It looks that we are wrestling with T－H on the price premium the JV should impose over the average market price. We all know that Mr.owner’s goal is to be better-off after the formation of the JV. Better-off can be defined as the net value outcomes (NVO) created in the cooperation with Company X . And we have many ways to bring the NVO for Mr. Owner, like selling the capacity that can not be sold by themselves alone,reducing cost through Company X ’s management expertise, the good-will we are willing to pay, the sharing of business risk and of course the price-premium too. In light of the foreging, the price premium is only one the means to realize the NVO but it is not the NVO itself. I think now the means and the goal are mixed up, consequently we are battling for a tiny part of the whole big picture.
To break the stalemate, rather than tangle with Mr. Owner over the single issue----price premium, I think we can make a all-dimension scenario comparasion beween pre-deal and post-deal to Mr.owner by which to convince him that first, there are many roads leading to better-off instead of levying price premium only; second, a price premium commitment might not always work for him, if the volume is influenced negatively and thereof undercut the total revenue, the price premium will just backfire.
What is Mr Owner’s bottom line?
Up to date, Mr. Owner actually raised two issues, 3X3% Company X ’s surcharges and selling price premium. Without doubt, more issues will be coming along the way, but for any issues, we need to know what is Mr.owner's bottom line and what is negotiable? Bidding high and selling low is the common practice in a negotiation, there is always distance between the ideal situation and the minmium the negotiators want to accompish from a deal. So I think what Mr. Owner is asking for now might be something ideal in his mind, not the bottom line. We need to compromise, Mr.owner needs too. Then the consensus can be reached. But by any means, we should probe Mr Owner’s reservation price/bottom line in order to shape our offer in a best possible way.
Shall we craft a negotiation strategy?
What we are doing now in the negotiation is more responsive rather than pre-emptive. Maybe because we are still at a very early stage of negotiation and many things are unclear to us, therefore we don’t form a strategy yet. Nevertheless, since we have seen how fickle Mr.owner is and the impassee he placed right in front of us, probably it is time for us to give a thorough review on the building blocks of this negotiation, like the parties(Mr.owner), issues, postions, interests, priorites and BANTA(Best Alternative To a Negotiated Agreement). Afterwards, we can think about how to deal with him and move the negotiation toward our favoralbe direction.
To sum up, we could not the owner’s words just by their face value. We should fathom what is meaning behind. Chinese are high-context, right? When the countparty’s concerns, worries and motivation are all understood, then our strategy can be easiy developped to remove the roadblocks in the negotiation and get what we want from a deal, maybe with some compromise. A responsive approach in a negotiation won’t work because it is passive and too dependent on the
In my perspective, I think otherwise. (But the problem is that I don’t know whether I should present my idea to the team at the point of time because I am going to leave the project soon. Besides, I had the precedent of putting out my ideas without a positive response from my teams). Anyway, I should write another blog about the survival rules in a Chinese-German team. Back to the topic, I think we should not let our emotion to make our rationale get hostaged. So far, we only get two plausible options, and this one is the most wanted. I exchanged some ideas about it with my MBA classmate. Her words enlighten some unknown aspects, to me and surely to my teammates too. She told me that usually the assets with intrinsic value would be inevitably in the radar screen of a few value seekers. So we are not only approaching them. The owner might be in the talk with multiple parties. Therefore, his behavior of rolling back has a good explanation. Probably he is buying time to decide his best option.
The focal clash between two sides are the asset owner’s request to secure a price premium over the market average price. (the hidden assumption is that the premium will gurantee his profit in the deal). Frankly speaking, it is understandable at the first glance (benefit maximization). However, one question dwelling in my head is that as long as we are on the same boat (JV), the profit us will also means the profit for him, why he wants this kind of insurance in the contract which seems unrealistic? (at the end of the day, no such a business can gurantee profitable, not mention the price pre-fix in a M&A deal. The common sense is that the price should be set according to the market condition) My guess is that since our company will act as the sole sales agency to sell the product in the market, he worries about part of the profit we might block before it transfer to the JV. (actually this would be the case, because all the revenue will go back to JV directly). I raised this topic and want the team to calarify it with the asset owner, but my suggestion is ignored.
A fruitful negotion requires patience, hardwork and a somber mind. But what I can see is that the emontion is taking the front seat. The stamina is in short to bring the negotion into the direction we prefer. The team is too judgemental on the countparty’s personality to lose the sight of the big picture, what we want to get from this deal.
On 12-12-2007, I made my proposal in an e-mail as follows:
Refocus on the big picture
It looks that we are wrestling with T－H on the price premium the JV should impose over the average market price. We all know that Mr.owner’s goal is to be better-off after the formation of the JV. Better-off can be defined as the net value outcomes (NVO) created in the cooperation with Company X . And we have many ways to bring the NVO for Mr. Owner, like selling the capacity that can not be sold by themselves alone,reducing cost through Company X ’s management expertise, the good-will we are willing to pay, the sharing of business risk and of course the price-premium too. In light of the foreging, the price premium is only one the means to realize the NVO but it is not the NVO itself. I think now the means and the goal are mixed up, consequently we are battling for a tiny part of the whole big picture.
To break the stalemate, rather than tangle with Mr. Owner over the single issue----price premium, I think we can make a all-dimension scenario comparasion beween pre-deal and post-deal to Mr.owner by which to convince him that first, there are many roads leading to better-off instead of levying price premium only; second, a price premium commitment might not always work for him, if the volume is influenced negatively and thereof undercut the total revenue, the price premium will just backfire.
What is Mr Owner’s bottom line?
Up to date, Mr. Owner actually raised two issues, 3X3% Company X ’s surcharges and selling price premium. Without doubt, more issues will be coming along the way, but for any issues, we need to know what is Mr.owner's bottom line and what is negotiable? Bidding high and selling low is the common practice in a negotiation, there is always distance between the ideal situation and the minmium the negotiators want to accompish from a deal. So I think what Mr. Owner is asking for now might be something ideal in his mind, not the bottom line. We need to compromise, Mr.owner needs too. Then the consensus can be reached. But by any means, we should probe Mr Owner’s reservation price/bottom line in order to shape our offer in a best possible way.
Shall we craft a negotiation strategy?
What we are doing now in the negotiation is more responsive rather than pre-emptive. Maybe because we are still at a very early stage of negotiation and many things are unclear to us, therefore we don’t form a strategy yet. Nevertheless, since we have seen how fickle Mr.owner is and the impassee he placed right in front of us, probably it is time for us to give a thorough review on the building blocks of this negotiation, like the parties(Mr.owner), issues, postions, interests, priorites and BANTA(Best Alternative To a Negotiated Agreement). Afterwards, we can think about how to deal with him and move the negotiation toward our favoralbe direction.
To sum up, we could not the owner’s words just by their face value. We should fathom what is meaning behind. Chinese are high-context, right? When the countparty’s concerns, worries and motivation are all understood, then our strategy can be easiy developped to remove the roadblocks in the negotiation and get what we want from a deal, maybe with some compromise. A responsive approach in a negotiation won’t work because it is passive and too dependent on the
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