The period between 1997 and 2000 proved relatively calm for Embraer, at least by the standards of the global airline industry and the early 1990s in Brazil. As the sales of the ERJ-145 took off, Embraer executives took advantage of the break in the action to position the company to seize future opportunities and avoid or respond to sudden-death threats that might emerge in the future.
- Continuously improve operating efficiency Although Embraer had a long history of new product innovation, the company’s engineering prowess had not translated into efficient production processes. Embraer had introduced quality improvement programs in early 1985, but these were executed in a fragmented and half-hearted manner. In 1996, Embraer top executives initiated a business process redesign project to implement Total Quality Management techniques in all of the company’s processes. Embraer also worked with external partners including McDonnell Douglas, Boeing, and the International Organization for Standardization to provide external certification of quality, as well as guidance on how to improve Embraer’s internal processes to achieve higher quality targets. Embraer also invested heavily in information technology – not only for the design and engineering, but for all financial reporting systems as well. These actions together enabled Embraer to cut its production cycle by half, while increasing revenues per employee five-fold.
In September 1995, Mauricio Botelho joined Embraer as the CEO. Botelho was a 53-year-old mechanical engineer, a seasoned executive who served on the board of the lead investor in the syndicate that acquired Embraer. When Botelho arrived, along with his long-time colleague Antonio Manso, they did not like what they saw. The assembly line was empty, the mainstay Bandeirante and Brasilia models were outdated, and development had been cancelled on the CBA 123. Botelho later recalled:
When I arrived, we had $330 million in annual losses, a backlog of less than $200 million and 6,100 unmotivated employees. And yet Embraer had a history of products that were to some extent pioneers in the market. First on my agenda was to understand how Embraer got into this position.
Botelho quickly concluded that Embraer had focused too heavily on improving technology, lost sight of its customers and, as a result, lacked a product to serve the customers’ emerging needs. Studies conducted prior
The late 1980s and early 1990s were as difficult for Embraer as the preceding years had been good. The fall of the Berlin wall in 1989 resulted in steep reductions in military spending around the world. A global recession depressed demand for air travel, leading airlines to delay or cancel their orders for new planes. Even as demand contracted, supply grew because European countries supported their local champions’ entry into the regional jet market, spawning new rivals including Aerospatiale (France), Saab (Sweden), Daimler Aerospace (Germany), Fokker (Holland), and Casa (Spain).
Embraer initially responded to these altered environmental conditions by doing more of what had worked in the past. Historically, executives had seen Embraer as an “engineering company” and believed that superior engineering would sustain the company’s success. These strategic frames led Embraer managers to focus on refining and extending their existing turboprop planes, investing more than $280 million on a state-of- the-art turboprop, known as the CBA 123, even as momentum was building for short-range jets instead.
The CBA 123 was to become the most advanced turboprop ever built. But it had two problems. The advanced
In order to succeed in an unpredictable market, companies must respond quickly and effectively to sudden-death threats and rapidly identify and exploit golden opportunities. During periods of relative calm, managers must excel at active waiting by monitoring the emerging situation, identifying and managing potential risks, building slack resources and maintaining internal and external flexibility. Successfully doing any of these is hard enough, but excelling at all of them is daunting. Few companies have done it all as successfully as the jet manufacturer Embraer.
Today, Embraer is the fourth largest aircraft manufacturer in the world, with over twelve thousand employees and $5.5 billion revenues in 2009. By the end of the 1990’s, the company had emerged as one of Brazil’s largest exporters. Over the 1990’s, Embraer won a 40% share of the global market for regional jets, while the market leader Bombardier lost nearly half of its market share over the same period, and number three Fairchild Dornier filed for bankruptcy.
To understand Embraer’s success in the 1990’s, it helps to start at the beginning and understand the company’s origins. The story begins in 1941, when the Brazilian government created an Aeronautics Ministry to