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Innovation in product in the unit of business Defense &
Government of the Brazilian Company of Aeronautics
ABSTRACT
The objective of this work is to evidence an analysis of the innovation in product in the unit of
business Defense & Government of the Brazilian Company of Aeronautics. Initially it is an
accomplished literature revision about the market segmentation, the innovation in product and
the paper of the clusters. In the sequence, it is described and the respective study analysis on
the business unit of Defense & Government of the Brazilian Company of Aeronautics, with
the subsequent conclusion. The work evidenced the important level of world competitiveness
reached by the unit of business in discussion and it related to him the positioning of the
company, inside of the models defined by Porter. This way, the study contributes to
understanding the positioning longed by the companies before of the strong world
competition, segments in complex and highly innovative.
Key-words: Administration of the Innovation, Strategies of the leadership; Competitive
Advantage.
INTRODUCTION
The product innovation is a practice that seeks to ensure the survival and perpetuity of
business marketing. According to Mattos e Guimarães (2005), this practice is aimed at
attracting customers within a range of market segmentation.
In this sense, this paper discusses a case study on innovation in products business unit
of the Defense & Government of the Brazilian Company of Aeronautics (Embraer). The study
aims to identify the management practices of technology and product innovation adopted by
the company.
Initially, it describes the literature review, followed by case study on the business unit
Defense & Government Embraer. After these presentations, is an analysis of the line between
the theoretical and case study. Finally, closes the work with a conclusion on the matter.
LITERATURE REVIEW
The growing concern with customer satisfaction is a present reality in the business
world. Under the conditions imposed by the market today, customer satisfaction contributes
greatly to the survival of businesses. However, this need leads to a relentless pursuit of
innovation by firms (Mattos & Guimarães, 2005).
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The segmentation of this market
In the past, strong competition has led to a search for market segments in order to
make the relationship between demand and supply beneficial for companies to generate
greater profitability. With this, companies have diversified their products to compete in a
larger number of market segments (Mattos & Guimarães, 2005).
More recently, due to the progressive segmentation, the size of the markets was very
low, which adversely affected the profitability in the unfavorable dynamics of supply and
demand. To survive this reality, organizations prioritize cost reduction, quality improvement,
diversification and flexibility to changes in order to increase demand for their products
(Matos, 2005). In addition, the companies sought to cover larger geographical areas, which
allowed the market segments reach a greater number of consumers. However, currently, the
high level of competition points for customization (Mattos & Guimarães, 2005).
The era of diversification eventually giving way to the era of specialization. In this
new context, products and services are developed in a personalized way (Mattos &
Guimarães, 2005).
The product innovation
Product innovation refers to the production, introduction and diffusion of a new
product (Karshenas & Stoneman, 1995).
Unlike the innovation process that seeks the production, introduction and diffusion of
a new process, product innovation does not occur changes in the production process
(Karshenas & Stoneman, 1995).
The most competitive companies are those able to innovate, to anticipate and adapt to
the changes. In support of this need, technological innovation is characterized as a significant
factor in maintaining the competitive advantage of a company (Porter, 1986).
In this context, the distinction between product innovation and process innovation is
important because it allows the understanding of the causes and the direction of the
technological progress (Karshenas & Stoneman, 1995).
The five main competitive forces
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Innovation in the product may come from within or outside the industry related to
the company. The development of a strategy is between the firm and the environment to
which it belongs. Several environmental factors, such as the social, political, economic and
sector influencing the industry or field target competition the company (Porter, 1986).
Porter (1986) suggests that a development provides the best defense against the set of
existing competitive strengths, which can be influenced through strategies. At this point, the
top five competitive forces listed are: customers, suppliers, competitors, new entrants and
substitute products and services. Figure 1 shows the model of five forces of Michael Porter.
Figure 1 - Model of the five forces of Michael Porter. Fonte: Porter (1986)
Leadership Strategies
Porter (1986) states that the strategies of cost leadership, differentiation and focus
should be employed to address the five competitive forces in an industry. Figure 2 shows the
structure of strategies.
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Figure 2 - Structure of leadership strategies. Fonte: Porter (1986)
The company that chooses to focus strategy aims to provide a specific segment more
effectively and efficiently when compared to competitors that compete more broadly to focus
on a specific segment, the company must have a strategy of low cost or high differentiation,
can also use both at the same time (Porter, 1986).
The strategy of focus, as well as the other two, provides defenses against each of the
five competitive forces. However, the focus strategy has the following risks (Porter, 1986):
• The cost differential between the competitors are active throughout the market and
companies that have adopted particular focus widens, which can eliminate the cost advantages
to meet a target close or cancel the differentiation achieved by focus;
• The differences in the products are reduced;
• Sub-markets within the strategic focus, are exploited by competitors and eventually
neutralizing the focus.
Clusters
The clusters are marked by the geographical proximity between firms. The existence
of clusters, according to Porter (1989), appears to be the focus of national economies leaders.
Competitors of most internationally successful industries are located in a single city or region
within a country. The site becomes a favorable environment for competition and information
flow [5].
In a cluster, companies conduct business with each other and may have common needs
of technology, people and infrastructure. Below are five key features that benefit participating
companies (Porter, 1989):
a) Access to supplies and personnel;
b) Access to technical information and market;
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c) Complementary businesses;
d) Access to institutions and public goods, which reduces, among others, the costs
training, and
e) Incentives and performance measurement.
Configuration in clusters becomes decisive in that it fosters innovation. This aspect of
capacity that has a cluster for the formation of formal and informal networks between
companies in the same sector is something to stand out (Porter, 1989).
The diamond model of competitiveness
The diamond model of competitiveness highlights the influence of countries in the
pursuit of competitive advantage. Diamond lists four factors that shape the environment in
which companies compete and that promote or impede, increase or decrease the creation of
competitive advantage.
Determinants constitute a system through which regional characteristics influence the
competitive success (Porter, 1999). Figure 3 illustrates the diamond model of competitiveness
of Porter.
Figure 3 - Model Diamond competitiveness of Michael Porter. Fonte: Porter(1999).
In diamond, the effect of one factor is dependent on the state of others. In it, each
factor, singly or together, create the context in which firms are born and compete by creating
competitive advantage. This way there is a difficult environment to be played by foreign
competitors (Porter, 1999).
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In addition to determining the opportunities and the government are additional
variables that can influence the system. The opportunity (chance) includes events outside the
control of companies and the government to act on the system, can improve or worsen the
national competitiveness (Porter, 1999).
Finally, according to Porter (1999), the significance of any strength or weakness a firm
possesses is determined on the basis of the impact that has on the relative cost or on
differentiation. The technology, for example, can affect the competitive advantage if it has a
significant role in the strategies of differentiation or cost reduction.
Strategic positioning
In the article "What's Strategy", Porter (1996) suggests that the essence of strategy is
choosing to perform activities other than those taken by rivals. It tries to avoid companies that
derive only temporary competitive advantage in a market where rivals can quickly imitate
management techniques, new technologies, resources and more ways to please customers.
Porter (1996) cites the trade-off as the essence of strategy. For him, no trade-off, there
would be no need for choice and thus also for strategy. According to Porter (1996), the tradeoff, as well as the strategy, create the need for choice and purposefully limit what a company
offers.
Based on the choice of different paths to rivals, Porter suggests three strategic
positioning: 1 - based on customer needs, 2 - based on accessibility to customers, and 3 based on variety of products or services of the Company.
While based on the needs of customers seeking to serve most or all of the needs of a
particular group of customers, based on the variety of products and services focuses on the
choice of product or service varieties rather than in segments customers. In turn, based on the
privilege can access a function of geography, scale, or anything that requires a different set of
activities to reach customers in the best possible way.
According to Porter (1996), the strategic fit is key among many activities, not only for
competitive advantage, but also to make it harder for a rival to an array of linked activities.
The adoption of a similar arrangement is more unlikely than a simple imitation of a particular
form of force, match a process technology, or replicate a set of product features.
The most variable positions are those in which activity systems are incompatible
because of trade-off (Porter, 1996). In this sense, the strategic positioning mounts the rules of
trade-off that define how individual activities will be configured and integrated. See the
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strategy in terms of activity systems only makes it clearer why the organizational structure,
systems and processes need to be specific, strategically (Porter, 1996).
CASE STUDY
Embraer is headquartered in Sao Jose dos Campos-SP. The city is home to the
complex technological and scientific named by the Ministry of Defense, the mainstay of the
Brazilian Air Force (Ministério da Defesa, 2008). Because of the importance of this complex,
resulting number of strategic imperatives described in the National Defense Strategy
(Ministério da Defesa, 2008), a document formulated by the Brazilian government. The
building, the Company has other bases in Brazil and the world, as illustrated in Figure 4.
Figure 4 - Units of Embraer in Brazil, USA, Europe and Asia. Fonte: Ministério da Defesa (2008).
Embraer focuses on three business areas: Executive Aviation, Commercial Aviation
and Defense & Government. The company stands for innovation in product (Embraer, 2009).
The business unit Consumer & Government target of this work, had, in 2008, the share
of 8.1% (U.S. $ 953.8 million) in total net revenue of Embraer (U.S. $ 5.5 billion ). Currently,
fully global financial crisis, the Company intends to increase the participation of the business
unit Consumer & Government until the level of 20%, as it believes this segment is less
subject to variation of the market (Godoy, 2009).
The bet most promising in the military is in business development in Latin America,
Africa, Asia and the Middle East. The heavy political game played by the great powers makes
the sale of military systems by economic powers in the middle, as Brazil is a goal often
inglorious. The need for political alignment is part of the defense market, as it involves
foreign policy objectives and security of a country (Agência Linha de Defesa, 2008).
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Embraer has sought solutions to address this feature of the market through
technological capability of the Company, the quality of its products in the niche market in
which it operates and, indeed, the political support of the Brazilian government. In this sense,
was successful with aircraft training and light attack aircraft with special mission aircraft to
conduct surveillance, intelligence and reconnaissance systems (ISR), transport aircraft and the
ground systems, systems integration, development protocols of data link and C4I systems
(Agência Linha de Defesa, 2008).
The company's ability to face challenges is based on customer focus, innovative
products with cutting edge technology and highly competitive trading conditions (Agência
Linha de Defesa, 2008). These three aspects are portrayed in systematic innovation adopted
by the Department of Embraer's technological development (Figure 5), which acts in support
of business units of the company (Oliveira, 2009).
Figure 5 - Systematic technological innovation. Fonte: Oliveira (2009).
The unit seeks to understand customer needs, offering products and quality
services that best meet your requirements, be they technical, time or budget. For the pure
technological development, not associated with the product, the company has a five-year plan
which provides for investments of 200 million dollars (Pró Inovação Tecnológica na
Indústria, 2008). In the Defense and Government, the corporate strategy and CEO to continue
exploring the niche market is also present (Agência Linha de Defesa, 2008). This strategy is
being employed in the design of new military transport aircraft, the C-390.
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In this project, Embraer was studying the market in a global fleet of 2802 military
transport aircraft to be replaced in the medium and long term. About 49% of this fleet is
composed of C-130 aircraft and 1613 has more than 25 years of use. The study only considers
aircraft with more than 25 years of operation in the range of 5 to 25 tonnes and does not
consider the Chinese market (Sistemas de Armas, 2009).
Without considering the Russian market, Ukrainian and American this number drops
to 1,600 aircraft. With these data the Clutch estimates that can sell up to 700 C-390 aircraft to
77 countries. The cost would be about $ 50 million each, for a forecast of 120 aircraft sold in
10 years Sistemas de Armas, 2009).
To cope with competition, the Company intends to make the C-390 aircraft to lower
operating costs in its class and the purchase price extremely competitive. In addition, the
company aims to beat its competitors in speed requirements (due to jet propulsion) flight
height and size of the cargo bay, a limitation of the cargo that the current C-390 is expected to
exceed (Sistemas de Armas, 2009).
Embraer estimates that the cost of operation is $ 7.5 dollars per mile flown from $ $
13 C-130J. The low cost is based on experience with commercial aircraft and high
commonality as the EMB-190 (Sistemas de Armas, 2009).
A possibility also sought by the business unit Defense & Government is the expansion
of the market. In the case of C-390, the aircraft can perform various tasks (Sistemas de
Armas, 2009).The C-130, for example, has versions that carry out different missions and air
transport.
The tasks that the C-130 can carry out the attack are (AC-130), bombing, special
operations (MC-130), search and rescue (HC-130), maritime patrol (C-130MPA), recognition
(RC - 130) and electronic warfare (EC-130) (Sistemas de Armas, 2009).
In addition to customer focus, technological development and corporate strategy work
in niche markets, but also extend it; the government strategic alliances allow the exchange of
knowledge and technology and / or joint developments.
The FX-2 program, for example, the Company adopts the position of complete
neutrality and conformity with the interests of the FAB and the Brazilian government since
the company will be the national aviation industry that will benefit the industrial cooperation
agreements and transfer technology (Sistemas de Armas, 2009).
Figure 6 illustrates the exploitation of niche markets for unity Defense & Government
Embraer. Still, in Figure 6, we see that the average aircraft condition are becoming available
to smaller air forces and will soon present a conflict of lower intensity in the Third World,
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such as the Super Tucano, who was hired by Colombia in the fight against the Revolutionary
Armed Forces of Colombia (FARC).
Categoria
Aviões
Concorrente
Destaques mundiais
C-390 [13]
IL-214 (versão russa) [14]
C 17 – Us Air Force [14]
-Propulsão a jato
-Capacidade/carga (ton): 18,5
-Capacidade/carga (ton): 77
-Capacidade/carga (ton): 19
-Velocidade: 850 Km/h
-Custo: 240 milhões (U$) [13]
-Custo: 50 milhões (U$)
-Alcance: 6 mil km c/ 4,5 ton
Transporte
Embraer
-Custo p/ milha: 7,5 (U$)
-Velocidade: 850Km/h
-Alcance: 2 mil Km com 19
Treinamento
e 4 mil Km com 10 Ton
Beechcraft AT-6B [16]
Aermacchi MB-339
- Propulsão: turbo hélice
- Propulsão: turbo hélice
- Propulsão a jato [17]
Embraer 145 Alerta Aéreo
S-100 Argus da Flygvapnet
Sistema Aerotransportado de
Antecipado & Controle
Alerta Aéreo Antecipado &
Alerta
(AEW&C) [8]
Controle (AEW&C) [18]
(AWACS) –
-Propulsão a jato
-Propulsão: turbo hélice
US Air Force [19].
Inteligência
Super Tucano [8]
-A
combinação
entre
o
e
Controle
-Esta aeronave se coloca em um
11
avião
da
Embraer
e
o
patamar diferenciado de todas as
sistema Erieye da Ericsson
demais
abriu um mercado antes
[19];
inexplorado
outras
-640 horas de vôo dos Awacs
plataformas AEW&C em
custa entre 10 e 12 milhões de
países em desenvolvimento.
euros [20].
por
plataformas
AEW&C
Figure 6 - Niche markets operated by the Defense & Government unit Embraer. Fonte: authors (2009).
ANALYSIS
Models of the five forces, diamond competitiveness and leadership strategies defined
by Michael Porter serve to support the analysis of a company with regard to product
innovation. In this sense, this paper will use these models to examine the issue of product
innovation business unit of the Defense & Government Embraer.
About leadership strategy, the case study presented makes clear that the business unit's
Defense & Government makes use of the focus of the leadership niche in the market for
military activities, among others, charge transport, electronic warfare, etc., complete as
possible by the leadership in cost and diversification.
This strategy places the business unit in question in a favorable position on the five
forces defined by Porter, which makes it very competitive in certain niches of the global
defense.
The diamond model of competitiveness, the business unit Defense & Government
positions itself well in the four fields highlighted in the model. The company is headquartered
in a Cluster aircraft and has support bases around the world, without considering the weight of
the political relationships established, which features excellent conditions of factors.
Global competition in the operating area is very significant, favoring the field on the
strategy and rivalry of competitors.
Also in the diamond model, the demand conditions in the aerospace defense industry
are promising, even in broad financial crisis.
The field for related industries and support the company establishes a strong bond with
a small number of suppliers and partners at risk, which contributes favorably to its position in
Porter's diamond model.
The strategic positioning, segment Defense & Government is based on need, as he
seeks to serve most or all needs of a particular group of customers. Figure 7 depicts the
strategic position adopted by the Defense & Government jets.
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Figure 7 - Strategic positioning of the segment Defense & Government Embraer. Fonte: authors (2009).
Products segment Defense & Government Embraer, in Figure 7, are compared to
aircraft highlights the world's military. It is clear that the segment Defense & Government
Embraer is interested in serving a niche market made up of countries which do not have to
buy aircraft classified as highlights in the military world, according to Figure 6.
The strategic fit, so as to impede the imitation by rivals, the segment Defense &
Government Embraer takes advantage of the benefits provided by the cluster configured in
São José dos Campos - SP, the knowledge mastered by the other segments of the company
and the relationship with the Brazilian government, which includes the Brazilian Air Force.
Figure 8 illustrates the strategic fit through the integration of the activities of the Defense &
Government segment and CEO.
Figure 8 - Integration of activities of the segment Defense & Government Embraer. Fonte: authors (2009).
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The design of the C-390 is a perfect example of integration of activities that favors the
front of rival Embraer. The project was funded by the federal government has requirements
specified by the Brazilian Air Force and inherited characteristics of aircraft produced in other
segments of the company, among them the jet propulsion that provided the breakthrough of
the C-390 for him to C-130.
CONCLUSION
This paper presented an analysis of product innovation in the business unit of the
Defense & Government of the Brazilian Company of Aeronautics. The analysis was based on
models established by Michael Porter.
Segment Defense & Government Embraer was characterized by a focus strategy,
complemented by the cost. Its strategic position sought by the business unit has been
described as focused on the needs of customers.
We also highlighted the defenses of Embraer in relation to imitation by their rivals,
specifically in the sector related to the military.
Thus, the work contributed to the understanding of the positions adopted by
companies in the face of strong global competition in sectors highly complex and innovative.
Future work may address the innovation processes, as well as other companies.
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