Adam Kahane, author of Solving Tough Problems, starts a dialogue on an important, even intractable, problem with this provocation: “The system” he begins, “is perfectly designed for the results we have now.”
Amen.
Boeing is perfectly designed for the colossal failures that commanded our attention beginning in 2018 and have continued since. After two Boeing plane crashes and the loss of 346 lives due to a software problem, the media focused on issues in the company’s complex supply chain and a corporate culture under pressure, ignoring warning signs from employees in the race to market.
In the scrutiny following a mid-flight door blowout, commentators and journalists are digging deeper. This exceptional piece of journalism by Shawn Tully at Fortune chronicles two decades of decisions by Boeing CEOs. It’s a tale of a company that has lost its way, massively squandered its reputation and trust; a system gone wrong.
Boeing cannot recapture either reputation or market share within the set of constraints and assumptions under which it currently operates.
If this is to be a turning point—not just for Boeing, but for the stage of capitalism we are living through — one that continues to prioritize shareholders over common-sense management, especially in an industry as important to the public wellbeing as aircraft — it’s time to consider a new set of questions.
Question One: What is the Company’s Purpose?
I wrote about Boeing’s muddled mission statement in the wake of the disaster of the 737 Max. The lack of clarity on the website might have foretold the company’s crisis — one that Fortune back then called “a scandal of its own making.”
In 2020, Boeing laid out its intentions in a section entitled “Our Vision.” It started with a statement in which the word innovation figured repeatedly, as if to be innovative was an end in itself. The company’s ‘Aspiration’ was to be the “Best in aerospace and enduring global industrial champion” leaving one to ask, what does it mean to be “the best?,” and by what measure does that constitute a worthy purpose?
The ‘Strategy’ section included this objective: “Sharpen and Accelerate to Win,” which management seemed to take seriously, while continuously undermining quality control.
Like Mr. Tully, Jeff Sonnenfeld and Steven Tian unravel key elements of Boeing’s system failures in this piece. Both focus on the complex supply chain and the offloading of manufacturing to bring down cost and achieve greater efficiency and faster delivery times. None of the cost or efficiency objectives were met, as the company faced increasing delays, resulting in even higher costs. The authors place fixing the supply chain and especially the broken relationship with troubled Spirit AeroSystems, manufacturer of Boeing fuselages — i.e. taking back control of manufacturing — to the top of the list of priorities to turn the company around and rebuild trust in Boeing’s ability to deliver on its promises.
Linette Lopez, writing in Business Insider, goes further and takes us back to first principles — the consequences of a system that puts shareholder value, private inurement (aka, share buy-backs and CEO pay based on share value) over public benefit. She relies on the work of economist Bill Lazonick, who takes aim at the costs of value extraction over investment in his book: Predatory Value Extraction: How the Looting of the Business Corporation Became the US Norm.
Boeing fails in recent decades on two counts: a clear understanding of the public license to operate — rooted in reliability and safety — and second, a priority on investment and protocols for driving that intention through the company’s core operations and feedback loops.
There’s some hope: The “Vision” sections seem to have disappeared from the website. Values remain, including “Lead on safety, quality, integrity and sustainability.” But the emphasis on Lean Manufacturing — which focuses on efficiency — might require a fresh look, or even better, a return to the bible of manufacturing, aka, Total Quality Management (TQM), the continual process of detecting and reducing or eliminating errors. TQM took American industry by storm in the 1980s, after its adoption by the military and industry leaders from GE to Motorola — but gradually lost its way to shareholder primacy.
Importantly, TQM’s tenet of continuous improvement places the emphasis back on the employees, including both those on the factory floor and those with oversight responsibilities, to align performance with intentions. Rebuilding culture has to begin with listening to and understanding the experience of employees and taking back control of job quality throughout the supply chain.
Question Two: Who Should Be in Charge?
The Guardian highlights the conclusion of industry consultant Richard Aboulafia, of AeroDynamic Advisory: that Boeing had an “under-resourced production ramp-up,” leaving too few workers trying to make too many planes”—a symptom of “Boeing’s focus in recent decades on financial performance at the expense of it historical design prowess.”
Boeing is a case example of the long tail of Chicago School economist Milton Friedman and his acolytes, who elevated profits and share price as the organizing principle of business. The impact of this way of thinking, now fully entrenched by the matra of ‘pay for performance’, is such that MBAs who move through the finance department, with a stop at McKinsey, can be promoted to the top job, replacing engineers, who bring actual experience designing and making things, as well as professional credentials and yes, a code of conduct, to the front office.
Several of Boeing’s chief executives over the last two decades were schooled at GE — which, under Jack Welch, became a laboratory for testing the limits of shareholder primacy. (GE’s chapter in that story officially ends this year with the breakup of the enterprise.) The next CEO in line at Boeing appears to be current COO Stephanie Pope, who brings financial chops along with experience in strategic planning and regulatory compliance.
Where are the engineers?
The idea of linking purpose and the public interest and the license to operate isn’t a new idea—or as lofty as it sounds. The Engineers’ Creed, adopted by the National Society of Professional Engineers in 1954, sets out this promise: “To place service before profit, the honor and standing of the profession before personal advantage, and the public welfare above all other considerations.”
Boeing recently announced the move of its corporate headquarters from Chicago to Arlington, Virginia, where the company already has a hub. One reason the CEO, Dave Calhoun, gave for the move is access to engineering talent. Northern Virginia will become a new center for ‘research and technology’, while the commercial airline business remains in the legacy manufacturing hub near Seattle.
Another engineer at the helm won’t solve all of the problems, but tone at the top matters. Ed Pierson was a Navy veteran and senior manager at Boeing’s Renton, WA plant in the go-go years of 2015-18 before turning whistleblower and safety advocate. He describes the qualifications for top execs and board directors this way:
“The simple test is, ‘In 2023, how many times did you spend time on the factory floor and listen to the concerns of the employees who are the backbone of the company?’ If the answer is ‘no,’ you’re clearly not the right person for the job.”
Question Three: Who Should Executives Answer To?
Single objectives like shareholder primacy don’t end well. Effective business managers are multi-taskers — they consider and can hold multiple perspectives simultaneously. This is critical if corporate purpose is to be more than just good intentions or a statement on the website.
Corporate purpose is revealed through actions and rewards that shape the culture and the decisions for which the company is known — what the company becomes. By some measures, Boeing’s real purpose was straightforward: Beat Airbus.
Ironically, I don’t think Airbus has to spend a lot of time clarifying their reason for existing or whether the engineers or the bean counters are more important. The company began as a consortium and continues today under co-ownership: 80% is held by the German-French-Spanish European Aeronautic Defence and Space Company (EADS), and 20% by Britain’s BAE Systems. The French and German governments are still the biggest shareholders and investors in the future of the enterprise.
I am pretty sure Airbus employees know who they are working for. And with the public interest as their primary guide, it’s easier to stay focused on designing, manufacturing, and delivering a quality product, without cutting corners to the drumbeat of the stock price and profit motive.
What would change if the company actually put the license to operate at the center of its reason to exist? As Marjorie Scardino, the former CEO of Pearson writes, “Profits are essential, but they should sustain a company, not define it.” What has to change for this to become Boeing’s reality?
Maybe we can take heart in Boeing’s recent announcement that it will forgo earnings guidance for the balance of the year. McKinsey consultant, Tim Koller, began to study and write about the ‘misguided’ practice of earnings forecasts in the wake of Enron’s meltdown. Here’s a radical thought: could giving up earning guidance become permanent? Afterall, what purpose does feeding a number to the market actually serve?
Today, Airbus has surpassed Boeing as the world’s largest aircraft manufacturer. Airlines that carry through on the threat to leave Boeing behind will only increase that trend line.
Still, as many note, Boeing is too big to fail. It will live to see another day. We can hope this most recent reckoning will spark a reset in the culture and reexamination of what constitutes success — under the helm of leaders equipped to design and manufacture aircraft, with the highest principles of engineering, long-term thinking and common sense as their guide.
