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How Boeing lost their way
“When the headquarters is located in proximity to a principal business—as ours was in Seattle—the corporate center is inevitably drawn into day-to-day business operations,” Condit explained at the time. And that statement, more than anything, captures a cardinal truth about the aerospace giant. The present 737 Max disaster can be traced back two decades—to the moment Boeing’s leadership decided to divorce itself from the firm’s own culture. |
This is exactly what corporate flunkies do. I know as I'm living it right now.
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Boeing felt they were financially underperforming compared to MDD. They felt they were seen as some old, unsexy machine building company far off to the west. So they wanted to move closer to the east coast's capital markets and closer to D.C. and moved to that -back then- fancy rude GE management style. They did not win the JSF. Stock wise it still seemed to pay off. Strategically I am not so sure for the commercial business side. They would need to invest more instead of stock buy backs. It's still a very capable company so they will recover.
Actually A and B as the top group have even moved more far ahead from the rest of the industry. |
Originally Posted by Mark in CA
(Post 10623904)
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Program engineers now report to the chief engineer again, not to the program leaders like in between. This is intended to make them more independent even when delaying program milestones to get things right first.
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Originally Posted by Less Hair
(Post 10624251)
Program engineers now report to the chief engineer again, not to the program leaders like in between. This is intended to make them more independent even when delaying program milestones to get things right first.
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This affair is so expensive even "cost cutters" must support some more traditional approach to run the business.
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How the west was lost...
Cookie cutter MBA programs infecting corporates the world over. Knowing the price of everything and the cost of nothing. |
Originally Posted by Less Hair
(Post 10624393)
This affair is so expensive even "cost cutters" must support some more traditional approach to run the business.
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There's an old joke (but also a truism) that used to say something along the lines of... the best airliner in the world would be designed by Lockheed, marketed by MD - and built by Boeing.
The 'old' Boeing kinda ended with the 787 manufacturing process - an aircraft that was designed by Boeing, marketed by Boeing - and built by no-one in particular... |
If Boeing wasn't such a huge defence contractor I would be concerned for it's very survival. Too big to fail of course and they know it. Long term, to get out of this hole they dug for themselves, they need to fire all the executives, restore the old engineering culture, and discontinue the jurassic 737 for something totally new and revolutionary. That or they will lose narrow body airplanes to Airbus for decades to come. Catastrophic for Boeing and customers that will lose leverage in pricing. What a clown show this once great company has become..
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The trouble with discontinuing the Jurassic 737 is that the ocean of MAXes will become valueless overnight.
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Originally Posted by Reluctant Bus Driver
(Post 10624417)
If Boeing wasn't such a huge defence contractor I would be concerned for it's very survival. Too big to fail of course and they know it. Long term, to get out of this hole they dug for themselves, they need to fire all the executives, restore the old engineering culture, and discontinue the jurassic 737 for something totally new and revolutionary. That or they will lose narrow body airplanes to Airbus for decades to come. Catastrophic for Boeing and customers that will lose leverage in pricing. What a clown show this once great company has become..
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Originally Posted by Loose rivets
(Post 10624428)
The trouble with discontinuing the Jurassic 737 is that the ocean of MAXes will become valueless overnight.
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Originally Posted by Reluctant Bus Driver
(Post 10624417)
and discontinue the jurassic 737 for something totally new and revolutionary
That's the problem with a 50-year-old design - you need so many different family names. :O The last Jurassic was built over 30 years ago. |
Originally Posted by Reluctant Bus Driver
(Post 10624417)
If Boeing wasn't such a huge defence contractor I would be concerned for it's very survival. Too big to fail of course and they know it. Long term, to get out of this hole they dug for themselves, they need to fire all the executives, restore the old engineering culture, ...
It is very likely that high value brand companies must totally fail in significant numbers first before any thought will be given to valuing true expert input and aligning businesses in accordance with it. |
Originally Posted by Chas2019
(Post 10624243)
Lets see how much they can shift the culture back to on of engineering following the hearings in Congress. I am will to bet once they feel no one is looking it will be back to the old ways as it costs less and profits matter.
The article in the Atlantic should be an MBA case study (I know, I did an airline based MBA) to show that profits and costs need to be measured over time and culture is very important. The MD people have ruined Boeing as they ruined MD with the "death cruiser" DC-10 that people in the airline business wouldn't fly on. Now they have done it again. Boeing shareholders need to revolt and throw these MD/GE culture people out before it is too late. We are also seeing the cost-cutting, outsourcing effects in pickle forks - parts that have been outsourced and are sub-stanadard because no-one even thought to have any kind of quality control on the parts they buy in. How many other hidden gotchas are yet to appear? |
Originally Posted by AviatorDave
(Post 10624682)
It is very likely that high value brand companies must totally fail in significant numbers first before any thought will be given to valuing true expert input and aligning businesses in accordance with it.
The attitude has spread like cancer in most industries. I am working for one of these old high value brands. I have seen slides from top management where they are bemoaning that the highest value omputer company (Apple) does not manufacture computers any more, that the most valueable telco (Facebook) does not own a single line, that the biggest accommodation business (AirBnB) does not own any hotels and the largest taxi businesses (Ueber) does not have a single taxi. Only we would make our hands dirty to make steel and plasics to cash with a substandard RoS instead of just grooming our brand and having someone else do the dirty work. |
Originally Posted by DaveReidUK
(Post 10624558)
Point of order: The term "Jurassic" as applied to the 737 is normally used to mean the original P&W-powered -100/-200 Series, as distinct from the "Classic" (-300/-400/-500), NG and Max.
That's the problem with a 50-year-old design - you need so many different family names. :O The last Jurassic was built over 30 years ago. |
One of the problems for Board throwing out the previous generation is that:
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Chasing quarterly cash call results rather than long term product excellence always ends up with a poorer product which becomes run of the mill. |
Boeing's priorities over the last 10 years:
#1) Increase shareholder (read executive's) value by repurchasing $43 billion worth of outstanding stock. Yes, that's $43 with a B. #2) Build safe, reliable airplanes. Share price, and executive net worth have done fantastically well. Building safe and reliable airplanes; Well, not so much. |
[Previously posted links]
If you want to see how this buy-back works, Ben Hunt does an excellent job for Boeing: When Was I Radicalized? (Boeing edition). He calls it Boeing edition, in reference to his previous article on Texas Instruments buy-back story: Yeah, It’s Still Water. Both are well worth a read to provide the back story for the modern financial landscape that we have all been thrust into, and why there is almost no R&D done anymore. |
Originally Posted by Less Hair
(Post 10623916)
Boeing felt they were financially underperforming compared to MDD. They felt they were seen as some old, unsexy machine building company far off to the west.
Phil Condit will go down as one of the worst CEOs in US history. |
But could Boeing have survived the pressure to become, euphemistically "shareholder value" driven, and the rivers of gold that would flow to the executive suite? I see it inevitable that this was bound to happen, it was just a question of when it would end in tears.
It is waaay beyond my knowledge and skill set to judge Boeing CEO's, but I suspect, that if it wasn't Condit, someone else would have come along and taken Boeing down the same path. It's not a Boeing thing, it's a much wider systemic problem, there is just too much money at stake to be looted by senior executives of public companies. We have entered the wild west of financialization. The die was cast in the 1980's, a couple of great primers on the inevitability of this outcome: and . |
I agree with CurtainTwitcher that it is now a systemic problem. Forty years of CEOs being raised on the motto Shareprice - at any Price. We can see it in so many companies. One example I might suggest is British Airways, whose product continues to dissapoint (another IT failure etc). EVERY corporation gets fat, lazy and complacent. VW had the good fortune to not kill anyone by false test results. Coca-Cola only hurt themselves with 'new Coke'. Boeing lost sight of everything and, as yet, have not made proper obeisance to the truth nor reparations. But this freshly minted business study case will take them a decade to recover from.
I suggest that NO executive or non-executive board member is entitled to ANY bonus for ten years. That's for starters to make it clear that - as they put money before people - now they should suffer the same and lose money. Because we can be sure tha no one will go to jail - which is the real crime. Nothing less than a decade of solid safety can repair their name, they had better start thinking long term again. |
Originally Posted by CurtainTwitcher
(Post 10625152)
But could Boeing have survived the pressure to become, euphemistically "shareholder value" driven, and the rivers of gold that would flow to the executive suite? I see it inevitable that this was bound to happen, it was just a question of when it would end in tears.
It is waaay beyond my knowledge and skill set to judge Boeing CEO's, but I suspect, that if it wasn't Condit, someone else would have come along and taken Boeing down the same path. It's not a Boeing thing, it's a much wider systemic problem, there is just too much money at stake to be looted by senior executives of public companies. We have entered the wild west of financialization. Perhaps Boeing would have eventually drifted down the 'shareholder value' path, but if they had made Alan Mulally CEO instead of Condit in 1996, it would have taken far, far longer. |
Where did this all go wrong?
I agree that the Boeing failure is representative of a greater, systemic fall. In so many fields there was a time when if asked what the company did, a CEO would answer, we build cars, trains, planes, ... . Now it’s always about increasing shareholder value. On the other hand, our pensions and 401Ks depend on share value. What went wrong? Or is this simply the inevitable result of human nature? |
Last Century, bean counters tried killing the US Auto Industry by building sub-standard cars and designs that nobody wanted to buy. Some cars were killing customers. Bean counters did not listen to the Auto Engineers.
This Century it would seem that bean counters are killing the US Airliner Industry by building sub-standard aircraft. Some aircraft are killing customers. Bean counters seem not to be listening to Aviation Engineers. |
I worked as a composite tool designer for BP Chemicals Advanced Materials in Kent, Washington back in the 90's; we manufactured nacelles for Grumman and Fokker, produced launch tubes for the TOW missile, and made some other composite stuff. The general manager, a certain Mr. N., was an MBA trained executive with impeccable clothing and a great handshake. He also was a follower of the business model of the day. We had had two 're-organizations' in a single year when Mr. N decided we still weren't 'efficient' enough, so he had each department head come up with another plan. Five of us grunts were selected to 'review' the department heads' plans and decide if they were useful or not. Foolish me, I actually sort of thought he wanted real feedback! We met over a period of a week and each head gave us a presentation of how they were going to, again, re-organize their departments. After listening to the presentations and discussing them; we all agreed that we had not allowed enough time for things to settle down after the two previous re-orgs and that the plans presented to us were just tossing things into the air again. Listening to the department heads it was obvious they felt the same way, but were carrying out orders to satisfy Mr. N.
We agreed we would tell Mr. N this when we reported, and we would recommend that nothing be done, that another re-org would simply waste everyone's time. Mr. N. came in to hear our analysis and, of course, when push came to shove no one would actually say what we thought. Except, at the end, foolish me. I told him we were just generating chaos with no constructive benefit and that we should just hang back and let the last re-org get figured out. A big mistake, to put it mildly! He got very angry and told us what we would report to the department heads that their plans were good and we totally supported the new re-org. So much for actually wanting our real feedback. Needless to say, I was put on the hit list big time. MBA's ............... |
Just in case would Alan Mulally be available?
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Wasn't Alan Mulally in charge when the 737 hard over ruder problem showed up?
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I read all the above. However, MCAS was not designed by bean counters, or indeed anyone from Chicago. They would not have a clue about where to start; they probably don't possess a CAD station among all of them, and MCAS is entirely about aerodynamic characteristics. It was designed and checked and had test plans written by aeronautical engineers, no less, from Boeing. I suspect some detail elements would be subcontracted out, possibly even to the low bidder, but the short list preparation and selection would be done by aeronautical engineers.
Now the engineers may not have co-ordinated themselves adequately, and the various changes to MCAS characteristics during it's development may have been garbled along the way. But that wasn't bean counters who did the lack of liaison, was it ... |
Stick to flying
Wanted: new CEO for Boeing. Only pilots need apply. They know better, after all. |
The beancounters hold the purse. "Shareholder Value" translates to keeping the operational side of the business on starvation rations. Continuously one day from death is optimal solution. There is never enough money in the budget, never enough time, never enough resources. Unanticipated problems (ie non-compliant stick forces in the case of the MAX) require solutions without additional resources becoming available. Boeing's use of its regulatory delegations for certification essentially gave it the power to direct engineers to sign off or lose their jobs.
I know this as a low level functionary in a large organisation that is making large amount of money, yet you have continuous hacking of the business to the point of gross dysfunction, then they hack some more. Yeh, the beancounters did do it. |
Originally Posted by WHBM
(Post 10625697)
I read all the above. However, MCAS was not designed by bean counters, or indeed anyone from Chicago. They would not have a clue about where to start; they probably don't possess a CAD station among all of them, and MCAS is entirely about aerodynamic characteristics. It was designed and checked and had test plans written by aeronautical engineers, no less, from Boeing. I suspect some detail elements would be subcontracted out, possibly even to the low bidder, but the short list preparation and selection would be done by aeronautical engineers.
Now the engineers may not have co-ordinated themselves adequately, and the various changes to MCAS characteristics during it's development may have been garbled along the way. But that wasn't bean counters who did the lack of liaison, was it ... It was entirely a management decision, and engineering most likely received the respective pressure to make it happen. The engineers might have their share of the blame in this, but the real issue is on the executive levels. |
Originally Posted by Less Hair
(Post 10625572)
Just in case would Alan Mulally be available?
He’s in his mid 70s now. Largely has led a quiet life since leaving Ford. Anything is possible, but I have to believe the probability of his return is low. |
I can't claim any credit here, but a great parable on modern beancounting, feeds right into the shareholder value ethos.
I did not write this conversation and I have no idea who did. If someone recognises it as belonging to him, please let me know so that I can give full credit. If you read the conversation, keep in mind practices in your company. The story applies not only to ABC costing but to any sort of costing that allocates as described below. Standard costing, full absorption costing etc. all suffer from the problem behind the story. This link is to the source of my peanuts picture! In discussing the costs incident to various types of operations, the analogy was drawn of the restaurant, which adds a rack of peanuts to the counter, intending to pick up a little additional profit in the usual course of business. However, the accuracy of the analogy is evident when one considers the actual problem faced by the Restaurateur (Joe)as revealed by his Accountant-Efficiency Expert (Eff. Ex.) EFF. EX. Joe, you said you put in these peanuts because some people ask for them, but do you realize what this rack of peanuts is costing you? JOE It ain't gonna cost. 'Sgonna be a profit. Sure, I pay $25 for a fancy rack to bags, but the peanuts cost 6 cents and I sell 'em for 10 cents. I sell 50 bags a week to start. It'll take 12-weeks to cover the cost of the rack. After that, I gotta clear profit of 4 cents a bag. The more I sell, the more I make. EFF. EX. That is an antiquated and completely unrealistic approach, Joe. Fortunately, modern accounting procedures permit a more accurate picture which reveals the complexities involved. JOE Huh? EFF. EX. To be precise, those peanuts must be integrated into your entire operation and be allocated their appropriate share of business overhead. They must share a proportionate part of your expenditures for rent, heat, light, equipment depreciation, decorating, salaries for your waitresses, cook,... JOE The cook? he gotta do wit' ? He don' even know I got'em! EFF. EX. Look, Joe, the cook is in the kitchen, the kitchen prepares the food, the food is what brings people in here, and the people ask to buy peanuts. That's why you must charge a portion of the cook's wages, as well as a part of your own salary to peanut sales. This sheet contains a carefully calculated cost analysis which indicates the peanut operation should pay exactly $1,278 per year toward these general overhead costs. JOE The peanuts? $1,278 a year for overhead? The nuts? EFF. EX. It's really a little more than that. You also spend money each week to have the windows washed, to have the place swept out in the mornings, and to keep soap in the washroom. That raises the total to $1,313 per year. JOE (Thoughtfully)But the peanut salesman said I'd make money -- put'em on the end of the counter, he said -- and get 4 cents a bag profit. EFF. EX. (With a sniff)He's not an accountant. Do you actually know what the portion of the counter occupied by the peanut rack is worth to you? JOE Ain't worth nothing - no stool there - just a dead spot at the end. EFF. EX. The modern cost picture permits no dead spots. Your counter contains 60 square feet and your counter business grosses $15,000 a year. Consequently, the square foot of space occupied by the present rack is worth $250 a year. Since you have taken that area away from general counter use, you must the value of the space to the occupant. JOE You mean I gotta add $250 a year more to the peanuts? EFF. EX. Right. That raises their share of the general operating costs to a grand total of $1,563 per year. Now then, if you sell 50 bags of peanuts per week, these allocated costs will amount to 60 cents per bag. JOE What? EFF. EX. Obviously, to that must be added your purchase price of 6 cents per bag, which brings the total to 66 cents. So, you see, by selling peanuts at 10 cents per bag, you are losing 56 cents on every sale. JOE Something's crazy. EFF. EX. Not at all. Here are the figures. They prove your peanut operation cannot stand on its own feet. JOE (Brightening)Suppose I sell peanuts - thousand bags a week 'stead a fifty? EFF. EX. (Tolerantly)Joe, you don't understand the problem. If the volume of peanut sales increases, your operating costs will go up. You'll have to handle more bags, with more time, more depreciation, more everything. The basic principle of accounting is firm on that subject: "The Bigger the Operation, the More General Overhead Costs that Must be Allocated." No, increasing the volume of sales won't help. JOE Okay, you're so smart, you tell me what I gotta do. EFF. EX. (Condescendingly)Well -- you could first reduce the operating expenses. JOE How? EFF. EX. Move to a building with cheaper rent. Cut salaries. Wash the windows bi-weekly. Have the floor swept only on Thursday. Remove the soap from the washrooms. Decrease the square foot value of your counter. For example, if you can cut your expenses 50%, that will reduce the amount allocated to peanuts from $1,563 down to $781.50 per year, reducing the cost to 35 cents per bag. JOE (Slowly) That's better. EFF. EX. Much, much better. However, even then you would lose 26 cents per bag if you charge only 10 cents. Therefore, you must also raise your selling price. If you want a net profit of 4 cents per bag, you would have to charge 40 cents. JOE (Flabbergasted) You mean after I cut operating costs 50%, I still gotta charge 40 cents for a 10-cent bag of peanuts? Nobody's that nuts about nuts. Who'd buy 'em? EFF. EX. That's a secondary consideration. The point is at 40 cents, you'd be selling at a price based upon a true and proper evaluation of your then reduced costs. JOE (Eagerly) Look! I got a better idea. Why don't I just throw the nuts 'em in a trash can? EFF. EX. Can you afford it? JOE Sure. All I got is about 50 bags of peanuts -- cost about three bucks -- so I lose $25 on the rack, but I'm outa this nutsy business and no more grief. EFF. EX. (Shaking head) Joe, it isn't quite that simple. You are in the peanut business! The minute you throw those peanuts out, you are adding $1,563 of annual overhead to the rest of your operation. Joe, be realistic -- can you afford to do that? JOE (Completely crushed) unbelievable! Last week, I was gonna make money. Now, I'm in a trouble -- because I think peanuts on a counter is a gonna bring me some extra profit -- because I believe 50 bags of peanuts a week is easy. EFF. EX. (With raised eyebrow)That is the object of modern cost studies, Joe, to dispel false illusions Funnily enough, exactly the same about the problematic allocation of costs argument is made in Boeings own internal study: Boeing OUT-SOURCED PROFITS –THE CORNERSTONE OF SUCCESSFUL SUBCONTRACTING The first issue to be examined, is precisely what is out-sourced and what is inevitably retained. The superficial perspective might be that every internal activity that used to be related to a task that has been out-sourced is no longer necessary. Even that is not true but, worse, it fails to acknowledge all of the new internal tasks that had not previously existed. To add insult to injury, contemporary accounting practices do not allow these unavoidable additional costs to be billed against that particular item of work – because it is no longer identified as an in-house task – so these charges are allocated instead as overhead to any remaining in-house work. This misrepresentation of true costs furthers the illusion that outside production is cheaper than anything done inside, building the pressure to ship even more work offsite, until there isn’t any left. The irony of this situation is that it is so easy to understand in the extreme. Suppose that a manufacturer had succeeded in out-sourcing all of the work that it wished to isolate from the preferred task of systems integrator. The unallocatable costs from the huge amount of out-sourced work will now appear as overhead on the few remaining tasks, like sales and product support, confirming that these were now even less profitable than manufacturing had been when the spiral began! |
Re the email from Mr Marko, the Transport Canada engineer.
I was waiting for someone to hold up their hand and say enough lipstick on this pig. Boeing did not want to spend the money on a modern FBW control system. OK fine but then it has got to fly like a normal airplane at all the corners of the flight envelope with out electronic bandaids, like the 737 100/200, the basis of the air frame certification This is what happens when Boeing adopted the company culture of “You Engineers will never get time or money to do the job right, and by way we only want you taking the absolute minimum time and money to do it over to a just good enough standard to smoke it through the regulators” Reply |
The people who signed the SWA contract promising a big, new engine and agreeing to a penalty if cockpit retraining were necessary did this.
The people who made it beyond debate that they penalty not be paid did this. The people who installed a system where safety was merely a set of obstacles to overcome on the way to production did this. This is already a classic study. The engineers are handed a series of hard parameters and told to come up with something. Their solution is brilliant: develop a system by tapping into an existing system; normally, this would cause a huge problem, since the existing system wasn't built for that, and, in effect, you're relying on a single sensor input to move a secondary flight control, but, hey, with small adjustments that can easily be overridden manually and countered by primary flight controls, that's not a problem. So it passes the regulatory hurdle. Then in testing, surprise surprise, we're going to need more authority. Well, you know safety, in for a dime, in for a dollar. Sure, Engineers "did this". They were given a design, a serious of hard obstacles, and some time, and they worked around to find a solution in keeping with the priorities set by management. They built an aircraft even more successful than the MD-11 turtle. I do like it when companies start calculating the cost of everthing, setting up internal billing schemes and bureaucracies to keep track of such things. It's a useful way to drive up costs and then that work to another company with more efficient accounting practices. |
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