(Source: IC Photo)
Wu Chen/Wen
Two air crashes from 2018 to 2019 pushed Boeing to the cusp. Both accidents involved the latest Boeing 737 MAX model, which had just entered service. The subsequent investigation into the 737 MAX accident is also very clear, the direct cause is the human design problem, but the deep reason behind it is the degradation of Boeing's overall culture and management.
Boeing's depravity was plucked out by Bloomberg journalist Peter Robison in his new book Flying Blind.
Overall, Boeing's problems are rooted in culture. After Boeing acquired Its American rival, McDonnell Douglas, three decades ago, McDonnell Douglas' corporate culture was anti-customer-oriented. This culture of pandering to Wall Street's pursuit of short-term profits has internally dismantled Boeing's decades-old culture of engineer excellence, doubling short-term stock prices and thriving, but sowing the seeds of Boeing's long-term depravity. After the design problems of the 737MAX were exposed, various problems covered up during the construction of Boeing's latest dual-channel model, the 787 Dreamliner, were also exposed.
Sorting it out, there are four deadly sins of Boeing's fall: building airplanes the way Walmart is managed; ignoring strategic issues because of short-sightedness; "regulatory capture" gives itself the green light; and maximizing shareholder interests is twisted into "self-fattening" capitalism. These lessons are particularly worthy of the vigilance of managers in large enterprises.
FlyingBlind: The 737 MAX Tragedy and the Fall of Boeing
By Peter Robison
Doubleday published
November 2021
First, building airplanes in the way of managing Walmart will sooner or later have problems
After the merger of Boeing and McDonnell Douglas, a new generation of managers are all paratroopers, such as the two CEOs of Boeing after the 1990s, who are from General Electric (GE), and are no longer managers who grew up from within Boeing with an engineer culture. GE's management culture focuses on the versatility of managers, emphasizes cost management, pursues efficiency, and believes that managing a high-end manufacturing company is not fundamentally different from managing a large supermarket like Walmart. McDonnell Douglas' wall-based management model also became more popular three decades ago, pursuing short-term profits and emphasizing stock price management, especially the use of the company's own funds to buy back shares, which is a win-win approach for shareholders and equity-incentivized management, at the expense of the company's future development.
The conflict between the culture of short-term efficiency and profit and the engineer culture that Boeing has accumulated over the years is reflected in the way Walmart is built, the star CEOs are masters of cost control, and the outsourcing culture that began to spread thirty years ago has also penetrated Boeing's supply chain. Cost control, massive outsourcing (global sourcing), and squeezing suppliers are some of the elements of Walmart's success that Boeing's managers have also practiced.
The problem is that using Walmart to build cars can indeed improve efficiency, although the car is also a large equipment manufacturing, but its output is large enough, the complexity is far lower than the passenger aircraft project, and the safety requirements are far less stringent than the aviation industry. On the contrary, using the same thinking to build large aircraft will be a problem, because large aircraft belong to high-end manufacturing with high unit price and low output. The mistake McDonnell Douglas made recurred when Boeing set up a new generation of dual-aisle 787 projects. In order to achieve the approved cost-cutting target, that is, to hope that the cost of research and development is half that of the previous generation of airliner Boeing 777, Boeing has increased the use of suppliers on a large scale, many of which are not familiar with the relevant business. To increase roost investment (RONA), Boeing sold a large number of assets and ancillary plants. These are short-term behaviors, resulting in the 787 exposed a large number of problems in the production and manufacturing process, the result of which the 787, instead of being able to save money, has greatly exceeded the budget, and the downline time has been repeatedly postponed.
The case of the Boeing 787 proves that the emphasis on outsourcing because of cost control can indeed save costs in the short term, but in the long run, it is more than worth the loss. A certain degree of vertical integration is necessary for a large project like a passenger aircraft, because engineers need to synchronize and coordinate the solution and innovation of any new problems encountered in the process from design to manufacturing. Synchronization and coordination within the company only need to communicate, and synchronization and coordination with suppliers outside the system requires modification of contracts and legal audits, and the results are time-consuming and labor-intensive. As a senior engineer said: every passenger aircraft development project may have more than 20,000 unexpected problems, and problems must not be hidden. However, under the strong pressure of cost savings and the completion of the plan, the opinions of the engineers are suppressed, and in the short term, everything seems to be normal, and in the long run, these masked problems will always erupt.
Second, managers who lack long-termism are prone to strategic mistakes
The lesson behind why Boeing has invested heavily in the development of dual-channel airliners, 757, 777, 787, constantly introducing new models, and choosing to tinker with single-channel 737 airliners, is an important strategic issue that short-sighted managers can easily ignore.
Choosing to invest in a dual-aisle airliner looks wiser because dual-aisle airliners have higher profit margins. In contrast, short- and medium-range airliners such as the 737 have lower profit margins. To make an inappropriate analogy, the former is a luxury car, the latter is a family car; the innovation of luxury cars helps to maintain high profits, the repair of family cars makes small changes, and users are not very accountable.
But in the long run, Boeing has clearly made important strategic mistakes, especially after facing increasing competition from Airbus' airbus 320 counterpart.
The Boeing 737 was actually inherently inadequate, and at the beginning of its design 60 years ago, the aircraft needed to be able to adapt to various small airports around the world, so the ground clearance was relatively low. Because the overall design has never been modified, each update is replaced by a new generation of more powerful and fuel-efficient engines. In this way, the engine evolved from the cigar type that originally hung under the wing to maintain ground clearance to flatten the bottom end of the cylindrical engine, and then to move the larger engine to the front of the wing, and by the stage of the 737MAX, the engine was nearly twice as large as the front of the wing, the front wheel had to be raised by 8 inches, and the entire center of gravity of the aircraft was shifted. Boeing used software models to solve the problem of the aircraft's over-elevation angle causing stalls, but did not train pilots on a large scale, which directly led to two accidents.
Strategic blunders have also led to tactical confusion. The overdue 737 has been at a disadvantage against the Airbus 320, especially the 320neo, which is loaded with the latest and most efficient engines. In order to ensure market share, Boeing can only choose to fight a price war. The price war forced the 737 to introduce a lite version, turning many of the standard parts on the 320 aircraft into options in order to further reduce the price, which is unimaginable in the aviation industry that emphasizes safety first. For example, the backup fire extinguisher at the back end of the cabin costs $80,000 because the Federal Aviation Administration (FAA) does not mandate a backup fire extinguisher in the cabin. Another reason for the 737MAX accident was the lack of a backup sensor, and a sensor failure triggered a "runaway" of the software. The problem is that the backup sensor is also one of Boeing's additional device lists, and the two airlines that crashed, Indonesia airlines and Ethiopian Airlines, are low-cost airlines, and neither of them has the option of equipping sensors to save costs.
Behind the two-headed rivalry between Boeing and Airbus, strategy and tactics are intertwined. Airbus' biggest fear is that Boeing will wake up in the most expensive single-channel market and invest a lot of resources to design a new generation of airliners. Boeing, a fan of the authorities, has been slow to wake up, and successive accidents can only continue to erode its market share and customer confidence.
Third, Boeing highlights the seriousness of the "regulatory capture" problem
The overhaul of the Boeing 737MAX was released at the green light, highlighting the proliferation of regulatory capture issues in the United States. The so-called regulatory capture is that the government's regulators, because of their lack of resources and capabilities, or because of the pressure of large corporate lobbying, actually no longer have the ability to regulate, or even surrender the regulatory power to large companies privately.
After the 1980s, the transformation of Boeing culture coincided with the opportunity to deregulate the aviation industry to explode. Deregulation also means that the funds and capabilities of regulators are weakened, and even a Boeing Safety Supervision Office has been set up within the FAA, which is not clearly used to supervise Boeing, but more like Boeing is supervising itself. An investigation into the Boeing 737MAX found that the people who gave the green light for approval were actually Boeing's own people.
In addition, the National Transportation Safety Board (NTSB), the U.S. agency responsible for aviation safety, is not affiliated with the FAA, and its recommendations after the air crash investigation are not obligated to accept all the recommendations of the FAA, because the FAA has a dual purpose from the beginning: to regulate the aviation industry while promoting the development of the aviation industry, excessive safety requirements will bring huge costs to the aviation industry, which may inhibit the development of the aviation industry. When regulators need to fight each other with both hands and security investigators have only the right to advise, it is only natural that large and wealthy companies can implement "regulatory capture". Over the past few decades, Boeing's lobbying in Washington has increased from $9 million a year to $18 million, and it has hired big-name lawyers (including those who have passed by Supreme Court justices). In contrast, regulators, whether budgetary or professional, can only be pediatrics.
One example vividly illustrates the effects of regulatory capture. Of all the crash investigations, the black box is the most important. The NTSB's first job is to find the black box (in fact, it is two sets of devices: a voice recorder and a flight track recorder, both of which record only thirty minutes before the plane crash), and then interpret the data of the black box, unchanged for decades.
The question is why the digitization of any industry over the past few decades has advanced by leaps and bounds, and why the devices on airliners are still stuck in the "prehistoric era". In fact, the NTSB has long suggested to the FAA to add a set of black boxes to the new passenger aircraft to record the image information in the cockpit. As cameras, disks, and memory chips become more and more miniaturized, the added cost of adding such devices should be small. But the FAA just doesn't agree.
It goes without saying whose interests are behind this decision.
Fourth, the pursuit of maximizing shareholder interests may lead to self-enriching capitalism
In the new century, Boeing, like many large enterprises, has shown the ugly side of capitalism: on the one hand, it has "divided the rich and the poor" in its own body, and on the other hand, it does not reconcile the relationship between capital and labor, but exacerbates this conflict.
Designing a high-end equipment manufacturing industry requires more knowledge workers– especially engineers – to participate in high-level management. From this perspective to look at the corporate governance of large German manufacturing enterprises, there is a reason for the participation of committees of workers in the governance of the board of directors, because workers and engineers are relatively front-line employees, and listening to their ideas helps the company to adhere to long-term doctrine and become short-sighted without being wrapped up in stock price management, and the result of this short-sightedness may be tactical problems, and more seriously, strategic problems.
But American-style capitalism has evolved over the past 30 years, and the average pay gap between CEOs and ordinary employees has grown from less than 20 times to more than 300 times, and has become two completely different classes. CEOs and executives have been fired with their golden gloves (many have a golden handshake at the beginning of their tenure), engineers and workers have been laid off without much compensation, and this "rich-poor divide" between management and workers has intensified. For example, Boeing's CEO Millenberg at the time of the 737MAX accident was forced to resign in 2020, and the break-up fee covers stock options, pensions, compensation and benefits, and is still worth as much as $62 million.
On the other hand, it is likely that laymen will lead insiders and shape a culture focused on cost and efficiency, forcing engineers to abandon rigorous practices and have to tear down the east wall to make up for the west wall in order to reduce costs.
In Boeing's management over the past three decades, it's not hard to find the "financial scalpel" that GE's legendary leader Welch has admired. Controlling costs, reducing capital investment, reducing or no longer increasing R&D investment, and selling non-core industries (slimming), these financial scalpels can indeed quickly help a seemingly bloated company to slim down, but their consequences, whether short-term or long-term, or unpredictable in advance, are likely to be negative in some cases.
In addition, Welch also represents the role of an omnipotent CEO, such a CEO can turn a stone into gold, so it is worth the company to pay a lot of money to hire. Gone are the days of omniscient and all-powerful CEOs. In a knowledge-intensive enterprise, in a high-end manufacturing enterprise, the creativity of employees, the design and innovation ability of engineers are the key to the success of enterprises.