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THE MORNING RANT: Boeing’s Ongoing 737-Max Debacle - When Cost Cutting Becomes the Corporate Mission

Boeing was once a well-run engineering company that became very profitable from its well-engineered products. It is now a poorly-run manufacturing company being managed in the manner taught in elite MBA programs, placing an emphasis above all else on cost control and expense reduction.

It is also a company whose current version of its workhorse product, the 737 Max, continues to have catastrophic in-flight failures.

Part of the 737 Max fleet has been grounded, again, this time after a door plug came off the fuselage of an Alaska Airlines airplane while in flight. Back in 2018 and 2019, there were two fatal 737 Max crashes, both apparently related to poorly designed and programmed flight stabilizer systems.

This story from 2019 came out in the wake of the fatal crashes:

It remains the mystery at the heart of Boeing Co.’s 737 Max crisis: how a company renowned for meticulous design made seemingly basic software mistakes leading to a pair of deadly crashes. Longtime Boeing engineers say the effort was complicated by a push to outsource work to lower-paid contractors.

The Max software -- plagued by issues that could keep the planes grounded months longer after U.S. regulators this week revealed a new flaw -- was developed at a time Boeing was laying off experienced engineers and pressing suppliers to cut costs.

Increasingly, the iconic American planemaker and its subcontractors have relied on temporary workers making as little as $9 an hour to develop and test software, often from countries lacking a deep background in aerospace -- notably India.

There is so much more that needs to be said about the toxicity of the “slash and cut your way to increased profit” culture that is learned at business schools, but I’ll briefly summarize that putting the “Chief Cost Cutter” at the helm of a corporation is just as ridiculous as putting the Accounts Payable Manager or Facilities Manager in charge of all operations. They’re all important roles, but you would not have the entire company focus almost exclusively on just one of those facets. Yet too many modern executives have a monomaniacal obsession with cutting costs and expenses, which causes neglect of innovation, quality, safety, and new product development, if not outright hostility toward those critical areas. It also causes a loss of important talent whose legacy knowledge has a value that can’t be quantified on a financial statement.

In 2019 there was an exceptional piece in The Atlantic. It discussed Boeing’s new direction in the aftermath of its merger with McDonnell Douglas, and the destructive takeover of Boeing by the cost-cutting executives who ran McDonnell into the ground. Their obsession with cost cutting and their contempt for the engineers and aviators who made Boeing great ultimately destroyed the great company. The relocation of Boeing’s corporate headquarters to Chicago was largely for the purpose of separating the brilliant money men now leading Boeing from those annoying engineering and manufacturing guys back in Seattle.

“How Boeing Lost Its Bearings: A company once driven by engineers became driven by finance” [The Atlantic – 11/20/2019]

Below are some excerpts. The entire piece has been archived and can be read here.

In the plane’s trailing vortices was greater Seattle, where the company’s famed engineering culture had taken root; where the bulk of its 40,000-plus engineers lived and worked; indeed, where the jet itself had been assembled. But it was May 2001. And Boeing’s leaders, CEO Phil Condit and President Harry Stonecipher, had decided it was time to put some distance between themselves and the people actually making the company’s planes. How much distance? This flight—a PR stunt to end the two-month contest for Boeing’s new headquarters—would reveal the answer. Once the plane was airborne, Boeing announced it would be landing at Chicago’s Midway International Airport.

The isolation was deliberate. “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.

The shift had started three years earlier, with Boeing’s “reverse takeover” of McDonnell Douglas—so-called because it was McDonnell executives who perversely ended up in charge of the combined entity, and it was McDonnell’s culture that became ascendant.

But Stonecipher was cutting a Dick Cheney–like figure, blasting the company’s engineers as “arrogant” and spouting Harry Trumanisms (“I don’t give ’em hell; I just tell the truth and they think it’s hell”) when they shot back that he was the problem.

“There was a little surprise that a guy running a failing company ended up with so much power,” the former Boeing executive vice president Dick Albrecht told me at the time. Post-merger, Stonecipher brought his chain saw to Seattle. “A passion for affordability” became one of the company’s new, unloved slogans, as did “Less family, more team.” It was enough to drive the white-collar engineering union, which had historically functioned as a professional debating society, into acting more like organized labor. “We weren’t fighting against Boeing,” one union leader told me of the 40-day strike that shut down production in 2000. “We were fighting to save Boeing.”

If Andrew Carnegie’s advice—“Put all your eggs in one basket, and then watch that basket”—had guided Boeing before, these decisions accomplished roughly the opposite. The company would put its eggs in three baskets: military in St. Louis. Space in Long Beach. Passenger jets in Seattle. And it would watch that basket from Chicago. Never mind that the majority of its revenues and real estate were and are in basket three. Or that Boeing’s managers would now have the added challenge of flying all this blind—or by instrument, as it were—relying on remote readouts of the situation in Chicago instead of eyeballing it directly (as good pilots are incidentally trained to do). The goal was to change Boeing’s culture.

And in that, Condit and Stonecipher clearly succeeded. In the next four years, Boeing’s detail-oriented, conservative culture became embroiled in a series of scandals. Its rocket division was found to be in possession of 25,000 pages of stolen Lockheed Martin documents. Its CFO (ex-McDonnell) was caught violating government procurement laws and went to jail. With ethics now front and center, Condit was forced out and replaced with Stonecipher, who promptly affirmed: “When people say I changed the culture of Boeing, that was the intent, so that it’s run like a business rather than a great engineering firm.” A General Electric alum, he built a virtual replica of GE’s famed Crotonville leadership center for Boeing managers to cycle through. And when Stonecipher had his own career-ending scandal (an affair with an employee), it was another GE alum—James McNerney—who came in from the outside to replace him.

If I can make a quick side note, the only people more destructive in corporate C-suites than Ivy League business school graduates are General Electric alums. They tend to bring a cult-like fanaticism for the idiotic business fads that ultimately destroyed GE, never understanding that the success of GE in the 1990s was despite those awful gimmicks, not because of them, and that the subsequent destruction of GE as a successful company in the 21st century was largely because of all the gimmicks that came to define GE’s culture.

As the aerospace analyst Richard Aboulafia recently told me, “You had this weird combination of a distant building with a few hundred people in it and a non-engineer with no technical skills whatsoever at the helm.” Even that might have worked—had the commercial-jet business stayed in the hands of an experienced engineer steeped in STEM disciplines. Instead McNerney installed an M.B.A. with a varied background in sales, marketing, and supply-chain management.

It wasn’t just technical knowledge that was lost, Aboulafia said. “It was the ability to comfortably interact with an engineer who in turn feels comfortable telling you their reservations, versus calling a manager [more than] 1,500 miles away who you know has a reputation for wanting to take your pension away. It’s a very different dynamic. As a recipe for disempowering engineers in particular, you couldn’t come up with a better format.”

It’s now clear that long before the software lost track of its planes’ true bearings, Boeing lost track of its own.

Right now, there is much well-deserved mockery of Boeing and Alaska Airlines for how their focus on DEI and LGBTQ has distracted them from manufacturing and operating airplanes that don’t fall apart mid-flight. I have no doubt that if Alaska Airlines spent more time inspecting its airplanes rather than decorating them in rainbow colors and putting on drag shows, this latest incident would not have happened.

But neither would it have happened if Boeing was still a company run by engineers, rather than being a company run by MBAs who will gladly sacrifice quality and safety to temporarily goose the bottom line.

[buck.throckmorton at protonmail dot com]