7 ms·

How the wrong side won at Boeing

77 points by viburnum 3y ago

bediger4000 3y ago
I recall hearing "If it's not Boeing, I'm not going" maybe 25 years ago. Consolidation in the aircraft industry has failed the country. We've got no other vendors. I'll also admit to working for McDonnell Douglas Aerospace, 1984-86. Sandy McDonnell was CEO, and John McDonnell III had been an engineer in various divisions and disciplines for a while, and was waiting in the wings. McDonell Douglas was a family company. I had to get a manager's signature to get office supplies, Sandy was so thrifty. If, as this article claims, MD accounting based culture was the problem, it hadn't been in place too long before the 1997 Boeing acquisition.
- anonacct37 3y ago
  I'm not sure if I follow but it does occur to me that being thrifty and changing from a aerospace engineering company to a financial engineering company can be two different things that might end up categorized as "accountants are in control".
- colechristensen 3y ago
  I’m increasingly of the opinion that companies flat should not be able to buy each other, though I’m not exactly sure how that would work.
  - _heimdall 3y ago
    Removing legal and financial protections, not to mention the concept of "too big to fail", would help quite a bit. Consolidating companies into a few massive corporations centralized power, but it also centralizes risk. They'd be more careful, and may even be unwilling to risk the treadmill of endless acquisitions if each addition adds more risk and liability.
  - smolder 3y ago
    Yeah, over-consolidation leads to fragility, and to market abuses, and together those make it not really worth the efficiency gains of shedding "redundancies". Redundancies are often good for robustness...
- _heimdall 3y ago
  Consolidating industry is always a failing strategy. There are often short term gains, but eventually the system breaks.
  - ryukoposting 3y ago
    Now you have me thinking back to the big(-ish) companies I've worked for. One in particular was a global patchwork of smaller firms, assembled through acquisition. They were never integrated together all that tightly, though. They shared a C-office, a board, and a logo, and not much else. Working with other arms of the company was a lot like working with an outside firm, except everything was priced at cost and you got priority over truly-external clients. This probably sounds woefully inefficient to the average American business mind, but it seemed to work great. Each sub-firm had their own way of doing things that was tailored to maximize efficiency on a local level. Sure, inter-division communication could be wonky sometimes, but eventually you learn how to iron out those wrinkles. Sure, there's redundancy in some parts of the business. Those costs are easy to calculate. What's much harder to calculate is the cost of taking 14 manufacturing firms scattered 4 continents, stripping them of their current internal processes, and replacing them with a unified system.
    - _heimdall 3y ago
      That actually seems like a very reasonable approach. So reasonable that I assume it will eventually be ruined when management or ownership changes and the next crew comes hunting for efficiencies to cut costs. Most things are just so short term focused these days that there are few incentives to build a slower, more stable business (or product, or government, or social network, or news media, etc)
      - ryukoposting 3y ago
        It's a family business owned and run a bunch of stubborn Bavarians. I'm optimistic.
- lostlogin 3y ago
  Does industry consolidation ever make things better? There must be counter examples but I can’t think of any. Regulation can help, and it broke up the single telecom where I am and really improved things (just wondering if I can justify a 8gbps connection…).
  - dartos 3y ago
    It does sometimes, specifically with utilities. That’s why many utility companies in the US are government sanctioned monopolies.
    - cogman10 3y ago
      That only applies when the utility companies are heavily and well regulated. Take that away or loosen enforcement and you get things like California's campfire. Or in my own case, a large water company purchasing smaller water companies and immediately applying for higher prices... to cover the cost of purchasing more of the local water companies (transparently so). Get a bunch of yes men on the board regulating a utility, though, and all the sudden it's easy for them to just approve whatever the utility wants to do regardless of public comment.
  - panick21_ 3y ago
    Its because you cant see the effects. Consolidation is good lots of times. In the US they had an insane banking system regulation that resulted in the US haveing 10000s of banks. This lead to a lot of issues and was incredibly inefficent. I can name lots of examples. Before 1982 there were like 20+ companies who wanted to produce video game console. Did we need 10 different commercial unixs. Also, the consolidation results in companies that have the capital to invest. Having LM, MC, Boeing and Airbus all making widebodies didnt make sense and resulted in issues for both tri-jet producers. Airbus was the winner in that situation because neither company could invest in twin-jet widebody. The idea that the economy would be awesome if there were only small companies doesnt really hold up. So just saying consolidation bad 100% doesnt really hold up. The telecom are special because they were all state owned then privatized, they are mostly not the result of consolidation.
- daedrdev 3y ago
  I heard second hand that the MD managers who got promoted in Boeing after the merger decided to not build any new modules in house at Boeing. They were able put a lot of pressure on their new suppliers who were small compared to Boeing and made a lot of money. Over time many Boeing suppliers lowered their quality to stay in business and others failed outright. Since then there has been a lot of consolidation of the suppliers of Boeing, to the point where Boeing has much less leverage than it once did and often has only one option left for many of the parts in needs. I'm not sure how much this has contributed to its current issues, but it seems a systematic issue that Boeing doesn't make its own planes anymore and has to rely on suppliers who are scraping every ounce of margin out of their production processes.
- ummonk 3y ago
  Thriftiness to the extent of requiring a manager’s signature for getting office supplies is actually a great example of an accounting focused culture that inhibits good engineering.
  - bediger4000 3y ago
    I honestly don't think MDAC was thrifty to the point of counterproductiveness in 1985, but you raise a good point.
  - magnetowasright 3y ago
    Depending on the costs of office supplies, manager wages, and worker wages, it could be an accounting focused culture that inhibits good accounting. Talk about penny wise pound foolish.
KerrAvon 3y ago
Good post; tl;dr these sentences at the end: > In my notes, there’s a phrase which really stuck in my mind – “understanding the numbers has to come from understanding the business. People go badly wrong when they try to do it the other way round”. But that’s what they do, far too often
- goodSteveramos 3y ago
  People who are good at “business itself” without being good at any particular business are really just reckless profit extractors willing to cut corners because they have friends in high places to bail them out when it all inevitably goes wrong.
- Terr_ 3y ago
  A useful related term is "McNamara Fallacy" where quantitative factors are given too much emphasis. > But when the McNamara discipline is applied too literally, the first step is to measure whatever can be easily measured. The second step is to disregard that which can't easily be measured or given a quantitative value. The third step is to presume that what can't be measured easily really isn't important. The fo[u]rth step is to say that what can't be easily measured really doesn't exist. This is suicide. -- Daniel Yankelovich, "Interpreting the New Life Styles", Sales Management (1971)
- deleted 3y ago
  [deleted]
- dave4420 3y ago
  Aka “the map is not the territory”.
danesparza 3y ago
Archive link: https://archive.ph/z221C https://archive.ph/z221C
jimkleiber 3y ago
John Kay talks about Boeing in his book Obliquity (and before in this essay) [0] > ICI is not the only company for whom greater emphasis on corporate financial goals led to less success in achieving them. I once said that Boeing’s grip on the world civil aviation market made it the most powerful market leader in world business. Bill Allen was chief executive from 1945 to 1968, as the company created its dominant position. He said that his spirit and that of his colleagues was to eat, breathe, and sleep the world of aeronautics. “The greatest pleasure life has to offer is the satisfaction that flows from participating in a difficult and constructive undertaking,” he explained. > Boeing’s 737, with almost 4,000 planes in the air, is the most successful commercial airliner in history. But the company’s largest and riskiest project was the development of the 747 jumbo jet. When a non-executive director asked about the expected return on investment, he was brushed off: there had been some studies, he was told, but the manager concerned couldn’t remember the results. > It took only 10 years for Boeing to prove me wrong in asserting that its market position in civil aviation was impregnable. The decisive shift in corporate culture followed the acquisition of its principal US rival, McDonnell Douglas, in 1997. The transformation was exemplified by the CEO, Phil Condit. The company’s previous preoccupation with meeting “technological challenges of supreme magnitude” would, he told Business Week, now have to change. “We are going into a value-based environment where unit cost, return on investment and shareholder return are the measures by which you’ll be judged. That’s a big shift.” > The company’s senior executives agreed to move from Seattle, where the main production facilities were located, to Chicago. More importantly, the more focused business reviewed risky investments in new civil projects with much greater scepticism. The strategic decision was to redirect resources towards projects for the US military that involved low financial risk. Chicago had the advantage of being nearer to Washington, where government funds were dispensed. > So Boeing’s civil orderbook today lags that of Airbus, the European consortium whose aims were not initially commercial but which has, almost by chance, become a profitable business. And the strategy of getting close to the Pentagon proved counter- productive: the company got too close to the Pentagon, and faced allegations of corruption. And what was the market’s verdict on the company’s performance in terms of unit cost, return on investment and shareholder return? Boeing stock, $48 when Condit took over, rose to $70 as he affirmed the commitment to shareholder value; by the time of his enforced resignation in December 2003 it had fallen to $38. [0]: https://www.johnkay.com/2004/01/17/obliquity/ https://www.johnkay.com/2004/01/17/obliquity/
ethanbond 3y ago
People digging into Boeing's specific history are likely doing themselves a huge disservice. It's too easy to say, "Oh well I won't acquire a company like McDonnell Douglas!" But that's not the issue. The issue is a culture (nationally/globally) of financialization. You're vulnerable to it even if you don't acquire MDA, or if you don't acquire anyone at all. The fundamental issue is simple: Mistaking side-effects of the system for the goals of the system. The goal of a company shouldn't be to make number-on-spreadsheet go up. The goal is to produce excess value, capture some amount of it, and pass the rest onto your customers. The amount that you capture will affect the spreadsheet, but the real goal of the organization must be to produce that excess value and pass on a meaningful portion of it to your customers! The whole meme that companies exist to maximize shareholder value is just that: a meme, and a recent one at that. Boeing is the natural outcome of believing it like a zealot.
- Etheryte 3y ago
  In an ideal world, yes, but we live in a world where making the spreadsheet number go up is the ultimate goal for a lot of people, especially if it's your own personal spreadsheet. For these kinds of people, customers with wishes and demands are often an inconvenience that stands in their way.
  - ethanbond 3y ago
    Well I hope they kill fewer people en route to their own self-destruction than Boeing has (and likely will).
- _heimdall 3y ago
  > The whole meme that companies exist to maximize shareholder value is just that: a meme, and a recent one at that. Boeing is the natural outcome of believing it like a zealot. Admittedly I've only been in the workforce for a couple decades, but isn't this precisely what large, or at a minimum publicly traded, companies operate on? I've worked for multiple public companies and this is a universal theme among any I've worked with or for. Legally they're even required to do what is best for shareholders, nothing more.
hayst4ck 3y ago
The author of this article would enjoy this speech by Admiral Rickover, who was deeply experienced with the problems Boeing is experiencing. Admiral Rickover was the father of the nuclear navy. https://govleaders.org/rickover.htm https://govleaders.org/rickover.htm Every paragraph is a bomb lobbed directly and accurately at Boeing. Almost every analysis of Boeing is directly spoken to by one of those paragraphs or something else Rickover has said. > To maintain proper control one must have simple and direct means to find out what is going on. There are many ways of doing this; all involve constant drudgery. For this reason those in charge often create “management information systems” designed to extract from the operation the details a busy executive needs to know. Often the process is carried too far. The top official then loses touch with his people and with the work that is actually going on.

77 points by viburnum 3y ago

I recall hearing "If it's not Boeing, I'm not going" maybe 25 years ago. Consolidation in the aircraft industry has failed the country. We've got no other vendors. I'll also admit to working for McDonnell Douglas Aerospace, 1984-86. Sandy McDonnell was CEO, and John McDonnell III had been an engineer in various divisions and disciplines for a while, and was waiting in the wings. McDonell Douglas was a family company. I had to get a manager's signature to get office supplies, Sandy was so thrifty. If, as this article claims, MD accounting based culture was the problem, it hadn't been in place too long before the 1997 Boeing acquisition.

anonacct37 3y ago
I'm not sure if I follow but it does occur to me that being thrifty and changing from a aerospace engineering company to a financial engineering company can be two different things that might end up categorized as "accountants are in control".
colechristensen 3y ago
I’m increasingly of the opinion that companies flat should not be able to buy each other, though I’m not exactly sure how that would work.
- _heimdall 3y ago
  Removing legal and financial protections, not to mention the concept of "too big to fail", would help quite a bit. Consolidating companies into a few massive corporations centralized power, but it also centralizes risk. They'd be more careful, and may even be unwilling to risk the treadmill of endless acquisitions if each addition adds more risk and liability.
- smolder 3y ago
  Yeah, over-consolidation leads to fragility, and to market abuses, and together those make it not really worth the efficiency gains of shedding "redundancies". Redundancies are often good for robustness...
_heimdall 3y ago
Consolidating industry is always a failing strategy. There are often short term gains, but eventually the system breaks.
- ryukoposting 3y ago
  Now you have me thinking back to the big(-ish) companies I've worked for. One in particular was a global patchwork of smaller firms, assembled through acquisition. They were never integrated together all that tightly, though. They shared a C-office, a board, and a logo, and not much else. Working with other arms of the company was a lot like working with an outside firm, except everything was priced at cost and you got priority over truly-external clients. This probably sounds woefully inefficient to the average American business mind, but it seemed to work great. Each sub-firm had their own way of doing things that was tailored to maximize efficiency on a local level. Sure, inter-division communication could be wonky sometimes, but eventually you learn how to iron out those wrinkles. Sure, there's redundancy in some parts of the business. Those costs are easy to calculate. What's much harder to calculate is the cost of taking 14 manufacturing firms scattered 4 continents, stripping them of their current internal processes, and replacing them with a unified system.
  - _heimdall 3y ago
    That actually seems like a very reasonable approach. So reasonable that I assume it will eventually be ruined when management or ownership changes and the next crew comes hunting for efficiencies to cut costs. Most things are just so short term focused these days that there are few incentives to build a slower, more stable business (or product, or government, or social network, or news media, etc)
    - ryukoposting 3y ago
      It's a family business owned and run a bunch of stubborn Bavarians. I'm optimistic.
lostlogin 3y ago
Does industry consolidation ever make things better? There must be counter examples but I can’t think of any. Regulation can help, and it broke up the single telecom where I am and really improved things (just wondering if I can justify a 8gbps connection…).
- dartos 3y ago
  It does sometimes, specifically with utilities. That’s why many utility companies in the US are government sanctioned monopolies.
  - cogman10 3y ago
    That only applies when the utility companies are heavily and well regulated. Take that away or loosen enforcement and you get things like California's campfire. Or in my own case, a large water company purchasing smaller water companies and immediately applying for higher prices... to cover the cost of purchasing more of the local water companies (transparently so). Get a bunch of yes men on the board regulating a utility, though, and all the sudden it's easy for them to just approve whatever the utility wants to do regardless of public comment.
- panick21_ 3y ago
  Its because you cant see the effects. Consolidation is good lots of times. In the US they had an insane banking system regulation that resulted in the US haveing 10000s of banks. This lead to a lot of issues and was incredibly inefficent. I can name lots of examples. Before 1982 there were like 20+ companies who wanted to produce video game console. Did we need 10 different commercial unixs. Also, the consolidation results in companies that have the capital to invest. Having LM, MC, Boeing and Airbus all making widebodies didnt make sense and resulted in issues for both tri-jet producers. Airbus was the winner in that situation because neither company could invest in twin-jet widebody. The idea that the economy would be awesome if there were only small companies doesnt really hold up. So just saying consolidation bad 100% doesnt really hold up. The telecom are special because they were all state owned then privatized, they are mostly not the result of consolidation.
daedrdev 3y ago
I heard second hand that the MD managers who got promoted in Boeing after the merger decided to not build any new modules in house at Boeing. They were able put a lot of pressure on their new suppliers who were small compared to Boeing and made a lot of money. Over time many Boeing suppliers lowered their quality to stay in business and others failed outright. Since then there has been a lot of consolidation of the suppliers of Boeing, to the point where Boeing has much less leverage than it once did and often has only one option left for many of the parts in needs. I'm not sure how much this has contributed to its current issues, but it seems a systematic issue that Boeing doesn't make its own planes anymore and has to rely on suppliers who are scraping every ounce of margin out of their production processes.
ummonk 3y ago
Thriftiness to the extent of requiring a manager’s signature for getting office supplies is actually a great example of an accounting focused culture that inhibits good engineering.
- bediger4000 3y ago
  I honestly don't think MDAC was thrifty to the point of counterproductiveness in 1985, but you raise a good point.
- magnetowasright 3y ago
  Depending on the costs of office supplies, manager wages, and worker wages, it could be an accounting focused culture that inhibits good accounting. Talk about penny wise pound foolish.

KerrAvon 3y ago

Good post; tl;dr these sentences at the end: > In my notes, there’s a phrase which really stuck in my mind – “understanding the numbers has to come from understanding the business. People go badly wrong when they try to do it the other way round”. But that’s what they do, far too often

goodSteveramos 3y ago
People who are good at “business itself” without being good at any particular business are really just reckless profit extractors willing to cut corners because they have friends in high places to bail them out when it all inevitably goes wrong.
Terr_ 3y ago
A useful related term is "McNamara Fallacy" where quantitative factors are given too much emphasis. > But when the McNamara discipline is applied too literally, the first step is to measure whatever can be easily measured. The second step is to disregard that which can't easily be measured or given a quantitative value. The third step is to presume that what can't be measured easily really isn't important. The fo[u]rth step is to say that what can't be easily measured really doesn't exist. This is suicide. -- Daniel Yankelovich, "Interpreting the New Life Styles", Sales Management (1971)
deleted 3y ago
[deleted]
dave4420 3y ago
Aka “the map is not the territory”.

danesparza 3y ago

Archive link: https://archive.ph/z221C https://archive.ph/z221C

jimkleiber 3y ago

John Kay talks about Boeing in his book Obliquity (and before in this essay) [0] > ICI is not the only company for whom greater emphasis on corporate financial goals led to less success in achieving them. I once said that Boeing’s grip on the world civil aviation market made it the most powerful market leader in world business. Bill Allen was chief executive from 1945 to 1968, as the company created its dominant position. He said that his spirit and that of his colleagues was to eat, breathe, and sleep the world of aeronautics. “The greatest pleasure life has to offer is the satisfaction that flows from participating in a difficult and constructive undertaking,” he explained. > Boeing’s 737, with almost 4,000 planes in the air, is the most successful commercial airliner in history. But the company’s largest and riskiest project was the development of the 747 jumbo jet. When a non-executive director asked about the expected return on investment, he was brushed off: there had been some studies, he was told, but the manager concerned couldn’t remember the results. > It took only 10 years for Boeing to prove me wrong in asserting that its market position in civil aviation was impregnable. The decisive shift in corporate culture followed the acquisition of its principal US rival, McDonnell Douglas, in 1997. The transformation was exemplified by the CEO, Phil Condit. The company’s previous preoccupation with meeting “technological challenges of supreme magnitude” would, he told Business Week, now have to change. “We are going into a value-based environment where unit cost, return on investment and shareholder return are the measures by which you’ll be judged. That’s a big shift.” > The company’s senior executives agreed to move from Seattle, where the main production facilities were located, to Chicago. More importantly, the more focused business reviewed risky investments in new civil projects with much greater scepticism. The strategic decision was to redirect resources towards projects for the US military that involved low financial risk. Chicago had the advantage of being nearer to Washington, where government funds were dispensed. > So Boeing’s civil orderbook today lags that of Airbus, the European consortium whose aims were not initially commercial but which has, almost by chance, become a profitable business. And the strategy of getting close to the Pentagon proved counter- productive: the company got too close to the Pentagon, and faced allegations of corruption. And what was the market’s verdict on the company’s performance in terms of unit cost, return on investment and shareholder return? Boeing stock, $48 when Condit took over, rose to $70 as he affirmed the commitment to shareholder value; by the time of his enforced resignation in December 2003 it had fallen to $38. [0]: https://www.johnkay.com/2004/01/17/obliquity/ https://www.johnkay.com/2004/01/17/obliquity/

ethanbond 3y ago

People digging into Boeing's specific history are likely doing themselves a huge disservice. It's too easy to say, "Oh well I won't acquire a company like McDonnell Douglas!" But that's not the issue. The issue is a culture (nationally/globally) of financialization. You're vulnerable to it even if you don't acquire MDA, or if you don't acquire anyone at all. The fundamental issue is simple: Mistaking side-effects of the system for the goals of the system. The goal of a company shouldn't be to make number-on-spreadsheet go up. The goal is to produce excess value, capture some amount of it, and pass the rest onto your customers. The amount that you capture will affect the spreadsheet, but the real goal of the organization must be to produce that excess value and pass on a meaningful portion of it to your customers! The whole meme that companies exist to maximize shareholder value is just that: a meme, and a recent one at that. Boeing is the natural outcome of believing it like a zealot.

Etheryte 3y ago
In an ideal world, yes, but we live in a world where making the spreadsheet number go up is the ultimate goal for a lot of people, especially if it's your own personal spreadsheet. For these kinds of people, customers with wishes and demands are often an inconvenience that stands in their way.
- ethanbond 3y ago
  Well I hope they kill fewer people en route to their own self-destruction than Boeing has (and likely will).
_heimdall 3y ago
> The whole meme that companies exist to maximize shareholder value is just that: a meme, and a recent one at that. Boeing is the natural outcome of believing it like a zealot. Admittedly I've only been in the workforce for a couple decades, but isn't this precisely what large, or at a minimum publicly traded, companies operate on? I've worked for multiple public companies and this is a universal theme among any I've worked with or for. Legally they're even required to do what is best for shareholders, nothing more.

hayst4ck 3y ago

The author of this article would enjoy this speech by Admiral Rickover, who was deeply experienced with the problems Boeing is experiencing. Admiral Rickover was the father of the nuclear navy. https://govleaders.org/rickover.htm https://govleaders.org/rickover.htm Every paragraph is a bomb lobbed directly and accurately at Boeing. Almost every analysis of Boeing is directly spoken to by one of those paragraphs or something else Rickover has said. > To maintain proper control one must have simple and direct means to find out what is going on. There are many ways of doing this; all involve constant drudgery. For this reason those in charge often create “management information systems” designed to extract from the operation the details a busy executive needs to know. Often the process is carried too far. The top official then loses touch with his people and with the work that is actually going on.