Getting Boeing Back in the AirAs you read this case, consider the following questions:Can organizational culture be blamed for plane crashes? Will those crashes prompt Boeing to change its culture, or could they be a barrier to culture change?With hindsight, moving the top-management team to Chicago looks like a mistake. But how do you assess the reasoning behind that move? Was the explanation a good one?To get Boeing “back in the air,” what will be the priorities of David Calhoun, the new chief executive? What steps doyou think he will need to take to implement “deep culture redesign”?Page 344Check your online news sources and bring this case history up to date. Has David Calhoun been able to change the culture at Boeing? Have there been any more accidents? What is your assessment ofDavid Calhoun’s change leadership?The American company Boeing makes airplanes, rockets, satellites, telecommunications equipment, and missiles. Defense production is based in St. Louis, Missouri, and the aerospace business is in Long Beach, California. Passenger jets are made in Seattle, Washington, on the northwest coast, where the company’s 40,000 engineers are based. Boeing is one of America’s biggest exporters. A million people work either for Boeing or for one of its suppliers, and it has been described as “too important to fail” (McNulty and Marcus, 2019, p. 2). Boeing’s main competitor in the passenger jet market is Airbus; other competitors include Lockheed Martin, Northrop Grumman, Raytheon, General Dynamics, SpaceX, BAE Systems, Bombardier, Embraer, and Loral Space & Communications.Boeing’s new 737 Max aircraft was introduced in 2017. In October 2018, a Lion Air Boeing 737 Max crashed, killing 189 people. Five months later, in March 2019, an Ethiopian Airlines 737 Max crashed, killing 157 people. Investigators found that the plane’s new Maneuvering Characteristics Augmentation System (MCAS) automatically forced the aircraft to stall and nosedive. This system had been omitted from flight manuals and crew training. The U.S. Federal Aviation Authority (FAA) grounded the 737 Max. Boeing’s reputation was damaged. But chief executive Dennis Muilenburg decided to keep making the 737 Max, to demonstrate confidence in the plane, even though they could not be sold. Boeing fired Muilenburg at the end of 2019, and David Calhoun took over as CEO.To understand how this could have happened, we have to go back to 1997, when Boeing acquired McDonnell Douglas, a competitor with a “finance first ethos.” Boeing took on many McDonnell Douglas executives including their chief executive, Harry Stonecipher, who was known for his aggressive cost cutting. In 2001, Boeing’s chief executive and then president, Phil Condit and Harry Stonecipher, decided to put some distance between the company’s 500 senior management and staff and the plane-makers and moved the headquarters to Chicago—2,000 miles from Seattle. They explained that senior management was being drawn into day-to-day operational decisions when they were so close to the manufacturing base. In a large, modern, multinational company, they felt that senior executives should not have such contact with engineers. Stonecipher said, “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. It is a great engineering firm, but people invest in a company because they want to make money” (Useem, 2019). Stonecipher became chief executive of Boeing in 2003 (but was forced to resign in 2005 following an improper relationship with a female executive).The previous close proximity of managers and engineers meant, however, that senior executives had a good understanding of engineering issues. They “spoke the language of engineering and safety as a mother tongue,” and they could see for themselves what was happening. As Useem (2019) points out, “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.” With Stonecipher as president, the new slogans became “a passion for affordability” and “less family, more team.” One aerospace analyst said that “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.” In other words, “a company once driven by engineers became driven by finance” (Useem, 2019).Signalling the shift to a “shareholder-first culture,” between 2014 and 2019, Boeing spent $43.4 billion on stock buybacks, and only $15.7 billion on research andPage 345 development for commercial airplanes (Catchpole, 2020, p. 56). This culture placed short-term rewards to shareholders ahead of engineering decisions and longer-term strategy. Boeing’s board even approved a further $20 billion buyback in December 2018, two months after the first 737 Max crash (but that decision was later reversed).The immediate causes of the 737 Max crashes were technical—faulty software. But other factors had played a role. In the interests of cost and time to market, Boeing had decided to modify the 737 rather than design a new aircraft from scratch. To avoid regulatory delays, Boeing maintained that no additional pilot training was required for the 737 Max. Boeing engineers were surprised when some software development tasks (not specific to MCAS) were outsourced to college graduates employed by an Indian subcontractor in Seattle earning $9 an hour. Ed Pierson, a former Boeing manager, claimed that, before the fatal crashes, the 737 Max had experienced more than a dozen other safety incidents. Pierson said, “Something happened in the translation from, ‘let’s build a high-quality safe product’ to ‘let’s get it done on time’” (Diss, 2020). There was pressure on 737 engineers and test pilots and also a lot of pressure on production employees. Pierson saw tired workers doing jobs for which they were not trained, and making mistakes. He asked management to shut down the 737 factory, but they refused. The software failures were thus symptoms of a wider management problem.In March 2020, the House Transportation Committee, of the U.S. Congress, released its preliminary findings following a year of investigation into the 737 Max crashes. Concluding that these tragic accidents were due to multiple factors, theCommittee’s report focused on five issues:The implementation of aggressive cost cutting and excessive pressure on employees to maintain the production pressure, due to competition from Airbus.Boeing’s faulty assumptions about critical technologies, and the MCAS system in particular, which relied on a single sensor and was not classed as a safety-critical system.Boeing’s culture of concealment, withholding critical information from the FAA, customers, and pilots.Conflicts of interest among Boeing employees who were authorized to carry out aviation safety certification work on behalf of the FAA.Boeing’s influence on the FAA’s oversight; FAA management rejected safety concerns raised by their own experts.The House Transportation Committee (2020, p. 13) concluded, “These preliminary investigative findings make clear that Boeing must create and maintain an effective and vigorous safety culture and the FAA must develop a more aggressive certification and oversight structure to ensure safe aircraft designs and to regain the confidence of the flying public.” The focus on finance had changed the relationships between Boeing management and engineers: “It was the ability to comfortably interact with an engineer who in turn feels comfortable telling you their reservations, versus calling a manager 2,000 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” (Useem, 2019). Boeing’s “moral compass” was broken, and the focus on “making the numbers” put quality and safety at risk. McNulty and Marcus (2019, p. 4) claim that “Boeing should engage in a deep culture redesign process.” Edmondson (2019) argues, “What’s required is more than operational fixes. It is nothing less than a full organizational culture change.”Page 346Find on YouTube, “New Boeing CEO David Calhoun takes the reins by developing fresh strategy” (2020, 3:21 minutes).Case SourcesCatchpole, D. 2020. Boeing’s long descent. Fortune 181(2):56–58.Diss, K. 2020. Troubled 737 Max Boeing airplane had at least 13 other safety incidents, ex-employee says. ABC News, February 14, https://www.abc.net.au/news/2020-02-15/ex-boeing-manager-says-one-in-25-737-max-had-safety-incident/11957634.Edmondson, A. C. 2019. Boeing and the importance of encouraging employees to speak up. Harvard Business Review, May 4, https://hbr.org/2019/05/boeing-and-the-importance-of-encouraging-employees-to-speak-up.McNulty, E. J., and Marcus, L. J. 2019. Flying safe: Boeing’s values and culture need to change. EHS Today, October 7, https://www.ehstoday.com/safety-technology/article/21920393/flying-safe-boeings-values-and-culture-need-to-change.Stacey, K. 2019. Senators castigate Boeing over anti-stall system. Financial Times (October 30):12 (U.S. edition).The Economist. 2019. Boeing’s misplaced strategy on the 737 MAX. The Economist, December 18, https://www.economist.com/leaders/2019/12/18/boeings-misplaced-strategy-on-the-737-max.The House Committee on Transportation and Infrastructure. 2020. The Boeing 737 MAX aircraft: Costs, consequences, and lessons from its design, development, and certification. Washington.Useem, J. 2019. The long-forgotten flight that sent Boeing off course. Ideas, November 20, https://www.theatlantic.com/ideas/archive/2019/11/how-boeing-lost-its-bearings.
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