Once a titan of American success, Boeing just can't seem to do anything right these days. From poorly-build problems to stranded astronauts to the current strike, Boeing might be on the ropes. Matt Stoller dissected the fall of Boeing on his blog, The Big Newsletter, back in 2019. Simply put, accountants and financiers replaced the engineers who ran the company and decided to start copying the federal government in how it did things. Stoller wrote:
Let’s start by admiring the company that was Boeing, so we can know what has been lost. As one journalist put it in 2000, “Boeing has always been less a business than an association of engineers devoted to building amazing flying machines." For the bulk of the 20th century, Boeing made miracles. Its engineers designed the B-52 in a weekend, bet the company on the 707, and built the 747 despite deep observer skepticism. The 737 started coming off the assembly line in 1967, and it was such a good design it was still the company’s top moneymaker thirty years later. How did Boeing make miracles in civilian aircraft? In short, the the civilian engineers were in charge. And it fell apart because the company, due to a merger, killed its engineering-first culture.The change didn't just happen on its own but took place thanks to the intervention of the federal government.
In 1993, Clinton’s Deputy Secretary of Defense, Bill Perry, called defense contractor CEOs to a dinner, nicknamed “the last supper.” He told them to merge with each other so as, in the classic excuse used by monopolists, to find efficiencies in their businesses. The rationale was that post-Cold War era military spending reductions demanded a leaner defense base. In reality, Perry had been a long-time mergers and acquisitions investment banker working with industry ally Norm Augustine, the eventual CEO of Lockheed Martin. Perry was so aggressive about encouraging mergers that he put together an accounting scheme to have the Pentagon itself pay merger costs, which resulted in a bevy of consolidation among contractors and subcontractors.The merger had dire consequences for Boeing.
Unlike Boeing, McDonnell Douglas was run by financiers rather than engineers. And though Boeing was the buyer, McDonnell Douglas executives somehow took power in what analysts started calling a “reverse takeover.” The joke in Seattle was, "McDonnell Douglas bought Boeing with Boeing's money." The merger sparked a war between the engineers and the bean-counters; as one analyst put it, "Some of the board of directors would rather have spent money on a walk-in humidor for shareholders than on a new plane." The white collar engineers responded to the aggressive cost-cutting and politically motivated design choices with the unthinkable, affiliating with the AFL-CIO and going on strike for the first time in the company’s 56-year history. "We weren't fighting against Boeing," said the union leader. "We were fighting to save Boeing." The key corporate protection that had protected Boeing engineering culture was a wall inside the company between the civilian division and military divisions. This wall was designed to prevent the military procurement process from corrupting civilian aviation. As aerospace engineers Pierre Sprey and Chuck Spinney noted, military procurement and engineering created a corrupt design process, with unnecessary complexity, poor safety standards, “wishful thinking projections” on performance, and so forth. Military contractors subcontract based on political concerns, not engineering ones. If contractors need to influence a Senator from Montana, they will place production of a component in Montana, even if no one in the state can do the work.....
It gets worse. The new bosses thought it was a good idea to copy the business practices of the federal government. Yes, the inefficient, non-producing, wasteful federal government. You can't make this up.
At any rate, when McDonnell Douglas took over Boeing, the military procurement guys took over aerospace production and design. The company began a radical outsourcing campaign, done for political purposes. In defense production, subcontractors were chosen to influence specific Senators and Congressmen; in civilian production, Boeing started moving production to different countries in return for airline purchases from the national airlines. Engineers immediately recognized this offshoring as a disaster in the making. In 2001, a senior Boeing engineer named L. Hart Smith published a paper criticizing the business strategy behind offshoring production, noting that vital engineering tasks were being done in ways that seemed less costly but would end up destroying the company. He was quickly proved right.
There is more, much more in this post. Read how Boeing hired Jack Welch types who believed in cutting everything and focusing more on politics than actually producing products. What happened to Boeing, oddly enough, is what happened to many shoe manufacturers. Companies such as Florsheim, Cole Haan, and Johnston Murphy make top-notch shoes that last for years or even decades. New owners come in and offshore the production while cheapening the leather. The result is a bunch of throwaway shoes that fall apart in a few years. The same has happened in other industries.
Boeing's new CEO has a degree in mechanical engineering and spent much of his career at Rockwell so maybe he can reverse the trend. What happened at Boeing is nothing short of an American tragedy.
30 comments:
Same thing happened to Halliburton Energy Services when they hired Dick Cheney to run the company.
It all started when a previous CEO moved their corporate HQ from Seattle to Chicago. Stupid is as stupid does.
Can't get there without MBAs!
Mergers, Acquistions, Private Equity Groups, bean counters who sharpen pencils too much are the death of any company. They are also killing free market enterprise. Sure, the people that own the businesses who get bought out are happy with their payday but look at what happens to the employees and the end products. This is happening in every sector of business these days. Before long there will be just a few companies that own everything and control every aspect of that market segment.
10:48, so true. PE/ESG/Wall Street collusion is killing America's business culture, for short term self gain. Look at even your life- PE money has bought up emergency rooms and ER docs are getting hours cut and in some places they have to see ALL patients within 25 minutes, regardless of triage standards. So, you are fighting for your life, or your child has been severely hurt, and the ER Doc has to drop your case and run to the crack heads or pain med shoppers instead of doing a good job. And we see it here with mindless pushes for tax cuts and foreign owners given huge tax incentives.
So, yeah, PE money has meant you have to pray your plane doesn't come apart as the PE snots ride on PJs, and you have to pray your accident or illness is not fatal due to "cost cutters" buying emergency room services.
All for Main Street capitalism, but our big big Finance types hate America.
I have always been skeptical about the acquisition of McDonnell
Douglas a company that cobbled together that DC-10. I always thought some high school kid with a pencil and a ruler put that thing together as a "rush job" to get a contract. A scary company. If Boeing is under their influence I can see why they are having problems.
BOHICA!
Wait until you realize what the vulture capitalists are doing to the plumbing and HVAC industries. Most people don't have a clue but IYKYK.
(That won't be a MBA running the sewer jetter that shows up when your stuff won't flush, but they will be sure to make it cost you more!)
https://www.bodyshopbusiness.com/billions-and-billions-private-equity-investments-in-collision-repair-surge/
When you sow the seeds of ESG and DEI, you reap the fruit of ESG and DEI.
Selling the product is primary and essential. Making a good product is secondary and optional. This should not work but this is what we are trying to do in our current economy. Straight to hell we go.
Tesla and SpaceX are hiring all the best and brightest engineers.
"duty to the shareholders" now seems to mean nothing but naked averice and megalomania.
The only way to get through to such people is to hit them in the pocketbook and take away some of their power, i.e., lawsuits and regulation. Money and power are the only things they understand/respect.
12:01 what Crash Champions paid for Capital Body Shop is absurd!
You're seeing it in the insurance world as well. Both at the company level and at the agent level. Marsh has bought Bottrell and Regions here locally. Arther J Gallagher has done the same as well. Liberty Mutual/Safeco now holds what used to be State Auto, who gobbled up several on the home and auto side before selling. Before long you'll have less than a dozen agencies and companies.
The executive suite shuffles their chairs and fluffs their parachutes and the regular people are left as an afterthought.
12:01 - Given the history of the Boeing and McDonnell Douglas merger; your DEI comment smacks of pandering and ignorance.
As a licensed professional engineer of nearly 40 years and experience before that, I have no problem with accountants or financiers, AS LONG AS THEY STAY IN THEIR LANE. FWIW, if business types start trying to make engineers do something "their" way, that is practicing without a license, and it is illegal.
I have worked as a consultant for over 30 years. Engineering consulting firms tend to do pretty good as long as the technical professionals are running the show. Twice, I have witnessed good firms ruined by letting the accountants have free hand. The first thing the accountants want to do is cut expenses. Since the largest single expense is labor, they want to cut personnel. When your main product is labor hours, cutting personnel leads to reduced revenue, reduced ability take on new work, and, eventually, loss of clients. This leads to another round of layoffs, and the cycle continues to its obvious conclusion.
The point is, never put business people in charge of a company that relies on technical expertise. The Boeing issue just shows that this is true - no matter how big the company gets.
Here is an idea, get a MBA and work your way up to the C-Suite. Then you too can have a golden parachute. They are not special people, they just went a different direction than you. But you can do the same thing. It takes work.
While not an engineer, I agree 100% on this. Stay in your lane should be a lifestyle for most.
Boeing has become the GM of airplanes
Go suck on your buzzwords and stay out of the way of the people who actually create value with their work!! (Said no one ever with an MBA in the C-Suite!)
Private equity and MBAs combined with placing stock price over long term strategic growth has ruined the American business landscape.
Geez, we were able to blame the dems for this, what great thinking!
Incompetent leaders, in engineering particularly, caused this. Engineering leaders lied, misrepresented, and failed to prepare pilots for how to manage this plane. When problems occurred they blamed others.
The non-engineering leadership at Boeing facilitated the failure. It is the leadership at Boeing and only the leadership at Boeing who is at fault.
Who is is the expert in technical leadership who wrote this, and what leadership experience has this author? The author has never lead any organization (particularly not a large business organization), nor has he any expertise in engineering or leadership in general. He might as well be an influencer on tic-tok,
Who paraphrased this non-qualified influencer in this post?
Step up!
What are the qualifications of the person whom wrote this? Or of the person who paraphrased their insights?
Well, no leadership experience of any kind, and certainly no technical experience (BA, at best).
And who paraphrased, for our digestion, this inexperienced person’s insights into how led the feds are somehow responsible for reprehensible collegial leadership failures? Obviously another person with no industry leadership experience.
What are you selling Kingfish?
Sad as the tale is, sorry as is the fall of Boeing and many, many more American corporations, there are plenty of folk here who’ll STILL spout off about Amurka is the greatest country in the wurl. Queue me some Toby Keith, Hank, Jr., and Lee Greenwood.
For some reason the anger management issue types have come out of the woodwork on this one. Could one of you tell me what your beef is? Are you disputing that Boeing has become technically inept (that would be a very hard side to argue)? Or are you disputing the role of engineering leadership?
What I'd like to know, 5:31, is who paid YOU, to drop-by with your little attempt at a slapdown. What words, in the article, or in the headline, caused you to be summoned? And why do you (or whoever shapes your template) think that "leadership" is a word which will resonate (in a positive way, rather than in an ironic/sarcastic way) with the readers of this blog?
If math is hard for a person they ca't understand either real engineering or financial engineering. That's why we have MBAs!
We still are, 11:16. Although I realize a lot of liberals would rather live in a tolerant utopia such as that provided by Hamas in Gaza.
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