McNerney profile falls short

The first book profiling Boeing CEO James McNerney falls short. The book, You Can’t Order Change: Lessons from Jim McNerney’s Turnaround at Boeing, attempts to give credit to McNerney for turning around Boeing. In many respects, McNerney has and the author, Peter S. Cohan, is on target. But he gives too much credit to McNerney for some critical decisions and fails to get a complete picture of shortcomings still existing.

Part of Cohan’s failure is a consequence of timing. The book was obviously completed before the International Association of Machinists (IAM) entered intense negotiations last year for a new contract, culminating in a surprising rejection of McNerney’s contract offer by a huge margin of 80% to 20%, with an 87% vote to strike. The membership walked out for 57 days, one of the longest in company history.

The contract negotiations with the engineers union, SPEEA, followed the IAM strike. Although SPEEA approved the negotiated contract, the period leading up to the vote was marked with some bitter rhetoric.

Cohan covers Boeing’s labor relations—based on historical rather than more recent issues–with the IAM in three short paragraphs. Relations with SPEEA get somewhat more treatment, but not much. While Cohan paints McNerney’s labor relations with a broad, superficial whitewash, conversations with present labor leaders and rank-and-file as he wrapped up his book would have painted a balanced picture. Clearly, Boeing’s labor relations have a lot of work to do. Cohan missed the boat (or plane) on this one.

A second major failing of the book is giving McNerney credit where credit actually falls to his predecessor, Harry Stonecipher.

In a book touting McNerney’s leadership and titling it Boeing’s “turnaround,” it’s understandable that Cohan doesn’t want to give Stonecipher credit for anything. After all, Stonecipher was forced out in a scandal and he was widely disliked—even despised—by much of Boeing’s workforce.

Cohan gives McNerney credit for the production model and outsourcing for the 787 program, as well as deciding to launch the 787. In fact, McNerney was but one member of the Board of Directors;  Stonecipher was CEO of The Boeing Co. and Alan Mulally, now CEO of Ford, was president of Boeing Commercial Airplanes. Mike Bair was program manager. Credit due for the 787 program belongs to these three. (So does the blame for the continuing production woes; the business and production model, after all, were designed on their watch—McNerney, as a board member, shares responsibility for signing off on the program and undoubtedly had input to the general direction, but he wasn’t in the day-to-day line of fire.)

If Cohan was talking about McNerney’s role as one member of the Board, he doesn’t say so. He leaves the reader with the impression that McNerney was CEO during this critical time and everything involving the 787 was due to McNerney’s leadership.

Following Stonecipher’s forced departure, board member Lew Platt became interim CEO while the search was underway that ultimately picked McNerney. Platt set the tone for fixing Boeing’s long-running ethics problems, and Platt was CEO in the very early days following the launch of the 787 by Stonecipher and Mulally in a highly publicized media setting. But Platt isn’t even mentioned in the book.

McNerney justifiably gets credit for solidifying Boeing’s new ethical standards, pursuing lean manufacturing that dramatically improved the bottom line and making solid strategic acquisitions. McNerney deserves the highest marks for paying more than $600 million in fines to the federal government for two defense scandals, the Lockheed Martin trade secrets theft and the job-for-contract in the first KC-X award (under then-CEO Phil Condit). But he was slow to recognize just how badly the 787 program was off-track (something Cohan acknowledges) and McNerney stubbornly clings to the broadest possible outsourcing when the 787 program clearly proved the model seriously flawed.

(A line-in-the-sand issue during the IAM and the SPEEA 2008 negotiations was that Boeing would not yield on outsourcing. This came after Cohan’s book went to press, and since then BCA President Scott Carson has gone farther than McNerney in admitting the 787 model isn’t working.)

Cohan also downplays the impact of the 787 problems on the company. While he spends a fair amount of time on the 787, the problems of the program stop there. The fact is that people he quotes (as well as aerospace analysts and consults generally) who say that nobody will care about the 787 delays a year after the airplane finally enters service are only partially correct (assuming the plane performs as promised, of course).

This is an myopic view that entirely misses the point. This view completely disregards:

• The fleet planning disruptions that extend years into the future; one need only look at the continuing impact of the delays in the Airbus A380 delivery schedule as an example, and multiply this quantity four and a half times with an additional year thrown in for good measure for some customers;
• The lasting harm to Boeing’s reputation as a reliable supplier, exacerbated by the delays in the 747-8 program, which are partly the result of the lack of engineering resources because of the diversion to the 787;
• The financial impact to Boeing’s balance sheet and profitability as billions of dollars of additional R&D money and financial penalties paid to customers are paid out;
• The extension of the program’s break-even by hundreds of airplanes;
• The insidious effect of sucking up resources from other programs and across the entire company as engineers were reassigned to solve the 787 problems; this includes drawing engineers from Integrated Defense Systems, hampering programs in the defense unit, including the KC-767. This wasn’t secret; in fact, we first wrote about the giant sucking sound from the 787 program just days before the roll-out in on July 8, 2007.

People who blithely dismiss the delays of the 787 without considering these factors simply aren’t talking to Boeing personnel on the front lines, or to key suppliers, but rather are relying on rosy pictures (or pictures that are drastically toned down) of Boeing’s Ivory Tower. It’s necessary to talk to more than the front office or communications specialists to get a better understanding of what’s going on. This is why some reporters and aerospace analysts often broke news or issued reports that were sometimes weeks or even months ahead of official statements from Boeing.

Flight International, Flightblogger, The Wall Street Journal, the two Seattle papers and The Chicago Tribune come to mind for the reporters. JP Morgan, Wachovia, Goldman Sachs, and Cowen & Co. are among the aerospace analysts who frequently are most well connected. It was JP Morgan that was the first aerospace analyst to raise the flag about the 787 program in June 2007, before the airplane rolled out.

McNerney’s Boeing has been excruciatingly slow in acknowledging 787 (and, more recently, the 747-8) program delays, dribbling them out in creeping delays like those that drive airline passengers nuts at the airport gate. The result has been damage to Boeing’s credibility with customers, stockholders, media and aerospace analysts. Even BCA President Scott Carson admitted to a credibility problem after one of the delay announcements.

Cohan also falls into the trap of characterizing the Airbus A350 as a response to the 787; only one of the three A350 models competes with the 787—the other two models compete with the 777-200 and the 777-300ER. The A350-900 has already effectively killed the 777-20ER (the -200LR is a niche airplane with few sales) and A350-1000, while yet to find its footing, is a major threat to the 777-300ER. Cohan misses this completely.

Cohan appears to rely too much on the executives and not enough on the front line to get a broad picture. The result is a book that properly hits McNerney’s high points but gives him too much credit on others and fails to broadly assess where there are still shortcomings under his leadership.

2 Comments on “McNerney profile falls short

  1. Pingback: 2009: Recovery for Boeing, Challenges at Airbus « Leeham News and Comment

  2. . . .”McNerney justifiably gets credit for solidifying Boeing’s new ethical standards, pursuing lean manufacturing that dramatically improved the bottom line and making solid strategic acquisitions. . .”

    Give us a break – the classical oxymoron ” military intelligence” has been replaced by ” Boeing Ethics ”
    The so called ethics program was mandated by the FEDS as part of the settlement. It is strictly a PR- smoke and mirrors course.

    Anyone who has had the misfortune to deal with that program or contact the “outside” Bored members thru the program could no doubt quote chapter and verse as to what doesn’t happen.

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