Dec. 14, 2020, © Leeham News: If you want a good business book to read over the Christmas holidays, get Lessons from the Titans by three analysts at the independent Melius Research Co.
The subtitle, a mouthful, aptly describes the book: “What companies in the new economy can learn from the great industrial giants to Drive Sustainable Success.”
Yes, I know. The first reaction to a “business book” is, how boring. Not so, this one.
The analysts are Scott Davis, Carter Copeland and Rob Wertheimer. They provide first-hand and often insider accounts of their coverage of some of the USA’s most significant industrial companies.
Davis, an analyst for Morgan Stanley and Barclays, details the rise and fall of GE. His inside account of covering GE and the lengths to which it went to manipulate financial reporting to present the best face is revealing. (Last week, GE agreed to a $200m fine for past transgressions—a pittance.)
Jack Welch built the GE powerhouse. His successor, Jeffrey Immelt, destroyed it. Davis details his efforts to daylight GE’s decline and GE’s campaign to discredit him and get him fired. The rise and fall of GE from Davis’ perspective is fascinating. The story takes two chapters.
Copeland isn’t as detailed about Boeing’s history of ups and downs. This story is told in one chapter. But he takes Boeing from its position as an engineering company to one focused more on finance than airplanes.
The 1997 merger with McDonnell Douglas gave Boeing 70% of the commercial aviation market share. Less than 20 years later, Airbus surpassed Boeing by a wide margin in the single-aisle airplane sector and reached parity in the widebody sector.
Copeland doesn’t have the rich, inside stories related by Davis. His is a rather impersonal tale of how Boeing went from No. 1 to No. 2 behind Airbus. He does, however, highlight some of the decisions that contributed to Boeing’s decline. Strong arming suppliers through Partnering for Success was one. Suppliers knew PFS as Preparing for Sacrifice. Boeing squeezed them for cost cuts and extended payments to as long as 120 days, making the supply chain “Boeing’s Bank.”
The KC-46A tanker comes under Copeland’s scrutiny, too. Anyone who follows Boeing, professionally or as an aviation geek, knows Boeing took multiple write-offs amounting to billions of dollars. Copeland points to the fact that few, including me, focused realized. At the time the book was written, Boeing took write-offs in nine of 12 quarters.
“There was no program anywhere else in the entire US defense industry with such a consistent string of negative charges,” Copeland wrote.
Then came the 737 MAX crisis.
Copeland’s view of Boeing is not a pretty one.
Copeland also wrote the chapter examining United Technologies, another powerhouse in aviation.
“The history of United Technologies is a story of amazing success and failure with an incentive structure built around a simple goal, ‘Grow earnings 10% per year,” at the center of the company’s rise and fall,” Copeland writes in the first paragraph.
This opening sets the stage for the tale to come.
Diversification from aviation eventually led to lower and lower margins. UTC decided to exit the engine competition for the Boeing 787, a decision that haunts the company to this day. Some division presidents, notably one at Pratt & Whitney, were pushed out after delivering bad news.
Copeland points to a subsequent decision to buy out Rolls-Royce from the joint venture, International Aero Engines, as a mistake. The reasons were complicated, but Copeland doesn’t delve into them.
UTC is now Raytheon Technologies.
Honeywell and Transdigm, two major aviation suppliers, are included in the book, as are some non-aviation companies.
The book is worth the read. It’s available through Amazon.