Executive Team Leadership in the Global Economic and Competitive Environment

Richard L. Nolan

• Publisher: Routledge
• Year: 2014
• Print ISBN: 9781138813878
• eBook ISBN: 9781317602552
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Corporations have continued to grow and extend their operations into the global economy to the point that the modern corporation has become larger and more influential than many sovereign countries. In this global expansion, corporations have extended their operations with little restraint—almost only limited by corporate lawyers' imaginations. Modern corporations have become so pervasive; world populations are more dependent on them for their food, services, technologies, work and daily well-being than ever before.

This book analyzes the twenty-first century forces challenging the executive leadership of the modern corporation. Lessons are drawn for corporate leaders facing these challenges: turbulent times, balancing creators and stewards, managing company culture, managing by wire, incorporating global virtual organization structures, and managing sustained innovation. Nolan concludes with guidelines on creating a leadership agenda for transforming the corporation to successfully compete in the realities of the new corporate world of the twenty-first century.

1
Turbulent Times

Boeing Field, Seattle: December 15, 2009, 1:33 p.m.

A chorus of thousands roared, “Touchdown!” These euphoric observers were cheering not at an athletic event, but for Chief Pilot Mike Carriker’s perfect maiden flight of the Boeing 787 Dreamliner. All over the world, people watching on television and the Internet were applauding as well. There were many issues still to address, but if successful, the 787 would become the fourth industry game-changing commercial airliner¹ built by the venerable Boeing Corporation.

The long-awaited touchdown set off delayed celebration parties across the globe. More than a few of the revelers had despaired of ever seeing the revolutionary aircraft get off the ground. Designed in collaboration with Boeing’s airline customers and a global outsourcing team, the Dreamliner was a medium-sized, very high-tech plane efficient enough to be economical in flying long hauls point to point. It could thereby challenge the prevailing hub-and-spoke industry structure, in which commuter and smaller airplanes brought passengers to a hub airport, where they boarded big commercial airplanes to fly long distances. The Dreamliner represented bold changes not only in the composite materials it was made of, but also in the way it would be manufactured.

Still, critics remained skeptical about its chances for commercial success. Boeing was suffering from turbulent times, and launching the 787 offered the best hope for salvation. But with more than three and a half years of delivery delays and penalty costs surpassing $20 billion, one of America’s best-known corporations was struggling to regain its fragile viability.

The delays were embarrassing, the subject of widespread speculation and derision in global financial markets. On July 8, 2007 (7/8/7) the first 787 was rolled out on live TV, with Tom Brokaw hosting a special Today Show broadcast.² The first 787 flight had been scheduled for the second quarter (April–June) 2008, and the first delivery during fourth quarter 2008.³

Little known to the world but well known to the Boeing workers at the time, the 2007 rollout was for show purposes only, the flight and delivery dates as much a dream as the aircraft itself. The prototype was far from complete, and, as rumor had it, “cabled together with baling wire.” It had arrived in pieces aboard a giant, specially fitted-out 747 “Dreamlifter” that landed at the Boeing Everett final assembly factory on April 24, 2007, to be “clicked” together into the rollout Dreamliner 787.⁴ The Dreamlifter was an innovative part of the 787 new airplane program, enabling breakthrough efficiencies in integrating a network of global partners from all over North America, Southeast Asia, and Europe. But Boeing’s global partners and suppliers had delivered the major components in various states of completion, several of them falling far short of specifications. The 787 program was in serious trouble, but Boeing kept that information under wraps for more than a year after the rollout.

The business processes for the 787 program differed dramatically from Boeing’s twentieth-century “build to print” processes. The conventional processes for previous aircraft programs began with a relatively small team of one to two hundred to participate in conceptual design. This team would then convene Boeing contractors and suppliers for further conceptual design of the new airplane. Once the conceptual design of the airplane was agreed upon, the design-engineering group exploded to thousands, who would engage in detailed design and development of detailed engineering drawings, which eventually would be fanned out to Boeing manufacturing facilities and contract suppliers. If a supplier subsequently ran into problems, Boeing sent out teams to help the supplier get back on track, working from the detailed engineering drawings.

The 787 program deviated from this process.⁵ Instead of “build to print,” a group of Tier 1 partners would be chosen to “build to performance”—that is, performance specifications would be supplied by Boeing to Tier 1 partners, and Tier 1 partners would develop detailed drawings from which to build the major components of the airplane. Global partners would create their own tooling to build the major sections for the finished components—that is, a Tier 1 component would be fully completed including electrical systems, fuel tanks, and the like, so final assembly could be simplified and shortened to mere days. All partners would use an extremely sophisticated IT-based CAD/CAM system, centrally coordinated by Boeing to ensure that all the Tier 1 parts came together into “fully stuffed” major components ready to be “clicked” together during final assembly.

Boeing selected thirty Tier 1 global strategic partners, and their engineering teams came to Seattle to do preliminary engineering design. These partners represented the most diverse global talent pool ever assembled to create a Boeing new commercial airplane. They were assigned to eight teams: (1) fuselage; (2) propulsion; (3) services; (4) interiors; (5) systems; (6) production; (7) integration; and (8) wing, empennage (i.e., an aviation term for the airplane tail section), and landing gear.⁶

The Boeing 787 would be the most outsourced commercial airplane ever built, with approximately 35 percent main Tier 1 integrated components built by Boeing, and the rest outsourced among fifteen companies residing in ten countries: the United States, Japan, England, Italy, Canada, China, South Korea, Australia, and Sweden. The main Boeing control point was at the Tier 1 level with successively lower tiers (Tiers 2, 3, and 4) largely delegated through the supply chain companies all the way down to elementary parts such as fasteners (parts that connect the pieces of an airplane together such as rivets, screws, adhesives, etc.).

The global scope and coordination/management challenges of the program were daunting:

• The two “quick change” interchangeable engines were designed and built by GE (United States) and Rolls Royce (United Kingdom).
• The fuselage sections were built in the United States (forward fuselage—Spirit Aerosystems) and rear fuselage sections—Vought), Japan (midfuselage section—Kawasaki Heavy Industries), and Italy (mid-fuselage sections—Alenia Aeronautica).
• Wings were built in Japan by Mitsubishi Heavy Industries with moveable trailing edges built by Boeing Australia and the fixed and leading moving edges built by Boeing.⁷
• Other major parts were outsourced to be integrated during final assembly, which included the landing gear (United Kingdom), entry doors (France), engine nacelles (Canada), wing tips (Korea), rudder (China), tail fin (United States), horizontal stabilizer (Italy), and cargo access doors (Sweden).
• A number of highly integrated systems were coordinated by outsources: Japanese and French entities coordinated the in-flight entertainment system; French outsourcers and Boeing US coordinated the inside cockpit avionics, internal electrical power, and electric controls and components.
• Final assembly was conducted in the Boeing Everett plant and the newly constructed Boeing South Carolina Charleston plant.

To facilitate coordination among Boeing and its thirty Tier 1 outsourcing partners, Boeing contracted with IBM and Dassault Systemes S.A. to develop one of the most sophisticated Project Lifecycle Management (PLM)/CAD/CAM systems. Boeing also built a state-of-the-art command and control center (equipped with video conferencing and high data transmission speeds) that allowed all partners to share and coordinate using the same CAD/CAM drawings of the 787 airplane. This Puget Sound center would operate 24/7, 365 days a year, to work and coordinate with Boeing’s global outsourcing partners. In addition, Boeing deployed its own engineers to each of their Tier 1 sites to facilitate on-site communications and coordination. And despite all of this sophisticated expertise and coordination, the Dreamliner program repeatedly flirted with disaster.

The saga of the Dreamliner illustrates the kind of twenty-first century leadership dramas taking place every day in other established corporations. Boeing’s troubled 787 program experience serves as a cautionary tale to help other firms avoid similar pitfalls. Two overarching questions lead to critical insights for all managers. First, what went wrong? How did things get so out of hand to deal a near-fatal blow to such a successful and important corporation? Second, and equally important, what went right? How did Boeing go on to build the industry game-changing, most technologically advanced commercial airplane ever, and price it at the time about the same as its thirty-year-old 767?

As the Boeing dignitaries congratulated the test pilots after the maiden flight, a veteran mechanic blurted out the beginning of an answer to both questions: “It flew because we made it fly.” The mechanic spoke of Boeing’s company culture, shaped by founder Bill Boeing and further developed under successive Boeing CEOs to become one of the corporation’s most important assets. Company culture is a term and subject that has been in vogue at business schools and in the popular press in the twenty-first century. Yet company culture deeply influenced corporate performance all through the twentieth century, as well.

Two key tenets described the Boeing culture: “Let no airplane technology pass us by” and “Build to perfection.” The first underscores the technical advances in every generation of Boeing airplanes. The second reveals itself through the high reliability performance of the thousands of in-service Boeing airplanes continuously flying around the world. Every part of every airplane needs to do its job perfectly, and to work smoothly with every other part of the broader aviation system.

Evolving Corporate Growth and Complexity

It often helps to consider a company’s history in order to contemplate its future prospects. Founded in 1916, Boeing reached a modest $36 million in annual revenues by 1934, when it operated the third largest factory in the United States. It wasn’t until 1954 that annual revenues broke the $1 billion mark, placing Boeing in a small group of twenty-two other U.S. companies with revenues at that level. Further organic growth brought Boeing’s 1996 revenues to $37 billion. That same year, Boeing announced its newest CEO, Phil Condit, and Condit presented his team’s bold 2016 strategy for maintaining Boeing’s forty-plus years of aerospace industry leadership into the twenty-first century. The most striking departure from previous efforts entailed supplementing organic growth with targeted acquisitions in the space and defense sectors, including the 1997 purchase of competitor McDonnell-Douglas. Assimilating McDonnell-Douglas’s annual revenues of $17 billion raised the combined company’s total revenue to $54 billion and severely jolted Boeing, its culture, and its executive management team. It wasn’t too long after the acquisition that some Boeing workers and the press started referring to the newly reorganized Boeing as “McBoeing,” in reference to the acquired company’s influence over the parent.⁸ The challenges of managing far-flung strategic partners, a global supply chain, and multiple governmental relationships would knock the execution of the 787 program drastically off course.

The year 2003 brought another shock when Airbus passed Boeing in the number of commercial airliners sold and claimed the industry leader’s position. Airbus also threatened to unseat Boeing’s largest commercial airplane marquee: the Boeing 747, “queen of the skies.” Plans for the giant, two-decker Airbus 380—the “king of the skies”—would dwarf Boeing’s long-reigning queen, the B-747.

Game Over?

When the first set of outsourced Dreamliner components arrived at Boeing’s final assembly plant far from finished and impossible to click together as planned to produce a finished 787 in three days, many thought “game over.” Successfully completing the 787 program appeared nearly impossible. But then the exceptionally strong Boeing company culture clicked in. In short, the thousands of Boeing workers refused to let the 787 fail over program leadership shortcomings. Engineers and mechanics rallied together to propel the 787 program to the successful maiden flight, and, a year later, to full certification.

This remarkable recovery took place despite the CEO leadership team’s decision to locate the second 787 final assembly line not adjacent to the first final assembly line in Everett, but rather at a brand new plant in South Carolina where newly recruited, nonunion employees would constitute the second line. Many long-term employees argued that this decision would deliver a weakening blow to an ill-understood but immensely valuable asset—the Boeing culture.

The Seattle-based Boeing culture’s most distinctive element was not obvious until actually observed. It showed up in the way that the Boeing engineers worked hand in glove with test pilots and with the Boeing mechanics on the assembly line. It exuded a high level of mutual respect and give and take. It combined theory and practice and nearly a century of learning about building complex commercial airplanes by discovering and resolving problems during early manufacturing. Doing these things well was a significant determinant of profitability for the overall airplane program. Reproducing these learning processes in locations more than 3,000 miles apart with significantly different cultural antecedents would be difficult, to say the least.

Understanding how the 787 program went off course and then recovered—several times—requires a broader examination of Boeing’s growth through the twentieth century and into the twenty-first. Boeing’s experience parallels that of other venerable corporations as they have evolved from modest beginnings to become major players in the global economy.

Five Stages of Twentieth-Century Corporate Development

The modern corporation grew up in the twentieth century: childhood and adolescence in the first part, and young adulthood in the latter part. Boeing’s history typifies the stages of evolution many other corporations shared during that time, as summarized in Figure 1.1, Evolution of the Boeing Corporation.

Figure 1.1 Evolution of the Boeing Corporation

Stage 1: Founding

As founder and chief architect of the first stage, Bill Boeing built and piloted the first Boeing airplane and then secured a profitable revenue stream flying mail and passengers. On March 3, 1919, Bill Boeing (Figure 1.2, standing left) and Eddie Hubbard flew the Boeing Model C from Vancouver, Canada, to Seattle—the first U.S. international airmail flight.

In 1933, Boeing introduced its first industry game-changing commercial airplane, the Boeing 247—an all-metal, low-wing, two-engine, passenger airplane with a range of 745 miles flying at more than 200 miles per hour. The Daniel Guggenheim Medal was established in 1929 for the pu...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• List of Figures and Tables
• Foreword
• Preface
• Acknowledgments
• 1 Turbulent Times
• 2 Then and Now
• 3 Creators and Stewards
• 4 Culture Is Everything
• 5 Managing by Wire
• 6 From Vertical to Virtual Integration
• 7 Managing Sustained Innovation
• 8 Managing Corporate Transformation
• 9 Twenty-First-Century Imperatives for Boards and Senior Executives
• 10 From Industry Commons to Global Industry Ecosystems
• 11 The Modern Corporation in the World
• Epilogue
• About the Author and Research
• Index