The Boeing Company (Part 2)

As I stated in my last post I’d like to continue my discussion about the current situation at Boeing. I have enjoyed all the emails and comments received from my friends at Boeing, and hope to continue to hear from you as I express my opinion about the company.

There were several articles in the paper this morning discussing Boeing. The company announced it earnings yesterday for the first quarter.It was announced that Boeing posted a 13% rise in the first quarter of this year, while revenue fell 2%. Without knowing all the particulars anytime revenue goes down and earnings go up someone is doing something right. Efficiency is producing higher levels of productivity.

The comment I really want to focus on today though was one that McNerney made on Wednesday. When asked about the 5 foot hole in the 737 and the subsequent rivet problems, McNerney called it a “workmanship issue.” Japan Airlines has also found problems with a new 767. Metal filings were found in the fuel tanks. Both of these issues have resulted in a plethora of FAA inspectors visiting both the Everett and Renton plants to determine if production processes are out of control.

These types of occurrences are not new, and Boeing deals with these events well. However, what concerns me is the comment McNerney made about workmanship issues. It appears he is immediately jumping to a conclusion that someone made a mistake.

Don’t get me wrong, I like Jim McNerney’s management style, but what has happened to him? In the recent book, You Can’t Order Change, by Peter Cohen McNerney’s management style is explored. According to Cohen, McNerney has worked hard to win the hearts and minds of employees.

Now with this comment about workmanship issues is McNerney demonstrating what he really believes? The Cohen book explores McNerney’s espoused values, what he says he believes, but his comment may demonstrate what he really believes? This comment plus the move of the second 787 assembly line to South Carolina makes me think that something has happened.

If McNerney has changed his beliefs about people being the most important asset to the company, then the ability of management and employees to work together for the good of all stakeholders will diminish, and that worries me. I own Boeing stock, and I hope that it continues to create future value for me.

This blog which I hope to turn into a book someday explores the relationship between management and labor. To think that management decisions can just be business is incorrect. Every decision made by management impacts people. It is business and personal, may management never forget that.

And that is my thought for the day!

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The Boeing Company!

I asked my students one time what was one thing they learned during my classes. There are times when I think putting that type of question out to your students can be courageous or foolhardy. But they came back with some great answers that made me feel good, but the one that surprised me most was how much they had learned about the Boeing Company. I worked for Boeing for 30 years, and enjoyed my career and the people I worked with 99.9% of the time. I grew up in that company, and I watched that company change, some of it good and some maybe not so good.

What we are currently seeing in the paper about Boeing illustrates both of these elements. The skin rupture on the 737 has been traced to metal fatigue. Boeing engineers have stated that the cracks discovered should not have happened for another 30,000 cycles (take offs and landings). Now something else has emerged, countersinking problems in rivet holes. Rivets are used to fasten the skin to the ribs of the fuselage. If the counter sinks are too large or rivet holes are misaligned moisture could work its way under the rivet heads causing failure and rupture of the skin.

In 1988 a similar event happened in Hawaii. A large section of skin peeled off, resulting in the fatality of a flight attendant. Passengers were seat belted in, thus safe, but due to sea air and moisture working its way under the rivet heads and the amount of cycles, approximately 90,000, there was a catastrophic failure.

Federal investigators are looking at inspection techniques to determine if shortcuts were used. Having worked for Boeing I know there was a time where inspection was viewed as non-value added. This did not mean that inspections were not followed, it meant that as we pursued value management we were looking for ways of accomplishing the same level of safety without relying on the inspection department. This meant allowing manufacturing to inspect its own work.

I am not saying that Boeing did something wrong, because I think Boeing found a great balance between delegation of inspection to operators and QA checks. I also believe that Boeing has an excellent safety record, and will adjust when the findings are in. Although this event is horrible, Boeing will learn from it and be a better company.

The second event in the news involves its decision to move work from Seattle to South Carolina. The second 787 assembly line with move to South Carolina. South Carolina is a right to work state, thus employees have to right to choose whether they want to be in a union or not. In South Carolina there is no such thing as a closed shop.

In Everett where the first 787 line is located, employees are required to be members of the International Association of Machinists (IAM). One of the reasons that Boeing is behind on its delivery of the 787 is a  58 day strike in 2008 that cost Boeing $1.8 billion.

Jim McNerney, CEO of Boeing, has stated that the company cannot afford a strike every 3 to 4 years, thus has authorized the move of the second 787 assembly line to South Carolina. This has resulted in 1,000 new jobs in SC, as well as $2 billion in investments.

Boeing wanted a no strike guarantee from the IAM, but did not get it so they are taking their ball and going to a new field. Boeing has every right to do this, but what will be the ultimate cost? Boeing is a big enough company that the addition of another facility will not change its commitment to Washington State. However, Boeing is a strategic thinking company and it is patient. Yesterday headquarters is moved to Chicago. Today an assembly line is moved to South Carolina. Tomorrow, who knows. To me this problematic.

The first problem involves current production rates. With an angry workforce, production will slowdown. The second problem is shortsighted labor, the IAM. The IAM better change its ways or it will become an old emperor living on an island called Elba pining on what could have been. These two entities better learn how to play together or they will face an ultimate Waterloo!

And that is my thought for the day!

Civic Lifecycle

In my business classes I talk about the concept of a product lifecycle. I’d like to explain this concept and then apply it to our country’s position, or status, within the world.

A product’s lifecycle begins when it is offered to the market. This means that marketers have done their homework and created a strategy to make the target group aware of the product and benefits of owning this offering. This is an exciting time and often leads to what Gladwell calls the tipping point. This point is when the offering takes off and many people buy the product leading to the growth stage. Research has shown that there are percentages of people that make up purchasers in each of these stages.

Eventually the product evolves into the maturity stage, and then moves into the saturation and decline stage. By this time the company will have a new and improved version of the product, or a new product to replace the old offering, at least that is how it is supposed to work. That is the theory and now I’d like to apply this to our country and where I think it is within its lifecycle.

As much as I hate to think this our country appears to be in the saturation and decline stage. Economically, we are at the top of the heap, but history tells us by the fall of many large corporations who are on the top that the top is a tenuous position at best. What are the warning signs? I’d like to discuss two, one economic and one social.

The economic warning sign is the strength of the dollar. The declining dollar may be good for manufacturing, our goods are now cheaper in relation to others in the world, but it is bad for consumers here in the US. The weakening dollar means higher prices for fuel, food, etc. In other words inflation. What is more disastrous is the reputational implication of a declining dollar.

Because of our low interest rates, investors are no longer speculating in US dollars. The return is not there. For example, China has approximately $3 trillion of foreign currency reserves. I am not too sure how much of that is US currency, but the fact of the matter is the China is a huge purchaser of US currency. Of the printed US currency, approximately 60% is held by foreign entities. They do this because of the strength and stability of our governmental and economic system. This is changing. The world does not see us as a pillar of strength anymore. Thus they are moving away from investing in our system. The question is what do they see when they look at the US? This is where the social example comes in.

Do they see an arrogant country that, due to its Monroe Doctrine, is forcing the world to adhere to its wishes? Do they see a country that has spread itself too thin throughout the world that it is almost to the brink of bankruptcy? Do they see a country filled with a bunch of Snookies and Situations who are only concerned with bedding down the next conquest? Do these moral failures reflect our society or create our social interactions?

My fear is that as a country we are in the saturation and declining stage of our lifecycle. The people who are responsible for turning this around are too busy trying to determine what is happening with Charlie Sheen than caring about balancing a budget. I am talking about us the people! Our politicians may be fiddling while Rome is burning, but this is a country of the people and for the people. We need to pay attention, if we don’t poor management will destroy us.

And that is my thought for the day!

Good Friday

Historically today is a special day. We call this day Good Friday. Most people know that 2,000 years ago Jesus Christ died on the cross and was buried. Then three days later He rose again. When people believe this and ask Jesus into their lives they are saved.

This morning I was thinking about how solemn this day is. I thought about whether I should frown or smile because of what this day stands for. Do I frown because of the pain that Jesus endured or do I smile because of the fact that I am saved? Or is it both?

I was reflecting on this when I read an article in the paper about AIG, American International Group. This is the AIG we bailed out so they could give their managers bonuses. This is the AIG that was in the news for making stupid decisions.

So in the context of this solemn day I read that AIG is seeking to sell securities backed by “insurance policies on the lives of old people.” The nick name for these securities are death bonds, blood pools, or collateralized death obligations. This sounds macabre.

How does this work? AIG intends to buy life settlements, life insurance policies, that ill and elderly people sell for cash. After purchasing them they will then sell bonds to individuals who want to invest in this endeavor. Let’s say you are ill and have a $6 million life insurance policy. You need cash now to pay for your medical bills, etc, and decide to sell your policy to an investor. The investor gives you $500,000 for the policy and will pay any subsequent premiums. When you die the investor gets their money back plus interest. Your family will get the rest and everyone wins. At least according to AIG.

Is there no end to the greed associated with making money? This day stands for giving. The ultimate sacrifice was given for humanity. Yet, AIG continues to degenerate into the morass of self advancement at the expense of people. It just makes me sick.
And that is my thought for the day!

Would It Hurt Them To Say They Are Sorry?

I don’t eat at Taco Bell very often, in fact I don’t even remember the last time I ate there. However, several months ago a law suit was filed against Taco Bell stating that the taco meet was not really meat. Beasley Allen of Alabama and Blood Hurst & Reardon of San Diego filed the lawsuit, which attempted to become a class action endeavor, for people who wanted “beef-filled food but did not get it.”

After all of the bad publicity and jokes, the two law firms have quietly withdrawn the lawsuit. No money was exchanged, no settlement occurred. It has gone away. The only problem is Taco Ball is mad, and I don’t blame them.

I use this blog to discuss the sometimes ludicrous decisions that management make that hurt people. I believe it is business but personal too. In this case however, I think the law firms should apologize to Taco Bell for this frivolous lawsuit.

I don’t blame Taco Bell for taking a full page ad out in the Wall Street Journal. The large print at the top of the page states, “WOULD IT KILL YOU TO SAY YOU’RE SORRY!

The ad ends with these words, “As for the lawyers who brought this suit: You got it wrong, and you’re probably feeling pretty bad right now. But you know what always helps? Saying to everyone, ‘I’m sorry.’” I think if the lawyers associated with this case apologized it would be a first.

The social commentary of this case is terrifying. This is just another indication that our litigious society is out of control. The following statement is purely anecdotal and is my opinion. Our society wants to maintain a standard of living with free handouts. We’ve forgotten how to work for what we want. We make commitments and then now follow through. When confronted with these actions we blame someone else. We destroy other people’s character with slander and libel and think nothing of spreading falsities.

The destruction of social capital is hard to repair. If we continue to lie, cheat and steal we are going to get to a point of no return. Maybe it is time to say we are sorry and turn from our wicked ways.

That is my thought for today.

Another Management Crisis

There are some days I feel I should not read anything. Every morning I get up at 5:30am run out to my driveway to pick up my newspapers. The Columbian is on my porch and the Wall Street Journal is actually on my driveway. I grab my piece of toast and a cup of coffee and begin my morning ritual. Some mornings I should go back to bed.

Today was one of those mornings. The headlines of the journal reads “U.S. Warned on Debt Load.” Our national credit rating is in danger. The S&P has changed our status from stable to negative due to our growing debt and inability to make decisions. There are currently 19 nationals with a AAA rating like ours, but (get this) we are the only ones with a negative outlook.

If we lose our AAA rating we will join the ranks of other countries that have lost and regained their stellar rating. How would you like to be a part of the management team that runs the organization into the ground?

According to Peter Coy in Business Week, “destroying America’s full faith and credit is no small matter. It’s outrageous to risk doing so for political gain.” This comment brings me to the frustrating part. You know what our illustrious politicians did when they heard about the change? Did they get together to try and work out a deal to get the organization back on track? No, they made political speeches blaming the other side. Amazing!

This is a classic escalation of commitment issue. Management teams make bad decisions and instead of changing course to fix the situation they continue on the same course and commit more resources. They dump more money down a rat hole.

In all fairness to Paul Ryan he is listening to the American public screaming loud and clear get debt under control. His plan is an attempt to accomplish this by making huge cuts to the U.S. budget while maintaining tax breaks. The Democrats want to keep higher levels of spending to maintain entitlements for people.

The fact is our system is insane. As we all know the definition of insane is doing the same things and expecting a different result. We are in a completely different situation than we have ever been before. To think that we can do the same thing and get a different result is not an option. We need a management team that is creative and willing to lead. By lead I mean make the hard decisions because it is right, not because it is politically expedient.

Come on politicians we are going to become Greece and Ireland if we don’t get our act together. Why don’t you try working together for a change instead of trying to make sure you are getting reelected. Run the business well and you will take care of the people.

And that is my thought for the day!

Free Money!

I’ve come to the conclusion that there is nothing free in this life, other than God’s grace through Jesus Christ. The Federal Reserve is continuing its QE2 program. This quantitative easing means more printing of money, about $600 billion worth.

This is a Keynsian approach to fiscal policy. If the economy slows down the government frees up cash through lower interest rates and the reduction of reserve requirements. They do this to stimulate the economy. The government will also print money to purchase back previously issued debt. However, if the economy heats up, resulting in inflation, then the government will raise interest rates and increase reserve requirements, thus reducing the amount of cash available for the market.

The latter actions described above are to reduce inflation, and the issuing of free money will result in inflation. According to David Rosenberg 100% of the $55 billion increase in aggregate U.S. wages has been matched by an increase of gasoline and food prices. These increases are eating up 22% of wages and salaries. According to George Will this has happened twice in the last two decades, both predicting an upcoming recession. Although economists are not mentioning the “i” word, with the increase in fuel prices and everything related to it, how can inflation not be in the cards.

I agree that deflation has been the fear of the day for quite awhile now. I know that the deflating of real wage power while maintaining the current level of debt is bad, but the need to take a wheelbarrow full of money to the store to buy a loaf of bread is just as terrifying.

It is time to get this under control. Over the last couple of weeks no one has mentioned double-dip recession, at least in the public forum, but if the amount of increase in fuel and food prices is a predictor we may be heading backwards.

Here is another example of how business affects people. The government is making business decisions, and every one of those decisions impacts people. It is business and personal. I hope they take these decisions seriously and not expect us to eat cake.

And that is my thought for the day!