Interesting insights from the inside of the company.
> December 9, 1998
>
> Today, I and approximately 64 other guests had breakfast with Harry
> Stonecipher. We were able to spend two hours in a question answer format
> with him. He was cordial and humorous. Harry answered each question in the
> fashion some have come to hate, head on and at times brutally frank.
>
> Harry started by telling us he was given instruction to tell us what his
> job is and what he is trying to do and that he does not follow directions
> very well.
>
> When Phil and Harry met to discuss merging, Phil drew one box (used
> fingers in air to define a box) and placed both our names in it. Raising
> the left hand as a fist, 'this will not be a Harry, then raising the right
> hand as as fist, 'and a Phil show'. One show one box one task.
>
> Evolution has separated our job responsibilities. Phil is looking to the
> future and goes west to deal with customers e.g. Asia. I work much of the
> daily activities and go east to deal with customers, e.g. Europe.
>
> We are trying to change the Company. I get lots of e-mail asking me,
> 'what are you doing. Don't you know you are changing the company'. This
> makes me want to jump up and scream yes (Harry said yes very loudly and
> created some crackle in the speakers). That is right we are trying to
> change the company.
>
> We hear people say I am part of the Boeing Family or the McDonnell-Douglas
> Family or the North American Rockwell Family. Well we do not want a
> family we want a team. A family embraces, supports, and says its OK to
> you, no matter what the circumstances are. Good and bad make little
> difference. With a team, performance of every member is important. 'I do
> not think very many Chicago Bulls players consider Dennis Rodman part of
> the family'. Phil Jackson said the team needs a re-bounder. So the team
> went out a got the best re-bounder in the league. The team put
> requirements ahead of personality. As long as Dennis performs he will be
> on the team. Harry asked us if we thought Dennis would be around long if
> his performance fell off. As we responded Harry made a fist with his
> thumb sticking out and brought his arm back in a throw him out gesture.
>
> If a family is created by the team and performance is high, great.
>
> We want Boeing to be in the top quartile as measured against 30 companies.
> To get there we need 7% return on sales. Harry has looked at the books
> from 1959 through 1997. We have never had a 7% return. To get there
> every segment of the company must perform with double digit returns.
> Commercial Airplane needs 13 to 15 % and Space and Communication needs 10
> to 13 %. We have a lot of work to do. As you all know we have changed
> the team.
>
> At 7:22 we moved to the question and Answer section.
>
> Yes TWA has agreed to buy 50 and take 50 options on the 717. However,
> they have also agreed to buy A318's.
>
> The sine wave, the cyclical nature of our business. After the mergers we
> are 60 percent commercial and 40 percent other. The commercial down turn
> is looking deep and should be short.
>
> The question was about the leveling of the sine wave through the merger
> and the ability to move people and equipment. When we increase production
> from 18 to 51 planes per month we need lots of people. When we decrease
> production from 51 we need to let people go. We do not want the cost of
> moving equipment. We do need to move people. We have customers in 140
> countries.
>
> The revenues for our business appear to be flat for the foreseeable
> future. We need productivity improvement of 4 to 6 percent. The closer
> to 6 the better. Flat revenues and increased productivity means a need
> for fewer people. Our attrition rate is pretty close to the productivity
> improvement rate.
>
> Airbus assembles planes with a lot fewer people. We have a huge
> propulsion staff. Airbus has a very small staff. We use the same engine
> suppliers.
>
> We have ridden the government subsidy horse to death. Our customers are
> telling us something different.
>
> People ask me why I am down on Boeing. 'If I were down on Boeing I would
> not be here'. 'I can work anywhere'.
>
> Harry used the word appalled when describing his opinion of the financial
> system. He went on to describe the process of hiring the new CFO, Deborah
> Hopkins, and her back ground and why she will fit with Boeing. We have
> good financial reporting. That is because the government requires it.
> The other side is management of information systems. We have made good
> progress on sensitivity to finance.
>
> It is ridiculous that we do not know how much profit we make on each plane
> as we deliver it to the customer.
>
> A question about Harry's typical work week was next. After a short
> chuckle he said there is no typical work week. He quickly described the
> past 9 days of his schedule. He started with Sunday and ended with
> December 9. He did point out some specifics. A meeting with the single
> largest share holder, an analyst meeting in New York, flights to Germany,
> back to Seattle then on to Washington DC. December 9, started with this
> breakfast and ended with 6 PM interview with a reporter. I got the
> feeling the easiest and best part of his 10-day schedule was meeting with
> us.
>
> The share holders and analysts are not too kind right now. Many people
> have lost lots of money. The meeting with 200 analysts in New York was
> brief and intense. I was stopped in the hall and lectured by one analyst.
> He used quite a bit of foul language. One thing we tell the analysts is
> that we are engaged with our customers, unions, employees and share
> holders. Several high level executives went with me to Europe. I took
> these people so they could hear first hand from the customers. We had
> meetings with customers and analysts in Germany. The 757-300 was on hand
> to show the customers.
>
> Other than the financial issues customer service is something to work on.
> I have not met with one satisfied customer since I got here.
>
> No sense of urgency.
>
> Customer concerns:
> 1. Quality
> 2. Lack of responsiveness
> 3. Lack of engagement.
> 4. Employees with no answers or authority.
>
> Example. Niki Lauda of Lauda Air. The subject is Paint. What is it that
> says I cannot get any closer than 10 feet to look at a paint job.
>
> My wife and I were invited to ILFC 25th anniversary celebration. They
> have purchased or leased 1000 Boeing airplanes. They were are largest
> customer last year. They are not happy. We were invited to the
> President's home for dinner and everything was fine until we sat down.
> Then I heard 1.5 hours of what is wrong with Boeing. Not just delivering
> late but poor communication about it; the airlines have scheduled crews
> and even sold tickets. Then we tell them three weeks before delivery the
> plane won't be ready, which puts them in a bind. We've not been very
> smart.
>
> Life Long Learning
> Over 50 percent of Boeing employees have a post high school degree. We
> have increased spending on education from 30 to 52 million dollars. We
> are emulating the GE processes for a learning center, which is outside of
> St. Louis and for an employee selection process to specific levels of
> management. We have hired the number two person from the GE Learning
> Center to run our program.
>
> 2016 is not here, but we are taking steps to get there.
>
> The next question asked about the defense customer satisfaction. DoD and
> NASA are not very happy customers. NASA is upset because we will not
> build the high speed civil transport, HSCT. The HSCT is not cost
> effective. Some CEO's have asked us about building the plane. I ask a
> few simple questions
> How many of you let employees fly first class?
> How many of you let employees fly on the Concord?
> These CEO's say, "well, it is supposed to cost the same". Let's not kid
> ourselves. We are in the business of defying gravity. A balloon is the
> cheapest way and the HCST is the most expensive way.
>
> The C-17 is delivering 60-75 days ahead of schedule. The customer is very
> happy. This program may even be the favorite of the DoD. C-17 is truly a
> well run program. One thing we did different was to put our foot down.
> We picked a plane and said this plane will not move until all scheduled
> work is complete. Prior to this we were as much as one year behind
> schedule for delivery.
>
> How to effectively make a cultural change
> I make the assumption that everyone is in their position because they
> contribute but I try to move them in the way I want them to go. I work
> hard at changing people. If that doesn't work, I change the people. Not
> chop off people's heads, but ultimately you have to decide where you're
> going. I'll change the people.
>
> Here is another example of e-mail. Many people think my e-mail is
> screened. Well it is not. I see and read it all. One went like this, "I
> thought we were going to be one company. If we are one company why can't
> we all park in the garage" (There is an underground parking garage at
> Plant 2).
>
> Unions
> We have a better than ever relationship with the IAM and UAW. I think we
> have met with the national leaders four times since the merger. The
> biggest issue in Puget Sound is flexible and non-standard work schedules.
> We have processes that run around the clock, much like a steel mill or
> chemical plant.
>
> The next question talked about computers used to design products and will
> we have one system in the company. Yes, we will have one computing design
> system. Unigraphics and CATIA are good. They each have their strengths
> and weaknesses. Neither does everything we want it too. Lets be real
> when we are talking about who's OX will be gored here. Once again
> everything around here takes the gestation period of an elephant.
>
> We use outside economists too. Each economist has his own interpretation
> of where things are going and how fast. We do our best to get the best
> people to help us build the best plans.
>
> Tolerating mediocrity does not work.
>
> Airbus builds planes with a lot fewer people. Why do we have this
> standing army. We must learn to do things differently. Everybody thinks
> we have a production problem. We have an engineering problem. We average
> 8 engineers in the factory for each plane being assembled. We need to get
> this to one engineer per shift per plane. Customers are complaining that
> we are not letting them make changes. In reality most changes are caused
> by us. The changes are to fix things we did not do right the first time.
> We have done a good job on the computer aided design. We Flunked the
> course on computer aided manufacturing. We have 12,000 people in Renton.
> How many work in final assembly? 1600 mechanics. The question is not how
> can we build 620 airplanes next year with fewer people? It is how come we
> have so many people to build 550 this year?
>
> Harry says people in BCA do not care about cost. Does that make you mad?
> It makes people mad and I don't care. We are building the 747 today the
> same way we did 30 years ago. To get cost down we need to manufacture
> differently. Radios and appliances are not made the same way today that
> they were 10 years ago. It will change again. Has anyone been to Tulsa?
> Well, I have and we are hand drilling for nut plate installations there.
> This is not cost effective.
>
> The mechanics want to fix the problems but they are suffering from fatigue
> and from not being listened too. Overtime of 8-9% is built in. They
> expect it. A plan for the next several years was presented to me and it
> included 8% overtime. I was told that the 8% is what we typically work.
> Not a good plan. We need to wean them of overtime.
>
> The Turks have a saying. Pull on the rope as hard as you can, but don't
> break it.
> Of course I am frank, brutal, etc. Phil and I are trying to excite
> people, to energize you to change. Be a change agent. We should be
> raising 49 kinds of hell about that. Somebody said, "It's too tough"! We
> need tough people who are ready to beard the line. I'm doing it from the
> top. There is nobody sitting on top of the cow that isn't having a tough
> time. It's a "Harry" problem! We'll have problems until we get the place
> together.
>
> To put the 747 together, we'll have to start back farther with pieces that
> go together. It's a patchwork quilt. The people building it are good but
> no one will listen to them and they're getting frustrated. Bureaucracy is
> grinding us to death.
>
> Our people are good but nobody will listen. You won't find a better
> intellectual group of people. Our arrogance and denial will not help us
> be the best.
>
> Price is not the problem, cost is. We will loose money on the first 800
> NG 737's.
>
> GE made engineering responsible for cost. Today we have manufacturing
> saying, "you design the part, don't bug me". Then the engineer says, "I
> designed the part, you build it, don't bug me". With engineering
> responsible for cost there will be interest in building the cheapest way
> that meets the requirements. Our engineering organization is anxious to
> try this. It is working well at GE.
>
> Today I am pushing castings. We have improved manufacturing and
> inspection processes to the point where castings may save us money over a
> machined part. Materials are better and we can inspect to find the
> impurities in the casting. Intellectual power in the Boeing company is in
> fine stripes. We need to broaden the view
>
> Our people are efficient. Why do we have too many? Walk the production
> line in Renton. It's not the most active place I've ever seen. You need
> to draw stripes on the floor to see if people are moving. Renton has
> 12,000 people, 1600 are touching the airplane.
>
> Harry was asked if he felt overwhelmed. The overwhelming part is getting
> 2000 people to stop arguing and go make the change.
>
> Many St. Louis people came out to look at the Lean Manufacturing
> activities. When Mike Sears returned to St. Louis he pulled 'Norma
> Clayton' off of her assignment and set her up to provide the tools for
> Lean in St. Louis. We have pockets working all over the place. We need
> more pockets. We need standardized ways to measure ourselves.
>
> The operating plan has been reviewed. The measurement tools are changing.
> Measures for incentive have been soft. David Swain of Phantom Works has
> the assignment to spread best practices across the company. Fifty percent
> of his score is in making this happen.
>
> A brief discussion was had on measurements to drive the company. We are
> on the way to using earned value and measuring processes. There will be
> five finance measures plus employee satisfaction, customer satisfaction,
> process counsels, and safety. Each of these will be multiplied by a
> factor between .8 and 1.2. The factor is determined based on performance.
> The person being measured does not pick which factor to use.
>
> The balance of our time with Harry was spent on future business. Every
> time we have failed, it was because we did not know the customer. We can
> probably build the best wind mills in the world, but we do not understand
> utilities. We can build rail cars but we don't understand railroads. We
> do not want to get into the consumer side of communication. Instead we
> want only to build the satellites and launch systems. Companies dealing
> with the consumer side make money by knowing when to get out. Cable
> companies have been working this way for years. Look at the McCaws.
>
> There will be some transatlantic mergers and yes our competitors will be
> involved in these. It is a world economy. Things are different today.
>
> Look! What do you think the St. Louis reaction would be if we said we
> will build F-18's in Turkey? Most said they would like it. What do you
> think the reaction in Renton would be if we said we are going to build
> 737's in Turkey. Consensus was, no way. Harry went on to say St. Louis
> would be happy to build F-18's in Turkey. He also agreed with us on the
> Renton response. We sold 64 F-18's to Finland. All but 7 will be build
> in Finland. However, all the kits for the planes come from St. Louis. We
> also build Apaches in Britain and a couple other countries.
>
> One last note. Airbus partners delivery fully stuffed sections,
> structures, systems, and interiors, to be connected at final assembly. We
> build the 737 NG almost identically to the first 707's.
>
> I left the meeting with the feeling that we have a long way to go toward
> making this company the best it can be and that we are on the right path.
> Not all decisions will be to our liking. It is difficult to step back and
> look at the big picture. The picture is much bigger today and this
> requires stepping further back to see it all.
>
> Thank you for your time. |
