Boeing Requires An Overhaul

Boeing Requires An Overhaul

Boeing (BA) senior management and Board requires an overhaul. We first wrote that Boeing ought to replace its CEO and Board back in September 2020 and as recently as February 2021, well before Ryanair CEO Michael O’Leary voiced his opinion. Boeing is a Technology company that would do well to look to the Technology sector to identify its next CEO. In addition, we look back to a former manufacturing stalwart (Gillette), for lessons as to how Boeing may improve its culture to drive innovation and operational efficiency.

Airplanes are Technology products. Airplanes combine software and hardware to form the most sophisticated transportation device that most people will ever experience. One could draw parallels between Boeing airplanes and Apple (AAPL) devices. Electric cars also share similarities given their complex hardware and software configurations. Boeing could do worse than to recruit a talented operating executive from Apple or from one of the automobile OEMs.

Culture has hampered Boeing’s ability to drive operating results and financial execution. Former Boeing CEO Dennis Muilenburg did not want to hear bad news and it is not clear that current Boeing CEO Dave Calhoun is much different. Recall that Calhoun was a Boeing Board member for years before Boeing lived through the tragic 737 Max plane crashes. When Calhoun was named Boeing CEO in January 2020, he professed that he was unaware of the depth of Boeing’s operational shortcomings. Ignorance is not an excuse, especially given Calhoun’s Board experience.

In an effort to repair Boeing’s corporate culture, we recommend that Boeing look to an innovative manufacturing company of the past. That company is Boston-based Gillette (PG). Gillette was once a standalone operational gem of a company where communication freely traveled between the shop floor and the C-Suite in the pursuit of operational excellence and innovation. These were the days when Gillette not only manufactured the gold standard in grooming products, but also built the machines that produced those products as well as the tools used to repair those machines! Gillette’s Boston-based manufacturing operation was truly vertically-integrated.

Gillette benefitted from tight feedback loops between engineers and machine operators which resulted in a consistent flow of ideas and iterative improvements to machines, products and workflows. In fact, operators had incentives built into their compensation whereby they were financially rewarded for submitted ideas that were incorporated into daily operations. Like many companies in a post-NAFTA world, Gillette began to relinquish control over its operations in the pursuit of short-term quarterly profits. The problem with this strategy (Gillette was not alone), is that institutional knowledge, innovation and operational efficiency is lost and competitive moats are eroded when manufacturing companies outsource key processes or deconstruct and reassign key processes to disparate parts of the world. Gillette was ultimately acquired by Procter & Gamble (PG) in October 2005 for $54 billion.

20th century Gillette razors.
Gillette’s first factory, Boston 1919.