Boeing's new chief faces a toxic culture

Sunday, July 31, 2005
St. Louis Post-Dispatch Business E7
"But if anyone can change it, James McNerney Jr. can"

 


In my last column, I defined a perfect storm as "business results significantly worse than your most pessimistic forecast." Boeing entered such a perfect storm with the terrorist attacks of Sept. 11, 2001. Commercial air travel slowed and orders for new planes fell 45 percent. Airbus caught up with Boeing in 2001 and outsold Boeing from 2002 through 2004.

A series of scandals also hurt. Boeing had to fire CFO Mike Sears for hiring Darleen Druyun while she was still in a position to influence contracts at the Pentagon. In March, CEO Harry Stonecipher resigned as a result of an affair with a Boeing executive.

This is the stormy weather that Boeing's new CEO, James McNerney Jr., faces as he takes over the controls of this aviation giant. How will he fly the company out of this turbulence into blue skies? "I like a challenge," he told BusinessWeek magazine (July 18), "and I've got one."

Despite the challenges, Boeing already has some momentum. First, the new Boeing 787 Dreamliner is a smash hit. With 252 orders and commitments for the Dreamliner in its first year, Boeing has regained leadership in commercial jets. And the market is picking up. Passenger growth from 2004 to 2014 is projected to be 5.3 percent vs. the actual 2.3 percent from 2000 to 2004.

Second, Boeing's St. Louis-based military business carried Boeing's profits in 2004. Boeing has regained defense industry leadership and has a backlog of $86 billion.

Perhaps most important is the appointment of McNerney himself.

McNerney knows the industry. He led General Electric's jet engine business from 1997 until he left to become CEO of 3M in 2001. He knows Boeing as a board member since 2001. He was one of the three candidates in the running to succeed Jack Welch as CEO of GE. And he was a success at 3M, where the stock price was up 70 percent during his tenure. Finally, at 55, McNerney has enough time to reshape Boeing to be the clear leader of both commercial airplanes and defense systems for decades.

But there is one big challenge: Boeing's culture. In that same article, BusinessWeek concluded, "For McNerney, cleaning up Boeing's toxic culture is Job One."

Changing a company's culture is probably the biggest challenge a CEO could face. After reading and thinking about this challenge for 10 years, here are my thoughts.

  • First, top managers must reach a consensus among themselves on the importance and urgency of change. Boeing's recent scandals, although painful, have forged that consensus.
  • Second, Boeing needs a compelling vision. It should be short and grab all employees in the gut. "Put a man on the moon by 1970" worked for NASA in the 1960s. The companywide enthusiasm for revolutionizing the airline industry with the 707 worked for Boeing in the 1950s.
  • Third, Boeing needs a one-page "culture-change matrix" that details how leaders at all levels will create a high-performance organization.

 

Culture-change matrix

Top management should develop a draft culture-change matrix. Then, all managers in small groups should discuss the importance of change and the specifics of the matrix. Bottom-up involvement leads to understanding and commitment to implementing the final version.

The matrix has four sections with several tactical points for each. The examples below are just illustrative. Boeing will have to identify the points that apply to its unique situation. Similarly, your management team can develop the points for your company.

Section 1: What the market demands if we are to achieve our vision. Integrity, safety, product leadership, partnering skills and flawless execution are crucial for both the commercial and defense businesses. In addition, "life-cycle total cost" (both up-front costs and long-term operating costs) is crucial for commercial. For defense, on-time, on-budget and on-spec are crucial.

Section 2: Current culture/behaviors. This section honestly and brutally details the elements of the current culture that should be retained and those that must be jettisoned. Parts of the Boeing culture, such as its fanatical "belt and suspenders" approach to safety, are invaluable. However, other elements have to go. The BusinessWeek article included its own list of candidates: a bureaucracy that stifles innovation, resists change and tolerates rule-bending, along with arrogance and a practice of overpromising and underbidding on Defense contracts.

Section 3: Needed culture/behaviors. Retain and renew the good parts of the current culture. Reverse the bad parts. Adopt new traits essential to fulfilling the vision.

Section 4: Tools for changing the culture. This is a critical list of essential actions for changing behaviors, delivering what the market demands and achieving the vision. It should identify four or five key moves. Focus at least 80 percent of discretionary resources and management time on these key moves.

During this period of culture change, McNerney and his core team need to pay special attention to a key segment of its people: fast-track managers and potential change leaders.

In "GE's Next Workout" in Strategy + Business magazine (first quarter 2005), Art Kleiner wrote that former General Electric CEOs Ralph Cordiner and Jack Welch "held the same core idea about organizational change: The only way to shift a company's culture is to change the habitual thinking and behavior of its fast-track executives."

I bet Jim McNerney will do just that at Boeing.

 

 

 

Bill Finnie, a business consultant and adjunct professor at Washington University, writes about the do's and don'ts for success.

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