Lessons Learned from Boeing’s Stumble:Risk assessment is Key to a Successful Strategy
By Denise Harrison
Boeing’s 787 Dreamliner has not hit its development milestones, causing Boeing to take a $2.5 billion charge against earnings. What happened? Key to Boeing’s past success has been its ability to achieve its “big hairy audacious goals or BHAGs” (from Built to Last by Jim Collins and Jerry Porras). In the 1950s Boeing bet 25% of its net worth on developing the 707 jetliner competing directly with McDonald Douglas the premier manufacturer of commercial aircraft at the time. The Dreamliner, the world’s most high tech passenger jet, is another big bet – but what went wrong with its strategy?
The 787 Dreamliner is not only a bet on a large new aircraft, but also a bet on the composite materials that are being used in the design and manufacture of this new jetliner. In order to keep development costs low and please Wall St., Boeing decided to outsource not only the manufacturing of components but also the design. This way, its contractors would be taking on some of the financial risk of the project. While this may have spread the financial risk, it increased the execution risk.
- Many of the contractors were used to building parts and systems to Boeing’s design specifications. But now responsible for the design, they found they did not have the quality assurance systems in place to ensure the quality of the design and to ensure that it would work with the other systems that would eventually become part of the jetliner.
- By taking on more financial risk many of the suppliers are facing financial challenges during this recent global economic downturn – some may even have to file for bankruptcy protection.
- In addition, the contractors did not have any experience getting FAA approvals: this requirement slowed the process down considerably.
- The number of sub-contractors increased the complexity of the project as parts and systems were being designed and manufactured by people speaking 28 different languages.
The coordination tasks were and still are daunting – leading to this $2.5 billion charge. What should Boeing have done? Before a company embarks on a large new project it should assess what unexpected outcomes might occur. For example:
- Does it make sense to spread the financial risk among so many companies – does this increase the execution risk? Should we go back to our model in the 1950s and take more of the financial risk ourselves and take the hit on Wall St.?
- How are we going to manage all of these contractors in all of these countries with the different languages and time zones?
- What issues will arise from outsourcing design? What skills do we have in-house that may not be present in our contractors? How can we help them in this area?
If Boeing had taken a step back and thoroughly assessed the risks they could have taken a number of steps:
- They could have kept more of the design in-house.
- They could have provided better support for design in terms of quality assurance and FAA approval.
- They could have consolidated the number of companies to which they outsourced this program.
- They could have developed more advanced communication tools earlier. For example technology allows you to video conference and share designs so that there is clarity around the issues being discussed – simple emails often do not communicate the full complexity of a specific issue.
As your company ramps up a significant new development effort, take the time to assess the risks. Take a look at threats – things that can impact you from the outside. Look for ways you can prevent the threats or reduce exposure. What are some early warning signs? Set up contingency plans and hedge your risk if you can. These are the traditional risk assessment and mitigation steps. However, often these steps are not enough.
In addition – you must also look for ways you could avoid shooting yourself in the foot – as Boeing ended up doing. Boeing’s problems did not just come from the outside; they were a direct result of actions taken by Boeing. Talk about the good ideas that you have, but also about the possible unexpected outcomes. For example, it was a good idea to mitigate the financial risk, but the unexpected outcome was to increase the execution risk. Identifying this upfront would have allowed Boeing to mitigate some of the execution risk or decide to keep more of the financial risk.
Denise Harrison is Vice President of the Center for Simplified Strategic Planning, Inc. She can be reached at firstname.lastname@example.org.