By Graham Warwick in Washington, DC
Aggressive execution is the buzzword for James McNerney as he moves to revitalise the aerospace giant
Boeing’s third chief executive in three years, James McNerney has a long familiarity with the company. He has been a board member since 2001 and before that, as president of GE Aircraft Engines, he was an architect of the agreement to power Boeing’s newest 777 models exclusively with the GE90.
Not surprisingly, since he was on the board while former CEOs Phil Condit and Harry Stonecipher shaped Boeing into the company it is today, McNerney sees his job not as rethinking the business strategy, but as accelerating its execution. There will be changes, and he reveals Boeing is reviewing its Connexion business, one of the diversification moves made by his predecessors.
“It’s not as if Phil and Harry weren’t worried about execution, but they were managing during an era where stitching together a new company was the challenge. I’m operating in an era where there’s still some final stitching to be done, but the leverage is really in executing a good plan,” says McNerney. “It’s a matter of taking things that had been here and turbocharging them.”
McNerney became Boeing’s chairman, president and CEO in July 2005, following the sudden resignations of first Condit in December 2003 and then Stonecipher in March 2005. A 19-year GE veteran and one of three contenders to replace the iconic Jack Welch as chief executive, he left there in 2001 to become CEO of diversified technology company 3M. McNerney was not a surprise choice to lead Boeing, having been approached twice before.
“I was formally offered this job once, and I took it. Which is not to say there weren’t informal approaches, and there were, but I cut them off because I wanted to do the job at 3M,” he says. “Then after five years I surprised myself a little bit when I decided this is what I really wanted to do.”
He took the reins of a company that was reeling from a series of scandals tied to ethics violations and procurement irregularities. A year on, Boeing is in the final stages of negotiating a record $615 million settlement with the US government that will clean the slate, and McNerney is the public face on the changes wrought within the company. “I want to make ethically compliant behaviour a competitive advantage for the company, not just that remediates problems with the past so we can wipe our hands of it,” he says.
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"Corners can get cut unless you make it very clear that you don't want that - and have the courage when someone steps out of line to deal with it" |
“There are huge differences between GE, 3M and Boeing in terms of products and services provided, but there are also a lot of similarities,” he says. “And I happened to be at the centre of all three companies wrestling in one form or another with the issue of a proud-culture, high-performing company that had gotten a little inward. So it was more a matter of facing the company outward again.”
The timing could not be better. The commercial side of Boeing’s business is growing once more, fuelled by strong sales of its new-technology 787, just as Airbus is struggling to deliver the ultra-large A380 and its majority owner EADS has become mired in its own leadership crisis.
Boeing faces its own set of challenges, McNerney acknowledges, including mastering a faster-than-expected ramp up in 787 production to meet demand. “The programme is on track, doing well, but I worry about it every day,” he says. He also hopes for an early end to the World Trade Organisation dispute over subsidies. “I’m convinced that the governments can reach a negotiated settlement here, but I can’t predict how long that will take.”
At the same time, he wants to make sure that government support does not distort the upcoming competition to supply aerial refueling tankers to the US Air Force. “There exists in our procurement processes less oversight for foreign providers of technologies. We should all have the same transparency, and that is what we are arguing for.”
Despite the threat of C-17 airlifter production ending, and elusive profitability in its space business, Boeing’s outlook is strong. “I think we’ll grow on the commercial side because the market’s growing and because we will take share,” McNerney says. “On the defence side, we’re anticipating a slow-down in the markets and, therefore, a flattening out of our revenues with a holding on to our profit margins. Add the two together and it’s a pretty good growth story.”
Unlike other US primes, Boeing will not look to the government IT market to offset the decline in defence spending. “We’re fortunate that we have a commercial business that is more closely related technically to our defence business than IT might be. We already have the diversification that they’re shooting for, and I like our kind because it’s a little closer to home.”
Boeing’s own record on diversification is spotty. The company’s Air Traffic Management business unit was disbanded, and there are reports it is looking to sell or shut down its Connexion by Boeing inflight Internet venture. “I think Connexion is a good product. I don’t know how good the business is,” says McNerney. “We’re going through an examination now to try to understand short-term investment versus long-term benefit. But it’s a good product and it has good customer acceptance, even though it’s gone a little more slowly than we had originally planned.”
In contrast, Boeing’s acquisition of aeronautical information services company Jeppesen “has been a home run”, he says. “It’s profitable, it’s well led and we’re adding to it with a couple of niche acquisitions.” McNerney sees the recent acquisition of parts distribution specialist Aviall “as a core part of the services business, which is an adjacent space in commercial. The story of Aviall is of accelerating plans we already had in place and finding a critical mass of distribution capability, as well as arrangements with other OEMs.”
McNerney expects Boeing to continue making niche acquisitions. “I think there’s a whole host of them within the services thrust,” he says, citing, training, logistics, software and nice technologies. “We have a broad ambition, so filling out specific pieces is what you’ll see us doing. We have a robust pipeline of opportunities and it will be a make-versus-buy assessment as we go through. I don’t see some big transforming acquisition,” he says, adding: “You never want to acquire things because of your inability to grow yourself. You want to acquire things to supplement and accelerate the growth plans you’ve got. Hopefully we’ll hold on to that discipline.”
In January, McNerney unveiled a series on initiatives designed to deliver substantially improved financial results. These included lean practices, global sourcing and increased productivity in internal services and development processes.
Significantly, rather than rip up the strategy and start again, he chose to “turbocharge” what was already under way within Boeing. “It’s not that there wasn’t a lean capability in this company before I got here. And it wasn’t as if we weren’t worried about global sourcing. But we chose to lift them out, make them special, broaden and deepen and resource them more,” he says. “I want to organise, sponsor and execute it a lot more aggressively.”
While the internal services initiative aims to drive down indirect costs, the development processes push “is about raising the median and reducing the standard deviation of our results on new products and new programmes – the meat and potatoes of this company,” McNerney says. “And that has both growth and cost implications. Growth from the standpoint of managing products and programmes better, and cost because the way you do that is standardise your approach in some circumstances. We tend to build entire infrastructures for every programme and every product and we got to get over that.”
Linking these initiatives with improving leadership skills within Boeing, McNerney says: “When you get to the root cause of a lot of programme failures, it’s less about technology, less about product definition, less about did you choose the right supplier or not. It’s more about was the team well led or was it a command-and-control environment where no one was allowed to speak up? Were customers listened to and made part of a seamless team? Were suppliers just handed functional specs and told to show up in two years with something or were they made part of the team, put on the same IT system, made to feel important as opposed to just bought by the pound? This is all about leadership. You discover well-run programmes all have those characteristics and poorly run ones often don’t.”
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| Read an edited transcript of the full Flight Interview with James McNerney, chief executive of Boeing |
Source: Flight International
