Boeing's Cultural Revolution -- Shaken Giant Surrenders Big Dreams For The Bottom Line

It was one of those throat-tightening, face-flushing discussions troubled families endure. In this case, though, the family members were the top executives of The Boeing Co., and the father figure was Chairman Phil Condit.

More than two dozen Boeing officers sat quietly around a table in the elegant board room of the Seattle headquarters last August. Condit did the talking, complaining about the humiliation he had suffered while visiting angry investors on the East Coast. He had been called a liar by shareholders fed up with broken promises and tattered stock portfolios.

Tears welling, Condit, known for his pride and sensitivity, vowed he'd never suffer such indignation again.

Then he walked out.

The floor was left to President Harry Stonecipher, who had stepped into the No. 2 position when his McDonnell Douglas was merged into Boeing a year earlier. Stonecipher is the pragmatist to Condit's dreamer, the stern, show-me Midwesterner to the Condit's intuitive Left Coaster.

Stonecipher spoke in threatening tones, sparking heated exchanges and forcing the group to hash over their shortcomings in detail.

The underlying message from the two top men: The family is dysfunctional. Life in this house is going to be a lot different around here from now on.

And so it has been. That Aug. 5 meeting portended tumultuous change.

In the four months since, a half-dozen senior managers, some of them towering figures in the Boeing hierarchy, have been nudged or pushed out the door - the first such housecleaning in the company's 82-year history.

Nearly 50,000 workers are expected to follow, part of Boeing's dramatic cost-cutting response to its plummeting profits, inevitable cycles and the realization that it had badly underestimated the impact of Asia's economic ills on demand for jetliners.

And, with Boeing's board of directors meeting today and tomorrow in Seattle, even more dramatic developments could be in store. There, Condit is certain to face further harsh scrutiny of his performance.

Life at the world's largest aircraft manufacturer - and the Northwest's largest employer - is radically different these days. An institution built on big dreams and flying machines is being forced to focus on the bottom line.

As part of that shift, Condit and Stonecipher aim to overhaul the corporate environment, particularly among managers. Condit speaks of moving "from a family culture to a team culture."

Under the family culture, beginning with Bill Boeing in 1916, bold aviators focused on grand visions of building ever better, faster, bigger aircraft. Management of the company was anchored in loyalty and promoting through the ranks. Everyone trusted that profits would follow - and they always did.

But suddenly, that culture is failing to meet the two measures of success Boeing had always taken for granted: happy customers and a respectable shareholder return.

In Condit's view, the company had yet to grasp revolutionary changes in both its commercial and military markets, where demand for technological prowess has given way to a preference for value.

"The situation is different," Condit says. "The market is different. The world economic situation is different. And if we do not adapt, we're not going to make it."

He has replaced some of his ousted underlings with leaders less steeped in Boeing's hang-together traditions.

It remains to be seen whether the new mix of managers and mindset will solve Boeing's problems. Beset by uncertainty, the company is searching for the elusive balance between goals that inspire and the ability to make a buck along the way.

"We've got to change, and we can't hope that it will just sort of happen," Condit says. "We've got to do something. We have to take action. That's the message."

But for such a major cultural shift to take hold, the employees will have to understand and ultimately embrace it. And that's far from a given.

"I think we're changing, regrettably, from an environment of commitment to an environment of fear. . . . " says Charles Bofferding, executive director of the Seattle Professional Engineering Employees Association, a union representing 24,000 employees.

"We don't understand the principles that are in play any longer."

Identity crisis

To evaluate where Condit and Stonecipher are attempting to take Boeing, it helps to understand the situation they inherited.

Through the 1990s, the aerospace industry faced more staggering changes than in any decade since World War II. There were three major elements in that change:

-- As the Berlin Wall tumbled, so did the U.S. defense-budget buildup that had grown steadily since the 1940s and soared in the '80s. Old names such as Rockwell, McDonnell Douglas, Lockheed, Martin Marietta and Boeing found themselves faced with dividing a shrinking Pentagon pie.

-- Europe's Airbus Industrie consortium was proving what Boeing had hoped wasn't true: Other companies could also devise great jetliners, and sell them.

-- In both the commercial and military markets, customers became less interested in technological prowess and more driven by getting the most efficient planes for the least money.

With Condit ascending through its ranks, Boeing began scouting for mergers and seeking greater efficiency. The company winnowed its pool of suppliers. It slashed 10,000 senior employees from its payroll with an early-retirement plan. It began a complex effort to overhaul anachronistic manufacturing and engineering systems. It moved forward with plans for a new generation of its venerable 737 line.

Against that background, Boeing began to struggle with its own identity.

On one hand, then-Chairman Frank Shrontz and his executives recognized that the company needed to better understand and respond to shifts in global competition.

Beyond that, some of Boeing's leaders - led by Condit, who became president in 1992, chief executive officer in 1996 and chairman in 1997 - believed that meaningful change would come only if lower-level managers and the people on the manufacturing lines also understood those shifts. Only with that rank-and-file understanding, they believed, would workers buy into the need for change.

To begin that re-education, 60,000 managers were pumped through a course on competitiveness in 1994 and 1995.

As a next step, in 1995, more than 500 high-level executives were marched through courses designed to infuse some soul into management and ensure employees saw their labors as rewarding.

Among the instructors was poet David Whyte, who exhorted Boeing's brass toward a greater "collaboration and conversation" that might enable employees to feel "part of a story that's larger than themselves."

In groups of 50 or more, the managers trekked offsite for a week, listening to jazz, going to a homeless mission downtown, watching improvisational dance, and visiting Condit's house in Issaquah for an evening of exchanging life experiences. They delved into respecting personal boundaries, what it means to be unheard.

But as the first part of the series of courses wound down, the direction of the series was suddenly reversed by Ron Woodard, then president of the Commercial Airplane Group, executives say. Woodard had been heard to call the initial course "an exercise in burning eagle feathers," and saw a simple lack of what he called "business competence" as a much more urgent need.

Condit, Woodard and the others knew the answer was somewhere in between, a balance of competence and passion. But events didn't wait for them to find that balance.

From poets to profits

In the last half of 1996, Boeing finally seized the chance to expand its share of the space and defense market, merging first with Rockwell Aerospace and then with McDonnell Douglas.

Stonecipher, a former General Electric engine-division chief who headed McDonnell Douglas for three years, immediately made his presence felt by questioning the way Boeing did things. Today, an oft-repeated joke among lower-level managers is that "McDonnell bought Boeing with Boeing's money."

The focus of Boeing's management training was shifting from poets to profits - deepening, observers inside and outside the company say, a sense of confusion and a loss of confidence that the company's captains knew where they were going.

Ed Maher, a longtime Boeing management consultant, wrote a letter to the company citing the "dysfunctional behavior of the leadership group and the confusion this is generating," and said management behavior "is blocking trust, loyalty and honesty." He challenged the new focus on business competence, saying it was "unlikely to touch" Boeing's true ills.

Boeing was sending mixed messages.

Meanwhile, the company was hit with a blistering surge of demand for commercial jetliners. Buyers demanded lower prices to ensure their own efficiency, and Boeing obliged.

In a series of collective decisions, Boeing seniors elected to double production virtually overnight, despite the constricted base of suppliers and a labor pool made smaller by the company's own cutbacks.

By mid-1997, the consequences of those decisions had become evident. Parts shortages and inexperienced workers took a terrible toll. Planes were late, quality degenerated and the engineering-system overhaul hit a wall. The year brought a $178 million loss.

"You had this horrible mess," Woodard recalls.

More recently, Airbus made the most of its expanded opportunity, seizing ever-greater market share by pushing planes into airlines that say they've been dissatisfied with Boeing's service, and by pricing aggressively when Boeing no longer would.

Open-window policy

This year, Boeing has been even further besieged. Profits and the stock price continue to wither, as pressure on executives soars. Allegations of mismanagement fill the air and the airwaves from Seattle to Wall Street.

The old Boeing would have dealt with these problems within the family, behind closed doors.

The new Boeing cast its dirty laundry out the window - with people still wearing it.

The question of whether those people were sacrificed unfairly is still debated.

Even before Condit's traumatic exchange with investors in late July, longtime Chief Financial Officer Boyd Givan was elbowed toward early retirement. A month later, Woodard was ousted as head of the Commercial Airplane Group, shocking his peers and midlevel charges despite the fact that such action had been rumored. Under his replacement, defense and space chief Alan Mulally, most of Woodard's senior staff were sent packing or reassigned.

Among the departures: Larry Clarkson, a senior executive known for his expertise in international issues, and Larry Bishop, the top executive for public relations and investor relations.

Mulally declines to talk much about what has transpired, preferring instead to frame his search for "a better business plan."

Asia's chilly economies have hit Boeing harder than Airbus, which has a lower stake on that continent. Orders from Asia have dried up; in response, Boeing announced last month it would eliminate 48,000 of 238,000 jobs over the next two years.

Insecurity runs thick in Boeing's factories and its offices, perhaps like no other period in its history.

"It is very real," Condit said. "It is the fundamental challenge of change. By its very nature, it provokes uncertainty."

Stonecipher, for his part, observed crisply that "the whole idea is that we won't be the same. I think that's what causes all the tension."

As for the round of executive replacements, Condit says he doesn't "want to fall headlong into sports analogies, but you know when your trying to build a team, you try to get the right combination of players on the field. That's what we're trying to do."

Stonecipher, seeming genuinely mystified, asked, "Why is that trauma? It's just change. . . . Anytime you change an organization, there are winners and losers."

The controversial Boeing president is a magnet for the suspicions of Boeing veterans, partly because of his threatening tone. But to him, the underlying issue is not a threat at all.

Stiffening a bit, Stonecipher asserts: "If we don't get a better plan, there will be different people running this place. I mean, the performance of this company is unacceptable. It's unacceptable to our investors, it's unacceptable to our board. It's unacceptable to me."

Among many longtime Boeing managers, Stonecipher is seen as resurrecting policies from his McDonnell Douglas days, and he is vilified for abrasive acts such as saying publicly that Boeing's cultural soft spot is its "arrogance."

With a sigh of exasperation, Stonecipher responds: "One of the things that continues to aggravate me is the fact that an awful lot of people in Commercial (Airplanes) believe that they don't have a `problem.' They have a `Harry Stonecipher problem.' "

`Where's Phil?'

Meanwhile, a popular barb at corporate headquarters on the East Duwamish Waterway is the question, "Where's Phil?" Sources say Condit has avoided direct contact with most of the executives being pushed out. The question also reflects the chairman's low profile amid the turmoil.

"You haven't seen hide nor hair of him," observed Robert Baker, an executive vice president for American Airlines, echoing many in Boeing's middle management.

Condit is aware of the criticism. But he believes "a lot of it is differences in style and perception. Harry tends to be visible. . . . The reality is that we're both involved."

Condit concedes he has perhaps spent too much time in the strategic cosmos, and not enough examining details of the business. "You understand when you look in the mirror and figure out that it's you who's got to change," he said. "That's the hard part of this process."

Beginning with him, Condit says, the people who run Boeing have to accept, understand and energize the shift from family culture to team culture.

"The attitudes are very different," he said. "The team is organized around performance" and not "how do we make sure that we are all taken care of as we go along here."

The shift is manifesting in concrete policy changes: For the first time, jet-factory managers must account for profits. Benefit plans are being reshaped. Company credit cards are being recalled, with workers having to use their own cards and file for reimbursement.

While all such actions would seem to be good business, some experts aren't so sure. They wonder about the wisdom of recasting a culture and philosophy that worked so well for so long.

"My concern about Boeing is that they're drifting away from their core values," said Jerry Porras, co-author of the 1994 book, "Built to Last: Successful Habits of Visionary Companies."

The book's examination of visionary management cultures extolled Boeing's habit of setting risky, lofty objectives - what the book calls "Big, Hairy, Audacious Goals" - and making instinctive decisions. The authors noted that shareholders may have cringed at the financial risks, but all sides eventually were rewarded.

"Boeing has not been fundamentally about profits, long-run or otherwise," wrote Porras and co-author James Collins.

In "Built to Last," Porras and Collins identified 18 "visionary" companies, and contrasted them with 18 "comparison" companies - firms in the same industries that had failed to achieve the same level of sustained success.

Boeing's "comparison" company? McDonnell Douglas.

Porras, an expert in organizational change at Stanford University's Graduate School of Business, suggests Boeing's leaders may have "just lost the courage of their convictions."

Business-management books and coffee-table tomes long heaped plaudits on Boeing's guts-and-glory maneuvers, from heroic runs of bomber production during World War II to bet-the-company gambles on such planes as the 747 jumbo jet.

By late 1996, however, Boeing had no new, bigger, faster airliner on its drawing board, no tangible object for inspiring its troops toward greater glories in aviation. Airbus, by contrast, had such aims. Having effectively reached its target of a 50 percent share of new orders, Airbus is calling now for a European roll of the dice on a costly new superjumbo jetliner dubbed the A3XX that would attempt to overtake the 747.

In Porras' view, Boeing's strategic decisions of late - among them, not fielding a superjumbo of its own - look too much like the choices that defeated McDonnell Douglas in commercial-jet markets and not enough like Airbus's ambitious initiatives of today.

Condit dismisses the notion that the company needs to resume the bankrolling of bigger and faster airplanes.

"We're not in a world that does that right now," he said.

Boeing's past accomplishments, and the culture that nurtured them, were "pretty damn impressive," Condit acknowledged. "But then the question is, `OK, what do we need (our culture) to be now?' "

Baker, the American Airlines executive, thinks Condit and Stonecipher might be on the right track.

"At some point, you've got to have a relationship that says, `This is business,' " he said. "You can't run it purely on the basis of friendships and relationships."

Stonecipher harkens back to an autumn retreat with the top 75 officers of the company, where the family-to-team mandate was officially rolled out.

"That was a hard conversation to have," he mused. "In a family, there's love, you know. . . . We get frustrated from time to time, but we never stop loving them and caring."

The difference now, he says, is that "you don't stay on a team" if you don't perform.

"In fact," said Stonecipher, "you can stay on a team, and be pretty unloved sometimes."

Jeff Cole's phone message number is 206-464-3343. His e-mail address is: