PROJ6006 Organisational Behaviour and People ManagementAssessment Case Study20211* The contents of this Case Study were adapted from the references to suit the requirements of the PROJ6006 subject’s assessments and are theproperty of Torrens University Australia.The Boeing DreamlinerFor Boeing Commercial Aeroplanes the week of January 14, 2013 has been a bad one. Images offirefighters tackling a fire onboard a Japan Airlines 787 in Boston and pictures of an All Nippon787 with its emergency exit slides deployed in Japan have flashed across the Internet. For thesecond time in a little over a week the meltdown of a lithium ion battery has resulted in an onboardemergency for one of the company’s flagship 787 aircraft. Combined with a string of otherproblems (Figure 1) media outlets have focused public attention by cataloguing problems withthe aircraft type. In the interests of public safety, a Federal Aviation Authority (FAA) directive hasresulted in a worldwide grounding of the 787 fleet (the first such grounding of a large commercialaircraft type since 1979).Figure 1: Other issues with the aircraftSource: Gregory, M. (January, 2013). Boeing 787: Dreamliner’s lithium ion batteries probed. BBC News. Retrieved from:https://www.bbc.com/news/business-21059605PROJ6006 Organisational Behaviour and People ManagementAssessment Case Study20212* The contents of this Case Study were adapted from the references to suit the requirements of the PROJ6006 subject’s assessments and are theproperty of Torrens University Australia.The 787 has had a difficult birth. Plans to build the plane were first announced to the public inJanuary 2003. At that time the development costs were projected to be $5B and the aircraft wasto enter commercial service in 2008. While sales of the aircraft were strong, the development ofthe aircraft turned out to be significantly more challenging than anticipated. The use of compositematerials instead of the traditional metals and decisions Boeing made about how to share thedevelopment of the aircraft’s with suppliers, resulted in a project that was considerably morecomplex than anticipated. More than 3 years late and many billions of dollars over budget, the787 finally entered commercial service in Sep 2011.The projectBoeing Corporation was one of the world’s largest manufacturers of commercial aircraft, ranking27th on the Fortune 500 list in 2016. When it announced the delivery of its first 787 Dreamlinertransporter to its first customer, All Nippon Airways, in September, 2011, it was almost 40 monthslater than originally planned, after a long series of unexpected delays. The actual developmentcost of the project had been estimated at about US$40 billion but came in over twice the originalestimate.The Dreamliner was designed to be a revolutionary project in terms of physical characteristics,technology, management style, financing, design and engineering management, qualityassurance, and assembly processes. Many of these initiatives were intentionally taken on tobenefit from new developments in aviation technology and to speed up design and development;however, they posed unexpected challenges for both the company and the project team.The Shared DevelopmentOne of the most significant strategic decisions Boeing made in the 787 project related to outsourcing. Historically Boeing had both designed and manufactured most of the parts for theiraircraft. For the 787 project a decision was made to move further towards a systems integrationmodel. In the integration model Boeing would partner with third party suppliers around the worldwho would help design, manufacture and supply components for the aircraft. Those componentswould be shipped to Boeing factories in the USA and assembled into the final product. On paperthe decision to act as a “systems integrator” rather than manufacturer had appeal. It spreads therisk and moves costs to the suppliers while reducing the investment needed by Boeing. In financiallanguage the out-sourcing of work can also increase “Return on Net Assets” (RONA), a measureof financial performance or efficiency for an organization. Increasing RONA is often regarded bysenior leadership as a positive thing as it makes a company appear to be financially more efficient.According to available sources it was a desire to increase RONA that set the context within whichthe out-sourcing decisions were made.PROJ6006 Organisational Behaviour and People ManagementAssessment Case Study20213* The contents of this Case Study were adapted from the references to suit the requirements of the PROJ6006 subject’s assessments and are theproperty of Torrens University Australia.The new organizational paradigm adopted by Boeing for the development of Dreamliner includedthe decision to outsource an unprecedented portion of the design, engineering, manufacturing,and production to a global network of 700 local and foreign suppliers. With more than 70%foreign development content, this decision turned Boeing’s traditional supply chain into adevelopment chain. Tier-1 suppliers became responsible for the detailed design andmanufacturing of 11 major subassemblies, while Boeing only did system integration and finalassembly. Figure 2 lists the project’s major subassemblies and their tier-1 suppliers.Furthermore, Boeing came up with a new risk and revenue sharing contract with its suppliers,called the “build-to-performance” model (as differentiated from the more typical “build-to-spec”or “build-to-print” models). According to the model, contract suppliers bore the non-recurringR&D cost up-front, owned the intellectual property of their design, and got paid a share of therevenues from future aircraft sales. Under this model, the suppliers’ roles were dramaticallychanged from mere subcontractors to strategic partners who had a long-term stake in the project.This model created some risks, which caused extensive integration problems and additionaldelays.Figure 2: 787 Project’s Tier-1 SuppliersSource: Vega, G. (n.d.). Leadership implications in complex projects: The Boeing Dreamliner and Jim McNerney. Project ManagementInstitute.In this new assembly method, subcontractors were required to integrate their own subsystemsand send their preassembled subsystems to a single final assembly site. The goal was to reduceBoeing’s integration effort by leveraging subcontractors to do more work compared with previousprojects. This meant that the assembly of the 787 Dreamliner could be described as a System ofPROJ6006 Organisational Behaviour and People ManagementAssessment Case Study20214* The contents of this Case Study were adapted from the references to suit the requirements of the PROJ6006 subject’s assessments and are theproperty of Torrens University Australia.Systems—a complex set of elements that must work together to be successful. The large groupof systems that had to be integrated into this aircraft demanded an unusually concentrated focuson teamwork among the subassemblers. The challenge was to encourage or supportcollaboration while recognizing the competitive nature of the subassemblers.However, many of these subcontractors were not able to meet their delivery schedules due to lackof experience in subsystem design and integration, as well as insufficient guidelines and training.As a consequence, parts and assemblies, which were sent to Boeing for integration, were missingthe appropriate documentation, including instructions for final assembly.What Boeing’s senior management failed to adequately take into consideration was the affectthat the out-sourcing would have on the project and its overall lifecycle costs. Out-sourcing mayeliminate some types of cost, but it introduces layers of additional costs. Quality problems,communications problems and the challenge of making changes to components being madeunder contract rather than in-house, all added layers of cost. The problems also extended theproject schedule by more than 3 years, which further increased costs.CEO’s Leadership approachSupply chain and design delays increased, as did Boeing’s financial losses, including penalties forlate delivery of the aircraft. CEO McNerney had to face some hard facts based on earlierdecisions. He acknowledged that his new paradigm may have been flawed, “We got a little bitseduced that it would all come together seamlessly and the same design rules would be appliedeverywhere in the world and corners wouldn’t be cut and financial realities wouldn’t hit certainfolks.”McNerney’s approach to workers, suppliers, and labor resources was notably off-putting,according to many in Washington State, Boeing’s corporate home. Since 2011 when Boeingopened its non-unionized South Carolina assembly plant where salaries were approximately$10/hour less than those of the unionized workers in Washington State, worker relationshipshave been troubled.While admirers have touted his efficiency and ability to deliver profits, alienated professionals atevery level, along with union members, have described McNerney as “cold-blooded.” One laborspecialist stated, “A lot of employees feel top management doesn’t value them, treats them asexpendable…[creating an atmosphere of] lowered trust, anger and disgruntlement.” According toRichard Aboulafia, noted aerospace specialist,“Management believes if it continues to squeeze suppliers and labor, the problem[s] willbe solved. Again, the track record here is not great. Most of the manufacturing world tellPROJ6006 Organisational Behaviour and People ManagementAssessment Case Study20215* The contents of this Case Study were adapted from the references to suit the requirements of the PROJ6006 subject’s assessments and are theproperty of Torrens University Australia.a very different story. Whether it’s with cars, aircraft or turbines, productivityimprovements often come from the shop floor. That means convincing the people whobuild things to identify ways to reduce scrap, improve work flow and eliminate defects. Topromote the kind of process improvements that happen in the factory, a work force needsincentives (…)”McNerney’s management style created its own problems. He vacillated between maintaining hisdispassionate, hands-off general management style with multiple-times per day meetings withexecutives during the Dreamliner grounding crisis. His revolving door policy for managers incharge of the 787 project (four in as many years) generated a sense of uncertainty at all levels inthe company and increased pressure to meet goals quickly. This focus on urgency caused him toreflect, after having resolved the major problems in the Dreamliner, that the plane could havebeen completed sooner had Boeing listened more to the customer and less to innovativetechnology.As described by an anonymous former Boeing executive, “The sense I always got from him inmeetings is that it could have been any business…If we’d been making cameras or autos or doingbond trading, it would have all been the same to him. The net effect is distancing from the peoplewho come to work there every day, who bring their hearts and souls to it and want to make it morethan a job.”Contributing FactorsThe 787 project is one more example in which Senior Management failed to understand the costs,challenges and risks of their decisions and in which the sound advise of technical experts wasignored and trumped chasing a higher RONA value. John Hart-Smith, a world-renownedaeronautical engineer and a senior technical fellow at Boeing presented an internal paper entitled“Out-Sourced Profits – The Cornerstone of Successful Subcontracting” at Boeing’s annualTechnical Excellence Symposium in February 2001. In the paper Hart-Smith outlined how the costsof out-sourcing were being underestimated and how the out-sourcing strategy could underminethe knowledge base upon which the organization was based. Granted it is hard for senior peopleto know what advise is good advise and which is not, but the fact that Boeing had purchased theDouglas Aircraft company meant that internally they did have a very good reference modelagainst which to check.In the end, financial measures were too narrow to capture the full costs involved. Difficultymanaging and integrating across a large supply chain and development partners.PROJ6006 Organisational Behaviour and People ManagementAssessment Case Study20216* The contents of this Case Study were adapted from the references to suit the requirements of the PROJ6006 subject’s assessments and are theproperty of Torrens University Australia.Assumptions and ReflectionHad you had the opportunity to build the team to manage such complex integration and project…→ What would you have done differently?→ Consider the challenges of managing a team with 700 suppliers. Boeing addressed this bycreating Tier-1 suppliers for 11 subassemblies. How would you create a team from theseTier-1 groups? How would you draw the lines of communication between stakeholders?As team or working group?→ What challenges does the build-for-performance model make for Tier-1 suppliers?→ What processes would you put into place to improve communication within theinternational supply chain?→ What incentives would you propose to motivate the team highlighted by RichardAboulafia?→ Consider what team would be necessary for the project and whatskills/competencies/roles would you include in this team? What about Leadership? Howwould you address it if you were the Project Manager being the liason between team andthe CEO, Jim McNerney?These reflections should support you in addressing the requirements of your assessments.PROJ6006 Organisational Behaviour and People ManagementAssessment Case Study20217* The contents of this Case Study were adapted from the references to suit the requirements of the PROJ6006 subject’s assessments and are theproperty of Torrens University Australia.References:Calleam Consulting (February, 2013). Boeing Commercial Aeroplanes. Why do Projects Fail?Retrieved from https://calleam.com/WTPF/?p=4617Gregory, M. (January, 2013). Boeing 787: Dreamliner’s lithium ion batteries probed. BBC News.Retrieved from https://www.bbc.com/news/business-21059605Vega, G. (n.d.). Leadership implications in complex projects: The Boeing Dreamliner and JimMcNerney. Project Management Institute.* How to cite this: Torrens University Australia (2020). The Boeing Dreamliner. PROJ6006Organisational Behaviour and People Management – Assessment Case Study.
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