One could make the argument that Boeing's short-termism dates as far back as Harry Stonecipher. Harry was brought in to revitalize the spirit of innovation at Boeing, after a long period of stagnation (reflected in the stock price).

After a couple years with Harry as CEO, the board was still unsettled. They replaced Harry with James McNerney, who oversaw the development of the 737 MAX and focused a lot on capex management. While I'm speculating, part of me wonders if the Harvard MBA blinded him to the importance of company culture and engineering strategy - critical company components that are difficult to defend during a cut-throat analysis of balance sheets.


Another thing that comes to mind is Airbus's integrated design philosophy, in contrast to Boeing's modularization. Boieng, to my knowledge, has historically tried to subcontract "the best" modularized components and assemble them into one aircraft: Turbines from the UK, Seats from Ireland, Avionics from Taiwan, etc. Each aircraft employs a unique supplier network, specifically designed to best serve the aircraft's use-cases.

Airbus on the other hand tries to integrate and re-use parts between aircraft. Notice how they promote the commonality between the A350-900 and A350-1000 [https://aircraft.airbus.com/en/more-commonality-better-integration], and this quote from their website on the building process of aircraft, focus on standardization and commonality "With increased modular design and customisation capabilities the next industrial system will leverage higher levels of standardisation and commonality of parts and major components, enabling new Build-To-Stock and Build-to-Order decoupled approaches". Is this why Airbus hasn't run into nearly as many QA issues?

Part of me wonders if neither of these approaches are the right one. While they keep the companies afloat, it doesn't seem like either company has made a step-change breakthrough in decades. Improvement is generally characterized by single digit percentage efficiency-gains Y/Y. Is that the best we can do?

Great article, Gad.

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Completely agree with everything you wrote!

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Jan 22Liked by Gad Allon

From my 2021 Taylor & Francis book: Manufacturing Mastery: The Path to Building Successful and Enduring Manufacturing Businesses:

“....By demanding accountability and responsibility for customer satisfaction and retention, leaders

in operations must think more strategically. Their role is no longer ensuring capabilities and

capacity to “get order, fill order.” It becomes knowing and anticipating market needs and wants

and determining the supply mechanisms that best develop value performance for the

organization. It requires expert involvement in both strategy development and execution as well

as the business operating system, while mastering forward-looking design. This isn’t your

father’s manufacturing environment.

Strategy without execution is just a dream, but execution outside an umbrella of strategy is

myopic and doomed to fail. Two perhaps not-so-obvious truths: manufacturing is a supply chain

decision; so too, then, is the choice of vertical and horizontal integration.

Those decisions can go very wrong if not planned and executed well by operational experts.

Look to the Boeing 787 Dreamliner. Or the “Nightmareliner” as many began calling it. Boeing

chose to transition from a vertically integrated manufacturing model to a global-partner model in

the development, design, and production of a product deemed important to that company’s

future. Numerous quality problems arose from both commercialization-driven priorities, and

design and machining weaknesses in many components. Poor communication and inconsistent

assumptions were rampant. There’s a lot more to outsourcing than issuing contracts and purchase orders. Boeing executives became acutely aware of the volumes of tribal knowledge and “off-

the-record adjustments” that had previously kept production moving....”

Not acutely enough.

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Jan 22Liked by Gad Allon

737 MAX, more like 737 LAX

Instead of basing executive compensation to stock price, base it on quality/safety, including compensation that is deferred many years post-departure.

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Jan 22·edited Jan 22

I look forward to my AI assistant booking a flight on a 737 SuperDuper MaX 20 with my iPhone 32 in twenty years time. Hopefully Gad will have finally figured out the most efficent way of boarding it by then, but I'll probably still be in Boarding group 3 no matter what I do......

Marginal cost analysis, and the resultant modularity of product design and development , has led to a molasses in product , especially hardware development , at least in Silicon Valley. Scientific , R&D breakthoughs have a much higher barrier than 30 years ago to make it to production. Even Software development is becoming increasingly "modular" and reliant on the same platforms.

It's not just 50 year old planes that keep getting updated, think - when was the last time you saw a truly new device? A Nest thermostat? Personally I've benefited from it greatly as a partner at an engineering consultancy, and there are undoubtedly advantges to having contractor teams design and develop your products. They typically see more cutting edge technology from mutliple projects and can amortise the cost of specialists over multiple projects. The ODM model where off shore manufacturers design re-badged and mildy customised versions of their "modules" to suit clients is very attractive to the bean-counters who don't wish to encur the cost , and risk, of full product redesign. However then there is little differentiation, margins shrink in what becomes a price battle with similar products and the next round of fully outsourced development begins. This leaves only start ups to do the "New" but they have to use the same eco-system of me-too components /suppliers and risk being seen as cost prohibitive and not "Agile/ Lean" if they take on too much inhouse.

The cost of truly new design , with custom components, new tooling and processes, becomes prohibitive ,at least in the eyes of investors. Aerospace, Automotive, Med devices, all have a similar pattern. It's only the giants like Apple, Samsung et al that truly have the pockets to create new differentiated products and, whilst the AirTag and upcoming VisionPro are welcome new categories most people have lost track of what version of the iPad / Pixel Phone/ Galaxy they are on.

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Excellent point. Tesla is among the very few that is constantly rethinking not only its products, but also the processes to make them. Not the only one, but definitely among the few. I am not a fan of many things they do, but do you have to give them credit for that.

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Jan 23Liked by Gad Allon

Yes, but a little more humility from Mr Musk.,who over a decade ago briefly thanked the US Taxpayer for the half Billion $ loan that enabled the Tesla S to be launched, (but not the huge tax payer subsidised credits that have kept Tesla profitable since) would make giving that credit more palatable.

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