Engineering Life-The Cancer of the Cost-Cutting Culture

https://www.seattletimes.com/opinion/what-will-it-be-boeing-great-airplanes-that-generate-cash-flow-or-great-cash-flow-period/

I am by no means a Boeing insider. I also cannot vouch for the veracity of Stan Sorscher’s conclusions regarding the Boeing culture just from his July 5, 2019 Opinion article in the Seattle Times. I do, however, recognize the plot-line of the story that he is relating as I had lived in a parallel universe while working in the manufacturing world. His story sounds remarkably like the story that I had been a witness to for most of my engineering career, even though the product he was a part of:  manufacturing passenger airplanes, is much more complex than the product I had a part in manufacturing: electric motors. His product is also purely a performance driven product, whereas the vast majority of the product I dealt with had evolved into a commodity product. A very important distinction, but not one that would disqualify the analogy.

Mr. Sorscher wrote the  letter in response to the culture shift at Boeing that eventually led to the raft of non-performance driven decisions which may have caused two of the Boeing 737 Max airplanes to crash, killing 346 people; this  culture shift also seemingly encouraged engineers to cover up the problem rather than work to solve the problems, especially from engineering managers; it also caused the engineers to ignore the most basic tenet of engineering: getting it right because of cost and schedule pressures. Cost and schedules have always been a part of the engineering practice, they are a key part of the challenge of engineering design and they are natural constraint that good engineers learn to adapt to and overcome in their practices. This is what makes what engineers play in the engineering sandbox rather than play in a pure science experiment sandbox: engineers design performance driven products, not one-of prototype.

Economics is an important constraint in engineering, but economics has always played a secondary role to getting the design right and getting the performance right. The driving force for all engineering endeavors has always about making the right decisions for performance and safety. Even though engineers do not take the Hippocratic oath as the medical professionals do, the vast majority of the engineers that I know pride ourselves in doing no harm.

In the letter, Mr. Sorscher spoke of Boeing being an engineering company first and foremost during his time at the company, a company that is driven by delivering performance. He spoke of how Boeing’s devotion to this engineering centered culture enabled Boeing to become what they had become, a trusted brand that delivered on the promise of performance while rising in importance in the world economy and competing with the likes of Apple and Exxon for investors. He spoke about the company culture turning to employee engagement, process improvement, and productivity in the late 90’s; which followed the management trends of the day, taking the quality centered approach of the Total Quality movement that came from Juran, Deming, and Shewart. An American approach that ironically took a trip to Japan before American management would deign to adopt it and even then, only as a Japanese innovation.  Fortunately for them, that new emphasis on quality and customer satisfaction was perfectly aligned with the engineering culture that was already in place.

I entered the manufacturing world at the end of the performance driven culture in the American electric motor industry. Even though the industry I entered was not as complex, there was a pride in the design and manufacture of our electric motors. The cost pressures were never-ending, particularly from certain market segments that are extremely cost sensitive: consumer products, white goods, commercial products to name a few; but the driving philosophy has always been to deliver on the promised performance. My corner of the world also went through the quality revolution, although we did not embrace the siren’s song as completely because the stakes were not as high in the electric motor industry since our failures do not necessarily involve deciding the lives of hundreds of customers. The costs associated with implementing quality measures and practices were a larger fraction of the overall product manufacturing cost in the electric motor industry and were constantly weighed against the product price. In addition, there is always the incessant desire within the business to increase the replacement business, i.e. why make the existing product better when we want the customer to buy replacement products?

Unfortunately, electric motors were also tagged as a “mature” technology, an ignominious and ignoble designation. It implied to management, marketing, and various other non-technical functions within the corporation that there was no need to spend time and money to do research or development, that the technology has reached the ends of the knowledge evolution. Little did it occur to these decision makers that the technical world is ever changing; the physics may be the same but the constraints on the design, the performance requirements, and the material sciences all change. It boggled the mind to think that this same comment was made of the airplane as Mr. Sorscher implied. Technology maturity as designated for financial incentives is not a scientific verdict, it is an excuse to economize and cut cost. A technology is labeled “mature” when management is looking to spend their money elsewhere and invest in things other than technology. This decision of course, was coming from non-technical or barely technical decision makers who rely on rote beliefs that does not tke into account technology evolution and assumes that there is indeed a finite lifetime to scientific development.

Mr. Sorscher’s description of what came later in the evolution of the Boeing culture is where I felt the greatest pangs of poignancy. Cost cutting and shareholder value became the focus, performance and quality took a very far back seat. When Mr. Sorscher asked the question: “Are airplanes commodity-like or performance-driven?”, I was shocked. It never occurred to me to think of an airplane as a commodity. I certainly would not put my life in the hands of aircraft engineers who believe that they are designing commodities. And yet, that is what happened.

In my own work experience, some electric motors, most electric motors that I worked with, have evolved into commodities, or at least in the eyes of the corporate executive. Emphasis on engineering and manufacturing went away and platforms which emphasized commonality of components that imposed compromise performances became the norm. Product characteristics that were defined by application and industry uniqueness were sacrificed in service to the simpler manufacturing, bookkeeping, and warehousing. As Mr. Sorscher recounts, the cost-cutting culture consists of super-stakeholders doing what super-stakeholders do:

These companies are super-stakeholders with market power over their supply chains. The point of this business model is that the super-stakeholder extracts gains from the subordinate stakeholders for the short-term benefit of investors.

Subordinate stakeholders are made to feel precarious and at-risk. Each supplier should see other suppliers as rivals. Similarly, each work location should know it competes on cost with rival work locations. Each state or local government should compete for incentives against rival states. 

In this model, subordinate stakeholders never say “no” to the super-stakeholder — not workers, not suppliers, not state legislatures.

This is exactly what happened in the electric motor world, contrary to point 4 of W. Edward Deming’s fourteen points, which was: End the practice of awarding business on price alone; instead, minimize total cost by working with a single supplier.

Indeed, the imposition of the cost-cutting culture degrades the performance and quality driven culture which created the Boeing company up to that point. In my experience, this same cost-cutting culture had diminished many of the electric motor companies to the point that the true value of the company is but a shadow of its former self. Granted, the electric motor is much closer to being a commodity than an airplane, but the deleterious effects of the cost-cutting culture shows no preference, it is a cancer that affects all industries the same way. As Mr. Sorscher stated:

This cost-cutting culture is the opposite of a culture built on productivity, innovation, safety, or quality. A high-performance work culture requires trust, coordination, strong problem-solving, open flow of information and commitment to the overall success of the program. In a high-performance culture, stakeholders may sacrifice for the good of the program, understanding that their interests are served in the long run.

The cost cutting culture obviated technical knowhow in deference to short term profits, it sacrificed fundamental engineering practices rooted in the sciences at the altar of the sub-optimal solutions that are just good enough and are based on guesswork, linear extrapolation, and fictional beliefs.

In the case of the electric motor world, the cost-cutting culture caused the companies that were once dominant in the business to fade and atrophy. Their share of the business eroding and losing market shares to cheapest producer nations. The truth is you cannot cost cut enough to compete with the lowest cost producer, you need to innovate enough to cause your trajectory to bypass and short circuit their trajectory. Those companies that could not only contain cost but also innovate, think progressively, and pioneer new markets seem to do better; while those that could only cut cost have de-evolved to the point of irrelevance in the global market.  The advent of new technologies in power electronics, material sciences, and advanced computing are meeting the needs of new applications and markets. In this case, the challenges of the applications are taking the electric motor technology out of the “mature” technology dustbin and putting them right back into the performance driven world.

I hope Boeing heeds Mr. Sorscher’s criticism and acknowledge their mistakes. I hope that there are enough technologists and engineers left in the significant ranks of Boeing to enable the cultural shift for the better. The cancer is deep, however, and the problem is complex. Every misstep costly, and every bad decision is life threatening. The cost-cutting culture proved to be fatal to many electric motor companies I certainly hope that it isn’t fatal for Boeing.