Boeing's outsourcing strategy in the spotlight as FAA grounds the Dreamliner

[eridani]

5. Stan Sorscher thinks it's more the business culture than outsourcing per se

Market Discipline for the Boeing 787

http://www.huffingtonpost.com/stan-sorscher/boeing-787_b_2512541.html#postComment

The 777 program leaders built in, from the beginning, the engineering problem-solving culture we used successfully on decades of previous programs. Technical leaders could capitalize on trust built through teamwork to allocate sacrifice to some stakeholders, and focus extra resources elsewhere, optimizing on the program overall. This is best done upstream in the course of a program -- assuming you have the decision-making authority, which was intrinsic to the 777 business model.

It's much harder to solve problems downstream, and harder still, if, like on the 787, you have weak decision-making authority and poor understanding of what other stakeholders are doing.

The 777 was built on schedule and delivered on time; it qualified for long-range operations over water at entry into service; it had great dispatch reliability from the beginning; it is currently making customers happy; and is making money for shareholders.

In contrast, the business culture on the 787 program was structured, from the beginning, to skip all those coordination costs. The 787 business model relies much more on suppliers for design and manufacturing. Coordination and problem-solving are relatively weak. Program leaders seem paralyzed when problems come up, because authority for fixing problems is also diffused into the supply chain.

In business school terms, it can be expressed this way. Are airplanes more commodity-like or are they performance-driven products? I can think of my cell phone as commodity-like, and replace it with another brand. I can switch airlines to get from Dallas to Chicago, which makes air travel more commodity-like.

On the other hand, when airline customers pay $100 million for an airplane with a 25 year service life, they expect a reliable, heavily-engineered, performance-driven product.

Commodities might do well in the global supplier business model, regulated by market discipline. To the extent airplanes are more performance-driven, it makes sense to pay higher up-front coordination costs.