Did business-driven-business failed Boeing? The case of BOEING

Years back if you remember two Boeing aircrafts crashed out of nowhere and

sparked the biggest controversy of the decade. An Indonesia passenger plane

crashing into the sea minutes after takeoff and 5 months later the Ethiopian

Boeing 346 people were killed in two plane crashea. So 5 months two major crashes and one plane both these aircrafts were boing 737 Max and both of them crashed due to the manufacturing defect of Boeing and while most of us thought it to be yet another tragic incident what we don't realize is that Boeing aircrafts are still experiencing disastrous incidents that will traumatize you forever.

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In January 2024, their door plug just blew off and then they found loose bolts on their

door plugs and then a month later an aircraft tire fell off and a Boeing aircraft even reported a fuel leak now. Imagine if you're 30,000 ft above the ground and your pilot tells you that your fuel is leaking how would you feel? imagine that you are just about to land and you see your Landing Tire just fall off how would you feel? scary as hell.

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Well unfortunately this is what is happening to boing in in the past 10 Years. Boeing has seen 970 cases which has now put one of the greatest companies in human history on the verge of bankruptcy. Boeing is now adreaded name in the world of Aviation.

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In the past, the future of Air transport where beyond the wildest dreams of anybody else. At that time in the industry, Boeing was a magnificent company who made my opinion the best airplanes in the world. There was a time when people said if “it's not Boeing, I'm not going” but after doing so well for 80 years the Business Leaders of

Boeing made one big big mistake and this mistake changed the fortunes of the

company from a dream run to a nightmare and the reason why I am writing this article it important for the future entrepreneurs this mistake is by far

the biggest and the most common mistake that they all must avoid.

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The question is how did Boeing become the most successful company on Earth only to become the biggest failure of the century? what exactly did the leaders of boing do wrong because of which they lost their reputation of 80 years with just this one mistake and most importantly what are the lessons that we

need to learn from the disastrous fall of boeing.

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To understand the fall of boing we first need to understand that there are two philosophies of running a business and this is one of the most important things that the business could be either be a product driven business or a business driven business, now most of you will call me crazy business is a business-driven business

how does that make any sense at all?

Well let us understand this using the example of Apple. When Steve Jobs was building Apple from 1976 to 1985 Apple was a product driven business they built one of the finest computers the world had ever seen but you know what behind the scenes they did the most illogical things that an MBA would never do because whatever they did did not make any business sense at all for example back then people did not care about how the computers were packaged so the standard practice was to use a metal or wooden casing but Steve Jobs cared so much that he spent several months into just finding a polished plastic casing. Why because he wanted the computer to look beautiful while everybody was focused on just growing their sales. Steve Jobs was obsessed with something as simple as a user manual because he said if any one gets their Apple computer they should be able to use it

right away so he spent hours into just making the perfect user manual into just

making the user manual look beautiful. All these decisions led to slowed production increased cost and made Apple so expensive that it was double the price of its competitors but guess what, Steve Jobs never cared. And when Steve Jobs launched the iPhone in January 2007 he had already announced that the products would be shipped in June 2007, so only 5 months were left to ship the product to the customers so by this time the factory was ready the raw materials were decided the design was finalized and the iPhones were just about to get manufactured. but did you know just after the presentation Steve Jobs comes backstage and tells Tim

Cook that “ Tim listen I used this iPhone prototype for a few weeks and this iPhone has scratches, so we need to change the screen because we cannot have a screen that gets scratches” and you know what Tim was shocked. Tim said, “ but Steve we are just about to start production how can we just change the screen”. Steve said, “I don't know Tim we just have to do it now”, if you speak to any product designer or manufacture they will tell you that nobody in their right mind would try to change anything at this point because changing the screen of 1.4 million iPhones is not a

joke it would cost profits it would put the hard work of thousands of people at

risk and and most importantly back then nobody produced scratch prooof glass

screens in the world but you know what they did just a few weeks before launch

the entire Apple team went looking for someone who can make a better glass and

in these few weeks they found a company. They found a factory in China that could

cut the glass they partnered with the company and hired 8,700 midlevel engineers and started manufacturing iPhones with a scratch free screen and that is how the world saw the rise of Gorilla Glass. Since Apple replaced the plastic screen with gorilla glass in just 150 days and shipped 1.4 million.

Now if you look at it from a business standpoint Steve Jobs did not have to do this because the investors and customers would have never noticed and had they rolled out the gorilla glass in the next version of the iPhone it would have been great because that would have been a great selling point to sell more iPhones but Steve Jobs said no means no. Apple cannot ship junk, product comes first Revenue profit shareholders everything comes next.

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Steve Jobs maintained apple as a product driven business and not as a business

driven business. So when you're a product driven business every single decision of

your is meant to build a great product even if that means decreasing your

profits even if that means losing shareholder value even if that means taking up debt and incurring losses because this philosophy says that until you build a great product everything will be stacked against you but when you build a formidable product for the world you can beat all the odds in the market whereas in a business-driven business the leaders will always tell you whatever makes the revenue grow whatever increases profit whatever increases a shareholder value that is what you got to do then it doesn't really matter how good or average your products are. If you

understand this you will understand the case of Boeing better.

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?Boeing was one of the most revolutionary companies in the history of the world it started in 1916 they supplied aircrafts to the US Navy during World War I and that is how the founder William Boeing got rich when boeing of the world came into Aviation thinking what can we use this for Boeing's first customer that was the United States military the company. Continued to attract orders for fighter and military training aircraft Boeing. Introduced the model 80 it was the first Boeing

aircraft designed with passengers in mind Bill Boeing and the men and women who built the company with him saw a grand opportunity. Boeing flew its first commercial airplane in 193 3 and by 1958. Boeing delivered the first us-made commercial jetliner called the Boeing 707 Boeing was so far ahead as compared to its competition that in the 1970s while Airbus 300 could carry 247 passengers for a Non-Stop distance of

4,600 Miles. McDonald Douglas dc10 could carry 220 passengers for a Non-Stop distance of 3,800 Mi and lockheed's TriStar could carry 400 passengers for 4 4,600 Mi whereas Boeing 747 was so far ahead of its competition that it could carry 460 passengers and fly 9,200 M Non-Stop and the fundamental reason why Boeing was so good was because it was run by a bunch of engineering nerds who only wanted to

build the best products in the world even if that meant less profits even if that meant taking the company on the verge of bankruptcy. Yes that’s right, Boeing Engineers even took the company on the verge of bankruptcy just to build a great product and the classic story of such an insane product obsession is the story of Boeing's billion dollar bet in 1965 back in 1965. Boeing generated a revenue of $2 billion and even though they had a great year to register profits you know what they did they put in more than $1 billion into building an aircraft called the Boeing 747. Boeing 747 the world's first wide body jet. Leap and Technology of that airplane was just extraordinary and it was much more than just a big aircraft. This airplane allowed every person on Earth the opportunity to get an airplane and fly anywhere. It was a billion doll gamble that stretched technology to the Limit it became an it ion the most recognized aircraft in the world so they put in more than half of the revenue into just

building a new product.

Now you might say what research and development, this is why you need to know how incredibly difficult the aircraft manufacturing space is. Did you know unlike a phone company or a car company where you can expect some output for your investment into R&D, In aviation even if you spend a billion dollars there is absolutely zero guarantee that you will be able to build a successful product and even after you start spending that money it might take you anywhere between 5 to 10 years to even attempt to build a single product in fact Even after spending 5 years and more than a billion dollars there is a possibility that your model of aircraft will never get made at all and after making the aircraft also it is very difficult to break even. For example when Boeing designed the new 787 they spent $32 billion on it you know how much money that is that is 12.54 times the profit of Reliance Industries and 8.38 times the profit of Tata Motors so after spending $32 billion they then had to sell 1,100 aircrafts just to break even you know how big a fleet of 1,100 aircrafts would be as. ?

The entire Indian market which includes Indigo vistara spice jet Air India all of them combined they only had 771 aircrafts, so Boeing had to sell 1.4 times the size of the entire Aviation Fleet of India just to Break Even.

This is how difficult it is to build and sell an aircraft but even then back in 1965 Boeing spent more than 50% of its $2 billion in Revenue into just building the Boeing 747 it took them 28 months and 4,500 Engineers to build it but when they did they built it so well that from 1970 to 2007 that is for 37 years, the Boeing 747 remained the largest passenger aircraft ever and the reason why Boeing was so so successful for 70 years was because it was a company that was run by engineers and these Engineers had the ultimate power of saying yes or no while building the products in fact even the executives of Boeing had such a solid research background that they held patents they had designed wings and they always put safety standards ahead of

profits and shareholder value and because they were so product obsessed and they built the best products in the world. If you look at their numbers they were always shooting up from 1975 to 1995 the stock price of Boeing shot up by 4,400 from $0.4 a share to $18 a share the revenue shot up from 3.9 to billion to 19.52% to $393 million. This is when Boeing was one of the most profitable Innovative and one of the most formidable companies on the face of earth. Boeing had record orders for its Dreamliner 300 planes valued at over $42 billion Boeing emerged as a key innovator in jet technology and Commercial Aviation the company pursued growth through Partnerships Acquisitions and by navigating International competition. \

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Suddenly air travel was Within Reach for almost everybody then the question over here is when boing was so successful and so profitable what exactly went wrong well the story of the fall of Boeing started in 1996 this is when there were three players in the market Airbus Boeing and another company called McDonald doglas while Boeing had 53% market share airus had 18% and McDonald Had 19% so to consolidate the market Boeing acquired this company called McDonald doglas for $13 billion and this is where the problem started. When they acquired the company, the CEO of McDonald was a man named Harry and somehow Mr Harry negotiated a merger with Boeing in such a way that he became the president and Chief Operating

Officer of the merged entity and a member of Boeing's board. So you see what

Happened, ?a big company bought a small company but the small Company CEO became the head of the large company so you know what happened next all the McDonald dogas teams started to take charge of the production and Design Department of Boeing after taking over they started breaking down the teams of Boeing into separate outsourced teams in Japan Malaysia and Italy for example in boing 787's Dreamliner program Boeing outsourced its operation to Japanese companies like Mitsubishi Kawasaki and Fuji heavy so these companies made 35% of the aircraft structure similarly. Italian companies like alyana aeronautica were tasked with the Assembly of the midsection and rare section of the fuse sled and for 7th 7. They started to have its operation in Malaysia where they had more supplier

relations now the question over here is why did boeing suddenly start breaking

down and Outsourcing its operation well that is because when they outsource their

operation to Japan they start to get large orders from Japanese companies like all nepon Airways and Japan Airlines. So it's like us companies Outsourcing their business to India so that they can get Indian clients in return for their relationship with India. So this looks like a fantastic business decision right Outsourcing cuts cost and in return for outsourcing Boeing was able to get new customers so you know what Boeing decided to Outsource 70% manufacturing of entire modules to over 50 strategic Partners all across the world. This sounds fantastic right but guess

what instead of making the operations simpler this Outsourcing complicated the matters to such an extent that there were too many falls in the procedure too

many engineering problems occurred and eventually the budget allocated for 787

shot up from $8 to20 billion to 32 billion so because of some stupid business Outsourcing strategy. Boeing had to spend another $12 billion extra and at the same time from 1999 to 2003. Boeing laid off more than 50,000 employees for cost cutting.

Boeing engaged in another healthy business practice you know what they did between 1998 in 2018, Boeing bought back shares worth $61 billion which was

Literally 81.8% of their profits why did they do that because boing wanted to increase their earnings per share. So in the stock market when the earnings per share goes up, the investors would see the stock as more valuable so yes Boeing spent $61 billion just to make Boeing stocks look more lucrative for the shareholders and to make matters worse while they were taking these business decisions, Boeing's entire headquarters in Senior Management was moved 20 000 mil away from the commercial aircraft division so now the management and the engineering team were far away from each Other. ?So again quality checks Innovation and research everything took a backseat this is how boing's Business Leaders used healthy business practices to lay the foundation for Boeing's failure and guess what the story doesn't end here while Boeing was spending its $61 billion into a useless stock buyback something crazy was happening with Airbus American Airlines until 2011 for 15 long years they had bought only from Boeing but because Airbus was coming up with more efficient aircrafts, they placed an order with Airbus this is when boeing got a wakeup call. Boeing knew that they were falling behind and their planes were no longer the best quality or of the best efficiency, what they did instead of cutting down on the buyback and investing that money into building new products they took a shot shortcut. Instead of spending $20billion on a new project they spent just $2.5 billion to tweak their existing design of 737 and called it 737 Max.

So do you see the difference, a few decades back the same company did not think

twice before pumping in 50% of its Revenue into building a new product but now the same company spent 81% of its profits into buyback and did cost cutting with product development and since they were operating out of jealously, Boeing decided to Fast Track this entire process and in this fast tracking they made one big mistake to tell you about it, when you build a new product in the aircraft industry it takes 5 to 9 years just for certification and obviously Boeing could not wait that long so in their way to hack the process of certification they use the same parts of the 737 and just attached new engines so this way there are customers companies that could use the same staff and same Pilots with some minor additional training and the hack was that since the Federal Aviation Association had already certified the 737 the modified 737 Max would get certified easily.

That is how boing 737 Max or the modified version of Boeing went for certification and not so surprisingly without a mandatory simulator training the Boeing 737 Max

was approved and while everyone thought boeing had not made any major changes to the aircraft they sneaked in one change that even the pilots were not aware of.

To tell you about it while Boeing made modifications to the 737 they used a larger engine and this engine was placed a little forward which lifted the nose of the plane while it was midair. This was because this change in engine placement affected the aerodynamics of the plane so to counter this they introduced something called maneuvering characteristics augmentation systems in short if the nose of the plane went too high the MCS would automatically push the nose down and guess what in both the flights that crashed as soon as the flight took off this MCA system pushed the nose down in fact a report on Lion aircraft showed that the sensor made the

plane's nose go downwards 26 times and during this time the pilots struggled to

pull the nose up for 10 minutes but eventually the they lost control and the

flight crashed. And the most shocking fact of all is that the pilots could have switched off the MCA systems well guess, the pilots didn't even

know this system existed in the first place why because Boeing thought they were not making any major changes as a result no training was given to the pilots to deal with MCS and they didn't even inform the pilots about MCAS in the manual. This is how those two aircrafts crashed eventually leading to a full full-blown investigation into boeing and as they dug deeper and deeper they found out that in the race of becoming more profitable in the race of looking better for the shareholders, Boeing made such terrible changes that eventually it caused them such heavy losses.

That today they neither have profits nor do they have their share values going up in fact in the past 5 years Boeing stock price has gone down by 49% and what's even sad is that in the past 10 years there have been 970 incidents in boing all across the world which shows how consistently they've been failing this is the tragic story of

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Boeing that went from being the most trustworthy aircraft manufacturer in the

world to becoming a victim of its MBA leadership and this brings us to the

last part that is ?the business lessons that we need to learn from the fall of boing lesson.

Number one as an entrepreneur you always have to decide whether you are going to

be a product driven business or a business-driven business and history is telling us that if we build products only to increase profits and revenue it is the perfect recipe for disaster so build great products and let the numbers be the byproduct of great

products.

Lesson number two culture in any organization is of utmost importance and if there is a disconnect between the management and the workers again it's a perfect recipe for failure. Because this is where the problem starts it happened with apple, it happened with Starbucks and it happened with Boeing so there is no reason that any company is immune to this virus.

Lastly always remember in business there is a thin line between cost cutting and compromise if you cut cost it will help you grow your business but if you compromise your fall will be inevitable.