IT project management

PROJ6006 Organisational Behaviour and People Management
Assessment Case Study

2021

1

* The contents of this Case Study were adapted from the references to suit the requirements of the PROJ6006 subject’s assessments and are the
property of Torrens University Australia.

The Boeing Dreamliner

For Boeing Commercial Aeroplanes the week of January 14, 2013 has been a bad one. Images of

firefighters tackling a fire onboard a Japan Airlines 787 in Boston and pictures of an All Nippon

787 with its emergency exit slides deployed in Japan have flashed across the Internet. For the

second time in a little over a week the meltdown of a lithium ion battery has resulted in an onboard

emergency for one of the company’s flagship 787 aircraft. Combined with a string of other

problems (Figure 1) media outlets have focused public attention by cataloguing problems with

the aircraft type. In the interests of public safety, a Federal Aviation Authority (FAA) directive has

resulted in a worldwide grounding of the 787 fleet (the first such grounding of a large commercial

aircraft type since 1979).

Figure 1: Other issues with the aircraft

Source: Gregory, M. (January, 2013). Boeing 787: Dreamliner’s lithium ion batteries probed. BBC News. Retrieved from:

https://www.bbc.com/news/business-21059605

PROJ6006 Organisational Behaviour and People Management
Assessment Case Study

2021

2

* The contents of this Case Study were adapted from the references to suit the requirements of the PROJ6006 subject’s assessments and are the
property of Torrens University Australia.

The 787 has had a difficult birth. Plans to build the plane were first announced to the public in

January 2003. At that time the development costs were projected to be $5B and the aircraft was

to enter commercial service in 2008. While sales of the aircraft were strong, the development of

the aircraft turned out to be significantly more challenging than anticipated. The use of composite

materials instead of the traditional metals and decisions Boeing made about how to share the

development of the aircraft’s with suppliers, resulted in a project that was considerably more

complex than anticipated. More than 3 years late and many billions of dollars over budget, the

787 finally entered commercial service in Sep 2011.

The project

Boeing Corporation was one of the world’s largest manufacturers of commercial aircraft, ranking

27th on the Fortune 500 list in 2016. When it announced the delivery of its first 787 Dreamliner

transporter to its first customer, All Nippon Airways, in September, 2011, it was almost 40 months

later than originally planned, after a long series of unexpected delays. The actual development

cost of the project had been estimated at about US$40 billion but came in over twice the original

estimate.

The Dreamliner was designed to be a revolutionary project in terms of physical characteristics,

technology, management style, financing, design and engineering management, quality

assurance, and assembly processes. Many of these initiatives were intentionally taken on to

benefit 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 Development

One of the most significant strategic decisions Boeing made in the 787 project related to out-

sourcing. Historically Boeing had both designed and manufactured most of the parts for their

aircraft. For the 787 project a decision was made to move further towards a systems integration

model. In the integration model Boeing would partner with third party suppliers around the world

who would help design, manufacture and supply components for the aircraft. Those components

would be shipped to Boeing factories in the USA and assembled into the final product. On paper

the decision to act as a “systems integrator” rather than manufacturer had appeal. It spreads the

risk and moves costs to the suppliers while reducing the investment needed by Boeing. In financial

language the out-sourcing of work can also increase “Return on Net Assets” (RONA), a measure

of financial performance or efficiency for an organization. Increasing RONA is often regarded by

senior 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 which

the out-sourcing decisions were made.

PROJ6006 Organisational Behaviour and People Management
Assessment Case Study

2021

3

* The contents of this Case Study were adapted from the references to suit the requirements of the PROJ6006 subject’s assessments and are the
property of Torrens University Australia.

The new organizational paradigm adopted by Boeing for the development of Dreamliner included

the 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 a

development chain. Tier-1 suppliers became responsible for the detailed design and

manufacturing of 11 major subassemblies, while Boeing only did system integration and final

assembly. 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-recurring

R&D cost up-front, owned the intellectual property of their design, and got paid a share of the

revenues from future aircraft sales. Under this model, the suppliers’ roles were dramatically

changed 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 additional

delays.

Figure 2: 787 Project’s Tier-1 Suppliers

Source: Vega, G. (n.d.). Leadership implications in complex projects: The Boeing Dreamliner and Jim McNerney. Project Management

Institute.

In this new assembly method, subcontractors were required to integrate their own subsystems

and send their preassembled subsystems to a single final assembly site. The goal was to reduce

Boeing’s integration effort by leveraging subcontractors to do more work compared with previous

projects. This meant that the assembly of the 787 Dreamliner could be described as a System of

PROJ6006 Organisational Behaviour and People Management
Assessment Case Study

2021

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* The contents of this Case Study were adapted from the references to suit the requirements of the PROJ6006 subject’s assessments and are the
property of Torrens University Australia.

Systems—a complex set of elements that must work together to be successful. The large group

of systems that had to be integrated into this aircraft demanded an unusually concentrated focus

on teamwork among the subassemblers. The challenge was to encourage or support

collaboration while recognizing the competitive nature of the subassemblers.

However, many of these subcontractors were not able to meet their delivery schedules due to lack

of 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 missing

the appropriate documentation, including instructions for final assembly.

What Boeing’s senior management failed to adequately take into consideration was the affect

that the out-sourcing would have on the project and its overall lifecycle costs. Out-sourcing may

eliminate some types of cost, but it introduces layers of additional costs. Quality problems,

communications problems and the challenge of making changes to components being made

under contract rather than in-house, all added layers of cost. The problems also extended the

project schedule by more than 3 years, which further increased costs.

CEO’s Leadership approach

Supply chain and design delays increased, as did Boeing’s financial losses, including penalties for

late delivery of the aircraft. CEO McNerney had to face some hard facts based on earlier

decisions. He acknowledged that his new paradigm may have been flawed, “We got a little bit

seduced that it would all come together seamlessly and the same design rules would be applied

everywhere in the world and corners wouldn’t be cut and financial realities wouldn’t hit certain

folks.”

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 Boeing

opened its non-unionized South Carolina assembly plant where salaries were approximately

$10/hour less than those of the unionized workers in Washington State, worker relationships

have been troubled.

While admirers have touted his efficiency and ability to deliver profits, alienated professionals at

every level, along with union members, have described McNerney as “cold-blooded.” One labor

specialist stated, “A lot of employees feel top management doesn’t value them, treats them as

expendable…[creating an atmosphere of] lowered trust, anger and disgruntlement.” According to

Richard Aboulafia, noted aerospace specialist,

“Management believes if it continues to squeeze suppliers and labor, the problem[s] will

be solved. Again, the track record here is not great. Most of the manufacturing world tell

PROJ6006 Organisational Behaviour and People Management
Assessment Case Study

2021

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* The contents of this Case Study were adapted from the references to suit the requirements of the PROJ6006 subject’s assessments and are the
property of Torrens University Australia.

a very different story. Whether it’s with cars, aircraft or turbines, productivity

improvements often come from the shop floor. That means convincing the people who

build things to identify ways to reduce scrap, improve work flow and eliminate defects. To

promote the kind of process improvements that happen in the factory, a work force needs

incentives (…)”

McNerney’s management style created its own problems. He vacillated between maintaining his

dispassionate, hands-off general management style with multiple-times per day meetings with

executives during the Dreamliner grounding crisis. His revolving door policy for managers in

charge of the 787 project (four in as many years) generated a sense of uncertainty at all levels in

the company and increased pressure to meet goals quickly. This focus on urgency caused him to

reflect, after having resolved the major problems in the Dreamliner, that the plane could have

been completed sooner had Boeing listened more to the customer and less to innovative

technology.

As described by an anonymous former Boeing executive, “The sense I always got from him in

meetings is that it could have been any business…If we’d been making cameras or autos or doing

bond trading, it would have all been the same to him. The net effect is distancing from the people

who come to work there every day, who bring their hearts and souls to it and want to make it more

than a job.”

Contributing Factors

The 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 was

ignored and trumped chasing a higher RONA value. John Hart-Smith, a world-renowned

aeronautical engineer and a senior technical fellow at Boeing presented an internal paper entitled

“Out-Sourced Profits – The Cornerstone of Successful Subcontracting” at Boeing’s annual

Technical Excellence Symposium in February 2001. In the paper Hart-Smith outlined how the costs

of out-sourcing were being underestimated and how the out-sourcing strategy could undermine

the knowledge base upon which the organization was based. Granted it is hard for senior people

to know what advise is good advise and which is not, but the fact that Boeing had purchased the

Douglas Aircraft company meant that internally they did have a very good reference model

against which to check.

In the end, financial measures were too narrow to capture the full costs involved. Difficulty

managing and integrating across a large supply chain and development partners.

PROJ6006 Organisational Behaviour and People Management
Assessment Case Study

2021

6

* The contents of this Case Study were adapted from the references to suit the requirements of the PROJ6006 subject’s assessments and are the
property of Torrens University Australia.

Assumptions and Reflection

Had 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 by

creating Tier-1 suppliers for 11 subassemblies. How would you create a team from these

Tier-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 the

international supply chain?

→ What incentives would you propose to motivate the team highlighted by Richard

Aboulafia?

→ Consider what team would be necessary for the project and what

skills/competencies/roles would you include in this team? What about Leadership? How

would you address it if you were the Project Manager being the liason between team and

the CEO, Jim McNerney?

These reflections should support you in addressing the requirements of your assessments.

PROJ6006 Organisational Behaviour and People Management
Assessment Case Study

2021

7

* The contents of this Case Study were adapted from the references to suit the requirements of the PROJ6006 subject’s assessments and are the
property of Torrens University Australia.

References:

Calleam Consulting (February, 2013). Boeing Commercial Aeroplanes. Why do Projects Fail?

Retrieved from https://calleam.com/WTPF/?p=4617

Gregory, M. (January, 2013). Boeing 787: Dreamliner’s lithium ion batteries probed. BBC News.

Retrieved from https://www.bbc.com/news/business-21059605

Vega, G. (n.d.). Leadership implications in complex projects: The Boeing Dreamliner and Jim

McNerney. Project Management Institute.

* How to cite this: Torrens University Australia (2020). The Boeing Dreamliner. PROJ6006

Organisational Behaviour and People Management – Assessment Case Study.