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Will Dreamliner kill outsourcing?

February 5, 2013

I am sure the analysis into Boeing’s problems with the Dreamliner will continue for some time. At present, there seems to be a growing consensus that ‘outsourcing’ was to blame.

My understanding is that management in the 1990’s was reluctant to commit funding to new aircraft development – especially on the scale needed for a concept such as Dreamliner. This resistance was overcome through a creative suggestion – to outsource almost 60% of the work to external parties and thereby slash the investment required from Boeing.

For the finance executives, this was an attractive solution. However, it seems that there was inadequate thought given to the implications of managing a portfolio of outsourced suppliers. This model was not the same as traditional procurement or project management. It required an organization capable of managing commercial relationships, equipped with the skills and tools to integrate across multiple stakeholders and ensure alignment of performance.

My suspicion is that Boeing did not make the investments needed to manage this complex network of relationships. It most likely relied instead on traditional skills  that lacked the insights or the flexibility needed to succeed. This was probably a classic case of failed ‘commercial assurance’, driven by over-reliance on technical and financial skills, coupled with contract managers trained in standard administration procedures.

As a footnote, it is interesting that during the years in which development took place, IACCM received several approaches from teams in Boeing who wanted to join its member network. I can only assume that they were unable to generate top management support. To this day, Boeing remains the only major aerospace and defense company that has no links to the worldwide IACCM community. Of course, that may be just a coincidence, but equally it may be that  Boeing management did not grasp the importance of developing process and talent that enables a new approach to trading relationships.

In the end, I doubt that outsourcing itself was the problem with Dreamliner. It is more likely that senior management simply did not grasp the organizational and operational consequences of an outsourced development model and therefore lacked the skills, tools, insights and management system needed to achieve success.  If that is the case, they will certainly not be the first to learn this lesson.

So will Dreamliner kill outsourcing? I think not. There truly are economic and commercial benefits to be gained from outsourced relationships – but they can be secured only when there is organizational adjustment capable of overseeing this business model.

4 Comments
  1. Matthew Molnar permalink

    Technically, Boeing has one link to the IACCM community… me, as I’m both a member of IACCM and a Contracts and Negotiation Specialist with Boeing. :)

    • Matthew
      You are right! In fact, there are 2 paid members from Boeing and several more with trial membership. We certainly appreciate the connection with you. My observation is of course about the absence of any regular dialogue at a corporate level. Most of our aerospace and defense members participate actively in areas such as our research agenda and training materials, as well as engaging more actively across the member community to gain insight to relevant ideas and experiences.

      We’d love to have Boeing more engaged in shaping our work for the professional community!

      Tim

  2. Terry permalink

    You say that this problem was caused by over-reliance on technical skills and financial skills, but to me as a professional engineer it looks to me like these problems were caused by the simple issue of “not knowing what you’re doing”. It is obvious to anyone with a knowledge of electronics and aviation that putting a great big lithium battery in an aircraft is asking for trouble. If you buy a battery from a subcontractor you must have the technical expertise in house to judge if their offered solution is a good one. Boeing clearly didn’t have that expertise or didn’t deploy it in this case. It’s a mistake for people to think they can manage things they don’t understand.

    • Terry, thanks for your comments.

      My observations were based on some of the analysis being made and related to the wider challenges that have confronted Dreamliner, not just the latest incidents. But of course one of the arguments that underpins outsourcing is that you can gain access to in-depth skills that you do not have internally, so once again it may be that the strategy failed – and that perhaps it is better to invest in your own skills rather than relying on others!

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