Boeing's 737 MAX: A Failure of Management, Not Just Technology

Michael A. Cusumano, Boeing's 737 MAX: A Failure of Management, Not Just Technology, Communications of the ACM, January 2021, Vol. 64, No. 1, Pages 22-25.

The congressional report had extensive access to company email and documents as well as detailed media coverage. These sources all describe the same decisions along with gradual but fundamental changes in Boeing's strategy and culture.

First, was Boeing's 1997 merger with McDonnell Douglas, a smaller aircraft maker with perilous finances. Usually, when a bigger company buys a smaller company, the culture of the bigger company dominates. Boeing was known for engineering excellence and safety, but McDonnell Douglas executives persuaded their Boeing owners to focus much more on costs, competition, and shareholder value (stock price). In essence, McDonnell Douglas took over Boeing, prompting one media comment that, "McDonnell Douglas bought Boeing with Boeing's money." For example, McDonnell Douglas generally tried to upgrade older aircraft incrementally rather than build more costly new models from scratch. Boeing clearly followed this incremental strategy to create the 737 MAX.

Second, was Boeing's decision in 2001 to move its headquarters to Chicago from Seattle, where the company originated and had its primary engineering, manufacturing, and testing facilities for commercial aircraft. This move created physical distance between the leadership of the company and the technical teams focused on the 737 series. According to Boeing executives, the move was a strategic decision to separate management from the commercial aircraft division and to signal investors that Boeing was diversifying. In addition to commercial aircraft, headquartered in Seattle, Boeing now had McDonnell jet fighters, Douglas commercial aircraft, Hughes helicopters, and an aerospace division, all in different locations and easy to reach from Chicago.

Third, was intensifying competition from Airbus, the European consortium founded in 1970 with backing from France, Germany, Spain, and the Netherlands. Today, Airbus is the world's largest aircraft manufacturer, ahead of Boeing because of a halt in 737 MAX production. But Airbus had briefly topped Boeing as number one in 2011, and it had a more competitive product in the same segment as the 737 MAX—the A320neo. Several European governments backing its main competitor probably put Boeing at a constant financial disadvantage. In addition, Airbus had a technical edge: It built the A320 series from scratch, first delivering planes in 1988. By comparison, Boeing retrofitted a much older 737 series, which first went to market in 1968.

Fourth, was a change in priorities at the CEO and board of director levels. In 2005, James McNerney became the first Boeing chief executive not to be an engineer and he held this position until 2015. McNerney was a Harvard MBA who had worked at McKinsey and Proctor & Gamble before becoming president of GE Aircraft (which made jet engines) and then CEO of 3M. His expertise was in strategy and marketing, and he came in to improve financial performance. The 737 MAX development began in 2011, under McNerney's direction. The plane went into service in 2017 under another CEO, Dennis Muilenburg, who held this job from 2015 to 2019. Muilenburg was an engineer who had spent his entire career at Boeing. However, according to the current Boeing CEO, David Calhoun, Muilenberg carried on with McNerny's strategy and aggressively pushed sales and production of the 737 MAX. Boeing shareholders would later file lawsuits in June and September 2020 claiming that Muilenburg misled the board of directors about the seriousness of the 737 MAX problems while the board was lax in monitoring the design, development, and safety reports....

So what should we take away from this tragic story?

One lesson is that even the best companies can fall prey to competitive pressures as they seek to stay financially viable, grow faster, or profit by shipping products more quickly and cheaply. The venerable Toyota, often heralded as the world's best manufacturing company, went through a similar period of overly ambitious growth and sloppy testing and quality control, which cost lives and billions of dollars. One would think that aircraft manufacturers and automobile companies would never compromise safety for profits since they are, essentially, in the business of safe transport. This is not what happens in reality. The Boeing case also resembles the Challenger shuttle disaster in 1986. The pressure to launch led NASA managers to overrule engineers who were concerned about the safety of taking off in cold temperatures.

Another lesson is we need governments to protect the public as well as to protect companies from themselves—from those competitive pressures that can lead to bad decisions. Lest we assume organizations can police themselves, or that engineers are good and managers bad, note the investigation produced email from Boeing engineers bragging they had "tricked" FAA regulators into believing no new training was necessary for the 737 MAX.