Daily Archives: December 30, 2008

Quality is Key to Boeing’s Success

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The following article is excerpted from a lecture by Prem Chopra at the University of Tennessee, Chattanooga in September 2006. The text of the entire lecture can be found in Masters of the Game: Reaching Beyond the Nexus to Success and Happiness.

The Quality Strategy of the Boeing Company

Do you know the quality strategy of the Boeing Company? At Boeing, they design and test for quality up front, years before delivering the first airplane in a new fleet. Let me tell you a personal story about quality at Boeing. It was 1966 and I was working on the design of the new 747 jumbo jet airliner at Boeing’s plant in Everett, Washington, which is a suburb of Seattle. Then the largest enclosed structure in the world. There were just four of us fatigue and fracture specialists, led by an extremely competent manager, Max Spenser, who had a doctoral degree in mechanical engineering from Ohio State University. The five of us served as failure analysis and safety consultants as well as advisors to several hundred stress analysts who worked on the 747 project. These analysts designed the airframe and specified the materials. Despite our efforts, design deficiencies and even failures continued to show up during component tests and during the full-scale testing of a test airplane in a hanger.

It occurred to me that if we were to provide some basic training on fatigue and fracture mechanics principles and give some basic guidelines to all stress analysts, we would reduce the numbers of defects that slipped through. I had in mind simple guidelines such as adjusting the radius of a curve on a drawing, or selecting a more fatigue-resistant material for a component. It did not then occur to me that it would be a bold step and a major corporate investment to set up a training program across the entire Boeing Company, serving thousands of engineers in four locations in the Boeing’s Seattle, Everest, Tacoma and Kent operations.

Max privately endorsed my idea and encouraged me to write directly to the Chief Engineer, Paul Sandoz. I got my point across by using a simple example: I wrote, if our stress engineers knew how metals fail from fatigue and fracture, they could avoid or mitigate many failures by simply adjusting the radius on a compass or by specifying a more fatigue-resistant material. The same mistake, if not corrected at the design stage could cost hundreds of thousands of dollars at the component test phase, and millions if it remains undetected until the fleet test stage. If the failure would occur in service with an airline, the same defect could cost the company the entire project, or more. It was a quality message and Paul Sandoz got it. In addition to receiving a special Quality Award, in less than a week, I was on the job of designing and delivering the Fatigue and Fail-Safe Training Program for the Boeing Commercial Airplane Company. Several stress analysts and one fatigue specialist from each of these projects, 747, 727, 737 and KC-135 were assigned to help me develop the training manuals and deliver the program. Max was gracious enough to give me a copy of this historic three-set volume of the training manuals, which you may view in my office.

In writing the letter, my purpose had been to use education to improve the quality and safety of this new family of airplanes, the like of which had never flown the skies before. I had no thoughts of personal rewards or recognition. The assignment as Training Director came as a total surprise. It was my first experience of being responsible for managing such a major program. However, with commitment and hard work, and much guidance from Max, the program was remarkably successful. The main reason was that the top managers recognized the need and importance of quality and safety and there was a strong commitment from the top. They recognized that this program satisfied that need.

Over the next three years the program grew and made its contributions. I was fortunate enough to complete my doctoral work as well during this period.

This is my personal story about quality improvement, which is intimately woven with the historical Boeing 747 airplane and the world’s largest airplane manufacturer. In summary, a commitment to quality, initiative in following through with the commitment and the education of engineers resulted in improving the quality of the design and the safety of the airplane. A commitment to quality and safety was inherent in Boeing’s design and manufacturing strategy.

Strategy is Vital for Achieving Goals

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The following article is excerpted from a lecture by Prem Chopra at the University of Tennessee, Chattanooga in September 2006. The text of the entire lecture can be found in Masters of the Game: Reaching Beyond the Nexus to Success and Happiness.

Phase II of Purposeful Action – Goals and Strategy

Phase II of Purposeful Action involves planning and performing the action. This phase consists of six steps. This is when the archer aims and releases the arrow.

The first step of Phase II, which is the Fourth Step of Purposeful Action, is to set a Goal that represents the accomplishment of the mission to which you committed in Step 3. You may set a single clear goal, or a series of inter-dependent goals. The vision you formed in Step 1 is not a goal. Goals are specific and measurable, like milestones on your journey to your vision. Your dream is not a goal. For example, as a product manager, goals might be how many units of a product you will sell, how many you must produce, and what standards of quality your products will meet. On the financial side, goals might include sales revenue, which is a function of the quantity and price of units, operating income or net income, even though these measures are a consequence of the revenues and expenses.

In reality, there are many levels of interrelated goals in an organization. The overall success of an organization can be jeopardized if customers return defective products and new prospects refuse to buy. The collective achievement of all organizational goals represents the success of the action and thus of the organization. Another way of saying this is that the success of an organization depends upon the collective and synchronous achievement of the goals of each organizational element.

Having set goals, you need to determine the most effective way to achieve them. This is a simple definition of Strategy, which is the Fifth Step of Purposeful Action. Strategy is the most effective way to get to where you want to go. Like goals, there are many levels of interrelated strategies in an organization. Examples are corporate strategy, financial strategy, marketing strategy, product strategy, and even exit strategy. Each level or area of strategy addresses the corresponding goals. Strategy is of vital importance in the accomplishment of purposeful action for any individual or organization. Strategic decision-making is an essential attribute for leaders, managers and entrepreneurs.

How do you get somewhere? Do you go alone? Do you take an airplane? Or, do you take a boat? For example, in the 1st Gulf War the U.S. had a strategy to use overwhelming force, and the allied forces moved into Kuwait over land, sea and air. Strategy is the most effective way to get to where you want to go in order to succeed with your plan. There are a many good books on strategy. Clausewitz was a great strategist, and many military writers have written on strategy because war is all about strategy.

You also need a strategy for quality. What quality strategy should manufacturers use? Should they inspect all units, or just a sample? Should they allow a certain number of defective units to be sold if it is cheaper to replace them than to improve the entire production and inspection process? Should they inspect the raw materials and components or inspect only finished goods at the end of the assembly line?

Purposeful Action starts with Vision

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The following article is excerpted from a lecture by Prem Chopra at the University of Tennessee, Chattanooga in September 2006. The text of the entire lecture can be found in Masters of the Game: Reaching Beyond the Nexus to Success and Happiness.

Phase I of Purposeful Action: Vision, Reality Check, and Commitment

We begin with the first three steps of Purposeful Action, which comprise the First Phase.

The First Step is Introspection, to form and develop a vision. A vision is like a dream. It comes from within, as a consequence of deep beliefs, meditation, contemplation and even prayer. That is why we call this step Introspection. Have you ever dreamt of something you desired or something you wanted to do? That’s what vision is. The greatest actions in life are accomplished when there is a vision that inspires the actions. For example, Martin Luther King said, “I have a dream”, and his was a dream of freedom. Freedom was also Gandhi’s vision–freedom from British occupation. President John F. Kennedy had a dream of putting a man on the moon. When he first spoke of his dream it was not yet a plan; it was just a desired state. It would require time and a great deal of money to develop a space program, but Kennedy found a way to put a man on the moon. And that was Kennedy’s purposeful action. It started with the first step—a vision.

After developing a vision or a dream, Step 2 of purposeful action is a reality check. In this step, you look at all variables internal and external to your organization that would impact your dream. You assess your strengths, weaknesses, threats and opportunities. We call this step, Extrospection, which implies researching and looking without, just as Introspection means looking within.

Take the Toyota Motor Company for example. Toyota had a dream to seize a share of the U.S. automobile market. Their vision was to convince the American people that they could buy a low-cost, reliable vehicle built in Japan. But Toyota had to first perform a reality check. Their Extrospection showed that they could not initially penetrate the luxury and performance car segments that were dominated by American icons such as Cadillac and Corvette. So, back in those days, Toyota and Honda decided to sell small cars at a low cost. That was the result of their reality check. They saw that the American manufacturers were not offering small economical cars. Initially, to meet low price targets, the Japanese manufacturers chose to cut their production costs by using inexpensive recycled metals that rusted easily. This was a major quality blunder and they almost never recovered from it. Then, thanks to Mr. Deming and some competent Japanese managers, they measured their performance, performed another reality check and the rest is history. After achieving their early vision, with an eye on quality improvement and value, Japanese car manufacturers today are at the forefront of all segments of the automobile and light truck markets, including the luxury and performance segments.

The Third Step is to make a commitment to the vision that has been refined through the reality check. In the case of the Japanese auto manufacturers, it was first a commitment to produce and export economical cars. When they experienced quality problems which threatened their very existence, they revised their commitment to manufacturing reliable and economical cars. So, this became their new mission. Mission is what you commit to accomplishing in Step 3.

It takes courage to start any action, even after commitment is made. That is to say, it takes courage and fortitude to proceed from Phase I to Phase II of action.

Having set the target in Phase I, the archer is now ready to aim and shoot the arrow, in Phase II.

Reinforcing Performance Fairly

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The following article is excerpted from a lecture by Prem Chopra at the University of Tennessee, Chattanooga in September 2006. The text of the entire lecture can be found in Masters of the Game: Reaching Beyond the Nexus to Success and Happiness.

Reinforcement with Tough Love

It is unwise to work for companies that have inequitable reward systems, or to tolerate such systems in companies you manage or lead. Let’s say one of your subordinates is incompetent, such as an office assistant who does sub-standard work, is lazy and uninterested in the assigned tasks. Despite receiving repeated training and warning, her performance and attendance is still unacceptable. What should you do? What if she’s a single mother with two kids, and it’s almost Christmas time. What would you do? If you were the manager, would you keep this person in the job or would you terminate her?

We had such a situation with an employee who reported to one of my managers. The manager told me that she should be fired, but he did not feel right doing it, particularly, since Christmas was coming. Our management team reviewed the company’s purpose, goals, staffing needs and our budget, and the manager re-confirmed that this employee did not fit in his organization, she would not improve, and there was no future for her in the company. But he still refused to fire her. So, here is the solution we came up with. I asked the manager to step into my office so we could talk in private. “Look,” I said, “This is how much you’re paid, and this is how much she is paid. If you feel so strongly about keeping her on, we will take this amount from your salary and use it to pay her. That way neither your wishes, nor the company’s objectives will be compromised”

Needless to say, the manager walked right out of the office and terminated the employee. You see, people do not think of the organization’s money as their own. If they did, they would make more prudent decisions. If you have true empathy for someone and you’re concerned about their financial welfare, then why not share some of your own money with them? Why use the company’s money to satisfy your personal conscience, when you are unwilling to spend your own for the same purpose? In the case of this assistant, we gave her a generous severance package.

The lesson here is: don’t reinforce negative behavior with positive rewards. When you are dealing with children, do you scold them when they misbehave and then bribe them with candy so they won’t do it again? Do you think the child remembers the short reprimand or the lingering sweetness of the candy? No, you don’t want to reinforce negative behavior. You don’t want to keep paying people to produce defective products, and you don’t want to pay executives for making the wrong and, sometimes, unethical decisions.

Fair and balanced corrective action, or tough love, is very important. Organizations fail when companies or individuals forget their purpose and their commitment to quality. Products must fulfill a certain quality standard, and we must perform all the necessary actions to fulfill those standards. Otherwise, the quality fails and the business fails. You must honestly apply whatever purposeful actions that are required to meet or exceed those quality standards. This is what customers expect. And, this is purposeful action

Rewarding Failed and Unethical Managers

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The following article is excerpted from a lecture by Prem Chopra at the University of Tennessee, Chattanooga in September 2006. The text of the entire lecture can be found in Masters of the Game: Reaching Beyond the Nexus to Success and Happiness.

Unjust Rewards – The Irony of Compensation for Failure

American business executives are well known for giving themselves positive rewards for negative actions. Take the example of some large public corporations. How are the Chief Executive Officers, or CEOs, compensated and rewarded? Well, they are paid salaries that are much higher, compared to the lowest-paid workers, than in any other developed or developing country. In addition, they are paid with company stock and stock options. In most business organizations there is a big discrepancy between the lowest-paid worker and the CEO. This is so all over the world. In approximate numbers, the ratio in Japan is about 1 to 115. In Europe it is about 1 to 150. In the US it is as high as 1 to 500, and in recent years it has continued to rise, creating an even bigger gap between the lowest-paid workers and executives.

Now, let me show you how rewards work in the opposite way, from which they should—how executives receive even more compensation for negative results. Here’s what happens, and it occurs repeatedly. When the corporation performs poorly, either due to poor management decisions or due to other reasons such as global unrest, the CEO lays-off or fires a large number of employees. Corporations have been known to fire tens of thousands of employees to reduce costs. However, the CEO continues to receive a salary and bonuses amounting to $10 million a year or more. Even $100 million is in compensation is not unheard of for some CEOs in a “good” year. In addition, they have options to buy stock at a fixed, generally below-market price. Some might earn as much hundreds of millions when they exercise those lucrative stock options, even if they are fired.

Now, here is the most interesting part of this reward system. Even if the CEO doesn’t get fired, once the corporation lays-off the people and reduces costs, thereby shoring up future earnings, the investment analysts, and investment bankers “talk up” the company. People start buying the stock and the price goes up, further enriching and rewarding the CEO who was responsible for the problems that led to the mass retrenchment and cutbacks in the first place.

Hewlett Packard provides an example of this. In the early 2000’s, after a spree of acquisitions and quality problems, they laid-off thousands of employees, but the price of their stock went up because they cut back several hundred million dollars in salaries and expenses. They closed plants, fired thousands of people and ruined families all around the world. Basically, such corporations run people into the ground and in return, the top executives and astute investors make millions of dollars because of quality problems. So even if the CEOs are fired, they make millions on their stock options. Such situations, which occur daily, are examples of inequitable and unethical reward systems in this country.

By contrast, in Japan for example, CEOs do not receive such unjust rewards. If a Japanese company gets into trouble, the top executive simply quits out of shame, and forgoing any compensation as a reward for failure. Sometimes Japanese executives even commit suicide.