21st century jet the building of the 777

Project Management Group Case Study

Following his promotion to Boeing CEO in 1988, Frank Shrontz looked for ways to stretch and upgrade the Boeing 767—an eight-year-old wide-body twin jet— in order to meet Airbus competition. Airbus had just launched two new 300-seat wide-body models, the two-engine A330 and the four-engine A340. Boeing had no 300-seat jetliner in service, nor did the company plan to develop such a jet.

To find out whether Boeing’s customers were interested in a double-decker 767, Philip Condit, Boeing Executive Vice President and future CEO (1996) met with United Airlines Vice President Jim Guyette. Guyette rejected the idea out- right, claiming that an upgraded 767 was no match to Airbus’s new model trans- ports. Instead, Guyette urged Boeing to develop a brand new commercial jet, the most advanced airplane of its generation.1 Shrontz had heard similar suggestions from other airline carriers. He reconsidered Boeing’s options, and decided to abandon the 767 idea in favor of a new aircraft program. In December 1989, accordingly, he announced the 777 project and put Philip Condit in charge of its management. Boeing had launched the 777 in 1990, delivered the first jet in 1995, and by February 2001, 325 B-777s were flying in the services of the major inter- national and U.S. airlines.2

Philip Condit and the Boeing 777: From Design and Development to Producton and Sales*

97

*This case was presented by Isaac Cohen, San Jose State University, at the 2000 North American Case Research Association (NACRA) workshop. Reprinted by permission from the Case Research Journal. Copyright 2000 by Isaac Cohen and the North American Case Research Association.

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Condit faced a significant challenge in managing the 777 project. He wanted to create an airplane that was preferred by the airlines at a price that was truly competitive. He sought to attract airline customers as well as cut production costs, and he did so by introducing several innovations—both technological and man- agerial—in aircraft design, manufacturing, and assembly. He looked for ways to revitalize Boeing’s outmoded engineering production system, and update Boeing’s manufacturing strategies. And to achieve these goals, Condit made con- tinual efforts to spread the 777 program-innovations companywide.

Looking back at the 777 program, this case focuses on Condit’s efforts. Was the 777 project successful, and was it cost effective? Would the development of the 777 allow Boeing to diffuse the innovations in airplane design and pro- duction beyond the 777 program? Would the development of the 777’s permit Boeing to revamp and modernize its aircraft manufacturing system? Would the making and selling of the 777 enhance Boeing competitive position relative to Airbus, its only remaining rival?

THE AIRCRAFT INDUSTRY

Commercial aircraft manufacturing was an industry of enormous risks where fail- ure was the norm, not the exception. The number of large commercial jet makers had been reduced from four in the early 1980s—Boeing, McDonnell Douglas, Airbus, and Lockheed—to two in late 1990s, turning the industry into a duopoly, and pitting the two survivors—Boeing and Airbus—one against the other. One reason why aircraft manufacturers so often failed was the huge cost of product development.

Developing a new jetliner required an up-front investment of up to $15 bil- lion (2001 dollars), a lead time of five to six years from launch to first delivery, and the ability to sustain a negative cash flow throughout the development phase. Typically, to break even on an entirely new jetliner, aircraft manufacturers needed to sell a minimum of 300 to 400 planes and at least 50 planes per year.3 Only a few commercial airplane programs had ever made money.

The price of an aircraft reflected its high development costs. New model prices were based on the average cost of producing 300 to 400 planes, not a single plane. Aircraft pricing embodied the principle of learning by doing, the so called learning curve4: workers steadily improved their skills during the assembly process, and as a result, labor cost fell as the number of planes produced rose.

The high and increasing cost of product development prompted aircraft man- ufacturers to utilize subcontracting as a risk-sharing strategy. For the 747, the 767, and the 777, the Boeing Company required subcontractors to share a substantial part of the airplane’s development costs. Airbus did the same with its own latest models. Risk sharing subcontractors performed detailed design work and

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assembled major subsections of the new plane while airframe integrators (i.e., air- craft manufacturers) designed the aircraft, integrated its systems and equipment, assembled the entire plane, marketed it, and provided customer support for twenty to thirty years. Both the airframe integrators and their subcontractors were sup- plied by thousands of domestic and foreign aircraft components manufacturers.5

Neither Boeing, nor Airbus, nor any other post-war commercial aircraft man- ufacturer produced jet engines. A risky and costly venture, engine building had become a highly specialized business. Aircraft manufacturers worked closely with engine makers—General Electric, Pratt and Whitney, and Rolls Royce—to set engine performance standards. In most cases, new airplanes were offered with a choice of engines. Over time, the technology of engine building had become so complex and demanding that it took longer to develop an engine than an aircraft. During the life of a jetliner, the price of the engines and their replacement parts was equal to the entire price of the airplane.6

A new model aircraft was normally designed around an engine, not the other way around. As engine performance improved, airframes were redesigned to exploit the engine’s new capabilities. The most practical way to do so was to stretch the fuse- lage and add more seats in the cabin. Aircraft manufacturers deliberately designed flexibility into the airplane so that future engine improvements could facilitate later stretching. Hence the importance of the “family concept” in aircraft design, and hence the reason why aircraft manufacturers introduced families of planes made up of derivative jetliners built around a basic model, not single, standardized models.7

The commercial aircraft industry, finally, gained from technological innova- tions in two other industries. More than any other manufacturing industry, aircraft construction benefited from advances in material applications and electronics. The development of metallic and nonmetallic composite materials played a key role in improving airframe and engine performance. On the one hand, composite materials that combined light weight and great strength were utilized by aircraft manufacturers; on the other, heat-resisting alloys that could tolerate temperatures of up to 3,000 degrees were used by engine makers. Similarly, advances in elec- tronics revolutionized avionics. The increasing use of semiconductors by aircraft manufacturers facilitated the miniaturization of cockpit instruments, and more important, it enhanced the use of computers for aircraft communication, naviga- tion, instrumentation, and testing.8 The use of computers contributed, in addition, to the design, manufacture, and assembly of new model aircraft.

THE BOEING COMPANY

The history of the Boeing company may be divided into two distinct periods: the piston era and the jet age. Throughout the piston era, Boeing was essentially a military contractor producing fighter aircraft in the 1920s and 1930s, and

The Boeing Company 99

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bombers during World War II. During the jet age, beginning in the 1950s, Boeing had become the world’s largest manufacturer of commercial aircraft, deriving most of its revenues from selling jetliners.

Boeing’s first jet was the 707. The introduction of the 707 in 1958 repre- sented a major breakthrough in the history of commercial aviation; it allowed Boeing to gain a critical technological lead over the Douglas Aircraft Company, its closer competitor. To benefit from government assistance in developing the 707, Boeing produced the first jet in two versions: a military tanker for the Air Force (k-135) and a commercial aircraft for the airlines (707-120). The company, however, did not recoup its own investment until 1964, six years after it delivered the first 707, and twelve years after it had launched the program. In the end, the 707 was quite profitable, selling 25 percent above its average cost.9 Boeing retained the essential design of the 707 for all its subsequent narrow-body single- aisle models (the 727, 737, and 757), introducing incremental design improve- ments, one at a time.10 One reason why Boeing used shared design for future models was the constant pressure experienced by the company to move down the learning curve and reduce overall development costs.

Boeing introduced the 747 in 1970. The development of the 747 represented another breakthrough; the 747 wide body design was one of a kind; it had no real competition anywhere in the industry. Boeing bet the entire company on the suc- cess of the 747, spending on the project almost as much as the company’s total net worth in 1965, the year the project started.11 In the short-run, the outcome was dis- astrous. As Boeing began delivering its 747s, the company was struggling to avoid bankruptcy. Cutbacks in orders as a result of a deep recession, coupled with pro- duction inefficiencies and escalating costs, created a severe cash shortage that pushed the company to the brink. As sales dropped, the 747’s break-even point moved further and further into the future.

Yet, in the long run, the 747 program was a triumph. The Jumbo Jet had become Boeing’s most profitable aircraft and the industry’s most efficient jetliner. The plane helped Boeing solidify its position as the industry leader for years to come, leaving McDonnell Douglas far behind, and forcing the Lockheed Corporation to exit the market. The new plane, furthermore, contributed to Boeing’s manufacturing strategy in two ways. First, as Boeing increased its reliance on outsourcing, six major subcontractors fabricated 70 percent of the value of the 747 airplane,12 thereby helping Boeing reduce the project’s risks. Second, for the first time, Boeing applied the family concept in aircraft design to a wide-body jet, building the 747 with wings large enough to support a stretched fuselage with bigger engines, and offering a variety of other modifications in the 747’s basic design. The 747-400 (1989) is a case in point. In 1997, Boeing sold the stretched and upgraded 747-400 in three versions, a standard jet, a freighter, and a “combi” (a jetliner whose main cabin was divided between passenger and cargo compartments).13

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Boeing developed other successful models. In 1969, Boeing introduced the 737, the company’s narrow-body flagship, and in 1982 Boeing put into service two additional jetliners, the 757 (narrow-body) and the 767 (wide-body). By the early 1990s, the 737, 757, and 767 were all selling profitably. Following the introduction of the 777 in 1995, Boeing’s families of planes included the 737 for short-range travel, the 757 and 767 for medium-range travel, and the 747 and 777 for medium- to long-range travel (Exhibit I).

In addition to building jetliners, Boeing also expanded its defense, space, and information businesses. In 1997, the Boeing Company took a strategic gamble, buying the McDonnell Douglas Company in a $14 billion stock deal. As a result of the merger, Boeing had become the world’s largest manufacturer of military aircraft, NASA’S largest supplier, and the Pentagon’s second largest contractor (after Lockheed). Nevertheless, despite the growth in its defense and space busi- nesses, Boeing still derived most of its revenues from selling jetliners. Commercial aircraft revenues accounted for 59 percent of Boeing’s $49 billion sales in 1997 and 63 percent of Boeing’s $56 billion sales in 1998.14

Following its merger with McDonnell, Boeing had one remaining rival: Airbus Industrie.15 In 1997, Airbus booked 45 percent of the worldwide orders for commercial jetliners16 and delivered close to 1/3 of the worldwide industry output. In 2000, Airbus shipped nearly 2/5 of the worldwide industry output (Exhibit II).

Airbus’s success was based on a strategy that combined cost leadership with technological leadership. First, Airbus distinguished itself from Boeing by incor- porating the most advanced technologies into its planes. Second, Airbus managed to cut costs by utilizing a flexible, lean production manufacturing system that stood in a stark contrast to Boeing’s mass production system.17

The Boeing Company 101

Exhibit I. Total number of commercial jetliners delivered by the Boeing Company, 1958–2/2001a

Model No. Delivered First Delivery

B-707 1,010 (retired) 1958 B-727 1,831 (retired) 1963 B-737 3,901 1967 B-747 1,264 1970 B-757 953 1982 B-767 825 1982 B-777 325 1995 B-717 49 2000 Total: 10,158

aMcDonnell Douglas commercial jetliners (the MD-11, MD-80, and MD-90) are excluded. Sources: Boeing Commercial Airplane Group, Announced Orders and Deliveries as of 12/31/97; The Boeing Company 1998 Annual Report, p. 35. “Commercial Airplanes: Order and Delivery Summary,” http://www.Boeing com/commercial/orders/index.html. Retrieved from Web, March 20, 2001.

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http://www.Boeing.com/commercial/orders/index.html
As Airbus prospered, the Boeing company was struggling with rising costs, declining productivity, delays in deliveries, and production inefficiencies. Boeing Commercial Aircraft Group lost $1.8 billion in 1997 and barely generated any profits in 1998.18 All through the 1990s, the Boeing Company looked for ways to revitalize its outdated production manufacturing system on the one hand, and to introduce leading edge technologies into its jetliners on the other. The devel- opment and production of the 777, first conceived of in 1989, was an early step undertaken by Boeing managers to address both problems.

THE 777 PROGRAM

The 777 program was Boeing’s single largest project since the completion of the 747. The total development cost of the 777 was estimated at $6.3 billion and the total number of employees assigned to the project peaked at nearly 10,000. The 777’s twin-engines were the largest and most powerful ever built (the diam- eter of the 777’s engine equaled the 737’s fuselage), the 777’s construction required 132,000 uniquely engineered parts (compared to 70,000 for the 767), the 777’s seat capacity was identical to that of the first 747 that had gone into service in 1970, and its manufacturer empty weight was 57 percent greater than the 767’s. Building the 777 alongside the 747 and 767 at its Everett plant near Seattle, Washington, Boeing enlarged the plant to cover an area of seventy-six football fields.19

Boeing’s financial position in 1990 was unusually strong. With a 21 percent rate of return on stockholder equity, a long-term debt of just 15 percent of capi- talization, and a cash surplus of $3.6 billion, Boeing could gamble comfortably.20

There was no need to bet the company on the new project as had been the case with the 747, or to borrow heavily, as had been the case with the 767. Still, the decision to develop the 777 was definitely risky; a failure of the new jet might have triggered an irreversible decline of the Boeing Company and threatened its future survival.

102 PHILIP CONDIT AND THE BOEING 777

Exhibit II. Market share of shipments of commercial aircraft, Boeing, McDonnell Douglas (MD), Airbus, 1992–2000

1992 1993 1994 1995 1996 1997 1998 1999 2000

Boeing 61% 61% 63% 54% 55% 67% 71% 68% 61% MD 17 14 9 13 13 Airbus 22 25 28 33 32 33 29 32 39

Source: Aerospace Facts and Figures, 1997–98, p. 34; Wall Street Journal (December 3, 1998, and January 12, 1999); The Boeing Company 1997 Annual Report, p. 19; data supplied by Mark Luginbill, Airbus Communication Director (November 16, 1998, February 1, 2000, and March 20, 2001).

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The decision to develop the 777 was based on market assessment—the esti- mated future needs of the airlines. During the fourteen-year period, 1991–2005, Boeing market analysts forecasted a +100 percent increase in the number of passenger miles traveled worldwide, and a need for about 9,000 new commercial jets. Of the total value of the jetliners needed in 1991–2005, Boeing analysts fore- casted a $260 billion market for wide body jets smaller than the 747. An increas- ing number of these wide-body jets were expected to be larger than the 767.21

A CONSUMER-DRIVEN PRODUCT

To manage the risk of developing a new jetliner, aircraft manufacturers had first sought to obtain a minimum number of firm orders from interested carriers, and only then commit to the project. Boeing CEO Frank Shrontz had expected to obtain one hundred initial orders of the 777 before asking the Boeing board to launch the project, but as a result of Boeing’s financial strength on the one hand, and the increasing competitiveness of Airbus on the other, Schrontz decided to seek the board’s approval earlier. He did so after securing only one customer: United Airlines. On October 12, 1990, United had placed an order for thirty-four 777s and an option for an additional thirty-four aircraft, and two weeks later, Boeing’s board of directors approved the project.22 Negotiating the sale, Boeing and United drafted a handwritten agreement (signed by Philip Condit and Richard Albrecht, Boeing’s executive vice presidents, and Jim Guyette, United’s executive vice president) that granted United a larger role in designing the 777 than the role played by any airline before. The two companies pledged to cooperate closely in developing an aircraft with the “best dispatch reliability in the industry” and the “greatest customer appeal in the industry.” “We will endeavor to do it right the first time with the highest degree of professionalism” and with “candor, honesty, and respect” [the agreement read]. Asked to comment on the agreement, Philip Condit, said: “We are going to listen to our customers and understand what they want. Everybody on the program has that attitude.”23 Gordon McKinzie, United’s 777 pro- gram director agreed: “In the past we’d get brochures on a new airplane and its options. . . wait four years for delivery, and hope we’d get what we ordered. This time Boeing really listened to us.”24

Condit invited other airline carriers to participate in the design and develop- ment phase of the 777. Altogether, eight carriers from around the world (United, Delta, American, British Airways, Qantas, Japan Airlines, All Nippon Airways, and Japan Air System) sent full-time representatives to Seattle; British Airways alone assigned seventy-five people at one time. To facilitate interaction between its design engineers and representatives of the eight carriers, Boeing introduced an initiative called “Working Together.” “If we have a problem,” a British Airways production manager explained, “we go to the source—design engineers

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on the IPT [Integrated Product Teams], not service engineer(s). One of the frus- trations on the 747 was that we rarely got to talk to the engineers who were doing the work.”25

“We have definitely influenced the design of the aircraft,” a United 777 man- ager said, mentioning changes in the design of the wing panels that made it eas- ier for airline mechanics to access the slats (slats, like flaps, increased lift on takeoffs and landings), and new features in the cabin that made the plane more attractive to passengers.26 Of the 1,500 design features examined by representa- tives of the airlines, Boeing engineers modified 300 (see Exhibit III). Among changes made by Boeing was a redesigned overhead bin that left more stand-up headroom for passengers (allowing a six-foot-three tall passenger to walk from aisle to aisle), “flattened” side walls that provided the occupant of the window seat with more room, overhead bin doors that opened down and made it possible for shorter passengers to lift baggage into the overhead compartment, a redesigned reading lamp that enabled flight attendants to replace light bulbs, a task formerly performed by mechanics, and a computerized flight deck management

104 PHILIP CONDIT AND THE BOEING 777

External identification, access panel

P assenger reading light replaceability

Increased maximum landing weight capability

Passenger seat weight allowables

On-board engine trim balance

Passenger system gaseous oxygen option

Electronic bay access hatch

Ceiling stowage compartment at

doors 1 and 4

Cockpit dimmer module location,

improved accessibility

More flight deck stowage

Rain repellent- hydrophobic coating

“Towbarless” tractor nose gear design

Low priority messages inhibit during takeoff

Refueling inclinometer location

Dual external power

Quieter toilet seat cover operation

Options for straight or folding wing design

Improved pneumatic duct leak detection system

Flat cabin aisle floors

Crew rest with small cargo door

Fuselage size optimization

Improved fatigue life

Engine/APU file sensor connector

Longitudinal galley option

Door 3 galley capability

Translating ceiling stowage bins

Nickel-plated fuel tank wiring

Cargo restraint design

Improved hydraulic tubing corrosion protection

Interior architectural design

Cabin management and in-flight entertainment system

P ortable maintenance access terminal addition

Oxygen cylinder, commonality- composite and steel

Airborne vibration monitoring functionality

LRU access for maintainability

Refueling panel location

Tire pressure indication system (primary)

Radial ply tires and carbon brakes (suppliers selection)

Carbon brake, dual supply source

Improved hydraulic and wiring systems separation

Exhibit III. The 777: Selected design features proposed by Boeing airline customers and adapted by the Boeing Company

Source: The Boeing Company.

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system that adjusted cabin temperature, controlled the volume of the public address system, and monitored food and drink inventories.27

More important were changes in the interior configuration (layout plan) of the aircraft. To be able to reconfigure the plane quickly for different markets of varying travel ranges and passenger loads, Boeing’s customers sought a flexi- ble plan of the interior. On a standard commercial jet, kitchen galleys, closets, lavatories, and bars were all removable in the past, but were limited to fixed posi- tions where the interior floor structure was reinforced to accommodate the “wet” load. On the 777, by contrast, such components as galleys and lavatories could be positioned anywhere within several “flexible zones” designed into the cabin by the joint efforts of Boeing engineers and representatives of the eight airlines. Similarly, the flexible design of the 777’s seat tracks made it possible for carriers to increase the number of seat combinations as well as reconfigure the seating arrangement quickly. Flexible configuration resulted, in turn, in significant cost savings; airlines no longer needed to take the aircraft out of service for an extended period of time in order to reconfigure the interior.28

The airline carriers also influenced the way in which Boeing designed the 777 cockpit. During the program definition phase, representatives of United Airlines, British Airways, and Qantas—three of Boeing’s clients whose fleets included a large number of 747-400s—asked Boeing engineers to model the 777 cockpit on the 747-400s. In response to these requests, Boeing introduced a shared 747/777 cockpit design that enabled its airline customers to use a single pool of pilots for both aircraft types at a significant cost savings.29

Additionally, the airline carriers urged Boeing to increase its use of avionics for in-flight entertainment. The 777, as a consequence, was equipped with a fully computerized cabin. Facing each seat on the 777, and placed on the back of the seat in front, was a combined computer and video monitor that featured movies, video programs, and interactive computer games. Passengers were also provided with a digital sound system comparable to the most advanced home stereo avail- able, and a telephone. About 40 percent of the 777’s total computer capacity was reserved for passengers in the cabin.30

The 777 was Boeing’s first fly by wire (FBW) aircraft, an aircraft controlled by a pilot transmitting commands to the moveable surfaces (rudder, flaps, etc.) electrically, not mechanically. Boeing installed a state of the art FBW system on the 777 partly to satisfy its airline customers, and partly to challenge Airbus’ lead- ership in flight control technology, a position Airbus had held since it introduced the world’s first FBW aircraft, the A-320, in 1988.

Lastly, Boeing customers were invited to contribute to the design of the 777’s engine. Both United Airlines and All Nippon Airlines assigned service engineers to work with representatives of Pratt and Whitney (P&W) on problems associated with engine maintenance. P&W held three specially scheduled “airline confer- ences.” At each conference, some forty airline representatives clustered around a

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Exhibit IV. 777 supplier contracts

U.S. Suppliers of Structural Components Astech/MCI Santa Ana, CA Primary exhaust cowl assembly (plug

and nozzle) Grumman Aerospace Bethpage, NY Spoilers, inboard flaps Kaman Bloomfield, CT Fixed training edge Rockwell Tulsa, OK Floor beams, wing leading edge slats

International Suppliers of Structural Components AeroSpace Technologies of Australia Rudder

Australia Alenia Italy Wing outboard flaps, radome Embrace-Empresa Brasiera Brazil Dorsal fin, wingtip assembly

de Aeronautica Hawker de Havilland Australia Elevators Korean Air Korea Flap support fairings, wingtip assembly Menasco Aerospace/ Canada/France Main and nose landing gears

Messier-Bugatti Mitsubishi Heavy Industries, Japan Fuselage panels and doors, wing center

Kawasaki Heavy Industries, section wing-to-body fairing, and and Fuji Heavy Industriesa wing in-spar ribs

Short Brothers Ireland Nose landing gear doors Singapore Aerospace Singapore Nose landing gear doors

Manufacturing

U.S. Suppliers of Systems and Equipment AlliedSignal Aerospace Torrance, CA Cabin pressure control system, air

Company, AiResearch supply control system, integrated Divisions system controller, ram air turbine Bendix Wheels and South Bend, IN Wheel and brakes Garrett Divisions Phoenix/Tempe, AZ Auxillary power unit (APU),

air-driven unit BFGoodrich Troy, OH Wheel and brakes Dowly Aerospace Los Angeles, CA Thrust reverser actuator system Eldec Lynnwood, WA Power supply electronics E-Systems, Montek Division Salt Lake City, UT Stabilizer trim control module,

secondary hydraulic brake, optional folding wingtip system

Honeywell Phoenix, AZ Airplane information management Coon Rapid, MN system (AIMS), air data/inertial

reference system (ADIRS) Rockwell, Collins Division Cedar Rapids, IA Autopilot flight director system,

electronic library system (ELS) displays

Sundstrand Corporation Rockford, IL Primary and backup electrical power systems

Teijin Seiki America Redmond, WA Power control units, actuator control electronics

United Technologies, Windsor Lock, CT Cabin air-conditioning and temperature Hamilton Standard control systems, ice protection Division system

International Suppliers of Systems and Equipment General Electric Company United Kingdom Primary flight computers

(GEC) Avionics Smiths Industries United Kingdom Integrated electrical management system

(ELMS), throttle control system actuator, fuel quantityindicating system (FQIS)

aProgram partners Source: James Woolsey, “777, Boeing’s New Large Twinjet,” Air Transport World (April 1994), p. 24.

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A Family of Planes 107

full scale mock-up of the 777 engine and showed Pratt and Whitney engineers gaps in the design, hard-to-reach points, visible but inaccessible parts, and accessible but invisible components. At the initial conference, Pratt and Whitney picked up 150 airline suggestions, at the second, fifty, and at the third, ten more suggestions.31

A GLOBALLY MANUFACTURED PRODUCT

Twelve international companies located in ten countries, and eighteen more U.S. companies located in twelve states, were contracted by Boeing to help manufac- ture the 777. Together, they supplied structural components as well as systems and equipment. Among the foreign suppliers were companies based in Japan, Britain, Australia, Italy, Korea, Brazil, Singapore, and Ireland; among the major U.S. sub- contractors were the Grumman Corporation, Rockwell (later merged with Boeing), Honeywell, United Technologies, Bendix, and the Sunstrand Corporation (Exhibits IV and V). Of all foreign participants, the Japanese played the largest role. A consortium made up of Fuji Heavy Industries, Kawasaki Heavy Industries, and Mitsubishi Heavy Industries had worked with Boeing on its wide-body mod- els since the early days of the 747. Together, the three Japanese subcontractors pro- duced 20 percent of the value of the 777’s airframe (up from 15 percent of the 767s). A group of 250 Japanese engineers had spent a year in Seattle working on the 777 alongside Boeing engineers before most of its members went back home to begin production. The fuselage was built in sections in Japan and then shipped to Boeing’s huge plant at Everett, Washington for assembly.32

Boeing used global subcontracting as a marketing tool as well. Sharing design work and production with overseas firms, Boeing required overseas carriers to buy the new aircraft. Again, Japan is a case in point. In return for the contract signed with the Mitsubishi, Fuji, and Kawasaki consortium—which was heavily subsidized by the Japanese government—Boeing sold forty-six 777 jetliners to three Japanese air carriers: All Nippon Airways, Japan Airlines, and Japan Air System.33

A FAMILY OF PLANES

From the outset, the design of the 777 was flexible enough to accommodate deriv- ative jetliners. Because all derivatives of a given model shared maintenance, train- ing, and operating procedures, as well as replacement parts and components, and because such derivatives enabled carriers to serve different markets at lower costs, Boeing’s clients were seeking a family of planes built around a basic model, not a single 777. Condit and his management team, accordingly, urged Boeing’s engi- neers to incorporate the maximum flexibility into the design of the 777.

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The 777’s design flexibility helped Boeing manage the project’s risks. Offering a family of planes based on a single design to accommodate future changes in cus- tomers’ preferences, Boeing spread the 777 project’s risks among a number of mod- els all belonging to the same family.

The key to the 777’s design efficiency was the wing. The 777 wings, excep- tionally long and thin, were strong enough to support vastly enlarged models. The first model to go into service, the 777-200, had a 209-foot-long fuselage, was designed to carry 305 passengers in three class configurations, and had a travel range of 5,900 miles in its original version (1995), and up to 8,900 miles in its extended version (1997). The second model to be introduced (1998), the 777-300,

108 PHILIP CONDIT AND THE BOEING 777

Exhibit V. The builders of the Boeing 777

Source: Jeremy Main, “Corporate Performance: Betting on the 21st Century Jet,” Fortune (April 20, 1992), p. 104.

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had a stretched fuselage of 242 feet (ten feet longer than the 747), was configured for 379 passengers (three-class), and flew to destinations of up to 6,800 miles away. In all-tourist class configuration, the stretched 777-300 could carry as many as 550 passengers.34

DIGITAL DESIGN

The 777 was the first Boeing jetliner designed entirely by computers. Historically, Boeing had designed new planes in two ways: paper drawings and full-size mod- els called mock-ups. Paper drawings were two dimensional and therefore insuffi- cient to account for the complex construction of the three dimensional airplane. Full-scale mock-ups served as a backup to drawings.

Boeing engineers used three classes of mock-ups. Made up of plywood or foam, class 1 mock-ups were used to construct the plane’s large components in three dimensions, refine the design of these components by carving into the wood or foam, and feed the results back into the drawings. Made partly of metal, class 2 mock-ups addressed more complex problems such as the wiring and tubing of the airframe, and the design of the machine tools necessary to cut and shape the large components. Class 3 mock-ups gave the engineers one final opportunity to refine the model and thereby reduce the need to keep on changing the design dur- ing the actual assembly process or after delivery.35

Despite the engineers’ efforts, many parts and components did not fit together on the final assembly line but rather “interfered” with each other, that is, overlapped in space. The problem was both pervasive and costly, Boeing engi- neers needed to rework and realign all overlapping parts in order to join them together.

A partial solution to the problem was provided by the computer. In the last quarter of the twentieth century, computer aided design was used successfully in car manufacture, building construction, machine production, and several other industries; its application to commercial aircraft manufacturing came later, both in the United States and in Europe. Speaking of the 777, Dick Johnson, Boeing chief engineer for digital design, noted the “tremendous advantage” of computer application:

With mock-ups, the . . . engineer had three opportunities at three levels of detail to check his parts, and nothing in between. With Catia [Computer aided three dimensional, interactive application] he can do it day in and day out over the whole development of the airplane.36

Catia was a sophisticated computer program that Boeing bought from Dassault Aviation, a French fighter planes builder. IBM enhanced the program to improve image manipulation, supplied Boeing with eight of its largest mainframe

Digital Design 109

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computers, and connected the mainframes to 2,200 computer terminals that Boeing distributed among its 777 design teams. The software program showed on a screen exactly how parts and components fit together before the actual manu- facturing process took place.37

A digital design system, Catia had five distinctive advantages. First, it pro- vided the engineers with 100 percent visualization, allowing them to rotate, zoom, and “interrogate” parts geometrically in order to spotlight interferences. Second, Catia assigned a numerical value to each drawing on the screen and thereby helped engineers locate related drawings of parts and components, merge them together, and check for incompatibilities. Third, to help Boeing’s customers service the 777, the digital design system created a computer simulated human— a Catia figure playing the role of the service mechanic—who climbed into the three dimensional images and showed the engineers whether parts were service- able and entry accessible. Fourth, the use of Catia by all 777 design teams in the United States, Japan, Europe, and elsewhere facilitated instantaneous communi- cation between Boeing and its subcontractors and ensured the frequent updating of the design. And fifth, Catia provided the 777 assembly line workers with graphics that enhanced the narrative work instructions they received, showing explicitly on a screen how a given task should be performed.38

DESIGN-BUILD TEAMS (DBTs)

Teaming was another feature of the 777 program. About thirty integrated-level teams at the top and more than 230 design-build teams at the bottom worked together on the 777.39 All team members were connected by Catia. The inte- grated-level teams were organized around large sections of the aircraft; the DBTs around small parts and components. In both cases, teams were cross-functional, as Philip Condit observed:

If you go back . . . to earlier planes that Boeing built, the factory was on the bottom floor, and Engineering was on the upper floor. Both Manufacturing and Engineering went back and forth. When there was a problem in the fac- tory, the engineer went down and looked at it. . . .

With 10,000 people [working on the 777], that turns out to be really hard. So you start devising other tools to allow you to achieve that—the design-build team. You break the airplane down and bring Manufacturing, Tooling, Planning, Engineering, Finance, and Materials all together [in small teams].40

Under the design-build approach, many of the design decisions were driven by manufacturing concerns. As manufacturing specialists worked alongside engi- neers, engineers were less likely to design parts that were difficult to produce and needed to be redesigned. Similarly, under the design-build approach, customers’ expectations as well as safety and weight considerations were all incorporated

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into the design of the aircraft; engineers no longer needed to “chain saw”41 struc- tural components and systems in order to replace parts that did not meet cus- tomers expectations, were unsafe, or were too heavy.

The design of the 777’s wing provides an example. The wing was divided into two integration-level teams, the leading-edge (the forward part of the wing) and the trailing-edge (the back of the wing) team. Next, the trailing-edge team was further divided into ten design-build teams, each named after a piece of the wing’s trailing edge (Exhibit VI). Membership in these DBTs extended to two groups of outsiders: representatives of the customer airlines and engineers employed by the foreign subcontractors. Made up of up to twenty members, each DBT decided its own mix of insiders and outsiders, and each was led by a team leader. Each DBT included representatives from six functional disciplines: engi- neering, manufacturing, materials, customer support, finance, and quality assur- ance. The DBTs met twice a week for two hours to hear reports from team members, discuss immediate goals and plans, divide responsibilities, set time lines, and take specific notes of all decisions taken.42 Described by a Boeing offi- cial as little companies, the DBTs enjoyed a high degree of autonomy from man- agement supervision; team members designed their own tools, developed their own manufacturing plans, and wrote their own contracts with the program man- agement, specifying deliverables, resources, and schedules. John Monroe, a Boeing 777 senior project manager remarked:

The team is totally responsible. We give them a lump of money to go and do th[eir] job. They decide whether to hire a lot of inexpensive people or to trade numbers for resources. It’s unprecedented. We have some $100 million plus activities led by non-managers.43

Design-Build Teams (DBTs) 111

Exhibit VI. The ten DBTs (“little companies”) responsible for the wing’s trailing edge

● Flap Supports Team ● Inboard Flap Team ● Outboard Flap Team ● Flaperona Team ● Ailerona Team ● Inboard Fixed Wing and Gear Support Team ● Main Landing Gear Doors Team ● Spoilersb Team ● Fairingsc Team

aThe flaperon and aileron were movable hinged sections of the trailing edge that helped the plane roll in flight. The flaperon was used at high speed, the aileron at low speed. bThe spoilers were the flat surfaces that lay on top of the trailing edge and extended during landing to slow down the plane. cThe fairing were the smooth parts attached to the outline of the wing’s trailing edge. They helped reduce drag. Source: Karl Sabbagh, 21st Century Jet: The Making and Marketing of the Boeing 777 (New York: Scribner, 1996), p. 73.

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EMPLOYEES’ EMPOWERMENT AND CULTURE

An additional aspect of the 777 program was the empowering of assembly line workers. Boeing managers encouraged factory workers at all levels to speak up, offer suggestions, and participate in decision making. Boeing managers also paid attention to a variety of “human relations” problems faced by workers, problems ranging from childcare and parking to occupational hazards and safety concerns.44

All employees entering the 777 program—managers, engineers, assembly line workers, and others—were expected to attend a special orientation session devoted to the themes of team work and quality control. Once a quarter, the entire “777 team” of up to 10,000 employees met offsite to hear briefings on the aircraft status. Dressed casually, the employees were urged to raise ques- tions, voice complaints, and propose improvements. Under the 777 program, managers met frequently to discuss ways to promote communication with work- ers. Managers, for example, “fire fought” problems by bringing workers together and empowering them to offer solutions. In a typical firefight session, Boeing 777 project managers learned from assembly line workers how to improve the process of wiring and tubing the airframe’s interior: “staffing” fuselage sections with wires, ducts, tubs, and insulation materials before joining the sections together was easier than installing the interior parts all at once in a preassembled fuselage.45

Under the 777 program, in addition, Boeing assembly line workers also were empowered to appeal management decisions. In a case involving middle man- agers, a group of Boeing machinists sought to replace a nonretractable jig (a large device used to hold parts) with a retractable one in order to ease and simplify their jobs. Otherwise they had to carry heavy equipment loads up and down stairs. Again and again, their supervisors refused to implement the change. When the machinists eventually approached a factory manager, he inspected the jig person- ally, and immediately ordered the change.46

Under the 777 program, work on the shop floor was ruled by the Bar Chart. A large display panel placed at different work areas, the Bar Chart listed the name of each worker, his or her daily job description, and the time available to com- plete specific tasks. Boeing had utilized the Bar Chart system as a “management visibility system” in the past, but only under the 777 program was the system fully computerized. The chart showed whether assembly line workers were meet- ing or missing their production goals. Boeing industrial engineers estimated the time it took to complete a given task and fed the information back to the system’s computer. Workers ran a scanner across their ID badges and supplied the com- puter with the data necessary to log their job progress. Each employee “sold” his/her completed job to an inspector, and no job was declared acceptable unless “bought” by an inspector.47

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LEADERSHIP AND MANAGEMENT STYLE

The team in charge of the 777 program was led by a group of five vice presidents, headed by Philip Condit, a gifted engineer who was described by one Wall Street analyst as “a cross between a grizzly bear and a teddy bear. Good people skills, but furious in the marketplace.”48 Each of the five vice presidents rose through the ranks, and each had a twenty-five to thirty years experience with Boeing. All were men.49

During the 777 design phase, the five VPs met regularly every Tuesday morning in a small conference room at Boeing’s headquarters in Seattle in what was called the “Muffin Meeting.” There were no agendas drafted, no minutes drawn, no overhead projectors used, and no votes taken. The homemade muffins served during the meeting symbolized the informal tone of the forum. Few peo- ple outside the circle of five had ever attended these weekly sessions. Acting as an informal chair, Condit led a freewheeling discussion of the 777 project, asking each VP to say anything he had on his mind.50

The weekly session reflected Boeing’s sweeping new approach to manage- ment. Traditionally, Boeing had been a highly structured company governed by engineers. Its culture was secretive, formal, and stiff. Managers seldom interacted, sharing was rare, divisions kept to themselves, and engineers competed with each other. Under the 777 program, Boeing made serious efforts to abandon its secre- tive management style. Condit firmly believed that open communication among top executives, middle managers, and assembly line workers was indispensable for improving morale and raising productivity. He urged employees to talk to each other and share information, and he used a variety of management tools to do so: information sheets, orientation sessions, question and answer sessions, leadership meetings, regular workers as well as middle managers, Condit introduced a three- way performance review procedure whereby managers were evaluated by their supervisors, their peers, and their subordinates.51 Most important, Condit made teamwork the hallmark of the 777 project. In an address titled “Working Together: The 777 Story” and delivered in December 1992 to members of the Royal Aeronautics Society in London,52 Condit summed up his team approach:

[T]eam building is . . . very difficult to do well but when it works the results are dramatic. Teaming fosters the excitement of a shared endeavor and cre- ates an atmosphere that stimulates creativity and problem solving. But build- ing team[s] . . . is hard work. It doesn’t come naturally. Most of us are taught from an early age to compete and excel as individuals. Performance in school and performance on the job are usually measured by individual achievement. Sharing your ideas with others, or helping others to enhance their perfor- mance, is often viewed as contrary to one’s self interest.

This individualistic mentality has its place, but . . . it is no longer the most useful attitude for a workplace to possess in today’s world. To create a high per- formance organization, you need employees who can work together in a way that promotes continual learning and the free flow of ideas and information.

Leadership and Management Style 113

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THE RESULTS OF THE 777 PROJECT

The 777 entered revenue service in June 1995. Since many of the features incor- porated into the 777’s design reflected suggestions made by the airline carriers, pilots, mechanics, and flight attendants were quite enthusiastic about the new jet. Three achievements of the program, in airplane interior, aircraft design, and air- craft manufacturing, stood out.

Configuration Flexibility The 777 offered carriers enhanced configuration flexibility. A typical configura- tion change took only seventy-two hours on the 777 compared to three weeks in competing aircraft. In 1992, the Industrial Design Society of America granted Boeing its Excellence Award for building the 777 passenger cabin, honoring an airplane interior for the first time.53

Digital Design The original goal of the program was to reduce “change, error, and rework” by 50 percent, but engineers building the first three 777s managed to reduce such modifi- cation by 60 percent to 90 percent. Catia helped engineers identify more than 10,000 interferences that would have otherwise remained undetected until assembly, or until after delivery. The first 777 was only 0.023 inch short of perfect alignment, compared to as much as 0.5 inch on previous programs.54 Assembly line workers confirmed the beneficial effects of the digital design system. “The parts snap together like Lego blocks,” said one mechanics.55 Reducing the need for reengi- neering, replanning, retooling, and retrofitting, Boeing’s innovative efforts were rec- ognized yet again. In 1993, the Smithsonian Institution honored the Boeing 777 division with its Annual Computerworld Award for the manufacturing category.56

Empowerment Boeing 777 assembly line workers expressed a high level of job satisfaction under the new program. “It’s a whole new world,” a fourteen-year Boeing veteran mechanic said, “I even like going to work. It’s bubbly. It’s clean. Everyone has confidence.”57 “We never used to speak up,” said another employee, “didn’t dare. Now factory workers are treated better and are encouraged to offer ideas.”58

Although the Bar Chart system required Boeing 777 mechanics to work harder and faster as they moved down the learning curve, their principal union organi- zation, the International Association of Machinists, was pleased with Boeing’s new approach to labor–management relations. A union spokesman reported that under the 777 program, managers were more likely to treat problems as

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opportunities from which to learn rather than mistakes for which to blame. Under the 777 program, the union representative added, managers were more respectful of workers’ rights under the collective bargaining agreement.59

UNRESOLVED PROBLEMS AND LESSONS LEARNED

Notwithstanding Boeing’s success with the 777 project, the cost of the program was very high. Boeing did not publish figures pertaining to the total cost of Catia. But a company official reported that under the 777 program, the 3D digital design process required 60 percent more engineering resources than the older, 2D drawing-based design process. One reason for the high cost of using digital design was slow computing tools: Catia’s response time often lasted minutes. Another was the need to update the design software repeatedly. Boeing revised Catia’s design software four times between 1990 and 1996, making the system easier to learn and use. Still, Catia continued to experience frequent software prob- lems. Moreover, several of Boeing’s outside suppliers were unable to utilize Catia’s digital data in their manufacturing process.60

Boeing faced training problems as well. One challenging problem, according to Ron Ostrowski, director of 777 engineering, was “to convert people’s thinking from 2D to 3D. It took more time than we thought it would. I came from a paper world and now I am managing a digital program.”61 Converting people’s thinking required what another manager called an “unending communication” coupled with training and retraining. Under the 777 program, Ostrowski recalled, “engi- neers had to learn to interact. Some couldn’t, and they left. The young ones caught on” and stayed.62

Learning to work together was a challenge to managers, too. Some managers were reluctant to embrace Condit’s open management style, fearing a decline in their authority. Others were reluctant to share their mistakes with their superiors, fearing reprisals. Some other managers, realizing that the new approach would end many managerial jobs, resisted change when they could, and did not pursue it wholeheart- edly when they could not. Even top executives were sometimes uncomfortable with Boeing’s open management style, believing that sharing information with employ- ees was likely to help Boeing’s competitors obtain confidential 777 data.63

Teamwork was another problem area. Working under pressure, some team members did not function well within teams and had to be moved. Others took advantage of their newborn freedom to offer suggestions, but were disillusioned and frustrated when management either ignored these suggestions, or did not act upon them. Managers experienced different team-related problems. In several cases, managers kept on meeting with their team members repeatedly until they arrived at a solution desired by their bosses. They were unwilling to challenge senior executives, nor did they trust Boeing’s new approach to teaming. In other

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cases, managers distrusted the new digital technology. One engineering manager instructed his team members to draft paper drawings alongside Catia’s digital designs. When Catia experienced a problem, he followed the drawing, ignoring the computerized design, and causing unnecessary and costly delays in his team’s part of the project.64

Extending the 777 Revolution Boeing’s learning pains played a key role in the company’s decision not to imple- ment the 777 program companywide. Boeing officials recognized the importance of team work and Catia in reducing change, error, and rework, but they also real- ized that teaming required frequent training, continuous reinforcement, and ongo- ing monitoring, and that the use of Catia was still too expensive, though its cost was going down (in 1997, Catia’s “penalty” was down to 10 percent). Three of Boeing’s derivative programs, the 737 Next Generation, the 757-300, and the 767- 400, had the option of implementing the 777’s program innovations, and only one, the 737, did so, adopting a modified version of the 777’s cross-functional teams.65