Comment by iaoat2d
2 years ago
"the lengths to which they went to ensure all prior institutional knowledge regarding how to properly build a plane was systematically destroyed."
why do this intentionally?
2 years ago
"the lengths to which they went to ensure all prior institutional knowledge regarding how to properly build a plane was systematically destroyed."
why do this intentionally?
Stock price gains.
Fire all the longest-tenured, highest-salaried employees. Now you have a company that appears to look similar but with millions of dollars fewer per year in headcount expenses.
Boeing's stock price went up 10x in the time frame covered by the article. The people responsible for gutting the company have cashed out.
>Boeing's stock price went up 10x in the time frame covered by the article. The people responsible for gutting the company have cashed out.
Why does the stock market reward idiot shit like this?
I've seen the same whit a a large US semiconductor company. In the 2008 crunch, the fired the most tenured employees and offshored the work abroad. Granted, the company didn't fail, their stock went up and now it's 5-7x that amount.
> Why does the stock market reward idiot shit like this?
Well at a first order, the answer is that the stock market as a system for promoting value creation is an imperfect approximation of an ideal value creator, and more and more we are beginning to see the myriad of ways this concept produces antisocial results. (See for example the state of hospitals and schools, and the rising rate of individuals with crippling medical and college debt.)
More directly there has been some criticism of the stock market for rewarding short term gain over long term value, which among other things has led to the creation of the Long Term Stock Exchange:
https://en.wikipedia.org/wiki/Long-Term_Stock_Exchange
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Because the entire rewards system is built around short-medium term financial gains.
It is a very old story. People build a company with deep knowledge and caring about what actually makes great products. Financial managers get involved to manage the money aspects of the business. Financial types want a lot more control to make the company more profitable.
The financial management has no actual clue what makes the company valuable. They only know what makes more or less cash flow in this or that direction. But, credit where due, they DO know how to make that work.
They start financially 'engineering' the company for near-term profits and higher stock prices. This works. This works fantastically well. Everything looks leaner, teams of younger workers are sometimes orders of magnitude cheaper than the highly experienced teams, and no one can tell the difference from outside. Profits are higher, stock prices hit record high after record high. Cash is spent on stock buybacks and not R&D or retaining institutional knowledge. Warning flags start showing up in product and service quality indicators, but are ignored and even suppressed. The problems start multiplying at increasing rates, then exponentially increasing rates.
Eventually, it starts to get serious. But by then, the "financial geniuses" have long since cashed out and the core of the company's workforce, ethos, and institutional knowledge has been so gutted that there is no recovery. The death spiral starts in earnest.
The only questions are whether for Boeing, being a critical keystone in the US aerospace and defense industry can or will be allowed to fail, and, if not, if there will be an actual engineering-based turnaround, or if it will be a Soviet-like zombie company for how many years?
Forkin' MBAs, they'll kill it every time.
Because, depressingly, the stock market is correct.
Boeing is one of two manufacturers for planes of this size. The other is totally backlogged with orders. The stock market has assessed, correctly, that Boeing can withstand this loss of knowledge and keep generating profit. Does it result in shit equipment that literally kills people? Sure. But how many people are going to stop flying because of it? Not many. Throw in the lucrative military connections and you’ve got yourself a sure bet.
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Because if you look at it by the numbers, expenses went down whilst output remained. If you’re an investor that investigates annual reports on finances, this would pique your interest. There is no way to price the talent and knowledge of your workforce until after they have left.
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> Why does the stock market reward idiot shit like this?
Goodhart’s law, unfortunately. Whatever metric the stock market rewards gets gamed like there is no tomorrow (or next quarter, here.)
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Because the market is barely better than a ponzi scheme.
There's ___just___ enough laws around it to keep people somewhat okay with it.
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>Why does the stock market reward idiot shit like this?
Because Boeing is in an absolutely unique position where they are part of a duopoly in a market where demand for airplanes massively outstrips supply. Boeing's customers have no alternative and Boeing will be selling them planes and the market knows that.
Additionally the stock market can only look a tangible results. There is no measure of "engineering competency" which you could track year over year, which makes these mistakes hard to realize unless you are inside the system.
The stock market is all about near-term gains, and as a result it is often irrational and rewards destructive behavior.
Because the MBAs and financiers have taken everything over and are working their way through our government now.
> Why does the stock market reward idiot shit like this?
Wall St geniuses are not engineers.
That said, I bought Boeing stock and held over that time frame. I did so because I could see that humans were going to need more planes over the long term, and there are only two vendors. Also I visited the Everett plant with my family on vacation. It didn't occur to me that it would be worthwhile introducing KPI BS and McDonald's management style when constructing things worth 100 million and safety-critical.
Quite simply because investors are often chasing after money only (ie profitability), not necessarily a company's productivity or product quality. And the quicker the profits the better (meaning short term is valued over long term).
Additionally, not all investors are savvy on what's going on with companies, so they decide to invest in ETFs (which mind you, is now the lion's share of investment activity). Now not all ETFs are the same basket of stocks. Some may have 15 stocks, whereas others may consist of 50. This is done so people can "choose their risk tolerance", which is calculated based on various things such as how diversified the fund is (50 stocks is more diversified than 15), what the market caps of the companies are, etc. Anyhow, the point is, choosing to invest in said investment vehicles, has little to do with investing based upon fundamentals, or rewarding productive companies, and more to do with managing a person's personal investment risk. The result? Companies are detached from fundamentals because, quite literally, the majority of investors are not investing based on fundamentals, but based on risk.
> Why does the stock market reward idiot shit like this?
I don’t think the market rewards it, at least not by itself.
The problem is that the real money isn’t in the market, the institutional investors make most of their money on commissions. So while short term gains are a nice bonus, it’s only secondary to driving volatility and with it trade volume. So the incentive is to just stir shit up, because that’s what makes them money, both as stock prices go up and down.
Also institutional investors have disproportionate voting power that lets them put their own shit stirrers on the board and subsequently in the C-suite.
Few stock market investors bother to look beneath top line numbers like profits, revenue growth, etc. Number go up, so stock goes up.
They're exploiting the uninformed, which in this case are retail investors.
> Why does the stock market reward idiot shit like this?
Because Boeing boosted revenue from $60 to 101 billion during the time frame. And had just a single competitor.
The current stock price is less than half of its 2019 peak.
For the same reason that Ponzi schemes are so successful.
> Why does the stock market reward idiot shit like this?
Because as someone buying stock, I have no idea whether these kinds of things are right and necessary to reduce bloat and redundancies in the firm, or idiotic and self-destructive.
All I know is that I probably want to be buying stock in firms that are more profitable, as opposed to less profitable. Or, at least, firms that other people think are going to be more profitable.
I blame index funds. Pump the % gain, index funds buy it up because it looks like a better ROI. Abuse that by doing short term shit and ride the wave of self fulfilling prophecy by the index funds buying into it (amplifying noise into a signal) and leave retail/workers holding the bags.
I get that statistically DIY'ing your portfolio will almost always lead to worse returns but I really do wish I could exclude certain stocks from my index funds.
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It seems like this is the same pattern that we've seen happen more broadly in the tech industry over the past year--the big tech companies think they can juice the bottom line by reducing headcount, and the increased profitability will outweigh any negative impact on their engineering performance. It's a perverse incentive that seems very difficult to turn around once it starts happening.
> millions of dollars fewer per year in headcount expenses.
I don't know how much they saved by forcing out highly-paid employees, but it was a tiny amount compared to the 40 billion in additional revenue earned between 2008 and 2018 (60 to 101 billion). The stock market rewarded the company primarily because of the revenue gains.
How about eliminate your employees to pump up the stock selling price or whatever and instead of removing the best subordinates, keep them, give them automation capabilities, and remove the unintelligent dross?
That's much better than basically destroying your own company because you don't know how to progress forward and upward. This privilege is reserved for the few who can I guess.
This is what Google is actively doing. The layoffs continue and they are culling the most senior employees.
The only thing that seems to work nowadays is name-and-shame (unless you run for president, apparently).
Who are these folks that deserve to be outted for gutting an American institution? I'm sure they're still around, practicing their strain of vulture capitalism.
UPDATE:
Looks like the article points out the following main culprits: * Jim McNerney * Dave Calhoun
Y'all're gonna hate this, but financialization and the relentless pursuit of profits. Every time this stuff happens, people ask why, and it's because of greed. When you focus on making money above all else, this is what happens. It's not a mystery.
It’s this, absolutely. Professional managers trained in finance who either don’t know or don’t care about the actual business they’re managing. Work = moving money around a spreadsheet and all else is incidental at best and something to be avoided at worst, doubly so if it can’t be captured in a spreadsheet with a dollar value attached.
This is where regulation steps in. A regulatory body should make the cost of certain failure scenarios so painful that companies are incentivized to make better choices. We probably don't need regulations about the color choices of t-shirts, but safety & testing for mass-transit vehicles might be warranted.
That's the future guy's problem. So long as it is possible to cash out before the consequences happen that sort of regulation won't move the needle much.
Making it illegal to be a bad CEO is one of those things that sounds intriguing on paper, but would be a nightmare to implement in real life.
Prosecutor: "You inflated investor returns by sabotaging the future survival of the company and made shoddy products that killed people."
Former CEO: "So what?"
The worst part is that this is a real problem. So many formerly strong companies have been brought down by this behavior that it is becoming notable when it doesn't happen. We are allowing these guys to destroy the American economy slowly just because it makes them and their close buddies ridiculous money. And of course the government is largely captured by these same people, so Washington isn't going to help. Just so frustrating.
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No. Under nearly any other circumstance a company like Boeing would simply go under.
If a car manufacturer pulled something like this they either have to fix it really fast or have to face severe financial consequences.
You have to realize that Boeing's customers have no alternative. They will be buying planes from Boeing.
Unless the DoJ splits up Boeing, which is what they should do. If Apple's iPhone is a monopoly with dozens of Android alternatives, what does that say about Boeing?
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It's almost as if an economic system based on maximizing greed instead of reigning it in was not sustainable or desirable.
*for some domains.
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I grow less and less tolerant of “stuff just is, you can’t, like, judge it, man” the older I get.
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Even most economists these days would agree that this is a really bad take (invisible hand). You should read more than the punchline of that Adam Smith book and you would find that even he would agree
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The intention wasn't to destroy institutional knowledge. The intention was to cut costs in the short term, largely through outsourcing and turnover. Why pay a senior engineer a huge salary when you could replace them with a consultant in their twenties? They just didn't think or care about the consequences.
They adopted a philosophy of management that explicitly assigned no value to institutional knowledge, and thus eliminated anyone who had it as they were not considered worth their salary. From the article:
> Boeing had come under the spell of a seductive new theory of “knowledge” that essentially reduced the whole concept to a combination of intellectual property, trade secrets, and data, discarding “thought” and “understanding” and “complex reasoning” possessed by a skilled and experienced workforce as essentially not worth the increased health care costs.
This has been done so many times at this point, shouldn't MBAs have case studies covering the "how companies have rotted from shit decisions made by bean counters" 101 course?
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This is true, they also cut costs by 'finding' less defects in QA, deferring them to production deployment several quarters out.
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In my experience, the term "tribal knowledge" is a pejorative, and has been disparaged by many authors (some, that I respect).
Also, in my experience, "tribal knowledge" is an essential ingredient in classical Maximum Quality engineering. I'm not saying that it's the only way, but I have seen many, many other ways fail.
It's something that -no exaggeration- humans have been doing for thousands of years.
It's just that we have a crew at the top that sincerely believe they know better. Every now and then, one hits it out of the park.
The rest ... not so much.
Rather: Money > consequences. And so far, they've been right. How likely will old managers that have long left, but fully participated, be held accountable?
You may be right.. your comment reminded me of the formula from Fight Club. Maybe the airlines made that calculus, reasoning that, after all this time their planes were safe enough, and the chance of an accident were low. Even still, it was cheaper to settle lawsuits.
"A new car built by my company leaves somewhere traveling at 60 mph. The rear differential locks up. The car crashes and burns with everyone trapped inside. Now, should we initiate a recall? Take the number of vehicles in the field, A, multiply by the probable rate of failure, B, multiply by the average out-of-court settlement, C. A times B times C equals X. If X is less than the cost of a recall, we don't do one."
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Those old engineers cost too much! And we already know how to build planes. So, we can ditch them, my quarterly KPIs look good and with the money freed up from pushing them out it can land in my bonus check!
Or 20 billion in stock buy-backs, juicing the price.
That's the million dollar question. Why talented people are forced out? Like managers/other key members have a mission and if you somehow not fit in their "world view", you get hell.
Are any of the executives who did this in jail? No? Well, carry on, then.
None of the executives responsible for this have paid any price. None of the investors or board members who allowed this paid any price.
And the worst part: it's not clear you can fix it, now. Even if you completely busted out every executive and wiped out the investors, there is no path forward since those executives pushed out all the engineering knowledge.
Perhaps because the senior people were at a higher pay grade? If you bump off the expensive employees, your overhead goes down. Better numbers next quarter so you get a bonus.
It's in the article.
Not just senior = higher pay. Senior = more likely to stick to existing (known good) safety/QC processes. Boeing didn't want QC at all - they wanted the guys assembling the planes to do their own QC (which is likely illegal per FAA regulations).
Toss in a side of union busting. And a dessert serving of outsourcing to the lowest bidder, regardless of that bidders history in the space.
Senior people also cost more because their health care costs more. Of course discriminating against older people is illegal, so they cut down on senior staff which just happens to have the same cost reduction. Funny that.
they did not. this article and many people are sensationalizing it to get attention and push whatever their angle is. it was short-sighted, stupid, greedy, and wrong, but not intentionally suicidal (let alone homicidal!).
a lot of people say things like 'stock price', but that's missing the point. the lesson is in the nuance.
its many factors, effecting all aspects of our lives now honestly.
- young people's disregard for the knowledge of people older than them. This can be an essay in itself, but there's the idea that the reasons why people are doing things the way they are is because they are stupid, something like: "you are young and you knows how to do everything right if only these dumb old people would get out of my way." I had a friend do a start up to make bourbon in 3 months. He thought all those alcohol producers that take 5-30 years making them were doing it wrong. I am like, definitely give it a go but understand that "I am sure they thought about this'.
- management focuses on nonsensical metrics. In recent history, you have to be data driven, focus on metrics, ignore everything else, its the new religion. An example is how technical support teams focus on having 0 tickets open, so support engineers just close tickets even if the customer isn't helped. but hey, that red line is pointing down and to the left right? win! And as with boeing, they made their metrics look really good, look, no more defects! all you have to do is stop reporting them.
- companies willing to outsource critical components of their business. I never understood this one, I don't care how 'cheap' it is, you don't outsource critical parts of your business. at best, they don't have the same stakes as you do on the matter, at worst they steal your IP and/or become your competitors.
> I had a friend do a start up to make bourbon in 3 months. He thought all those alcohol producers that take 5-30 years making them were doing it wrong. I am like, definitely give it a go but understand that "I am sure they thought about this'.
I realize this is focusing on the example, but no, established bourbon distillers aren't going to stop barrel aging. It's part of the brand, it's part of what people pay for, and they have no reason to.
Your friend might have been overconfident, I don't know, but macerating oak chips at high temperature, getting the process right, adding flavorants: if he succeeds in making a high-quality product, great! Am I skeptical? Yes. But again, the established distillers didn't consider and reject the idea of making liquor this way because it's a bad idea, they wouldn't do it because that's not bourbon.
If he's successful, they still won't do it, because it's not bourbon. He can sell to people who don't care, though. If it's good, I'd get a bottle.
I was going to make a comment along these lines. I don't know much about bourbon, but as an alcoholic drink, basically it's relying on chemical reactions to create the final product. The current way of making it, which takes a lot of time, has been designed by trial-and-error over many, many generations, as with most alcoholic drinks, and this was mostly done in times before we understood the science of chemistry.
It should be certainly possible (I'm not sure how) to replicate this process in a speedier way.
However, I think the thing being missed by the start-up guy is that, like Louis Vitton crap and genuine De Beers diamonds, most people aren't looking for something that replicates the "genuine" product, they want "the real thing" because there's some kind of emotional factor in owning some massively overpriced shirt made by sweatshop workers and sold in a fancy store by appointment, or a rock that was really dug out of the ground by an enslaved child in Africa. I suspect barrel-aged bourbon is similar.
Don't blame this on young people, it's probably mostly post-40 dudes who run the board of these large companies
young dudes of the time, that are now hitting their 40s. Dont get me wrong, the new young are doubling down on that world view.
Because the value of expertise does not readily show on balance sheets. Boeing had been systematically eroding expertise for 25 years before its planes started to fall out of the sky.
"intentionally" is too strong a word here.
More -> intentionally cut cost by eliminating experienced people.
Not -> intentionally getting rid of knowledge. even the worst managers wouldn't admit to wanting to loose knowledge.
>> why do this intentionally?
Myopia + greed is a hell of a drug.
It's a side effect of reducing the power of those awkward people who want to spend money on well designed aeroplanes.
It's a lot easier to make your outsourcing strategy stick, if you no longer have an alternative.
Most of the article is spent describing exactly why.
Some people in organizations can't take no for an answer. They want to see their orders followed, and if they see you as a roadblock, you will be marginalized, sometimes with harm.
That's not always bad, sometimes employees drag their feet when they shouldn't. But in some situations (for instance, one arm of the company gaining the upper hand), the people in power are so convinced that their own perspective and goals are right, that they think they don't need to listen or understand the big picture.
Ad to this that sometimes an exec has sociopathic tendencies, and you have an explosive cocktail of harassment and destruction of valuable knowledge. The more resilient the company, the more entrenched this behaviour can get, and the more irreversible it will become.