Jim Albaugh was recently interviewed by Momentum, a magazine published by the Boeing Leadership Center.

Momentum: It’s been a year since Integrated Defense Systems was formed, merging Space and Communications with Military Aircraft and Missile Systems. How has this changed The Boeing Company and positioned it for the future?

Albaugh: Primarily it’s gotten the attention of Wall Street and made them aware that Boeing, in addition to being the premier commercial airplane business, is the second largest defense company in the world. There’s a realization that Integrated Defense Systems is a $27 billion business with great potential to grow, just off of the programs we’ve captured in the last several years.

From an operational standpoint, we’ve worked very hard to form a new culture in Integrated Defense Systems, taking the best of Space and Communications and the best of Aircraft and Missiles. Our leadership team has spent time together working on how we’re organized, how we manage, and how we can best share our strategies and capabilities. The real backbone of this process is our Strategic Business Council. While we’re organized with customer-facing organizations, that’s not how we address strategies, business capture, or new business fund allocation. That’s all done by market. That way, we have consistent strategies across a market regardless of whether the Air Force, Navy, or Army is buying, for instance, a communications satellite, an airborne communications system, or a precision weapon. These strategies really leverage our capabilities across the marketplace.

Momentum: Has Integrated Defense Systems increased synergy among the organizations?

Albaugh: I think we’ve come a long way. You don’t have to look any further than the Future Combat Systems program for the Army to see how we’ve been able to leverage the network capability we have on the West Coast with the knowledge of the war fighter we have in St. Louis, Mesa, and Philadelphia. We’re literally taking the best of Integrated Defense Systems to staff that program. In May, we got the go-ahead on Milestone B, the system development and demonstration phase of the program, and we already have up to 1,200 people working on FCS.

Momentum: Dave Swain recently joined Integrated Defense Systems as chief operating officer to work with you in bringing all of the organization to world-class operating performance. You haven’t had a COO in the past. How will this work?

Albaugh: When one looks at our customer-facing businesses within IDS, they are all performing very, very well, except in one area, commercial space. Much of that was driven by the market and by the fact that some of our acquisitions didn’t bring very strong processes with them. I’ve spoken with Phil on and off over the past year about a COO and I couldn’t be more thrilled that Dave is going to come in and help. I’ve known Dave since the merger with McDonnell Douglas and have nothing but respect for him. He has a great track record. Dave is going to be a big help to me in focusing on some areas where we haven’t had the kind of performance we want.

Momentum: The company in July reported a $1.1 billion charge against second-quarter earnings resulting from losses in Launch and Satellite Systems and put a hold on Delta IV commercial launches for the next 5 years. What are your thoughts on Boeing remaining in the launch and satellite business?

Albaugh: It’s like any business we have: If we can make money over the long haul, we’ll be in the business; if we can’t make money, we won’t remain. It’s easy to be passionate about programs like Delta IV, which really is a tremendous engineering feat. If the market isn’t there, though, and we can’t close the business case, we won’t stay in it. We’ve invested a lot of money in the launch business and we want to be in it, but only if it’s profitable.

Momentum: On July 30, you took the unusual step of holding a 4-hour stop-work event, in which all employees received ethics training. Why was this done, and did the training relate at all to the investigation of the EELV (Evolved Expendable Launch Vehicle) incident?

Albaugh: It did relate to the investigation.

Let me just talk about the EELV issue for a moment. First of all, Boeing acknowledges the misconduct of the employees who were involved in EELV. In this case, we had a few employees who didn’t follow our procedures and had in their possession during the competition some documents from a competitor, Lockheed-Martin. We believe that none of these documents were used in the preparation of our bid; but that doesn’t matter.

Throughout Integrated Defense Systems, we’ve got a very ethical team that understands what procurement integrity is all about. They understand what they should and shouldn’t do. But if as a result of this stand-down and ethics training, we can prevent one employee from making the same kind of mistake made then, this will all be worth it. We need to encourage an environment for employees where they feel comfortable in talking about these types of issues. At the end of the session, I hope everybody left feeling it was 4 hours that was well spent and had a renewed dedication to the principles of The Boeing Company. Based on the feedback that we’ve received, I believe that’s the case. Since 1916, we have proved ourselves to be a very ethical company that does the right thing. When we do the wrong thing, we acknowledge it, take strong corrective actions, and then move forward.

Momentum: You’ve emphasized the need for Integrated Defense Systems to look to the future and focus on our customers’ changing needs. You’ve also challenged your employees to build networks around existing products to offer customers new capabilities. What can the organization’s leaders do to encourage this change within their teams?

Albaugh: It starts with understanding what our customers’ needs are. Too many organizations fall in love with their products and pursue strategies that evolve their products, regardless of what their customers really want. We’re telling our teams that they need to understand the enduring needs of our customers and put together proposals based on where each customer wants and needs to go.

What a customer needs now is not necessarily what we’ve delivered in the past. For example, our people in St. Louis build great fighters but they’re really in the business of precision engagement or global strike. You can do that in a lot of different ways, not necessarily an F-15 or F/A-18. It could be an unmanned combat air vehicle. It could be a standoff weapon. It could be through information operations. We’re trying to get people to look at things differently from how they have in the past.