Harry C. Stonecipher
The Boeing Company
"The Power of Trust"
2004 Global Supplier Conference
Washington, D. C.
September 17, 2004
Good morning. A Boeing supplier conference is, among other things, a great melting pot event, with people from across the country and around the world. Greetings to all of you and thanks for coming. Now I'm going to see if I can stir up the pot a little bit.
Over the past two days, you have heard more than a few words over and over again over the past two days. They include: speed . . . execution . . . reliability . . . affordability . . . integrity . . . and teamwork. Each of those words represents a hugely important concept. They are all different. But there is one word that ties them all together. With it, you can increase speed, reduce cost, count on the reliability and integrity of other parties, and work together as a team in achieving flawless execution. Without it, your organization or enterprise will always be working at cross-purposes.
The magic word is 'trust.' As a substitute for trying to control a myriad of actions through detailed contracts, constant oversight, and the threat of litigation or dismissal, elevating the level of trust within an organization is the most powerful means in the world of raising performance. Nothing - and I mean nothing - is more conducive to "better, faster, cheaper" than a high level of openness and trust between people in disparate jobs and locations who are working together toward a common end.
So what is 'trust' and how do we capture this quiet lightning and put it to work?
The author C. S. Lewis got to the heart what most of us mean when we say we really 'trust' somebody or something when he wrote:
"You never know how much you really believe anything until its truth or falsehood becomes a matter of life or death to you. It is easy to say you believe a rope to be strong and sound as long as you are using it to cord a box. But suppose you had to hang by that rope over a precipice. Wouldn't you then first discover how much you really trusted it? The same with people."
As this quote suggests, the most important component of trust is a strong belief - a hanging-over-the-precipice belief - in the complete integrity of another party or thing, whether it is the integrity of piece of rope or the integrity of the string of promises that we make to one another. On a continuing basis, trust is impossible without integrity. It can only exist in the presence of highest standards of conduct.
Let me cite a shining example of the power of trust involving one of our principal customers.
In leading Operation Iraqi Freedom, General Tommy Franks defied an old military axiom that says that an attacking force should have a 3-to-1 numerical advantage over an entrenched defender. He attacked with a smaller force. Unlike Operation Desert Storm 12 years earlier, Operation Iraqi Freedom did not begin with a massive aerial bombardment. And it did not stop at the Euphrates River. With fewer than half the troops and less than half the armor and artillery, the troops under General Franks' command drove all the way to Baghdad and beyond in just three weeks.
In his book, "American Soldier," General Franks acknowledges that his lines of supply, stretching more than 300 miles, were thin and vulnerable. But he points out that "a larger, slower, methodical attack model" - along the lines of Operation Desert Storm - would have left Saddam Hussein with "too many strategic options," including the torching of Iraq's oil field, the destruction of the country's infrastructure, and the ability to target chemical weapons at large concentrations of coalition soldiers. So Franks took a calculated risk. He opted for a campaign keyed to speed and maneuver - driving deep behind enemy lines on a variety of fronts and creating confusion and panic throughout its ranks. Whatever else one may say about this strategy, it was based on a high degree of trust. No commander would disperse his troops - casting so wide a net with the idea of being able to yank it tight in a few key places - unless he had the utmost confidence in thinking that every combat unit would do its job and do it well in supporting the mission.
In business as in combat, trust is the great enabler in making the most of scarce resources. Many companies, for instance, have succeeded in increasing or speeding production while going from Just-in-Case to Just-in-Time levels of inventory. Just-in-Case is a function of a lack of trust; Just-in-Time is a function of trust. Just-in-Case says "I don't trust my guys to do what they say they are going to do"; Just-in-Time says, "I know I can count on my suppliers."
As it happens, the number of men and women who work for Boeing, either directly as employees or indirectly as part of supplier companies engaged in carrying out work for Boeing, is considerably larger than the force under General Franks' command. All told, we are probably about 500,000-strong - a Desert Storm-sized force. As big as we are, to move fast and to execute with a high degree of precision, we, too, must have total confidence in the promises that we make to each other. That's the first prerequisite.
I also believe it is both possible and necessary - in the competitive arena that we occupy - to combine a hard-nosed sense of attending to the practicalities of survival . . . with a genuine concern for the health and well-being of partners and co-workers. In an increasingly interdependent world, selfishness is not a viable option; to be too selfish is, ironically, to dig your own grave.
Boeing is a big company - the largest aerospace company in the world, with more than 155,000 employees and $50 billion in annual revenues - but our place in the great scheme of things is really quite modest. Just about 70% of the value added in most of the products that bear the Boeing name was put there by suppliers, not by our employees, and that is up from about 60% a decade ago. To put that another way, the Boeing Company will never be any better than the network of suppliers that feed and support the company from 50 states and more than 90 countries around the world.
Not too long after I joined Boeing in 1997 (following the merger of McDonnell Douglas into Boeing), I described the company as "arrogant." Just as I expected, that shocked a lot of people inside Boeing. But I did so with a purpose in mind. First, I wanted to draw attention to the idea that we needed to do a better job of listening to the customer - and listening to others (i.e. our suppliers and partners) in the best position to help us do a better job. It's amazing how much you're able to learn when you aren't doing all of the talking. And second, I wanted to remind people that we were in a business, and in a business - regardless of what the name on the building may be - you don't assume that anybody owes you a living, and you don't look at the world through rose-colored glasses - seeing things not as they are but as you wish them to be.
But Boeing has changed. Above all, we are focused - intensely focused - on execution. And that has had profound effects on our relationships with all of you in the supplier community.
On the one hand, we have become increasingly demanding and selective. Since 1998, we have reduced the total number of suppliers in our system by no less than two thirds. On the other hand, we are placing more and more work . . . and more and more responsibility . . . into the hands of the suppliers that we see as the best of the best. We have established a Supplier Management University, and we are reaching out in a variety of other ways. Most especially, we are moving away from contract management in a strict sense to managing relationships with business partners. What does that mean?
First of all, it means more sharing of information and ideas - in both directions. We are sharing more information with you than ever before - on market forecasts, production rates, inventory levels, quality issues, and other critical data - and we are looking for more information in return, including forward-looking metrics that help us spot potential problems in the making. We don't want any unpleasant and unnecessary surprises - like the parts shortages and production problems that plagued this company back in 1997 and 1998. That shouldn't have happened then and it won't happen in the future. Even more importantly, however, we want the benefit of your ideas and expertise going forward. We want you fully engaged with us in serving the end customer - whether that is the military customer and others responsibility for national security, or the airlines and the traveling public. And that is certainly something that is happening in today's Boeing.
Going back a few years ago, who would have guessed that Boeing would trust another company, or group of companies, to do the detailed design and build of the wing of a brand-new Boeing jetliner? But that is exact what we have done with the Boeing 7E7 Dreamliner. We have entrusted the critical work of building a Boeing wing for the 7E7 to MHI of Japan. Or who would have guessed that one of Boeing's biggest and most important programs in the defense arena would be one in which we aren't doing any metal bending or production at all? But that is the case with the Army's Future Combat Systems program, where Boeing and SAIC are responsible for integrating the design and build of essentially all of the Army's future platforms - everything that moves on the ground, in the air, or in space.
Like many of your own companies, Boeing is moving up the value chain and concentrating more intently than ever on a few core competencies. For us that chiefly means doing high-end design, engineering, and systems integration. We are not striving for self-sufficiency. To the contrary, our goal is to become a lean global enterprise that sticks to doing a few things exceptionally well and that is very adept at drawing upon the strengths and tapping into the best thinking and practices of other companies across the U.S. and around the world.
Working together, Boeing and its suppliers have done some amazing things in past couple of years. But the best years, without a doubt, are still before us.
Imagine a car company or any other major industrial concern that was forced to cut production by more than 50% in a three-year period. Yet that happened to our commercial airplane business, and we have managed the remarkable feat of staying profitable and continuing to invest in the future. Now air traffic has returned to pre 9/11 levels, and we are looking forward to what we hope and expect to be a period of sustained and gradual growth. Long term, this is a great growth market. Over seven decades, the growth in air traffic has outpaced the world's economic growth by a factor of about 1.5-to-1. The line of demarcation between Boeing and Airbus is clearly drawn, both strategically and culturally, and we like our prospects. We think the Boeing 7E7 is right product at the right time - and the biggest the game-changer in civil aviation since the 707 at the dawn of the jet age. More than that, we think that our approach - with its emphasis on lean global enterprise - gives us a flexibility that Airbus lacks.
Eight years ago, Boeing was not a major defense company. Today we are the nation's second largest contractor, and we have established Boeing as the leading industry partner to our government in developing a "network-centric" view of the world and apply that to a wide array of convention and unconventional threats. In the first half of this year, IDS's revenues were up 14% - to $14.6 billion - and we had an operating margin of close to 10%. We see excellent growth and profits in this business for years to come.
As most of you know, I came out of retirement to lead this company last December at a painful moment . . . as we were faced with barrage of criticism for the serious misdeeds on the part of a few of our people. I pledged to fix the things that went wrong, so they wouldn't happen again. I believe we have made good progress in restoring customer confidence and in putting distractions of the past year behind us. Every one of our employees has been asked to sign a code of conduct, and we have asked every one of our suppliers to acknowledge the same code of conduct. Clearly, the best way to defend against rogue behavior is to create an environment in which there is zero tolerance for anyone who even begins to bend or break the rules and where everyone understands and pursues the highest standards. We want everyone to stand up and cry "foul" at the first sign of unethical or improper conduct. That goes for people in supplier companies no less in Boeing itself.
On a personal note, I will tell you, most sincerely, that I'm glad to be back. I make a better worker than a retiree. And I love the company, the employees, all of you who are our partners, and the industry.
I believe this company has a great future, and I know that our suppliers are destined to play a larger and larger role in who we are and what we become. We are entrusting more and more of our future to you. Speaking not just for myself but all of Boeing, I will close with one of the nicest and most familiar phrases from the Spanish language - "Mi casa es su casa." Share this house with us and help make it a better place.