Six small biz tips from a CEO who flies right

Posted Jan 4th 2009 6:30PM by Peter CohanPeter Cohan RSS Feed
Filed under: Management, Employees, Boeing Co (BA)

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Boeing Co. (NYSE: BA) CEO, Jim McNerney, is managing a 159,300 employee aircraft manufacturer with $66.4 billion in sales and $4 billion in profits (both 2007 figures). If you're running a small business or aspire to start one, is there anything you can learn from McNerney that could help you achieve your business goals? Yes.

Portfolio is publishing my eighth book, You Can't Order Change, which studies how McNerney manages Boeing. To write this book I interviewed people who worked with McNerney and scrutinized how he manages people, strategy, operations, and communities. What I discovered is that McNerney has come up with very effective techniques for addressing 11 common CEO challenges.

Though McNerney is far from perfect -- for example, Boeing's popular 787 Dreamliner is two years behind schedule -- here are six such techniques that I think are the most useful to small business leaders:

  • Make your people 15% better. McNerney motivates people to get 15% better every year -- and in so doing, boosts financial performance. Specifically, he focuses on people who have the potential to change due to their openness, courage, and teamwork. And he views his job as removing the bureaucratic obstacles that keep them from "igniting." To get there, he encourages the flow of information up and down the line. He gets phenomenally talented jerks out of the line, and he invests in leadership development.
  • Lead groups to higher ground. McNerney finds common aims for groups both inside and outside the company that have traditionally competed with each other. For example, he can take a team of people from different functions and say, "Here are 10 possible strategies. We're not leaving this room until we all agree on which one we're going to follow." Then McNerney gives people the authority to exercise their intellectual freedom. He encourages them to speak their minds. He demands debate. He lets them express their opinions without fear of retaliation. When the team implements the strategy, it does so with enthusiasm because it feels ownership.
  • Link pay to profit and process, not stock price. McNerney has instituted a subtle but important shift in the way managers at Boeing are paid. He recognizes that managers can't control Boeing's stock price, so he has increased the proportion of their bonuses linked to what managers can control -- their organization's profit. His notion is that the best business leaders make efficient use of the company's capital. For example, it's better for a business unit to earn $100 million of profit using $10 million of capital than to generate that same $100 million in profit but requiring $50 million of capital to get there. By measuring leaders on efficient use of capital, rather than boosting stock price, McNerney gets them to take responsibility for factors they can control; he eliminates their chance to make excuses for not performing; and he encourages them to pursue strategies that produce long-term value
  • Tackle challenging situations quickly and effectively. McNerney filters hundreds of problems and opportunities down to the critical few within a period of months after taking on a new position. For instance, at GE Aircraft Engines he quickly figured out that his business plan would be at risk unless his team could figure out a way to stop competitors from making lower priced versions of its profitable spare engine parts. He assembled a team of patent attorneys, engineers, and manufacturing experts to develop and build a more advanced, patent-protected line of spare parts that would be tough for competitors to knock off. McNerney boosts the careers of people who support these solutions to high priority problems. And lets those who can't adapt go. For a new or aspiring manager, McNerney's ability to get his hands around a new operation quickly offers a useful model.
  • Build strategy on customer focus. McNerney gets engineers to listen to the customer. By listening to passengers' fear of confinement and the discomfort of jet lag and by understanding airlines' changing route strategies, McNerney encouraged Boeing's product development teams to use composite technology as part of a design that would make customers happier. McNerney manages innovation so it yields products whose benefits make customers eager to buy. For anyone who works with an internal or external customer, McNerney's approach to building strategy can help lead to successful new products and processes.
  • Tighten operations with process improvement tools. When McNerney wanted to improve productivity at 3M and Boeing, he used distinct methods at each. He boosted 3M's margins from 17% in 2001 to 23% in 2005 using Six Sigma, a process for cutting out waste used at GE. And at Boeing he used Lean Manufacturing -- another productivity enhancement tool -- to cut in half the time it takes to assemble a 737, from 22 days to 11 days, to save hundreds of millions of dollars, and to increase capacity without adding new plant. While not every small business is in a position to recommend and apply such productivity tools, McNerney's example illustrates their value when costs need to be cut.

These six techniques could be useful to a small business, and Jim McNerney uses five others which could be just as useful. My new book describes each technique and provides examples of how McNerney used them to improve performance. And that's a goal that any business executive hopes to accomplish.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in Boeing securities.

Tags: boeing, boeing 787, james mcnerney, Six Sigma, You Cant Order Change

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Last updated: February 09, 2010: 10:54 PM

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