why engineers strike ---the boeing story

BUSINE
H ~~
..RIZONS
Indiana University
Kelley School
of Business
Published by
@
JAI Press Inc.
An Imprint of ElsevierScience
November-December
Volume 44, Number 6
2001
In this issue:
WHY ENGINEERS STRIKE
---THE BOEING STORY
Interfirm Diversity in
Global Alliances
Cultural Protectionism
Grupos in Mexico
Woodruff Imberman,
Ph.D.
Organizational DeclineStimulus for Innovation?
Why Engineers StrikeThe Boeing Story
From ITSolutions
to BusinessResults
"Sometimes the need for
respect and communication
is learned the hard way. II
Protecting Your Secrets
in Strategic Alliances
IsOffshore Sourcing
. an Optimal Operational
Strategy?
The CREFStock Fund
at 50
Real Options on .
Knowledge Assets:
Panacea or
Pandora's Box?
Why Engineers Strike-
The Boeing Story
Woodruff Imbermon
W
hy did Boeing's engineers and.technicians strike for 40 days in early
2000? And what can other companies
with large cadres of knowledge workers learn
from the experience?
The morale of Boeing's cadre of engineers
was in a real slump by the end of last century.
Newly imported management had suddenly begun focusing on financial results rather than engineering excellence, and the engineers had begun
to feel that their basic contributions were receiving short shrift. Failing to detect this decline in
morale, Boeing management had made no preparations for weathering a strike and was caught by
surprise when its knowledge workers walked out.
The resulting situation allowed the engineers'
union to score an outstanding victory, which has
led to further organizational successes at Boeing.
It has also caused the Seattle Professional Engineering Employees Association (SPEEA), now
affiliated with the International Federation of
Professional and Technical Engineers (IFPTE) , to
eye other large employers of engineers, scientists,
and other knowledge workers. Before the strike,
only about half the Puget Sound engineers, technicians, and scientists were dues-paying SPEEA
members under Boeing's open shop agreement.
SPEEA represented some 22,560 Boeing engineers and technicians, 20,250 of whom were in
the Puget Sound bargaining unit, with another
1,300 engineers and scientists in Wichita and
about 700 scattered in small units in other states.
How did the strike situation come about?
One warning sign came in October 1999, when
unhappy SPEEAengineers affiliated with the
IFPTE, despite Boeing's low-key campaign to
deter the move. Begun in 1927, the IFPTE is an
understandably obscure union of some 55,000
engineering professionals, mainly civil engineers
and similar types employed by northwestern
states and their subordinate bodies. In addition to
governmental employees, it now also represents
Boeing workers and small groups
of engineers and technicians at
GE, Lockheed Martin, Lucent
Technologies, NASA, Westinghouse, and a few shipyards.
The marriage of the two
unions came about after a long
courtship that became more attractive as Boeing engineers perceived their status and pay declining compared to the company's blue-collar workers represented by the International Association of Machinists (IAM). The
October 1999 merger vote was 3,462-to-883, approved by roughly 40 percent of the 10,000-odd
Seattle-area SPEEA dues-paying members eligible
to vote (and fewer than 20 percent of the engineers represented by that union).
The affiliation warning came too late for
Boeing to appease more than 20,000 angry engineers and technicians. With only two months
between the October merger and SPEEA's December contract expiration, Boeing had no time
to devise effective programs to bolster the flagging spirits of so many professional employees.
Unaware of the morale of its engineers (if
not in denial over it), Boeing began negotiations
with SPEEA in the fall of 1999 with no strike
preparations. After all, there had been only one
engineers' strike in the company's history, a symbolic affair lasting only a single day. Boeing engineers had been formally organized by SPEEA
since 1946. For years, the organization considered
itself an "association," even though peaceful proforma contract talks were conducted every several years. However, the relationship had slowly
grown strained, resulting in the one-day symbolic
walkout of 1993.
Bargaining began optimistically on October
4, 1999, but soon bogged down. SPEEA struck
Boeing on February 9, 2000, and 17,000 engi35
neers walked out. The company's misreading of
its engineers' attitudes had serious consequences.
When they struck this time, they stayed out.
Past Domination,
and the Results
New Competition ...
Boeing has dominated the commercial air frame
market since the start of the jet age. Its 700 series
aircraft (707, 727, 737, 747, 757, and lately the 767
and 777 models) have long ruled the world's
skies. But within the last decade, Airbus Industrie
has successfully challenged Boeing's domination.
Airbus is a European consortium led and subsidized by the German and French governments,
which started Airbus in the early 1970s to revive
their national aerospace industries.
Airbus has been successful. In 1999, it delivered 294 commercial planes 02.2 percent of all
commercial deliveries), compared to Boeing's
620. This is in great contrast to 1990, when Boeing
delivered 84.7 percent, or 527, of the world's
commercial aircraft and Airbus only 15.3 percent,
or 95 planes. The Economist ("Airbus" 2001)
noted that Airbus's order backlog of 1,659 planes
was bigger than Boeing's. And Holmes (2001)
reported that Airbus is "projected to deliver more
planes than Boeing by the end of the decade."
Obviously, competition in the commercial
aircraft industry has changed in the last decade.
Once it was superior technical excellencerange, altitude, speed, and fuel efficiency-that
Boeing engineered into a plane. Then Airbus's
French and German
aerospace engineers
began to design aircraft that became the
technological equals
of Boeing's. After all,
Boeing's basic designs
date from the 1950s
and the old B-47
bomber. The 737s and
747sare 1960s planes,
periodically modernized. Airbus began
designing and manufacturing planes in the 1970s, so its basic technology has a two-decade advantage, despite
Boeing's periodic engineering updates.
Now world airlines are pitting Airbus against
Boeing to see which can offer a more attractive
financial package. Orders for Airbus's new "superjumbo" A380, the long-awaited rival to the 747,
promise to intensify pressure on Boeing. Helped
by Germany and France, Airbus offers better
financial terms than Boeing can, a situation about
which Boeing has complained to Washington, to
no avail. "The most fundamental issue," said
Philip M. Condit, Boeing's chairman and CEO in
36
early 1998, "is that we're moving from a period
where our products were defined by their performance to a period where costs are more important" (Biddle and Helyar 1998).
Current events have unfortunately proved Mr.
Condit's emphasis on costs to be prophetic. As
this issue of BH went to press, Alan Mulally, president of Boeing's commercial aircraft division,
announced potential layoffs of up to 30,000 of
his division's 93,000 employees by the end of
2002 as a result of the September 11 disaster in
New York City. This was due to a flood of requests by U.S. airlines to postpone deliveries of
new planes, or to cancel or defer orders indefinitely. The airlines, in turn, face a severe cash
shortage caused by the short-term nationwide
grounding of all flights, the longer-term cut in
flight schedules, and the reluctance to chance
further risk. "The impact of the terrorist attacks
on Boeing's order book has to be both traumatic
and long-term," according to Prudential Securities
analyst Nicholas Heymann. "If the events of [the
week of September III are going to restructure
the entire airline industry, there is bound to be a
comparable impact on the country's major plane
maker" (Lundsford and Pasztor).
New Management
Finally taking decisive action to counter the financial challenge, Condit imported several key executives rather than follow Boeing's usual practice of internal promotion. First came Harry C.
Stonecipher, President and COO, who had been
president and COO of McDonnell Douglas from
1994 until 1997, when Boeing acquired it. StoneCipher brought with him Michael Sears, who became Senior Vice President of Military Aircraft
and Missile Systems. Then Deborah C. Hopkins
was recruited from General Motors to become
Executive Vice President and CFO. And finally,
James Dagnon, former labor chief at Burlington
Northern Santa Fe Corporation, started as Senior
Vice President of People.
These recruits saw the new nature of airframe competition and soon inaugurated a muchneeded emphasis on cost cutting, efficiency, and
bottom-line results. With Stonecipher's support,
Hopkins soon started the Managing for Value
Program to develop a new, company-wide culture for continuously improving financial performance and growth. Performance targets were set
based on "economic profit goals," calculated by
subtracting a capital charge from Boeing's net
after-tax operating profit. Executive bonuses
would be based on achieving [hose goals, an
innovation that upset the company's engineeringbased culture. New dictates were issued that
emphasized boosting income by cutting costs,
shedding unproductive assets, and expanding
Business Horizons / November-December 2001
service lines-all to the dismay of many longtime
Boeing executives, especially those in its large
commercial airline group. R&D funds were cut
from $1.92 billion in 1997 to $1.44 billion in 2000.
Effect of Changes on Morale
These sudden changes were all attributed to
Deborah Hopkins, the new CFO. Her program
did not go unnoticed at tradition-bound Boeing,
which had always promoted from within. Upset
by new management's financial emphasis, the
engineering community perceived a loss of status, feeling that their contributions were no
longer valued as greatly as in the past. Before,
top Boeing executives had always stressed engineering excellence, not just bottom-line results.
Altogether, management's new thrust, the bargaining history with its engineers and blue-collar
employees, and the company's lack of insight into
the morale of its knowledge workers combined
to produce a strike that will have long-lasting
ramifications for Boeing, as well as for other employers of large cadres of engineers, scientists,
and computer specialists.
ras
STRIKE
B
oeing's initial contract offer of November
11, 1999 was rejected bySPEEA. The
company made a second, improved
offer on January 13, which was also rejected. Fed
up with a "lack of respect," as SPEEA Executive
Director Charles Bofferding put it, Boeing's engineers struck on February 9, ostensibly over the
economic issues. Thousands of non-dues paying
engineers and technicians represented by SPEEA
manned the picket line alongside their 10,000 or
so dues-paying brothers in a surprising show of
solidarity. Boeing's "improved" third offer, on
February 26, was rejected. Observers wondered
how many improved "last, best" offers the company could make without doing long-lasting
damage to its management credibility.
The widely reported walkout was not settled
until Boeing was forced to surrender on March 19,
40 days after it began. A continued customer outcry over its inability to deliver planes, an underground campaign by striking engineers to question the safety of its aircraft, and the union's effective corporate campaign in the canyons of
Wall Street all created relentless pressure and
extreme embarrassment for the manufacturer.
Corporate Campaign
Union leaders publicized their March 9, 2000,
conference call to Lehmann Brothers, who represented Boeing's institutional investors. During the
call, SPEEA leaders:
Why Engineers Strike-The
Boeing Story
• claimed that paid union membership had
grown from 40 percent of the pre-strike work
force, to 60 percent after the rejection of Boeing's
second offer, to 65 percent as of March 9;
• insisted on a union agency clause in a new
contract to replace the open shop of the old one,
because "unions make a company stronger";
• said SPEEA wanted to help the company
and believed it was fighting for Boeing's engineering future and soul, not against it;
• stated the need for a union/management
partnership going forward, and wanted to define
the relationship between the engineers/technical
employees and the company;
• wanted a "me-too" understanding for the
Boeing-Wichita/SPEEA contract, which is negotiated separately;
• averred that the 1997 merger with McDonnell Douglas brought a different attitude to the
company, one of both "power-based negotiations" rather than the "principle-based negotiations" of 1995;
• pointed out the damage being done to the
company by the strike; .
• emphasized that the company was underinvesting in the future at a time when market
share had dropped from 70 percent to 40 percent, due to competition from Airbus;
• asserted that SPEEA member expectations
were set by ads taken out during the past negotiations between Boeing and the lAM, ads that
emphasized no benefit take-aways;
• demanded a signing bonus, just as the
machinists had won;
• insisted on no cost sharing of medical insurance benefits, like the machinists;
• wanted a company apology for its efforts
to take away fully paid medical benefits; and
• deprecated Boeing's overall offer, pointed
out the morale problems its "recalcitrant positions" were causing, suggested that deliveries of
new planes were hopelessly behind, and insinuated that those engineers still working were not
qualified to "certify" planes as safe for delivery.
Then, in an underground campaign, striking
engineers began sending messages and e-mails to
customers, questioning the safety of Boeing aircraft not inspected by the specially trained cadre
of engineers who checked and certified planes
before delivery as safe and conforming to all
federal standards.
The union's campaign worked. After 40 days,
Boeing's stock had dropped 32 percent. Institutional investors, owning just over 50 percent of
the srock, pressured the company to settle. Unable to deliver new planes because alternatives
(trained supervisors, non-striking engineers) had
not been prepared before the walkout, and stung
by safety issues obliquely raised by the strikers,
Boeing finally caved in.
37
Boeing's Surrender
Boeing's settlement offered the engineers salary
raises averaging 17 percent over three years,
most of them guaranteed-a
departure from the
past practice of offering merit raise fund pools. It
also offered the strikers a signing bonus, part of
which was tied to future deliveries in a facesaving gesture for the company. But at SPEEA's
insistence, the contract was worded so that engineers were virtually guaranteed the money. Moreover, the company dropped its efforts to make
the strikers pay part of their health insurance.
And SPEEA was given a much greater voice in
the company through a "Partnership Agreement."
Finally, Boeing okayed an agency-shop election
CallSPEEA-represented employees would have to
pay dues, whether they were members or not) to
be held under favorable terms-a company neutrality clause.
.
strong demand. However, its manufacturing systems were not ready for the volume. Assembly
lines were unprepared, trained manpower was
scarce, and the manual, paper-intensive design
methods for the highly customized aircraft slowed
production even more. By mid-1997, deliveries
were dragging. In September, Boeing made an
embarrassing formal announcement that deliveries would be late. A month later, it took a $1.6
billion charge and shut down 737 and 747 production to straighten things out. By early 1999,
the task was accomplished, and Boeing was again
humming. Then came the SPEEA strike of 2000.
Aftermath
In the short-term wake of the strike, commercial
aircraft deliveries were again delayed, military
aircraft design work was temporarily halted, and
company earnings in the first half of the year
suffered. However, for the foreseeable long term,
many observers believe me real damage has only
Disastrous Decade
just begun.
Subsequent to the strike, Boeing quietly reSPEEA strikes were the first and last of a series of
scinded the medical insurance co-pays it had
employee relations fiascoes at Boeing in the past
unilaterally imposed in January 1999 on about
decade. SPEEA had struck Boeing only once
80,000 nonunion salaried employees, presumably
before, on January 19, 1993, with a symbolic oneto offset any unionization sentiments in those
day walkout. Though only 55 percent of Boeing's
ranks. The company refused to estimate the cost
22,560 professionals in 1993 were dues-paying
of that move. It also began to work its engineers
members of SPEEA under their open shop agree10 hours a day, six days a week, playing catch-up
ment, fully 80 percent of them took part in the
on delayed military design work and late comone-day walkout, to the company's surprise.
Engineers and technicians wanted terms simi- mercial aircraft deliveries in order to reduce penalty payments. Obviously, the extra costs of the
lar to those won by the lAM, which in 1989 had
overtime and delivery penalties were substantial.
negotiated a cost-of-living clause and a 12 percent
first year bonus for its blue-collar members. The
A rejuvenated SPEEA accelerated its plans for
IAM had struck for 69 days in late 1995, a lengthy
a representation election for a 4,200-strong group
walkout caused by Boeing demands that blueof technicians in Boeing's Wichita plant, where it
collar workers pay part of their health insurance
already represented some 1,300 engineers. Trumpeting its Seattle victory, the union won the June
costs. The walkout was lengthened by a November 16 announcement that Boeing was negotiat29, 2000, vote by a close 1,924 to 1,859 margin. It
ing to acquire McDonnell Douglas and the Nothen overwhelmingly won the agency shop vote
vember 21 notice that Boeing's then CEO Frank
in July, 64 percent of the engineers voted for it,
Shrontz and four other top company executives
as did 77 percent of the technicians. All Puget
received more than $3,000,000 in bonuses.
Sound area Boeing engineers and technicians in
lAM leaders claimed that if Boeing had
SPEEA-represented units would now pay union
enough funds for those maneuvers, it surely had
dues of more than $24 a month, a windfall that
enough to meet the union's demands for fully
enabled SPEEA to raise the number of its contract
paid health insurance, and more. Finally, under
administrators (union stewards) policing their.
customer pressure, Boeing abandoned its health
agreement. "There has been no significant incare co-pay proposal and gave strikers a 10 percrease in grievances, because now we can adcent first year bonus. SPEEA negotiations, on
dress the issues from the start," said Paul Sheron,
hold during the lAM strike, were soon settled on
SPEEA's organizing director, in January 200l.
lucrative terms because the company feared anWith these victories fresh in everyone's mind,
other upheaval.
SPEEA attempted to organize more than 10,000
Aircraft orders surged between 1995 and 1997, nonunion Puget Sound technicians in yet another
reflecting the strength of the Asian and Central
organizing drive, though without success. It also
American economies. Bent on defeating Airbus,
began fishing expeditions to ascertain employee
Boeing accepted all the orders it could, then tried
interest at other Boeing divisions, mainly those in
to ramp up production to meet exceptionally
St. Louis and California acquired from McDonnell
38
Business
Horizons
/ November-December
2001
Douglas and Rockwell International. The Southern California Professional Engineers Association
leaders in the old "Mac-Dac" plants who 'led a
successful affiliation vote with the Office and
Professional Employees Union on December 4,
2000, were voted out of office later that same
: month by members more interested in merging
with SPEEA.
Sheron confidently maintains that he now
has two goals: to organize all Boeing engineers
throughout the United States, and to organize
engineers, scientists, and similar staffers in other
companies having large professional employee
cadres.
THE MIND OF BOEING
P
aradoxically enough, the seeds of Boeing's employee relations misfortunes in
.. ... the past decade had been sowed by the
company's long-term successes. First, Boeing has
a long history of successful aircraft design and
;, production. Second, until the advent of the newly
imported executives, engineers promoted from
within basically ran Boeing. Engineering is an
exact science, determined by inarguable mathematical formulas. That mindset underlay most
top management decisions at Boeing. Because
"scientific" decisions were based on factual analysis, all employees should logically follow orders
based on the eternal truths as divined by senior
Boeing management. As a result, management
became overconfident and developed an "if-notinvented-here-forget it" mentality.
Third, the traditions of top-down management were accentuated by years of dealing with
the U.S.Air Force and its methods. Because orders are orders in the military, it was easy for
Boeing'S executives to assume a similar stance.
The same top-down approach was applied to
internal communications as well.
In.ternal Communications
The accent in Boeing's internal employee communications was one way: downward. Management told employees what it wanted them to
know and do. It failed to listen and respond to
their needs, perceptions, and suggestions in a
manner consistent with business conditions and
competitive realities. Nor did it encourage ideas
on how best to do things. This lack of upward
communication meant that Boeing had no handle
on the attitudes and morale of its professional
employees. Lacking this knowledge, the company was blindsided by the strike.
Had Boeing implemented an effective twoWay communication program, it could have identified and rectified the concerns of its engineers
long before the upheaval. Adequate efforts could
have been made to avoid a strike; and if a strike
was unavoidable, preparations could have been
made to weather one. Warning signs, like the
IFPTE affiliation vote, were ignored or came too
late for proud Boeing to take remedial actions.
similar Problem, Successful Resolution
In the mid-1970s, Rockwell International had
experienced problems similar to Boeing's in the
Los Angeles basin, but it
reacted just in time. The
National Engineers &
Professionals Association (NEPA), a brainchild of the United Auto
Workers, tried to organize all the aerospace
scientists and engineers
at Rockwell's West
Coast Divisions: Rocketdyne, Space, B-1, North
American Aviation, and
Los Angeles Aircraft
Division. Executives
were shocked at the
union interest among
their professionals, and.
did not know how to identify and rectify-the
problems made so evident by the union drive.
Anticipating that NEPA would petition the
National Labor Relations Board for a representation election, Rockwell's top management, then
headquartered in Pittsburgh, took decisive action
in the decentralized company. Patrick Crotty;
corporate director of employee relations, retained
a team of skilled consultants led by this author.
The widely circulated report "As the Engineer
Sees His Problems" (Imberrnan 1976) had discussed the motivation of such knowledge workers as engineers, how to identify the causes of
morale problems, and how to handle them. Many
companies with engineering cadres were familiar
with these recommendations.
Rockwell started a series of "listening conferences" led by experienced interviewers. The process allowed the consulting team to ascertain the
issues causing the engineers to seek unionization
in each division. Based on long experience with
professionals, we were able to pinpoint the
causes of the morale problems among Rockwell's
engineers quickly enough for the company to
take remedial action. The key issues-many
duplicated later at Boeing-were;
• Management remoteness. Senior engineering managers were virtually invisible, and engineers had few if any opportunities to interact and
identify with them.
• Inconsistent application of human resource
policies. Vague, contradictory pay policies and
39
merit raise criteria were frequently mentioned .
• Management credibility. The lack of management follow-through on previously announced
plans undermined engineers' belief in new ideas.
• Poor communications. Engineers received
little information about future plans in their divisions, and had even less opportunity to provide
input for management consideration.
• Inadequate recognition programs. Engineers received little formal recognition for their
achievements or on-the-job efforts, resulting in a
pervasive belief that senior management was not
concerned about engineers, their status, or their
well-being.
• Poor working conditions. Physical amenities were not in keeping with the engineers' concept of a professional work environment.
• Pay and benefits. Wage differentials had
gradually been eroded vis-a-vis non-degreed
technicians and blue-collar employees.
Reasonable efforts were quickly taken by
Rockwell management to address these issues,
resulting in a strong
company election
victory that deflated
NEPA and set the
unionization of aerospace industry professionals back 20 years.
Clearly, Boeing
managers overlooked
growing employee
unrest during the '90s,
despite periodic employee opinion polls
reporting some dissatisfaction and declining
morale. (Such paperand-pencil surveys,
though simple to use,
rarely uncover the nuances behind worker unrest.) Blind to the storm signals, Boeing could not
use the basic motivational tools that impel knowledge workers toward excellence and cooperation.
WHAT MOTIVATES
F
PROFESSIONALS?
Our areas of motivation are key to high
morale and productivity among such
highly skilled professionals as aerospace
engineers, scientists, and computer experts. Dealing successfully with these employees calls for a
subtle touch, knowledge of what motivates them,
and a long-term management commitment to
recognize the standards that professionals live by.
The four areas are:
• engineering respect for upper management;
• salary differentials;
• advancement opportunities; and
• recognition of professional competence.
40
Engineering Respect for Upper Management
Engineers want to be managed by other engineers. This is the basis for generating an atmosphere of professionalism and respect. Medical
directors of hospitals are physicians, and managing partners in law firms are lawyers. Similarly,
professional engineers regard themselves more as
members of a learned society rather than as mere
employees of a corporation. They would rather
be praised by an engineering boss than a
nonengineering one. Many believe that nonengineering managers have no appreciation for
professional standards of individual engineering
excellence or performance, and lack insight into
the possibilities of products conceived and/or
improved by superior engineering. This concept
of professionalism is strongest when threatened.
At Boeing, the 1998-99 cuts in R&D budgets
and the new cost-cutting emphasis by the executives imported by Boeing were perceived by the
engineering community as threats to their professionalism. The sudden change in focus from valuing technological excellence to cutting costs implied a change in the basic values of their employer. Although the engineers understood that
the threat of Airbus warranted stricter approaches
to business, the company did not do enough to
reassure them that engineering excellence was
still the bedrock at Boeing.
During the strike, engineers' misgivings were
confirmed when SPEEA quoted CFO Deborah
Hopkins as saying that all engineers wanted was
to "design things that could go faster and higher."
Her comment was seen as a slap at Boeing's
engineering community and an insult to their
professional integrity and intelligence. "We felt
underappreciated," said SPEEA's president Craig
Buckham. "The role of engineers and technicians-the people who do the critical and important work of the company-is
often underappreciated by people at the very top, whose language
revolves around money as opposed to action,
products, and customers" (Sprovieri 2000).
SPEEA leaders emphasized Hopkins'S statement during the strike to buttress union support
among Boeing's professionals as being the defender of engineering excellence and values. This
helped the union persuade engineers to hold out
on the picket lines until the company recognized
their true worth.
Salary Differentials
Another motivator of knowledge workers is having salary differentials that recognize technical
excellence. At Boeing, engineers compared the
wages and benefits won by SPEEA to those won
by the IAM for factory workers. During its negotiations with SPEEA, Boeing admitted its engiBusiness Horizons / November-December
2001
.,.j
first is the opportunity to demonstrate one's technical performance. This means being given individual responsibility for a small project, even if it
is only a minute segment of a larger project. The
typical engineer wants to be judged by his own
performance on a project-c-on-time completion,
the quality and ingenuity of his work-and
be
rewarded accordingly with promotions and raises.
Unfortunately, Boeing's traditional merit raise
program provided very little differential in salary
increases because most merit raises were roughly
similar. In reality, they were nothing more than
disguised general increases. This rather egalitarian history made Boeing's offers to increase funds
for merit raises less attractive because engineers
saw little reward for individual excellence.
The second phase is peer recognition of excellence, reflecting the belief that engineers are
members of a professional, learned society rather
than just company employees. Despite lip service, Boeing did little to honor its engineers before the strike. For example, Engineering Week is
a traditional fete of demonstrated excellence in
Clearly Defined Advancement Opportunities
companies with large engineering cadres, and is
honored in aerospace companies like LockheedClosely aligned with money as a motivator for
Martin, McDonnell Douglas, and Rockwell-the
knowledge workers is having unambiguous avlatter two of which are now part of Boeing. Staffenues of professional advancement. Many engiers are nominated for Engineer of the Departneers did not·have a clear view of their future
ment or Division. From these comes the Engineer
because Boeing's offers were so complex and the
details perhaps not fully explained. Boeing's pro- . of the Year award, with proper pomp and circumstance. Surprisingly, Engineering Week is still
posal emphasized the need fora company-wide
ignored in Boeing's "heritage" divisions, in consalaried job classification system. Because of its
trast to its .celebration in the acquired McDonnell
acquisitions of Rockwell's aerospace divisions in
Douglas and Rockwell aerospace operations.
late 1996 and McDonnell Douglas in 1997-all
The third phase of recognition is the perwith different salary structures and benefits than
ceived ability to contribute to the good of the
those in Boeing's "heritage" divisions-Boeing
firm by having one's ideas and suggestions lisfelt that a common, company-wide salary structened to by management-in
short, to be heard.
ture was needed because engineers from all three
To his credit, Frank Shrontz, Boeing's president at
companies worked together on many projects.
the time, attempted to address the issue in the .
Since most engineers and other knowledge workearly 1990s by starting a Quality Circle program,
ers are mobile, career-minded, and critical of
an upward communication effort that had been
vague generalizations, a company's compensation
reasonably effective in some companies. Unfortustructure and policies must be clear and in accord
with the professional criteria of their technical
nately, Boeing's program wasnot well received
community. Boeing tried to provide that with a
by many executives and managers, who were
much-needed company-wide job reclassification
more comfortable with their traditional top-down
effort and special promotion and skill funds.
style of management than with "bottom up" comBut what did all that mean to the individual
munication. As a result, it dragged due to execuengineer in Seattle? What was the bottom line for
tive indifference and managerial manipulation.
him? Many engineers asked, but were unable to
Periodic paper-and-pencil employee opinion
obtain firm answers. No one really knew for sure,
polls, another form of upward communications,
and lack of knowledge bred fear, misunderstandproduced few apparent results. The upshot of
these ineffective efforts was further engineering
ings, and yet another reason to be suspicious of
Boeing's entire economic package.
alienation, leaving simmering unhappiness
among Boeing's cadre of professionals.
Three Phases of Recognition
The Sym.hols of Motivation
The fourth area of effort needed to motivate
In rhetoric before and during the strike, SPEEA
knowledge workers such as engineers is recogniemphasized certain symbols of motivation and
tion. This can be divided into three phases. The
neering salaries had fallen 6 percent below market, and technicians' salaries 4 percent, citing an
Organization Resource Counselors survey of 26
American aerospace-related companies. Boeing'
said it would rectify this not only by setting aside
substantial funds for merit raises, but by creating
special bonus funds for engineers who were
promoted. It also said it would add new sums to
attract new talent and reward specially targeted
(but undefined) key skill areas.
Despite the credibility gained by admitting its
salaries were below market, Boeing's offers were
not well received. First, SPEEA argued that existing salaries had fallen not 6 but 13 percent behind the industry, citing statistics from the American Association of Engineering Science; the union
. wanted more. Second, the lAM had won substantial signing bonuses for its machinists in the 1995
and 1999 contacts. SPEEA negotiators wanted the
same=up-front money-rather
than just healthy
pools of merit raise funds.
"-'
.. "~-;n~pr<
Strike-The Boeing Story
was able to focus strikers' attention on them because of Boeing's past. These symbols became
rallying cries used by Charles Bofferding and
other SPEEA leaders, enabling the union to portray itself as the soul of Boeing engineering, a
tradition betrayed by new "bean-counter" management that treated engineers without respect.
Symbolic items define perceived status.
Boeing's bargaining tactics were exploited by
SPEEA leaders, who realized that even among
engineers emotion trumps logic. Bofferding believed and communicated to his members that
Boeing's offers were symbols making them "second class citizens." One symbol was that Boeing
asked the engineers to pay for part of their health
care costs, an item the machinists had successfully rejected during their 1996 contract negotiations. A second symbol Was the notion of a signing bonus. Boeing's initial offers pointedly had
no bonuses because the company reasonably
believed funds should be spent raising all engineering salaries, to retain top engineers and attract new ones, rather than paying the money in
a one-shot bonus to existing employees. But the
lAM had managed to wrestle a 10 percent signing
bonus from Boeing in 1995, and had successfully
resisted health insurance copayment. SPEEA's
Bofferding wanted similar treatment.
SPEEA leadership repeated these "facts" and
emphasized that they "proved" Boeing would
shortchange its engineers, again claiming the
company's offers would brand engineers as second-class citizens. It worked. After the 40-day
strike, Boeing caved in and offered the terms
previously cited, including a new "Partnership
Agreement." The engineers saw that their union
had delivered for them, just as the IAM had delivered for Boeing's blue-collar workers.
.Negotiating Respect
Although respect cannot be negotiated, part of
the engineers' 1996 contract called for the start of
the "Ed Wells Initiative." Named for one of Boeing's former, preeminent chief engineers, the
initiative, according to the company's Web site,
was supposed "to develop an effective, sustainable process to improve the company's technical
excellence with opportunities for enhanced education and training, career development, and skill
utilization and application for employees." Although Bofferding says the Ed Wells Initiative
was a good start, and helped in improving employee utilization, not a great deal was accomplished because of lack of direction and, perhaps, management indifference. Again, this produced additional dismay and distrust.
The new 2000 contract calls for a Partnership
Agreement by which a Leadership Council, cochaired by Phil Condit, Boeing's CEO, and Paul
42
Almeida, IFPTE president, will meet quarterly. Its
charter: to deal with wide-ranging issues "of concern to Boeing's Engineering Community." Its
methods: "to be based on mutual commitment
and to operate on the basis of mutual respect,"
while serving as a problem-solving mechanism.
SPEEA's president Craig Bucknam explains:
The real test will be the next three years.
It's an opportunity to work together with
management to do some innovative
things, to change the way the company
operates and the way people are treated.
... There's considerable anger within our
ranks toward top Boeing management.
Now that we have this partnership agreement, that's probably a much bigger
hurdle. A partnership requires that we
resurrect some level of respect for each
other. (Sprovieri 2000)
Fifteen months after the strike ended, Bofferdirig
noted, "My candid assessment [of the Leadership
Council) is that there is more support in the lower
ranks than the upper ranks. Closer to the floor,
people work together more closely."
Boeing's engineers are counting on this new
channel to voice their concerns. However, the
Leadership Council could provide union leaders
with new opportunities to make life difficult for
Boeing. Similar efforts by Detroit's Big Three
autornakers and the United Auto Workers have
often backfired. When the UAW was concerned
with parts subcontracted from a GM assembly
plant to a nonunion supplier, it successfully
threatened to withdraw cooperative "jointness"
support until GM mended its ways. SPEEA may
well join the lAM in its fight with Boeing over the
company's shedding of assets .
The future of the Leadership Council may be
rocky indeed, since Boeing is outsourcing more
of its engineering and manufacturing. Moreover,
tensions may rise as Boeing continues conducting
aggressive anti-union campaigns to prevent further SPEEA successes.
Boeing's proposals to subcontract major wing
work for the projected 747X (before it was cancelled) as well as portions of the new "Sonic
Cruiser" have raised the hackles of the Puget
Sound unions. The cutbacks announced after the
September 11 disaster are intensifying the unions'
resistance to outsourcing, and promise to make
negotiations with the machinists, whose contract
expires September 1, 2002, even more contentious. "Outsourcing is a major concern for us,"
noted Paul Sheron:
Four years ago, Boeing defined wing
design as one of its core competencies.
When we hear the company is looking to
Business Horizons / November-December
200]
do this outside, that concerns us in two
ways: First, employees built this company, and we have great concern over
Boeing's new concept of shareholder
value. Second, under this, they are looking to profit at the expense of the entire
corporation's workforce.
Following the May 2001 announcement that
Boeing would move its headquarters to Chicago
from Seattle, Bofferding was quoted as saying
that "morale stinks" among his members (Manor
and Schmeltzer 2001). When queried by this author, the union director explained, "Since the
merger with McDonnell Douglas, there has been
a cha.nge in Boeing's culture. The focus now is
on short-term financials rather than a long-term
vision. The strike was about getting back to the
balance." The low morale, he said, was because
of "the gap between the 'proclaimed vision' and
daily actions, like the talk of outsourcing." As to
Boeing's move to Chicago, he stated:
Our reaction is a little disappointing. They
[senior management] should be able to
make the same decisions in Seattle as they
might make in Chicago. They are moving
away from the company's heritage, and it
is a philosophical statement that senior
management is distancing themselves from
the company and its employees.
Success with Similar Changes at Timken:
Two-Way Communication as Key
Change always scares employees, especially when
competitive circumstances force management to
shake up a proud, long-successful, but ingrown
company. The need for change, dictated by the
growing competition from Airbus, was voiced by
Boeing's new executives in a way that provoked
employees rather than rallied them 'round the
flag to work together to fight the common threat.
The Timken Company, headquartered in
Canton, Ohio, faced a similar situation in the
early 1980s. Long a world leader in roller bearings and specialty steels, Timken was conservatively run, tradition-bound, and always promoted
senior executives from within. Timken management awoke to changing worldwide competition,
and saw that it could no longer charge premium
prices for its bearings and specialty steels. Competing products made by other companies in
Europe and the U.S. were almost as good, and
cheaper. Timken needed better control of all its
costs, induding labor.
Joseph F. Toot, Jr., then Timken's president,
asked this author to develop and implement a
company-wide program to offset employee concerns about belt-tightening and to lay the groundWhy Engineers Strike-The
Boeing Story
work for concessionary contract talks with United
Steelworkers. The resulting program was a twoway communication effort called "Our War On
Competition." Based on "Who Strikes and Why?"
CImberman 1983), it described how unionized
companies could use internal corporate communications to develop cooperative environments.
Timken's program had two elements. The first was
a series of videotapes presented by
Timken executives to
all employees discussing various aspects of global competition and how
cost· containment
was needed for
Timken to survive
and prosper. Specially indoctrinated
local managers in all
of Timken's 56
worldwide offices
and 19 manufacturing facilities held
meetings with the
company's 15,520
employees to discuss what the messages meant
to them in their specific locations. The second
element was even more important: opening the
floor to employee ideas, both critical and laudatory, on how to cut costs and become more competitive. These ideas were recorded, and many
eventually made their way to Canton for worldwide implementation. The first-year cost of the
continuing program was about $3 million, but
recorded savings totaled nearly $80 million.
Timken was also able to negotiate sizable
concessions from United Steelworkers, which
represented its factory employees. More important, the two-way communication program created a sense of community and identity among
all employees, who developed a common purpose and united as a team to fight their common
threat in the continuous improvement program.
Had Boeing been more sensitive to employee
concerns and attempted a similar effort, its new
cost-cutting emphasis would have been far more
readily accepted=-perhaps
even blessed-by
all
employees as the price for maintaining worldwide industry leadership. Moreover, the fateful
engineering strike might never have occurred.
A
t
a news conference following the 1995
lAM strike, Boeing's then-president
Shrontz contended that "Boeing's biggest mistake leading to the strike, whose correction would become a high priority, had been a
43
failure to communicate successfully with employees about the costs of doing business in the mid19905" (Rodgers 1996). Obviously; little came of
Shrontz's mid-decade promise-except
for the
epochal engineering strike of 2000, which transformed the Boeing environment, perhaps forever.
On March 17, 2000, Boeing's new president Phil
Condit said in a conciliatory post-strike statement:
All of us have a greater understanding of
what is meant by the issue of "respect."
One day I hope we can all look back on
this as a turning point, a time when we
more clearly recognized the importance
of listening to and seeking to understand
one another. (Verhovek 2000)
The shock of the 40-day engineers' strike
should put some meaning into his promise of
listening and respect. Listening sounds easy, but
an effective two-way communication program
building mutual respect and support for continuous improvement is difficult to implement without expert help. It is hoped that executives at
other companies with large cadres of engineers,
scientists, software designers, and similar knowledge workers will apply the vital lessons of the
need for such two-way communication-lessons
so painfully learned at Boeing. 0
Jeff Cole, "Boeing Plans Sale of St. Louis Parts Plant in
Sign of More Divestitures," Wall StreetJournal, June
16, 2000, p. B8.
Jeff Cole, "Boeing Weighs Giving Japan 747X Wing
Job," Wall Streetjournal, January 2, 2001, p. M.
Stanley Holmes, "Boeing's Sonic Bruiser," Business
Week, July 2, 2001, pp. 64-68.
Woodruff Imberrnan, "As the Engineer Sees His Problems," Conference Board Record, April 1976, pp. 30-46.
Woodruff Imberman, "Who Strikes and Why?"Harvard
Business Review, November-December 1983, pp. 18~28.
Lynn Lundsford and Andy Pasztor, "Boeing May Cut as
Many as 30,000 Workers," Walj Street journal, September 19, 2001, p. 3.
Robert Manor and John Schmeltzer, "Uneasy Rests
Boeing King's Crown," Chicago Tribune, May 20,
2001, Sec. 5, p. 1.
Eugene Rodgers, Flying High (New York: Atlantic
Monthly Press, 1996).
Paul Sheron, Organizing Director, Seattle Professional
Engineering Employees Association, personal conversation with the author, january 17, 2001.
john Sprovieri, "Engineers' Strike Grounds Boeing,"
Assembly Magazine, June 2000, p. 26.
References and Selected Bibliography
. Airbus Industrie corporate information accessed from
www.airbus.corn, various dates; information on Boeing
accessed from www.boeing.com, various dates.
"Union Vows to fight Asset Sales," Chicago Tribune,
July 14, 2000, Sec. 3, p. 2.
Sam Verhovek, "Tentative Pact Made to End Boeing
Strike," New York Times, March 18, 2000, p. C1.
"Airbus: Place Your Bets," Economist, June 23, 2001,
pp. 60-61.
frederick Biddle and john Helyar, "Behind Boeing's
Woes,"Wall StreetJournal, April 24, 1998, p. 1.
Charles Bofferding, Executive Director, Seattle Professional Engineering Employees Association, personal
conversation with the author, january 17, 2001.
44
Woodruff Imberman is the president of
Imberman & Deforest Inc., a management consulting firm headquartered in
Evanston, Illinois.
Business Horizons
/ November-December
2001
Dr. Woodruff Imberman is president of Imberman and Deforest, Inc.,
Management consultants headquartered in Evanston, IL. He is
the author of many articles and reports dealing with strategic employee
communications programs, developing positive employee relations,
and pay-for-performance compensation systems. He may be contacted
at Imberman and DeForest, Inc. 1740 Ridge Av., Evanston, IL., ernail:
[email protected],
Ph: 847/733-0071, or Fax 847/733-0074.