McNerney Is Right About Administration’s Lack Of Business Experience, Understanding

Yesterday, Jim McNerney, the CEO of Boeing, fired a devastating broadside at the Obama Administration. In a public forum, he observed that “. . . . very few people in the Administration share life experiences with those of us who are in the private sector.” In fairness to the White House, McNerney could find very little practical business or fiscal depth anywhere in Washington. Coming from the head of one of this country’s most important industrial concerns, a major exporter of U.S. products and a Big Five defense company, such a scathing critique must be taken seriously.

In some respects, the disconnect between business and Washington is even worse than McNerney’s characterization of it. Yes, as he noted, the government had wasted lots of money in failed attempts to underwrite immature technologies or pick industrial winners and losers. But such expenditures are chicken feed compared to what the government wastes every year by its inability to apply simple, proven business practices to activities in the public sector.

One of the best examples of this is in national defense. The Department of Defense (DoD) spends about $200 billion a year on logistics, sustainment, maintenance, transportation and support. These are all areas that the private sector, in general, and Boeing, in particular, knows something about. The maker of the 787 Dreamliner manages an international supply chain consisting of many thousands of vendors. It is providing continuous support for the maintenance of the massive installed base of Boeing aircraft while simultaneously creating new variants of established aircraft models and designing entirely new ones.

For the past ten years, Boeing has had a contract to provide depot maintenance of the Air Force’s fleet of C-17 transport aircraft, saving the Pentagon over a billion dollars in that period. So good is the company at performing high quality maintenance and sustainment on military systems that the British Ministry of Defense recently awarded Boeing a 25-year contract to provide full care for that country’s fleet of CH-47 Chinook helicopters.

Boeing is by no means the only private company that provides cost-effective support services to DoD. But it is one of the best. Does this mean that the Pentagon has beaten a path to Boeing’s door or even that it has broadly adopted the principles, methods and tools that have made this company and others like it successful? Of course not. Only a small fraction of DoD’s sustainment contracts use the principles Boeing has proven on the C-17 and Chinook programs.

It gets worse. An official of a major U. S. company with significant defense business related to me a conversation he had with a senior Pentagon official regarding DoD’s interest in a unique product line the company produced. The company official said that he needed to understand the business case for continued investment in the capability under discussion in order to justify the required corporate investment in production capacity and technological innovation. The government official replied “we care about the capability not the company.” Unfortunately, the company official held his tongue. I would have said: “no company, no capability.”

In our multicultural world the one culture that seems to get no respect is that of the private sector. Despite statements to the contrary, I believe that most DoD officials neither understand nor respect the private sector.