Boeing Case Study
Introduction Faced with a downturn in the commercial aircraft business and reduced military spending, The Boeing Company was forced to downsize approximately 55,000 people over a five-year period. The company’s management, organized labor, the local community, multiple levels of government, and community colleges collectively worked together to develop Reemployment Centers to assist in the transition of their specialized workforce into alternative forms of employment. The following is a description of how The Boeing Company successfully completed this effort at downsizing.
Downsizing is thought to be an effective human resources strategy to increase global competitiveness. Labor costs, generally one of the largest costs for most organizations can be reduced through downsizing. In many cases the downsizing process includes outsourcing or subcontracting jobs previously performed within the organization. Although organizations often consider downsizing necessary in order to remain competitive, this strategy does not always result in increased organizational profitability and performance.
One recent survey conducted by the Society for Human Resource Management reported that only 26% of firms reported productivity improvements while 58% said that productivity was flat or had declined after downsizing (The Washington Post, 1996). In addition, the study found that approximately 54% of companies surveyed cut jobs in 1994 but only 25% expected any further downsizing. Whatever the future course of downsizing, many companies have utilized this business strategy to meet the demands and challenges of U. S. and global competition.
Why Companies downsize One of the primary reason that downsizing occurs is that jobs are subcontracted out, both domestically and internationally, to reduce corporate overhead. The Boeing Company is no different than many other multinational enterprises. There are three reasons that most companies subcontract jobs. The first is to lower the total costs of production. This is accomplished by relocating jobs to lower cost wage regions, either domestically or internationally. The subcontracting of jobs internationally ot only lowers production costs, but also assists in gaining market share which is the second reason that many companies subcontract out component development. Sometimes firms are required by local content requirements to produce components locally. Other countries require production facilities in order to gain access to their market. For example, China and The Boeing Company celebrated 25 years of working together in June, 1996 (The Boeing News, 1996). Over the past few years, The Boeing Company has invested heavily in developing all areas of the aviation industry in China to the tune of $100 million U.
S. dollars. This has been more than recouped by the gain in market share through purchases from the Chinese-owned and operated airlines. The most recent order alone from Air China was for $510 million for three B747-400 planes. A total of 47 jet aircraft have been purchased by China, making this a strong market for The Boeing Company. For the same reason, General Motors is increasing its overseas presence in Asia. It recently announced that its Opel unit could take over Peugot’s position as the non-Chinese partner in southern China’s automotive industry (Cox, 1996).
GM is also awaiting approval from the Chinese government to build a plant in Guangzhou to supply engines for a plant that GM is building in Thailand. This second Chinese plant is in addition to the Shanghai plant which will begin producing Buick sedans in 1998. The third major reason for subcontracting of jobs is also driven by the desire to lower total production costs. Many countries will contribute to a company’s development costs in order to gain production plants and develop industries.
In the case of The Boeing Company and Japan, the development costs for the 777 jet airliner were $5 billion. Japan contributed over $1 billion, or approximately 21% of the total costs of development, in order to have production plants located in their country. Given their skills of imitation and improvement, the government of Japan considers this relationship with Boeing the basis of future industrial development that will place Japan in the forefront of this Asian market. In addition to lower development costs, Boeing received increased orders from Japan Airlines and All Nippon Air.
The lowering of development costs and the gain of global market share are sound reasons for subcontracting jobs internationally. However, there is always the danger that The Boeing Company, and other multinationals following the same strategy, are creating future competitors. Boeing is aware of the potential downside of this strategy but their drive to compete in the short-run against the European Consortium Airbus Industries has outweighed the potential downside risk. It is hoped that cooperative ventures among Asian countries and The Boeing Company will be the opportunity for the future.
Consequences of Downsizing Issues related to downsizing due to outsourcing can have serious consequences. For example, in March 1996, 3,000 United Auto Workers (UAW) struck at the Dayton, Ohio, GM Delphi Chassis brake, bearing, and parts manufacturing plant over the loss of 120 potential jobs that GM wanted to outsource to the Bosch Company. Although Bosch’s headquarter’s are located in Germany, the parts would have been manufactured by U. S. workers in a Bosch plant in South Carolina. However, these U. S. workers in South Carolina are not unionized.
Because of the strike at GM’s Dayton plant, 26 of GM’s 29 North American automotive plants are ultimately idled due to a lack of parts from the striking plant. As a result, 117,375 fellow UAW workers were out of work stemming from the outsourcing issue (Healey, 1996). It was the longest auto strike since the GM strike in 1970. It is interesting to note that the final agreement that was ratified by both GM and the UAW reflected no change from their previous agreement: GM can purchase parts from other manufacturers if it gives its own parts plants the opportunity to match the bids from outsource firms.
In September 1996, General Motors again faced a strike, this time by the Canadian Auto Workers about concerns over subcontracting of jobs to nonunion firms. This subcontracting of parts would result in additional downsizing, and less new hiring of union members (Maynard, 1996). GM refused to accept the pattern established by Chrysler and Ford in Canada that restricted their ability to outsource to cut costs. Chrysler also faced difficulties during labor-management negotiations in September 1996, after an announcement of its plan to invest $315 million in vehicle plants in Brazil and Argentina.
The union was upset about the potential outsourcing of jobs and loss of job security (Heinzl, Christian, and Puchalsky, 1996). The strike by the International Association of Machinists and Aerospace Workers at The Boeing Company in the fall of 1995 was the result of two major issues: an industry downturn in aircraft orders, and subcontracting or job outsourcing. As subcontracting is more broadly implemented throughout the company, Boeing eventually plans to produce only 48% of its airplane’s components internally.
Similar to GM, one of the company’s corporate goals is to have the freedom to subcontract work in low wage regions in the southern United States, Mexico, and Asia which threatens the job security of Boeings unionized workers. Now that the reasons for and the possible consequences of downsizing have been discussed, the planned design of Boeing’s successful downsizing of more than 55,000 employees can be described. This case study provides an example of how corporate downsizing can be achieved successfully through cooperative efforts and strong leadership among the various constituencies involved.
Since the downsizing of almost 55,000 employees, The Boeing Company has not had one lawsuit filed against the company from any employees or their respective unions (Wetmore, 1996). The Downsizing At Boeing The Boeing Company, the city of Seattle, and the State of Washington were all very concerned about the impact of impending downsizing on Boeing workers as well as their communities. In a unique effort, representatives of the three entities worked together to supplement and support a program that addressed and is still addressing some of the negative effects of downsizing.
Robert Reich, the former Secretary of Labor, along with Vice President Al Gore, heralded Boeing’s efforts as a successful method of integrating downsized workers into productive (i. e. non-minimum wage) jobs, and Boeing’s efforts have been held up as a model for organizations facing downsizing. The remainder of this paper reviews a brief case study of The Boeing Company’s efforts to address these issues. Boeing’s Reemployment Program In late 1989, the Boeing aircraft 747-400 was certified for use by commercial airlines.
This was a large developmental effort that had consumed great amounts of resources during the late 1980s. At the completion of this project, however, it was clear to management that there was no future work for development team members. The airlines had essentially stopped ordering new airliners. In addition, the U. S. defense budget was taking severe cuts because of the collapse of the Soviet Union. The planning cycles for The Boeing company produced results that reflected the need to reduce several thousand employees over the next few years.
Continuous reductions in Boeing’s workforce were necessary because of the declining business base and outsourcing contracts. In 1988, the WARN Act became effective which requires employers to give at least sixty days notice of impending layoffs to its employees. Boeing issued its first WARN notice in January 1990; layoffs were to begin in March 1990. The first and most important effort undertaken to mitigate any negative effects of this downsizing was the formation of the Employment Stability Board (ESB).
The make-up of the ESB included the most senior executives of Boeing’s independent operating companies, as well as the senior functional officers for Engineering, Manufacturing, and Human Resources. These were individuals who could, and would, make decisions concerning redeployment of people across operating area boundaries, and even geological areas, if necessary. The Board met, and still continues to meet, on a monthly basis to make policy decisions concerning ground rules for any future downsizing the company may face.
Previous reduction in the late 1960s were made with little coordination between operating areas. Horror stories abounded about one area laying off people while another area was hiring similarly skilled people. The ESB was determined not to see that happen again. The ESB met periodically with the unions representing the hourly and the engineering/technical employees in order to confirm the ESB’s desire to accomplish the reductions in the fairest possible manner. The ESB explored specific alternatives to downsizing. These included an early retirement leave of absence for those 53. years of age or more, a voluntary day off every second week, extended leaves of absence, loans of people to community agencies (educational and non-profit), increased use of part-time workers, and voluntary layoffs to save someone else’s job. Boeing also offered a one-time-only special retirement program that augments years of service and equivalent age to those over 55. Over 9,000 people accepted this package. However, the number of employees who were, or soon would be without jobs was still very large. Design of the Reemployment Program
The Boeing Reemployment Program (BRP)is a joint effort among business, labor, education, and government to provide dislocated Boeing workers a range of employment services on site. The concept arose from a joint Labor/Management Committee which was created in the wake of Boeing’s 1993 announcement that substantial downsizing would occur. To meet the numerous challenges and issues surrounding employee displacement, the Committee set out to coordinate the expertise and resources of The Boeing Company, unions, training institutions, and government agencies to provide outplacement and training/retraining opportunities for affected workers.
The Committee itself was comprised of representatives of The Boeing Company, the International Association of Machinists and Aerospace Workers (IAM), the Seattle Professional Engineering Employees Association, the State Board for Community and Technical Colleges Consortium, the IAM/Boeing Quality Through Training Program (IAM/QTTP), and representatives of the Private Industry Councils of King, Pierce, and Snohomish Counties. Representatives of the Washington State Employment Security Department, which acts as program operator, and the U. S. Department of Labor’s Region X office were ex-officio members of the committee.
The government provided state and federal grant moneys; Boeing provided outplacement staff, office space, utilities, and equipment. The union provided outreach and counseling to its members (Wetmore, 1996). The Committee’s overarching goal was to develop an overall strategic plan to effectively address employment and training needs for displaced Boeing Aerospace workers. Its purpose was to provide the best approach to facilitate workers’ transitions to other employment opportunities and minimize the impact on publicly funded programs. The broad mission statement adopted by the Committee is stated below:
To develop an overall strategic plan to effectively address employment and training opportunities for displaced Boeing workers (AFL-CIO HRDI Report, 1997). Members of the Committee oversaw two geographically dispersed Boeing Reemployment Centers (BRCs) located in Everett and Renton, Washington, and a satellite center in a third county. This group was very innovative in developing the BRP. One example of a significant innovation was the committee’s decision to create “one-stop” reemployment centers where displaced workers could receive a wide array of traditionally geographically separated benefits.
Some of the varied services provided at the BRCs were intake, assessment, testing, job counseling, job search assistance, unemployment insurance claims assistance, resume preparation, computerized career planning, faxes and telephones for job search, enrollment in training (community colleges, on-the-job training, or vocational schools), entrepreneurial training, job placement services, and support services such as including child care referrals. These were all available to displaced workers at no charge.
Another innovation was the creation of a consortium of 17 colleges to work closely with the BRCs. The consortium facilitated program participants’ access to course registration and scheduling, financial assistance, and counseling services. The IAM/QTTP provides education assistance of $2,500 per year for up to three years for laid-off IAM represented workers. Peer counselors at each reemployment center were former Boeing employees who helped clients connect with services and did job placement. Their shared Boeing backgrounds made it easier for the unemployed workers to talk bout their problems (AFL-CIO HRDI Report, 1997) Funding of the Downsizing Effort The Committee investigated established reemployment programs across the nation to determine the best approach to take when developing its own program. After considerable research, the Committee decided to pursue a partnership approach to access federal funds to compliment funds contributed by Boeing and the IAM. A proposal was submitted to the U. S. Department of Labor for 10. 2 million to accommodate approximately 3,800 dislocated Boeing workers.
The request was urgent, given that the available public and private funds were inadequate to address the needs of the large numbers of Boeing workers being dislocated in the 1990s. After reviewing the request, the U. S. Department of Labor awarded an immediate grant of $5 million and an option to request additional funding should this amount be inadequate for the needs of the displaced workers. Since the Washington State Employment Security Department was experienced at administering Job Training Partnership Act Title III funds, it was elected to receive the National Reserve Grant on behalf of the Labor/Management Committee.
The department’s role was to administer and operate the program. The success of the program was acknowledged in September 1994, when the U. S. Department of Labor awarded an additional $5. 2 million to the program to assist additional laid-off workers in Washington State. The largest proportion of this additional funding was allocated for longer-term training and money was earmarked for supportive services such as child care and transportation (Wetmore, 1996). Additional funding received in April 1995 added another $4. 5 million to program funds – just in time to assist the 6,000 Boeing workers who were targeted for layoffs during 1995. The grant total of 14. 7 million allowed the program to operate through June of 1997 and no additional funding was requested from the government. This time period was adequate to complete the existing training programs. Results Between 1990 and 1995, Boeing reduced its labor force by 32. 2%. Of the approximately 55,000 affected workers, about 40% (22,000) were laid-off while normal attrition, voluntary early retirements, and sale of assets accounted for 60% (33,000).
The reductions were fairly linear across the years, although the 1995 reduction was slightly higher due to the 9,000 people who opted for the One-Time-Only Special Retirement Program. From 1990-1993, more hourly workers were laid-off, but 1994-1995 saw more salaried workers leave. The percent of reduction in management was 33% which approximates the total employee reduction of 32. 2% over the five years. To clarify, the total reduction of 55,000 employees equated to approximately two line employees for every supervisory/managerial person. This ratio was consistent with Boeing’s total workforce composition.
However, line employees were downsized earlier in the 1990s while most managers took VOLUNTARY reductions during the sweetened early-out offers (Crocker, 1996. ) Approximately 26,000 of these workers were from the Puget Sound area in Washington State. From the time the BRCs opened in 1993, more than 10,000 laid-off Boeing workers utilized BRP services. A total of 52 managers were loaned to various community non-profit and state government agencies for periods ranging from one to tow years. More han 3,100 workers entered retraining programs were offered.
More than 300 participants were enrolled in basic skills and English-as-a-second language courses. To assist them in starting their own businesses, 450 participants were enrolled in entrepreneurial training programs. In mid-1996, the Wall Street Journal reported that 61 former employees started their own businesses, and only two failed. A conversation with executives of The Boeing Company in May 1996, increased this figure to 80 new business start-ups with only two failures (Wetmore, 1997). According to Boeing press releases: A used book store and a fishing bait shop are new enterprises reported to e flourishing under the ownership of former Boeing employees. Other start-up businesses range from a trucking firm to a barbecue restaurant, a jewelry store, an auto repair shop, and a manufacturer of wood chips for cooking and smoking foods. At this time, additional lay-offs are not expected, and outsourcing is not now viewed as the real contributor to Boeing’s downsizing — business downturns have been identified as the real cause. The unions were the group which actually initiated the request for government funding, based on the Dislocated Worker Program and Trade Act.
The Trade Act has funds available for workers who lose jobs based on foreign competition. Initially, Boeing did support the workers’ argument that foreign competition led to the downsizing. The fact that Airbus Industries is a major competitor was not something that Boeing wanted to make public. However, after an independent assessment, the Department of Labor announced in April 1994 that Boeing’s laid off workers were eligible for these funds which were the impetus for the company’s reemployment program. Epilogue As of June 1998, most of the employees who were laid off have returned to work at Boeing.
However, the interesting question is whether or not the recalled employees are now employed in jobs utilizing their newly acquired skills gained from the Boeing Reemployment Program. According to a 1996 survey conducted by the Washington State University (for the Washington State Employment Security Department), about fifty percent of the recalled employees are now in positions using these new skills. Initially, most of the workers returned to their old jobs due to contractual recall rights provided for in the union contract; however, many were quickly upgraded to new positions due to their broadened skill base.
As a result of the 1997 merger with McDonnell-Douglas Corporation in a $16. 3 billion acquisition, potential layoffs have been announced as the 60,000 M-D employees are merged with Boeing. While employee attrition is expected to account for most of the downsizing activity, some areas may require small-scale layoffs. The announcement of future shutdown of M-D product lines in Long Beach, California may result in additional downsizing. In Puget Sound, Boeing’s high production rates will require a stable workforce through the end of 1998.
The “original players” that made up the Boeing Labor Management Committee continue to meet quarterly monitoring the potential for any downsizing activity and to be prepared for a rapid response to any layoff activity. Consequences of Downsizing: Leadership Lessons Learned In a recent interview with a member of the Labor Management Committee the following lessons have been learned from the Boeing downsizing experience: Program Lessons * Earlier involvement with local, state, and federal agencies through ongoing communication. Boeing and the involved unions taking leadership roles to guide development and operation of intervention services. The high degree of success of establishing one-stop centers and demonstrating that partnership between private business and public sector agencies can be highly effective. There are currently five one-stop centers operated by public sector agencies in Puget Sound. These centers will be key in any future Boeing downsizing activities. Federal agencies in Southern California have been in contact with the Puget Sound Labor Management Committee members for information and assistance in setting up a partnership to respond to downsizing activity. Leadership Lessons The role of a strong Labor Management Committee is essential. The membership needs to represent all the stakeholders both public and private sectors. The committee needs to provide leadership and direction. * A strong Program leader that understands the value of partnership and has communication skills to maintain open communications and coordination with all members of the partnership. * Each organization’s executive management must be willing to work together and be committed to change. * Effective leadership is open to innovative solutions to problems.