Branding and Reputation

Boeing and the KVC Breaches

16 Apr 2019  

The KVC is something that regrettably is often noticed by its absence. In recognition of this, my first paper nearly two decades ago was titled, “The KVC: How to fix it when it breaks.”

The tragic recent case of the Boeing 737 Max 8 illustrates this perfectly. In this case, a “new and improved” plane was rolled out that had larger engines than its predecessor. This caused it to run a higher risk of stalls, which was to be countered by an automated security system, Maneuvering Characteristics Augmentation System (MCAS), that would warn of the problem, and even self-correct. More than 4,600 advance orders for the $77 million new model were received — nearly 80% of Boeing’s outstanding orders — and Boeing was forecasting aggressive revenue growth.

Shortly after, two iterations of the plane crashed horrendously, under similar but unconnected circumstances. Between the Ethiopian Airlines crash and the Lion Air crash, 346 lives were lost. Though still under investigation, the clear implication was that the new system was at least partly at fault.

But how, exactly? My analysis is based solely on open sources, namely the excellent ongoing reporting by both the Wall Street Journal and the New York Times. As I see it, there were at least three places in which the KVC was seriously compromised.Boeing_737_MAX

  1. DATA level. The sensor that detects “angle of attack” was not working properly. The result was that when the plane was flying level, the sensor indicated that it was in a nose-up stall pattern — leading the pilots to “correct” the situation by pointing the plan downward toward the land or water.
  2. KNOWLEDGE level. The pilots received little hands-on training in flying with the new system. As a result, they were ill-equipped to counter or override the indicator system when it malfunctioned. Any technology produces value only when the human knowledge element is engaged — and here it was not.
  3. INTELLIGENCE level. When knowledge is aggregated and used to make decisions, it becomes intelligence. In this case, the value stakeholders were not fully engaged in a timely way. The pilots became aware that they needed more training, but Boeing disagreed — until finally some airlines (like Am3rican) started offering it without being required to.  Ticket holders on flights using the 737 Max began to cancel or rebook their flights. The airlines (especially Southwest) had to cancel half-full flights, and eventually started postponing or cancelling pending orders. A flurry of social media activity resulted, quickly driving Boeing’s enterprise value (EV) down by nearly $40 billion. And yet, for days there was very little in the way of explanation, apology, or mitigation forthcoming from company leadership. The company in effect forfeited its right to contain and control the dialog, which had soon moved over to social media.

From there, things continued to spiral, with flight cancellations, embarrassing revelations in the traditional and social media, and a series of countries imposing mandatory groundings of the aircraft.  Boeing finally announced that a software fix would be offered — but by that time, much of the damage to future sales, flyer confidence, and Boeing’s heretofore stellar reputation had been inflicted.

Most of the $40 billion EV loss was attributed to the loss of future sales. But though stock losses in such situations may be short-lived, there are sure to be additional costs.  There is a criminal investigation underway that could result in financial penalties, and the lawsuits are just beginning — and already estimated to cost Boeing about $1.9 billion.

The total cost to Boeing’s reputation?  Hard to know definitively — but almost certainly much greater than a few timely preventive steps would have cost.

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