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Case 1-9
Case 1:
FAILURE BY DESIGN: BOEING AND THE 737 MAX
TEACHING NOTE
This case illustrates the following themes and concepts discussed in the chapters listed:
Theme/Concept Chapter
Conflict of Interest 5
Organizational Ethics 6
Business Government Relations ; Government Regulation 7
Product Safety 14
Case Synopsis
On Monday, October 29, 2018, Lion Air Flight 610 crashed into the Java Sea in Indonesia
shortly after takeoff, killing all 189 people on board. The aircraft was a nearly new Boeing 737
MAX, delivered to Lion Air, a low -cost regional carrier and one of Boeing’s major customers,
just four months earlier. The MAX was Boeing’s newest aircraft and the centerpiece of the
company’s strategy for the shor t to mid-range commercial market. CEO Dennis Muilenburg
faced an urgent an urgent task: to determine what had gone wrong and why with Boeing’s
newest and so-far successful new model. The case presents the history of Boeing and its external
competitive environment; the evolution of its strategy, governance, and ethics practices; and its
relationship with U.S. regulators during the design and certification of the 737 MAX. What
organizational and environmental factors had contributed to Boeing’s development of an
apparently unsafe aircraft? What could Boeing, government regulators, and its airline customers
and=other=stakeholders=do=to=prevent=unsafe=aircraft=from=being=manufactured=and=sold=in=the=futur
e?=
=
=
1 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, TEACHING=TIP:=WHERE=TO=USE=THE=CASE=IN=THE=COURSE=
=
This=case=is=integrative,=in=that=it=draws=on=many=themes=in=the=text.==Instructors=may=use=it=at=the=end=o
f=the=course=as=a=final,=integrative=assignment,=or=with=the=study=of=Chapters=5=and=6=(Ethical=Reasonin
g=and=Organizational=Ethics)=or=Chapter=7=(Business=Government=Relations).====
=
=
=
=
TEACHING=TIP:=VIDEO=
=
Instructors=may=wish=to=introduce=the=class=discussion=with=a=short=video=of=the=Lion=Air=flight.==The=fi
rst=4=minutes=of=this=9-
minute=segment=depicts=the=fatal=flight=of=Lion=Air=610,=in=which=a=journalist=rides=in=a=simulator=with=
an=experienced=737=pilot=who=recreates=the=flight=from=the=perspective=of=the=cockpit.==(The=remainder=
of=the=clip=depicts=the=Ethiopian=Airlines=crash=and=is=not=relevant=to=the=case.)==Viewers=may=find=the=v
ideo=clip=disturbing,=even=terrifying.==
=
www.youtube.com/watch?v=OxPsxmU_ocI=
=
=
TEACHING=TIP:=STARTING=A=CASE=DISCUSSION=
=
One=was=to=start=a=class=discussion=of=this=case=is=to=ask=students=to=huddle=in=groups=of=2=to=4.==Give=th
em=5=minutes=to=write=one=or=two=sentences=beginning=with:=―One=reason=that=Boeing=produced=an=u
nsafe=aircraft=was…‖==They=should=then=have=a=representative=write=their=sentence(s)=on=the=board=or=s
hare=on=a=common=electronic=platform.=The=instructor=may=then=categorize=the=answers=and=use=them=
as=a=jumping=off=point=for=taking=up=various=issues=raised=by=the=discussion=questions.====
=
Sample=answers:==One=reason=that=Boeing=produced=an=unsafe=aircraft=was…=
=
The=culture=of=Boeing=had=shifted=from=a=focus=on=engineering=excellence=to=a=focus=on=shareholder=re
turns.==The=company’s=capabilities=for=aircraft=design=had=deteriorated.==
=
The=FAA=delegated=most=of=the=work=of=certifying=the=737=MAX=to=Boeing=itself,=so=the=regulators=we
re=unable=to=exercise=effective=oversight.===
=
Boeing=was=under=tremendous=pressure=because=of=competition=from=Airbus,=so=they=decided=to=updat
e=the=737=rather=than=design=an=all-
new=plane.==This=created=an=unsolvable=engineering=problem,=because=the=bigger=more=fuel-
efficient=engines=they=wanted=to=use=did=not=fit=under=the=wings=of=737.==
=
Boeing’s=top=executives=and=directors=emphasized=shareholder=returns=over=engineering=excellenc
e.==Cost=and=efficiency=were=more=important=to=them=than=the=quality=of=the=aircraft.=
=
Boeing=had=spent=so=much=money=on=stock=buybacks=and=shareholder=dividends=that=they=did=not=
have=enough=left=over=to=invest=properly=in=R&D=and=aircraft=engineering.=
=
Boeing=had=a=code=of=ethics=but=did=not=seem=to=enforce=it.==It=ignored=worrisome=survey=results=an
d=did=not=listen=to=series=warnings=from=senior=managers.==
=
Manufacturing=of=the=MAX=was=rushed,=possibly=leading=to=defects=in=aircraft=delivered=to=custom
ers.=
=
The=FAA=basically=allowed=Boeing=to=certify=the=safety=of=its=own=plane.===
=
2 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
,Boeing’s=strategy=was=to=acquire=other=manufacturers=(e.g.,=McDonnell=Douglas)=and=keep=updati
ng=their=old=models,=rather=than=to=design=new=aircraft.==Over=the=years,=they=lost=much=of=their=en
gineering=know-how.==
=
Instructor=Tip:==―C‖=students=may=answer=this=question=by=describing=characteristics=of=the=unsaf
e=plane=or=its=design=flaws.==For=example,=―One=reason=Boeing=produced=an=unsafe=aircraft=was=r
elying=on=just=one=sensor.‖==―A‖=students=will=understand=the=distinction=between=the=problem=itse
lf=(an=unsafe=design)=and=the=cause=of=the=problem=(e.g.,=organizational=culture,=regulatory=failures
,=external=competition).==The=instructor=may=need=to=point=out=that=the=question=asks=for=the=reason=
Boeing=produced=an=unsafe=plane,=not=the=reason=the=plane=was=unsafe.=(Question=1,=below,=addres
ses=the=reason(s)=the=plane=was=unsafe.)=
=
=
Discussion=Questions=and=Answers=
=
=
1. What=were=the=immediate=technical=causes=of=the=crash=of=Lion=Air=Flight=610?=
=
Based=on=information=in=the=case,=students=will=conclude:=A=faulty=angle=of=attack=sensor=fed=er
roneous=data=into=the=plane’s=computers,=triggering=the=maneuvering=characteristics=augmentation=
system,=or=MCAS.==The=plane’s=computer=relied=on=only=one=sensor=at=a=time=(a=single=point=of=fail
ure),=and=the=aircraft=did=not=have=an=active=cockpit=alert=for=disagreement=between=the=two=sensor
s.==Once=MCAS=was=activated,=it=repeatedly=forced=the=nose=of=the=plane=down,=destabilizing=the=a
ircraft.==The=Lion=Air=pilots=had=not=been=trained=on=a=simulator,=were=unaware=of=MCAS=and=its=c
apabilities,=and=their=flight=manual=did=not=include=relevant=information.==Eventually,=the=pilots=los
t=control=of=the=aircraft=and=it=crashed=nose=down=into=the=sea,=killing=all=on=board.=
=
2. Describe=the=culture=of=the=Boeing=organization.==How=did=the=company’s=culture=affe
ct=the=development=and=production=of=the=737=MAX?=
=
The=textbook=defines=corporate=culture=as=―a=blend=of=ideas,=customs,=traditional=practices,=comp
any=rules,=and=shared=meanings=that=help=define=normal=behavior=for=everyone=who=works=at=a=co
mpany‖=(Chapter=6).=The=textbook=points=out=that=weak=ethical=cultures=can=foster=unethical=behav
ior.==To=help=students=unpack=this=question,=the=instructor=may=wish=to=elaborate=by=pointing=out=th
at=corporate=or=organizational=culture=is=often=understood=as=having=three=layers:=basic=assumption
s,=values=and=norms,=and=artifacts=(Schein,=2004;=Chatman,=2014).==Basic=assumptions=are=deeply
=held=values=about=the=organization’s=purpose=and=reason=for=existence.==Norms=are=unwritten=expe
ctations=for=appropriate=behavior=that=reflect=these=values.=Artifacts=are=visible=organizational=prac
tices=that=communicate=values,=such=as=rituals,=stories,=and=language.=
=
One=way=to=organize=this=discussion=is=to=prompt=students=to=fill=in=a=board=grid,=showing=how=thes
e=three=layers=of=Boeing’s=culture=changed=following=the=company’s=acquisition=of=McDonnell=Do
uglas=(1997).==
=
Boeing’s=Organizational=Culture=Before=and=After=the=Acquisition=of=McDonnell=Douglas==
=
Leve Past== Present=
l=
3 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, Basic Boeing=is=a=trendsetter=in=aircraft=technology.==Th Boeing=is=an=aircraft=manufacturer.==The=c
=Assu e=purpose=of=the=company=is=to=design=better=plan ompany’s=purpose=is=to=create=the=best=val
mpti es=that=fly=higher,=faster,=farther.== ue=for=its=customers=and=the=highest=possi
ons= ble=returns=for=its=investors.==
Shareholder=value=is=prioritized.=
Valu Core=values=are=quality,=innovation,=and=safety.== Core=values=are=efficiency,=profitability,=an
es=an Engineering=excellence=is=valued.=Investment=in= d=low=cost.=
d=No research=and=development=is=prioritized.= Shareholder=value=is=prioritized.===
rms=
Artif Stories=about=William=Boeing’s=attention=to=quali Common=slogans=were=―We’re=in=
acts== ty,=innovation,=and=safety=were=part=of=the=compa business‖=and=―We’re=managing=
ny=folklore.==The=company=was=described=as=an= for=value.‖===
―association=of=engineers.‖==
=
=
Summary:==Over=time,=Boeing=culture=had=shifted=from=a=focus=on=quality,=innovation,=and=safety=
to=a=focus=on=efficiency,=profitability,=and=shareholder=value.==This=affected=the=development=of=the
=737=MAX,=as=it=led=to=decisions=to=re-
tool=an=old=model=(the=737)=rather=develop=than=a=new,=clean-
sheet=model,=to=keep=costs=down=and=speed=up=delivery=to=key=customers.=(The=decisions=made=by=
Boeing=during=the=development=of=the=MAX=are=further=explored=in=the=response=to=Question=4,=b
elow.)====
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3. Describe=the=ethics=policies=and=practices=of=Boeing.==What=ethical=safeguards=were=in=pla
ce=to=promote=safety?==Evaluate=the=effectiveness=of=these=safeguards=during=the=develop
ment=and=production=of=the=737=MAX.==
=
Chapter=6=describes=how=companies=can=institutionalize=ethics=by=building=ethical=safeguards=into=
their=everyday=routines.==The=case=shows=that=Boeing=had=in=place=the=key=elements=of=a=robust=eth
ics=and=compliance=program,=including:=
=
• A=code=of=conduct=and=values=statement.=
• A=senior=executive=with=responsibility=for=ethics=and=compliance=(Diana=Sands).=
• A=requirement=that=employees=annually=sign=the=code=of=conduct.==
• Periodic=training.=
• Regular=surveys=of=employees.=
• An=ethics=reporting=system=and=periodic=review=of=complaints=filed=in=this=system.=
=
However,=in=practice=the=system=failed,=in=that=it=did=not=prevent=the=design=and=production=of=unsa
fe=aircraft.==Why=did=it=fail?==Students=might=make=several=arguments:=
=
• The=complaints=process=failed=in=practice,=as=exemplified=by=the=experiences=of=Edward=Pi
erson=and=others.==Senior=managers=failed=to=respond=proactively=to=serious=concerns=Piers
on=and=others=raised=about=safety=and=quality.=====
• The=ethics=and=compliance=function=was=headed=by=an=accountant.==Presumably=she=was=m
ainly=concerned=with=financial=returns=and=investor=relations;=she=may=not=have=had=suffici
ent=expertise=in=ethics.==
• Complaints=made=through=the=reporting=system=were=not=disclosed,=e.g.,=by=being=turned=o
ver=to=the=FAA=or=other=external=pary=for=review.=
4 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.