Tuesday, June 10, 2008

Boeing’s Approach to Innovation

In building the 787, Boeing divided up more than just the assembly of the new jet. They farmed out the design and major component construction. Companies other than Boeing are doing the work needed to design and engineer solutions to unexpected problems in the design. These companies are also engineering solutions to the practical complexities of manufacturing with new material and new methods. Followers of the Toyota strategy see this as a big mistake. Toyota’s strategy suggests that when you outsource innovation you become nothing more than a distributor. While Boeing still retains vast amounts of intellectual capital through its central role in the 787 developments, it is foregoing a tremendous amount of intellectual property in the form of know-how. This know-how is available to other airline companies who can contract with Boeing’s suppliers too, or, where that is not an option, hire the people who carry the knowledge in their brains.
Boeing has already said that it would do things differently in the future. But if that still includes outsourcing design, then a prudent investor might start looking at taking long-term positions in Bombardier Aerospace, or Embraer, or even India’s Hindustan Aeronautics Limited (if such an investment is even possible in India).
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