Why the Boeing Max 9 fiasco is a key case study for the health industry
Short term business decisions have long term consequences and impact on people's lives - whether in aviation or medicine
Happy Sunday, readers.
First, my sincere thanks to all who have subscribed, read along, and provided feedback to this still-nascent publication in the past 10 days. Please keep those thoughts coming – they will only make Phase 5 worthier of your time and hopefully spur worthwhile conversations about the future of medicine, the life sciences, and their interplay with technology at a critical inflection point for humanity.
I got back to New York from the 2024 JPM Healthcare Conference in San Francisco during the wee hours of Saturday morning (and, yes, that’s why Phase 5 didn’t publish this past Tuesday and Thursday as regularly scheduled – I just didn’t have time to sit down and write a proper post between all the events, interviews, and hallway conversations during the annual industry extravaganza, as well as some unforeseen circumstuances we’ll get to shortly). Rest assured I’ll share plenty of JPM2024 analysis – and what biopharma/digital health/med tech executives, investors, and industry leaders had to say about marquee issues ranging from AI’s role in making the drugs of the future to the policy-driven cost conundrums hospitals and patients face today – in our next few issues.
But I want to focus on a different industry in the national spotlight today, and some potential takeaways for the life sciences and medicine from an unfolding business case study: The travel fiasco wrought by the Boeing 737 Max 9’s groundings since January 6, after a literal plane piece of that model blew off during an Alaska Airlines flight and brought renewed scrutiny on Boeing, a storied company long associated with world class innovation and all around excellence.
Full disclosure: I was personally affected by the current debacle. My flights to and from San Francisco for JPM were both booked through Alaska, the main U.S. domestic airline other than United to have a substantial number of Max 9 jets in its fleet, and wound up arriving at JFK 2.5 days later than initially planned (including an involuntary two-day extended stay in San Francisco after a Wednesday flight cancellation, followed by a five-plus hour delay on a connecting flight back east from Las Vegas this past Friday afternoon).
Thousands of others (including more than a few who were at JPM) undoubtedly have similar stories. And when it comes to something as complex as air travel and its associated logistics, this may wind up a mere blip on the historical transit radar. Still, there may be a lesson or two for other logistically complex, innovation-driven industries that serve common human needs across massive markets (ahem ahem) gleaned from Boeing’s current woes - and how strategic industry decisions made in the moment have lasting distal impact.
There’s already been ink spilt on the corporate incentives and culture at Boeing that explore how an aviation titan must now defend the design and quality control of its fleet. It’s nothing new in business irrespective of industry: Quarterly financial imperatives, shareholder return, getting to as big a market as possible as fast as possible - and the potential tradeoffs such as manufacturing diligence.
The Boeing case study seems eerily relevant to a biopharma/digital health industry at a scientific and technological inflection point, and the industry and regulatory decisions that come with it. Famed British economist, academic, and all around business guru John Kay, in his tremendous book Obliquity, explored Boeing’s past business decisions (and their consequences) in this distal light, mapping the company’s deliberate shift from a long-term, impact-oriented vision that could only be achieved indirectly (aka obliquely) to the more “direct” route of a shorter-term return motive absent a keen eye on the long-term future:
Bill Allen was chief executive [of Boeing] from 1945 to 1968. Under Allen, the corporate purpose was to “eat, breathe, and sleep the world of aeronautics.” During Allen’s tenure Boeing developed the 737. With almost four thousand planes in the air, it is the most successful passenger airliner in history. But the company’s largest and riskiest project was the development of the 747 jumbo jet. When a nonexecutive director asked for details of the expected return on investment, he was brushed off: Some studies had been made, he was told, but the manager concerned couldn’t remember the result. By the early 1990s Boeing had established almost complete dominance of world civil aviation. Boeing created the most commercially successful aircraft company, not through love of profit but through love of planes. […]
A decisive shift in corporate culture followed the acquisition of the company’s chief U.S. rival, McDonnell Douglas. The new CEO, Phil Condit, explained that the company’s previous preoccupation with meeting “technological challenges of supreme magnitude” would have to change. Directness would displace obliquity: “We are going into a value based environment where unit cost, return on investment, shareholder return are the measures by which you’ll be judged. That’s a big shift.”
The company put the location of its corporate headquarters up for auction, and its senior executives agreed to move from Seattle, where the main production facilities were located, to Chicago. The newly focused business reviewed risky investments in new civil projects with much greater skepticism and made a strategic decision to redirect resources toward projects for the U.S. military that involved low financial risk. Chicago had the advantage of being nearer to Washington, where government funds were dispensed. So Boeing’s civil order book fell behind that of Airbus, the European consortium. […]
Boeing stock, thirty-two dollars when Condit took over, rose to fifty-nine dollars as he affirmed the commitment to shareholder value; by the time of his forced resignation in December 2003 it had fallen to thirty-four dollars. Condit’s successors once again emphasized civil aviation. The 777 is a success, and the Dreamliner appears a better vehicle for the future than the huge Airbus 380. By 2008 Boeing had regained its leading position in commercial aviation and the share price its earlier value… shareholder value was most effectively created when sought obliquely.
Kay published Obliquity in 2012. His central thesis appears to hold steady across the current Boeing headlines.
As with aviation giants, a healthcare industry in innovative flight may want to keep such considerations in mind to best serve all stakeholders, well into the future.
Phase 5 will be back in your inbox on Tuesday with some more grounded content out of JPM. Till then, enjoy the long weekend for all in the U.S.