Abstract

"'Running It Like a Business': How Boeing's Managers Dismantled Its Productive Capabilities in the MSV Era"

Mustafa Sakinc, Université Sorbonne Paris Nord (erdemsakinc@yahoo.com)

The growth of the modern enterprise rests on its managers' ability to transfer resources from marketing, research and development, and production into new and more profitable products. As both Chandler and Penrose argued, at the core of the multi-product firm that can generate innovations are the management of organizational capabilities, which develop and utilize productive resources. There has, however, been a systemic transformation of the Western economic system over the last fifty years, labeled as financialization, with significant implications for corporations and their productive organization. This transformation has gone furthest in the United States, raising questions about whether major U.S. corporations can sustain their competitive positions in global markets.

Boeing exemplifies how a transition from innovation to financialization, from an organization focused on value creation to one that serves as a vehicle for value extraction, undermines investment and management in organizational capabilities. I demonstrate that Boeing’s decline was due to the adoption of maximizing shareholder value as the primary guide for pursuing financially driven corporate strategies since the early 1990s. As the evidence shows, financialization at Boeing was incentivized by the substantial increase in stock-based pay for top managers and led to massive distributions to shareholders in the form of stock buybacks and dividend payments. Boeing’s obsession with its share price and shareholder value contributed to the erosion of its productive capabilities, manifested by massive budget overruns following aircraft development and manufacturing programs, the disposal of key productive capabilities, labor disputes, and the introduction of fatally designed and manufactured aircraft. As a result, Boeing’s future as a competitive commercial aircraft manufacturer was put into jeopardy.