Knowledge and Process Management

Volume 21 Number 1 pp 13–28 (2014)

Published online in Wiley Online Library
(www.wileyonlinelibrary.com) DOI: 10.1002/kpm.1431

■ Research Article

An Integrated Outsourcing Framework:

Analyzing Boeing’s Outsourcing Program
for Dreamliner (B787)
Ehsan Elahi1*, Mehdi Sheikhzadeh2 and Narasimha Lamba1
1
College of Management, University of Massachusetts Boston, Boston, Massachusetts, USA
2
Graduate School of Management and Economics, Sharif University of Technology, Tehran, Islamic Republic
of Iran

This paper analyzes the outsourcing model that Boeing devised to develop its latest commercial airplane model:
Dreamliner (B787). The development of this airplane, which seemed to be very promising in the beginning, turned
into the longest delayed program in the history of the company. In this paper, we propose an integrated outsourcing
framework through which we try to find the root causes of the delays and the resulted extra costs. The proposed
framework shows how the interaction of all influential factors in four outsourcing dimensions (who, what, to whom,
and how) determines the performance of an outsourcing program. Copyright © 2014 John Wiley & Sons, Ltd.

INTRODUCTION and resources into the program. At that time, the

top management was under the impression that
On the 29th of January 2003, Boeing revealed the they could contain the problem to a 6-month delay
general specification of its latest airplane design. (considering some cushion for then unforeseen
The new airplane was a fuel-efficient jetliner made problems). A six-month delay might not look unac-
of mostly composite materials—an innovative and ceptable for a mega project to develop an extremely
unparalleled design that the commercial aviation in- complex product. Nevertheless, only the 6-month
dustry had never seen the like of it. The plane was delay resulted in around $1bn of extra costs and
eventually dubbed Dreamliner or Boeing 787 an estimated reduction of $3.5bn in revenues for
(B787). The Dreamliner, with its appealing and the consecutive year (Gates, 2007). However, as the
unique features, turned into the most successful re- subsequent events showed, the roots of the prob-
lease in the history of commercial aviation industry lems were so deep that they caused more than
with a record number of 500 orders within the first 3 years of delay and many times more extra costs.
3 years of the program’s official launch. Later on, In this paper, we try to analyze the Boeing’s chal-
Dreamliner’s orders even exceeded 900 at some lenges in this program, which seem to have roots in
point.1 However, the Dreamliner came to be known the outsourcing model the company established for
as the longest delayed program in the company’s developing this airplane. Similar to many other
history with more than undesirable consequences, challenging cases in the past, this case supports the idea
including huge extra costs, lost and delayed that outsourcing is a double-edge sword that can
revenues, and loss of customers’ and investors’ ultimately offer either significant positive business
confidence, not to mention a reshuffle of the top achievements or huge negative business impacts,
management. depending on how it is designed and implemented.
When the first signs of the problems were ob- Outsourcing literature is rich with papers that try
served in 2007, the company started to pour money to demonstrate the interaction of influential factors
in an outsourcing program—either to explain the
*Correspondence to: Ehsan Elahi, College of Management, outcome or to prescribe an approach. Most of these
University of Massachusetts Boston, 100 Morrissey Blvd., Boston, papers, however, focus on limited number of factors.
MA 02125, USA. In reality, each outsourcing program is influenced by
E-mail: ehsan.elahi@umb.edu
1
The number of outstanding orders is a changing figure due to a network of many influential factors. In some cases,
new orders and cancelations. focusing on a selected number of factors could be

Copyright © 2014 John Wiley & Sons, Ltd.

14 E. Elahi, M. Sheikhzadeh and N. Lamba

misleading—as we will show for the Dreamliner suppliers? and (iv) how outsourcing is being done
case. In this paper, we offer a framework that can and how effective and efficient they are?
help us to identify all the influential factors from a Throughout the rest of this section, we briefly
holistic point of view. Using the existing results in review the literature related to our case and show
the literature, one can then analyze the interaction that the existing results can be viewed from the
of these factors to understand/design an outsour- perspective of this framework. In fact, each paper
cing program—again, we demonstrate it for the in the literature tries to explain the relationship
Dreamliner case. between two or more factors in different outsourcing
In this paper, we first introduce our framework dimensions. For each paper, we specify the dimen-
while reviewing the related literature. We then pro- sion(s) under discussion in a bracket.
vide the case background and our observations in Because of the vastness of the outsourcing litera-
this case. Using this framework, we analyze the ture, for the sake of brevity, we focus only on the
Dreamliner case to find the root causes of the prob- outsourcing of design (or research and develop-
lems. Managerial insights are provided at the end. ment) and new product development (NPD), which
The authors acknowledge that the analysis of a case is related to the case under study in this paper.
ex post is much easier than doing so ex ante. We want Nowadays, many companies have developed
to emphasize that this analysis by no means under- competencies in managing NPD projects to play
mines the efforts of executives and managers at mainly the role of system integrators. There are
Boeing and the decisions they had to make under a others who have kept the development of few criti-
very turbulent business environment. It is partly cal components or sub-systems in-house and
through their visions and daring that we can enjoy outsourced the development of the rest to suppliers.
such advancements in the commercial aviation field. All these companies can then enjoy the benefits of
outsourcing of NPD, which include access to a
larger pool of resources (either financial or talent)
RELATED LITERATURE AND CONCEPTUAL [who and to whom], greater focus on core compe-
FRAMEWORK tency and customer requirements [who], reduced
costs through lower labor and talent costs [to
Outsourcing of a specific business activity can be re- whom], global growth through access to critical lo-
ferred to as the process of transferring the responsi- cal information and markets [to whom], more em-
bility of performing a function from internal ployee flexibility [who] through transferring the
employee groups to external non-employee groups responsibility of new employees to suppliers
(Zhu et al., 2001). Because of its potential benefits, (Rundquist, 2008), potential profit margin benefits
outsourcing has become one of the key business (Calantone and Stanko, 2007) [who], and lead-time
strategy themes for companies in the last few reduction [what].
decades, over which the evolution of outsourcing There are a variety of challenges in outsourcing in
can be classified into three periods (Hätönen and general and the outsourcing of design and NPD in
Eriksson, 2009): the era of cost cutting by (domestic) particular. In the past, firms usually preferred to
outsourcing via arms-length relation (1980s), the keep NPD processes in-house because their outsour-
era of capability enhancement by (international) cing would be associated with future vulnerability
strategic sourcing via strategic alliances (1990s), of the firm due to either intellectual property
and the era of organizational transformation by concerns (Munsch, 2004; Roy and Sivakumar, 2011)
(global) transformational outsourcing via collabora- [who] or dependency concerns (McIvor, 2005)
tive development (2000s). [who]. However, because of its aforementioned bene-
The evolution of outsourcing has been accompa- fits, outsourcing of design and NPD is becoming
nied by augmentation of outsourcing variants. This more common over time.
resulted in quite an extensive literature that looks at For a stronger focus on core competencies, firms
outsourcing from different perspectives. In order to are encouraged to consider outsourcing everything
gain a comprehensive perspective, capable of cap- that is not a core competency (Windrum et al.,
turing all related factors, we propose a general 2009). However, distinguishing core from non-core
framework with four outsourcing dimensions. competencies or equivalently determining the scope
These outsourcing dimensions are in fact four ques- of outsourcing [what] is not an easy task. McIvor
tions, the answer to which can fully characterize all et al. (2010) proposed a framework that helps to
the influential factors in any outsourcing program. identify what should be outsourced and what
These outsourcing dimensions (questions) are the should not. Depending on the relative capabilities
following: (i) who wants to outsource and what are of the outsourcing firm [who and to whom] and
the capabilities of the outsourcing firm? (ii) what is criticality of the processes to be outsourced [what],
being outsourced and what are the characteristics the authors propose four outsourcing options:
and complexities of the product or service being (i) collaborative outsourcing (low capability, criti-
outsourced? (iii) to whom should a firm outsource cal); (ii) retain in-house (high capability, critical);
and what are the required qualifications of the (iii) transactional outsourcing (low capability, not

Copyright © 2014 John Wiley & Sons, Ltd. Know. Process Mgmt. 21, 13–28 (2014)
DOI: 10.1002/kpm
 An Integrated Outsourcing Framework 15

critical); and (iv) outsource or spin-off (high capabil- of such outsourcing programs. Any shortcoming in
ity, not critical). qualifications and technical strengths of the first-tier
Design and NPD processes require the interaction supplier is potentially transferred to the outsourcing
of cross-functional teams, and as such, having effec- firm and can result in delays and other negative
tive and efficient communication is both critical and impacts [to whom].
challenging. The required interaction can be esca- An influential factor amplifying these outsourcing
lated by the complexity of the product or service challenges is the complexity of the product [what].
(Zhao and Calantone, 2003) [how and what]. To Complexity could pose challenges in capacity esti-
facilitate communication in electronic industry, mation when launching new products. This could
extended enterprises have been formed where possibly lead to over-commitment situations (Yu
original equipment manufacturers have extended et al., 2010) [what and to whom]. Moreover, com-
their collaboration with companies that manage plexity of products can cause challenges in having
production, product introduction, and even product a modular design that is critical in outsourcing of de-
design for the more complex and technologically sign and NPD (Langlois, 2003) [what]. To outsource
advanced parts of a product or module (Johansen, the design and NPD of complex products, when
2005) [how and what]. In fact, the modular nature learning by doing matters, the original equipment
of products in some industries has let companies manufacturer should retain some component-
outsource detailed design of components under specific knowledge in-house (Zirpoli and Becker,
their general design requirements. Such a practice 2011) [what and who]. Through empirical analysis
[how] has been observed in Japanese car companies of 323 projects, Hui et al. (2008) have argued that, be-
(Dutton, 1992), Chrysler (Minahan, 1998), and cause of high interdependency of activities within
Apple (Magee, 1992). When a modular design is stages of complex projects, outsourcing firms suffer
possible, the challenge of dealing with the complexity from lack of domination over the activities and as
of the product reduces to the challenge of man- such face challenges in control and monitoring
aging the interfaces of the product sub-systems [how and what], leading to poor performance. In
[how]. outsourcing the NPD of a complex product, it is dif-
In the conventional NPD, we usually observe ficult to clearly define the outsourced function or
co-located teams relying on designers and engineers state a clear performance measure (Tadelis, 2007).
located in engineering centers. In contrast, nowa- Moreover, for a complex product, the detailed
days, NPD has more globally distributed teams specification of the product might evolve as the de-
using an entirely digital NPD process to facilitate velopment program proceeds, which prevents the
distributed, collaborative engineering (Eppinger outsourcing firm from having a well-defined con-
and Chitkara, 2006) [how]. It seems, however, that tract. Lack of clarity in the contract is often a source
there is no established model that describes how of renegotiations and change in contract terms,
this virtual network operates or should be managed which can result in considerable hidden costs
(Monroy and Vilana Art, 2010) [how and to whom]. (Tadelis, 2007) [how and what].
When it comes to NPD outsourcing of complex Complexity of product can also influence the type
products, co-location of outsourcing firm and sup- of relation between the outsourcing firm and its
pliers is advised in general design and integration supplier. One extreme type of relation known as
phases (Tripathy and Eppinger, 2011) [how]. arms length or contractual (Kamath and Liker,
Another challenge in outsourcing of NPD is the 1994) [how] is where suppliers manufacture simple
structure of supply chain. To address the challenging parts, either standard across the industry or desig-
task of managing a network of suppliers, often ned by the outsourcing firm. At the other end of
delegated sourcing strategy is applied (Cousins the relation spectrum is partnership in which the
and Spekman, 2003) [to whom and how]. This struc- supplier is fully integrated into the product develop-
ture has become popular in the aerospace and auto- ment processes of the outsourcing firm.
motive industries since the mid-1990s. In delegated The contract/relation between the outsourcing
sourcing, a few key suppliers known as first-tier firm and suppliers should also provide proper in-
suppliers are each responsible for the delivery of centives for the suppliers to exert enough fund and
an entire sub-assembly as opposed to an individual effort [how]. For outsourcing the NPD of complex
part. The outsourcing firm delegates authority to products where the scope and performance mea-
the first-tier suppliers to manage the manufacturing sures cannot be clearly defined from the outset,
of the associated components of the sub-assembly. these incentives usually cannot be properly induced
Such a structure can be applied when a modular through direct payments. In these cases, other
design is feasible. In this approach, a first-tier mechanisms such as revenue sharing contracts or
supplier is, in essence, a strategic partner. This firm royalty payments can be used (Quinn, 2000) [how].
designs the sub-systems and develops a hierarchical There is a similarity between our conceptual
network of its own suppliers (Mazaud and Lagasse, framework and the classification of literature pro-
2007) [to whom]. Such a dual responsibility for the posed by Hätönen and Eriksson (2009) with the pri-
first-tier suppliers is extremely critical in the success mary difference that our framework is to be applied

Copyright © 2014 John Wiley & Sons, Ltd. Know. Process Mgmt. 21, 13–28 (2014)
DOI: 10.1002/kpm
16 E. Elahi, M. Sheikhzadeh and N. Lamba

Figure 1 Four outsourcing dimensions and their typical associated factors

for analysis of an outsourcing program, whereas METHODOLOGY

Hätönen and Eriksson’s classification tries (among
other results) to categorize the subjects of the pub- In this research, we performed an in-depth study of
lished articles in the general field of outsourcing. theoretical results in the literature (focused on
Furthermore, one of our contributions is to highlight outsourcing of research and development and
that the interactions of the factors in different NPD). On the basis of this study, we proposed our
dimensions (questions) are extremely critical in the conceptual framework. We also carried out a case
analysis of an outsourcing program. Hence, these study to show how our framework can be applied
dimensions should be analyzed (questions should in practice. For our case study, we used two sources
be answered) in accordance with each other. Each of data/information: qualitative interviews and pub-
of these four dimensions can be characterized by lished materials. Specifically, we conducted semi-
different factors as is depicted in Figure 1 (see also structured interviews with industry experts and
Table 1 for the state of each of these factors in the analysts as well as Boeing’s union representatives. In
Dreamliner program). The nature of these factors parallel, we carefully compiled and analyzed all pub-
in each dimension and their interaction can identify licly available data/information including published
the level of success of an outsourcing program. In news, comments, and analyses in media and the com-
our Analysis section, we will show how these inter- pany website. Over time, we could gather sufficient
actions resulted in delays and extra costs in the information from interviewees and publicly available
Dreamliner’s outsourcing program. materials by realizing saturation in new information.
We chose the factors in each outsourcing dimen- Through the gathered information and our conceptual
sion (Figure 1) on the basis of the existing results framework, we tried to analyze the root causes of this
in the literature2 and the observations in our case. costly and well-publicized delay and its impacts. Our
In fact, each case has its own influential factors with analysis is based on the related events that have hap-
different levels of importance. What we want to pened by the end of October 2011.
emphasize in this framework is that, in any outsour- Despite repeated attempts, probably due to exten-
cing program, we need to look at the four sive delays and escalation of public criticisms, none
outsourcing dimensions and characterize the influ- of the key decision makers at Boeing and at the first-
ential factors of each dimension in that specific case. tier suppliers were willing to be interviewed. This
Then, the interaction of all these factors should be can be viewed as one of the main sources of data
considered and analyzed to get a complete picture limitation in our case study.
of the performance of the outsourcing program. As There have been many news reports and company
we will show in our case, considering only a limited media releases since the program was first an-
number of factors could be misleading. nounced in 2003; some supported and some criticized
the many controversial issues that surrounded the
2
program. To the best of our knowledge, there has
See, for example, the references mentioned in this section.
Monroy and Vilana Art (2010) enumerate 10 outsourcing success not been any publication that has a comprehensive
factors. and analytical look at the delayed program to date.

Copyright © 2014 John Wiley & Sons, Ltd. Know. Process Mgmt. 21, 13–28 (2014)
DOI: 10.1002/kpm
 An Integrated Outsourcing Framework 17

Table 1 The status of influential factors of four elements of outsourcing in the Dreamliner program

Who

Technical capability Very strong, possibly stronger than all other suppliers
(except in a few sub-systems that have always been outsourced
such as engines, avionics, and so on)
Financial capability Very strong, Boeing managed to pay an estimated $30bn of extra
costs during almost 3 years of delays
Supplier management Boeing was experienced in outsourcing the manufacturing but novice
in outsourcing the detailed design of the airplane sections
Talent availability Boeing owned one of the largest and richest collection of experienced
engineers and technicians in this industry
IP concerns Because Boeing intended to play the role of a system integrator, it was
not very strict about keeping in-house its know-how of airplane detailed design
Dependency concerns Through its revenue sharing contracts, Boeing was not very concerned about its
dependency on supply partners
Employee flexibility Boeing’s workforce was strongly unionized. Boeing intended to create more flexibility
What
Complexity Extremely complex product
Criticality for the OEM What is outsourced was very critical
Development cost Very high initial investment was required
Lead time Usually very long for this type of product
To whom
Technical strength Evidence suggests that some of the suppliers were not up to the task
Financial strength Supply partners were financially strong to make the initial investment as long as
the program was not delayed
Sub-supplier management Problems with sub-suppliers show that some of the supply partners were not
particularly good at managing sub-suppliers
Cost advantage Suppliers were NOT located in cheap labor or talent locations
How
Outsourcing scope Extensive outsourcing of design and manufacturing
Contract type Revenue sharing
Communication level The communication level was less than needed for the outsourcing of NPD of an
extremely complex product
Control and monitoring Less than enough control and monitoring

OEM, original equipment manufacturer; NPD, new product development.

This article could be a first attempt at such a compre- commercial airplane division, contributing to ap-
hensive and analytical look. proximately 50% of Boeing’s annual revenue.3

CASE BACKGROUND What: Dreamliner, an extraordinary design

In this section, we provide background information The Boeing 787 is a mid-sized, wide-body, twin-
on the Boeing Company, its products, the Dreamliner engine commercial jet airliner. At the time of launch,
design, and the Dreamliner program. This back- the Dreamliner was rated as the most efficient
ground information, which is presented according commercial airplane ever made by Boeing and
to our conceptual framework, provides the context would be 20% more fuel efficient than similar-sized
for our analyses that proceed. airplanes.4 The change from traditional hydraulic
systems to electrical architecture, higher usage of
composite materials (derivatives of carbon fiber), use of
Who: Boeing, an extraordinary company advanced technologies for a better in-flight experience,
and reduced airplane maintenance costs were some of
The Boeing Company is one of the nation’s largest the very notable features of this plane (Hale, 2006).
exporters by value (Reed, 2003). It was founded in The usage of composite materials in the
1916, and it is the world’s largest and most diversi- Dreamliner’s structure was not Boeing’s first experi-
fied aerospace company as of 2010. Boeing designs, ence with these exotic materials. The company owns
manufactures, and supports commercial jetliners,
defense systems, satellites, and launch vehicles. At 3
http://www.boeing.com/companyoffices/aboutus/brief.html.
the end of 2009, with customers in 90 countries, 4
http://www.boeing.com/commercial/787family/
$34.1bn of the company’s sales was from the programfacts.html.

Copyright © 2014 John Wiley & Sons, Ltd. Know. Process Mgmt. 21, 13–28 (2014)
DOI: 10.1002/kpm
18 E. Elahi, M. Sheikhzadeh and N. Lamba

Figure 2 Outsourced parts of the Dreamliner and their suppliers (source: Seattle Post-Intelligencer)

a facility dedicated to this purpose called Composite Boeing named its major suppliers the Global
Manufacturing Center. What differentiated the Supply Partners (GSP) because participation of a
Dreamliner’s design from Boeing’s other models, supplier necessitates investing its own funds and
such as B707 and B777, was the extent to which these resources to perform the engineering development
materials were used. The extensive use of composite and integration. These major supply partners were
materials makes the Dreamliner 30 000–40 000 also called risk sharing partners because they agreed
pounds lighter than similar aircrafts. It also lets to receive part of the revenue of selling each
Boeing design the structure of the plane from very airplane as their payment (Drew, 2009a). So, they
few large body parts (sections), which could reduce accepted to share Boeing’s risk in success or failure
the assembly time and use much fewer fasteners. of the program.

How: Dreamliner development program

Boeing not only introduced a revolutionary product To whom: first-tier suppliers
but also revolutionized the way it developed the The major partners chosen by Boeing were Spirit
new airplane. The company decided to outsource AeroSystems (USA), Alenia Aeronautica (Italy),
the manufacturing of the airplane more extensively. Kawasaki Heavy Industries (Japan), Vought Aircraft
Boeing also outsourced, for the first time, the Industries (USA), Fuji Heavy Industries (Japan), and
design, engineering, and integration of the majority Mitsubishi Heavy Industries (Japan) (Lott, 2010).
of the airplane parts including different sections of Figure 2 shows the sections outsourced to each supplier.
the fuselage, the horizontal tail, and the wings.
Although Boeing had the proper capability and
expertise within its own engineering team, the com-
pany offloaded the design and engineering phase to What happened
suppliers, while limiting its role mainly to the By convincing suppliers to invest their own funds
provider of the general design and the assembler and resources, Boeing managed to cut the develop-
of the sections delivered by the suppliers. More than
ment costs to around 55% of the originally esti-
90% of the engineering, manufacturing and integra- mated $10bn budget for the program (Lunsford
tion of the Dreamliner was outsourced to outside and Micheals, 2004). As a result, the GSP model
suppliers.5 The vertical fin remained the only major
was received very well by the industry experts, an-
part that was designed and manufactured directly alysts, and even investors. As such, Steven Schaffer,
by Boeing. vice president and general manager of the GSP at
Boeing Commercial Airplanes, was named the sup-
5
Boeing originally outsourced more than 70% of the design and ply chain manager of the year (2007) by the Purchas-
manufacturing of the Dreamliner to suppliers. Later on, the com-
pany sold off its Wichita and Tulsa plants, increasing outsourcing, ing Magazine. All in all, everyone seemed to be
according to industry experts, to more than 90%. excited about the brilliance of the program design.

Copyright © 2014 John Wiley & Sons, Ltd. Know. Process Mgmt. 21, 13–28 (2014)
DOI: 10.1002/kpm
 An Integrated Outsourcing Framework 19

The events that followed this initial hype, how-

ever, proved that neither the outsourcing model
nor its implementation was free of major flaws.
Starting in 2007, Boeing faced a series of problems
in its Dreamliner program, which led to a series of
delay announcements. Figure 3 shows the timeline
of these delays and the announced reasons.
Boeing managed to display the first assembled
Dreamliner in its roll out ceremony, as it was
scheduled, in July 2007. Boeing insisted on having
the roll out on 8 July 2007 because the digits of this
date symbolize the airplane name (07/08/07 or
787). The B787, which was displayed to the public
in this ceremony, was not as complete as it looked.
Most of the parts delivered to Boeing’s assembly fa- Figure 4 Being’s stock performance compared with the aero-
cility were incomplete. Engineers and technicians at space/defense industry average
Boeing had to use temporary fasteners to pull the
parts together for the show. In fact, Boeing rushed weaker than that of the industry average until late
the suppliers to deliver the parts even if they were 2009 when the maiden flight (first takeoff) hap-
not complete so that it could keep its promise for pened, and Boeing’s stock managed to gain part of
the symbolic roll out date. After another five delay its old strength. Although Boeing’s stock price
announcements, finally, the first Dreamliner took might have been affected by internal factors other
off the ground in December 2009. than the Dreamliner program, Figure 4 shows that
The impact of these delays, which were accom- there is a strong correlation between the success
panied by huge extra costs, had many tangible and and failure of this program and Boeing’s stock price.
intangible impacts on Boeing. As an example, we
can look at the possible impact of this program on
the Boeing’s stock performance. Figure 4 shows
OBSERVATIONS
Boeing’s stock performance compared with its
In this section, we introduce highlights of Boeing’s
industry average (Aerospace and Defense) from
challenges in B787 development program and
2004, when the program was launched, until fall
company’s responses to them. For brevity’s sake,
2010 (both Boeing’s stock price and the industry
we do not discuss all the documented problems.
average are normalized to an index of 100 at the
beginning of 2004).
Boeing’s stock increasingly performed better than
Fasteners problems
the industry average since the launch of the pro-
gram until the roll out date. This was the period of One of the first supply chain problems that surfaced
time when the program was mostly praised and re- in this program was a shortage of fasteners. In 2007,
ceived a record number of orders. The superiority of there was a general shortage of fastener production
Boeing’s stock started to decline after the first delay capacity in the industry (Glader and Lunsford,
announcement. This decline continued, and in 2007). This problem was even worse for the
mid-2008, Boeing’s stock started to actually perform Dreamliner program. The new composite design

Figure 3 Dreamliner program timeline

Copyright © 2014 John Wiley & Sons, Ltd. Know. Process Mgmt. 21, 13–28 (2014)
DOI: 10.1002/kpm
20 E. Elahi, M. Sheikhzadeh and N. Lamba

needed about 80% fewer fasteners. In addition, the For instance, Vought Aircraft Industries, a supply
airplane was in the development phase. So, the chain partner in charge of building the rear fuselage
orders were for very few numbers of airplanes. of the Dreamliner, offloaded the production of floor
The relatively small volume of fastener orders from grids to Israel Aircraft Industries (IAI). However,
the Dreamliner program did not stir an enthusiastic IAI failed to deliver the integrated floor grid of the
response from the suppliers who preferred to first Dreamliner on time. Under pressures from
exploit their limited capacity in larger orders. Boeing, Vought shipped the first rear fuselage to
Hence, it was natural for the fastener manufacturers Everett, which had only 16% of its structure com-
to give lower priorities to smaller orders. This pleted and none of the systems installed. To solve
situation posed serious threats to the Dreamliner the problem, IAI was directed to supply unassembled
program (Wallace, 2007). floor grid pieces, and as such, after about 1 year, the
Following the fastener delay, Boeing and Alcoa fuselages from the Vought plant were 98% complete
planned to develop ways to speed up production. by structure and had 87% of the systems installed,
Alcoa’s plan was to add up to its existing capacity before being delivered to Everett for final assembly
at Mexico and Hungary and also to open up a new (Gates, 2008b).
plant in China (Ostrower, 2009). However, the Another instance rose when Boeing outsourced
problems with fasteners continued to haunt the the brake-control monitoring system to General
Dreamliner program. On a second occasion, the delay Electric, who in turn subcontracted the design of
was caused by improper installation of the fasteners. the software to Crane Co. The delivered software
Because of unclear specifications of how to install caused serious feedback problems at Everett be-
these fasteners, close to 3% of the fasteners installed cause of the improper test and verification of the
had to be removed and reinstalled. In response, software by HCL, an Indian subcontractor of Crane.
Boeing emphasized that they would improve their Crane accepted the responsibility and spent many
quality management systems and the training of times its initial budget to rework the job. After the
workforce on fastener installation (Gates, 2008a). problem was resolved by Crane, Boeing realized that
the temperature generated in the brakes was higher
than expected during the taxi testing of the first
Traveled work Dreamliner. They needed to redesign the brake-
control monitoring system, requiring an additional
Suppliers, who could not complete their parts
investment by Crane. This time, however, Crane
according to the specified requirements, passed on
was not willing to pour more money into this project.
incomplete or substandard sections of the airplane
In a legal battle, Boeing was directed to pay $18.9m
to Boeing’s final assembly facility at Everett, WA.
for the redesign cost. It was then decided that Boeing
Workers at Everett had to incorporate additional ef-
would work directly with Crane rather than with
fort to finish the incomplete work. They named this
General Electric as intermediary (Ostrower, 2009).
type of extra work “traveled work.” This was
compounded by the problem of mechanics at Everett
having to encounter parts for assemblies sometimes
without proper paper work or even assembly instruc- Delays and shortage of financial resources
tions in another language that required translation
(Lunsford, 2007). The supply partners in GSP model were expected to
Boeing had to include traveled work into its have the financial strength to afford the develop-
already tight production schedule, which resulted in ment cost and to wait for the Dreamliner deliveries
further delays. For example, flaws in manufacturing before they receive their compensation. The exten-
of the mid-fuselage structures by Alenia Aeronautica, sive delays, however, exhausted the financial abili-
the Italian supplier, made Boeing to issue a “stop ties of some of the supply partners to support the
work” order to the supplier. Boeing realized the prob- reworks and extra costs of the program. Entering a
lem after Alenia had manufactured 23 mid-fuselage period of global economic downturn added to the
sections. To fix the problem, Boeing had to apply problems of financially troubled suppliers. On the
patches to the defective areas (Drew, 2009b). other hand, Boeing, who had time-constrained obli-
gations to its customers, was pushing the supply
partners to increase their investment in the program
Problematic sub-suppliers to expedite the production. This was, of course,
beyond the means of some of the supply partners.
In GSP model, Boeing for the first time outsourced the For example, Vought and Global Aeronautica6
sub-systems to its supply partners, and these partners built two facilities in Charleston, South Carolina,
in turn outsourced different tasks of their contracts to dedicated to Dreamliner program. To resolve the
sub-suppliers. The subsequent events showed that supply chain problems and increase the production
Boeing was not ready to deal with this more compli-
cated supply chain, nor these sub-suppliers were all 6
Global Aeronautica was a 50–50% joint venture between Alenia
able to meet Boeing’s high standards. Aeronautica and Vought Aircraft Industries.

Copyright © 2014 John Wiley & Sons, Ltd. Know. Process Mgmt. 21, 13–28 (2014)
DOI: 10.1002/kpm
 An Integrated Outsourcing Framework 21

capacity, these facilities needed additional invest- the status of associated factors in the Dreamliner
ments. However, Vought and Global Aeronautica, program.
who had already invested heavily in the program The GSP model can perfectly be justified by cer-
and did not receive any income because of the ex- tain combination of the factors mentioned in Table 1.
tended delays, were hesitant to pour more money However, we will show in this section, how the
into these facilities. Therefore, Boeing was left with interaction of other factors can and did result in
no choice but to buy the facilities.7 delays and extra costs. The combination of the fol-
lowing four factors could have persuaded Boeing
to follow GSP model:
Labor union strike (i) the very high initial cost of development program;
(ii) Boeing’s desire to reduce the risk of initial
A 58-day strike by 27 000 Boeing workers caused investment;
further delays in the already delayed Dreamliner (iii) Boeing’s desire to play the role of a system inte-
program. One of the major issues in this dispute grator, with greater employee flexibility; and
(the second time in 3 years) was the employees’ (iv) the availability of supply partners with reason-
concern about their job security, which had been able technical capability and resources who are
intensified by the extensive outsourcing in the willing to invest their own funds in the devel-
Dreamliner program. While Boeing’s employees felt opment of the program and wait for a share
that they were losing their jobs to outside suppliers, of revenue as their compensation.
at the same time, they were asked to use their
considerable experience and expertise to fix all the Figure 5 shows how these factors are related to
unfinished works that the inexperienced suppliers four outsourcing dimensions. The combination of
failed to complete (traveled work). these four factors makes the GSP model almost the
The strike, which was the longest in 13 years, cost best model for the development and production of
Boeing $100m per day in deferred revenue. The strike the Dreamliner. However, there are other factors
ended when the machinist union secured a 4-year that should be considered before we can have a ho-
contract in which Boeing offered a 15% pay rise over listic view of the outsourcing program. Below, we
the 4-year period of the contract. Boeing included this try to identify main factors whose interactions
extra pay as an incentive in the contract to gain flexi- caused serious problems for the program. We look
bility and prevent further obstruction by the workers at these factors from two perspectives:
to its future outsourcing plans (Lunsford, 2008). • core competency point of view and
After the 2-month strike, Boeing decided to open • delay/extra cost point of view
a second assembly line in South Carolina to ramp
up production for its delayed Dreamliner program.
The company decided to open the new facility to
isolate the program from potential disruptions by Core competency point of view
its unionized workforce in Washington State. The
South Carolina plant had the advantages of no labor The old debate about what processes should be
union problem, relatively lower labor cost, and be- outsourced and what should be kept in-house ap-
ing closer to the two other Dreamliner production plies to Boeing too. However, it is not always easy
facilities (which originally belonged to Vought and to identify the core competency processes that
Global Aeronautica). In this way, Boeing wanted to should be kept in-house. The approach chosen by
ensure Dreamliner production remains continuous
without any labor disruption to meet the produc-
tion goal of manufacturing 10 airplanes per month
by the end of 2013 (Ostrower, 2010).

ANALYSIS

Many interconnected factors played influential roles

in turning the Dreamliner outsourcing program into
an operational and financial nightmare. Using our
conceptual framework, we try to show how the in-
teraction of these factors led to the delays and extra
costs. Table 1 shows the influential factors for each
of the four dimensions of outsourcing, as well as
Figure 5 Factors that persuaded Boeing to follow the Global
7
Dominic Gates, interview with authors, 4 June 2010. Supply Partners model

Copyright © 2014 John Wiley & Sons, Ltd. Know. Process Mgmt. 21, 13–28 (2014)
DOI: 10.1002/kpm
22 E. Elahi, M. Sheikhzadeh and N. Lamba

Boeing suggests that the company considered its

main core competency to be its ability to manage
the development program as a system integrator.
However, the case evidence shows that Boeing was
not very accurate in evaluating its core competency.
Historically, Boeing has shown great ability in
managing mega-projects of developing new air-
planes. In the Dreamliner program, Boeing kept this
project management role, as well as the assembly of
the final product, in-house and outsourced pretty
much everything else. The Dreamliner development
project, however, was not similar to the projects that
Boeing had previously experienced. There were
many features of the Dreamliner program that
made it quite distinct from its predecessors: (i) the
supply chain structure was multilayered and more
complex; (ii) suppliers were responsible for the inte-
grations of the major sections of the airplane; and
(iii) above all, the detailed design of the airplane sec-
tions was done by the suppliers. Many of the supply
Figure 6 Factors that could result in weakened future
chain problems that delayed the program were clear competitiveness
evidence that Boeing was not specifically experi-
enced in managing such a project, which means
the project management in this program could decades was shared in large part with first-tier sup-
hardly be Boeing’s core competency. pliers developing the Dreamliner (Nolan, 2009).
Prahalad and Hamel (1990), in their seminal
paper, argue that “core competencies are the collec-
tive learning in the organization, especially how to Dependency concerns
coordinate diverse production skills and integrate Boeing limited its access to the detailed design of
multiple streams of technologies.” The real core sub-systems, under GSP model. Because the sup-
competency of Boeing, which resulted in its pliers spent their own funds to design and develop
successful introduction of many different airplane the sections, they naturally retain details of these
models in the past, seems to be Boeing’s know- designs as their own property.
how to perform all the detailed design, engineering,
That means Boeing will have to depend on suppliers for
and assembly of all the parts with partial
any changes or modifications in future, for the parts that
outsourcing of manufacturing process. Boeing’s
will go onto the 787. Boeing has no idea what went into
another core competency is its ability to absorb all
the design, because they don’t own the design. It is on
the learning that happens when the detailed design
their (suppliers’) computers, the design principles and
and engineering are done internally.
the calculations are all with them (suppliers) and they
Granstrand et al. (1997) argue that companies
own it legally and intellectually,
should try to create a portfolio of competencies to
remain competitive. However, they emphasize, explains Stan Sorscher.8
building a new competency should not result in
Future troubleshooting could also be a more com-
the destruction or weakening of other “distinctive”
plicated task, especially if the problem involves two
or “core” technological competencies. Boeing’s
or more sections developed by different suppliers.
attempt to create a core competency in system inte-
As an example, in July 2009, Boeing announced that
gration could come with the cost of weakening its
the joint between the center wing box and the wing
real core competencies as we discussed earlier. This
faced a stress-related problem. Mitsubishi Heavy In-
weakening in core competencies, in turn, could
dustries had developed the wing, Fuji Heavy Indus-
result in the following negative impacts (Figure 6).
tries had developed the center wing box, and
Boeing had developed the interface. Because neither
Intellectual property concerns of the suppliers owned the interface and nor did
Boeing, because of outsourcing detailed design, had to Boeing have access to the design of the parts, Boeing
share with suppliers some of the unique design knowl- had to re-test the already-completed Dreamliner and
edge and techniques that had been accumulated at bear the cost of over runs (Gates, 2009). Similar prob-
Boeing through designing and developing airplanes lems might happen if Boeing wants to make any
for almost a century. For example, a proprietary modification or extend the features of the airplane.
manual, “How to Build a Commercial Airplane”, that
was developed by Boeing engineers for over five 8
Stan Sorscher, interview with authors, 26 July 2010.

Copyright © 2014 John Wiley & Sons, Ltd. Know. Process Mgmt. 21, 13–28 (2014)
DOI: 10.1002/kpm
 An Integrated Outsourcing Framework 23

Figure 7 How the interaction of different outsourcing elements can be problematic

Transferring the learning process Delay/extra cost point of view

The ownership of the design and manufacturing of
There are several factors whose interactions in the
high value-added parts and processes can be
Dreamliner program resulted in the extensive delay
considered as the source of core competency for a
and huge extra costs. Figure 7 shows the interaction
company. Aerospace industry, and in particular
of the main factors in the four outsourcing dimen-
commercial aviation, has a very steep learning curve
sions. In the succeeding text, we briefly explain
because of the extreme complexity of the products.
these interactions.
That is, the first airplane of a new model costs many
times more than the tenth airplane, for instance,
because the processes can be improved dramatically Less than enough monitoring and communication
by learning how to do things properly. By outsour- Although Boeing had enough experience in how to
cing the engineering, manufacturing, and integration outsource manufacturing, it was relatively inexperi-
of the major sections of the Dreamliner to outside enced in outsourcing detailed design. After decades
suppliers, Boeing lets this learning process, and the of designing airplanes, Boeing had developed prac-
corresponding high value-added functions, transfer tices that were keys in turning it into a successful
to those suppliers. airplane designer and developer. Boeing was so
used to knowing and implementing these practices
Weaker future innovation capability that it failed to understand that these are not com-
The ability to innovate products depends on the mon knowledge among its supply partners. As
ability to innovate the related processes. In other Lynn Lunsford9 metaphorically puts it, these prac-
words, when a company deals with the manufactur- tices have become part of Boeing’s DNA. For
ing processes of a product, the ability to innovate instance, it has been a common practice in Boeing
related new processes lies within that company. These that all parts of a detailed design are reviewed by
new processes, in turn, could enable the company to a designated engineering reviewer (DER) to guarantee
manufacture the next generation of that product the consistency of different parts of the detailed
(Pisano and Shih, 2009). A good example could be design. Boeing did not articulate this practice to its
Boeing’s ability to introduce the Dreamliner as a suppliers, and it was surprising for Boeing that
composite airplane. This could be due to Boeing’s some of the suppliers had failed to have their de-
past experience with the composite materials. Thus, signs approved by a DER. Because Boeing expected
when Boeing outsourced almost all the detailed its supply partners to perform this task, many of
design and manufacturing of the airplane structure Boeing’s DER had already been either retired or laid
to outside suppliers, the ability of future innovations off.10 So, Boeing was not able to address the prob-
in making airframe structures from composite mate- lem very quickly.
rials was also transferred to these suppliers. This can
limit Boeing’s competitiveness in introducing future 9
Lynn J. Lunsford, interview with authors, 15 July 2010.
10
generations of composite airplanes. Lynn J. Lunsford, interview with authors, 15 July 2010.

Copyright © 2014 John Wiley & Sons, Ltd. Know. Process Mgmt. 21, 13–28 (2014)
DOI: 10.1002/kpm
24 E. Elahi, M. Sheikhzadeh and N. Lamba

Boeing’s lack of experience in outsourcing design also created a sense of job insecurity among the
resulted in an insufficient level of monitoring and employees, one of the major concerns in the machinists
communication with supply partners. Outsourcing strike in 2008.
the design of an extremely complicated product to
multiple parties needs a whole new level of moni- One of the biggest issues of the strike was the continued
toring and communication, which is not compara- outsourcing of the company and it remains an issue that
ble with what Boeing used to have. Furthermore, it is our work (which is going out to suppliers),
the product design was also unprecedented because says Connie Kelliher,12 IAM13 spokesperson.
of new materials and technologies, which brought
along its own surprises to the project. This was
another source of uncertainty that necessitates a Problem solving
more rigorous control and monitoring mechanism In many of the reported supply chain delays, it
for the project. This fact was reminded to Boeing seems that the problems surfaced at a very late
by a senior advisory group that consists of retired stage, when it was very difficult to deal with them.
Boeing’s managers whom the company invited The fastener shortages and the defects in the mid-
back in 2010 to analyze Boeing’s challenges. This is fuselage are both examples of the problems that
how Joseph Sutter,11 the unofficial leader of the could have been detected and resolved much
advisory group, addresses the problem of improper sooner. However, they surfaced when there were
monitoring and communication with suppliers in no other choices but to delay the program and
the Dreamliner program: spend a lot more money than it was really needed.
The reason could be either lack of a proper moni-
You better damn well have a high percentage of Boeing
toring system or lack of a proper problem-solving
guys there (at supplier locations) looking over their
culture that reacts to the signals of trouble in a
shoulders (Sanders, 2010).
timely manner. In our studies, we found evidence
showing that there has not been a close relation-
ship between the top management and the body
Human-resource-related factors of the company. The most obvious evidence could
The successful development of an airplane de- be the two labor union strikes in 3 years (in 2005
pends heavily on having experienced and skillful and in 2008).
workers, technicians, and engineers especially in Lack of trust and/or a good relationship between
an industry whose learning curve is very steep. top management and the body of the company
So, it is not just a good design that leads to a suc- could be a barrier that prevents a smooth and timely
cessful product, it is also the learning process that flow of information from those who can detect the
happens throughout the development program. problems to those who can make the decisions to
This learning process is feasible when the techni- resolve the problems.
cal teams possess the proper skills and understand Another reason for poor problem solving could
this culture. be lack of a mechanism that encourages the supply
Being in this business for almost a century, Boeing partner to share, as soon as possible, any trouble
has nurtured generations of skillful employees, who that could cause a delay. In such situations, the sup-
developed and manufactured many successful air- pliers usually tend to postpone the sharing of the
plane models. Boeing’s workforce and the accumu- unpleasant news.
lated knowledge that resides with them seem to be
the company’s real core competency. Many of the delays on the 787 program have come
Boeing workforce proved their competency again, strictly because suppliers, who were supposed to raise
in the Dreamliner program, by fixing all the their hands for help, were reluctant to do so. They had
unfinished traveled work that the suppliers failed to deal with their egos and legal reasons,
to complete during the early stages of the program.
As another piece of evidence, among the very few says Lynn Lunsford.14
sections of the Dreamliner that was delivered, rela-
tively, on time and on budget was the vertical fin
that was designed and manufactured by Boeing’s Suboptimal supplier selection
employees. In the GSP model, only those suppliers who had the
In the Dreamliner program, however, Boeing financial capability of investing their money up front
weakened the role of its experienced employees in the program and willing to wait until Boeing sells
by relying mostly on its GSP. This approach not the airplane before they receive any payment
only put this valuable resource on the side but 12
Connie Kelliher, interview with authors, 19 July 2010.
13
IAM District 751 is the International Association for Machinists
11 and Aerospace workers of Washington State District representing
Joseph Sutter is the most renowned living veteran of Boeing
and is considered as a legendary figure in the aerospace world. active and retired aerospace workers at Boeing Industries in
He was the head of the design team of the world’s first Jumbo Washington State.
14
Jet, B747. Lynn J. Lunsford, interview with authors, 15 July 2010.

Copyright © 2014 John Wiley & Sons, Ltd. Know. Process Mgmt. 21, 13–28 (2014)
DOI: 10.1002/kpm
 An Integrated Outsourcing Framework 25

Figure 8 The consequences of the development problems and delays

could participate. This was a strong and limiting costs to a tiny fraction of what they should have been. The
prerequisite. Therefore, the technical capability of only way to do that was to develop an extremely unrealistic
suppliers received secondary priority. This could supplier model,
potentially result in suboptimal selection of suppliers
says Richard Aboulafia.15
from a product development point of view, which is
supported by the existence of a few very problematic In 2003, Allan Mullaly (then CEO of Boeing
supply partners in this program. Commercial Airplanes) managed to get the project
through, against some opposition from the Board
of Directors. To do so, Mullaly had to reduce the
Supply partners’ incentives
financial risk of the project by reducing the required
One inherent problem within this supply chain
upfront investment and spreading the risk among
model is that when the program starts to deviate
various supply chain partners. What the company
from its schedule, it can deteriorate the participants’
overlooked was the fact that the new GSP model
incentives in doing their best. Assume a scenario in
devised a much more complicated supply chain
which the program is delayed because of problems
and engaged the company in a program with little
at one supplier. Now, if another supplier spends a
previous experience. This meant the program had
lot of resources to deliver on time, it will not gain
to endure a much higher level of operational risks.
anything. In fact, in this case, it would be in the sup-
That is, the new GSP model had considerable
plier’s best interest to spend as little as possible and
expected hidden cost. The history of the program
be just slightly better than the worst supplier, who
suggests that Boeing underestimated the opera-
would endure all the blames and bad publicities. If
tional risks in the program schedule and resources.
every supplier knows the progress of all other sup-
On the other hand, the operational risks and the
pliers, in a “perfect information” situation, this
financial risks are not independent of each other.
behavior would not hurt the program. However,
When the company faced all the realized opera-
because of suppliers’ imperfect information, each
tional risks, they brought back all the financial
one of them decides about its effort level on the
risks along with them, and all the expected hidden
basis of guessing the progress level of the others.
costs surfaced.
This behavior can seriously hurt the program. Not
all suppliers necessarily behave in this way,
however, the general setup works against suppliers’ Consequences
incentive to do their best. What intensified this The interaction of the aforementioned factors resulted
problem in the Dreamliner program was that the in Boeing’s longest delayed program with the total
supply partners owned the design of the outsourced investment mounting to almost three times the initial
section. So, they had strong bargaining powers and expected budget (Gates, 2011). The delays resulted in
could not be replaced easily. the following: (i) poor stock performance (Figure 4);
(ii) deferred revenue; (iii) penalty payments to cus-
Hidden costs tomers for late delivery; (iv) unscheduled (direct or
Back in 2003, the odds were against the program … As a indirect) payments to suppliers who delivered their
result, the only way you get this thing (the Dreamliner
15
program) going is if you promise to limit the development Richard Aboulafia, interview with authors, 22 June 2010.

Copyright © 2014 John Wiley & Sons, Ltd. Know. Process Mgmt. 21, 13–28 (2014)
DOI: 10.1002/kpm
26 E. Elahi, M. Sheikhzadeh and N. Lamba

Exhibit 1 Hidden cost factors

sections on time; (v) order cancelations; and (vi) a in the history of Boeing. As we discussed, the interac-
drop in Boeing’s credit worthiness by credit rating tions of many different factors resulted in these delays
agencies (Siew, 2009). These delays, on the other hand, and extra costs.
caused the program to enter a period of national and We first highlighted that the new outsourcing
global economic downturn, which in turn became a model can be fairly justified by looking at factors
problem for suppliers who invested heavily in the such as high initial development costs and the
program and did not receive any payments. There- tendency to reduce the initial investment risk. How-
fore, the suppliers’ financial problems become another ever, after mapping all major factors, we analyzed
source of trouble for the supply chain (Figure 8). the root causes of delays and extra costs within a
Observing these consequences, Boeing might network of interconnected factors.
revise its GSP model for its future programs. Our conceptual framework is built upon the
existing outsourcing literature that mostly focuses
We outsourced too much. … We didn’t consider the
on the impact of different factors on the outsourcing
extent of the risk we’d take on by going outside, said
performance in a relatively isolated way. Our frame-
Jim Albaugh, CEO-Boeing Commercial Airplanes
work, instead of focusing on limited number of fac-
(Gates, 2010). We will make sure the voice of the engi-
tors, tries to focus on the interaction of all influential
neers is much more involved in the decision making as
factors in the four dimensions of outsourcing (who,
we go forward.
to whom, what, and how). In spite of its simplicity,
this conceptual framework is sufficiently compre-
hensive to analyze complex outsourcing programs.
Although this case study focuses on the outsour-
CONCLUSION AND INSIGHTS cing of the detailed design and engineering of a com-
mercial airplane, the insights can be applicable to a
One can hardly find a major development program wider range of outsourcing situations that have
in aerospace industry that has been delivered on similar characteristics. In fact, the following manage-
time or on budget. Because of extreme complexity rial insights can be concluded from this case study.
of the products and very high standards of this
industry, each development program has its own sur- (i) Safeguard the real core competencies: An accurate
prises. The extended delay and huge extra costs of the evaluation of company’s core competencies is
Dreamliner program, however, were unprecedented needed before an outsourcing strategy can be

Copyright © 2014 John Wiley & Sons, Ltd. Know. Process Mgmt. 21, 13–28 (2014)
DOI: 10.1002/kpm
 An Integrated Outsourcing Framework 27

laid out. An outsourcing program should not (v) Consider the hidden cost of outsourcing: It often
threaten the company’s core competency. As appears to be cheaper to outsource a process,
we showed in this case, Boeing’s decision to and it usually ends up being more expensive.
outsource almost all the detailed design and Although any outsourcing program brings cer-
manufacturing weakened its core competency tain benefits, there are associated hidden costs
and resulted in extended delays and extra cost. that inevitably come along with the benefits.
(ii) Appreciate the value of in-house detailed design and These hidden costs can be viewed as the risks
manufacturing: In an industry with a very steep of outsourcing program. It is essential to try to
learning curve, detailed design and manufac- identify and quantify the potential hidden
turing present precious core competencies that costs, utilize ways to minimize them, and have
are worth maintaining. Companies who are some contingency plan. On the basis of the
really good at manufacturing tend to be good at existing results in the outsourcing literature,
innovation, whereas companies who outsource Exhibit 1 shows the main factors that increase
their manufacturing often find that innovation the expected hidden cost in an outsourcing
has followed (Plambeck and Taylor, 2005). More- program.
over, Outsourcing the detailed design can cause
unexpected problems down the road with respect
to intellectual property.
(iii) Consider all the influential factors: There are ACKNOWLEDGEMENTS
many factors that play influential roles in the
success or failure of an outsourcing program. We would like to thank all the industry experts who
shared their valuable knowledge and thoughts on the
Therefore, an outsourcing decision should not
Dreamliner program with the authors. We specifically
be made on the basis of only few selected factors
want to thank Dominic Gates, aerospace reporter—Seattle
that support a certain course of action. A holistic Times; Lynn J. Lunsford, Editor—Wall Street Journal
consideration of these factors and their possible (2001–2009); Richard Aboulafia, Vice President (Analy-
interactions is needed, in particular, when sis)—Teal Group; Connie Kelliher, Spokeswoman—IAM
dealing with an extremely complex product. (International Association of Machinists and Aerospace
(iv) Be mindful of changes: Outsourcing of a complex Workers); and specially Stan Sorscher, Former Boeing
product or service requires certain capabilities Engineer currently with SPEEA (Society of Professional
and processes in the outsourcing firm. A major Engineering Employees in Aerospace).
change in what is being outsourced, therefore,
might require different sets of competencies.
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Copyright © 2014 John Wiley & Sons, Ltd. Know. Process Mgmt. 21, 13–28 (2014)
DOI: 10.1002/kpm