The proof is in the PERFORMANCE

Jim Albaugh discusses IDS' plans to shape its markets and grow profitably

BY DARYL STEPHENSON

Great accomplishments . tempered by disappointments. That's has been the story of Boeing Integrated Defense Systems during the past year.

On the plus side are strong financial results. IDS generated revenues of $7.4 billion in the first quarter of 2004, compared to $6.3 billion for the same period last year. First-quarter margins rose to double digits of 10 percent for the first time since the formation of IDS in July 2002. For all of 2003, IDS posted record orders of nearly $51 billion and strong performance on the majority of its programs.

However, disappointments such as the Space Shuttle Columbia tragedy, suspension of the IDS launch business as a result of procurement integrity issues, a second quarter 2003 write-down in the commercial space area and delay of the U.S. Air Force tanker program also have occurred.

As a result of what the business unit has been through and the changes that followed, IDS will emerge "as a much better organization," IDS President and CEO Jim Albaugh said during a recent session in his St. Louis office. "I'm very optimistic," he said of the prospects for IDS in 2004 and beyond.

Q: What's the No. 1 focus for the IDS team now?

A: This year our clear focus is to execute on programs we've won over the past few years, and prove that we can continue to execute on production programs as well as perform on complex development programs.

This means we must keep the promises we have made to our customers as well as each other, the corporation and shareholders. Doing this will put us in very good shape to win new programs. Also, we must all remember that at the end of the year, there is only one metric that really counts: Have we met the plan, and have we done it with integrity? We shouldn't be doing anything that doesn't support this goal.

Q: You've outlined three key business imperatives for IDS. What are they and how does the IDS team make them happen?

A: The three business imperatives are effective leadership, flawless execution, and shaping the markets and growing profitably.

When I talk about leadership, I am not talking about the people in the corner office. I'm talking about all 80,000 of us in IDS. What are we doing to improve ourselves, to improve our processes, to satisfy our customers better?

Flawless execution means that we perform on our plans, do what we've said we're going to do, and operate with integrity. When we execute on the programs we have, we position Boeing to capture new programs and have future growth. As we understand the enduring needs of our customers, we can help shape future markets.

Q: What do you see as key leadership and management characteristics and responsibilities?

A: We need good businesspeople at every level who understand the needs of their customers, whether internal or external, and who work together as a team. Those things are not negotiable. All of us have to have those qualities if we're going to be successful.

Leaders encourage their teams and coworkers to think about how they can do their jobs better, satisfy their customers better and execute better. This usually has to do with a process step or detail that can be improved. If you look at the postmortems we do when we have problems, it's always lack of attention to detail. Great leaders, whether they are managers or team members, get their teams to pay attention to those details.

The No. 1 leadership job of managers is to develop their teams. I don't want managers who think their jobs are to develop teams so they can sit back and relax. I want them to develop teams, get their people promoted and then develop more people. The job that applies to everyone, especially to the leadership team and to me, is to also find the future and align the organization with where we want to go.

Q: You mentioned our procurement integrity problems. How is our reputation with customers right now and how long will it take before it is truly restored?

A: There is no question that our reputation has been damaged with our customers. At the same time, our customers want very badly for us to put this issue behind us. And they have a lot of confidence in our ability to do that.

It's hard to say how long it's going to take. What I tell people is that there really are only two things that we can do: One is to perform on the promises that we've made, and the other is to be totally open as issues come up.

Q: What's the key long-term strategy for Boeing and IDS?

A: Our military customers are changing their focus. It used to be they bought ships, planes, tanks and communications systems, and then tried to integrate them together. What they're asking us to do now is put together a systems solution that best meets the capabilities they have defined. I think we have put together an organization that is very capable of doing that.

Future Combat Systems, the Ground-Based Midcourse Defense Program, the Joint Tactical Radio System and the Joint-Unmanned Combat Air System are all great examples of how we've put capabilities in place to address our customers' needs.

For example, the enduring need of the U.S. Air Force is not to have fighters, but to have global force projection. That can be in the form of a fighter, a standoff weapon, a kinetic weapon or a non-kinetic weapon. What we need to do is tailor solutions that best meet the enduring needs, and not get caught up in trying to continue to evolve what's made us successful in the past. I think we've been able to do that at IDS in the past couple of years.

Q: What distinguishes us as a provider of network-centric solutions?

A: We were able to see the power of a network a little earlier than the competition. Through the Ground-Based Midcourse Defense Program, for example, we took systems that were never designed to work together. Through the power of a network and the sharing of knowledge and capability, we created a system of systems that could do a task that none of the component systems was designed to do.

Then we asked our Strategic Architecture organization to create an information-communications architecture which, if instantiated into our programs and competitors' programs, would allow new and existing systems to be interoperable.

The fact that we're not vertically integrated has allowed us to do well in this area. As a result, we can bring the best of industry to our teams, not just the best of Boeing.

On FCS, we bid a network. We told our customer we'd do the systems trades on platforms and provide the optimal mix of platforms to give the best capability. And we did it with an open systems architecture-which was a much different approach.

I think the competition understands what we've been able to do. We've seen the competition try to emulate what we have done. They're running hard. We've got to continue to run hard.

Q: Is Boeing IDS in good position relative to our competitors?

A: Our addressable market today is $60 billion. In 10 years, that grows to about $138 billion. That's not by accident. It's because we have helped shape a couple of our key markets-integrated battlespace and missile defense. And it's because we have put together within IDS the capabilities to address those markets.

I think we're very well-positioned. You know, I talk a lot about how we're going to grow. We don't have to win another program over the next five years to grow by 6.5 percent a year. And if we can capture some additional programs, and we think we will, we can be an organization that has a compound annual growth rate of more than 10 percent. Of course, our ability to do either of these things is dependent on our ability to execute on the programs we have won. Again, it all comes down to execution.

Q: Are our customers, investors and the media noticing this performance?

A: We get a lot of credit for having a very balanced business and for having captured a lot of new programs. But as I tell employees, it's not about revenue per share, it's about earnings per share.

If we're going to keep the programs we've captured, we must execute. I don't get a lot of comfort because we've won a bunch of programs. I'm going to feel comfort when we execute on these programs and demonstrate to everybody that we truly can deliver on our promises.

daryl.l.stephenson@boeing.com