Product Management Strategy: Do not let the Dreamliners derail your growth

The first Boeing 787 Dreamliner was finally delivered last month to Air Nippon Airways in a touching ceremony where the hundreds of Boeing employees who were involved in the final assemblage literally hand-delivered the ultra high-tech plane to its future Japanese owner.

This is another milestone in an incredible saga that has been unfolding for a better part of a decade. In short, Boeing’s grand plan for the next-generation plane — built almost from scratch on extremely advanced technology — was only matched by the multiple delays, production issues and colossal waste of capital, resources and time during the development of the Dreamliner. Not to say that Airbus fared better with its marquee plane of the same period, the super jumbo jet A380, which also suffered major delays and runaway project costs, even if its design was not as technologically audacious as its American counterpart.

Manifold were causes of Boeing’s production and logistical nightmare, but it seems that the Dreamliner, costly as it was, would ultimately bring unmatched benefits (and profits) to Boeing, as it would provide Boeing with a technological advantage over Airbus for years to come.

Yet, I would argue that Boeing might have committed major strategic missteps in pouring so many resources into the Dreamliner, regardless of whether the Dreamliner eventually became as successful as hoped.

The reason is simple: the Dreamliner is the cultimation of a long standing trends in aviation technology where successive generations of planes become more complex and technologically advanced, and therefore take longer and cost a lot more to build. As a result, the lifecycle of airplanes becomes longer and longer, and thus newer models require even more advanced technology, thus perpetuating the cycle. It has reached a critical point, when both of the world’s dominant airplane manufacturers struggle with the singular cost of their next-generation planes. They now operate in extremely long cycles of design, development, and mass production characterized by extremely high sunk costs and reluctance to make rapid inter-cycle improvements. They had no resources or attention left to develop or substantially improve their existing planes, leaving the field open for newer, more nimble competitors, such as a revitalized Bombardier and the up and coming Embraer, Brazil’s leading exporter.

The technology developed in the Dreamliner, the global supply chain that Boeing has assembled to build this plane could very well be used in upcoming generations of other classes of planes (such as narrow-body domestic 737, or the wide-body 747). It could perhaps make those planes better, but clearly Boeing did not break out of the vicious cycle described above, because it never intended for it. The same can be said for Airbus, and thus both manufacturers now struggle with buyer demands for more rapid upgrades of their best selling domestic planes, which will still be the mainstay of air travel in the years to come.

In simple strategic terms, Boeing and Airbus, in doggedly pursuing a business model that has become unsustainable, have given up lucrative segments in the markets they once dominated, and chose to fight in markets dictated by their own runaway “dream” projects. Furthermore, the distraction and demoralizing effects of such delayed launches affect the whole organization’s spirit, rendering it unable to innovate and make major improvements in other areas. The insidious thing about this strategic misstep is that it happened despite Boeing’s methodical research, accurate market trend projections, and incredibly talented corps of engineers and managers. Following the right steps and executing them in the right manner do not guarantee strategic relevance.

Going back to my own industry, we have seen many such “Dreamliners” in the technology world, both in established players and spunky startups. We all know how the development of Windows Vista became a disaster, forcing the major rewrite of the code and causing major delays that ultimately cost Microsoft billions in lost revenues (which it only recovered with the more successful launch of Windows 7).

Intel’s much lamented Itanium processor line is another example of such drawn-out product strategy disasters caused by game-changing ambition. Itanium was supposed to be the next generation of high-performance processors with a vastly different architecture from competitors. While many things contributed to its delay and disappointing performance, Intel and HP are solely responsible for continuing to spend so much money and effort in the last 10 years to keep the processor line limping along. At the same time, the rest of the market has moved on with better processors, including Intel’s own alternative 64-bit Xeon processors, which are based on the more modest, but reliable x86-64 architecture.

They all have a very well-known precedent — the story of the rise and fall of Ashton-Tate, once known as one of the “big three” of computer software in the world, along with Microsoft and Lotus. Twenty years on, Microsoft is still around, Lotus is part of IBM, but most people won’t remember Ashton-Tate and its flagship product, the dBase database software (though it has been dead and resurrected countless times, without much success). Ashton-Tate fell from holding 63% of the database market to almost nothing in a few years because its product was late, buggy, and overly complex. They were too invested in the next generation of the product, which never saw the light of day.

This is probably even more important for expansion stage software companies, which are closer to Ashton-Tate in that they do not have a vast reserve of capital and resources to throw into these runaway projects. Yet the “Dreamliners” can come in many shapes and forms, and the product managers have to be alert and aware of the tendency of innovative organizations to over-innovate themselves, as has been seen in the examples above.