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Fair Process and External Stakeholders
The impact of fair process has so far been discussed largely in the context of
internal stakeholders of an organization. In this increasingly interdependent
world, however, external stakeholders play a key role in many organizations’
success. In fact, compared with internal stakeholders, the practice of fair process
with external stakeholders could be said to play an even greater role in strategy
execution as external stakeholders are outside of hierarchical control and often
have diverging interests and understandings. While contracts and their
enforceability with external partners are important, the information asymmetry
that exists across organizations, coupled with the natural tendency for their
interests and understandings to differ, make fair process central. Without
external stakeholders’ commitment and cooperation, execution can easily
become a slippery slope of missed deadlines, half-hearted alignment on quality,
and cost overruns. The larger and more complex the nature of reliance on
external stakeholders is, the more this is likely to occur.
Think of the F-35 program discussed in
chapter 5
. The F-35 represented a
conceptual breakthrough in fighter aircraft design that promised a blue ocean of
high performance and low cost. In 2001 Lockheed Martin won the contract to
build the F-35 based on the prototype aircraft it had developed. The Pentagon
was confident that the program would be an important success.
Yet, as of 2014, the execution of the F-35 program has been anything but
good. The project has suffered significant cost escalations, schedule delays, and
compromises on the value it promised to deliver. The F-35 program is a good
example of a blue ocean idea that has performed poorly mainly due to bad
execution. A variety of reasons have been cited as possible causes of poor
execution, such as the sheer size and complexity of the program and an
overemphasis by Lockheed on short-term business goals over successful
delivery of the project. Yet these very reasons underlie what make fair process
that much more important. A close look reveals that many of the problems that
have plagued the F-35’s execution can be traced to a lack of engagement,
explanation, and expectation clarity among the military, Lockheed, and the
complex network of other external stakeholders upon which the project’s
successful execution relied. The lack of the three E principles of fair process
negatively affected both the knowledge sharing and voluntary cooperation that
were needed.
At the time the F-35 project got underway, the Pentagon was operating
according to a relatively hands-off management policy, an outgrowth of the
according to a relatively hands-off management policy, an outgrowth of the
deregulation wave of the 1990s. The aim was to reduce costly government
oversight and give contractors more autonomy once a contract was awarded. In
the case of the F-35 project, however, this went a few steps too far and resulted
in a lack of effective engagement with Lockheed. The outcome is that Lockheed
ended up making as much as two-thirds of key decisions in design, development,
testing, fielding, and production of the F-35 without the Pentagon’s active
engagement and input. With technical experts from the Army, Navy, and
Marines not actively sought nor fully utilized in key design decisions that arose,
opportunities to share, explain, refute, and synthesize different ideas and
knowledge among stakeholders to enhance the quality of execution were
minimal. Such lack of engagement and explanation further dampened the three
military branches’ willingness to compromise on their own specifications as
such needs arose, putting further pressure on the costs of the project.
Moreover, expectations remained unclear, to the extent that interpretations of
the contract differed among the stakeholders. Lockheed was given very broad
guidelines, such as the airplane had to be maintainable, able to operate from
airfields, stealthy, and able to drop weapons.
8
Without detailed specifications,
the Pentagon increasingly found that the contractor had a very different view of
how to interpret the contractual document. According to Lieutenant General
Christopher Bogdan, who has been in charge of the Pentagon’s F-35 program
since December 2012, the result is that while the military would say the F-35
needs to do X, Y, and Z, Lockheed Martin would respond that it was only given
a general mandate to do something general like Z.
9
Mixed expectations meant
further revisions, costs, and mutual accusations. In addition, clear expectations
were also absent for the complex network of subcontractors. For example, while
the inspector general of the Pentagon faulted the office in charge of the F-35
program for not adequately passing down key safety, quality, and technical
requirements to the contractors and subcontractors, the program office expected
Lockheed Martin to be responsible for ensuring compliance of its
subcontractors. The result was nonconforming hardware and software, with
Lockheed Martin and its subcontractors not applying the rigor to design,
manufacturing, and quality assurance processes that the Pentagon expected and
counted on. The lack of definitive requirements affected suppliers’ ability to
qualify its processes and ensure delivery of compliant products. The negative
effect of this was magnified exponentially as accelerated concurrent production
was used whereby the initial production of the F-35 began even before flight
tests had begun. As the F-35 program continued to discover an alarming rate of
problems in specifications, quality, and standards, this has meant a continuing
high need for very costly, time-intensive rework of aircraft.
While the violation of fair process and bad communication among internal
and external stakeholders have contributed to the poor execution of the F-35
project, attempts are being made to face up to the problem and rectify it through
more engagement and explanation with clearer agreements. In September 2013,
Bogdan said, “I’m encouraged by where we are today. I can tell you that when
you start communicating and you start listening to each other, you start finding
solutions to problems instead of finding blame.”
10
Of course, only time will tell if the Pentagon will be able establish and
maintain a culture of active engagement, explanation, and expectation clarity
among the complex web of internal and external stakeholders needed to finally
pull off the F-35 project. One thing is certain, however. As experience to date
shows, the Pentagon cannot afford to let fair process and the voluntary
cooperation and knowledge sharing that goes with it slip any longer.
We are now ready to put our learning all together to address the important
issue of strategy alignment in our next chapter. Strategy alignment is an integral
concept that embraces and synthesizes our core points and discussions in the
previous chapters. It closes the loop, ensuring that all parts of an organization’s
strategy from value to profit to people presented so far are mutually reinforcing
so that it becomes a high-performing and sustainable strategy.
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