A recent Wall Street Journal article “Boeing Scrambles to Repair Problems with New Plane” (December 7, 2007) underscored the importance of controls in virtual teams. Controls are mechanisms used by companies to ensure that the individuals working on their projects act in accordance with their plans. When Boeing embarked on the production of its new 787, it did two things that were new. First, it designed its plane to be built mostly from carbon-fiber plastic instead of aluminum. Second, it outsourced much of the 787’s design and manufacturing to other companies. A lot of what was done within Boeing earlier ended up being done elsewhere and managed through virtual teams consisting of employees from Boeing and the outsourcers.

As it turns out, Boeing has run into problems. The 787 is at least six months late. Some of the problems that Boeing faced are common in writings about global virtual teams: language barriers and clashes with the traditions of the regions represented in the virtual team. But then there were other problems that typically don’t get much coverage. One of them was that the outsourcers outsourced their work to others. The other problem was that Boeing overestimated suppliers’ ability to handle the work assigned to them. Many bloggers and newspaper articles have discussed Boeing’s problems as a supply chain problem. I agree that Boeing should have required its suppliers to locate closer to where the final assembly of the 787 is to take place. However, the problems at Boeing are quite likely an outcome of lack of proper controls in the virtual teams managing the outsourced projects. With controls in place, the problems would not have escalated to their current levels.

Leaders of virtual teams have two options for implementing formal controls: outcome and behavior controls. Outcome control is achieved by measuring and regulating the outcomes sought, such as the quality and the quantity of the products or services being produced by the outsourcer who is working on the virtual team’s project. On the other hand, behavior control relies on articulating procedures or processes to be followed by those working on the project and then monitoring how well the procedures or processes are followed. Behavior control may be achieved through the specification of rules of engagement, articulation of work assignments and schedules, submission of project plans and reports, training of team members about proper use of technology, and after action reviews. Outcome control is recommended when the desired outcomes can be specified clearly. Behavior control, on the other hand, is recommended when the task is well understood and the desired work processes can be defined a priori.

It appears that Boeing used outcome control to manage the work done by suppliers. It kept waiting for the output, which was expected to take a while to appear, while the processes being followed by its partners were going out of control. According to the WSJ article,

 Boeing overestimated the ability of suppliers to handle tasks that its own designers and engineers know how to do almost intuitively after decades of building jets. Program managers thought they had adequate oversight of suppliers but learned later that the company was in the dark when it came to many under-the-radar details.

… many of these handpicked suppliers, instead of using their own engineers to do the design work, farmed out this key task to even-smaller companies. Some of those ended up overloading themselves with work from multiple 787 suppliers.

Boeing, apparently, continued with its stance even when it learned about its suppliers outsourcing the work given to them. The article states:

The company says it never intended for its suppliers to outsource key tasks such as engineering, but that the situation seemed manageable at the time. “We tended to say, ‘They know how to run their businesses,'” says a Boeing executive familiar with the company’s thinking.

Boeing should have managed its outsourcing using both outcome and behavior controls. It knew what outcomes it desired and, as the above quote indicates, its designers and engineers know the process of building planes – after all it has been doing that for decades. Behavior control would have alerted Boeing early on about the challenges that its suppliers were facing and the further outsourcing that the suppliers were engaging in. The article quotes Scott Carson, the president of Boeing’s Commercial Airplane unit, who said:

“In addition to oversight, you need insight into what’s actually going on in those factories. Had we had adequate insight, we could have helped our suppliers understand the challenges.”

Why did Boeing not use behavior control in addition to outcome control? Behavior control is expensive and, in today’s Blackberry-induced state of attention deficit, challenging. One of the reasons Boeing chose to outsource its work was to lower the $10 billion price tag for developing the plane by itself. Behavior control requires much greater attention to details than outcome control. Not wanting to deal with the costs and challenges of managing details is a major reason why companies outsource in the first place. Given that Boeing is now resorting to sending its own employees to plants in Italy, Japan, and South Carolina to solve the problems and is setting aside $2 billion for additional R&D to deal with the situation, not to mention the millions of dollar in penalty payments for late delivery of planes to customers, it may have been worthwhile for Boeing to engage in behavior control right from the start. Boeing seems to have realized that it is better late than never – it recently put Pat Shanahan, who is described as “an intense detail-man,” as the new chief of its 787 program.

Here in lies a crucial point – before you outsource your development work, ask yourself if your primary goal is to reduce your costs by cutting down on attention to details. In many cases, outsourcing may cut down one set of details but give rise to another. I have seen virtual team projects fail because the outsourcer was not willing to manage the details needed for behavior control. On the flip side, I have also seen virtual team projects succeed because their leader was detail oriented. One such leader told me recently that her virtual team project, which she executed brilliantly, was uneventful and wondered what the big deal about virtual teams was. Outsourcing can lead to lower costs eventually but be ready for little or no savings initially. In fact, the real benefits from outsourcing your development work may come from breakthroughs enabled by a different perspective offered by the outsourcer and from getting to market more quickly than if you were to engage limited resources internally. Behavior control requires attention to details. If you are outsourcing your development work to get rid of details-related headaches, then you may be setting yourself up for trouble.