RIGOROUS MEASUREMENT Raytheon CEO achieves success through discipline
Raytheon Company Chairman and CEO Bill Swanson, who is stepping down as CEO at the end of March, 2014, has developed a few simple rules during his 41 years in the aerospace and defense industry: Apply discipline to everything, model performance to ensure outcomes and – if you really want to keep your shareholders happy – always give customers more than they expect.
While viewing a news report on Operation Desert Storm 13 years ago, Raytheon Company Chairman and CEO Bill Swanson grew increasingly concerned as two American soldiers struggled to operate a shoulder-mounted weapon that appeared to be malfunctioning.
When Swanson recognized the equipment was Raytheon’s, he said, his heart skipped a beat. Although the equipment performed as predicted, he sought answers and discovered a potential gap in the training operators received in service. Swanson immediately reached out to the government customer to offer support and ensure training consistency so that no soldier would ever again be caught in such a predicament.
“The product had our name on it, and what I witnessed was absolutely unacceptable,” Swanson said. “Whatever equipment or service we deliver, there must be no doubt it will work."
Swanson, who is stepping down in March 2014 after more than a decade as CEO but will continue to serve as chairman of the Raytheon Board of Directors, applies the same rigorous process control to every functional area – not just manufacturing, but also financial systems, contracts administration, even human resources.
Early in his 41-year career, as Raytheon’s youngest plant manager, he observed the critical difference that common processes make in achieving operational excellence.
“Variation is costly and will work against you,” he said. “I wanted our products to be either 100% right or 100% wrong. Anything in the middle meant there would always be an element of doubt about whether the product should be released.” That all-or-nothing philosophy has become his hallmark.
A decade ago, Raytheon emerged as a survivor of the massive consolidation of US defense contractors triggered by the former Soviet Union’s collapse.
The mergers and acquisitions mashed together disparate management styles and processes. Integrating myriad business cultures into a single high-performing company took years.
In 2003, following his appointment as Raytheon’s chief executive, Swanson focused on creating a single culture bound by common processes. Implementing common systems took two years, but led to escalating levels of operating and financial performance.
Achieving process discipline across an organization is never easy. “Given a choice, every division president, plant manager, and product-line leader will want to do things their own way,” Swanson said. “Process discipline is the most underappreciated part of doing business, and that applies to all businesses, but the rewards are worth it.”
Craig Oxman, a managing director and global head of the Aerospace/Defense Group of Credit Suisse, applauds Swanson for transforming Raytheon from a company defined by variability to a cohesive and focused enterprise. “He has tremendous domain knowledge and a keen awareness of the direction in which his customers are going,” Oxman said. “These attributes are a distinct competitive advantage.”
Another lesson Swanson learned is that satisfying customers is the best way to deliver shareholder value. “Companies can sometimes pay too much attention to investors,” he said. “If your customers abandon you, you’re out of business.”
Swanson vowed that customer satisfaction would be the centerpiece of his business strategy, reasoning that if Raytheon delivered a superior customer experience, shareholder returns would follow. By Swanson’s standard, on-time delivery isn’t good enough. “Around here, our performance better exceed customer expectations,” he said.
Byron Callan, director of Capital Alpha Partners, a Washington, D.C.-based policy research firm for institutional investors, said Swanson brought an engineer’s mindset to the job of leading Raytheon, characterized by a strong focus on keeping shareholders happy while delivering operating performance. “It’s a tough balancing act that few CEOs have accomplished as well as Bill Swanson,” Callan said.
Just as top-performing companies have certain qualities in common, Swanson believes underperformers share common weaknesses. “There is a tendency to look for a ‘silver bullet,’ when the fundamentals are what is required and proven over time,” he said. “Rule Number One is ‘Listen to your customers,’ and Rule Number Two is, ‘Help make your customers successful.’”
In keeping with that philosophy, Swanson and his management team have virtually eliminated troubled programs and established an enviable reputation for reliability. Customer satisfaction has soared, and investor returns have too. According to business, financial and economic tracking company Bloomberg, Raytheon’s investor returns increased 195% between Dec. 31, 2002 and Sept. 30, 2013, versus 121.6% for the Standard & Poor’s 500.
“RULE NUMBER ONE IS `LISTEN TO YOUR CUSTOMERS,’ AND RULE NUMBER TWO IS, `HELP MAKE YOUR CUSTOMERS SUCCESSFUL.’”CHAIRMAN AND CEO, RAYTHEON
“Raytheon’s margins are to-die-for in an industry that is very constrained by government rules and regulations,”
said Tom Captain, vice chairman and US Aerospace & Defense Leader for management consulting firm Deloitte.
“He is the gold standard for a CEO in today’s complex world.”
One of Swanson’s strengths, Captain said, is that he doesn’t chase management fads. “If you stick to your knitting and follow basic business and management principles you win, and that is exactly what Swanson has instilled across Raytheon,” Captain said.
Across the aerospace industry, Raytheon is commonly referred to as an engineering company, but Swanson wants Raytheon to be recognized for engineering and innovation, which requires corporatewide improvements by the entire Raytheon team working collaboratively. For example, it used to take the company 13 days to close its books; now it takes just two. “That’s the result of innovative thinking,” Swanson said.
Innovation can take many forms. Before becoming CEO, Swanson recognized that the priorities of Raytheon’s customer base – 90% of which are governments – increasingly focused on predictable outcomes and more affordable products.
“COMPANIES CAN SOMETIMES PAY TOO MUCH ATTENTION TO INVESTORS.”CHAIRMAN AND CEO, RAYTHEON
Defense budgets run in boom-or-bust cycles. For companies like Raytheon, this time-honored pattern requires successful contractors to anticipate the macro forces that will shape their future.
Swanson responded as only an engineer’s engineer could, adopting modeling and simulation to more accurately predict outcomes. The result was Raytheon’s Model-Based Enterprise.
The innovation allows Raytheon’s customers to accurately visualize a product concept before it is engineered. Modeling and simulation require extensive information-sharing across an organization, but reduce business risks for the company and its customer. From that perspective, modeling and simulation may be the purest form of optimizing the “customer experience,” because Raytheon’s Model-Based Enterprise helps government customers visualize evolving requirements. ”It is a great tool for tackling complex problems of all kinds and helping your customer see what the future will look like,” Swanson said.
Swanson was so confident in the versatility of modeling and simulation that he conceived of applying it to another of his passions: science, technology, engineering and mathematics (STEM) education, to help education stakeholders make more informed decisions.
His inspiration for modeling education came from a meeting with the Business Higher Education Forum, the oldest US organization of senior business and higher education executives, which is dedicated to advancing solutions to US education and workforce challenges. The group had convened to discuss the alarming rate of decline in US student math and science test scores and to identify solutions. Swanson felt the experts in the room all had great suggestions; but when he asked them to identify the three Raytheon should focus on for maximum impact they couldn’t agree – an experience Swanson found both frustrating and inspirational.
Following the meeting, he marshaled Raytheon resources to create what became the U.S. STEM Education Model, an open-source tool for making STEM policy decisions and guiding practitioners. Top universities, including Stanford and the Massachusetts Institute of Technology, have since validated the model. The effort is part of Raytheon’s flagship STEM education program, which connects with students from elementary school through college, supports educators and policymakers, and promotes racial and gender equality to make a meaningful, long-term impact.
For Swanson, these efforts are a personal commitment. He was the first member of his family to go to college, which he considers a humbling responsibility. “I am first a product of my family and second a product of my schooling,” he says, “and so I have a great passion to give back.”
Raytheon Company is a US$24-billion company specializing in defense, security and civil markets worldwide. It operates in 80 countries and employs 60,000 people.
The business began in 1922 in Cambridge, Massachusetts (USA), as the American Appliance Company. It was founded by Vannevar Bush, who became dean of the Massachusetts Institute of Technology (MIT) School of Engineering; Laurence Marshall, an engineer; and Charles G. Smith, a scientist. They invented the S gas rectifier, which transformed the radio into an affordable home appliance.
In the decades that followed, Raytheon built on its reputation for innovation. It stands today as a global technology leader.