The Apache helicopter was in the midst of preproduction developed in a company owned by Howard Hughes who was the sole stockholder when, on April 5, 1976 Mr. Hughes died without leaving a will.
This paper traces the painful transition of the Hughes Helicopter Company during the 1970s from a technically excellent company with a history of poor management to one that continued being technically excellent and then went on to pioneer many of the project, program and portfolio management techniques that became best practices as recognized in today's PMI foundational standards. At that time there was very little project management literature and practically no research.
This paper is a case study in managing organizational change, shifting a culture, and strategic portfolio management. It is based on the author's firsthand experience in developing the Apache's DoD‘s-validated cost schedule control system and managing the company's total portfolio that, in addition to the Apache Program, included commercial helicopter programs and advanced ordnance weapon systems.
To date (2013) the Apache has flown over 3.5 million hours, many of those hours in combat. Today the Apache program is part of Boeing Rotorcraft (Hughes Helicopter Company was acquired by McDonnell Douglas in 1984, McDonnell Douglas then merged with Boeing in 1997).
An Army Air Corps memo dated January 26, 1942 stated: “It is the opinion of this office that this plant is a hobby of the management and that the present project now being engineered is a waste of time and that the facilities, both in engineering personnel and equipment, are not being used to the full advantage in this emergency…. The Air Corps should discontinue any further aircraft projects with this organization”. Underlining added for emphasis.
The plant referred to in the Army Air Corps memo was Howard Hughes’ Hughes Aircraft Company. Eleven years later, in 1953, Mr. Hughes’ technical brain trust, including Drs. Simon Ramo and Dean Wooldridge, left because of Hughes’ micromanagement to form TRW. See Exhibit 1, the only known color photograph of Mr. Hughes. As a result, Harold Talbot, the secretary of the Air Force, required Mr. Hughes to place Hughes Aircraft Company at arm's length, where he could not micromanage it.
To solve this problem, Mr. Hughes created the not-for-profit Howard Hughes Medical Institute (HHMI) that continues to this day to sponsor of important medical research and public broadcast programs. But Mr. Hughes wanted to retain his “hobby shop” and thus he created the Aircraft Division of Hughes Tool Company (HTC-AD), which was later renamed the Hughes Helicopter Company.
Hughes Tool Company produced the Hughes oil drill bit, patented by Mr. Hughes’ farther. The drill bit was the cash cow that funded all of Howard's motion picture, airline and aircraft ventures. The Aircraft Division (a for-profit entity, more on that later) was formed in 1953 to fill the void when Hughes Aircraft Company was placed at arm's length where Mr. Hughes could not interfere with it. The Hughes Aircraft Company heritage went back to Howard's record-setting racer and the Spruce Goose, as so vividly portrayed in the film The Aviator.
When Rea Hopper, Howard's chief engineer proposed getting into the helicopter business, Mr. Hughes told him, “I know your arguments. If you don't have something for them to do on my flying boat (the Spruce Goose), the good engineers will quit and the poor ones will stay on forever.” So Hughes reluctantly drifted into helicopter development, a type of craft in which he had little interest. (Barton)
The rest is history. Those HTC-AD engineers produced three amazingly successful helicopters: 1) a two-seat Army trainer, followed by 2) an Army light observation helicopter used in the Vietnam conflict, and still in use today by Special Forces, and 3) the Apache helicopter that first flew in 1975, that is still being upgraded today, and new helicopters are also being produced. The photos of these aircrafts are shown in Exhibits 2, 3, and 4.
Basis for Success: Fully Articulated Main Rotor Systems
The helicopters shown in the above exhibits are approximately to scale. The four-bladed fully articulated main rotor system was a clear competitive advantage in the Hughes Apache competitive fly off against two-bladed Bell Helicopter.
The Empire of Howard Hughes
Exhibit 5 shows the breath of Howard Hughes’ empire at death on April 5, 1976, at age 71. At that time, the Apache was in the middle of its phase 2 program and Mr. Hughes left no last will and testament, at least that anyone could find. Who owned his empire, including his helicopter company, was an open question.
Exhibit 6 shows the infusion of cash required, over $850 million in 2013 dollars, to fund the production losses on the 1200 light observation helicopters (OH-6A) delivered to the U.S. Army. Although at first reluctant to enter the helicopter business, Mr. Hughes decided to “buy-in” or, in other words, to “invest” to win the OH-6A contract. The firm fixed production price bid was $17,000 per airframe. Hughes lost, on average, more than $70,000 on each aircraft it delivered. Mr. Hughes even went as far as to write a personal letter to President Lyndon Johnson complaining that a “pricing error” was rapidly depleting his fortune.
After completion of the Vietnam-era OH-6A helicopter contract, the company rapidly had no choice but to reduce its workforce from 5,000 to 1,500 employees. The downsized company, while still technically excellent, lacked management discipline – particularly in project, program, and what we now recognize as portfolio management.
If the Hughes Helicopter Company was going to win the Apache competition against Bell Helicopter, it was going to have to prove to the U.S. Army that it was not only capable of producing an outstanding aircraft, but was also capable of managing continued development and production of the Apache. What follows are a series of best practices that built confidence with the Army that the company was up to the management challenge.
Phase 1: Advanced Attack Helicopter (AAH) Competition
Five companies submitted proposals for the AAH. They were Bell, Boeing, Hughes, Lockheed, and Sikorsky. Out of the five bidders, two development contracts were awarded; one to Bell Helicopter and the other to the Hughes Helicopter Company. These Phase 1 contracts required the companies to build two prototype aircraft for a fly-off competition. These Phase 1 contracts also required both companies to implement a Department of Defense validated cost/schedule control system, the success of which is the primary subject of this paper.
Exhibit 7 shows the Bell competitor, the YAH-63 (top) and Hughes, the YAH-64 (bottom). There could not have been more different approaches to the same requirement. The challenge for the Hughes Helicopter Company in the competition was not only to produce the best aircraft, which was accomplished by a wide margin, but to also convince the customer, the U.S. Army, that Hughes was capable of effectively managing this highly complex program (despite the management failures of the OH-6A program).
Hughes Helicopter Company went on to win the fly-off competition hands down, but that's another story for another time. The aircraft first flew in September 1975. It went into production in 1982 and entered the Army inventory in 1986. The Apache is still in production today, in 2013. Older Apaches are being upgraded, plus new airframes are being built.
Best Practices: Managing a Strategic Portfolio
In the beginning (in the late 1960s and early 1970s) there was very little literature on project management. Those of us in the development of major project and program management systems were flying blind, inventing solutions as we went, hopefully learning quickly from our missteps through adaptive change. The Project Management Institute, founded in October 1969, was in its infancy. We did not have the benefit of any of the PMI foundational guides such as A Guide to the Project Management Body of Knowledge (PMBOK® Guide), which was first published as a white paper in 1983 and the first edition of which was not published until 1996. What follows are best practices we developed and used to successfully manage the Apache program and the enterprise-wide portfolio. More on the structure of that portfolio later in this paper.
Managing Change in the Hughes Helicopter Organization
In mid-2013 PMI published Managing Change in Organizations: a Practice Guide, (Exhibit 8). This new Practice Guide provides a useful framework for understanding the organizational changes in the best practices we were developing at the Hughes Helicopter Company during the 1970s.
Organizational change was the single most important factor in convincing the customer, in this case the United States Army, that Hughes Helicopter would be capable of successfully managing the highly complex Apache program. It is beyond the scope of this paper to explore further this new PMI publication Practice Guide; however, it is a recommended reference for anyone in a situation where significant organization change must be achieved to realize the value needed to achieve a future state.
Earned Value Management
Three years after the founding of PMI, in November 1972, the United States Army issued a request for proposal for an Advanced Attack Helicopter (AAH).
The discipline of project management was in its infancy. In 1972 the most comprehensive guidance available was the Cost Schedule Control System Criteria (C/SCSC) published by the Department of Defense. It consisted of 131 criteria that major programs had to meet in order to have their management systems validated. A validated management system was a prerequisite to receiving future government contracts.
A Performance Measurement System Checklist was published and distributed to all Apache program personnel (Exhibit 9). An extensive and ongoing training program was established to assure control account managers and senior company leadership were able to demonstrate the system to the Army.
Program Manager and Business Change Manager
My job as program manager was to lead the team that ultimately built the systems that would satisfy the Army's management requirements which were, as previously stated, based on a Cost/Schedule Control System Criteria Published in a DoD instruction. Bringing the management capabilities up to the C/SCSC criteria was a culture shock for the Hughes organization. The majority of my time was devoted to a role best describe as the business change manager. Changing the culture in “Howard Hughes’ hobby shop” was a huge undertaking and required several years. Based on my recent research on business change managers there are three work preferences that proved most helpful in identifying business change managers. They are: 1) Results orientation, 2) Exploration of ideas, and 3) Flexibility of approach. Further description of these characteristics is beyond the scope of this paper. For additional information see papers presented by this author in 2011 and 2012 at the PMI Congresses is in Dallas, Texas, USA, and Vancouver, British Columbia, Canada.
There Was No Option but to Change
To quote Yoda of Star Wars fame “Do. Or do not. There is no try.” The massive effort to implement an earned value management system based on the DoD cost schedule control system criteria took two years. The company had been “trying” to implement a system for year and continued to fail implementation reviews each time the Army team visited the plant.
The primary reason for failure was that the Apache program office was chartered with developing the management system, and they were already overwhelmed starting up the Apache development effort. After a year of failing Army readiness reviews, responsibility for developing, implementing, and running the earned value/performance measurement system was transferred to what would become the Hughes Helicopter Enterprise Portfolio Management Office (EPMO) (see Exhibit 10 on the right).
As will be shown later, separate weekly reporting on the Apache program was prepared by the EPMO that was independent of the Apache program office.
Marketing and Selling the Cultural Shift
Implementation of an earned value performance management capability was proved to be a seismic change for the Hobby Shop culture. The detailed planning and subsequent measurement of results required significant additional work on the part of the control account managers who were already overwhelmed with the technical challenge of creating the Apache helicopter from what was in effect a new centerline that is a brand-new design starting from scratch.
The implementation of the earned value performance management system was considered by most of these engineers as a major distraction. Why was it so important that they wholeheartedly participate in and support the system? The answer was obvious: no matter how outstanding the helicopter, there will was no way Hughes could win the Phase 2 and subsequent production contract without a validated management system. It was that simple. Once that reality was widely communicated, we had their attention (Exhibit 11).
The Half-Hour Meeting Lasted Five Hours
No man is a prophet in his own land. Don't hesitate to bring in the experts to tell your management what they don't want to hear from you.
All the senior management at Hughes knew was that the Apache program was having recurring difficulty in demonstrating a system they would use to manage in accordance with the DoD criteria. To make things worse, the executive leadership team was receiving input from the engineering organization about how onerous the planning and control process was going to be – an artifact of the Hobby Shop culture.
At the time, there were very few consulting organizations that were capable of providing advice on earned value management systems. A particular firm was identified by the Army as possibly being able to help us; although the Army emphasized it was not their job to recommend. That firm, Decision Plan Incorporation (DPC), was retained by the EPMO to assess Hughes’ state of readiness. DPC produced a comprehensive report (see Exhibit 13).
The meeting for DPC to brief the Helicopter Company executive leadership team began at 3 p.m. on a Thursday. The president of the company had allocated one half-hour for the briefing. The half-hour came and went and the meeting continued until 5 PM and then was scheduled to reconvene the next morning at 8 AM. In the end, the half hour briefing lasted five hours, with the president of the company aggressively firing questions at the DPC briefers, who did an outstanding job of calmly and rationally, with great credibility, answering each of the questions. By the end of the five hours, the company president understood and became a staunch supporter of earned value management. Without his support, it is quite doubtful the shift of company culture would have been possible, and therefore is highly unlikely that Hughes would then have been awarded the Apache Phase 2 and subsequent production contracts. In summary, that meeting resulted in the EPMO having the strongest possible support from the company president.
Support from the Top
It was highly unlikely that a mid-level manager responsible for the Enterprise Portfolio Management Office, the author of this paper, could have made much progress in achieving the required cultural shift without the whole-hearted and contributing support of the president of the company, as described above.
Because the company headcount had declined from 5,000 to 1,500 after the loss of the OH-6A follow-on contract, winning the Apache contract was a “bet the company” undertaking. Without the Apache, it was unlikely the Hughes Helicopter Company would remain a viable ongoing enterprise. One big difference between Hughes and Bell was that Bell held a program review of their Apache candidate once a month with the president of their company; whereas Hughes conducted a weekly review chaired by the president of the company. Further, it was the president who wrote the agenda for that weekly meeting, as shown in Exhibit 12 on the right. Note manpower and cost are the third item on the president's agenda. The president prepared the agenda in consultation with the Apache program manager. This company-level oversight helps assure potential problems were surfaced as early as possible.
Continuity of Leadership
In addition to having an outstanding design, and eventually that Hughes had a viable earned value performance measurement system, there was a the third factor, and that was leadership of Col. Ed Browne, who was first assigned to Hughes as the OH-6A program manager in 1968. After Hughes lost the OH-6A follow-on contract, Browne became the program manager for its replacement, the Bell OH-58. The Army once again assigned Col. Brown to Hughes as the Apache Program Manager, a position in which he served for six years, from 1976 – 1982.
His success in that position was recognized by the Army when they promoted him first to Brigadier and then to Major General. General Browne successfully shepherded the Apache through Congress year after year through a gauntlet of congressional staffers and other development programs vying for funding.
Source: U.S. Army
It was the continuity of the six-year-long assignment with General Browne as the Army Apache program manager that provided the credibility to keep the program sold to Congress. And it was his leadership that led to the solution of a major technical issue, known as the T-tail versus a stabilator design decision that, had it not been solved, would most likely have led to the cancellation of the Apache program at Hughes Helicopter.
Development of a Stakeholder Map
The front-line engineers were not only the focal point for the Apache design integration and test, but was also responsible for performance measurement of how those elements were proceeding in accordance with the master schedule and baseline budget.
These engineers were responsible for production unit cost, development cost, development schedule, aircraft performance, maintainability, reliability, and aircraft weight – and if there was time, to also have a life outside of work, which was a significant challenge given the fast pace of the Apache program (Exhibit 15).
It was within this demanding environment that the engineer was also asked to master an earned value performance measurement system. No small challenge.
Turning a Crisis into an Opportunity
Howard Hughes died in 1976 without leaving a will – at least one that anyone could find. This presented a significant challenge for Gen. Browne, who quite naturally wanted to know who now owned the company the Army had just selected to build its new Advanced Attack Helicopter. Fortunately, the probate judge appointed William R Lummis as executor of the estate. Mr. Lummis was a partner in the Houston-based firm where Secretary of State James Baker had also been a partner.
Source: Jack Real
Without hesitation Mr. Lummis committed the resources of Summa Corporation, Howard Hughes’ holding company, to support the Apache program. General Browne and Mr. Lummis went on to form a strong working partnership; a partnership that successfully solved the T-tail issue that, as previously mentioned, could have led to the cancellation of the Apache. This was not just a remote possibility. The Army has in fact cancel three helicopter development programs, the Cheyenne (cancelled in 1972), the Comanche (cancelled in 2004), and the Arapaho (cancelled in 2008).
Managing Major Subcontractors in Real Time versus Sometime
The Hughes Helicopter Company provided the overall innovative design and system integration for the Apache; however, it did not build even the basic airframe. Exhibit 19 depicts the major subcontractors who contributed their subsystems to the fly-off-winning design.
During Phase 1, while the initial prototype aircraft were being prepared for first flight, it was learned that a critical supplier was reporting that their deliveries were on schedule, when in fact this was far from accurate. They were working on the deliveries for the Sikorsky Blackhawk helicopter prototypes.
This threat to the viability of the Phase 1 program gave the company an opportunity to create an innovative subcontract management system that helped convince the Army and General Browne that Hughes Helicopter Company would in fact be able to effectively manage its major subcontractors.
Early Warning of Potential Subcontract Changes
The Hughes Helicopter
subcontract management system,
named “Project TEAM,” had three
relatively simple modules:
1) Schedule, 2) Earned Value, and
3) a Change Summary Report,
shown in Exhibit 18.
Historically obtaining early
warning of potential subcontract
design changes has been
challenging. Before there was an
Internet, the Hughes Helicopter
EPMO connected all major
subcontractors to a timesharing
network using 300-baud, acoustic-coupled,
Because maintaining their
individual subcontract change logs
could result in additional funding
for them, the major subcontractors
were highly incentivized to
provide the EPMO with timely
notification of potential changes.
Is worthwhile to go into some detail on the structure of this report. The second column shows the negotiated value of the initial subcontract. Thereafter status codes 1 through 6 indicated the degree to which the changes were definitized. The last two columns indicated what portion of the total changes to the baseline contract were included in the existing budget.
Cost, Schedule and Technical Performance Forecasts – No Surprises!
Exhibit 19, shown on the left, is an example of an independent analysis prepared by the EPMO for the president of the company and the Apache program manager. In this case the EPMO was predicting a doubling of the program-prepared estimate at completion with an accompanying schedule delay – a doubling which proved correct.
Exhibit 20, shown on the right, distributed weekly by the EPMO was closely held. Only four copies were made and distributed to the company president, vice president of finance, Apache program manager, and the EPMO manager. Each week the new pages were bound on top of all prior analysis to provide a history of what was forecast and when it was forecast.
Best Practice: Estimates to Complete Can Be Dangerous
We had a high level of confidence in the accuracy of the earned value estimates provided by the more than 200 control account managers on the Apache program (Exhibit 21). Accordingly it was a simple matter for the EPMO to calculate both an estimate to complete and an estimate at completion (ETC and EAC).
The alternative was to ask the individual control account managers to provide a new ETC and EAC. The difficulty with this approach was that the resulting estimate, at least in the mind of each manager, becomes a new budget. The thinking is likely to be “we gave management a new ETC and EAC, now it is their problem,” when in fact the control account manager has not been given budget relief. Therefore, be careful about when and at what level you conduct estimates to complete.
Train and Verify
Moving a Hobby Shop culture to a future state where accurate performance measurement is and sustainably embedded in the organization is an incredibly difficult challenge. From time to time, the EPMO brought in outside assistance to conduct training programs and mock demonstration reviews that simulated the type of questions that might be asked by the tri-service team that would ultimately assess whether Hughes had a management system that met the C/SCSC criteria.
Exhibit 22 shows some of the materials developed for training and assessment. Note the branding at the top of the pages: Hughes Helicopters C/SC. A small thing, but canary yellow paper was used to easily identify important documentation related to successfully completing the tri-service demonstration.
Major Subcontractor Metrics
It was recognized from the beginning since all major components were subcontracted, performance of those subcontracts was potentially very high risk. As a result and as described earlier, the Project TEAM systems was developed and all major subcontractors were required to report weekly progress (monthly reports are useless in terms of implementing timely corrective action).
As can be seen from bar chart in Exhibit 23, over half of the major subcontractor were reporting at an acceptable lever of 3.5 or above. However, five scored unacceptably low. This was easily corrected as will be described in the next section.
Senior Leadership Meetings of Team Members
High level two-day meetings, company president to company president and program manager to program manager were held periodically between Hughes, the Army and all major subcontractors. These senior leadership meetings were the glue that bound the close working relationships that were the rule throughout the Apache development program.
At one of these get-togethers, the president of Hughes projected the bar chart (see prior Exhibit 23) on the screen. He explained that five of the subcontractors were not holding up their end of the reporting agreement. The president of each major subcontracting organization was then give their report card in a sealed envelope with notice that at the next senior leadership meeting company names would be on the bar chart. Not surprisingly, at the next meeting all subcontractors had excellent performance reporting ratings.
A Tri-Service Validated Management System
At the end of the day the Holy Grail was to have a validated cost/schedule control system that met DoD criteria. The demonstration review took three weeks with a team of Army, Navy, and Air Force representative interviewing senior management, control accounts managers, schedulers and program analysts. The EPMO lead the validation effort on behalf of the company.
On 15 November 1974, Hughes Helicopters received notice that it had passed its Tri-service demonstration review (Exhibit 25).
But that was just the beginning. Both the company and the Army continued to monitor and assess the effectiveness of the management system. The Apache program has be a ongoing to this day a case study in excellence. Excellence in design; excellence in production; and excellence in management.
This case study in managing a strategic portfolio took place before there was a PMBOK® Guide, before there was a Standard for Program Management and a Standard for Portfolio Management, and before there was an Organization Project Management Maturity Model (OPM3®). It was reassuring that these PMI Foundational Standards confirmed many of the best practices that were developed as the Apache program were brought to life.