ST. LOUIS (
) -- In a little-known effort jumpstarted by its St. Louis-based defense business,
has launched a series of internal entrepreneurial efforts aimed at creating businesses that can eventually have an impact within the $64 billion company.
"We've got a series of initiatives, up to a dozen, creating robust processes to unleash the good ideas of our people," said Tim Noonan, vice president of Boeing Energy, a startup energy smart grid development and management venture. Boeing Energy, created late in 2009, falls within Boeing's Defense, Space and Security, which has an estimated 2010 revenue of $32 billion to $33 billion. "We're started to see results from these focused efforts on growing into logical adjacencies," Noonan said.
B-1 Lancer bomber
The businesses are in various stages. In what the company calls logical adjacencies -- areas like energy, cyber security and unmanned systems -- Boeing has moved beyond the exploratory stage and is working on contracts. In others, it is still evaluating. In each new market, Boeing assembles "a best-of-Boeing team together to evaluate the idea and then recommend next steps," said spokesman David Sidman, who noted that it's too early to discuss the areas of evaluation.
Part of the challenge within Boeing is that if a business unit manages to produce a $10 million profit, while commendable for many other companies, it doesn't really move the needle at a firm whose 2009 net income was $1.3 billion. So the expectation is that Boeing Energy and other start-ups will produce $1 billion in revenue within three to five years -- with commensurate profits.
A top priority is to accelerate the repositioning of our defense business," said Boeing CEO Jim McNerney at a recent analysts' conference. "We are seeking new opportunities for growth as U.S. defense budgets continue flattening." McNerney highlighted the international opportunities, saying that Boeing expects them to provide 25% of defense revenue by 2015, up from 15% in 2009. But he did not mention the entrepreneurial efforts.
The pressure is on because McNerney assured he does not want growth for growth's sake. "In the defense business, while we do want to grow, I want to make sure we can deliver margins that you're used to," he told analysts. "Even if we don't grow, I want to be sure we have a nice foundation of profitability." Defense, Space and Security provides a solid consistent business "underneath" the more volatile commercial aviation business, he said.
Gleacher & Co. analyst Peter Arment said Boeing has said little about its entrepreneurial efforts, but it is unsurprising that they are underway. "The defense industry has a history of investing in technology that might be applied in other markets," Arment said. "So it's no surprise that some of the defense companies are doing so, given the outlook for defense spending. They have highly talented engineers who make incredible products, so if they felt they could apply some technologies they would take a look at it."
Boeing is exploring ventures in cyber security as well as energy, said little about other entrepreneurial ventures.
"Boeing Defense, Space and Security has an active pipeline of potential future opportunities that would rely on our deep experience in networking complex systems," said Sidman. "
It relies on the entrepreneurial spirit of its employees every day and has a robust proven process for evaluating their ideas and entering new markets like C4ISR (a command communications program) cyber security, unmanned systems, logistics command and control, and energy."
Boeing Energy designs systems to provide energy security and efficiencies, using capabilities developed in the defense to benefit energy companies. The link is that for both customers, top concerns include both cyber security and systems integration, combining old infrastructure with modern transmission and delivery. Smart grids enable utilities to manage energy systems, monitoring power creation and power consumption and anticipating problems such as shortages and blackouts. Security threats include natural disasters, system failures and hackers, ranging from terrorists seeking to disable a system to thieves seeking to adjust their own utility bills.
"When you look at where defense budgets are going and at the enduring needs of our customers and the need to protect critical infrastructure like the (power) grid, it's a logical place to be," said Noonan. "Boeing already runs one of the largest private information networks in the world, and has a robust cyber security network." Moreover, Boeing currently connects command centers in Langley, Va., with troops in Afghanistan and Iraq, managing a long supply chain that faces obvious logistical and security threats.
At the moment, Boeing Energy has three ventures in various developmental stages. In November, it was awarded an $8.5 million Department of Energy grant as part of a three-year study to improve the efficiency and reliability of the U.S. power grid. Boeing is the prime contractor in a group of regional transmission operators and utilities that operate in 21 states. Additionally, Boeing Energy is part of two other teams, one led by
and one led by
Southern California Edison
, which also received grants for smart grid development. Combined, the three projects could be worth up to $38 million.
The intent is to show that Boeing's communications and cyber security networking skills can be applied to the smart grid. Boeing has been working with ConEd for 18 months and hopes to sign a contract within the next few months to extend the effort for three years, Noonan said. The effort is not wholly exploratory: twenty-five years ago, Boeing developed ConEd's supervisory and control data acquisition system.
In Boeing's view, the leap is not a big one. After all, in any systems integration, Noonan said, the question is the same: "How do you make a bunch of stuff work together when it wasn't designed to work together?" With a trillion dollars worth of power grid infrastructure installed in the U.S., the opportunity is enticing.
-- Written by Ted Reed in St. Louis