The business world and engineering world speak different languages and operate at different tempos with a shared imperative to meet the needs of customers.  Businesses that leverage technology innovation for competitive advantage need to find their ‘E2B Alignment Rosetta Stone‘ for the best results in their business context. How can the engineering leader facilitate effective alignment between engineering and the business?

Why is Engineering Work Different?

The business world operates according to the laws of social science, fraught with ‘short termism’, and the pressure to constantly perform, compete, satisfy customer needs while commercially relevant engineering work requires more time and functions in the presence of volatility, uncertainty, complexity, and ambiguity (VUCA) bounded by the laws of science. Engineering work involves solving difficult problems that arise in the business and the market place, creating new products to create new value for the firms, finding new ways to meet regulations to remain compliant and possibly creating competitive advantage, and optimizing design performance to achieve cost and quality. The answer to engineering problems is not known in advance and the time that a solution is ready is not known to any degree of certainty. Some engineering problems are simple while others are wicked and ugly problems. Engineering problems are almost always complex. While others may be unsolvable within the current state-of-the-art or beyond laws of physics. Novel solutions require creativity, experimentation, and learning that are difficult to schedule.  How can engineering leaders bridge these incongruent worlds?

 Common Goal – Increasing Profits

The answer rests in remembering the common goal.  The common goal of both business and engineering is to increase the profits of the firm.  Easily stated but accounting is the day-to-day language of business which enables them to clearly see how to increase profits through business actions with well defined measurements for feedback.  The engineering world does not speak accounting nor is it often clear how engineering decisions can increase profits.  Engineers ought to speak the language of accounting better, but practically speaking their education and professional development is often all consuming in the increasingly complex engineering world.  Apart from every engineer taking an MBA or second degree in accounting how can engineering leaders help their staff to understand how their actions increase profits? Engineering leaders need an E2B alignment Rosetta Stone to translate engineering decisions into profit impact.

E2B Alignment Rosetta Stone – Engineering Profit Decision Tool

Fortunately in all cases an engineering profit decision tool can be created to help engineers make sound business decisions and trade-offs that increase profits in terms they can understand. The problem is that most businesses don’t take the time in this fast paced world to develop one.

The engineering profit decision tool can be developed using the approach illustrated below. The resulting business model can then be the E2B Alignment Rosetta Stone to help engineers to translate engineering actions into profits.

Engineering leaders need to facilitate the development of the engineering profit decision tool with help from the other business functions (marketing, finance, operations, and project management). The baseline profit/cost model is the P&L statement for the project, new product development, service line, etc. delivered by engineering.  Like any model key assumptions need to be captured. A sensitivity analysis is then performed on key cost drivers such as: time; unit cost; engineering operating expense; value; performance; and risk as appropriate for the context of the business. The sensitivity analysis can then be used to define profit impact parameters.  These profit impact parameters can then be stated in terms of engineering decision rules (that are understood by engineers).  As engineers go about their work key decisions arise that require trade-offs amongst competing alternative courses of action.  The engineering decision rules can help them to compare alternatives and decision on the best alternative that maximizes the profit to the company. Over time the results of the decisions become evident in the business results enabling feedback adjustments to the model.

The key to success is taking the time to build the first model, trial it on a pilot project, build buy-in, train the broader engineering team, and then refine and expand its use. This post has provided the high level picture and there is clearly more effort to perform each step in the process suitable for each firm.  Contact Alopex Management Consulting if you are interested in developing an engineering profit decision tool.

Engineering leaders need to devote time to 6 priorities for a vibrant and sustainable engineering capability that supports the strategic ambition of the business. Engineering leaders are often so drawn into the day-to-day demands of the operation that these 6 priorities are ignored to the detriment of the business. There are no absolute right or wrong ways to meet the 6 priorities but rather each must be decided as a collective package by the engineering leadership team in the strategic context of the business. The senior engineering executive should then integrate these decisions with those of the overall business at the senior management level and negotiate and adjust as necessary bringing back the rationale for any modifications to the engineering leadership team.

Purpose

Engineering staff need to understand the purpose of the business in order to orient their efforts to support the success of the business. Engineering leaders need to clarify and communicate the purpose of the business, the purpose of engineering in the context of the business, and how individual and collective team efforts achieve the purpose.  The purpose is often expressed in the vision or expressed as the winning aspiration of the firm, as for example described by A.G. Lafley and Roger Martin in Playing to Win.

Inspiration comes from a deep connection between the purpose and meaning in engineering work. Engineering leaders need to help their staff to relate the meaning in engineering work to the winning aspirations of the firm to maximize engagement and productivity. Engineering leaders should work with the engineering supervisory team to assimilate how meaning in engineering work can be leveraged through recruitment, job assignment, and performance management.

Alignment

Engineering leaders need to align the engineering effort with the strategic choices of  the business. Continuing on from the purpose, Lafley & Martin have defined an integrated cascade of strategic choices aligning from the winning aspiration of the firm to: where the firm will compete; how will the firm win in terms of value proposition and competitive advantage; what capabilities are required to win; and what management systems are required to support these choices. In the context of the integrated cascade of strategic choices engineering may be central to a firm’s strategic ambition or play a supporting role. Engineering may be heavily integrated with other business functions or stand-alone. Engineering leaders need to deeply consider how engineering is aligned and how it meshes with the firm’s strategic choices.

Labovitz and Rosansky provide an alignment framework for engineering leaders to operationalize the cascade of strategic choices in their book Rapid Realignment. Labovitz and Rosansky’s framework separates out vertical alignment and horizontal alignment to structure actions.

1. Vertical Alignment – The vertical alignment seeks to align employees to the strategic choices of the firm by defining critical success factors, goals, focus areas that can be owned by each business function, such as engineering, and the precise activities and tactics required to deliver the critical success factors. The role of engineering leaders in the strategic alignment exercise is to contribute to the definition of critical success factors that support the strategic choices.  Engineering leaders then need to own the creation of the action plans to deliver the critical success factors.
2. Horizontal Alignment – The horizontal alignment seeks to align value creating processes with the needs of the customer.  Value chains are clarified for both internal and external customers.  The role of engineering leaders are to understand what the customer wants and how they prefer to be served and establish process to meet and try to exceed customer requirements.

Culture

Engineering leaders need to foster and support a culture in engineering that aligns with the strategic choices of the business and maximizes the outcome required from engineering. Culture often emerges in a business based on its history of shared experiences and is reflected in the sum of the firm’s shared values, beliefs, and norms of behaviour.  Culture can be business wide with local differences in functions, business units, and locations.  Culture is rarely homogenous as firm’s grow. Major strategic changes can bring about large dissonance between the existing and desired culture.

The competing values framework is useful for engineering leaders to understand the current culture in engineering and to identify change emphasis to align with the strategic choices of the business. The competing values framework maps organization culture in two dimensions: vertically between stability & control and flexibility & discretion; and horizontally between external focus & differentiation and internal focus & integration.  The competing values framework defines four cultures coinciding with the map quadrants:

1. Clan Culture (Collaboration or Human Resources) – A culture high on flexibility and discretion but internally focussed. Cultural descriptors are: participation and open debate; employee concerns and ideas; human relations, teamwork, and cohesion; and morale.
2. Adhocracy (Create or Open Systems) – A culture high on flexibility and discretion but more external focussed. Cultural descriptors are: innovation & change; creative problem solving; decentralization’ and new ideas.
3. Hierarchy (Control or Internal Process) – A culture high on stability & control but internally focussed. Cultural descriptors are: predictable outcomes; stability and continuity; order; and dependability and reliability.
4. Market (Compete or rational goal) – A culture that is high on stability and control but externally focussed.  Cultural descriptors are: outcome of excellence & quality; getting the job done; goal achievement; and doing one’s best.

Organizations often exhibit characteristics of each of these four culture types but typically emphasize one type for the strategic choices of the firm. Leadership often relates to the right side (direction, inspiration, change, growth, competitiveness) of the map while management relates to the left side (planning, budgeting, controlling). Firms in stable markets with little change often become internally focussed and stagnate in clan and hierarchy dominant cultures. Firms in rapidly changing markets must be externally focussed with emphasis on adhocracy and market dominant cultures.

Engineering leaders need to look deeper into the culture of their organization and reflect on these observations. Engineering leaders need to ask whether their culture is appropriate for the expectations of the business and what tangible actions are needed to bring it into line. Most actions will involve leading by example. An external change, or change in leadership, may bring about a subtle shift in culture. Engineering leaders need to facilitate discussions in engineering to help employees understand why things need to change or why their shared values, beliefs, and norms of behaviour may be incongruent with the strategic choices made by the firm.

Value Proposition

Engineering leaders need to understand how engineering capabilities create value for customers to achieve horizontal alignment as previously described. Engineering may deliver value directly to an external customer or to an internal customer before value is delivered to the external customer.  Engineering leaders need to clarify how engineering supports the value proposition of the firm – or how engineering supports how the firm will win. The two well known fundamental ways to win, based on Porter’s Competitive Strategy, are: cost leadership and differentiation.

1. Engineering Cost Leadership – Engineering delivered cheaper than the competition enabling the business to underprice the competition or reinvest the margin differential to support other aspects of the strategic choices of the firm.
2. Engineering Differentiation – Engineering providing a source of differentiation for the business measured in terms of solutions compared with competition that: are faster, cheaper, safer, do more, do things better, do things that no one else can do, etc.

Engineering organizations may perform more than one value added activity (product design, consulting advice, sustaining engineering, manufacturing engineering, safety compliance, detailed drawings, etc.)  so it is up to the engineering leadership to identify them and decide how to organize effort to deliver them. Engineering leaders should avoid multi-tasking engineers with activities that may support separate ways to win. The nature of each way of winning can be very different.  As Lafley and Martin emphasize:

1. Low Cost Strategies – Based on systemic understanding of costs and cost drivers, relentless reduction of costs, sacrifice of non-conforming customers, and commitment to standardization.
2. Differentiation Strategies – Based on deep and holistic understanding of customers, intensive brand building, jealous guarding of customers, and commitment to innovation.

Engineering leaders therefore need to think deeply of how engineering is expected to contribute to the business aspirations profitability, growth, and competitiveness. Culture also supports these strategies where low cost strategies demand more internally focussed culture such as Hierarchy and Clan, whereas differentiation strategies demand more externally focussed culture such as Market and Adhocracy. The right culture needs to match the intended way to win. Complex engineering organizations may need sub-organizations with different dominant cultures.

External Change and Innovation

Engineering leaders need to be mindful how the firm is positioned in the external environment and how the external environment is changing. Engineering leaders need to be attuned to subtle shifts and craft possible solutions to create new value for the firm through innovation.  Engineering leaders should seek opportunities for their employees to spend time with customer’s and understand their issues and needs.  Changes sensed in the external environment become the ‘Why’ in any change initiative.  Firms with hierarchy and clan cultures which are inherently more internally focussed run the risk of missing subtle shifts in the market or customer preference.

The need for change can fall anywhere along a spectrum from small to disruptive. Responses to big external changes can only be actioned through a fundamental revisit of the strategic choices of the firm. Engineering cannot act unilaterally in this case but engineering can often act as the bell weather or early alarm for the business. Engineering can also help the firm to connect the dots in the presence of market ambiguity. Firms in slow changing markets may only need to make incremental adjustments but these markets are becoming rarer in a rapidly changing world.

In almost all cases innovation is the main response to external change. Engineering leaders need to decide the degree of need for innovation in the context of their industry competitive intensity and rate of industry change then foster the required environment for innovation to respond to external change. Innovation strategy should always be devised at the company level but engineering capabilities often play a leading role in executing innovation strategy. Investment is almost always required for innovation.   Categories of innovation strategy are: do nothing; adapt/adopt; incremental; transformational; and breakthrough.

Engineering leaders need to select and propose the appropriate innovation strategy in the context of industry competitive intensity and rate of industry change. Ignoring the do nothing innovation strategy, most engineering organizations implement some form of innovation strategy for example:

1. Adapt / Adopt Innovation Strategy – Engineering leadership may acquire new CAD, CAE, analysis, or tools to gain advantage in saving time or improve performance. Although not recognized as such capital expenditures on engineering almost always brings new innovative business processes.
2. Incremental Innovation Strategy – Engineering leadership may implement process improvement, product upgrades, or add-ons that provide small gains in time savings, new value creation, etc.
3. Transformational Innovation Strategy – Engineering leadership may propose a step-change to a product or process that requires investment but the return for the firm can’t be ignored.
4. Breakthrough Innovation Strategy – Although mainly the realm of new technology start-ups engineering leadership may propose a investment project that could create a new-to-the-world market or disruption to the an existing market.

Engineering leaders then need to establish an environment suitable for the selected innovation strategy. The environment not only needs to support the generation of ideas but one that implements ideas and measures outcomes. A culture of learning and experimentation is critical to an effective environment for innovation. Firms in rapidly changing markets therefore need to move to a Market or Adhocracy culture. Sticking with a Hierarchy or Clan culture is a recipe for disaster in rapidly changing markets.

Balance

Engineering leaders need to actively manage the balance between the short term operational demands of the business and long term sustainability of the firm’s value proposition. This is the balance between delivery and innovation.  The balance between tactical and strategic.  The balance between today and tomorrow. The balance between exploit and explore. The balance between leadership and management. Engineering leaders need to make time for long term, innovation, strategic, and tomorrow in spite of the pressures of the day-to-day. As John Kotter said ‘over managed, under led organizations are increasingly vulnerable in a fast moving world’. If engineering leaders can’t make the time to focus on moving the engineering capability in response to changes in the external environment and changing customer needs then they risk becoming irrelevant or exposed to the competition to exploit.

Leadership vs Management

How do these engineering leadership 6 priorities relate to engineering management. As Kotter explains leadership is about ‘taking the firm into the right future’, ‘finding opportunity and exploiting at an accelerated pace’, ‘defining purpose for meaning and buy-in’, ‘creating the right culture and environment to thrive’, and ‘producing useful change to make the future happen’. Kotter goes onto to explain that management is about ‘making complex organizations predictable, reliable, and efficient’, ‘executing a set of well known processes’, and ‘delivering products and services as promised consistently to quality, budget, and schedule’. As Drucker said ‘ Leadership is doing the right thing, while management is doing it right’. This also tells us that too much emphasis on management can leave the firm exposed and engineering leadership has a significant obligation to ensure that the right balance is struck between short-term and long-term view.

Engineering plays a critical role in new value creation, profitability, growth, and competitiveness for the business. The entire package of the 6 priorities need to hang together and fit the strategic intent of the firm and then adjust as the external market shifts. Together these 6 priorities provide a basis for discussion, alternative selection, and decision making for a vibrant and sustainable engineering capability that supports the strategic ambition of the business.