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The most important things cannot be measured, are unknown or unknowable

By December 5, 2017Home Blog

Historically, it has been proven that the success and profitability of a company depends directly on the strategies and risks taken in order to determine future tendencies. Understanding a consumer’s need at a certain moment can bring a fortune to owners and stakeholders of companies, yet failing to act in the direction of market’s need can destroy a company’s profitability.  Even the most well-known corporations experienced losses because managers did not move fast with the current market behavior. Companies lost because management did not take risks, did not make a right decision on uncertain situations or didn’t detect consumers’ needs in timely manner, finding it almost impossible to get back on top. For instance, Nokia represents one of those companies that failed to make right choices because the management did not react to the technological changes that were taking place at the time and lost. A few decades ago, it was hard to imagine Nokia, the world leader in telecommunication industry, missing among the top six brands for highest market share in 2015 [1]

As analysts commented, in 2013 alone Nokia lost 30% [2]  of the global cell phone market, same market that the company initiated and led [3]  less than 30 years ago. Nokia’s slow response to the shift in consumers’ need is a perfect example of a management that is afraid of making predictions and taking risks.

Another example that proves the importance of having a manager to take good decisions for the company and how unfortunate the lack of good management can be is shown by the Quartz Crisis or Quartz revolution [4]. For a long period of time Swiss watchmaking industry was the strongest and the only leader of its kind, holding monopoly over all watchmaking companies. However, as the watch technology became more advanced, Swiss watchmakers refused to conform to it, even though they invented that technology themselves with some help from Seico manufacturer [4], eliminating themselves from the competition in a matter of a decade. Therefore, by 1970s, over 60,000 employees in Swiss watch-making industry lost their jobs, only 10 years after the first Quartz watch was produced. [5]

These examples mirror the importance of effective managers that are always opened to changes taking place in the market and are willing to work toward improvement, as well as holding the ability to adapt to consumer’s behavior regarding 21st century’s production standards.

Another factor that managers now-a-days must consider, is that any decisions that are taken by the company should be weighed more carefully, as current consumers react very fast to a product’s quality.

As we’ve entered a new era, the World Wide Web, people became more curious and interested in sharing their opinion with others online. Consumers review products so often now, that reading an online review is becoming a norm and it influences the shopping behavior. While sharing the experience with an item is becoming common between its users, there are some things that require attention. First, the writers of those reviews do not have a deep knowledge regarding the product. If we refer to reviews about auto vehicles, in most cases reviewers are simple people without technical knowledge about the brand of car. As result, when they review the product, or read about car’s problem, they do not have a proper understanding of who is at fault in the supply chain – suppliers or manufacturer- usually blaming the manufacturer. Secondly, it is important to identify the number of available reviews for the same product. For instance, when reviewing a product on Amazon, consumers look for the number of stars attributed to that product, from a scale of 1 to 5. So while the people writing the reviews don’t have a deep knowledge of the product, readers don’t have time or interest to read detailed/long reviews either.

The factor of who assesses the quality, and what is the evaluation based on, is always decisive. However, the bottom line is always determined by customers or stakeholders’ requirements [6]. The fact that people can share their experience with the products on social media is viewed like a double edge sword. From one side, a company’s good reputation can spread globally very fast and it can bring the product to the “must buy” list. Taking as example the headphone company “Beats Electronics”, we observe company’s good reputation due to customers’ liking the product brought them the profit of approx. $1.5 billion in 2013, only five-years after the brand was born [7]. However, on the other side, the reputation of a well-established company can be ruined just as easy. For instance, the “Takata” corporation, manufacturer of auto air bags, suffered a loss of $245 million in 2014 due to their problem on air bags for Toyota vehicles. [8, 9] while their losses continued in the present  which is estimated as over $156 million for half of 2016. [9]

            Considering all the constraints and uncertainties taking place within an organization, in the present era, management and the decision making process is experiencing big changes comparing to the older days. The growing number of companies, the larger number of software for data analysis and the continuous technological advancement, the extensive competition, change in consumer’s behavior and change in product are all factors that account for these changes. If, in the past, a manager’s profile consisted of having good experience to perform the job, today, an effective manager is expected to have extensive technical knowledge, to be an educated risk- taker and to be able to read and analyze data for the firm. Some of the few qualities that a manager needs to develop and exercise at all times, regardless of the future of an organization would be: good listening skills, good knowledge of the system, appreciation for hard working employees. Simply put, no matter what lies ahead of an organization, the manager always needs to perform his duties at his highest ability.

Writing about the knowledge of a system and how to make transformations within an organization in order to achieve maximum success, Dr. W.E. Deming mentions that “The most important things cannot be measured”. Problems that prevail in importance, long term, cannot be measured ahead of time. Nevertheless, they could be among the factors that an organization is measuring, just doesn’t acknowledge as most important at the time [10]. Basically, what the professor is trying to underline is that an organization should never stop thinking about its future, and a good manager should ensure that all factors are taken into account and prepare the company for the unknown and the unmeasurable. The system should include a set of goals developed by management to protect the firm from internal issues or competitors. The importance of preparing a firm for future uncertainties was discussed by professor Les Macleod in his article regarding goals and objectives within an organization: “Making Smart Goals Smarter”. According to Les Macleod, one of the subsequent steps in making smart goals smarter is measurement. Referring to a long standing saying in management circles – you cannot manage what cannot measure- the professor explains that objectives should be quantified so that the degree of accomplishment can be accurately measured, as specific measurement criteria will eliminate the possibility of future disagreements [11] Also, very important in the measurement criteria is the concept of accountability when measurement criteria is clear and not subject to interpretation.

Another one of Edward Deming’s statements regarding an organization goes like this: “The most important things are unknown or unknowable”. As the professor explains it, factors that have the greatest impact, long-term, can be quite surprising. Similar to an earthquake that interrupts the service, other “earth –shattering” events that most affect an organization will be unknown or unknowable in in advance [10]. So the most important thing a manager can do is trying to understand the system and its variation, its people and their psychology, be receptive, understanding and be always opened to change.

Although often managers are faced with environmental uncertainty in the organization, they must express an understanding of that environment in order to identify opportunities and threats. A good manager must develop competitive intelligence and deal with uncertainty by considering the following questions:

  • Who are company’s current competitors?
  • Are there few or many entry barriers to our industry?
  • What substitute exist for our product or service?
  • Is the company too dependent on powerful suppliers?
  • Is the company too dependent on powerful customers?

Since information or answers to these questions are not readily available, managers must always improvise, create scenarios and narratives that describe a particular set of future outcomes. Effective managers should regard scenarios as real documents that were once prepared and did not get used, yet could be used at any given moment.

Forecasting is another strategy that managers are encourage to implement regardless of the unknown future of the firm. The importance of forecasting relies in the fact that a prediction of exactly how a variable or variables will change in the future could save managers from certain firm related issues. For instance, firms can forecast how interest rates might change, what will be the demand for goods and services or how labor supply or demand might fluctuate. It is important to keep in mind that forecasting is only a possible answer to unknown, and it may be less performant if used further into the future of area needing prediction.

A good manager can overcome issues occurring in his organization by setting goals of performance and acting strong about meeting those goals. According to professor G.S. Odiorne, managers need standards of performance to achieve control and to be realistic with the goals set by the people who are responsible for producing the end results. Odiorne saw three informal methods as the base standards for managers to help achieve an organization’s goals:

  • Standards based on historical data, which basically look at the company’s success rate throughout the years and use it to calculate the probable success rate in the future.
  • Short interval scheduling, a method used mostly in high volume work environment which consists in premeasuring the amount of work, following-up and correcting when things are not on schedule.
  • Standards evaluated according to expert estimates, which simply brings experts to study the job and make a decision for every job in the future.

Likewise, a manager has to be a leader in organization in order to gain the respect and support in achieving company’s goals. As scholar Zalesnik explains (1977), it takes neither genius nor heroism to be a manager, but rather persistence, hard work, intelligence, analytical ability and most important, tolerance and good will [4]. Leadership counts, and in their notion of transformation, Nadler and Tushman (1990) describe more traditional aspects of management, like for instance, controlling, rewarding and structuring [5].

As discussed above, the position of manager brings with it a great deal of responsibility and requires a complete set of skills. An effective manager must be an example for the team and be always prepared for the uncertain and the unknown. In order to be able to perform his duties successfully, a decision maker or a manager must also have knowledge of science language and mathematics. By looking at research studies on the subject, it can be observed that many management schools do not prepare its future managers in studying mathematics, statistics and learning to translate data into facts, which makes it difficult for new managers to progress in the workplace. With this said, there is a need for the management majors to lean educationally toward engineering and science rather than business degree alone.

Taking into account the shift in business models created in the past two decades as well as the educational model in the United States and other industrial countries, we come to the understanding that management model in the United States differs from the one existing in the rest of the world. By looking at the growing number of new start-up companies from other countries, we identified that the decision makers in those firms are scientists, dominating the world as result of decentralization of industry. Unfortunately, United States is behind in this matter and seems like it has some catching up to do with the current trend on management . 

 

In this part of our study we try to prove the importance of engineering in management by pointing out the lack of strong mathematical background of the US students which leads to a higher percentage of students enrolling in non science programs, consequently lowering the number of students that graduate with an Engineering degree. Due to this educational weakness, graduate schools in US offer non-technical management degrees like MBA programs, which is basically the opposite of what the educational systems in other industrial countries have to offer. Using specific examples, we try to show that staying with the current paradigm will be a damaging decision for the US; business managers should consider switching to the Engineering Management model, which is more beneficial for the future of US, because relying on the MBA business graduates will bring US down from the leading position in industry.

 

Strong forces like demographics, worldwide integration, economics and fast developing technologies are making serious changes in the appearance of engineering management in the nowadays society. Looking from a global perspective, business programs in basically any institution deliver only specific managerial aspects to their students and tend to overlook the importance of operations, suggesting that business leaders can make success without engineers’ help. This paradigm is becoming a problem for the future economy at a global level, yet in the United States this shift is more visible as it has the tendency to neglect the role of science and engineering study.

The importance of engineering in management has been neglected by managers and business consultants in the past, yet many MBA schools nowadays, by giving their graduates limited information of operations and key technical subjects, make the gap between engineering and management grow bigger. Speaking of the role of engineering in society, Chartered Management Institute Companion Kenneth Sanders states, “an understanding of technology is vital in managing modern enterprises”. From the steam power, to electricity, to the laser, to the transistor, to the computer, engineering has been involved in some form in everything we have today. In fact, engineers took part in “the acquisition, transport and production of the materials, the IT and printing processes” and even the machinery that has produced this research paper [12]. Our jobs, homes and daily activities are all particularly dependent on operation principles and processes. However, engineering is many times perceived as a ‘dirty’ trade rather than a key profession. The engineer is more too often called “the introverted nerd, the mad scientist, the IT guy spouting jargon in a dim server room” [13].

With looking at the history of some successful companies in the past 50-60 years, we observe that most of them started out very basic, yet by applying the right techniques and developing stronger management and leadership, these companies are still in business and many of them expanded their market place overseas. 

Many powerful companies today are the result of a genius idea. For instance, Skype was born in 2003 in one-bedroom apartment in Tallinn, Estonia [14]; Under Armour started his business in1996 in the basement of his grandmother in Washington DC [15]; Shazam 2000 was born in a small house on Hafman Ave [16]; Drop Box was invented in the bus in 2007, etc. [17]

            However, even if these ideas are brilliant, the implementation process and the responsibility of generating constant growth necessitates good management steps and leadership skills. By looking at companies like Lululemon Athletica, Blackberry or Kodak, it can be asserted that despite the fact that these companies came up with great ideas for business, the lack of leadership and managing skills brought them down in no time. Kodak and Blueberry did not move forward because they did not have enough resources to support the ideas in their prediction of future.

By looking at the examples above, it can be concluded that managing and leading brilliant ideas is actually more important than the invention itself.

            In becoming managers, people consider two different directions to earn a business management degree. First route is going through the business department and graduating with a bachelor of arts, which is not a science based degree. Business graduates usually don’t have strong math, statistical analysis or programing skills. These groups of people go toward MBA programs when they want to explore their interest farther. The second route is having some technical degree like engineering, which is strongly math oriented, and after finishing the degree, goes toward MBA or Engineering Management major. 

To understand and compare these two different pathways to management we need to look at two facts about businesses.

            The first fact is that the growth of companies is variable on making decisions. As we mentioned in introduction, a few decades ago the companies’ report sheets were very simple and anyone with basic statistical knowledge was able to read and understand those reports and predict their future move. The optimization on their future behavior was maybe 4 or 5 equations and same amount of variables so they easily could choose the best option. Yet nowadays, even if the companies have less production and fewer employees, their executive decisions depend on many more variables than before.

The globalization made it more difficult for corporations to compete; for the first time Americans are not competing with neighbors around the town, they have to compete with neighbors around the world. With looking at the employee organization systems in companies, we can see that there are so many professional people working in positions that did not even exist a few decades ago. For example, a company with nuclear engineering work area, that has a marketing department, industrial psychology personnel, international relation department and so many other employees, focuses on totally different problems than production or maintenance of the company. Managers are now dealing with heavier report sheets and make decisions that consist of numerous difficult equations and variables. The reports that used to be a few pages now could go up to hundreds of pages and the data used to produce these reports are up to thousands of pages long.

            The second fact about businesses today is the decrease in size of the big corporations and the extent of private companies. In the past, a favorable business model was considered the one that produced all the parts needed by the same company. Limiting necessities to outside sources and building all parts in the same factory was the best business model. However, in the past decade or two, that business model has changed drastically. A new model was introduced and consisted on resizing the big corporations, the government sector and the private sector altogether. For instance, NASA decided to close many of its R&D departments and now relies on the private sector. Even NASA’s equipment used to be send in space today is made and handled by small companies. Apple can serve as another example when it comes to using the private sector for manufacturing electronic devices, as a smaller company makes each piece. In fact, the data shows that even a giant company like Samsung supplies a significant proportion of one of its main rival’s products [18].

Summarizing the examples presented above, it can be asserted that having a strong science and math background is indispensable for the new management era. For leading its business effectively, a company needs a strong team that understands the language and the data used within the organization; likewise, employees need to have knowledge of the methods used in solving problems, which most of the time involve scientific and mathematical computations. Sadly, in US this theory does not hold, because, as mentioned in the article “Why Engineering matters in Management”: “managers should not have to deal with anything more than a one-page summary or the arithmetic they learned in grade school” [19].

            The paradigm shifts as it relates to engineering and management in the US business system is different from other industrial countries. If in Europe, in the past ten years some educational institutions began offering more programs specializing in supply chain management, “a typical business school in US offers at most one class, and that one usually is associated with tools” [19]. The reason behind this difference goes back to the educational system in each country. According to Dr. Michio Kaku, an American professor and theoretical physicist, US have the worst educational system in the world when it comes to science.  And the only reason the scientific establishment of this country doesn’t collapse is because “America has a secret weapon” [20]. In his speech, the professor refers to the H1B visas offered to the non-born American PhD candidates. It seems like 50% of all PhD students in America are foreign born, with 100% of foreign students only at the City College of New York. And frankly, those students represent the future of this country, they create the entire American industry and they own its prosperity.

A better understanding about the quality of math and science in US is given by the well-known engineer Norman Augustine, who explains that if United States wants to still be on top, it has to compete stronger with the rest of the world. Especially in education, Augustine shares that on the 2013 international standardized test, with 34 countries competing, US obtained the 17th place on the science test and 25th place on the math test. Another independent international study reported that US students, who graduated from high school in 2012, were placed on the 32nd place on overall performance   And let’s keep in mind that United States spends more than any other country in the world on their education system. The government invests as much on research in math, engineering, physical science and chemistry every year as the healthcare cost in this country every 10 weeks.

More data shows that in Asia, 25% of their college degrees were awarded in science and engineering, in Europe the number was 12% and in US only 4.3% of students graduated with a science or engineering degree. Ironically, many students in US adopted the policy suggested by the Washington Post, that “if you want to obtain a good grade in college, do not major in Engineering” [13].

Nevertheless, the country needs more effective managers to continue the advent of the information systems and technological developments. Science is the engine of prosperity and because of it engineering should be included in the everyday education to make sure that there are more people with an understanding of the subject. More courses should be included in MBA Curricula worldwide and business leaders and managers should make sure they understand the role of engineering very well and how operations support our economic growth. Because as the technology and information systems shows continuous developments, preparation should be in place. Managers should progress in their role no matter the uncertainty of environment, the impossibility of measurement or other factors. A successful enterprise can only be successful with an effective manager on top who should be prepared to fight the unknown using necessary strategies, analyzing data, forecasting and taking educated risks. For all the reasons presented above, the performance of a good manager is crucial for the future of an organization, as it proves the strength and ability to make strategic decisions and overcome future uncertainties.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Farshad Rabib

Author Farshad Rabib

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