topic : introduction · 2019. 3. 31. · utilize resources to best achieve companys objectives;...

“Engineering Management”.

In Section 1 of this course you will cover these topics:Introduction

Planning

Organizing

Topic : Introduction

Topic Objective:

At the end of this topic students will be able to:

Understand the engineering management functions

Understand business fundamentals of accounting and management

Understand how to make engineers more effective leaders in meeting the challenges

Definition/Overview:

Engineering Management: Engineering Management is a term that is used to describe a

specialized form of management that is required to successfully lead engineering personnel and

projects. The term can be used to describe either functional management or project management-

leading technical professionals who are working in the fields of product development,

manufacturing, construction, design engineering, industrial engineering, technology, production,

or any other field that employs personnel who perform an engineering function.

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Efficiency: Accomplishing tasks with the least amount of resources (time, money,

equipment/facilities, technology - know-how, procedure, process, skills) - do things right.

Effectiveness: Accomplishing tasks with efforts commensurate with the value created by these

tasks - do the right things

Strategic Decisions: Setting direction by specifying what right things to do are, high level

engineering managers participate in making strategic decisions

Operational (Tactical) Decisions: Engineers participate in defining how to do things right (e.g.,

methods or procedures to carry out a specific task/project efficiently)

Key Points:

1. Skills for Managers/Leaders

1.1. Leadership Skills

Leadership, a critical management skill, is the ability to motivate a group of people

toward a common goal. These items will help you develop your skills as a leader.

1.2. Technical Skills

Knowledge and proficiencies required in the accomplishment of engineering, scientific,

or any specific task.



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1.3. Administrative Skills

Broad group of skills including those required in communicating, computing, organizing,

planning, scheduling, staffing, etc.

2. Value Addition and Value Mantra

Increase Sales Revenue: New and enhanced products/services - faster, better, cheaper - to

create greater customer satisfaction

Reduced Cost to Do Business: Simplified product design, new technologies, improved

productivity, raised efficiency, reduced inventory via supply chains, new production and

marketing partnerships and alliances

As a Mantra, engineers and managers alike must focus on Work Which Adds Value,

large/small, direct/indirect, short/long-turn, and certain/uncertain

3. Value to Stakeholders

Customers: Product quality, service

Shareholders: ROI, EPS

Suppliers: Market position, financial stability, collaboration

Employees: Workplace, compensation, stability

Community: Corporate citizenship, brand image, tax contribution

4. Work of an Engineer

4.1. As Technical Contributor

o Understand objectives of tasks specified

o Develop action plan for implementation

o Define standards (performance metrics)



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o Select methodology/techniques

o Implement task with proper efforts

o Generate results and secure value

o Report findings (impact, lessons)

4.2. Tips for Engineers

o Demonstrate Technical Competence & Innovative capabilities

o Brush up Communications skills (ask, listen, write and talk)

o Show unfailing reliability to induce trust and confidence

o Be Proactive in seeking challenging tasks

o Exhibit readiness for assuming larger responsibilities (take courses,

practice skills, gain experience)

4.3. Typical Engineering Activities

o Design/development of products/processes

o Project engineering/management

o Value engineering and analysis

o Technology development and applied R&D (laboratory, field)

o Production/manufacturing and construction

o Customer service



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5. Engineering Management Functions

Planning (forecasting, setting objectives, action planning, administering policies,

establishing procedure)

Organizing (selecting organizational structure, delegating, establishing working

relationship)

Leading (deciding, communicating, motivating, selecting/developing people)

Controlling (setting performance standards, evaluating/documenting/correcting

performance)

6. Learnable Skills

Time management and work Habits

Interpersonal skills to get along with people

Team building, communications and motivation skills

Decision support tools (what-if analysis, risk analysis, kepner-Tregoe decision tool,

problem solving, root cause analysis, decision tree, optimization, etc.)

7. Talents to Be Nurtured

Vision - Strategic thinking capabilities to set direction or initiate new projects through

technological insight and intuition (lateral thinking)

Net-Working - Building a wide base of business/professional connections

Drive to Excel (competitive, proactive, energetic, persistent)



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8. Challenges In the New Millennium

Marketplace changes rapidly (Web-based technologies, globalization, customer demand,

business networks) affecting how progressive companies will be organized. Engineering

managers to lead by supervising complex teams, innovating with vision for the future, designing

global products, and organizing supply chains, apply global resources to derive economies of

scale and scope.

8.1. Inside

Implement projects/programs; manage people, technologies, and resources to add value;

develop new product features to enhance company competitiveness; define, control and

reduce costs to improve profitability; initiate technology projects to sustain company

position

8.2. Outside

Keep abreast of emerging technologies and apply them to strengthen companys core

competencies; apply web-based tools to enhance operations and foster customer relations;

identify best practices to improve engineering operations and surpass them; create supply

chain networks to derive speed, quality and cost benefits

8.3. Present

Do things right to keep company operating smoothly; use Balanced Scorecard to monitor

non-financial and financial performance; control costs and eliminate wastes to attain

profitability in the short-run



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8.4. Future

Seek e-transformation opportunities to create company profitability in the long-run;

introduce new generation products timely; create vision for the future related to

technologies; Define what should be done for technology-based success in the future

8.5. Local

Utilize resources to best achieve companys objectives; take ethical and lawful actions

while taking into account local conditions; maintain and nurture local professional

networks; share lessons gained with people at other company sites

8.6. Global

Apply location-based resources to realize global economies of scale and scope for

achieving cost and technology advantages; develop global professional networks; acquire

a global mindset; exercise leadership roles in international settings

Topic : Planning

Topic Objective:


Understand the concept of Planning

Understand Strategic and operational planning

Understand activities of planning



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Planning: Planning in organizations and public policy is both the organizational process, of

creating and maintaining a plan and the psychological process, of thinking about the

activities required to create a desired goal on some scale.

Strategic Planning: Strategic planning is an organization's process of defining its strategy,

or direction, and making decisions on allocating its resources to pursue this strategy,

including its capital and people.

Operational Planning: An operational planning is a subset of strategic work plan. It

describes short-term ways of achieving milestones and explains how, or what portion of, a

strategic plan will be put into operation during a given operational period

Key Points:

1. Planning

Planning in organizations and public policy is both the organizational process of creating

and maintaining a plan; and the psychological process of thinking about the activities

required to create a desired goal on some scale. As such, it is a fundamental property of

intelligent behavior. This thought process is essential to the creation and refinement of a

plan, or integration of it with other plans, that is, it combines forecasting of developments

with the preparation of scenarios of how to react to them.



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The term is also used to describe the formal procedures used in such an endeavor, such as

the creation of documents diagrams, or meetings to discuss the important issues to be

addressed, the objectives to be met, and the strategy to be followed. Beyond this, planning

has a different meaning depending on the political or economic context in which it is used.

1.1. Purpose of Plan

It is therefore important to prepare a plan keeping in view the necessities of the

enterprise. A plan is an important aspect of business. It serves the following three

critical functions: Helps management to clarify, focus, and research their businesses

or project's development and prospects. Provides a considered and logical

framework within which a business can develop and pursue business strategies over

the next three to five years. Offers a benchmark against which actual performance

can be measured and reviewed.

1.2. Importance of the Planning Process

A plan can play a vital role in helping to avoid mistakes or recognize hidden

opportunities. Preparing a satisfactory plan of the organization is essential. The

planning process enables management to understand more clearly what they want

to achieve, and how and when they can do it. A well-prepared business plan

demonstrates that the managers know the business and that they have thought

through its development in terms of products, management, finances, and most

importantly, markets and competition.

Planning helps in forecasting the future, makes the future visible to some extent. It

bridges between where we are and where we want to go. Planning is looking ahead.



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2. Strategic Planning

Strategic planning is an organization's process of defining its strategy, or direction, and

making decisions on allocating its resources to pursue this strategy, including its capital

and people. Various business analysis techniques can be used in strategic planning,

including SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats ) and PEST

analysis (Political, Economic, Social, and Technological analysis) or STEER analysis

involving Socio-cultural, Technological, Economic, Ecological, and Regulatory factors.

Strategies are different from tactics in that:

They are proactive and not re-active as tactics are.

They are internal in source, and the business venture has absolute control over their

application.

Strategy can only be applied once, after that it is process of application with no unique

element remaining.

The outcome is normally a strategic plan which is used as guidance to define functional

and divisional plans, including Technology, Marketing, etc.

Strategic planning is the formal consideration of an organization's future course. All

strategic planning deals with at least one of three key questions:

What do we do?"

"For whom do we do it?"

"How do we excel?"

2.1. Vision, mission and values

o Vision: Defines the desired or intended future state of a specific organization or

enterprise in terms of its fundamental objective and/or strategic direction.



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o Mission: Defines the fundamental purpose of an organization or an enterprise,

basically describing why it exists.

o Values: Beliefs that are shared among the stakeholders of an organization.

Values drive an organization's culture and priorities.

3. Operational Planning

An operational planning is a subset of strategic work plan. It describes short-term ways of

achieving milestones and explains how, or what portion of, a strategic plan will be put into

operation during a given operational period, in the case of commercial application, a fiscal year

or another given budgetary term. An operational plan is the basis for, and justification of an

annual operating budget request. Therefore, a five-year strategic plan would need five

operational plans funded by five operating budgets.

Operational plans should establish the activities and budgets for each part of the organization for

the next 1 3 years. They link the strategic plan with the activities the organization will deliver

and the resources required to deliver them.

An operational plan draws directly from agency and program strategic plans to describe agency

and program missions and goals, program objectives, and program activities. Like a strategic

plan, an operational plan addresses four questions:

Where are we now?

Where do we want to be?

How do we get there?

How do we measure our progress?

The OP is both the first and the last step in preparing an operating budget request. As the first

step, the OP provides a plan for resource allocation; as the last step, the OP may be modified to

reflect policy decisions or financial changes made during the budget development process.



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Operational plans should be prepared by the people who will be involved in implementation.

There is often a need for significant cross-departmental dialogue as plans created by one part of

the organisation inevitably have implications for other parts.

Operational plans should contain:

Clear objectives

Activities to be delivered

Quality standards

Desired outcomes

Staffing and resource requirements

Implementation timetables

A process for monitoring progress.

4. Activities Related to Planning

4.1. Forecasting

To estimate and predict future conditions and events (e.g., technology, products,

marketplace - customers, competition and economy, global supply chains,

manpower, capital and facilities)

4.1.1. Purposes of Forecasting

▪ Set bounds for possibilities to help focus on specifics

▪ Form basis for setting objectives

▪ Promote inter-group coordination

▪ Provide basis for resources allocation (manpower, budget, facilities and

business relations - alliances, joint ventures)



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▪ Induce innovation through forecasted needs

4.1.2. Steps to Forecast

▪ Identify critical success factors for achieving company goals

▪ Determine forecasting horizon (short, intermediate and long terms)

▪ Select forecasting techniques (e.g., trend analysis, statistics, intuition,

judgement)

▪ Predict future states and their probability of occurrence

4.1.3. General Comments on Forecasting

▪ Major economic events tend to change gradually over time

▪ Future events tend to result from current and past occurrence, in the

absence of disruptive changes (e.g., wars, natural disaster, technology

break through)

▪ Important sources of market information: Customers, sales, production,

service people

4.1.4. Criteria for Future-Oriented Ideas

▪ Consistency with companys objectives

▪ Technical feasibility to implement

▪ Financial viability



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▪ Marketplace compatibility

4.1.5. Technology Forecast

▪ Impact of new technology on business performance is difficult to

forecast

▪ Engineering managers are in the best position to do forecasting

▪ Teams of people with divergent experience, exposure and broad

perspectives may have a better chance to accurately forecast the future

technology impact

4.1.6. Technology Forecasting - Some Guidelines for Engineers

▪ Read broadly and think deeply

▪ Remain curious about new technological inventions and innovative

applications

▪ Ask critical questions and exchange ideas with networked professionals

▪ Focus on potential applications of new technologies which could add

value to future customers

4.2. Action Planning

4.2.1. Benefits:

▪ Focus on critical areas in need of management attention

▪ Select specific results to be accomplished



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▪ Set metrics to facilitate measurement and control

▪ Clarify accountability and permit delegation

▪ Encourage teamwork

▪ Ensure the continuation of overall performance evaluation

4.2.2. Planning Process

▪ Analyze Critical needs: Needs are to be defined with respect to position

charter, duties, management expectations, and company goals:

o Development needs

o Maintenance needs

o Deficiency needs

o Strategic needs

▪ Set Objectives (what results to be accomplished)

o Objectives are set to satisfy the critical needs: Write results

statement (e.g., what desirable future state to be in and by when)

o Objectives need to be specific and measurable, in order to be

useful

▪ Define metrics to measure performance:



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o Metrics are what takes to measure the attainment of the

objectives (be reasonable and pertinent) - Write standards

statement

o Metrics need to be quantitative (using numbers, percentages, cost

figures, resources parameters) - external and internal

o Metrics need to be defined with doers participation and consent

▪ Specify actions steps (sequence and priority of tasks to perform):

o List major action steps, identify work contents, define sequential

relationship between steps, determine resources requirements for

each, specify expected results, and assign people to each action

step (getting doers to agree)

o Evaluate risk for completing the steps planned, define

contingencies to manage risks

▪ Determine dates of task initiation and completion:

o Determine dates of initiation and completion of each task

o Allow scheduling flexibility (slag) to account for contingency,

emergency and other difficult-to-predict deviations from plan

o Focus on management of critical path tasks to avoid any overall

delays



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▪ Develop a budget (resources to allocate):

o Determine the basic resources units (man-hours, man-weeks) to

accomplish each steps

o Define other resources (computation, travel expenses, materials,

experiments, equipment usage, pilot tests, contract services,

support staff, management review, etc.)

o Revise action steps, if projected cost exceeds value expected

4.2.3. Remarks on Action Planning

▪ Involve doers in action planning

▪ Apply computer-based tools (e.g., Microsoft Project, Timeline) to

generate PERT or GANTT charts

▪ Include risks and contingency steps

▪ Iterate planning process until all parties (top management, doers, team

leader, service providers, etc.) involved are satisfied

5. Issuing Policies

Policies are directives, promulgated to address repetitive questions and issues of general

concern

Examples: Hiring/firing guidelines, EEO, performance appraisal, drug policy, savings

program, medical insurance, retirement benefits, educational refunds, travel expenses and

trip report, technical publications, plant safety, progress reports, staff meeting, etc.



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5.1. Purposes of Policies

o Save management time and efforts, as they address the common and repetitive

questions of interest to a large number of employees (policy manuals, web

posting)

o Capture the distilled experience and past learning of the company

o Facilitate delegation (administered by the secretaries, or human resources

group)

5.2. Characteristics of Policies

o Apply uniformly to all employees

o Being relatively permanent, when in force

o Foster corporate objectives (assure equal treatment of all, encourage skills

building via education and seminar attendance, reducing conflicts due to

interpretation difference, encourage teamwork, free managers to focus on

important work, etc.)

6. Establishing Procedures

Procedures are standardized (tried-and-true) method of performing work

Examples: Product design, project management, equipment operation, facility

maintenance, installation, procurement, ISO 9002 certification, manufacturing, waste

disposal, customer service, customer order processing, and others

6.1. Importance of Procedures

o Preserve the best way to perform repetitive work (efficiency-focused)

o Provide the basis for method improvements



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o Insure standardized action (quality control, resource conserving, work

reproducibility)

o Simplify training

o Save corporate memory (know-how, knowledge, heuristics, proven

practices)

6.2. Developing Procedures

o Concentrate on critical repetitive work of time-consuming and high demand

nature

o Chart the work (inputs, workflow, outputs, skills, resources)

o Study work characteristics (Why is it necessary? What results to get? When is

best time, where is best place, and who is best person to develop it?)

o Propose procedures (keeping to a minimum to avoid being restrictive, and

enable its consistent administration)

o Define regular improvements to procedures

o Formulate procedures and communicate widely to assure understanding and

acceptance by all involved

7. Ingredients of Good Planning

Assumptions: Get information, forecast future states, and study/select alternatives, check

validity frequently

People: Consider involving doers and introduce changes gradually to avoid resistance.

Benefit versus Cost: Efforts to implement plan must be commensurate with value

expected of the plan (effectiveness doctrine)

Small but Sure Steps: Design a series of small steps to reach the expected results, allow

timely control and mid-course corrections

Change in Future: Anticipate changes in future conditions and include contingency

steps with fallback strategies



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Commitment: Secure commitment of sufficient resources to achieve plan objectives

Topic : Organizing

Topic Objective:


Understand the concept of organizing

Understand the activities of organizing

Understand informal organization

Understand cross-functional teams


Organizing: Arrange and relate the work, so that it can be done efficiently by people.

Informal Organization: The informal organization is the interlocking social structure that

governs how people work together in practice.

Cross-Functional Teams: In business, a cross-functional team is a group of people with

different functional expertise working toward a common goal.



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Key Points:

1. Organizing

Arrange and relate the work, so that it can be done efficiently by people - Specifically: Ensure

that important work is done, Provide continuity, Form basis for salary administration, Aid

delegation, Promote growth and diversification Encourage teamwork, and Stimulate creativity.

1.1. Functions of Organizing

1.1.1. Organizing Own Workplace

▪ Set priority of daily work (attend meetings, make phone calls, write

emails, block out time to do creative work, discourage disruptions, keep

conversations short, maintain to-do lists, prioritize tasks, etc.)

▪ Create a file system for efficient retrieval

▪ Develop ones own system for names and contact information

1.1.2. Develop Organizational Structures

Identify and group work so that it can be done efficiently by people

Choices:

▪ Functional: The functional structure groups employees together based

upon the functions of specific jobs within the organization.

▪ Discipline: Favored by universities, governmental laboratories and other

R&D organizations and promote innovative pursuits in individual



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disciplines, allowing employees to drill down to deeper knowledge levels

without requiring much coordination with others.

▪ Product/regional: Focuses on end products or geographical regions and

encourage management development.

▪ Matrix: Matrix structure groups employees by both function and

product. This structure can combine the best of both separate structures. A

matrix organization frequently uses teams of employees to accomplish

work, in order to take advantage of the strengths, as well as make up for

the weaknesses, of functional and decentralized forms.

▪ Team: Team members on loan from functional organizations to

eliminate organizational conflicts and Team Leader in full control and

involved in short term high-priority tasks/projects.

▪ Network: Global business alliances/partnerships to manufacture, market,

deliver and service products (supply chains) and change alliance members

from time to time.

2. Informal Organization

The informal organization is the interlocking social structure that governs how people work

together in practice. It is the aggregate of behaviors, interactions, norms, personal and

professional connections through which work gets done and relationships are built among people

who share a common organizational affiliation or cluster of affiliations. It consists of a dynamic

set of personal relationships, social networks, communities of common interest, and emotional

sources of motivation. The informal organization evolves organically and spontaneously in

response to changes in the work environment, the flux of people through its porous boundaries,

and the complex social dynamics of its members.



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Tended effectively, the informal organization complements the more explicit structures, plans,

and processes of the formal organization: it can accelerate and enhance responses to

unanticipated events, foster innovation, enable people to solve problems that require

collaboration across boundaries, and create footpaths showing where the formal organization

may someday need to pave a way.

2.1. Characteristics

o Evolving constantly

o Grass roots

o Dynamic and responsive

o Excellent at motivation

o Requires insider knowledge to be seen

o Treats people as individuals

o Flat and fluid

o Cohered by trust and reciprocity

o Difficult to pin down

o Essential for situations that change quickly or are not yet fully understood

3. Cross-Functional Teams

In business, a cross-functional team is a group of people with different functional expertise

working toward a common goal. It may include people from finance, marketing, operations, and

human resources departments. Typically, it includes employees from all levels of an

organization. Members may also come from outside an organization (in particular, from

suppliers, key customers, or consultants).



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Cross-functional teams often function as self-directed teams responding to broad, but not specific

directives. Decision-making within a team may depend on consensus, but often is led by a

manager/coach/team leader.

A non-business, yet good example of cross-functional teams are music bands, where each

element plays a different instrument (or has a different role). Songs are the result of collaboration

and participation, and the goals are decided by consensus. Skills to play all the instruments

involved are not required since music provides a standard language that everybody in the team

can understand. In short, music bands are clear examples of how these teams work..

3.1. Team Discipline

For achieving blow-the-roof-off performance, teams must have discipline:

o Common purpose

o Specific goals of performance

o Complementary skills

o Commitment to how the work gets done (each pulling the same weight)

o Mutual accountability - commitment and mutual trust, being accountable to

each other - being in the boat together

3.2. Team Learning

o Team must learn quickly all needed skills (process of working together, use of

design tools, communications). Factors affecting team learning speed:

o Composition (a mix of expertise)

o Culture of risk taking allowing experimentation

o People-oriented leadership Style



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3.3. Team Effectiveness

o Team Goals are clear, of high impact, measurable and with top management

support

o Members are results-oriented, efficient, having complementary skills and

experience, high energy level, positive attitude to collaborate, each supported

by staff with specific expertise

o Work Environment is excellent (easy to use communications tools,

opportunity for self-expression, pleasant work atmosphere, etc.)

3.4. Roles of Team Members

o Team Leader: Keeps team moving forward

o Conceptual Thinker: Sources of original ideas, with imagination and vision

o Harmonizers: Assuring team harmony, foster collaboration, resolving

conflicts

o Technicians: Specialists with expertise

o Planners/implementers: Bring methods to tasks of team, autocrats with

inflexibility

o Facilitators: Offering help and support, being adaptable

o Critical Observers: Making sure the team is on target

o Radicals: Not accepting conventional thinking and solutions, offering new

approaches to problem-solving

o Power Seekers: Wanting to be right all the time, shaping the teams view

o Diplomats: Coordinating inter-team relationship, getting information for the

team



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3.5. Team Stages

o Formation Stage: Members get together to have roles and responsibilities

defined

o Gelling Stage: Members of like minds will form subgroups and stay close

together

o Unison Stage: All team members are getting highly organized with a

common goal

4. Delegating

Objective - To improve managers overall efficiency by selectively distributing work for

employees to do

Process - Managers delegate the responsibility and needed authority of doing specific work to

employees and create upward accountability in them for securing the anticipated results

4.1. Why Delegating

o Improve quality and quantity of work done

o Allow manager to do managers job

o Become knowledgeable of employees capabilities

o Distribute work load efficiently/equitably

o Develop leadership capabilities in people

o Improve operating decisions - reducing cost

o Facilitate teamwork, making job more satisfying to employees

o Create opportunities for employees to gain recognition, encouragement and

incentives

o Allow employees to develop new skills and knowledge, fostering initiative

and competence, and gaining self-confidence



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o Encourage employee growth/development

4.2. What to Delegate

o Problems/Issue requiring exploration, study and recommendation for decision

making

o Activities coming within the job scope and capabilities of employee

o Tasks fitting companys needs and promoting employee development and

growth

o Activities, if done right, would save managers time

4.3. What Not to Delegate

o Planning (to define the right things to do)

o Resolve morale problems, differences and conflicts in groups/units

o Coaching and developing employees

o Review, evaluate and correct performance

o Own assignments from big bosses

o Others (own pet projects, tasks absent of talents)

4.4. How to Delegate

o Communicate the importance of task, set goals and performance indicators,

check on understanding/confidence

o Delegate responsibility for quality of work

o Allow operational decision making (resources, method, sequence of tasks,

etc.)

o Trust the employee and give recognition



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o Retain own upward accountability

4.5. Barriers to Delegation

o Own technological obsolescence - Employee may learn and grow technically

o Organizational barriers - unclear roles and responsibilities, line and staff

positions

4.6. Notes on Delegation

o Delegation is limited by control in effect - no control, no delegation

o Authority must be commensurate with responsibility (related to work

delegated)

o Accountability - Achieving the expected results by discharging responsibility

and using authority delegated

o Willingness and ability of employee are keys

In Section 2 of this course you will cover these topics:

Leading

Controlling

Cost AccountingTopic : Leading



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Topic Objective:


Understand the function of leading

Understand leadership

Understand activities of leading


Leading: To cause people to take effective actions for attaining organizational goals (willingly)

Leadership: Leadership is a process by which a person influences others to accomplish an

objective and directs the organization in a way that makes it more cohesive and coherent.

Key Points:

1. Leadership

Leadership is a process by which a person influences others to accomplish an objective and

directs the organization in a way that makes it more cohesive and coherent. Leaders carry out

this process by applying their leadership attributes, such as beliefs, values, ethics, character,

knowledge, and skills. Although your position as a manager, supervisor, lead, etc. gives you the

authority to accomplish certain tasks and objectives in the organization, this power does not

make you a leader, it simply makes you the boss. Leadership differs in that it makes the

followers want to achieve high goals, rather than simply bossing people around.



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Leadership has a formal aspect (as in most political or business leadership) or an informal one

(as in most friendships). Speaking of "leadership" (the abstract term) rather than of "leading" (the

action) usually it implies that the entities doing the leading have some "leadership skills" or

competencies.

2. Functions of Leading

2.1. Deciding

o To arrive at conclusions and judgements

o To assure that the quality of decisions made remains high

2.1.2. Types of Decisions

▪ Spontaneous Decisions - Intuitive, hunch or gut instinct based

▪ Reasoned Decisions - Based on systematic studies and logical analyses

(to the extend possible):

o Assess facts and evaluate alternatives,

o Use full mental resources,

o Emphasize creative problem-solving,

o Think consistently,

o Minimize the probability of errors (downside risks)



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2.1.3. Why Decision Making is Difficult

▪ Management Problems: Defined, of wide scope, of constantly changing

nature, involving people of unpredictable behavior

▪ Data/Facts: Insufficient, of poor quality, excessive, and not to be

analyzed and interpreted in time and within budget

▪ Impact of decisions: Dependent on peoples opinion, which change in

time

▪ Nature of Decisions: Compromises among alternatives, with validity

changing with time

▪ Decision Implementation: Affected by consensus and commitment of

affected people

▪ Complexity of Decisions: Critically important decisions involve

multiple management levels, thus requiring coordination

2.1.4. Criteria for Good Decisions

▪ Achieve stated purpose - correct/change the situation which created the

noted problem

▪ Be feasible to implement - meaningful with respect to resources required

and the value created

▪ Have no or limited adverse consequences -not causing major disasters to

unit or company in short- and long-term



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2.1.5. Guidelines for Decision Making

▪ Study management cases for acquiring close to real-world experience in

decision making

▪ Prioritize problems in need of decisions, skip those with minor

significance or impact

▪ Apply a rational process to guide the decision making process

▪ Involve those to be impacted by the decision - consensus building foster

implementation

▪ Make decisions based on incomplete/ uncertain information on hand,

assumptions introduced

▪ Take the necessary risks

▪ Delay decision making until the last allowable moment, but within the

applicable deadlines, avoid making no decision which is a sign of poor

leadership

2.1.6. Who is to Make What Decision?

▪ Decisions by Staff

o Techniques to accomplish assigned tasks or projects

o Options to continuously improve current operations and work

processes

o Social events - Group picnics, golf outings, Christmas parties,

and others



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▪ Decisions by Manager and Staff

o Development needs of staff - conference or seminar attendance,

training needs, degree programs, etc.

o Policy and procedure involving staff interactions with other

departments

o Team membership - workload balance, personality fit, working

relationship, exposure and visibility, sets of skills, etc.

▪ Decisions by Manager

o Priority of tasks and projects, project or program objectives,

budget allocation

o Personnel assignment, work group composition, evaluation, job

action

o Administrative policies, procedures, office space assignment,

special exceptions

o Business confidential matters



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2.1.7. Rational Decision Making Process

▪ Assess the apparent problem - based on symptoms observed

▪ Collect facts - what, how, who, where, when, why, from people who

have direct knowledge of the problem at hand : Management by Walking

Around

▪ Define the real problem - deviation from norm, performance metrics to

measure success

2.1.8. Kepnor-Tregoe Decision Analysis Tool

▪ Define decision criteria (necessary criteria and sufficiency criteria)

▪ Rank-order sufficiency criteria (from 1 to 10)

▪ Evaluate all options against each sufficiency criteria and eliminate those

which flunk the necessary criteria

▪ Score each surviving option relatively with respect to each sufficiency

criteria (from 1 to 10)

▪ Compute a weighted score (multiplying the weight factor of the

sufficiency criteria with the relative score of an option and summing up

such numerical products for each option)

▪ Choose the option with the highest weighted score as the best solution to

the problem at hand

▪ Decision criteria - both necessary and sufficiency- are externalized

▪ Relative importance of all sufficiency criteria are rank-ordered



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▪ Chosen criteria are Mutually Exclusive and Collectively Exhaustive

▪ Decision - equitable, rational, comprehensive

2.1.9. Decisions Not to Make

▪ Not pertinent/applicable to problems at this time

▪ Can not be implemented effectively (business priority, resources

constraints, value created)

▪ To be made by others

2.1.10. Decision Support Tools

▪ Forecasting (exponential smoothing, time series)

▪ Regression Analysis (single-variable, multi variables)

▪ Risk Analysis (Monte Carlo)

▪ What -if Solver

▪ Simulation Modeling

▪ Decision Trees

▪ Optimization (linear programming, integer/dynamic programming)



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2.1.11. Decision Making by Gut Instinct

▪ Spontaneous Decisions - Intuitive solution for complex and ambiguous

problems defying systematic analyses (No data)

▪ Brain Activities - Left-side (logical, rational and conscious) versus right-

side (intuitive, subconscious); Innovative ideas surface unexpectedly, due

to accumulated patterns and rules derived from past experience

▪ Intuitive decisions can be wrong from time to time, feedback from

trusted sources is needed to recalibrate patterns and rules frequently

▪ If repeated, feedback-based learning tends to improve quality of intuitive

decisions made in the future

2.1.12. Decision Making in Teams

▪ Group dynamics - New dimensions to decision making:

o Coalitions/alliances among team members - position-based

advocacy,

o Conflicts of interests,

o Personality clash (fighting words, selective seeing, interruptions,

personal friction)

▪ Leadership Role:

o Minimize Conflict Follow an Inquiry-focused solution-discovery

process, not to conduct a position-fighting exercise: Share

information, Think critically, Debate ideas rigorously, Check



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assumption relentlessly, Apply rule of reasoning, and Testing

strengths among competing ideas (not competing positions)

o Show Consideration - Make sure that the losers perceive fairness

of having their ideas heard and considered: No predetermined

solutions, No personal preference of leaders, Listen actively to all

ideas - taking notes, asking questions, Explain logic of final

decision and why the views of the losers were not accepted

o (3) Manage Closure: Early Close (group think phenomena) as

unstated objections will show up at implementation phase: leader

to inject questions and promote additional debate, Late Closure

(endless debate between warring factions, trying to resolve all

trivialities just to be fair) - Leader to cut off debate and announce

decision

▪ Criteria for good group decisions -

o Multiple Alternatives to create

o Assumptions to check

o Decision criteria to externalize

o Dissent and debate to promote

o Perceived fairness to assure

2.2. Communicating

To create understanding and acceptance by conveying facts, viewpoints, impression

and/or feelings



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2.2.1. Guidelines for Communication

▪ Communicate with a clear purpose

▪ Select proper form to communicate - face-to-face talk, phone

conversation, emails, video-conference, staff meeting, written memos,

web-posting, net-meeting

▪ Be honest and open, welcome suggestions, offer pertinent information to

dispel fears

▪ Keep communications channels open

2.2.2. How to Communicate?

▪ Asking

o Asking open-ended insightful questions to gain knowledge and

to improve understanding of the situation at hand

o Quality of questions is an clear indication of the questioners

grasp of the situation at hand

▪ Telling

o Offer information to keep people (peers, employees, bosses,

supply chain partners, customers) informed about matters of

concern to them



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o Judgement is needed as to what to tell and what not (Need to

Know paradigm), seek balance between trust-creation and no

surprise versus and control over information

▪ Listening

o Remain focused in listening to the subtext and true meaning of

the exchange

o Maintain eye contact

o Exercise self-discipline to control own urge to talk and avoid

interrupting others

▪ Understanding

o To hear by the head and to feel by the heart

o Assess the degree of sincerity - verbal intonation, facial

expression, body language

o Recognize shared meaning (emotional and logical)

2.2.3. Common Barriers to Communications

▪ Interpretation of Semantics (words/terms may have multiple meanings)

▪ Selective Seeing - See only what one wants to see



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▪ Selective Listening - Hear only what one wants to hear (screen out ideas

divergent to own opinion or self-interest)

▪ Emotional Barriers (strong attitude and feelings, personal biases)

2.2.4. Techniques of Communicating

▪ Know what one wants to say and say what one means (some people want

to impress others, not to express themselves)

▪ Know the audience (tailoring to the receivers frame of mind belief,

background, attitudes, experience and vocabulary)

▪ Get favorable attention - Taking into account of receivers interest and

emotional standing

▪ Get understanding - Leading the exchange from present to future,

familiar to unfamiliar, and agreeable to disagreeable

▪ Get retention - Repeat the ideas (Rule of Four)

▪ Get feedback - Asking questions

▪ Get action to enhance communications

2.3. Motivating

To motivate is to apply a force that excites and drives an individual to act, in ways

preferred by the manager/leader.



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2.3.1. How to Motivate

▪ Inspire - Infuse a spirit of willingness (By work done, leadership traits,

examples set)

▪ Encourage - Stimulate through praise, approval and help

▪ Impel - Force (Coercion, compulsion, punishments)

2.3.2. Techniques to Enhance Motivation

▪ Participation - Promoting ownership of idea, project, task and program

▪ Communication - Objectives, metrics

▪ Recognition - Fair appraisals inducing loyalty and confidence

▪ Delegated Authority - Convey trust

▪ Reciprocated Interest - Show interest in Results

2.3.3. Keys for Successful Motivation

▪ Accept people as they are, not try to change them - personal preference,

values and standards

▪ Recognize that other have drives to fulfill own needs - self-actualization,

recognition, ego, self-esteem, group association, etc..

▪ Motivate by addressing the unsatisfied needs - Maslow Need Hierarchy

Model



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2.3.4. Maslow Hierarchy Need Model

▪ Self Actualization - Self-development and realization of own potential

▪ Esteem - Ego, recognition

▪ Social - Peer acceptance, group affiliation

▪ Safety - Job security

▪ Physiological Needs - Food & shelter

▪ A higher level need only arises when lower ones are already satisfied

▪ A satisfied need no longer dominates the individuals behavior, the next

higher need takes over

▪ An unsatisfied need acts as a motivator - Central to need-based

motivation strategy

▪ The top level needs are never fully satisfied

2.3.5. Motivating Factors for Professionals

▪ Scope of self expression and creativity, having room for making

decision, choosing methods and utilizing own talents fully

▪ Independence with minimum supervision

▪ Recognition for achievements

▪ Variety of challenging work is motivating



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▪ Pay and benefits are minor motivators

2.4. Selecting

By selecting people, managers gain staff with right skills, dedication, value systems,

personality, and win their loyalty over time and associate themselves with the right

mentors and leaders

2.4.1. Standard Procedure of Employee Selection Process

▪ Define needs

▪ Define qualifications

▪ Get applicants

▪ Review and pre-screen applicants

▪ Conduct interviews - Asking good questions

▪ Decide on job candidates

2.4.2. Skills Assessment

▪ Hard skills - Technical capabilities readily assessed (transcripts, reports

and references)

▪ Soft skills - Behavior in team work, interpersonal skills, leadership

quality, cooperative attitude, mental flexibility and adaptability - all



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related to personality - psychological profile, value systems and deep-

rooted beliefs are difficult to evaluate

2.4.3. Challenges of Selecting

▪ Managers are not trained to assess soft skills - major sources of job-

related problems and key factors for career failures

▪ Candidates are polished to Talk the talk and walk the walk, masking

their true long-term personal behavior

▪ Selecting people remains a major challenge to all managers

2.4.4. Best Practice in Selecting

▪ Companies: Mazda Motor, Flat Rock, Michigan and Diamond-Star

Motor, Normal, Illinois

▪ Selection Criteria: Interpersonal skills to get along with people, Aptitude

for teamwork, Personal flexibility, and Drive to improve continuously

▪ Selection Process: Multiphase process involving tests, exercises, and role

playing in group activities, and Pick the best (based on soft skills)

employees and train them well technically

2.5. Developing

o Purpose: To improve knowledge, attitude and skills of employees

o Knowledge: Cognizance of facts, truths and other information



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o Attitude: Customary dispositions toward people, things, situations and

information

o Skills: Ability to perform specialized work with recognized competence

2.5.1. Guidelines for Employee Development

▪ Emphasize employees role in development (good for the individual and

company)

▪ Appraise present performance and future potential

▪ Counsel for improvement (to induce self-improvement, set example)

▪ Develop Successors - Career Planning Plan of Some Progressive

Companies

3. Special Topics on Leading

Leading Changes (Eight-step processes to create and sustain changes)

New Leaders (Strategy for First 6 months)

Advice for Superior Leadership (Eight attributes and more)

3.1. Leading Changes

Changes take time to set in and there are eight critical steps to follow:

o Establish a sense of urgency - Identify marketing and other factors supporting

the urgent need for change, getting 75% of corporate leaders on board

o Form a powerful guiding coalition - Secure shared commitment of top leaders



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o Create a vision - Have an easy-to-communicate vision to direct the change

efforts

o Communicate the vision - Using all means available to spread the words

o Empower others to act on the vision - Encourage risk taking and removal of

systems/ people resisting change

o Plan for short-term wins - Select projects to achieve wins within the first one

to two years, in order to keep momentum

o Consolidate improvements - modify systems and promote people in favor of

changes

o Institutionalize new approaches - Ensure leadership development/succession

3.2. Advice for New Leaders

New Leaders - Sailing through dense fog in first 6 months (short visibility ahead)

Seven-rule strategy to follow:

o Leverage the time before entry - Study the new situation (SWOT analysis),

prepare questions

o Organize to learn - Technical, cultural and political arenas

o Secure early wins - Get some wins in first 6 months

o Lay foundation for major improvements - Initiate pilot programs to try out

new technology tools, Change ways to measure performance, Introduce new

ways of operating and viewing business, Promote positive examples, and

Envision new mechanism to do business

o Create a personal vision - linking to core value and be compatible with top-

priority projects

o Build winning coalitions - linking with powerful groups in top-management,

middle management and working groups

o Manage own time and stress, Secure technical, political and personal

advisement



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Topic : Controlling

Topic Objective:


Understand concept of controlling

Understand functions of controlling

Understand means and guidelines of control


Control: Control is one of the managerial functions like planning, organizing, staffing and

directing.

Key Points:

1. Controlling

Work done by managers to assess and regulate work in progress and to evaluate results obtained,

for purpose of:

Securing and maintain maximum productivity

Reducing and preventing unacceptable performance



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1.1. Nature of Controlling Function

o Primarily administrative and operational in nature

o Critical to implementation of any plan (task, project, program) - no

implementation, no results regardless of plans merits

o Important to delegation - no effective control, no delegation

o Important to company renewal (pruning)

o Balance between operational efficiency and staff creativity and innovation -

Four Levers of Control

o Types of control - Output-based and Process-based

o Resistance to control - falsifying data, inventing excuses, sabotaging, playing

games, and pitching one against the other

1.2. Characteristics of Good Control

o Accuracy

o Timeliness

o Flexibility

o Cost-effectiveness

o Understandability

o Realistic

o Acceptable to those who will enforce decisions

o Control at all levels

o Balance between objectivity and subjectivity



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2. Controlling Function

2.1. Setting Standards

o Standards are criteria by which work and results are measured and evaluated

at grades:

▪ Average -- generally expected performance level for a given job

▪ Other grades -- outstanding, better than average, average, below average

and unacceptable

o To distinguish performance grades and to define expected impact of results

2.1.1. Value of Setting Standards

▪ Provide specific guidelines for exercising authority and making decisions

(rewards and punishments)

▪ Define yardstick to measure performance (individuals, group/unit,

project)

▪ Facilitate self evaluation, improvement and self-control

2.1.2. Types of Standards

▪ Technical Standards (product first pass success rate, product unit cost,

mean time between failure (MTBF) for equipment, hurtle rate, sales per

employee, ROE, etc.)

▪ Historical Standards (own metrics in the past - internal benchmarking)



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▪ Planning Standards (cost leadership target, sales revenue, profitability)

2.1.3. Good Standards

▪ Based on approved plans

▪ Measurable

▪ Considerate of human factors

▪ Comparable and reasonable

▪ Indicative of expected work performance

2.1.4. Barriers to Setting Good Standards

▪ Subjectivity -Technically strong managers tend to set unrealistically high

standards. Too high standards - demoralizing, and Too low standards - not

challenging enough

▪ Fearful of not meeting standards

▪ Lack of Consideration - Human factors and other considerations

2.2. Measuring Performance

o Collect, store, analyze and record work being done and results attained

systematically (progress reports, project reports, technical documents,

presentations, staff meeting minutes, personal meeting notes, etc.)

o Compare performance against established standards



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o Document results of measurement

2.3. Evaluating Performance

Appraise work in progress or completed and provide feedback by

o Establishing limits of tolerance,

o Note variations - deviation within the tolerance limits, and exceptions -

deviation outside the tolerance limits,

o Provide recognition to good performance (give credit timely)

Focus on deviation tends to encourage self-appraisal/control and foster initiative

2.4. Correcting Performance

Rectify and improve work being done and results obtained - Taking steps:

o Correct mistakes and focus on future development

o Take operation actions - get help from outside consultants, add temp people

o Take management action - add training, improve procedures and policies to

avoid repeating deficiencies, transfer and recommend dismissal.

3. Benchmarking

Benchmarking is a method of defining performance standards in relation to a set of references.

3.1. Internal Benchmarking

o Compare current year performance metrics with those in past years to indicate

performance improvement (annual reports)



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o Short-term goal setting based on internal benchmarking may create a false

sense of corporate wellbeing - absent external benchmarking

3.2. External Benchmarking

Compare companys performance with those of peers in the same industry

Financial ratios

o Performance metrics - Time to market, order processing efficiency, quality

control, unit product cost, etc.

o Best practices - tried-and-true methods of achieving useful results

o Critical success factors - conditions for achieving success in specific areas

based on accumulated learning

o Target pricing - surveying marketplace to define going prices for competitive

products, subtracting desirable margin and setting product cost target for

product development - Innovation under duress model generally applicable to

many business/engineering activities

o Balanced Scorecard forward looking and non-financial versus past orientation

of financial metrics only

3.3. Limitation of Benchmarking

o No forecast of the future - Only applied to current practice, No prediction of

new competition

o Some data may not be available (using estimates tends to reduce accuracy and

reliability of results)



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4. Means of Performance Control

Personal Review - Focusing on variance -management by exception for decision making

Resources - Allocation of capital, people, staff support, technology, equipment/ facilities

Project Approval - Initiate, modify or terminate specific project activities

5. Guidelines for Effective Control

Focus on location where actions take place

Induce self-imposed control (Most effective)

Avoid extensive control, which tends to de-motivate people and induce strong reactions

Manage exceptions, both bad and good

Strive for flexible and coordinated control (supply information with control mechanism

in place)

6. Specific Controlling Targets

6.1. Control of Management Time

o Important tasks often arrive at unpredictable times

o Trivial tasks often take up a disproportionately large amount of time

o Interruptions to managers schedule are common

6.1.1. Typical Time Wasters

▪ Absence of clear roles and responsibilities -overlapping responsibilities

▪ Poor self-discipline - No planning, lack of personal drive to accomplish,

confused priority, procrastination



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▪ Lack of effective delegation - trying to do all by self

▪ Poor communications - unprepared meetings, policies, politics

6.1.2. Tips to Manage Time

▪ Set goals (for the day, week, month, year)

▪ Prioritize tasks (classify into A, B and C categories) according to value

addition

▪ Plan tasks properly

▪ Minimize interruptions for blocks of time to do A-tasks - planning,

strategy development)

▪ Make use of waiting time

▪ Keep reports concise and readable

6.2. Control of Personnel

For high skills personnel, less control is more desirable, excess control could induce

adverse reactions - Supervision Curve

6.2.1. Four Levers of Control

Control assures operational efficiency, but too much control inhibits creativity

and innovation - What is proper control level?



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▪ Diagnostic System - Management demands standardized behavior and

exercises control (in high stake situations)

▪ Belief System - Communicate core value, mission and vision, for

encouraging employees to add values

▪ Boundary System - Specify what not to do (off-limit activities)

▪ Interactive Control System - Senior management monitors and interacts

with low-level decision makers to stay abreast

6.2.2. Effective Control System

▪ Use Belief System and Interactive Control System to set performance

and business conduct guidelines

▪ Apply performance guidelines and Diagnostics System to improve

operational efficiency

▪ Implement business conduct guidelines and Boundary System to

improve creativity

6.3. Control of Business Relationship

o Who does one know and how well is an increasingly important competitive

advantage

o Sources of contacts - University alumni activities, technical

conferences/seminars, industrial expositions, sports events, church

o Use 5-second commercial (intro), exchange expertise areas, make note, and

follow up.



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6.4. Control of Projects

o Understand objectives and constraints

o Use tools (computer- or Internet-based) to plan and manage approved project

o Monitor cost, dates, critical path activities

o Control plan deviations (Risks) tightly

o Induce collaboration among team members

o Resolve problems and conflicts timely

o Communicate constantly

6.4.1. Skills for Managing Projects

▪ Organizational and planning skills

▪ People management

▪ Problem solving

▪ Communications (team members, sponsors, customers)

▪ Drive and energy

▪ Goal orientation and customer focus

▪ Broad multidisciplinary technical knowledge

▪ Manage changes



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6.5. Control of Knowledge

o Knowledge refers to corporate intellectual properties comprising

▪ Patents

▪ Proprietary know-how

▪ Technical expertise

▪ Design procedures

▪ Empirical problem-solving heuristics

▪ Process operational insights, and others

o Managers are responsible for developing, preserving and applying corporate

knowledge

o Major difficulties:

▪ Knowledge chunks dispersed in various documents

▪ Most experts not fond of sharing knowledge - job protection

o Set/Implement knowledge reporting and management policy (progress reports,

job rotation, design specs and procedures, data books, meeting records,

knowledge sharing)

6.5.1. Specific Techniques for Knowledge Management

▪ Rotate experienced people - to allow people in different locations to

learn from them



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▪ Create a pleasant work environment to avoid losing people with

expertise

▪ Encourage those who are willing to use knowledge acquisition tools to

preserve expertise (introduce performance metrics)

Topic : Cost Accounting

Topic Objective:


Understand Basic Terms in Cost Accounting

Understand Cost Analysis

Understand Time Value of Money

Understand Depreciation Accounting

Understand Product/Service Costing

Understand Activity Base Costing (ABC)

Understand Inventory Accounting

Understand Risk Analysis and Cost Estimation Under Uncertainty


Cost Accounting: In management accounting, cost accounting is that part of management

accounting which establishes budget and actual cost of operations, processes, departments or

product and the analysis of variances, profitability or social use of funds.



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Key Points:

1. Introduction

Firms in free market economy focus on making profit by way of investing resources

(money, equipment, manpower, time, brainpower, business relationships, etc.) and

satisfying the needs of its stakeholders (stockholders, customers, employees, suppliers,

and community)

A key management concept is cost control

2. Basic Terms in Cost Accounting

Gross Margin

Budget

Variance

Fixed costs

Variable costs

Direct/Indirect Costs

3. Cost Analysis

Simple Period (money is valued on the same basis no time value adjustments for cost

figures occurring within the same month, quarter, or year)

Multiple Period (time value of money is generally incorporated in cost accounting if it is

over a number of years)

Example: Company spent A, B, C in three consecutive years; total project cost is not

equal to A + B+ C



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4. Time Value of Money

Money of the same dollar amount in different time periods have different values (purchasing

power). Primary Reasons:

(1) Inflation tends to erode the purchasing power (value) of money, (2) Money on hand

could earn additional interest by depositing in bank accounts, (3) Money available in a

future period is less valuable because it is not available for use at the present.

5. Depreciation Accounting

Method of allocating acquisition cost of a long-lived asset (e.g., building, equipment,

machinery, patents, goodwill) in accordance with the benefits created by the asset in each

accounting period (e.g., year)

Engineering Managers must be well versed in estimating the annual depreciation charges

of all engineering assets.

5.1. Depreciation Notations

o P = Initial investment

o D(M) = Depreciation charge in the assets m(th) year

o N = Useful life of the asset (IRS definitions: 25 for buildings, 15 for

equipment, 5 for automobiles, 3 for computers )

o L = Salvage value recoverable at the end of the assets useful life

o AD(m) = Accumulated Depreciation at the end of m(th) year

o BV(m) = Book value of the asset in its m(th) year;

o P - L = Depreciable base



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o r(m) = Depreciable rate, a fraction of the depreciable base to be depreciated

per year

5.2. Depreciation Methods

o Straight-Line - An equal portion of the depreciable base (P-L) is allocated to

each period,

▪ D(m) = (P-L)/N

▪ BV(m) = P - m (P-L)/N

▪ r(m) = 1/N

▪ AD(m) = m (P-L)/N

o Declining Balance - A fixed percentage of the net book value (at the

beginning of the period). Salvage value not subtracted from acquisition cost,

but total Accumulated Depreciation not to exceed Depreciable Base

▪ D(m) = P r (1-r)^m

▪ BV(m) = P (1-r)^m;

▪ r = 2/N Double Declining Balance

▪ AD(m) = P [1-(1-r)^m]

o Units of Production (Output) - Depreciation charge is proportional to the

service performed (e.g., units produced, hours consumed, etc.)



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6. Product/Service Costing

Cost of Goods Sold (CGS) Unit cost of product/service which has been or yet to be is to

be sold

Components of CGS = Direct labor, direct materials, and overhead (indirect) charges

Estimation of CGS = A key responsibility of engineering mangers

Traditional Methods of Allocating Indirect Cost (Overhead percentage)

6.1. Cost of Goods Sold

o Cost of products including the costs of materials, labor and factory overhead

for three types of operations:

▪ Raw materials (Stores)

▪ Work in progress (WIP)

▪ Finished goods (FG)

o T-Accounts are used to match costs with product flow in each operation

(product flow to right, cash flow to left)

6.2. Method of Allocating Overhead Charges

o Adding up all indirect charges (e.g., factory managers salaries, factory office

support, depreciation charges for buildings and equipment related to

production, office support, utilities, training, safety programs, maintenance,

etc.) of the last year



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o Divide it by the total man-hours spent last year to obtain an hourly overhead

charge

o Add this overhead charge to the product involved based on the labor hours

needed for its production

6.3. Overhead Charges

o The most uncertain part of product/service cost: Overhead charge assignment.

o Companies with single product: The traditional method is adequate.

o Companies with multiple products, each product may require a different level

of resources to produce, a better method of allocating overhead charge is

needed = ABC.

7. Activity Based Costing

Trace indirect/support costs to activities and then to products

ABC - Most useful for companies

o With numerous diverse products

o Indirect/ support costs making up a large fraction of total CGS and expenses

7.1. Key Terms Used for ABC

o Cost Objects - Targets for applying ABC (products, services, customers)

o Activity - Homogenous groups of work (accounting, machining, forging,

design)

o Cost Driver - Metrics used to measure the extent of an activity

o Cost Pool - Organizational unit supplying the value-added activities



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7.2. Rational Basis for ABC

o Various activities are needed to create and support products and services

o Each activity is measured by the applicable cost driver

o Cost pools supply the activities needed for products/services

o Cost assigned only to those products/services requiring the applicable activity

o Activities consume cost pools

7.3. Value Added by ABC

o Results offer a clearer picture of which cost object (products/services,

customers) generated profitability or losses

o Profit maximization by refocusing products/ services

o Identify areas for continuous improvement and eliminate non value-added

activities

7.4. ABC Implementation

o Setup - Only assigned to parts which were produced by the equipment

o Forging

▪ Press operating costs based on press hours

▪ Production labor cost based on labor hours

▪ Induction heating (needed before forging) costs based on parts weight

o Machining - Machine-worker hours are added to machine hours

o Material Movement - Cost assigned based on the cost per move



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o Raw Material Procurement and Order Processing - Cost assigned based on

actual cost on records

7.5. Results of ABC Implementation

o Company sales are tripled and its profit increased five-fold, due to a more

profitable mix of contracts by an improved price quoting process consistent

with the actual cost structure made evident by ABC

o The isolation and measurement of material movement cost resulted in

operational changes for increased efficiency

8. Inventory Accounting

LIFO

o Best for high inflation periods - producing lower tax liability, not good for

periods with decreasing raw material/parts prices

o Lower inventory value on Balance Sheet

FIFO

o Make Income Statement look better in inflation periods

o Companies often switch from LIFO to FIFO in periods of business stagnation

and recession

9. Risk Analysis and Cost Estimation under Uncertainty

Future is more or less uncertain (events, economy, globalization, competition,

technological breakthroughs, etc.)



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Companies need to estimate costs, task completion dates, manpower requirements,

emerging technologies, customers needs, market share, and others, under uncertainty

9.1. Common Techniques to Account for Risks

9.1.1. Contingency

▪ Empirical and subjective approach - Add a lump sum cushion (5% to

15%) to the total budgeted cost to account for unspecified yet generally

expected overrun of the budget

▪ The contingency factor is less for repeated projects and more for new

projects in the absence of prior project management experience.

9.1.2. Simulations

Probabilistic approach - Risk is a measure of potential variability of an outcome

from its expected value

9.1.3. Value Added by Risk Simulation

▪ Because of risk pooling, the total project cost will have a lower overall

risk than the risks of its individual components - Reducing the required

project contingency cost for a given risk level compared to conventional

estimates with deterministic values

▪ Competitive advantage in bidding projects

▪ Make explicit the uncertainties in input variables



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▪ Promote more reasoned estimating procedures

▪ Assure comprehensive analyses (allowing the simultaneous variation of

all input variables)

▪ Better decision making based on a fuller understanding of risk-based

implications

In Section 3 of this course you will cover these topics:

Financial Accounting And Analysis

Managerial Finance

Marketing Management

Topic : Financial Accounting And Analysis

Topic Objective:


Understand Financial Accounting

Understand Accounting Principles

Understand T- Accounts

Understand Key Financial Statements

Understand Fundamentals of Financial Analysis

Understand Balanced Scorecard



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Financial Accounting: Financial accounting is the field of accountancy concerned with the

preparation of financial statements for decision makers, such as stockholders, suppliers, banks,

employees, government agencies, owners, and other stakeholders.

Balanced Scorecard: The Balanced Scorecard (BSC) is a performance management tool which

began as a concept for measuring whether the smaller-scale operational activities of a company

are aligned with its larger-scale objectives in terms of vision and strategy.

Key Points:

1. Financial Accounting

Financial Accounting is the field of accountancy concerned with the preparation of financial

statements for decision makers, such as stockholders, suppliers, banks, employees, government

agencies, owners, and other stakeholders. The fundamental need for financial accounting is to

reduce principal-agent problem by measuring and monitoring agents' performance and reporting

the results to interested users.

Financial Accounting is used to prepare accounting information for people outside the

organization or not involved in the day to day running of the company. Managerial accounting

provides accounting information to help managers make decisions to manage the business. In

short, Financial Accounting is the process of summarizing financial data taken from an

organization's accounting records and publishing in the form of annual (or more frequent) reports

for the benefit of people outside the organization. Financial Accounting is governed by both

local and international accounting standards.



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1.1. Importance to Engineering Managers

Knowing how to read and analyze Financial Statements will enable engineering

managers to become effective in interacting with peers in Financial Control and

Accounting, and to understand where maximum value can be added to enhance the

financial wellbeing of the enterprise

2. Accounting Principles

Dual Aspect: Assets equal to claims against them and each transaction has a dual effect

Full Disclosure Principle: All relevant information is disclosed

Going Concern: The business of the enterprise is assumed to go on forever

Accrual: Revenues recognized when earned (upon shipment and invoicing), costs and

expenses recognized when incurred, in contrast to cash-based accounting

Matching: Revenue matches the costs and expenses incurred in a given accounting period

Conservatism: Assets and inventory recorded at lowest values consistent with objectivity,

losses recorded as soon as known

3. T-Account

The term T account, derived from the distinctive T shape, is frequently used when discussing or

analyzing accounting or business transactions. T accounts are used to represent general ledger

accounts. Typically one or more Ts are drawn on a white board or blank piece of paper. A

general ledger account name or number is then written above each T. Debit entries are recorded

on the left side of the T and credit entries are recorded on the right side of the T.

The goal of T accounts is for debit entries to equal credit entries, i.e. total assets to equal total

liabilities and equity. For every adjustment made to the left side of a T, there must be one or



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more adjustments made to the right side of one or more Ts so that the net entries balance. T

accounts allow you to visualize how the debits and credits of a particular entry work and how

they impact the financial statements. T accounts are a time tested tool in helping to analyze and

decipher accounting entries. T accounts work because they are visually effective and simple to

understand.

3.1. Use of T-Accounts

o Accountants enter transactional data to T-accounts and verify accuracy

o Data in T-accounts are them regroup to produce standard line items in

financial statements

o Financial statements (e.g., income statement, balance sheet, funds flow

statement) are then prepared for both internal and external consumption.

4. Income Statement

Financial statement matches sales revenue with pertinent expenses to compute the annual

net income

Also called Profit and Loss Statement, Earning Statement or Operating and Revenue

Statement

4.1. Accounting Terms in Income Statement

o Sales Revenue - Income realized by the enterprise through the sales of

products/ service in a period

o Cost of Goods Sold (CGS) - Cost incurred for producing goods sold in a

period ( = opening inventory plus labor, material and overhead, minus closing

inventory)



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o Gross Margin - Revenue minus cost of goods sold

o Net Income - The excess of revenue over costs and expenses (overhead, taxes,

interests), also called Profits, or NOPAT (net operating profit after tax)

o EBIT - Earnings before interests and taxes

o Earning Per Share - Net income of the enterprise minus preferred stock

dividend per common stock share

o Dividend - Amount per share declared by the board and paid out by the

company (annually)

5. Balance Sheet

Balance Sheet is an accounting report which shows the assets owned by a firm and the way these

assets are financed through liabilities and owners equity

Assets = Liabilities + Owners Equity

5.1. Accounting Terms in Balance Sheet

o Assets - Something of measurable value (building, patents, goodwill,

securities) owned by the enterprise

o Liabilities - Obligations and debts to be paid by the Enterprise (to banks, parts

suppliers, governments, service providers and other creditors)

o Owners Equity - Net worth of the enterprise owned by the Owners ( = Assets -

Liabilities)

o Current Assets - Assets convertible to cash within one year (marketable

securities, inventory, accounts receivables)

o Fixed Assets - Tangible assets intended for long-term (> One year) use, such

as land, building, machines, and other equipment



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o Other Assets - Asset being neither current nor fixed (patents, leases,

franchises, copyrights and goodwill)

o Current Liability - Debts due within one year (accounts payable, short-term

bank loan, interest payments, tax payable, insurance premium, etc.)

o Long-Term Liabilities - Debts due in more than one year (corporate bonds,

mortgage loans, long-term loans, line of credit)

o Deferred Income Tax - Tax yet to be paid (local sales tax, income tax)

o Prepaid Income - Income received in advance of being earned (before

shipment and invoicing)

o Prepaid Expense - Expenses paid in advance of benefits received (registration

for seminar, vacation booking)

o Retained Earnings - Accumulated earnings owned by shareholders but

retained within the enterprise for business use

o Capital Surplus - Premium price above the par value (e.g., $1/Share) of the

stock, due to increase of Owners Equity not through earnings by normal

operations

6. Funds Flow Statement

Also called Statement of Changes in Financial Position, or Statement of the Sources and

Uses of Funds

Main objective is to compare the companys activities between two consecutive periods

related to the sources and uses of funds (financial resources)

6.1. Funds Flow Analysis Principles

o Increase of Assets - A use of funds (e.g., paying cash to buy a new car)

o Decrease of Assets - A source of funds (e.g, selling a used car to receive cash

to spend)



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o Increase of Liabilities - A source of funds (e.g., Borrowing money from the

bank to have more money to spend)

o Decrease of Liabilities - A use of funds (e.g., paying down mortgage needs to

spend cash)

7. Value-Addition Opportunities for Engineers

Increase Revenue (Products involving new technologies; products with improved

customer values - lower price, improved reliability, better services, shorter time to

market, faster processing)

Reduce CGS (Production automation, flexible manufacturing strategies, advanced

materials, modular design and parts interchangeability, outsourcing subsystems and non-

core activities, quality control, project management, etc.)

8. Financial Analyses

To Assess the Business Factors

Liquidity

Activity

Profitability

All these factors related to the wellbeing of the company

8.1. Liquidity

o It represents the companys capability of satisfying its current liabilities.

Without liquidity, there will be no activity.



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o Working Capital = Current Assets (CA) - Current Liabilities (CL), indicating

companys financial reserve strength to weather adversities

o Current Ratio = CA/CL

o Quick Ratio = Quick Assets/CL; Quick Assets = Cash + Marketable Securities

+ Accounts Receivables

o Interest Coverage Ratio = EBIT/Interest = Number of times interest payments

can be covered by EBIT earned in current year

o Capitalization = Long-term Debit + Owners Equity

o Long-Term Debit to Capitalization Ratio = Percentage of debts in companys

capital structure

o Total Liability to Owners Equity Ratio = A measure of the companys

financial independence

o Total Debt to Total Asset Ratio = A measure of companys debt level in

relation to assets

8.2. Activity

o Activity is measured by sales and inventory. Successful activity level leads to

company profitability

o Collection Period = Receivables divided by average daily sales (average daily

sales = total annual sales/360). It indicates the companys effectiveness in

collecting receivables.

o Cost of Goods Sold to Average Inventory Ratio (Turn Ratio) = The frequency

by which the average inventory is recouped (or turned over) through

operations

o Inventory to Sales Ratio = A measure of inventory investment per sales

dollars

o Sales to Asset Ratio = A measure of sales activities per unit assets deployed



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8.3. Profitability

o Profitability is the ultimate goal of all firms. Without liquidity and activities,

there can be no profitability for the firm.

o Gross Margin to Sales Ratio = A measure of profitability based on sales

(Gross Margin Percentage)

o Net Income to Sales Ratio = Return on Sales (ROS)

o Net Income to Owners Equity = Return on Equity (ROE)

o Net Income to Total Asset Ratio = Return on Assets (ROA)

o Other Ratios: EBIT to Assets, EBIT to Sales, CGS to Sales

o Sales to Employees Ratio = Worker Productivity Measure

8.4. Use of Performance Ratios

o Ratios provide an instantaneous description of the firms financial conditions

(just like Nu, Re and Pr in engineering)

o Cautions in applying ratios:

▪ Financial data may not be based on the same assumptions (inventory,

depreciation accounting, interest rates)

▪ Past performance may not predict the future

9. Balanced Scorecard

Performance metrics are critically important in guiding the progress of companies -

Employees focus on tasks/programs which contribute to career advancements, bonus and

other rewards

Measurement metrics need to be easily measurable (quantitative), broad based and

balanced (short-term profits and long-term growth)



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Financial Shareholder value (ratios in traditional scorecard)

Customers quality, time, service, cost

Internal business processes core competencies, response to customer needs

Innovation and corporate learning new products, continuous improvement, value addition

to customers

9.1. Balanced Scorecard Implementation

o Take personal ownership

o Develop a core group of champions

o Communicate widely and educate people

o Keep the program simple

o Implement program relentlessly

o Integrate the scorecard into own leadership systems

o Aim at achieving a cultural transformation of the company

9.2. Externally Imposed Balanced Scorecard

Independent financial analysts may apply a universal set of criteria deemed important and

relevant to gauge all companies on an annual basis

Topic : Managerial Finance

Topic Objective:


Understand Managerial Finance



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Understand Elements of Market Economy

Understand Capital Formation

Understand Capital Asset Valuation

Understand Operations - Assets in Place

Understand Opportunities Real Option

Understand Acquisition and Joint Ventures


Managerial Accounting: Managerial accounting is concerned with the provisions and use of

accounting information to managers within organizations, to provide them with the basis to make

informed business decisions that will allow them to be better equipped in their management and

control functions.

Key Points:

1. Elements of Market Economy

1.1. Roles of Firms

o Firms play a central roles in a free market economy: Making investments

decisions (sources and uses of money, goods and services for users) to benefit

self and others

o Equity Financing - Issue stocks to acquire capital

o Debt Financing - Issue corporate bonds and/or take long-term loans



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1.2. Orientation of Investment Strategy

o Orientation: Short-term - focusing on the next one to two years; long-term -

emphasizing five years or more down the road, both are important

o US managers generally favor short-term objectives (due to the rewarding

systems in place); Japanese and EU managers tend to place more value on

long-term strategies

1.3. Investors

o Investors supply money for use by firms, their needs must be taken care of by

the firms operations and strategic plan (ROE, current yield, future capital

gains)

o Saving rates, risk tolerance, economic stability and fluid financial markets are

key factors affecting investment funds (over 50% US households are

shareholders)

1.4. Risks

o Risks = Degree of potential deviation from the expected outcome

o Risk aversion - Rational people expect higher rewards from higher risk

investments

o Total return = Risk-free return plus risk premium (R = Rf + Rp )

o Risk-free rate = Compensation rate for opportunity cost

2. Capital Formation

Equity financing

Debt financing

Weighted Average Cost of Capital (WACC)



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Effect of financial leverage

Optimum leverage

2.1. Capital Structure

o Equity - Rights of ownership, having the residual claims of what is left of the

firm after satisfied other claimants (bondholders, lawyers, unpaid wages,

stockholders); preferred stocks with priority in dividends over common stocks

o Debt - Liabilities incurred by the firm to creditors, who have a legal power to

enforce payments and cause bankruptcy (bonds, loans)

2.2. Equity Financing

o Raising capital by issuing stocks - selling ownership for money

o Process - Company board approval, SEC registration, valuation of market

value of company stock, engage underwriter to implement project

o Shareholders participate in company affairs through board of directors/annual

meeting

2.2.1. Capital Asset Pricing Model (CAPM)

▪ Rm = Expected Return of a market portfolio (S&P 5000 Index, e.g., Rm

= 15%)

▪ Beta = Relative volatility of the companys stock; stocks with Beta = 1.2

will change price by 1.2% for each 1% price change of the market

portfolio

▪ Rf = risk- free rate (e.g., 6.5 % of ten-year US Treasury Bond)



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2.2.2. Cost of Equity Capital

▪ Cost of equity capital is equal to the expected return of the companys

stock, as given by the straight line: r

= Rf + Beta (Rm -Rf)

▪ Major deficiencies of CAPM model: (1) Based on historical

data, (2) No constraints on applicable time duration (e.g.,

projects for 2 or 10 years)

2.2.3. Market-Derived Capital Pricing Model (MCPM)

▪ Cost of Capital = Risk-free rate + Equity return risk premium

▪ Risk-Free rate = Current rate of corporate bonds as issued by similar

companies in the bond market

▪ Equity return risk premium = annualized cost of a put option to secure

the expected capital gain within a fixed period (e.g., 5 years), divided by

companys stock price

2.2.4. MCPM Based on Put Option

▪ Rights, not the obligations, to sell 100 shares of XYZ stock in x1 months

(option period) at x2 price (strike price) by paying a premium of x3.

Premium depends on the risk (beta = volatility) of the XYZ stock



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▪ Applied to MCPM: x1 = duration of investment period involved (e.g., 5

years); x2 = capital gain required to produce the risky return; beta = risk of

project, x3 = cost for the option

2.2.5. Market-Derived Capital Pricing Model (MCPM)

▪ x3 is to be annualized over the project duration and divided by the

company stock price. It is then added to the corporate bond rate to arrive

at the cost of capital

▪ This new method is applicable for a definable fixed duration (e.g., 5

years) dependent on the project need, and is based on the current bond rate

in the market place

2.3. Debt Financing

o Borrowing money from creditors (e.g., banks, public investors) by putting up

company assets as collateral and obligating to periodical payments of interests

o Creditors do not interfere with company business

o Non-payment of interests (three) triggers seizure of assets and company

bankruptcy

o Cost of debt capital

▪ Loan interest

▪ Underwriting fees

▪ Opportunity cost related to the reduced company growth due to debt

burden



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▪ Others - sub-optimal operation; vulnerability to attack by competition;

inaccessibility to additional loans; and cost of bankruptcy

2.4. Weighted Average Cost of Capital (WACC)

o Definitions: D = Debt; E = Equity; t = Corporate Tax; Ke = Cost of Equity

(Ke = 0.15 to 0.18); Kd = Cost of debt (rate of bonds (YTM = 0.08) plus cost

of lost earning opportunity due to constraints imposed by debt); V = E + D

o WACC = Ke (E / V) + Kd (1-t) D / V WACC = 0.13 to 0.15 (for various US

firms)

o 2.5. Optimum Leverage

o Balance between tax-advantaged use of debt and the possible loss of growth

opportunity and vulnerability to bankruptcy

3. Capital Assets Valuation

Classification of problems related to assets deployment:

o Asset in Place (Operations) - plant expansion, new products; new projects

o Opportunities (R&D/ Marketing) -with future benefits not certain

o Equity Claims (Equity cash flow) - mergers & acquisition: partnerships

4. Assets in Place (Operations)

Discount cash flow (based on WACC)

Internal rate of return

Adjusted present value

Multipliers

Monte Carlo Simulations



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4.1. Discount Cash Flow (DCF)

o Discount Cash Flow (NPV) based on WACC

▪ NPV = - P + [SUM Cm/(1+WACC)^m; m = 1 to N] +

SV/(1+WACC)^N

o NPV = Net present value; N = number of periods; SV = Salvage value;

WACC = discount rate; Cm = Cash flow in m-th period

4.2. IRR

o Internal Rate of Return - Setting NPV = 0 to arrive at the internal

reinvestment rate, which balances the original investment with its anticipated

benefits, IRR must equal or exceed the applicable hurtle rate

o Hurtle rates may be set at different levels for projects in different regions to

account for risks and market conditions involved

4.3. Adjusted Present Value (APV)

o NPV = NPV1 + NPV2 + NPV3

o NPV1 = Net present value of real cash flow created by the project, discounted

by Ke (cost of equity capital)

o NPV2 = Net present value of cash flow due to interest tax shields, using Kd

(cost of debt capital) as the discount factor

o NPV3 = Sum of other Side effects segregates the capital form equity from that

of debt.



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4.3.1. APV Advantages

▪ Tax shield effect is properly represented, instead of being accounted for

simply in WACC = Ke (E/V) + Kd (1-t) (D/V)

▪ Debt to equity ratio needs not to be constant for all projects

5. Multipliers

Industrial average ratios of sales/assets, EBIT/sales, cash flow/sales are used as

multipliers

Required project capital is then estimated using these ratios, when sales, cash flow or

EBIT of a project becomes known

5.1. Monte Carlo Simulations

o All inputs to DCF are distribution functions, producing the following

outputs:

▪ Maximum probability at which the NPV is projected to be negative

▪ The probability at which NPV is projected to exceed a given value (e.g.,

$10 million)

▪ Standard deviation of NPV

▪ The minimum NPV

▪ The maximum NPV.



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5.2. Opportunities

o R&D and Marketing are opportunities whose future cash flow benefits are

largely uncertain European Simple Call Option can be used (not DCF) for

evaluation

o Possible scenarios

▪ To invest in the opportunity immediately

▪ To reject it immediately

▪ To preserve the option of investing in it at a later time

5.3. Equity Cash Flow (M&A)

Valuation problems related to mergers and acquisitions: Equity cash flow must be

evaluated - job of financial specialists

Topic : Marketing Management

Topic Objective:


Understand Marketing Management

Understand Marketing Function

Understand Market Forecast -- Four-step Process

Understand Market Segmentation

Understand Product Strategy

Understand Pricing Strategy



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Marketing Management: Marketing management is a business discipline focused on the

practical application of marketing techniques and the management of a firm's marketing

resources and activities.

Key Points:

1. Introduction

Basic functions of an enterprise: Marketing and Innovation - special roles for engineers!

Marketing: Provide products/services meeting the needs and wants of customers,

Focusing on basic marketing concepts and applications

Innovation: Strengthen the firms competitive marketing position and sustain profitability

by technology, supply chains, product design, etc.

1.1. Marketing Orientation

o Customer Focus - Understand needs, create value, and serve to assure

customer satisfaction, with inter-functional teamwork

o Competitor Focus - Seek advantages relative to competitors, monitor behavior

and respond to strategic moves (foes or friends)

o Profit Focus - Manage to assure short- and long-term profitability



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1.2. Levels of Marketing Strategy

o Corporate Level: Set future direction of what businesses to pursue (product,

service, total solution, etc.) and what value to be emphasized

o Business Level: Bring products/services to the marketplace and

achieve/maintain competitive advantages

o Operational Level: Plan marketing program and implement/control marketing

efforts

1.3. Marketing Effectiveness

o Total Success: High profitability at maximum possible rate

o Partial Success: New customers replace lost customers

o Partial Failure: Sales slow or fall due to a lack of new customers

o Total Failure: Sales fall as customers leave

2. Key Elements in Marketing

2.1. Market Forecast

o Demand forecast is critically important

o Four-step process by Barnett

▪ Define the market - Total Sales revenue per year of all products

delivering similar benefits to customers regardless of physical and

functional features, Segment the market, Determine the segment drivers

and predict their changes, conduct sensitivity analysis

▪ Segment the market - Subdivide total market into homogeneous

customer subgroups with similar buying behavior and preferences



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▪ Determine segment drivers and predict their changes - key factors

affecting the segment growths

▪ Conduct sensitivity analyses - assess risks and check assumptions

o Application examples

▪ Industrial product - Segments based on industries with individual

segment growth rates as drivers, assuming product demand is proportional

to growth and business levels involved

▪ Electricity - segments of industrial, commercial and residential; drivers

are: business climate and industrial growth rate for industrial; Internet

sales increase, consumer confidence, stock market performance for

commercial; new home sales, change in home size and energy efficiency

of appliances for residential

▪ Uncoated white paper - segments based on end users: business forms,

commercial pricing, reprographics, envelops, stationary/ tablets and

books; drivers include growth of electronic means, white collar workers,

level of economic activity, price reduction of personal printers, paying

bills online, and demand growth due to price reduction

2.2. Environment

Market study is needed to assess:

o Competition (market share distribution, technology, brand strength, marketing

position, customer loyalty, etc.)

o Barriers of entry (capital, technology, supply chains, distribution channels,

governmental regulations, etc.)



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2.2.1. Customer Orientation

o Define needs through research (real value of a product to customer - prestige,

convenience)

o Define market segments (groups with similar needs to facilitate product

customization)

o Differentiate products and communications (e.g., Dude selling Dell

computers)

o Create differentiated advantages for customers

2.3 Customers

o Who (Profile, who buy from competitors, who does the buying, for whom is

the buying done)

o Why (Reasons for product preference: price, product performance,

convenience, product styling, service, packaging)

o What (What for, what value benefit, what they really want? what needed in

the future?)

o Where (where to get product information, where is buying decision made,

where to buy from: Retail store, mail order, via internet, department store,

discount store )

o How (How to decide, how to compare)

o When (When to buy, weekly, monthly, special occasions, etc.)

2.4. Marketing Mix

o Product Strategy: Functional attributes, compatibility to customer needs,

distinguishable features over competition, product-line strategy,

product/market fit



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o Promotion/Communication Strategy: How to promote, adopt pull/push, which

media to use, fit promotion to market segment selected

o Pricing Strategy: Skimming or penetration based pricing, value-added pricing,

target pricing, pricing fit to market segment

o Placement (Distribution) Strategy: Intensive, exclusive or selective

distribution, relationship with intermediaries (retailers, wholesalers), changes

in distribution logistics and technologies

3. Market Segmentation

3.1. Purpose

o Divide consumers into groups having similar product/service preferences

(divide/conquer)

o Value to Company: (1) Match products/ service better to the groups, (2)

Create suitable channels of distribution to reach them, (3) Uncover new

consumer groups, not being served sufficiently in the past, (4) Focus on

niches being neglected by competition

3.2. Additional Segmentation Benefits to Company

o Develop suitable marketing strategies

o Formulate better-fitting marketing programs

o Track changes of buying behavior over time

o Evaluate companys competitive position in these segments

o Achieve improved effectiveness in utilizing marketing resources



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3.3. Segmentation Steps

o Classification of Consumers

▪ Individual consumers (profile, location, life-style, family life cycle)

▪ Institutional Consumer (Business type, needs)

▪ Others (attitude toward brands, usage levels, product knowledge, type of

use)

o Situational Factors

▪ Availability

▪ Application

▪ Timing

o Benefits Sought

▪ Psychological

▪ Price

▪ Functional

3.4. Requirements for Effective Segmentation

o Measurability (groups are identifiable)

o Homogeneity (similar buying preference and behavior)

o Accessibility (reachable by promotion and distribution means)

o Size (big enough to justify going after it)

o Growth Rate (large enough to assure long-term profitability)



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3.5. Prerequisites for Implementing Segmentation Strategy

o Attractiveness (expected sales volume, profitability, growth)

o Skills (required skills to serve the segment in order to compete)

o Synergies/dis-synergies with other products of the company (existing

distribution networks, acceptability in the marketplace)

3.6. Pitfalls

o Over-Segmentation (small sizes, fragmented segments difficult for company

to serve -scale of economy) - Newer supply chains allows build-to-order

strategies to serve smaller segments (Dell, Custom beer, Chinese foods, etc.)

o Over-concentration (lack of balance between segments)

4. Product Strategy

Nature of Products

Life Cycle of Products

New Product Development Process

Product Failure (Rate, Reasons)

Summary

4.1. Nature of Products

o Customers Perception: Bundles of Benefits satisfying specific wants and

desires. Different products providing the same or similar benefits are

equivalent (substitution products)

o Producers Perception: Physical embodiments created by labor, materials,

technologies and investment to perform specific functions



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4.2. Product Strategy Options

o Optimize product value (price, function features, quality, serviceability, ease

of use, package) to create differentiation to users - opportunities for engineers

to make major contributions

o Sequential introduction of new products to sustain high levels of profitability

(company needs frequent product innovations)

4.3. Product Positioning

o What product features to include and emphasize - critically important

o Selection of product features to place new (or existing) products in a favorable

position with respect to competition - customer preferences and gap created

by existing products in marketplace

4.4. Product Life Cycle

o Every Product goes through a number of phases

▪ Initiation (product development, testing, market development,

advertising)

▪ Growth (product promotion, market acceptance, profit growth)

▪ Stagnation (price competition, substitution, new technologies)

▪ Decline (cash cow strategy, product withdrawal)



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4.5. Product Supply Curve

o Product supply curve describes the market behavior of companies --

supplying larger quantity of products in the product price is raising to higher

levels in search of higher profits

o Product innovations -- better products or lower product price, causing demand

to increase and downward shift of supply curve

4.6. Products/Brands

o Brand - A Distinct identity that differentiates a relevant, enduring and

creditable promise of value associated with a product, service or organization

that indicates the source of that promise. It represents all images and

experience customers have of and with the organization.

4.7. Product Strategy - Engineering Contributions

o Product strategy - key element in marketing mix with the entire marketing

program built around products

o Engineers are most qualified to contribute in the critical aspects of product

design, production, quality assurance, cost control, functional reliability,

serviceability maintainability, and time-to-market aspects

5. Pricing Strategy

5.1. Pricing Options

o Skimming Strategy - Set premium price initially to capture high profitability

from affordable customers and then reduce price in time to reach additional

customers in the marketplace (e.g., new books, ginger)



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o Penetration Strategy - Set price low to penetrate the market rapidly for setting

barrier of entry to late-coming competitors (e.g., Microsoft Office 2000,

Japanese motor cycles)

5.2. Pricing Methods Versus Position Power

o Negotiation - As sequence of offers and counter offers to reach a final price

(US government versus defense industry)

o Auction - Buyers bid higher prices and the highest bid wins (eBay.com)

o Reverse Auction - Sellers bid lower prices and the lowest bid wins (GE,

Caterpillar)

o Dutch Auction - Seller marks down prices consecutively until product is sold

or withdrawn (Lands End)

5.3. Pricing Methods

o Cost: Price = Cost + Markup (e.g., 30% of cost)

o Profit: Price = Cost + Profits (e.g., ROI)

o Market: Set price to what the buyers are willing to pay (imperfect information

distribution, the next best alternative available to buyer)

o Value: Set price in proportion to products value added to buyer (application

know-how)

o Competition: Set price at level charged by competition (Target Pricing)

5.4. Target Pricing

o Set the selling price based on customer inputs and market survey and

determine pertinent product features

o Add a gross margin that company must have



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o Obtain the Cost of Goods Sold (CGS) that must not be exceed

o Define material/parts, design, product development, and production method to

meet CGS target

5.5. Key Features of Target Pricing

o Concurrent team to define price and product features - minimize design

changes during implementation

o Detailed cost analyses (material, activities) before product development

o Innovation under the gun

o Assure market success and company profitability

5.6. Pricing and Psychology of Consumption

o Consumption leads to repurchase

o Frequent reminder of cost of a product tends to encourage buyers to consume

the product -Time-payments better than lump-sum

o Sunk-cost Effect - Consumers feel compelled to consume product they have

paid for to avoid the guilty feeling that they have wasted their money

5.7. Marketing Communication

o Communicator: Spokesperson (Bob Doe for Viagra, Tiger Wood for golf

products) -Associating the personal reputation of the communicator to the

value of the product being communicated about

o Message: Ring Around the Collar, Where is the Beef, Army, Be All You Can

Be, You are What You Know, We Measure our Performance One Investor at

a Time



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o Channels: Advertising (print, TV, web-based), personal selling (sales people

calling on customers), direct mail marketing, sales promotion (extra 15% off,

free samples, interest-free loans, discount coupons), interpersonal exchanges

(shared experience in users group), news articles, sources perceived to be

neutral (Consumers Reports)

o Audience: Buyer profile, media habits, product knowledge

o Effect of Communication: Short-term (recall, recognition, awareness, creating

purchase intention), long-term (purchase decisions, brand loyalty), Influencing

factors (timing, product availability, competitive activity, bundle of values)

6. Distribution Strategy

Channels of Distribution

Functions of Distribution Channels

Type of Distribution

Organizational Structures

Impact of E-Commerce on Distributions

6.1. Functions of Distribution Channels

o Transportation (overcoming the spatial gap between producers and users)

o Inventory (Overcoming the temporary gap between production and usage)

o Allocation (Assigning quantity and lot size)

o Assortment (Grouping compatible products for the convenience of users)

o Financing (Facilitating timely possession of products)

o Communications (Transmitting information and customers feedback)



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6.2. Types of Distribution

o Intensive: Stock goods in many outlets for wide distributions (consumer

products such as books, CDs, films, calculators, electric fans, home

appliances)

o Exclusive: Only through qualified outlets (autos, PCs)

o Selective: Through selected intermediaries (technical representatives for

instruments, equipment, software products)

6.3. Organizational Structures

o Forward Integrated: Producers own retail stores (secure market share, exert

control, get customer feedback) - Radio Shack

o Backward Integrated: Retailers secure own production resources (reduce cost,

ensure supply and control product quality) - Sears

6.4. Impact of E-Commerce on Distribution

o Internet reduced the value contributed by some wholesalers and retailers:

▪ Speed and enriched contents of communications between producers and

users

▪ Order processing

▪ Direct distribution by logistic providers from producers to users

o E-Commerce reduced the final product prices and product delivery time to

users



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7. Other Factors Affecting Marketing Success

Alliance and Partnership: Competition in todays marketplace requires competence and

skills not always timely available in house, leading many companies to pursue alliances

and partnerships for the purposes of formulating win-win marketing and production

strategies to focus on creating superior customer value

Customer Interactions: Customer experience with a company affects directly its business

success (motivated employees along with the required support infrastructure to satisfy

customers needs)

Profitability - Customer loyalty - Trust - Effective customer interactions

Customer Loyalty

Five determinants of Customer Loyalty: (1) Quality customer support, (2) on-time

delivery, (3) compelling product performance, (4) convenient and reasonable priced

shipping and handling, and (5) clear and trustworthy privacy policies.

Dell - Customer Experience Council: Order fulfillment, product performance, post- sale

service and support.

Organizational Effectiveness: Less rigidly structured organizations are

n Section 4 of this course you will cover these topics:

Engineers As Managers/Leaders

Ethics In Engineering/Business Management

Topic : Engineers As Managers/Leaders

Topic Objective:


Understand Differences in Work Done be engineers and Managers



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Understand Career Paths of a Typical Engineer

Understand Factors Affecting the Promotion of Engineers to Managers

Understand Factors Causing Engineers to Fail as Managers

Understand Leaders and Managers

Understand Emotional Intelligence

Key Points:

1. Career Path of Engineers

1.1. Technical Contributors

o Focus on the operational aspects of technology-based work (design, analysis

development, testing, evaluation, feasibility study, application, programming)

o Success Factors

▪ Do things right - reliable/trustworthy

▪ Solid engineering fundamentals

▪ Easy to work with

▪ Motivated to learn

▪ Mature and professional attitude

o First few promotions are usually automatic

o Some sample titles: engineer, assistant staff engineer, staff engineer, senior

engineer - Chemical and Process industries

o Other sample titles: member of technical staff (I, II, III) - Computer and

Aerospace industries



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1.2. Mid-level Positions

o Dual Ladder System

▪ Technical (senior engineer, consultant, associate, fellow)

▪ Managerial (section engineer, supervisor, manager, director)

▪ Project Management (project engineer, project manager, manager,

director)

o Mid-level positions are equivalent in ranking, mid-point salary and prestige

o Technical Ladder is capped at the Corporate Fellow level

o Managerial ladder, including Project Management positions, leads to

Executive level positions (vice president, CTO)

1.2.1. Mid-level Technical

▪ Larger responsibility for programs of high technical contents but no

managerial duty

▪ Add value by technical contributions, innovations, and technology

applications

▪ Fellows are typically well-renowned both inside and outside of the

company for technical expertise demonstrated in patents, publications and

commercial success



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1.2.2. Mid-level Project Management

▪ In A/E firms (Bechtel, Babcob Welcox, Stone Webster) with emphasis

on major capital projects, project management career path is emphasized

▪ Success factors are

o Multidisciplinary skills and background

o Interpersonal skills and team collaboration

o Project control

o Problem solving and conflict resolution

o Risks management

1.2.3. Mid-level Managerial

▪ Larger responsibility of managing people, tasks, capabilities, functions

and programs

▪ Devote increasingly less time on technology work and more on

managerial work

▪ Success Factors

o Established technical expertise

o Proficient in all management functions

o Problem solving and conflict resolution

o Strategic planning abilities



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1.2.4. Remarks on Mid-level Positions

▪ Technical ladder positions are less quota-limited than the corresponding

positions in managerial ladder

▪ Transfer from positions in technical to managerial ladder is somewhat

more easier than the other way around

1.3. Executive Level Positions

o Positions such as vice president (VP) of Engineering and chief technology

officer (CTO) demand leadership capabilities in creating and implementing

technological strategies to capture new business opportunities

o Teamwork with other high level executives is a critical success factor

1.4. To Manage or Not to Manage Pros and Cons

1.4.1. Pros

▪ Financial rewards

▪ Authority, responsibility and leadership

▪ Power, influence, social status and prestige

▪ Career advancement, achievement and recognition

▪ Random circumstance



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1.4.2. Cons

▪ Long hours and hectic life (overtime, travel)

▪ High stress level (pressure of deadlines, constraints of resources,

political infighting, lack of peer cooperation, trivial personnel conflicts)

▪ Poor family life (not seeing family much)

▪ Health hazards (travel, unhealthy foods, physical stress)

1.5. Success and Happiness

o Success in a management career contributes positively to happiness, but

requiring certain sacrifices causing unhappiness - one must select a path to

optimize happiness

o Happiness factors:

▪ Wealth

▪ Social standing

▪ Professional achievements

▪ Peer recognition

▪ Quality of family life

▪ Health

▪ Absent of excess stress and anxiety

▪ Power



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▪ Others

1.6. How to Get Promoted

o Competence in current assignments - master current duties and

responsibilities, gain respect of co-workers and get favorable recommendation

from the boss

o Readiness and desire to become manager - handle larger and more challenging

assignments (budget, people, impact)

o Good match with organizational needs

2. Leaders and Managers

Managers set goals, plan actions, secure resources, set up structures, exercise control and

getting results (to keep organization functioning properly and create orderly results)

Leaders set vision and direction, create strategies to achieve vision, conceive actions

steps to accomplish goals, align people and form coalition, motivate and inspire people to

move forward (to promote future-oriented changes)

2.1. Leadership Talents

o Leadership talents are defined as natural predisposition or recurring patterns

of thoughts, feelings and behaviors that can be applied productively

o Gallup Organization identified leadership traits through interviewing of

40,000 top-tier mangers over 30-year period

o Two other sources on leadership profiles



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3. Top Executive Profile

Ability to work with people

Social poise -- self-assurance - confidence

Considerate of others

Tactful - diplomatic

Self-control

Ability to analyze facts, to understand and solve problems

Make decision

Maintain high standards

Tolerant - patient

Honest and objective

Organize time and priorities

Delegate

Create enthusiasm

Persuasive

High concern for communication

3.1. Characteristics of Successful Leaders

o A strong drive for responsibility and task completion.

o Vigor and persistence in pursuit of goals.

o Venturesomeness and originality in problem-solving.

o Drive to exercise initiative in social situations.

o Willingness to accept consequence of decision and action.

o Self-confidence and sense of personal identity.

o Readiness to absorb interpersonal stress.

o Willingness to tolerate frustration and delay.

o Ability to influence other person's behavior.

o Capacity to structure social interaction systems to the purpose at hand.



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4. Emotional Intelligence

All leaders have a high degree of emotional intelligence

o Self-awareness

o Self-regulation

o Motivation

Empathy

Social Skills

5. Unique Contributions Expected of Engineering Managers/Leaders

Changes in technologies, Internet-based software tools, globalization

o Gatekeepers - Screen and admit

o Technological Intuition - Apply new technologies to create business benefits

(e.g., tech startups)

o Technological Innovation - Reduce time and cost of product development (set

priority, ask insightful questions, apply new technologies)

6. Product Development

Out of 58 initial product ideas, only 12 survive the business analysis screening for

compatibility with the companys mission and long term objectives. This step uses up 8%

of the total development time.

Only 7 of the 12 remain after an evaluation of potential. This step uses up 9% of the total

development time.

Product Development (Contd)

Three of the 7 survived after development work is completed. This step uses up 41% of

the total development time



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Only two remain after the pilot/field testing of commercialization step, which uses up

19% of the total development time

Only one has eventually become a commercially successful product. This step uses up

23% of the total development time

7. Failure Factors for Engineering Managers

7.1. Lack of Political Savvy

o Hate company politics

o Not building personal network - making friends at the right places

o Uneasy to fit into organizational culture - strong beliefs, unique value, rigid

principles, and inflexible minds

o Engineering mindset - rational, efficient, introspective (can be a disadvantage

at top)

7.2. Uncomfortable with Ambiguous situation

o Not comfortable with approximate/incomplete answers

▪ Not used to the idea of introducing additional assumptions and make

problems solvable (mental rigidity)

▪ Hate problems with many inaccurate/unknown factors

▪ Dislike planning with uncertainty

o Avoid using intuitive knowledge, in favor of cognitive knowledge based on

facts and data



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7.3. Tense Personality

o Mothers never taught them to smile

o Unable to say no

o Unable to ask for help (personal ego and pride get in the way)

o Afraid to be wrong

o Tendency to take mistakes personal

7.4. Lack of Risk-Taking Willingness

o Conservative in nature, with low tolerance to risks, not comfortable of being

Often wrong, never in doubt

7.5. Tendency to Clinch on Technology

o Leaning on technology as a safety net, being fearful of losing own strong base

o Regarding technology as the only thing respectful, valuable, intellectually

pure and worth doing, unknowingly disregard the value being added by other

non-tech functions and activities - ignorance and arrogance

7.6. Lack of Human Relation Skills

o Limited flexibility and sociability

o Lack of broad-based knowledge and understanding of non-technical issues

o Being argumentative and righteous some of the time

o Low level of tolerance and long memory for unpleasant minor encounters



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7.7. Deficiency in Management Skills and Perception

o Not able to work through people and help others to succeed (fearful of others

being potentially better than themselves one day)

o Tendency to apply self-imposed ultra-high standards in appraising employees

o Not able to tolerate poor performance of others

7.8. Not Cognitive of Managers Roles and Responsibility

o Not aware of managers duty of adding value by applying resources effectively

o No understanding of time and effort requirements of solving people problems

o Lack of background knowledge in finance, marketing, accounting, economics,

best practices and success factors in industry

7.9. Narrow Interests and Preparation

o Narrow technical viewpoints, lack of broader vision and business perspectives

beyond technologies

o Not prepared for leadership roles in dealing with corporate affairs and issues

of regional/national scope

o Not learning continuously (new technologies, business models and best

practices)

8. Most Common Reasons for Career Failures for Engineers

8.1. Poor Interpersonal Skills

o This is the single biggest reason for career failures. Every one needs to be

▪ Showing respect and sensitivity in dealing with others,



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▪ Minimizing conflicts and disagreements,

▪ Giving and taking criticisms well,

▪ Striving to build team support,

▪ Becoming emotionally stable, and

▪ Behaving professionally

8.2. Wrong Fit

o Not fitting to the cultural norms, core values, priority, profit motives, social/

environmental preferences, and others of the workplace

o Hard to adapt ones own abilities, styles, personality and chemistry to those of

co-workers

o Solution is to move on quickly

8.3. Not Able to Take Risks

o Staying in a position far too long for fear of losing control of own comfortable

life

o Not willing to venture out (e.g., taking on a management position, relocation

for a promotion, new job, different industry, etc.)

8.4. Bad Luck

o Caught unexpectedly in an organizational restructuring situation (mergers and

acquisition, downsizing, change of market conditions, economic downturn,

outsourcing strategies, formation of supply chain, etc.)

o Bad luck is not always avoidable



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o Be ready for it by keeping oneself marketable: Value creation attitude, skills,

and records

8.5. Self-destructive Behavior

o Examples include: work in secret, resistance to change, being excessively

aggressive, shown non-cooperative attitude, picking fights with people,

becoming overly argumentative, being readily excitable about trivialities, and

showing a lack of perspectives in things

o Must check own behavior often and modify

8.6. Lack of Focus

o Try to be jack of all trades, but not good in any thing of value

o Having no expertise to be known for is dangerous for ones career (examples:

work well with different people - getting things done effectively through

teams; problem-solving applying FMEA or root cause analysis techniques to

complex problems)

8.7. Workplace Biases

o Ideally, all workplaces should be free of any biases with respect to gender,

age, color, national origin, religious beliefs and others

o In reality, some workplaces are indeed better and more progressive than others

in this respect

o Take proactive steps to avoid getting hurt by such possibilities



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9. Success Factors

Performance - Make sure that each and everyone of assignment is done well - You are

only as good as your last performance.

Personality - How one acts and behaves is important. One should project a mature,

positive, reasonable and flexible personality

Communications Skills - Ability to communicate is important for promotability,

particularly writing concerning readability, correctness, appropriateness and thought

Human Relations Skills - Interact with people to create and maintain acceptable working

relationships, avoid being labeled Not working well with people

Make Tough Decisions - Take prudent risks and make the tough plays

Work Experience - Build up own work portfolio with diversified experience and high

impact assignments

Self Control - Stay cool and be able to withstand pressure and stress, having high

tolerance to frustration

Technical Skills/Ability - Capabilities need to be kept marketable

Health and Energy Level - Take care of own health and maintain physical vitality

Personal Appearance - To fit into the corporate image by following the bosss example

10. What Can Engineering Managers Do Best?

Apply special technologies in product design

Adopt web-based technologies to e-transform the enterprise

Select other tools to realize benefits in operational speed, cost and efficiency

Develop network partners to advance supply chains

Innovate ways to customize products and serve customers better, cheaper and faster

Seek and adopt best practices to manage engineering enterprises

Employ new technologies and innovations to add value to all stakeholders



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11. Career Strategy for the 21st Century

Think, speak, act and walk like an entrepreneur - entrepreneurial mindset

Embrace change as an opportunity for growth, Eager to stay, yet ready to leave

Be visionaries and detail-oriented

Know own strengths and weaknesses, be competitive, and set high standards for self

Build alliances and stay connected

Avoid specialization in favor of adaptability, cross-functionality, people skills, and a

solid customer focus, learn fast to do new things or partner with someone who knows

Stay professionally active and keep skills marketable

Maintain work/life balance - Earn a living, make a life

11.1. Another Career Strategy for 21st Century

o Balance own priorities to have a full and meaningful life

o Develop broad business background, stress integrity and persistence

o Learn leadership by observing and doing

o Understand company and industry

o Make an impact - make the world just a bit better because of your efforts

Topic : Ethics In Engineering/Business Management

Topic Objective:


Understand the term ethics

Understand the ethics in Engineering



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Ethics: Ethics is a major branch of philosophy, encompassing right conduct and good life. It is

significantly broader than the common conception of analyzing right and wrong.

Key Points:

1. Engineering Ethics

Engineering ethics is the field of applied ethics which examines and sets standards for engineers'

obligations to the public, their clients, employers and the profession. This article addresses the

subject for both professional engineers and other engineers.

Engineering does not have a single uniform system, or standard, of ethical conduct across the

entire profession. Ethical approaches vary somewhat by discipline and jurisdiction, but are most

influenced by whether the engineers are independently providing professional services to clients,

or the public if employed in government service; or if they are employees of an enterprise

creating products for sale.

In the United States the first are usually licensed Professional engineers, are governed by statute,

and have fairly consistent codes of professional ethics. The latter, working as engineers in

industry, are governed by various laws including whistle blowing, and product liability laws, and

often rely on principles of business ethics rather than engineering ethics.



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2. General Principles

Codes of engineering ethics identify a specific precedence with respect to the engineer's

consideration for the public, clients, employers, and the profession.

An example from the American Society of Civil Engineers (ASCE): Fundamental Canons.

Engineers shall hold paramount the safety, health and welfare of the public and shall

strive to comply with the principles of sustainable development in the performance of

their professional duties.

Engineers shall perform services only in areas of their competence.

Engineers shall issue public statements only in an objective and truthful manner.

Engineers shall act in professional matters for each employer or client as faithful agents

or trustees, and shall avoid conflicts of interest.

Engineers shall build their professional reputation on the merit of their services and shall

not compete unfairly with others.

Engineers shall act in such a manner as to uphold and enhance the honor, integrity, and

dignity of the engineering profession and shall act with zero-tolerance for bribery, fraud,

and corruption.

Engineers shall continue their professional development throughout their careers, and

shall provide opportunities for the professional development of those engineers under

their supervision."

3. First Principle

As noted above, generally the first duty recognized by Professional and Chartered engineers is to

the safety of the public.

The ICE's "Code of Professional Conduct" identifies similar ethical values as the ASCE's but

likewise places the good of the public as the highest ethic.



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Members of the ICE should always be aware of their overriding responsibility to the public good.

A members obligations to the client can never override this, and members of the ICE should not

enter undertakings which compromise this responsibility. The public good encompasses care and

respect for the environment, and for humanitys cultural, historical and archaeological heritage, as

well as the primary responsibility members have to protect the health and well being of present

and future generations.

Canadian engineering codes of ethics also place the public good above all other concerns:

Professional Engineers Ontario (PEO): "A practitioner shall, regard the practitioner's duty

to public welfare as paramount."

L'Ordre des ingnieurs du Qubec (OIQ): "In all aspects of his work, the engineer must

respect his obligations towards man and take into account the consequences of the

performance of his work on the environment and on the life, health and property of every

person."

As in ASCE's Fundamental Canon 1, other American professional societies are likewise specific

on this point:

National Society of Professional Engineers (NSPE): "Engineers, in the fulfillment of their

professional duties, shall: Hold paramount the safety, health, and welfare of the public."

American Society of Mechanical Engineers (ASME): "Engineers shall hold paramount

the safety, health and welfare of the public in the performance of their professional

duties."

Institute of Electrical and Electronics Engineers (IEEE): "We, the members of the IEEE,

do hereby commit ourselves to the highest ethical and professional conduct and agree: 1.

to accept responsibility in making decisions consistent with the safety, health and welfare

of the public, and to disclose promptly factors that might endanger the public or the

environment;"



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American Institute of Chemical Engineers (AIChE): "To achieve these goals, members

shall hold paramount the safety, health and welfare of the public and protect the

environment in performance of their professional duties."

In Section 5 of this course you will cover these topics:Web-Enabled Engineering And Management Enablers

Globalization

Engineering Management In The New Millennium

Topic : Web-Enabled Engineering And Management Enablers

Topic Objective:


Understand Web-based Enablers for Enterprise Management

Understand Web-based Enablers for Engineering Functions

Understand E-Transformation

Key Points:

1. Introduction

Rapid Changes - Communications means, web-based technologies, organizational design

and business models in new economy, new business trends, and globalization



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Engineers - Update skills to remain marketable, understand implications of new business

trends and organizational design, acquire new web-based enablers to add value

2. Web-based Enterprise Management Enablers

Customer Relationship Management

Enterprise Integration and Resource Planning

Supply Chain Management

2.1. Enterprise Resource Planning and Application Integration

o Integration of corporate functions (Design, engineering, accounting, finance,

production, marketing, procurement) links information, employees, business

partners and customers effectively (e.g., enterprise integration software,

communications systems, wireless, middleware)

o Achieves competitive advantages better than by striving for the local optima

within each functional silos

2.2. Customer Relationship Management

o It costs 5 times more to sell to a new customer than to sell to an existing one

o Companies gain 85% more profits by retaining 5% more existing customers

o Unhappy customers tell 8 to 10 others about their bad experience

o 70% of unhappy customers will come back, if deficiencies are corrected

quickly

o Why managing customer relationship:

▪ Use existing relationship to grow revenue

▪ Improve service (integrated information)



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▪ Create new value and instill loyalty

o How:

▪ Survey customer behavior, needs, preference, and buying patterns

▪ Customize company relations with specific customers

▪ Set price, specific terms and services

2.3. Data Mining

o Important tool in customer relationship management Data Mining

o Data mining refers to the analysis and no-trivial extraction of information

form databases to discover new and valuable knowledge, in the form of

patterns and rule, from relationships between data elements

o Computational intensive

o The steps involved are

▪ Setting goals

▪ Collecting data

▪ Preparing data (formatting, segmentation, quality control)

▪ Analyzing (using tools such as neural networks, decision tree, expert

systems, etc.)

▪ Predicting by building models

▪ Measuring and checking



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2.4. Enterprise Integration and Resources Planning

o Procurement Resource Management

o Marketing/Sales Management

o Decision Support and Knowledge Management

o Integration of back office functions (design, manufacturing, engineering,

marketing and sales, finance, distribution, procurement, and others) leads to:

▪ Minimize inventories

▪ Shorten time to market

▪ Reduce cost

▪ Improve operational efficiency

▪ Enhance service to customer - Enterprise Resource Planning software

o Procurement - On-line reverse auction of well-specified items among

qualified vendors; tools to reduce purchase cycle time (from 8 to 3 days) and

increasing transactions (up to 6000 transactions per day) - MS Market of

Microsoft); Reduce procurement costs by 50%

o Marketing/Sales - Trilogy system automates the processes of pricing, sales

configuration, proposal generation, order entry, commission/contract

management, product promotion - used by Whirlpool

o Decision Support/ Knowledge Management (data capture, storage, mining,

dissemination, query processing)

2.5. Supply Chain Management

o Supply chain partnership - To source, manufacture, store and deliver products

(flows of tangible goods, information, finance)

o Purposes:



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▪ Reduce time to market

▪ Reduce cost to distribute

▪ Supply right products at the right time

o Products: SAP (Advanced Planning and Optimization), Rhythm of I2

Technology, TradeMatrix, SAS Optimization, RailETA

3. Web-Based Engineering Enablers

Product Design/ Development

Project Management

Plant Operations

Engineering Innovations

Maintenance

3.1. Web-Based Product Design/Development

o Goals: Speed, fast changing customers needs, product quality and reliability,

lower cost, service to customers

o Trend: Design/develop core product modules with interchangeable parts in

house and outsource the remainder - concurrent teams

o Prerequisites:

▪ Communications

▪ Information sharing

▪ Collaboration

▪ Design verification



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▪ Configuration and Team management

3.1.1. Communications

▪ Understand what the customers want (market research), what

technologies are patentable (patent search), what parts are commercially

available (vendors search), which standards to meet (product

specifications)

▪ Manage design expectations (company management) and foster

interactions between team members - NetMeeting (Microsoft), web sites,

EDI, CAD models, emails, faxes

3.1.2. Information Sharing

▪ System/procedure to share proprietary design data among team

members, while maximizing the use of available design expertise and

addressing the need of speed, format, security, ease of use, number of

concurrent users and compatibility with users legacy systems (text,

graphics, EDI, 3-D CAD Models visualization)

3.1.3. Collaboration

▪ Technology-enabled collaboration process: Team members use PC-based

browsers to view and update 3-D files created by visualization software

(from a 3D CAD model residing on a server), and communicate via phone

calls, video conferences or emails concurrently - revisions uploaded and

made visible to all instantly



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▪ Management-based success factor: Willingness of team members to

contribute to best abilities (motivation, trust, pleasant working

environment, goal congruence)

3.1.4. Configuration and Team Management

▪ Plan and control product configuration, manage product design changes,

coordinate tasks, modify networked partnership to respond to shifted

customer needs - CM Today

▪ Team members training, conflict resolution, priority setting, problem

solving, data file management, and achieve right-first-time product design

execution

3.2. Web-based Project Management

o Project management: Organize human and physical resources to attain a well-

defined project objective on time and within budget

o Project types: Civil construction, capital equipment, research & development,

product design/development, cost reduction, equipment retrofit, quality

improvement, customer/market research, supply chain creation, and others

3.2.1. Project Management

▪ New challenges in project management: Scope multidisciplinary, team

members dispersed, project variables complex

▪ Key to Success: Foster team collaboration by planning, organizing,

leading and controlling five issues: (1) Task/resources, (2) Costs, (3)

Risks, (4) Communications, and (5) Knowledge



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3.3. Web-based Plant Operations

o Remote Operations of plants: Production, machine shops, chemical process,

assembly, warehouse, distribution centers, customer contact centers and others

o Purposes

▪ Instant visualization of plant status

▪ Cost-effective reporting

▪ Efficient optimization of process/capacity

▪ Inventory management

▪ Productivity improvement

▪ Enterprise-wide integration

▪ Decision support

3.4. Web-based Engineering Innovations

o Best practices for fostering innovations:

▪ Recognize innovation as a key for corporate survival in the long run

▪ Commit sufficient resources to pursue innovative activities

▪ Encourage innovation from all organizational units, not only in R&D

▪ Implement innovative ideas selectively to assure business viability



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3.5. Web-based Maintenance

o Useful Steps:

▪ Benchmarking to define best practices in maintenance

▪ Establishing a computerized maintenance management system

▪ Conduct staff training to share lessons learned

▪ Activate preventive maintenance strategy

▪ Implement predictive maintenance program

▪ Design a proactive maintenance program

o Implementation enhanced by Internet based communications

4. E-Transformation

Strategies

Best Practices

Critical Success Factors

Specific Cases

Potential Contributions by Engineering Management majors

Companies apply e-business enablers to capture on value creation opportunities in the

new economy

New economy:

o New digital marketplaces

o Emerging roles of alliances and hyper-partners

o New market indices

o Enterprise management software

o New cultural management and organizational expectations



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4.1. What to Gain by an E-Transformation?

o Serve customer faster, better, and cheaper

o Empowerment of customers

o Enhance of trade

o Increase business agility

o Extensions of enterprise in a virtual manner

o Evolution and invention of products/services

o Development of new markets and audiences

4.2. Strategies of E-Transformation

o Web-enable the customer interface and create e-markets

o Outsource all non-core operations

o Form supply chains

o Improve companys back-office operations

o Realign company structure

4.3. Value Addition of E-Transformation

o Reduction of WACC: Faster and more transparent results lower cost of equity

capital

o Decapitalization: Divest non-core capital to be in a position of capturing

future growth opportunities

o ERP efficiency: lower costs, faster decision making and lower market risks

o Supply chain optimized: Improve assets utilization, reduce working capital,

increase operations margin

o Utilization of e-markets: Reduce life-cycle costs, reduce working capital and

improve EBIT margin

o Outsourcing: Reduced corporate overhead



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4.4. Best Practices of E-Transformation

o Redesign the Business Model

o Get Outside Help

o Form alliances and partnership

o Develop programs across business units

o Create scorecards

4.5. Critical Success Factors for E-Transformation

o Management commitment

o Champion

o Customer Focus

o Collaboration with Suppliers

o Speed

o Decision Making

o Focus on Scalability - Think big

5. Potential Contributions by Engineering Managers

Promoting the evolution and invention of products/services

Applying emerging technologies for gaining competitive advantages

Simplifying engineering process to assure right first time performance

Identifying and applying best practices in engineering to add value

Increasing production/manufacturing agility to reduce cost and shorten cycle time

Adopting new web-based technology enablers to gain advantages in speed and quality

Implementing knowledge management and data mining to substantiate companys

competitive strengths

Web-enabling back-office engineering processes to increase efficiency



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Defining candidates for creating supply chain alliances and partnerships

Selecting relevant performance metrics to monitor engineering activities

Optimizing distribution to gain logistic advantages

Managing concurrent multi-functional teams to serve customers better, cheaper and faster

Offering innovations in problem solving

Leading the changes

Others

Topic : Globalization

Topic Objective:


Understand Globalization concept

Understand Globalization-Specific Value-Creation Opportunities

Understand Preparation for Globalization

Understand Globalization Drivers

Understand Global Leadership Quality

Understand Production Engineering in a Global Economy


Globalization: Globalization in its literal sense is the process of transformation of local or

regional phenomena into global ones. It can be described as a process by which the people of the



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world are unified into a single society and function together. This process is a combination of

economic, technological, socio-cultural and political forces.

Key Points:

1. Globalization

Globalization is often used to refer to economic globalization, that is, integration of national

economies into the international economy through trade, foreign direct investment, capital flows,

migration, and the spread of technology.

The term "globalization" has been used by economists since the 1980s although it was used in

social sciences in the 1960s; however, its concepts did not become popular until the latter half of

the 1980s and 1990s. The earliest written theoretical concepts of globalization were penned by

an American entrepreneur-turned-minister Charles Taze Russell who coined the term 'corporate

giants' in 1897. Globalization is viewed as a centurys long process, tracking the expansion of

human population and the growth of civilization that has accelerated dramatically in the past 50

years.

Globalization has had a tremendous impact on cultures, particularly indigenous cultures, around

the world. In the 17th century, globalization became a business phenomenon when the British

East India Company, which is often described as the first multinational corporation, was

established. Because of the high risks involved with international trade, the British East India

Company became the first company in the world to share risk and enable joint ownership of

companies through the issuance of shares of stock: an important driver for globalization.



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2. Value-Creation Opportunities (Globalization-specific)

Adapting to local market differences

Exploit economies of global scale

Exploit economies of global scope

Tap optimum locations for activities and resources

Maximize knowledge transfer across locations

2.1. Local Market Differences

o Business Week Offers different regional editions; Coke markets different

drinks of local tastes

o Budweiser (Beer programs in China)

o Whirlpool (Wash machine program in India)

o Kodak (Express shop program in China)

o TGI Friday (Kimchi in Korea)

2.2. Economies of Scale

o Value added:

▪ Spreading fixed costs

▪ Reduce unit product costs

▪ Pooling purchase power

▪ Creating critical mass of talents

o Autobytel - Created baseline software modules and snapped them together in

different combinations to meet local needs, with hooks to add new modules



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2.3. Economies of Scope

o Coordinate marketing approach for standard products (consistency in quality,

better coordination, lower unit transaction costs)

o Leverage market power and customer-specific insights (global customers

needs are better understood by companies which serve them)

o Apply same CAD hardware platform for all locations (Unigraphics by GM) -

collaboration and perform design 24/7

2.4. Location-Specific Optimization

o Elect optimum locations for specific activities (R&D, Procurement,

component manufacturing, product assembly, distribution, service): Fiat

choose Brazil, not Italy, to design and launch its World Car Palio, Texas

Instruments formed a software development center in India, Microsoft created

a corporate research lab in Cambridge, UK

o Add value through

▪ Performance enhancement

▪ Cost reduction

▪ Risk management

o Texas Instruments created the product concept of its TCM 9055 (high speed

telecommunications ship) in collaboration with engineers in Sweden,

developed the product in France using software tools produced in Houston,

fabricated the product in Japan and Dallas, and tested the product in Taiwan.



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2.5. Knowledge Transfer across Locations

o Product/service innovation, - Proctor & Gamble developed Liquid Tide (1980)

by using technologies at Cincinnati (a new ingredient to help suspend dirt in

wash water), Japan (cleaning agents) and Brussels (ingredients that fight the

mineral salts present in hard water)

o Reduce risks of competitive preemption Transferring new innovations around

the globe rapidly will prevent the risks of losing ideas to competitors for

replication in other markets

3. Preparation for Globalization

Success Factors

Global Virtual Teams

Management Style

Strategic Pathways to Globalization

International Perspectives

Personal Preparations

3.1. Success Factors

o Build customers relationship supported by superior service

o Know customers well

o Brands are recognizable and strong, with home market strengths

o Recruit talented people

o Manage virtual teams

o Scalable business model



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3.2. Global Virtual Teams

o Any global strategy requires the effective implementation by teams

to:

▪ Organize (people selection, training)

▪ Lead (motivate, communicate, mutual trust, collaboration)

▪ Plan (objectives setting, local participation, action planning, global

perspective)

▪ Control (measurements metrics and monitoring)

3.3. Management Style - Personal

o Effectiveness of leadership depends on style of management, US style:

Command and control, short-term achievement-focused, goal-driven,

aggressive and demanding.

o Japanese style: Team work, consensus building, Be prepared to interact with

people of different management styles to maximize collaboration for mutual

gains

3.3.1. Management Style - Enterprise

Company management style will need to change over time:

▪ Impose home office standards to global sites and exercise a centralized

control,

▪ Allow operations to be decentralized and autonomous,



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▪ Form global network of integrated and interdependent companies

3.4. Pathways to Globalization

o Geography-based (areas with common cultural ties - Canada and England for

US companies, South East Asia for Chinese companies, African countries for

French companies)

o Product- based (send products everywhere)

o Customer-focused (follow major customers to global locations - Citicorp,

FedEx)

o Internet-based (Use Internet to reach global customers)

3.5. International Perspective

o Thinking Globally, Acting Locally is a way of keeping all activities in

perspective and achieve practical results

o Keep all globalization-specific value addition opportunities in mind

o Adjust products services to local customers demands

o Make use of local talents and marketing insights

3.6. Personal Preparations

o New mindset: What is different is not dangerous

o Relevant management model for global business: Responsiveness,

partnership, teamwork and decentralization -- not efficiency, hierarchy,

control and centralization



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3.7. Globalization Drivers

o Market -- 90% of future world consumers are outside of US

o Cost -- labor wages, transportation/logistics, economies of scale, technological

innovations

o Competition -- global business models, supply chains and customer

partnerships

o Government -- privatization, trade blocks (EU, NAFTA, World Trade

Organization)

3.8. Corporate Characteristics in the New Millennium

o Complex Organization Design

o Global Reach

o Partnership

o New Composition of Employees

o Management Reporting Layers

o Customer Sophistication and Demand

o Public Image

o Stock Market Valuation

4. Global Leadership Quality

Inquisitive Mind

Global Mindset

Knowledge and Skills

Global Business Savvy

Global Organizational Savvy



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4.1. Inquisitive Mind

o Constantly learning (complex and new conditions)

o Adventuresome and risk taking

o Curious

o Open-minded

o Duality (ability to balance tensions and manage uncertainty)

o Personal Integrity

4.2. Global Mindset

o Manage multiple realities and relationships simultaneously

o Focus on team/group initiatives

o Deal with both the hard issues -- cost, profit, budget, finances, head count and

soft issues (value , culture, vision, style, risk taking)

o Balance global integration -- product standardization and local responsiveness

(local customization)

o Handle cultural diversity

o Manage uncertainties

o Exhibit business and organizational savvy (recognizing opportunities, having

knowledge and access to capabilities, being able to mobilize required

resources to capture on opportunities)

4.3. Knowledge and Skills

o Versed in Technologies (IT, telecom, operations)

o Social political factors of different countries

o Culture and cross-cultural issues which impact management

o Global competition (supply chain, TQM, JIT, Cell manufacturing,

outsourcing, enterprise resources integration, etc.)



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o Technical, business and industry knowledge

o Skills to put knowledge into action

4.4. Global Business Savvy

o Recognize business opportunities (market needs, cost differential, resource

utilization, productivity/efficiency enhancement, supply chains)

o Have vision of companys core, which makes money worldwide by adding

value to end customers

4.5. Global Organizational Savvy

o Have Company knowledge (subsidiaries, product lines, technical resources)

o Being constantly informed of actions at headquarters

o Understand and mobilize critical resources to capture on global opportunities

(known to companys key decisions makers, capable of getting wide

collaboration and support)

5. Common Mistakes in Globalization

Absent of strong company commitment in people, capital and time

Absent of focused management attention (management by exception)

Low priority (view global business as incremental)

Not engaging foreign partners decisively



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5.1. Production Engineering in a Global Economy

o Production engineering is expected to change significantly (supply chains) in

global environments

o New issues (logistics, information sharing, knowledge management, risk

management, inventory control, collaboration, process transparency, product

design and assembly procedure, and quality control)

5.2. Job Migration - Globalization

o First Wave Toys, Textile, Shoes, production jobs for commodity products

o Second Wave Financial analysis, call centers, tax preparation, software

programming, medical diagnosis (x-ray charts), legal analysis and studies

digitizable and requiring no face-to-face contacts

o Third wave R&D, product design and other high-tech jobs

Topic : Engineering Management In The New Millennium

Topic Objective:


Understand Emerging Future Trends

Understand Differences in Companies in New and Old Economies

Understand Characteristics of New Era Companies and Strategies

Understand Transition to the Knowledge Economy

Understand Personal Strategies for the Future

Understand Contributions in the New Millennium



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The Challenges Ahead

Key Points:

1. Emerging Future Trends

1.1. Customer Focus

o Process (speed, transparency, self-help)

o Customer service (quality/reliability - Service Profit Chain Model)

1.2. Enterprise Resource Integration

o Integrated Communications Systems -Information sharing

o Wireless Applications

o Leveraged legacy systems

1.3. Supply Strategy

o Work Outsource: Production, back-office work, logistics, after-sales customer

service, procurement, inventory management, new product design, and others

o Integrated parts suppliers - automobile component firms with flexible

production maintained at capacity

o Integrated service organizations Offering financial advisement, accounting,

insurance and banking for many firms

o



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1.4. Knowledge Management

o Preservation of know-how critical to knowledge-intensive companies

o Dissemination

o Wide-spread applications to add value

o Supply chains of knowledge agents and centers

1.5. Organizational Changes

o Type one - Assemble and market products/ services to consumers:

▪ Retain core competence and outsource others

▪ Form Supply chains

▪ Focus on customers needs

▪ Become Virtual organizations

o Type Two - Supply specialized products/ services to client companies:

▪ Build flexible production facilities (e.g., cells) to respond

▪ Vertically integrated

o Transition from One to the other - Virtual organizations produce commodity-

like products well - When breakthrough, leading edge performance is needed,

no perfect information exists for product specification, virtual companies may

swing back to vertical enterprises (e.g., Cisco in Optical Networks)

1.6. Migration of White Collar Jobs to Other Countries



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o Job migration - Clerical, chip design, customer service, software

programming, tax preparations (jobs following procedures)

o 3.4 million jobs by 2015 to low wages countries (China, India, Ireland, The

Philippines, India, Mexico, and Russia)

o Pressure on American workers - How to justify the high wages with the value

they create?

▪ Caltex Petroleum - shifted service and professional jobs from Europe

and U.S. to Ireland, Jamaica, India and the Philippines

▪ Bell Labs has large research centers in Bangalore and Hyderabad, India

▪ Sun Micro-System hired Russian scientists for software and

microprocessors research.

▪ Accenture (Anderson Consulting) pays 1/3 to 1/4 of US wages to

Philippine workers

▪ General Electric shifted some 1000 customer service jobs to New Delhi,

additional centers for handling payroll, design and billing services are

planned

▪ Texas Instruments has its integrated circuits designed in India, since

1986

1.7. Globalization

o Clear trend in the new Millennium (Market, resources, technologies); most

companies will be actively involved

o United Nations Forecast: Five largest GDP-based national economies in the

World by 2020:



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▪ China

▪ US

▪ Japan

▪ India

▪ Indonesia

2. US Companies

2.1. Old Economy Companies

o Rigid hierarchies and Clear boundaries

o Capital Intensive, fixed tangible assets centered

o Small price/book value ratios

o Shareholders are owners

o Functions are vertically integrated, emphasizing self-sufficiency, stability and

incremental growth

o Rivalries among competitors motivate employees and drive success in

marketplace

o Going concern

o Communications follow chain of command

o decision making is resources centered - efficiency driven

o Slow transactional processes, with business data available monthly

2.2. Knowledge Economy Companies

o Flat organization with small core and extensive alliance/partnership networks,

with fussy company boundaries



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o Idea-intensive, with digitalizable and commodity-like goods (data, software,

entertainment, cars, computers, Jeans etc.)

o Focusing on time to market, cost reduction through technologies supplied by

alliance

o High market value to book value ratios

o Shareholders not solid owners, as ideas in peoples heads can not be chained

down - risk factor

o Virtual organization with changing partners

o Collaborate, not competing against competitors to achieve win-win

advantages

o Some companies get acquired over time

o Communications are instant due to massive digitalization, decision making by

empowered employees

o Business process efficient, virtual close with financial performance data one

click away.

2.3. Modern Companies

o Solicit real-time customer feedback (Internet- based communications tools)

o Target market segment of one (mass customized products/services)

o Induce customer loyalty with personalization of customer relationship

o Create enduring relations with employees to connect to companys business

partners

o Adjust to diversified employee composition (40% of workforce on temp basis

by 2010, talented business superstars represented by agents)

o Organize team structures to remain flexible

o Assure instant Information flow and efficient transactions

o Do performance evaluation constantly

o Use advanced tools (resources planning, enterprise integration, supply chain

management, customer relations management, web-based transactions,) to

reduce staff and improve efficiency



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o Pursue globalization proactively

2.4. Best Practices of Knowledge Economy Companies

o Component Design - Reduce the number of components in products to

minimize needed suppliers, Use common components, Cut down

reengineering to meet local needs, exceed local quality requirements to create

competitive advantages

o Component Manufacturing - Link design with manufacturing, reduce cost by

scale of economy, shift high labor content parts to low wage areas, optimize

the use of high-cost high-skilled labor

o Product Assembly - Assemble finished products in plants close to the local

markets (local content laws, import duty, final test and quality control)

o Load Balance - Transferring components between manufacturers to assembly

plants to balance load

o Procurement - Procure parts and qualify vendors centrally, except low-cost

low-volume items

o Marketing/Sales - Manage marketing and sales forecast centrally using local

inputs

2.5. Strategies to Make Companies Great in New Century

o Speed - Treat time to be more valuable than money and buy for speed

o Talents - Attract, motivate, empower and retain the very best talents, as ideas

are key assets for any companies

o Focus - Go for long-term market position and dominance, rather quarter-to-

quarter performance improvements

o Customer Orientation - Follow what customers want and create customer-

driven supply chains



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o Productivity - Outsource non-core activities, buy technologies and digitize

the rest

o Operations - Streamline operations using advanced software technologies to

adapt to changing marketing environment

3. Management of Business Networks

Manage the Extra-Structure (external business relations)

o Targets: Suppliers, parts manufacturers, key customer clients, end user groups

o Nature: Transient (short- term) and diverse (global, diverse)

o Skills - Strong coordination capabilities

Develop alliances/partnerships - Devote time to create and maintain extra-structure

4. Transition to Knowledge Economy - A Specific Example

Cemax, Monterrey, Mexico, an old economy enterprise, asset-intensive, low-efficiency,

commodity products, multiple product grades, unpredictable customer demands

Precision Delivery - Dispatchers locate all moving trucks (location, speed, direction) via

a global positioning satellite system - Cut delivery lead time from 180 minutes to 20

minutes, use 35% less trucks and drivers

Higher Profit - Guarantee delivery of cement within minutes for a premium charge -

Customers change order and cut wait time

Cost Saving - Internet based order processing for customers, distributors and suppliers,

eliminating clerical staff needs

Faster Reporting - Operational results within 24 hours, in stead of on a monthly basis

Cemax Strategy: Replace investing in hard assets (trucks, ships, staff) by better managing

information (values to customers, order processing, delivery schedule and logistics)

New Revenue: Cemax formed a subsidiary selling consulting services to add values to

others by this proved transition technology



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5. Personal Strategies for the Future

Get post graduate education - learn how to read fast, digesting information efficiently,

learn quickly.

Understand products and markets in transition, induced by changing technologies

Communicate well, compromise effectively and be a master o changes

Create/manage external business networks

Be familiar with capital (venture capitalists) and financial markets (security analysts)

Nurture leadership skills (acting like a conductor of a symphony orchestra)

Size technological opportunities to benefit the company

Stay away from non-core, standardized or digitalizable functions

Ready oneself for the globalization push (constant experimentation, remote collaboration,

local operations, diverse workforce) to expand markets and gain scale of economy

advantages for the company

Make sure that one is good at something marketable that the world values.

Be prepared to constantly improve oneself

6. Challenges in the New Millennium

Technology Leadership: Screen and apply emerging technologies for capturing new

business opportunities and lead major changes to create competitive advantages

Product Development: Innovate to shorten development process, reduce time to market,

cut costs, add product features and ease service for adding value

Support Globalization Strategy: Contribute to enable companies to pursue global markets

(manage global teams, develop global products, achieve economies of global scope and

scale, optimize location-based advantages, facilitate local customization,

Value Addition to E-transformation:

o Apply Web-based technologies to improve operational efficiency



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o Develop mass customization (build-to-order) systems - design, production,

logistics, service - to improve corporate competitiveness

o Streamline other corporate functions to gain business benefits

Customer/Knowledge:

o Manage Customer relationship: Analyze customer data, apply knowledge

o Create connectivity creation: Develop/maintain business networks, define

technologies for managing Extranet contents

o Manage Knowledge: Define what to preserve and how to use corporate know-

how

Social Responsibility - Exercise leadership roles to become active in addressing selected

social issues through professional organizations (e.g., environmental impact, global

warming, taxation on Internet, world trade and globalization, national energy policy,

immigration and migrating workers, Patients Bill of Rights, others)



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topic : introduction · 2019. 3. 31. · utilize resources to best achieve companys objectives;...

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