Engineers verses Accountants verses MBAs

Years ago, during the tech boom, I was a involved in the acquisition of high tech companies as a manager of acquisition for one of the big 4 accounting firms.  The paces of acquisitions by clients was furious - sometime without a lot of thought regarding valuation.  We would joking say that they company was worth X dollars per engineer minus Y dollars per MBA.  Of course, there is always a bit of truth to such jokes.  My view is that

• MBAs can potentially be useful to the extent they contribute to the realization of value, but they are not useful in the creation of things of value.

• MBAs think they know something about accounting because they took a few course.  The reality is they know very little, and thus they can be very dangerous in an organization.

• I would never hire an MBA into a accounting organization unless they had spend 2 year in audit, which mean maybe they could help in an audit, but probably could could become an accounting manager, maybe. 

• I would never hire an MBA for anything unless they already had a marketable skill before they got the MBA.   For example, Marketing people with MBAs!  IT people with MBA's.

Anyway, the question I wish to explore here is what type of backgrounds make sense in senior management.  Now that I have ruled out entry into the executive suite base solely on the MBA credential, the debate come down to engineers or accountant types.   

As for my self, I have not always been an accounting and finance type.  As a youth, after graduating with a BS in Mechanical Engineering from the University of Washington, I started my professional working career as an engineer.   Being ambitious, I worked in engineering organizations during the day, had a seasonal "on the side" small business in the summer, and attended graduate school at night.  A few years later, I obtained a MS in Engineering Management from the University of Alaska.   Soon there after, I transitioned into the world of finance and accounting, getting my MBA, becoming a certified public accountant, and eventually being a CFO.  Point is, I know a lot about engineering and engineering organizations as well as accounting organizations.  A joke which at one time I was particularly fond of was "what the difference between and engineer and a accountant".  The answer is actually quite funny - "accountant know they are not engineers".  

All fun aside.  Engineers can be very capable manager.  However, research seem to show that technical people the generally do not rise to the top of large business enterprises.  In fact, one study done in the 90s revealed that only 91 of the of the top 1000 American companies were run by CEO formally educated in science or engineering.  Other counties whose economies are perhaps more dominated by manufacturing or construction are probably have a higher percentage of engineering types.  In the appendix is a paper on the subject but let me summarize a few interesting points noted there.

• Common believe #1:  top leadership and management of business, industrial, engineering and governmental enterprises is preferably occupied by so-called "professional managers" like accountants, financiers, lawyers, marketers, and behaviouralists who see "management" as their field, specializations or even prerogative.

• Common believe #2: engineers are generally not suitable for top positions as the are too involved with technical details, rather than financial and legal details which is "believed" to be the requirements to hold the top position.

• Engineers however believe that "professionally trained engineering manager" is distinguished from other managers because they possess both the ability to apply engineering principles and a skill in organizing and directing people and projects.   Such "professionally trained engineering manager"  are uniquely qualified for two types of jobs:

  • the management of technical functions (such as design or production), in almost any enterprise, or

  • the management of broader functions (such as marketing or top management) in a high-technology enterprise.

Anyway, this brings up the questions of technical expertise and what is needed for top management.  Here are my thoughts.

1. Unless your business is making rockets, business is not "rocket science"  The CEO of Starbuck type consumer company and the CEO of a multinational drug company like Pfizer have very different skill sets.

2. Most people, if they were to think about it, would conclude the Chief Executives of technical businesses might be more technical.  Technical business might be - medicine, healthcare, resource development, high tech, farm production, steel industry, construction to name a few.

3. The CFO position has evolved over time, but at this moment, CFOs of public companies need to be chartered accounting professionals (like a America's CPA designation) with big accounting firm backgrounds, from the audit side.  T

4. General Counsels are law school educated, usually licensed attorney.  Big law firm experience not as important as the type of experience (my opinion)

5. Chief Operating Officer (COOs) tend to come from technical backgrounds augmented by significant operational experience. 

6. I have been on over 1,000 of investor conference calls. 

   1. Investors expect the specialized senior management - CFO, General Counsel, and such - to have specialized education, professional designations, and demonstrated industry experience. 

   2. The CEO position is different.  Common to oil and gas, refining, mining, technology, drug companies, the CEOs have high levels of technical expertise usually with some sort of technical credential early in a career.  Most investors would be slight uncomfortable with these organizations being lead by a finance or legal type.  The further from "rocket science" the the company gets, the more of a generalist the CEO can be. 

MBAs are not Accountants.

If you look at the list above, you will not see the word MBA.  An MBA degree is a "general management" degree.  MBA's can be deal makers and investment bankers, but never become CFOs of real companies, unless the have other credentials.  The MBA curriculum is great with courses in accounting, finance, economics, statistics, operations research, marketing, organization behavior....  Great training for existing executives (my opinion), however, it does not qualify a person for as an executive and it certainly doesn't qualify a person as a accountant.  MBA's only think the know something about accounting.    The only "non chartered accountant" who know a lot about accounting are Chartered Financial Analyst who work in Investment Banks.  These days, even accountants don't know accounting as it has become way too complex. (my opinion).

If MBA are not accountants, what is an MBA good for.

• Good degree for a consultant acting as a problem solver and project manager.  They understand their technical limitations and bring in appropriate expertise to bear on the problem.

• Great degree for technical people who need / want to reinvent themselves in the world of business or who want to pursue higher line management within their existing industry or company.

• Great degree for Marketing and HR types.

• Good for existing executives looking to distinguish them self, 

• Great degree for highly quantitative people who want to go to work in investment banking.

• Great degree for IT Professionals.

• Great degree for lawyers, and prove they know something about business (not easy to find) 

My opinion is that an MBA does not make a professional.  An MBA is sort of like "racing stripes on cars" - thy will not make a slow car go fast but the certainly make fast cars look cooler. 

Accountant are Not......

If MBA are not accountants, then what are accountants not.  Great question.  Accountant who have been auditors for large firms have an amazing grasp of business.  The long they are involve, the broader the grasp.  However,

1. Absent specialized training and sensitivities, accountants are not deal makers.  Accountants need to be involved in the deal, but historical focus of accountant often dominates and overwhelms their consciences.  My experience is that even partners in large accounting firms - without very specific training - do not understand capital markets enough to act in this role.  Historical bias is difficult to undue.  Deal makers usually need to be more fluid, and definitely more imaginative (joke)!

2. Tax accounting is a specialty within accounting.   Keep it in mind.  CFO usually come form the audit side of big accounting forms.  They are very familiar with tax, but tax compliance work is a specialty within accounting. 

3. Investment counselor.  Although cash management is often considered an accounting function, Accountant generally don't possess sufficient knowledge of capital markets and investment to counsel on investments, other than in short term highly liquid treasury equities, or money market instruments or funds.

To be continued

APPENDIX A

In many engineering organizations, engineers do not hold senior managerial positions. It is thought that engineers are concerned more with technical details, rather than financial and legal details which is "believed" to be the requirements to hold the top position. This assumption could have a detrimental effect not only in engineering organizations and to the engineering profession, but also to the quality of life here in Australia.
 
Engineering is a profession that creates wealth, unlike some other professions which can only create regulations and shuffle paper. Here in Australia, our primary wealth comes from mining and farm produce. Since the demands for these commodities have leveled of, we must rely on the manufacturing and service sectors to maintain and increase our standard of living.
 

Value adding to the mining and farm produce commodities, is a function that only engineers can perform. Therefore, engineers have a important role to play in returning Australia back to wealth and prosperity.

 

Today, engineers are not achieving the top levels in management particularly those of engineering organizations. It is the accountants, lawyers and financiers that are holding the top managerial positions and thus leaving the engineer having a significantly less input in the control and decision making of engineering organizations. Engineers seem to have a myth bestowed upon them pertaining to the fact that there is a distinct dichotomy between engineering and management. As Young (1987; 61) states:

These non-technical managers may understand the technologies being employed by their firms, but they don’t have enough background to develop intuitions on which of the possible technologies now on the horizon are apt to further develop and which are apt to be discarded.

As a result, incumbent managers have no way to judge the merits of revolutionary changes in production technology. So they procrastinate, waiting for it to become clear which technology is best. By this time the answer is clear, foreign firms may have a two - to three -year lead in understanding and employing these new technologies.

The problem is found not just among managers of manufacturing facilities. Those in the investment and marketing communities also don’t know where to place their bets. The ignorance and resulting risk aversion of the industrial manager is reinforced by the ignorance and risk aversion of his investment banker, advertising manager and accountant.

This paper discusses the reasons why engineers are in the minority of senior managerial positions and identifies its consequences. It explains the importance of engineers in senior managerial positions and the benefits that can be achieved from such position.

The writer has the utmost respect for the other professions mentioned in this paper. The writer, by no means wish to degrade or to undermine the other professions. The view that has been taken, is the view of the writer along with many other engineering professionals. It is a view point that the writer is concerned about and wishes to express.
 
 

As stated above, the engineer has a dual career path. Either leading towards to the managerial aspects to gaining the title of Manager or Director, or leading towards the technical aspects to the tides of Senior Specialist or Principal Engineer.

A study of engineers and scientist at the National Aeronautics and Space Administration (NASA) by Bayton and Chapman (1972), found three types of engineers that has fell into the above categories. These were:

3.0 NON-ENGINEERS MANAGING ENGINEERING ORGANISATIONS

Managers of non-engineering backgrounds have the majority in holding senior managerial positions. In recent years there has been an increasing concern within the Australian engineering profession about the top or senior managerial positions in government engineering enterprises formerly held by engineers being openly advertised for and filled by "professional managers" who may be non-engineers. This appears to reflect poorly on the image of engineers as managers. The lack of broad perspective view of the top and leadership ability are implied with engineers. (Young 1987;62).

The President of the Institution of Engineers, Australia, Professor Douglas Clyde (Georg 1994 ; 26) has shown the concern of the reducing numbers of engineers in managerial positions. He states that, "the deenginecring within public service bodies is continuing."

Grayson cited by Babcock (1991; 354), backs up this point by showing the similarities here in Australia also exists in America:

Managers from the business school faculties, especially those trained in economics and finance, will sometimes present profit maximisation as the primary goal of the firm and its managers. This model is elegant: simple and consistent it enables prediction and comparison. For most purposes this is extremely useful; it directs attention to generating additional revenues or cost cutting.

When profit maximisation is over the long term, it can handle most, though not all of the problems. The major difficulty is that the model points the manger in the wrong directions for some of the most important decisions that the manager faces. Moreover, corporate executives tell us that profit maximisation is not their primary goal. Yet business school students readily incorporate an exclusive use of profit maximisation into their own thinking, because of its simplicity and elegance. For a few, it even becomes an ideology. When profit maximisation crowds out other considerations, business schools do a disservice to the business community. (Cavanaugh 1988; 3).

The concept of "top or general managers who can manage any enterprise", should be challenged on a number of grounds. Young (1987; 62) has put together a number of statements very worthy of noting:

Firstly, in times of rapid technical change, the top manager or leaders of engineering enterprises should have sufficient knowledge and understanding of science and technology to be able to make decisions especially where the technical aspects predominate. It is inadequate to rely solely on engineering advisers who may present views but accept no responsibility.

Secondly, it is far easier for the engineer to master other aspects of the enterprise whether they be financial, legal, personnel and so on than for the non-engineer to master the fundamentals of science and technology.

Thirdly, the engineer in leadership or senior managerial roles is more likely to attain the respect, trust and support from his or her technical subordinates in the engineering enterprise than the non-engineer in technical management.

Fourthly, the ready transferability of "top management personnel" between organizations is a myth. While some individuals may possess outstanding leadership abilities in some situations, they may not be capable in other situations. Engineering organizations and enterprises involve a high degree of technological complexity. Where technological innovation and high technology are concerned, it is hard to expect accountants, lawyers and professional mangers with little understanding or knowledge of science and technology toprovide the necessary leadership.

Fifthly, the concept of "professional management" is a myth. Management exists among groups, peoples and organizations but the managers themselves do not constitute "a distinct profession". There is a difference between good management and bad management, or competent management and incompetent management but the managers themselves do not make up a professional group in the usual definition of a profession. There are some managers who may be good in one situation but poor in other situations. Similarly the are some engineers who make good design managers but poor construction, project or general managers. Managerial skills are related to particular situations. Management is essentially a leadership task in organizations. The practice of management in itself do not meet the requirements of a distinct profession. Engineering management is a essential component of the profession of engineering.

The proof of the importance of engineers as mangers can be shown in the 1986 NASA Challenger spaceship disaster. Von Glinow and Mohrman (1990;237), had stated;

Von Gilnow and Mohrman, continues on to say that, "Individuals who work in high tech environments were not at all surprised by this incident. To some degree it happens every day. In the final analysis decisions are routinely made by managers concerned with profit and loss statements, not engineers concerned with product integrity."

Fortunately, not all managerial decisions are as life threatening as just discussed. However, it does stress the importance of engineers holding senior managerial positions.
 
 
 
 

4.0 ENGINEERS AS MANAGERS

An encouraging sign for the engineering profession was shown in The Business Review Weekly (Gilchrist 1991; 47), in an article titled, "Engineers Push for Management Jobs". It stated that:

It must strive for at least equal recognition and status for technical positions in corporations with those of general management. (Ritchie 1991; l 13).

If engineering is to remain an influential profession, engineers must develop a capability of conducting the profession in new ways while maintaining excellence in technology, despite the changes in the managerial and industrial environments.

The engineers, who lead the profession, both in their organisation and in the Institution, must be able to bear a credible combination of technology, economics, and social awareness to their decisions and actions. The assertion of the competitive edge of engineers requires the pursuit of excellence in four ways that are interdependent (Lloyd 1987;43):

· In engineering management, to ensure engineering technology is managed well.

The engineering profession is a problem solving, creative, and wealth generating profession, unlike some other professions which can only create regulations and shuffle papers. As international commodity prices have dropped consistently during the past two decades, Australia would need to increase continually the volume of its commodity exports. This

involves producing the right product of the highest quality at the right time and at a competitive price. Countries that add the most value to the manufactured products will end up the wealthiest. Australia has an abundance of minerals and farm produce. Adding value to these commodities is not only desirable but also vital to Australia’s prosperity. No other profession but the engineer can perform this value adding activity. Therefore, we, engineers have a very important role to play in returning Australia back to the wealthiest nation again.(Lin 1991;69).

As a backing to bin’s testimony, Grayson cited by Babcock (1991;354) have some comparisons with some wealthy nations, with the number of engineers they have as leaders, and on the board of directors:

Engineering management education can only help to improve the image of engineers as managers, and provide them with the essential skills to perform their duties well.

Professor Douglas Clyde (Georg 1994; 29) states that universities should provide undergraduates with broadly marketable abilities, not locking them into generalists or specialists training. He believes more emphasis has to be placed on postgraduate education. This allows the first degree to remain more general.

There are three types of engineering management study available. These are:

The postgraduate studies consist of the MBA; Masters of Business Administration, Masters of Engineering Management and various graduate diplomas. The MBA course does not cater for the particular needs of the engineer. (Young I 987;64). Because of this, in 1984 a Masters of Engineering Management was established at the N.S.W. Institute of Technology, now known as the University Of Technology, Sydney.

Continuing engineering programs are held at TAFE colleges, however they do not always result in a award.

Engineering management is a essential element of the engineering profession. The future status of the profession lie not only in technical excellence but how well engineers perform in various managerial roles. (Young 1 987; 65).
 
 
 

6.0 CONCLUSION

Engineering management must exist, not only for the well being of the engineering profession, but for the well being of engineering organizations and for the prosperity of Australia.

Within an engineering organisation, the engineering manager will command the respect of his or her technical subordinates to work together successfully as a team. A non-engineer who will not be able to gain their respect or loyalty, primarily because of the lack of technical knowledge.

The engineer can use his unique creative problem - solving capabilities to solve problems that can hinder organizations. The understanding of current and future technologies will enable him to make decisions vital for the organisation’s journey into the future.

The engineering profession is the only profession that can generate wealth. If Australia can

improve on the export of manufactured products, instead of relying on its minerals and farm produce, Australia will have the opportunity of being the "lucky country" again.

The study of engineering management will equip engineers with managerial skills which will play a significant role in decision making within value adding organizations,. inturn raising the living standard of Australia.
 
 

7.0 BIBLIOGRAPHY

Babcock, D. L. (1991). Managing Engineering And Technology, U.S.A. Prentice Hall, Inc.
 
 

Baron, J.A., Chapman, R.L., (1972). Transformation of Scientist and Engineers into Managers. NASA Document SP-291. Washington, D.C., NASA.
 
 

Cavanagh, Gerald F. , McGOVERN, Arthur F. , (1988). Ethical Dilemmas In The Modern Corporation. U.S.A. Prentice Hall, Inc.
 
 

Georg, Dietrich., (1994). Looking Into The Future At 75, Engineers Australia. April. lEAust.
 
 

Gilchrist, M., Engineers Push for Management Jobs. Business Review Weekly , February 22 1991.
 
 

Lin, G.C.I., (1991). Engineers’ Role in Managing Australia to Prosper. National

Engineerin2 Management Conference "Managing inaChangingFuture", Adelaide, October

1991. lEAust.
 
 

Lloyd, B.E. (1987). Engineers and Management Change: Promotion of Performance. Conference on Engineering Management 1987, Brisbane, September 1987. lEAust.
 
 

Ritchie, J.B. (1991). Professional Engineers as Executive Managers. National Engineering

Management Conference "Managing in a Changing Future" , Adelaide, October 1991.

IBAust.

Von Glinow, M.A., Mobram, S.A. (1990). Managing Complexity in High Technology Organisations, U.S.A. Oxford University Press.
 
 

Young, E.J. (1987). Engineering Management Education in Preparing Engineers for Leadership Roles in Australia. Conference on Engineering Management 1987. Brisbane, September 1987. lEAust.