Engineering Value Creation

In my last post, I wrote a brief explanation about value and value creation, noting that “value” has many different meanings.

In this post I will summarize what Bill Williams and I think is a new theory of engineering value creation, the subject of my address to the International Conference on Engineering Education Research (iCEER 2016) in Sydney on November 24.

Most engineers create both societal and economic value from their work, but without much awareness on how they achieve that.

Interviewing engineers with my students, we noticed how many engineers find it hard to explain how their work creates value, especially engineers who are not designing new products.  At first we were surprised to find that this was no easier for engineers with commerce or MBA degrees.  Later, we realized that this reflects the lack of theoretical understanding about the links between engineering and economics.

Why is this important?  Why does the lack of theory really matter?  Surely it’s obvious.

Well, no, it is not obvious.  And without a theory to explain engineering value creation it hard to teach students why engineering is valuable.A clear understanding would probably help engineers create greater value, helping everyone, especially people yearning for productive employment and politicians who make rash promises.

Finally, engineers who can explain their value to employers are more likely to retain their jobs in tough times.

To keep this post short, I will briefly summarize engineering the several ways we have seen engineers contributing value. Later I will write more detailed descriptions explaining each kind of value creation, and link them back to this essay.  The perceptive reader will see the overlaps between these different value creation methods.

  1. Efficiencies

Engineers create value by seeking efficiencies, reducing the materials, energy, time and human effort needed to achieve a given result, reducing costs.

By providing accurate performance predictions, engineers can reduce the allowances to cover knowledge gaps and uncertainties known as design and safety factors.  Reducing design and safety factors can lead to further significant savings in material, assembly and transport costs.

  1. Product Differentiation

By designing products that provide improved buyer and end-user experience (product differentiation) engineers increase the use-value of products and services.

  1. Innovation

Engineers create value for enterprises by innovating: finding new ways to achieve a given result that is better in some way than other known ways.

  1. Performance prediction

Engineers provide sufficiently accurate technical and commercial enterprise performance predictions creating enough confidence for investors to provide the resources needed to make new products or provide new services.

  1. Due diligence

By systematically checking designs and plans beforehand, and monitoring technical work for compliance with standards and specifications, engineers reduce both the real and apparent risks for investors, increasing the perceived value of an enterprise.

  1. Community value creation

Engineers help enterprises co-create value in their communities through ethical behaviour, improved safety, community capacity building, identifying and conserving resources, reducing or eliminating detrimental environmental and social impacts, and remediating environmental damage.  Developing the community that hosts an enterprise rewards both the enterprise and the community.

  1. Reliable coordination

Reliable coordination within an enterprise improves the likelihood that the predicted product or service performance and quality will be delivered on time, safely, within the predicted budget and with acceptable environmental and social impacts. By doing so, engineers increase the value of the enterprise by aligning intentions with actions sufficiently well for investors to earn reasonable returns.

Beyond these seven ways that engineers contribute value, there are at least three ways in which engineers protect existing value: they help to prevent value from being reduced or destroyed.

  1. Maintenance

Often referred to as engineering asset management or sustainment, maintenance engineering is critical in protecting existing value embodied in engineered products, systems and business processes.

  1. Environmental protection

Engineers protect naturally endowed value by conserving both the renewable and non-renewable resources of our planet, our home.

  1. Defence and security

Engineers provide many products and services that limit or prevent destructive behaviour by other people, thus protecting accumulated value represented by our society and its various cultures and civilisations.

Added March 2017: 

11. Value Creation through Teaching

Engineers also create value through their teaching work, developing knowledge, skills and attitudes of others whom they work with.  See the post-script for a detailed example.

 

Changing theories

BIll Williams and I have recently studied contemporary business literature that draws heavily on the writings of Joseph Schumpeter, first published in German in 1911, who argued that economic growth (and hence value creation) depends on innovation.  This doctrine has led to a mis-understanding among engineers and many others that value can only be created through innovation.

Such a limited interpretation leads to the destructive perception that you have to be inventing something new to be contributing value.

Vital engineering activities such as design checking, compliance reviews, environmental protection and maintenance are therefore not seen to be valuable and hence are relegated, subordinated, curtailed, or often skipped entirely, often with predictably unfortunate results.

I hope that by offering a new and expanded theory on engineering value creation, we can help many engineers build self-respect and gain recognition that is currently denied by narrow and outdated perspectives on value creation.

We are not arguing that Schumpeter was wrong: instead we argue for a better understanding on engineering value creation and protection.  A chapter length justification for the theory we are proposing will appear in the forthcoming book “The Engineering Business Nexus” due out in 2017.  Write and ask if you would like to read the chapter before then.

Added March 2017:

As an example of value creation through teaching, sales engineers spend much of their time teaching engineers and other potential customers about the products that they sell, and how to use them effectively.  That teaching work is critical and creates value in several different ways.  

First, the knowledge that learners develop will help create a market, the possibility of using the products.  

Second, this learning helps customer engineers and others see their own work in new ways and makes them more productive: they will decide more quickly how to resolve situations in which the products being sold are relevant. When sales engineers representing, for example, NSK Bearings, teach potential customer engineers about bearing selection, the customer engineers become better at finding solutions for shafts and bearings in many different contexts, even though other kinds of bearings may eventually be used.

Thirdly, without this training and education, the products in question would never be used in practice and create use-value which motivates customer firms to buy the products and the original investors to put up the capital to create the products in the first place.  

The the sales engineers also create value in their teaching by reducing perceived risks in the minds of customers.  A product that demands technical understanding to be applied and used properly, for the customer to co-create use-value, that product needs to be advocated by someone with equivalent technical understanding.  The knowledge and experience of a sales engineer who has helped put the product, and similar products, into countless different application scenarios will reduce the apparent risk perceived by a new customer thinking of using the product for the first time.  And that reduction in risk contributes to value creation by the same arguments we have advanced for 4, 5, 7, 8, 9, and 10 above.


5 comments

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