Inefficiencies In Connecting To The Engineering Marketplace

The principal role of an engineering consulting firm is to connect engineers to their clients. Unfortunately, the manner in which we make these connections has much inefficiency, in my opinion. This inefficiency increases our cost of doing business and limits the size of the marketplace that can be accessed by a given engineer or group of engineers.

When we constrain the size of the potential marketplace for an engineer or group of engineers, we are also constraining our ability to maximize their effect on the marketplace.Over the next several postings, I would like discuss business growth strategies that address these inefficiencies and effectively remove these marketplace constraints. The intention is to present ideas that can be used by smaller and larger engineering firms to increase both their market share and profitability.

As a starting point, I would like to present some general observations regarding the inefficient manner in which we connect engineers to the marketplace.Keep in mind that these are general and that there are going to be exceptions.

Observation 1) Very talented engineers are often found in local and regional firms. However, they are locked into servicing their firm’s clients on smaller and less complex projects. When they have the opportunity to be involved in larger projects, their roles tend to be minor and are assigned by larger national or international firms who are serving as the first tier suppliers. This participation is often the result of the need to meet governmental quotas for small firm participation. Thus, talented engineers in local and regional firms are often restricted in their impact on larger projects and are limited in the nature of the clients they typically service.

Observation 2) Small business owners and managers are among the most talented and resourceful project managers available in the marketplace. However, because of the nature of their clients and the size of their businesses, these managers typically run small to moderate-sized projects. When considered together, the combined complexity and inter-dependencies of these projects (in terms of allocating resources and getting the work done) rival the most complex engineering projects in the marketplace.

Observation 3) Due to their close physical proximity to communities and clients, the owners, managers and engineers of these local and regional firms are among the first to know when new projects are being conceived, even among larger clients. Hence, they could represent a valuable front-line in a coordinated marketing strategy. Unfortunately, they don’t typically have the level of specialization and manpower necessary to effectively pursue some of the more complex and challenging projects, even though they may be first on the scene. I have heard of instances where they have actually turned down larger projects because of their constraints.

Observation 4) Talented engineers in large firms are effectively “locked-out” of working on most small and midsized projects. They typically work on larger projects for their firm’s clients. Thus, they are also effectively limited in the nature of the clients they typically service.

Observation 5) Given the size of large engineering firms, it is necessary to maintain a large volume of work to “feed” the staff. This need causes them to naturally pursue larger and more complex projects. When there is a downturn in the marketplace, the large staff size results in a large drain on profits.

Observation 6) Large engineering firms tend to carry more staff per anticipated volume of work when compared with smaller firms. Large firms typically have the profits available to “carry” staff through business lulls and they have the ability to distribute work among offices in order to adjust to these lulls.

Observation 7) Local and regional firms are limited in the amount of work that they can distribute. Since they have lower operating profits and do not have the ability to widely distribute work, they tend to carry less staff per anticipated volume of work as compared with larger firms. As result, when the work load picks up, engineers in smaller firms are typically asked to accommodate higher work volumes through longer hours rather than hiring additional staff.

Observation 8) When engineering firms or offices within the same engineering firm share work, the fundamental basis of this work sharing is some measure of quantity and quality of hours. Unfortunately, when work sharing is based upon hours, quality assurance and quality control issues can become acute and result in even higher inefficiencies. These inefficiencies in work performance from one firm (or office) are thus transmitted directly to the project budget without sufficient control of the project manager.

Each of these observations represents one or more constraints being placed upon the way that we connect our engineers to the marketplace. The more constraints we place on a natural system, the more we constrain the optimal solution.

Ideally, the optimal manner for an engineer to connect to the marketplace would be to have full access to all potential projects and clients and to be able to offer engineering services using the most cost efficient and effective delivery system. Since most engineering firms have similar cost structures and we are effectively limiting the types of projects and clients that we can access (whether we are in a smaller or larger firm) we are all in the boat.

I would welcome comments and discussion on these observations.

In future postings I will present business growth strategies aimed at addressing these inefficiencies. It will, however, require us to think outside-of-the-box.

Glen R. Andersen, ScD, PE

http://www.theoptimummanager.com

Why Do We Discourage Productivity?

Why would we compensate employees in a manner that discourages productivity?

Consider the following example. Professionals in a peer group each have similar backgrounds and between five (5) and eight (8) years of experience. They all perform similar assignments (tasks) that for simplicity’s sake are assumed to have the same degree of difficulty. The total compensation (salary plus bonus) in this peer group currently ranges between $85,000 and $110,000 per year and each employee has a level of compensation related to their productivity; higher productivity corresponding to higher compensation.

Assume that the least productive employee works 150 tasks per year on average with a total compensation of $85,000. The most productive employee works 300 tasks per year on average for a total compensation of $110,000. Thus, the most productive employee is about twice as productive as the least, but without receiving twice the amount of compensation.

Considering the total number of tasks that each employee is able to complete in a year, the least productive employee is paid an equivalent of about $567 per task and the most productive employee is paid an equivalent of about $367 per task. Thus, the least productive employee is actually being paid about 1.5 times more per task completed.

The following plot has been generated to illustrate this point. In this plot the least productive employee is used as a bench mark. Employee productivity is plotted along the horizontal axis with 100% representing the least productive employee. The corresponding number of tasks per year is represented on the top of the graph for comparison purposes. The vertical scale is a measure of task labor values paid to an employee in comparison to the least productive employee’s task labor value. Corresponding annual compensation and task labor values have been placed along what I call the Productivity Discouragement Curve to illustrate how each decrease with increased productivity.

productivity discouragement curve

In essence, managers using the employee compensation model described above are tying task labor values to employee productivity and are lowering these values with increased productivity. The result is a very power negative unspoken message that acts to discourage all employees from increasing their productivity. Of course, some employees will act against the Productivity Discouragement Curve and work harder to get more total compensation. Their level of productivity will be a function of their personal drive, work-life choices and personal needs regardless of the discouragement, but we are dampening their enthusiasm. Why?

What would happen if we didn’t use the Productivity Discouragement Curve as the basis for our compensation models? What if instead we decided to pay the same task labor rate independent of productivity? Or, what if we actually increased the task labor rate for higher levels of productivity?

The result would be an unleashing of employee productivity at all levels. However, such an approach would be very difficult under our present time-based employee performance measurement systems. However, it would be easy and straight forward under a task-based system, such as the Tasks-Completed-Correctly strategy as described in The Optimum Manager.

How would a Tasks-Completed-Correctly strategy that actually encourages productivity work in your business?

Glen R. Andersen, ScD, PE

http://www.theoptimummanager.com

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Is it Better to Measure Employee Performance by Time or by Tasks?

Let’s explore a very important and fundamental question about the employee performance management process.  “Is it better to measure employee performance by time spent or by tasks completed?” In my opinion, the answer is unreservedly “Tasks Completed!” We should measure employee performance by the number and types of tasks completed correctly over a specified time interval. Thus, time should become of secondary importance to performance management rather than of primary importance as it is now used.

An ideal employee performance management process should measure both competency and productivity. Competency is best measured at the end of each task when a manager reviews it for correctness, and as such should be measured continuously. A direct measure of productivity should be based upon the total labor value of all tasks that can be completed correctly by a given employee over a given time interval. One such measure can be the difference between the total labor value of all tasks completed and the total employee compensation received. With these two measures of employee performance, each employee will have a clear and unambiguous understanding of where he stands at all times and can become the master of his own most important commodity; time.

Regrettably, most employee performance management processes are built upon some measurement of total time spent at work, total time spent on billable tasks, and total time spent on nonbillable tasks. We typically measure employee performance on an annual basis during formal reviews. Competency in these reviews is a secondary metric determined long after the tasks that can demonstrate it have been completed. We try to associate competency with types of projects completed and do so in a subjective manner. We also measure employee productivity in these annual reviews; but typically as an agglomerate of various subjective measures such as: opinions from direct supervisors; opinions from group members who work closely with the employee; profitability of projects worked on; or, overall productivity of the group with an assessment of each employee’s individual contribution. The result is at best a highly subjective and very approximate snapshot of any given employee’s performance on an annual basis.

So long as an employee is performing adequately, this highly subjective and very approximate measure of performance is sufficient. However, with an underperforming employee, there is a lot of potential gray area that opens our businesses up to the potential for costly legal action if that employee must be terminated.

In addition to the challenges just described in measuring employee performance, our reliance on time as the fundamental unit of measure sends a very powerful negative unspoken message to our employees:

“Your time spent on the job is most important! Make sure that you charge enough billable hours to meet your utilization goal each week.”

Unfortunately, when we measure billable time, we tend to get more billable time. If all employees are sufficiently motivated to optimize the use of their billable time, then such an outcome is entirely acceptable. However, we see ample evidence that such is not the case in normal businesses. Various research institutions have been tracking levels of employee engagement over the years and have concluded that only a small fraction of employees in a typical business are engaged. The vast majority of employees are disengaged or actively disengaged (http://www.gallup.com).

By changing the primary focus of our employee performance management process to the completion of tasks correctly and by assigning a labor value to each of these tasks, we can avoid the pitfalls just described above. If we track the types of tasks that have been completed correctly and require each employee to work their tasks until they are correct, we can measure competency directly and routinely throughout the year as each task is completed. If we track the labor values for all tasks that are completed correctly over a fixed time interval and use these in a direct comparison to an employee’s total compensation, we can unambiguously measure productivity.

Using this measure of productivity, an employee can be rewarded dollar for dollar when the labor value of all of his tasks completed correctly exceeds his total compensation. Employees that understand their level of competency by direct feedback from their manager at the completion of each task, that have an unambiguous measure of productivity, and that are rewarded directly for that productivity will be able to optimize the use of their time to achieve a desired level of compensation and/or amount of time off while significantly increasing their productivity and consequently the profitability of the business.

Glen R. Andersen, ScD, PE

Author of “The Optimum Managerhttp://www.theoptimummanager.com

Available at https://www.smashwords.com/books/view/293552