IS GOOD ENGINEERING MANAGEMENT RELATED TO A RESPECTABLE PERFORMANCE?

Masaaki Hirano
Waseda Business School
3-4-1 Okubo, Shinjuku-ku
Tokyo 169, Japan

Abstract overall standard of engineering management of

This article first tries to operational-
ize the measurement of "good engineering
management" through interviews of operations
management specialists. Then, the engineerlng
management score is obtained for a sample of
large Japanese firms, and correlated against
their financial performance. A positive cor-
relation between the standard of engineering
management and a sales profitability amongst
the sample companies was found. Discussions
on the results and methodologies are followed
by the concluding remarks.
a company, rather than that of each plant or
site, since it would not be too easy nor
realistic to obtain the financial results for
each plant or site.
I) Top Management/Organizational Culture
* Does the top management understand
technology and engineering issues?
* Is organizational culture liberal, al
lowing to risk a new technology?

* Is the work force young, suited for

Introduction encouraging creativities?

It seems all too obvious that good en- II) Research Orientation
gineering management is closely related to a
good business performance. On the other * Does the company have a big research
hand, everyone of us seems to know at least budget?
an example or two of good engineering com-
panies whose performance is far from * Is the company actively involved in
respectable. Obviously there must be other basic research?
factors than engineering management (e.g.,
wrong overall strategies) which are causing III) Development Orientation
lacklustre results.
* Is the design stable?
It is believed, however, the closeness
of the link between good engineering manage- * How wide is the range of products in a
ment and good business performance must be same family?
known in advocating the former, as a matter
of principle. It is this issue that present * Is the company good at incremental
article addresses. First, elements of good improvements?
engineering management are identified through
the interviews with Production and Operations * Is the company good at managing and
Management (POM) specialists. Then, the controlling subcontractors and
samples of large Japanese firms in electric supplyers?
and electronics, heavy industry and automo-
tives are scored against the yardsticks IV) Project Management
specified above. Thirdly, these engineering
management scores are correlated against the * Is the lead time to launch a new
ten year average of these sample companies' product long or short?
financial performance. Discussions on the
methodology and the results are followed by * Is the link with marketing and produc
concluding remarks. tion functions good?

Elements of Good Engineering Management

Engineering Management and
There does not seem to exist any agreed- Financial Performances
upon operational definitions of good en-
gineering management, which is rather Measurements
surprising. To look into the relationship
between the quality of engineering management To operationalize the list of elements
and the company's performance, it would presented in the above section, the question-
naturally be neccesary to be reasonably naire below was made.
clear about what constitutes good engineering
management. Therefore POM specialists at I) Top Management/Organizational Culture
Business School and System Science Institute
of Waseda University, as well as some of the * Is the top management scientist or en
production and engineering managers who at- gineer by training? (Y/N)
tend Waseda Business School had been
interviewed, to obtain a tentative definition * Is the culture liberal and risk
of good engineering management. They came up taking? (Y/N/DK)
with the list below.
* Average age of the work force
These yardsticks are intended to measure
CH2904-1/90/0000-0365 $1.00 ©1990 IEEE 365 1990 IEEE International Engineering Management Conference
II) Research Orientation Samples

* Research budget/Sales Samples of large Japanese firms are

selected in electric and electronics, heavy
* Is the company actively involved in industries, and automotive industries. All
basic research? (Y/N/OK) of them have been in the list of the "Hundred
Largest Companies in Japan" for over twenty
III) Oevelopment Orientation years. In other words, they are repre-
sentatives of the manufacturing companies in
* Oesign stability (Y/N/OK) which engineering are important and which
have been large for twenty years. They are:
* Range of products in a family (Y/N/OK)
*Electric and electronics
* Incremental improvements (Y/N/OK)
Hitachi
* Subcontracter management and control Toshiba
(Y/N/OK) Mitsubishi Electrics
NEC
* Capital investments/Sales Matsushita
Sanyo
IV) Project management
*Heavy industries
* Lead time (S/L/OK)
Mitsubishi Heavy Industries
* Link with marketing and production Ishikawajima-Harima Industries
(Y/N/OK)
*Automotive industries
Since the intrinsic profitability of the
industry differs from one to another, above Nissan
mentioned specialists and managers were asked Isuzu
to gauge each company, in comparative terms, Toyota
against the others in the sample in the same Mazda
industry. In comparing their ratings "Yes/No Honda
/Oon't Know" answers ("Narrow/Wide/Oon't
know" or "Short/Long/Oon't Know",as appro-
priate) are given the points of +1/-1/0, Assuming that the standard of engineer
respectively. As the relative importance of ing management in a company does not change
each yardstick is nol a priori known, it was easily from year to year, ten year average of
decided to give the coefficients so that the finacial performances of the sample companies
elements of "Oevelopment Orientation" collec- are correlated against the engineering
tively are given the weight of two, while management score. Performance measurements
other three groups of elements respectively chosen are:
get the weight of one. Then, by adding up
the ratings times coefficients, the overall * Sales profitability
engineering management score for each company
was obtained. * Sales growth

* Profit per employee

Firm EM score Sales Sales Profit!

Growth(%) Profit (%) Employee
------------- --------- ---------- --------- ----------
Hitachi 1.47 10.79 6.149 1.726
Toshiba 2.03 11.14 4.220 1.078
Mitsubishi -1 .10 12.07 3.380 0.868
NEC -0.87 16.69 3.811 1.209
Matsushita 1.63 12.52 6.887 4.176
Sanyo -0.33 11.97 5.050 2.076
--------------------------- -----------------------------
Mitsubishi HI 0.83 6.04 2.225 0.628
IHI 0.13 2.89 1 .756 0.514
--------------------------- -----------------------------
Nissan 0.00 7.95 5.239 2.739
Isuzu -1.00 11.52 1.864 0.898
Toyota 1.30 13.47 8.471 6.067
Matsuda 1.80 12.41 3.078 1.253
Honda 1.70 15.05 3.651 2.024

366 1990 IEEE International Engineering Management Conference

Results Discussions
The table shows the summary of the Despite the seemingly interesting
results obtained, and its graphical repre- results above, this study is not flawless
sentations are given in [Figures 1-3]. conceptually, as well as methodologically.
Sales Profitability seem to have a ~os­ Stability of Standard of Engineering Manaqe-
sitive correlation with the enginee~ing ment and Its Causal Link with Financial Per-
management score in all of the three sec~ors formance
examined. Engineering management's relation-
ship to Sales Growth and Profit per Employee, Although it does not seem plausible to
however, is not too clear. The Profit per assume that the standard of engineering
Employee may well be interpreted to have a management in a company (or even in a
peak at the engineering management score of factory) changes substantially year by year,
around 1.0; obviously, we need larger samples it would be also certain that the standard
to be more specific. could be changed over time. We seem to have
little knowledge about the effect of change
in the standard of a company's engineering
management on its financial performances.
18 Economist's assamption of equilibrium,
x i.e., the effects of the change in the fac-
16 tor on the overall performance is ins tan-
+ teneusly adjusted, seems unrealistic. On the
df' 14 other hand, we do not have reliable data on
+ the timelag between the change in the stand-
..c: x + ard of engineering management of the company
.j.J 12 x x and that in the company's performance.
~ + x
0 X
H
L? 10 In this study, the ten year average of
UJ sample companies performances are compared
Q)
+
with these companies' engineering management
r-i 8
-co scores. The logical link between the two,
UJ
however, is unfortunately far from clear, and
6 0 we do not know if the five year average, for
example, is more appropriate.
4
0
Yardsticks and Weights
2

-1.0 0 1.0 2.0

Engineering Management Score

[Figure 1]

+
df' 8
;:.,
.j.J 7 6 +
.,-i X
r-i
.,-i
.0 6 x ,..
::E:
5
co
.j.J
Q)
.,-i + x
'H 5 X Q)
;:.,
4
0
H 0
p., r-i
4 x 0. 3
UJ x E +
Q)
+ 111
X
r-i
co
UJ
3 + ---
.j.J
.,-i
2 X
X
+
'H
0 0 X +
2 H + X
+ 0 p., X 0
0

-1.0 0 1.0 2.0 -1.0 0 1.0 2.0

Engineering Management Score
Engineering Management Score
[Figure 3]
[Figure 2 ]

367 1990 IEEE Intemational Engineering Management Conference

 As the starting point of the research
into the relationship between the standard of
engineering management in the company and its
financial performance, rather crude
yardsticks were adopted in this study.
Furthermore, most of the yardsticks are
measured subjectively, although judgement are
more or less unanimous among paM specialists.
Naturally, it is hoped that more sophis
ticated measurements for standard of en-
gineering management will be developed, to
allow regression analysis of performance.
Japanese Context
The study was carried out without any
consideration of international comparison.
It is true that the paM specialists in Japan
are reasonably unanimous on the important
elements of engineering management, as well
as the scores for each company. There is a
good possibility, nevertheless, that the
specialists in other countries may come up
with a completely different set of yardsticks
to measure the standard of engineering
management in the companies in their country.
It cannot be claimed that the measurements
given in this article are universal. In this
vein, it is hoped, in the future, interna-
tional comparison of good engineering manage-
ment will be carried out.
It is obvious that good engineering
management by itself would not bring about in
the respectable financial performance; an
ideal engineering and engineering management
on a wrong products would lead to a financial
disaster. First, the management must get the
strategy right. On the other hand, as the
results of this article show, there is a
overall relationship between the standard of
engineering management and the company's
financial performances. Therefore, the top
management's responsibility seems to call for
a good strategy, along with a sustained ef-
fort to improve the standard of engineering
management in the company.
Implications to the Policy Makers
Although it is a matter for the manage
ment of individual companies to decide where
to apply their engineering management
expertise, it could be implied from the
results that good engineering management
leads to more efficiency in the economy as a
whole. To have more efficiency in the wealth
creation process, it is hoped that more em-
phasis should be put on education and train-
ing for engineering management, as well as
tax and other incentives for the efforts to
improve the quality of engineering management
in the industry.

Concluding Remarks References

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368 1990 IEEE Intemational Engineering Management Conference