Surviving this economy (individuals and businesses)

The fourth quarter of 2008 has been a wild ride for the financial markets, the housing markets, and both small and large businesses. All of us have been impacted by these economic challenges. With the collapse of the financial markets marked by unprecedented national debt and unsustainable consumer debt, the (unsurprising) announcement of a recession and fears of impending depression, one begins to ponder ... will we survive this?

Unfortunately, I believe the overall economy will get worse before it gets better. Even so, through the grace of God we will survive this as individuals and businesses. There are some simple things we can do to help our situation.

As individuals, we need to remember that most of factors that effect our life are out of our control. We have little impact on the economy. We can control how we use our finances, particularly in these troubled times. Curbing spending to the essentials and retiring personal debt are all things that can be done by each of us to improve our personal situation. The challenge for each of us is to define what are the essentials. Most of us agree that food, shelter, and clothing come first. But what else beyond that?

As a business that provides engineering services, we face economic challenges too. However, our business could also be a part of the solution as a cost savings alternative to direct staffing. When our clients use our services, they enjoy the benefit of consistent resources without having to pay for those resources between assignments. In most cases, the overall burdened cost of our resources is less per hour that our clients internal resources. As our relationships with our clients expand, learning curves are reduced further reducing costs. We become a virtual extension of our clients organization. For a business, this could be an alternative to keep manufacturing running.

As individuals and as businesses, we can all do our part to get through these hard times. Unfortunately, it won't be easy and will take some time. Controlling debt, reducing spending at home and in business, getting the most bang for the buck, that's where we can all help ourselves.

What's the value?

How does a customer know they have received value? In particularly, how is engineering value measured? As an engineering services provider, I try to help my clients understand that engineering is a value. Consider the following familiar story.

It’s Saturday. I head to my garage to start another honey-do project. This week, I’m tasked to build a handicapped ramp for our aging dachshund. The poor dog blew out her back and can’t go down stairs anymore. So, my task is to build a ramp that will allow her to go from the porch to the front lawn (her bathroom) without having to go down the steps. This will be simple. I have some wood stacked in the garage. I’ll just make it happen.

After working for about 2 hours, I built a nice looking ramp. It was a work of art; all the planks were placed perfectly, corners were sanded and rounded. Now it was time to install the ramp. I carried the ramp to the front steps. Low and behold, the ramp wasn’t long enough. The angle was too steep. The dog couldn’t climb the ramp. Also, since it was so narrow, she was afraid to use the ramp. To make a long story short, one revision led to another. Eventually, more material was purchased and ramp number one was scrapped for an improved design. Ramp number 2 was designed before it was built (the way ramp number 1 should have been done).

What happened the first time? I fell into the simplicity trap. I thought “All I needed to do was get started and everything else would come together in time”. It is human nature to simplify things and to believe that we can skip the planning step.. The 30 minutes I spent developing second design saved me time during the building phase, and I came out with a useful ramp.

Now, apply the garage handyman application to business.. I’m amazed how many companies bring the “it so simple” philosophy into their businesses. They spend a lot of money trying to avoid the cost of planning and “engineering” a product. Sadly, this often results in sub-optimal products and rework when parts don’t fit. Unfortunately, there are also times when companies pay for engineering yet disregards the plan. This too will result in rework.

Plan and simple, good engineering will yield good products. Engineering value must be considered as part of the product value. Want to learn more, let KTM Solutions show you how. www.ktmsolutions.com

Becoming a Virtual Partner

As a services provider, earning the trust of our clients is paramount to our business success. Trust is something each of us must earn. I was taught in a customer development class that all business relationships follow a developmental S-curve(shown above). This has proven true in our services business. Note that this is predicated on an offering with market relavance.

When begining a business relationship, all companies usually start at a neutral or slightly positive position. As relationships develop, both parties will experience some healthy skepticism. “Will they really do what they said?” At this point, there really isn’t much of a relationship. At this stage, the supplier is nothing more than a vendor (position 1). If performance is so-so, the business relationship may stall at the vendor position. If this happens, the supplier is vulnerable and may lose that business to someone else. After all, there is no real relationship. Furthermore, there is usually little tolerance for mistakes at this level of relationship.

Through successful performance, most relationships will develop and move above the neutral line to the position of confidant (position 2). When at this level of relationship, the confidant is no longer just another vendor. The client may begin to include the confidant in their future planning sessions, particularly in the suppliers area of expertise. Clients will let the confidant know what’s coming up in hopes that the confidant will be positioned to support. Although a confidant is not guaranteed that they will be a part of the plan, they will have a strong opportunity. With development of a trusting relationship and continued performance, businesses will move further up the curve to consultant.

A consultant will have even more influence with the client. When at this level of relationship, perhaps the consulatnt will be asked to assist in development of strategy and plans, even outside of the consulatnts area of expertise. A consultant relationship is very strong and is based on trust. Most likely, if the client requires anything that is within the consultant's realm of expertise, the assignment is the consultant's to lose. With this type of relationship, mistakes are tolerated and each party will work hard to resolve these issues to protect the relationship. With continued performance, the trust level increases and eventually the consultant will move to the pinnacle of the curve, the position of virtual partner.

A virtual partner has developed a mutual trust with the client. Each works hard to make sure the other is successful in every aspect of their business. This includes concern for areas outside of an individual or companies expertise. The client will be willing to discuss and seek the vitual partner's input on most major tactical and strategic decisions or company changes. The virtual partner will essentially be treated as an equal and an integral part of the team.

However, once reaching position 3, notice the curve doesn’t flatten out. In fact, it is possible to drop. The significance of this drop is dependent on the business relevance. Even though trust and relationship are strong, without business relevance the partner's value can plummet. Take for example carbon paper sales (some of the people in my office had never heard of carbon paper). Although in it's day, carbon paper was invaluable to an office, today a carbon paper company would get little reception from anyone, regardless of the relationship level. This is when it’s appropriate to expand or change business offerings (begin climbing another S-curve). The key is to start developing the next S-curve at or before reaching position 3.

Exporting Engineering

I read a recent article in the Wall Street Journal about the increasing trend of automotive manufacturers to export an increasing amount of engineering. Vietnam has become the latest "export du jour". The wall street journal reported that engineers in Vietnam earn approximately $200.00 per month or $2,400 per year. Per the Wall Street Journal "In downtown Hanoi, Nissan has assembled a team of 700 Vietnamese engineers who are designing basic auto parts such as fuel pipes and nozzles at a fraction of the cost of doing the work in the automaker's main engineering facility in Japan."

Recent reports indicate that an average entry level US engineer earns about 20 times what these Vietnamese engineers earn in a year. Granted that the economies of the US and Vietnam are on a different scale, but given the world economy, can the US engineer compete? My experience says absolutely!

There are many hidden costs in outsourcing to developing markets. Management and technical oversight is a key concern and cost that often is neglected. However, when a financial analysis is performed, I am confident that one will find the "overhead" burdens added to the lower direct cost will show at least a cost neutral position. As the emerging market develops, engineering prices in that market will rise as well. As the technical capability develops, oversight costs will decrease, however, the overall burdened cost will remain the same or possible increase. At the same time, US companies will enable foreign entities to compete both economically and technically with the US.

However, there is a more significant cost involved that are missed by the accountants. Loss of engineering capability will put us at the mercy of foreign companies as our industries enable foreign replacements of our engineering work force. Without practice of engineering in the US, eventually the US will lose it's technical edge.

Comments? Please post! All opinions are welcome!

Engineering Shortage?

By Paul Kumler

During the latter part of my career with The Boeing Company and Lockheed Martin, our engineering leadership spent many hours trying to understand the impact the growing number of engineering retiree's would have on the Aerospace Industry. Aviation Week and Space Technology reported in February 2007 that the industry continues to anticipate a large “brain drain” as the baby boomers retire. Even so, engineering school applicants and enrollment are in decline. Since founding KTM Solutions, it has become apparent to me that the aerospace industry is not the only business sector affected by this trend. Why the decline in engineering interest of high school students and graduates? What is happening to the engineering profession? Why is it predicted that the US engineering schools will not be able to keep up with demand? How does all this impact the US technical edge? What happens when we loose this to foreign competition? The answers to these questions are disturbing.

Engineering excellence and technical achievement are key contributors to the standard of living that we enjoy in the United States. However, in recent years, it appears that there is a public and scholastic lack of appreciation for engineering. Technical excellence has taken a back seat to profits. In larger corporations, engineering creativity is stifled by an endless amount of bureaucratic paperwork and an approval process that is more complex than the engineering creation process. Furthermore, engineers are treated as hourly employees, emphasizing the hourly wage over the value of creativity and innovation. Engineers are treated as commodities rather than as salaried professionals that are uniquely gifted and qualified.

Engineering is a blend of art and science where science is applied to address daily needs. Innovation and creativity grounded in the fundamental laws of physical science are developed and complimented by natural talent and years of experience. When applied correctly, engineering blends all requirements to develop the best product that meets the needs of the user, at the appropriate price. Engineers are not “line replaceable units”. One engineer is not the same as another as much as an author or artist is different from another. As our senior engineers leave the industry, a wealth of experience and natural talent goes with them. Experience can be documented and passed on to the next generation. But, what about the innovation and artistic talent that makes the application of the sciences appealing? Can that be captured? Can the next generation be energized and empowered to release its creativity? In my opinion, too many companies are stifling creativity and the spirit of the engineer. Hence, the younger generation loses interest.

Unless industry changes and encourages engineering innovation and development, the US will lose its technical advantages to markets like China, India, and Russia. The short term attraction of bargain price engineering (which in reality isn’t the bargain it appears to be) will be overcome by a balancing in the world economy. At that point, the technical talent in these foreign markets, provided by US industry and universities will be on par with or above that of the US. When this occurs, industry will have no choice but to purchase technology abroad and pay whatever the market brings.