The Emerging Field of Management Engineering
© Paul Arveson 1998
Most engineering disciplines, such as mechanical engineering, civil engineering, naval engineering, etc. deal with building things that are visible. Even electrical engineering is somewhat a misnomer, since it really deals with circuits, not electricity. Circuits are visible. Engineers like to work with something that they can see. When something doesn't fit, or something breaks, it is usually pretty obvious and you can quickly tell how to fix it.
Since the 1960's, a new engineering field has developed, called software engineering. Software is still somewhat visible, in the sense that trained people can usually read the source code. But we have not been very successful with software engineering. It is often hard to estimate the development cost, bugs go undiscovered too long, there are major cost overruns, and as a result, often major system developments, such as some at FAA or IRS, have to be thrown away after having spend millions or billions of dollars.
My point is that software engineering is different because software is not clearly visible to its builders. Program source code is not the full description; programs are programs -- they cause events to happen, and it is the sequence of events that is hard to see or verify in a complex software system. As a result, although software is easy to write and modify, it is very difficult to modify correctly. Software engineering moves engineering into the realm of the invisible.
So recently there has been a concentrated effort on reducing the risk of software development. The gurus of the field have been paid by the DoD, for instance, to write down their best advice on how to manage software projects. They emphasize a lot of discipline, planning, documentation, testing and risk mitigation efforts. All these suggestions contribute to the visibility of the project. In fact, they have even devised a simulated "control panel" with all kinds of displays to provide the manager with this visibility, like a pilot in an airplane.
Now what does all this have to do with management? I believe we are beginning to see the emergence of another new kind of engineering: management engineering. This is not engineering management, that has been around for decades. Rather, it refers to ways of taking the disciplines and practices and processes of engineering and transferring them to the business management processes. As far as I can tell, this has never been done in the way it is being done now. In effect, it is saying: manager, measure thyself. Test yourself. Get feedback on your own decisions and use the data to improve yourself and your business strategy.
The Balanced Scorecard
The Balanced Scorecard is one manifestation of management engineering. The Balanced Scorecard book by Kaplan and Norton is one of the best selling business books ever. Its ideas are being adopted by most of the Global 2000 companies. Its concepts are being applied in the Government to comply with recent legislation such as the Government Performance and Results Act. This law requires all Federal Government agencies to develop strategic plans, with performance goals, and to develop a system for performance evaluations, to determine how well the strategy is working. This approach to management has been demonstrated in about 50 companies and government agencies so far, sometimes with rapid and wildly successful results.
Why has the Balanced Scorecard proven to be so powerful as a management tool? I would suggest that it is because it makes the organization's activities visible . It adds the visibility that engineers like to have, in order to tell what is working, what is broken, what is making progress, and especially -- how well is the top level strategy working? Its authors emphasize that the BSC is a measurement-based strategic management system, not merely a tool for businses process reengineering (although decisions about what to reengineer may be supported by the measurements).
What is broken in your organization? Do you know? Which things need to be fixed first? How do you prioritize changes or improvements? What are the long-term impacts of current problems and initiatives? How do you respond to changing external and internal forces? How do you leverage the installed base of information technology (IT), and get the most out of new technology? What should we be doing in employee training and hiring? These are all the kinds of strategic-level questions that are supported by adding visibility to your business with a strategic management system.
IT in Support of Management
IT applications in support of business processes can be divided roughly into five categories:
1. Operational systems - accounting, payroll, inventory, human resources etc. These have been around since the first IBM computers. The key tool here is the relational database. Of course no company can survive without accounting, payroll, and other operational computer systems. Recently transaction processing systems have become important here for business that do a lot of purchasing or selling over computer networks.
2. Enterprise resource management systems - these impose an optimized workflow or supply chain system on a business, and maintain the system. These include some of the largest and most expensive software tools ever developed, such as SAP R/3, SAS, PeopleSoft etc. These products are widely used by private corporations to improve their business processes.
3. On Line Analytical Processing (OLAP) systems - These are advanced tools to draw together data from the operational database or data warehouse, and display it to decisionmakers. In fact they used to be called Decision Support Systems or Management Information Systems. They can analyze the internal processes, market data, and product information to help make better tactical decisions. These tools add visibility to business processes and they are especially valuable to companies that have a lot of transaction data to explore. However, they are of limited usefulness where there is little data available, and, more importantly, they aren't really linked to the business strategy. They just show disconnected facts. It is still up to the managers to decide what to do with the facts.
4. Process analysis tools - This includes the IDEF series, along with other means of developing flowcharts or data flow diagrams to illustrate a business process. This is a necessary tool for guiding business process improvements or reengineering. These tools are used for describing -- visually -- the AS-IS and the TO-BE processes. They are part of the management 'repair kit', but they are not sufficient by themselves to identify broken processes, set priorities, or guide strategy.
5. Strategic management applications - These are tools that help to develop and maintain the consistency and deployment of strategic plans in an organization. The Balanced Scorecard, and its Gentia software support system, is currently the best developed product of this kind. For full deployment of a strategic management system, it is also necessary to maintain an infrastructure that has a data collection system and a relational database to manage the data used in the Balanced Scorecard. Such a system can properly be called a tool for management engineering. A company that has such a system in place has achieved a high level of internal visibility -- which will enable it to identify what to improve, and will allow the relatively rapid testing of new strategic hypotheses and initiatives. Risk is minimized by increasing visibility, allowing strategists to modify plans more quickly based on facts, not guesswork.
Management engineering is a new field. It has been around in bits and pieces, but with the Balanced Scorecard it is becoming a specific branch of engineering that takes a comprehensive approach to management. It is not a system for automating management. The humans are still -- and even more so -- in the control loop. Management engineering simply attempts to apply practices that are standard in other engineering fields, such as measurements, testing, feedback, control loops, work breakdown structures, and risk mitigation -- and apply them appropriately to a business. The assumption underlying management engineering is that the organization can be modeled as an interacting system, with cause-and-effect chains, feedback loops and other structures that behave like those in other systems -- except that this one is not as visible. Management engineering tools are used to make the system visible so that managers can understand it and guide it better.
Management engineering is not a reincarnation of Frederick Taylor's efficiency analysis. That concept, a product of the industrial age, modeled an organization as a mechanical system, in which the people were just seen as cogs in the wheels. Now, in the information age, this concept is seen as a demeaning and false view of the role of people in an organization. In the information age, people are the source of new ideas and innovation -- the key driver of growth, and the source of competitiveness in any organization. Therefore in the information economy -- and especially in government -- information is the lifeblood, the currency of the agency. Proper coddling and nourishing of new ideas is vital to future growth. Any strategic management plan must take information -- and the people that create it -- very seriously.