Managing Engineering in a Time of ChangeJUNE, 2009

Kenneth E. ArnoldK Arnold Consulting, Inc.

I. Introduction

This is a time of great change for engineering companies in our industry. Not too many years ago, we were in one of the most severe “buyer’s markets” in history, where cost competition was a determinant and where cost cutting, downsizing and the need to accept onerous contract clauses from our clients were necessary management focuses. Then we entered the more recent “seller’s market,” where our clients where no longer as focused on the cost of our service but were concerned mainly with our ability to field enough people to get the job done in a timely fashion. Engineering company management was now focused on adding staff, managing expansion, increasing market share, and getting more billable hours out of the staff to meet the client’s needs. Margins were reaching all-time highs and looked like they would increase forever.

In the “boom” of the past three years we were faced with the need to make accommodations to encourage older staff to defer retirement, find ways to utilize those who wish to slow down and not fully divorce themselves from the workforce, and train a new group of engineers who are unlike anything we have ever seen before in the work place. Due to the press of business, we may not have done as good a job in accommodating older staff and training newer staff as we would have liked. In many cases, the quality of our work suffered.

Finally, in this “perfect storm”, we were faced with severe competition for engineering staff. Never in any of our memories had there been a time where all sectors of the engineering and construction industry were short of engineers. In the past, when upstream oil and gas was busy, we were able to attract engineers from the downstream sector or retrain available personnel from power and infrastructure. Similarly, when other sectors needed more people, they typically could absorb the surplus from oil and gas when oil and gas was not busy. This was not the case during the seller’s market. Staff had many options and opportunities open to them, not only in upstream oil and gas and the downstream sectors, but equally in the booming power and infrastructure industries.

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Today we are in a state of instability, wondering where in the coming few months the state of the industry will land. Will we go back in the sad (for us) days of a buyer’s market, will the seller’s market be re-invigorated, or will we land somewhere in between? Should we lay off engineers as soon as the billable work declines, or should we keep them so we can do a better job taking advantage of the upswing when it eventually gets here? Should we once again encourage our experienced, expensive staff to retire or should we lay off the new hires who have yet to be fully trained and thus are less “saleable” in a buyer’s market?

At the same time that we are experiencing these organizational challenges, we are in the midst of an epochal change in our workforce. Not only are we on the cusp of losing a significant number of experienced staff to retirement, but the very nature of “motivation” is changing as the “Mature” and “Baby Boom” generations are replaced by the new “Millennial” or “Generation Y” engineers who are beginning to enter the workforce in large numbers. In addition, the “Baby Boomers” who are running our companies soon will be replaced by the in-between “Generation X,” who, as a group, may look at work in a manner that is significantly different than that of either the Baby Boomers or Generation Y.

The recent economic problems have alleviated all of these pressures. Both upstream and downstream projects are being delayed and canceled, and the infrastructure and power industries are on life support. In addition, the recent downturn in the stock market may alleviate the retirement problem somewhat as individuals adjust their plans to the realities of shrinking retirement accounts.

Sooner or later, the economy will recover, demand for engineers will increase in all sectors as the government introduces its infrastructure stimulation programs, and the need for energy will once again become acute. At that point, hopefully, retirement plans will recover their lost values, and those who are currently deferring retirement will join those who are just getting to their planned retirement date. The shortage of experienced engineers will accelerate once again.

Engineering company management will once again be faced with the need to keep experienced engineers engaged, train young staff, and find ways to motivate a new generation that does not respond in a way that makes sense to current top management.

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Will we learn from our past mistakes and use the current “breathing space” to encourage training, retention of older staff, and establishment of positive corporate cultures? Or will we revert to what we have always done in the past and lay off staff quickly to protect margins, encourage staff to think that we are not responsible for providing them with meaningful careers, and assume we can rebuild when the time arrives without sacrificing quality? Unfortunately, history has shown that we will learn nothing from the recent turmoil of trying to grow engineering capabilities too quickly and will probably repeat the mistakes that we said three years ago we would never do again.

This article discusses the generational changes that are taking place and that we must deal with in any case, along with what I call the “Engineering Company Conundrum.” This catchy phrase refers to a situation that leads us to establish cultures that, by their very nature, keep us from training, retaining and motivating staff who will provide a quality product when the eventual upturn in demand occurs. I will provide some insights that may aid in changing this culture and meeting the challenge that this situation presents to engineering management.

II. Generational Change

(The concepts discussed in this section are based on my own experiences as well as information from the following sources: a Marston Communications’ presentation called “Strategies for Leading the Next Generation,” the Petroleum Extension Service of the University of Texas, and Steve Klineberg of Rice University.)

Demographers have classified those in the work force as belonging to one of four groups, or “generations,” of workers, depending on their date of birth. The four groups are: The Matures (born prior of 1946), the Baby Boomers (born between 1946 and various times between 1960 and 1965), Generation X (born between 1960 and 1965 and 1977) and the Millennials or Generation Y (born after 1977). Each of these groups is impacted by the way they were brought up, major events that were happening in the world at large as they were coming of age, and their interactions with the “generations” that came before.

Figure 1 is a forecast made by the Petroleum Extension Service of the University of Texas that shows how the oil and gas workforce makeup will change over time. This forecast is probably a good estimation of what we can expect in engineering and construction companies, as a subset of the oil and gas industry. It seems pretty clear that, within the

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next ten years the “Matures” and “Boomers” will stop being the driving force of the workplace. In numbers, they will be replaced by “Millennials,” and we will rely on “Generation X” for leadership and mentoring.

The significance of this change can be truly understood only by first defining the characteristic traits of each generation as it pertains to views towards work, employers and society. The demographers tell us that four such different “generations” have never before resided in the workplace at the same time. In addition, the differences between what motivates members of the “Mature” and “Boomer” generations and what motivates members of “Generation X” and the “Millennial” generation are profound.

The “Matures and “Boomers” tend to define themselves by their jobs. They accept apprentice/master relationships at work. That is, you put in your time and do what is expected of you, you pay your dues and you advance from rank to rank within the company, following a logical progression. These workersusually want to trust authority and are open to the concept that, over the long run, you can trust the company to do the right thing for your career. They take pride in working long hours, making personal sacrifices and traveling to tough places to accomplish work objectives. A common motto might be, “Work hard and prosper.”

“Generation X” came of age when the “Boomers” started to question things. They have lost respect in political leadership, and they distrust authority in general. Their heroes are people they know (parents, grandparents, etc.) and not national or world icons (Mahatma Ghandi, Martin Luther King, Winston Churchill, etc.). They tend to be cynical and pessimistic and do not rely on the promises that a company may make. Their experience tells them that they can’t count on anyone but themselves for the future. A motto might be, “Do what you can today; tomorrow, it’s anyone’s guess.”

“Generation X” is rapidly becoming the largest single generation in our workforce, and we will be relying on them to teach the “Millennials.” To motivate them, we will have to find a way to overcome their cynicism and mistrust of authority. What worked for “Matures” and “Boomers” will not necessarily work for “Generation X”! It will take more effort on the part of company leadership and management to prove that the company wants what’s best for these workers..

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The “Millennials” tend to be extremely well educated, optimistic and ambitious. While they want to assert their individualism, they are very group-oriented and social. Everything from shopping to going to the movies, dating, and just “hanging out” is done in groups. They are used to having their lives scheduled for them. Work is important when they are here, but it does not define them. It is what they do between weekends. They define themselves by the “stuff” they do. “Millennials” have a short attention span, and, although they have big goals for themselves (I want to be an astronaut, I want to be a millionaire, etc.), they have trouble charting and following a sustained path toward these goals. Fifty percent of millennials believe that their older work associates do not respect them, and seventy percent of the older work associates believe that the “Millennials” do not listen to them. One in three “Millennials” is a member of a traditionally defined minority group. A “Millennial” motto might be, “I can’t work on that this weekend; I have stuff to do.”

Of course, all of the above observations are generalizations that, while they may be statistically accurate for large groups. are not germane to specific individuals. Still, it should be clear that, as our workforce changes and we rely more and more on “Generation X” to lead and train “Millennials,” what we did in the past to recruit, motivate and retain engineers may no longer lead to success.

III. The “Engineering Company Conundrum”

During the time that I was CEO of a small engineering company, we were owned in part by several large engineering and construction (E&C) companies, and I had the good fortune to observe the management of these companies as a member of their management teams. In my experience, most large E&C companies share the same conundrum.

They claim to be, in essence if not by title, “engineering companies.” The overwhelming portion of their staff members are engineers. Their websites, mission statements, HR and PR announcements, policy statements, etc., all proclaim the importance of their technical staff to the company’s ability to deliver a quality product and commitment to the motivation and career development of their technical personnel. Yet the top leadership almost never talks about the way engineering is being done, the quality of the engineering staff, the concerns and needs of engineering management, and the need to focus on recruiting, motivation and retention of the bulk of the engineers who do the day-to-day work.

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The focus is on business development, client contacts, commercial contracts and the project managers who are called upon to deliver major projects. Very little management time is spent evaluating new engineering work processes and technologies to increase efficiency and quality. Little time is spent on assuring that the correct technology is being employed and that engineers are being adequately trained in the proper use of that technology. In one of the companies I was involved with, the CEO never talked to the Chief Engineer; in another, the Managing Director never included the Chief Engineer in any business decisions or discussions about allocation of resources.

Ninety percent of the engineering staff is looked upon as “hands” that deliver “man-hours.” There is no real recognition that all man-hours are not created equal. Nor is there a realization that, behind the “hands,” there are real human beings who have needs and desires that cannot be addressed solely by providing competitive salaries and benefit packages, HR “corporate-speak” happy announcements, contests, publications, and the occasional leadership email that says how much they are valued.

The bulk of the engineers are kept on the payroll as long as they are billable. As the job winds down, they are expected to find other opportunities for themselves. Thus, they are really not part of the company and have no reason to expect that looking out for the company’s and thus its clients’ best interests is as important as looking out for their own best interests. Since they will be moving on, management has no incentive to invest in their training, and the engineers have no incentive to find ways to work more efficiently.

In such an environment, there tends to be an emphasis on process control as a way to assure quality. If the right procedures are followed, it is assumed the results will be correct. No one worries whether the engineers really understand the impact of their decisions and the technology behind their calculations so that they can actually exercise proper professional judgment and develop designs that are efficient, constructible, operable and safe. It is almost as if there is an assumption that engineering is not a profession requiring informed judgment, but rather a series of defined work processes that can be accomplished by technicians performing routine tasks.

In this type of culture, it is to be expected that engineers who want to be treated as professionals will look to retire early or to seek other employment. Training becomes just a matter of showing people how

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to follow set process instructions in carrying out calculations in a prescribed manner. Job satisfaction begins to mirror a Dilbert cartoon.

This then is what I define as the “Engineering Company Conundrum”. It is, in short, that many “engineering companies” do not value their engineers as professionals.

IV. Comparison to a Small Company

For 25 years I was the founder and CEO of a small engineering services company that eventually grew to employ a staff of 600. It was designed and managed as an engineer-oriented engineering company.

Discipline leads and the Engineering Manager had a large say in the company management and the way the work was estimated, staffed, and performed. Procurement, document control, and cost and schedule control were overseen by the Head of Projects. Since IT and the development and implementation of all electronic work processes were under the control of the Engineering Manager, however, these project support services were considered to be support services to engineering as much as they were considered to be support services to projects. If there was a fault in the company culture and organization, it was that the project manager’s role was perhaps less strong than it needed to be.

From an engineering staff motivation perspective, the top management of the company was inward-focused. Engineers were considered long-term assets of the company and were not hired for specific projects or laid off when workload decreased. This philosophy created a culture where staff felt tied to the company and its leaders, had an above average commitment to the company’s goals and needs, and were protective of one another and the company. Consequently, the company had a high retention rate, high employee satisfaction (voted one of Houston’s best places to work), and an industry perception that its work was of consistently high quality. With management focused inward, informal organizational structures, duties, and responsibilities worked. Engineers and project managers were given more leeway to exercise their professional judgment. Work processes were easily modified to meet the needs of the client and the project.

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Unfortunately, with an inward focus, business development, client relationships and the ability to make smart recruiting decisions from industry suffered. Although the company was profitable for 24 of its 25 years of existence and provided competitive salaries in a significantly better than average work environment, its overall profitability was not as great as that of many of its peers. In addition, opportunities to hire the correct staff to increase the scope of services provided were either missed or not addressed in a manner that assured success. In “sustainability” language, the focus on “People” and “Planet” had a long-term negative effect on “Profit.”

The contrast between the emphasis on people and attention to the engineering staff at my company and the lack of such attention at the large E&C companies to which we were associated was noticeable to staff at every level who worked together on joint projects. But so was the contrast in focus on “Profit.” Perhaps there is a path to a better balance of the two.

V. Potential Strategy for Dealing with “The Conundrum”

There is no one simple solution to dealing with such a complex problem as “The Conundrum.” It cannot be fixed by organization chart manipulation, new HR initiatives, magazines, shuffling of individuals’ responsibilities, or pronouncements from on high. A change in culture is needed. This shift can follow only from a change in actions taken by every level of leadership, management and supervision. Change must start at the top and be carefully driven through the organization in a manner that does not alienate the very concepts that the company is trying to adopt.

A company culture is based on actions and not on pronouncements of intent, although the latter help and are necessary. The culture is made up of a thousand small decisions, no one of which is typically important. The actions must show all staff (not just the engineering staff or selected engineers and project managers) that they are important, their views are being solicited, and they are being treated with dignity and respect.

The first step in avoiding the conundrum is for a company’s leadership to have a clear understanding that a problem exists and that it is necessary to modify behavior patterns, even if this modification might result in a short-term trade-off between “Profit” and “People.”

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Establishing a new culture will require work on a number of parallel strategies.

A. Role of Salary and Benefits

In the past, most of what was necessary to attract, motivate and retain an engineering staff involved providinga good salary and benefit package and interesting projects. These are still necessary conditions, but, in an era of demand for engineering talent and changing demographic attitudes toward work, these are no longer sufficient conditions by themselves. Unless other conditions exist that make engineers want to work for the company, the “X” generation will eventually find a better deal for the present elsewhere. The “Millennials” will look for an opportunity where they feel more connected to a group and/or their supervisors and which they perceive will lead to faster career advancement. The “Boomers” will retire when the equities market returns and they feel comfortable with their “nest egg” in the 401K plan.

For each group, management must understand how it can differentiate itself from the competition. What do we offer them to create an environment that is consistent with the work environment they seek? Providing competitive salaries and benefits is no longer sufficient.

B. Relationship to Management

Often in engineering companies the discipline leads are top-notch technical people, but they have received little or no training in staff motivation. At present, many of these leaders are “Boomers” who believe in the apprentice/master relationship and expect those they are supervising to be just like themselves. They expect their direct reports to be patient in learning their crafts and to trust that they will eventually work their way up through the organization.

While their direct reports may respect the supervisors for their technical abilities, often the personal bond between employee and immediate supervisor is not well developed. Even if the bond is developed, often the discipline lead is not perceived as having either sufficient knowledge of what is going on in the company or the power to influence company policies. Sometimes there are personality clashes, and the employee feels the organization is too

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inflexible for him to receive sufficient attention. This factor is especially prevalent in inter-generational conflicts.

Some principles to consider are:

1. Train first-level supervisors to perform their personnel responsibilities better, or transfer these responsibilities to a higher level and have that level interact more frequently on a one-to-one basis with the engineering staff.

2. Have wider discussions on personnel planning issues, where views of the first-level supervisors are combined with those of others (whether internal or external to engineering) who are familiar with the individual’s work.

3. Increase the authority of all levels of supervision and management to commit the company and make decisions. Take the risk that some mistakes may be made and some decisions may be made that are different from what would have been done by the next higher levels of management. In the end, some of these decisions may actually turn out to be better because those making them are closer to the problem. At the least, the process will give staff the feeling that the supervisors and managers they interact most directly with have some power to affect their lives.

4. Empower first-level supervisors to truly represent the company. This means that first-level supervisors must be included in discussions that impact the culture of a company. They need to be included in discussions before a policy is adopted or changed. Their opinions should be solicited and respected. In this way, they can not only explain to their staffs what is happening but also explain the reasons and why other alternatives were not chosen. It is always easier to explain a decision you do not fully support if you know your opinion was heard and if you have the history of knowing that, on occasion in the past, your opinion changed a pre-conceived notion.

5. Actively engage first-level supervisors in career planning and training of their staffs.

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6. Actively engage all levels of management in staff motivation. Those with commercial, businessline or other responsibilities must be made to understand they represent the company and have as much a responsibility to motivate staff they interface with in an indirect manner as they have to motivate their direct reports.

7. We need to create more opportunities for higher-level management to interact with engineering staff on a one-to-one basis. Staff must feel that second, third and higher levels of management view them as individuals deserving respect and not as “hands” of a lower social status.

C. Role of HR

HR serves an important support role in helping management define and carry out initiatives and policies. HR supplies important advice on legal issues and legal risks. Nevertheless, HR cannot motivate the staff. The responsibility for motivation must rest with direct supervisors and management.

The “Matures” and “Boomers” respected authority. (“Rules are rules.”) “Generation X” tends to question authority, and “Millenials” believe that rules are meant to be flexible. (“The company needs to respect my individuality and my needs.”)

From an HR standpoint, rules should be uniform and uniformly applied. This, of course, is the only position HR can take and it is right to do so. On the other hand, if management is to perform its function of motivating the staff, it must embrace a system that allows for individual flexibility. That is, there are times when management must take risks to do the right thing and deviate from commonly applied rules.

One of the biggest roles HR can play is in assuring that career plans are developed and that annual reviews of younger staff are followed-up thoroughly. Included in this role is ensuring that training and mentoring programs are in place and are working properly.

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One of the signs that “The Conundrum” is at work is that upper management of the company begins to behave as if motivation is the responsibility of HR. All management has to do is make sure HR makes the correct pronouncements that we value our employees as our most important asset, figure out what a competitive salary and benefit package looks like, administer a mechanical system of salary administration, develop a system for publicly rewarding a select few for doing what all should be doing, etc., and all is well.

These are all good things that should be done, but they do not address the heart of what is truly needed to motivate staff. In the final analysis, staff wants to feel connected to their fellow employees, their management and the company. They want to believe they are viewed as individuals whose opinions, feelings and personal problems are respected. They want the company to care about them and if, and only if, they perceive this is true will they care about the company.

Some principles to consider are:

1. HR should not stop doing what it is already doing, but it must be challenged to find ways to allow greater flexibility. HR must be encouraged to find the balance of maintaining system integrity and providing flexibility.

2. HR should have frequent discussions with management at all levels about how they can modify their behaviors to support a successful company culture.

3. Communications concerning items of interest and changes in policy and practices should come from management and not from HR. Communications should explain why we are doing what we are doing, and if germane, what alternatives we rejected and why. Staff may not agree and may not even read the whole thing, but they will appreciate that management cared to include them in the decision.

4. Remove “corporate-speak” from all communications to staff. If we are truly “excited” about a new development, we should be stopping people in the hallways to tell them about it. If we are not stopping people in the hallways, we aren’t really “excited.” If

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we are careful what we say and give our staff the bad news with the good, we can eventually get “Generation X” to trust us.

5. HR and management should constantly seek ways to solicit informal feedback on how they are doing. Staff must be asked what they think about issues contemplated as well as changes made. Formal polls and solicitations of emails are next to useless compared to old-fashioned face-to-face communication.

6. We need to find ways to let our staff know we value them as individuals (e.g., birthday cards, responding to illness and death in the family, etc.). Actions that treat a staff member as an employee number should be questioned and, at the least, minimized.

7. HR should work with engineering management to help establish training and mentoring programs as well as flexible working arrangements for older staff and for staff with special personal needs. Telecommuting, provision of child care, etc., should be considered.

D. Role of Job Satisfaction

Employees are more likely to stay with a company if they enjoy working with their co-workers and form connections with them through company-supported activities. In particular, “Millenials” like to work for companies that are community oriented and socially active. Management must think about ways to assure that working for the company is fun and satisfying and that it gives the employee the feeling that he or she is “doing good.” It is not enough that we are doing something that makes a profit for the company. Staff wants to know that what they are doing as individuals is important and significant.

In this industry, we are inherently “doing good.” We are all working to provide much needed energy to a world that needs it to increase living standards and enable more people to enjoy their inalienable rights to “life, liberty and the pursuit of happiness.” We as engineers are using our knowledge to provide this energy in a cost-effective manner that is as safe and environmentally sound as possible. Yet we very rarely highlight our successes in these terms.

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Some principles to consider are:

1. Allow engineers who have the ability and desire to stick with a project through its various phases to be involved in the procurement, expediting, inspection, construction and commissioning of their portion of the project. Sometimes this is referred to as the “package engineer concept” as opposed to a strict discipline concept. Some engineers are happy just doing pipe stress calculations, while others want more involvement. Work practices must accommodate both.

2. Promote an active social committee to organize multiple company-sponsored events. Some events should include spouses and/or families, and some should take place so employees who want to can show off where they work and what they do to their spouses and children. All levels of management must recognize their responsibility to encourage, support and, if possible, attend these events. Employees like to introduce their families to their supervisors.

3. Encourage group meetings, lunches, monthly celebrations, etc. Anything that creates group connections and introduces camaraderie into the workplace is positive. In some cultures, humor at management’s expense may be effective, especially if it is coupled with raising money for a good cause.

4. Encourage involvement with technical societies and industry associations. The company will gain by having a more knowledgeable employee. The employee will know that the peer recognition he gets is supported by the company. Consider such involvements in salary administration and career development decisions.

5. Encourage committees of employees to raise money for select charities or to do volunteer work in the community. This need not be done on company-paid time, but the company can cover expenses and provide resources. Management must be seen to be actively involved and supportive of these activities. It is not enough just to permit them to occur. Staff must see that management appreciates its efforts.

E. Role of Training

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As a practical consideration, most engineering training occurs on the job in a mentor/trainee relationship. Often, these relationships can be quite informal. In an era where we can expect large turnover from experienced staff to inexperienced staff, however, it will be necessary to accelerate this training.

In addition, “Millenials” will tend to be attracted to and be retained by companies that can show them more formal training programs and a willingness to invest in their career development.

Some principles to consider are:

1. Formalize the mentor/trainee relationship by providing specific mentors and a program to assure that mentoring takes place and features flexible goals and objectives.

2. Provide informal in-house seminars on a regular basis for subjects of interest.

3. Provide for either in-house or external formal classroom training that follows a training plan specifically tailored for the engineer.

4. Provide for field visits or assignments to construction sites and operating facilities for new engineers, along with a formal system to monitor these efforts and make sure they take place.

IV. Conclusions

We have recently experienced rapidly expanding growth of the need for engineering services and a seller’s market where the focus on getting things done acted as a disincentive to providing the training necessary to respond to the demographic challenges that the industry faces. Over time, actions of company management have allowed “The Conundrum” to creep into our corporate cultures.

We are now entering a period where the growth in demand for engineering services will slow; demand may even decrease.. If we take the actions we have taken in the past to protect margin, we will reinforce the culture that created “The Conundrum” and make it even more difficult to transfer knowledge between generations when the

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industry eventually recovers. We will have trouble attracting new engineers to the profession, encouraging experienced engineers to delay retirement, and competing with other industries for a diminishing pool of engineering graduates.

Due to the change in the economy, we have the opportunity now to catch our collective breath and make the cultural changes needed to show that engineering companies really believe that the quality of the engineering work they perform is important. We can create a culture where engineers are valued as professionals.

Listed above are some ideas that could be implemented if a decision were made to change a company’s culture. I do not profess to understand the problems fully or to have solutions for individual companies. I have no “magic bullet” program that I can recommend. Company leaders at every level first will need to commit to change their attitudes and actions. The desired culture will then be made up of thousands of individual actions, each of which by itself may have small or even insignificant impact. But together they either create or destroy a truly positive company culture.

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