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> Engineers naturally seek improvement; MBAs seek profit. Even if this is taken as a fact, I don't see how it explains why American car companies level off. It

> Engineers naturally seek improvement; MBAs seek profit. Even if this is taken as a fact, I don't see how it explains why American car companies level off. It's not like potential profit is bounded but potential improvement isn't.

wpietri 14y ago
The long-term value of a company is based on the amount of value they create for customers. The short-term value of the company depends on profit. So, for example, an MBA can increase profits by cutting R&D. Or by cutting costs in a way that harms product quality. The company will do well for a while because it takes a while for things like reputation and mindshare to decline. You can hide the declines for longer by investing more in promotion. The engineer-style approach, in contrast, is to focus on cutting waste rather than cost. This is a high art in the Toyota Production System: http://en.wikipedia.org/wiki/Muda_%28Japanese_term%29 http://en.wikipedia.org/wiki/Muda_%28Japanese_term%29 I don't know that the leveling off is a necessary consequence of the MBA approach. But it's certainly what I've seen, and it makes some intuitive sense. Given that some ways to increase profit improve productivity and some harm it, it's plausible that all the cheap ways to improve productivity would be exhausted early in the MBA approach. I also think the MBA approach can lead you into a local maximum that's pretty screwed up: http://www.thisamericanlife.org/radio-archives/episode/403/nummi http://www.thisamericanlife.org/radio-archives/episode/403/n... That's a great radio story about NUMMI, one of GM's worst plant that under the Toyota system became one of the best.
wpietri 14y ago
Thinking further, another factor may be that MBA thinking tends to be focused on external competition, while engineers tend to optimize regardless of competition. So the American car companies could have leveled off because their major competitors were doing equally well. By the time Toyota was an obvious threat, they were too far behind to even understand how they were being beaten. Google is another good example. They didn't seek out data center "best practices". They radically bested the competition, proceeding one step at a time, with careful attention to what they needed. In an MBA analysis, that would be seen as spending a lot of money on risky R&D with no obvious ROI. In fact, they'd want to re-task all those expensive engineer brains to something more directly related to revenue. And probably drop the quality of the ops staff as a money-saving measure. It's only when the years of patient engineer-style optimization add up to an insurmountable lead that it looks good in a B-school spreadsheet.

wpietri 14y ago

The long-term value of a company is based on the amount of value they create for customers. The short-term value of the company depends on profit. So, for example, an MBA can increase profits by cutting R&D. Or by cutting costs in a way that harms product quality. The company will do well for a while because it takes a while for things like reputation and mindshare to decline. You can hide the declines for longer by investing more in promotion. The engineer-style approach, in contrast, is to focus on cutting waste rather than cost. This is a high art in the Toyota Production System: http://en.wikipedia.org/wiki/Muda_%28Japanese_term%29 http://en.wikipedia.org/wiki/Muda_%28Japanese_term%29 I don't know that the leveling off is a necessary consequence of the MBA approach. But it's certainly what I've seen, and it makes some intuitive sense. Given that some ways to increase profit improve productivity and some harm it, it's plausible that all the cheap ways to improve productivity would be exhausted early in the MBA approach. I also think the MBA approach can lead you into a local maximum that's pretty screwed up: http://www.thisamericanlife.org/radio-archives/episode/403/nummi http://www.thisamericanlife.org/radio-archives/episode/403/n... That's a great radio story about NUMMI, one of GM's worst plant that under the Toyota system became one of the best.

wpietri 14y ago

Thinking further, another factor may be that MBA thinking tends to be focused on external competition, while engineers tend to optimize regardless of competition. So the American car companies could have leveled off because their major competitors were doing equally well. By the time Toyota was an obvious threat, they were too far behind to even understand how they were being beaten. Google is another good example. They didn't seek out data center "best practices". They radically bested the competition, proceeding one step at a time, with careful attention to what they needed. In an MBA analysis, that would be seen as spending a lot of money on risky R&D with no obvious ROI. In fact, they'd want to re-task all those expensive engineer brains to something more directly related to revenue. And probably drop the quality of the ops staff as a money-saving measure. It's only when the years of patient engineer-style optimization add up to an insurmountable lead that it looks good in a B-school spreadsheet.