Prestige of Engineers

sakky
Sun, 20 Jan 2008 12:01:19 +0000

Some of the consulting firms you mention do treat their workers more like employees than what you refer to as the ‘body-shop’ kind of firm, but they still structure their business toward meeting the needs of firms that, for whatever reason, want to outsource some part of their operation. This is reflected in all of their dealings with their own employees, from the language in their contracts to the expectations of everyone involved. While there are a few such firms that have remained in business over the long term, they do not represent a particularly large portion of the market. If you are looking at small subsections of a market, you can find examples to support almost any theory you care to advance. You are obviously talking about a few top schools and a few particular companies



Of course I am. In fact, that’s my whole point. I will reiterate what I said before: the majority of engineering students are getting a pretty darn good deal. I said it before, I’ll say it again, the average engineer is far better off than the average American (simply because the average American doesn’t do that well).

What I am specifically talking about in this thread is what happens to the *very best * engineering students, i.e. the ones coming out of schools like MIT, Stanford, and the like. Is the engineering industry appropriate for them? The answer seems to be largely no, which is why so many of them head off to management consulting or investment banking and hence will never work a day in their lives as engineers despite holding elite engineering degrees. That is what I find intriguing.

And when you see the sorts of firms that these guys head off to - the McKinsey’s and Goldman Sachs’s of the world - you generally find far better pay, far better working conditions, far better career training/advancement opportunities and generally a more desirable job than even the best engineering firms are willing to provide. I think it’s fair to ask why. Especially when those same engineering firms then turn around and pay millions of dollars to those very consulting/Ibanking firms for their services, which will then hand the work to those MIT/Stanford grads to perform - the very same MIT/Stanford grads that those engineering firms were unable to attract in the first place. These engineering firms are basically robbing Peter to pay Paul.

There is, however, one notable exception that I will get into below.



Engineering companies find it economical to have a mixture of employees and consultants. Some potential employees prefer to maximize their salary at the expense of other benefits which they either feel that they do not need or can obtain elsewhere for less than the salary differential. Others place a higher value on a long-term commitment. Still others, in a glutted market, find that there are more opportunities in their area of expertise coming through one source or the other. Consulting companies see an opportunity and fill it. The operation of the free market does the rest.



But that still leaves open the question as to how exactly these consulting firms are able to carry the resources to fill these holes, when these engineering companies cannot. How is that possible? Why can’t those engineering companies carry those resources? If it’s difficult for engineering companies to carry extra resources, then it should be equally difficult for consulting firms to carry extra resources.

Now, I know what you’re going to say - you’re going to say that engineering firms have large fixed costs that prevent them from being restarted quickly from scratch, relative to consulting firms… This is something that you said before. But my response is also something that I said before - that that impact is actually ambiguous. Sure, engineering firms are harder to start than are consulting firms. But they are also harder to stop. What I mean by that is that, once you’ve already paid to build a manufacturing facility, you’ve already paid a sunk cost, and as economists will all tell you, sunk costs are meaningless in terms of future decision making. Once you have a factory, you might as well use it to produce even if it’s not really profitable to do so because after all, you’ve already paid for the factory. Even if you cut production to zero, you still have to pay the factory setup costs. You don’t get a refund on those setup costs by just shutting the factory down. What’s sunk is sunk.

To give you a specific case in point, consider AMD. It has been estimated that AMD has actually been an *unprofitable company for its 40 year lifetime * if you actually aggregate all of the profits and losses it has made ever since it was founded In fact, last year, it lost over $2 billion, which is nearly half of its entire market cap. This year, analysts expect AMD to lose at least another half billion, and in 2009, lose yet another half billion, and is not predicted to be profitable (on a total fiscal year basis) until 2010 at the earliest.

Yet AMD still employs thousands and thousands of engineers. Why? Why not just shut the company down right now? You’re going to be losing billions for years to come, so why not just shut everything down and fire all your workers? The answer, of course, is that even if they did, they would still lose billions. After all, shutting down the company won’t pay for those fab plants that AMD already bought. It won’t pay the R&D costs that AMD already incurred. It won’t pay back all the debt that is sitting on AMD’s books. Hence, AMD has no choice but to move forward, and hence, still employ thousands of engineers despite losing billions of dollars, because the alternative (shutting down) is even worse. They would lose even more.

The upshot is that engineering employment, because of the nature of fixed costs, is actually “buffered” from the market. Engineering companies are hard to start up, but also harder to shut down. You could say that they have “inertia”.

Hence, the nature of fixed costs is actually ambiguous when it comes to engineering employment. Sometimes it hurts, but other times, it helps. The thousands of AMD engineers are not really producing profits right now. All they are really doing is reducing AMD’s losses.

Hence, it is still very much an open question as to why consulting firms can carry these extra human resources that engineering firms cannot.



The problem with workers is that the analysis is never quite that straightforward. Furthermore, the decisions are made not by individuals, but by several levels of management each of which may have a slightly different agenda and most of which will be looking to shift the cost of the decision into someone else’s portion of the budget. Decisions made in that manner do not always appear to be logical or even reasonable to an individual. Add to that the fact that the point that we agree exists shifts around over time, sometimes fairly rapidly. It is not hard to see why companies cannot optimize their operations under such circumstances, rather that they do as well as they do.



I think you’ve hit upon something important. I think what you just said is that many engineering firms are poorly managed. Or course that begs the immediate question of why consulting firms like McKinsey are managed better, but let’s leave that question aside. I think what you said is true - that many engineering firms, especially the larger and older ones, are indeed poorly managed, and in fact, that may be why they need to pay millions upon millions to McKinsey to help them build better management systems.

But that’s another reason to chalk up to why the top engineering students don’t want to work as engineers at those large older firms - because they don’t want to work for poorly managed firms.



In the long term your theories of corporate evolution may be correct but, in the long term, we are all dead.



Actually, the long term is already here. Or, at least, the ‘start’ of the long term (if that makes sense). Like I said, I see that many of the top engineering students don’t want to work as engineers at established firms, instead preferring consulting and banking, or joining startups. That’s an evolution right there. This wasn’t true 25-30 years ago (reference: 'The World’s Newest Profession: Management Consulting in the Twentieth Century ’ McKenna 2006). Back in those days, consulting was still quite small and the best engineering students really did want to work as engineers at large firms. Now, not so much.

Hence, if present trends continue, then the best talent will continue to drift away from large engineering firms, leaving behind only the mediocre engineers who weren’t good enough to get something better.



Given the choice between doing that now and going out of business in a matter of months, most of them decide to cut costs now even though some of the measures they are forced to take in the short-term do not bode well for survival ten to twenty years out. That is why I believe that there is no security in any single company, be it engineering or consulting. You have to look out for yourself, continually acquire relevant new skills and be ready to move one way or the other when it makes sense.



I agree completely, and in fact that aligns perfectly with what I see. Grads from MIT and Stanford see that they won’t get the career development they desire at the large engineering firms. They feel that they won’t be given opportunities to update their skills. They won’t be able to advance. That’s why they seem to prefer consulting/banking. It is in fact a matter of looking out for themselves and their own careers.

Now, I did say that there seemed to be one important exception, and here it is: Google. Unlike most other large engineering firms, Google does in fact seem to care deeply about its engineers. The pay is excellent, the benefits are unbelievable (i.e. free food from a 5-star gourmet cafeteria system that is so good that Google reportedly even uses their food as a recruiting tool). Free transportation. My former roommate lives in the East Bay, which is an hour away from the Google headquarters, yet Google sends a free bus to pick up him (and all of the other Google East Bay employees) every morning. Free child care. Free gym on location, including a free massage service. Free laundry service, including a free dry cleaning service. Even free haircuts.

[Now Google’s cooking / Internet giant’s free, gourmet global cuisine powers its workforce while offering chefs and producers a place to shine](http://www.sfgate.com/cgi-bin/article.cgi?f=/chronicle/archive/2006/03/01/FDG32H9OF61.DTL)
[Is Google’s cafeteria a competitive weapon? | WTN](http://wistechnology.com/article.php?id=2190)
[How Google woos the best and brightest](http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2005/12/18/GOOGLE.TMP)
[Haircuts just one of Google’s employee perks - USATODAY.com](http://www.usatoday.com/tech/news/2007-05-10-google-perks_N.htm)

But of course what is more important than just having a lot of perks is the chance to do meaningful work in an exciting environment filled with lots of other young and exciting go-getters. I’ve had Google employees tell me that working there is like being at an elite graduate school, except for the major difference is that you get paid (and paid very well).

Google has been able to attract the very cream of the crop of the talent, so much so, that Google managers have even said that they don’t need to hire consultants from McKinsey or BCG because they feel that their employees are actually * better * than those consultants.

Hence, if there is one engineering firm out there that is actually taking the war on talent seriously, it’s Google. The question then is, why don’t other engineering firms do that? Or, if they don’t, then maybe Google will crush them and take over, and deservedly so.