Thursday, July 14, 2011

The End of the Engineer

I’m an engineer who grew up in a family of engineers. They probably won’t be too happy with the blasphemous statement I am about to make, but it’s the truth: The era of the engineer is over. (Sorry, Dad.)

llow me to defend myself by putting this statement into some historical context. If we look back at the evolution of commerce in this country, we see that it is constantly changing. Zoom out 150 years ago, to when we lived in a largely agrarian society. Landowners ruled. But with the onset of the Industrial Revolution, more value was created by companies that had the ability to efficiently manufacture and distribute goods. Henry Ford and the others who thrived in the industrial era were successful because they found ways to efficiently produce higher-quality products at a lower cost than their competitors.

But those competencies would not secure success decades later. Industry evolved so that companies created more value by focusing on a particular part of the value chain—manufacturing, distribution, or inventory management. Ultimately these once “niche” core competencies also evolved into commodities. For example, today manufacturing is something that is largely outsourced.

I believe that we are now experiencing a similar paradigm shift in the technology industry. Three decades ago the core competency that separated good from great was determined by the ability to produce something that was “better, faster, and cheaper” than any alternative. Intel was spectacular at delivering speeds and feeds to the market more consistently over time than any other company. Dell destroyed Compaq, Microsoft destroyed Apple (version 1.0), and Oracle destroyed Sybase. In aggregate, over the past three decades, companies with a strong engineering core competency created the most value.

But just as we’ve seen manufacturing, distribution, and supply chain management mature to the point of commoditization, engineering development is now on the same trajectory. As China and India continue to evolve, their supply of engineering talent is likely to outpace demand, driving down the cost of engineering a product and increasing the availability of this skill. Having the ability to design a product that runs at 3.2 GHz instead of 2.8 GHz, for example, will not be sufficient for lasting value creation.

I’m not suggesting that great engineering talent won’t be important to great companies, but we are rapidly reaching a point where multibillion-dollar value creation will not be enabled by a bunch of techies who have a new algorithm or architecture that is better, faster, and cheaper.

Exhibit 1 for this argument: Apple. In the better, faster, cheaper era of the engineer, Apple version 1.0 fell to the brink of irrelevance. The name of the game was processor speeds and memory capacity, and the successful companies of that era were consistently outdelivering Apple. Steve Jobs (full disclosure: his picture is on my wall of heroes) decided to compete using a different rule set. He pulled Apple out of the era of the engineer and into the era of marketing. Today the iPhone has set the standard for what a cell phone should be. But by the standards of better, faster cheaper, the iPhone is pretty terrible. It doesn’t have the fastest processor or the most memory or the highest display resolution. Yet it’s the phone I want. Why? Because Apple has developed a core competency of customer understanding.

This deep customer understanding needs to be infused into all aspects of the value chain. The way we design, build, distribute, and support our products must align behind the goal of making the customer thrilled. I’ve seen the benefits of this way of thinking firsthand. While I’m proud of the engineering work we did at IronPort, our success did not result from our engineers developing a file system that could outperform alternative file systems by an order of magnitude. Our core competency resulted from developing a deep customer understanding, which led us to build, sell, and support products that solved the customer problem better than the alternatives. One of our competitors delivered features at much higher velocity than we did, which gave that company a short-term advantage in the war of paper-based evaluations, where speeds and feeds represented value. But our focus on delighting our customers won in the long run: IronPort sold with an enterprise value of $830M. Our competitor, the feature fans, had an enterprise value of less than $200M. Value creation correlated with customer understanding—not engineering velocity.

In the coming decades, success will be defined by the ability to understand the complex problems that customers face, and the ability to solve these problems elegantly. Technology development is important, as is finance, manufacturing, and distribution. But these areas are not core competencies for the industry leaders. The next billion-dollar company will be run by history majors who are skilled in wading through a massive jumble of facts and who have the ability to distill these facts down to a clear set of objectives that a global team can fulfill. Great companies of tomorrow will not be defined by products that are better, faster, and cheaper, but by products that are sexier and smarter.

That’s why I’m encouraging my kids to pursue a liberal arts education. I can’t think of another course of study that would prepare them better for the future. I hope calligraphy is a part of the curriculum, too.


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