1.133 m.eng. concepts of engineering practice fall 2007 ......• in the economy of the future, the...
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MIT OpenCourseWare http://ocw.mit.edu 1.133 M.Eng. Concepts of Engineering PracticeFall 2007 For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms.
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STRATEGIC MANAGEMENT ISSUES
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ROLE OF THE E&C INDUSTRY
• Through planning, design, construction, operation, and maintenance activities, the E&C Industry transforms resources of labor, capital (money, materials, & equipment), and knowledge into the physical facilities required to meet a broad range of social and economic needs.
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A BASIC PREMISE
• In the economy of the future, the civil engineering profession is ideally positioned to take on an expanded role in the traditional engineering and construction industry; and to conceive and implement innovative business ideas in the future.
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SCENARIO PLANNING
• Scenario:Description of plausible future business environment
• Scenario Planning: Testing of the Business Idea against multiple, equally plausible futures (scenarios)
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SCENARIO PLANNING
Understanding theEnvironment(Scenarios)
Understanding theOrganization
(Business Idea)
StrategyWorkshops
Strategic Insights & Options
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THE BUSINESS IDEA• An organization’s mental model of the
forces behind its current and future success.• Success= Establishing value
– Create surplus for stakeholders– Create the expectation of being able to create a
surplus and grow in the future– Reference: “Scenarios: The Art of Strategic
Conversation”; Kees van der Heijden; John Wiley & Sons; 1996
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GENERIC BUSINESS IDEA
UnderstandingEvolving Needs
in SocietyEntrepreneurial
Invention
DistinctiveCompetencies
Competitive Advantage
Results
Resources
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ENTREPRENEURIAL INVENTION
• Discovering new ways of creating value for customers
• Bringing together a combination of competencies which creates this value
• Creating uniqueness in this formula in order to appropriate part of the value created
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DISTINCTIVE COMPETENCIES
• Definition: Unique, hard to emulate individual organizational capabilities or combinations of these capabilities
• Categories:– Institutional knowledge– Embedded processes– Reputation & trust– Legal protection– Activity specific assets
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COMPETITIVE ADVANTAGE
• Differentiated product with premium price
• Low cost commodity product
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DIFFERENTIATED PRODUCT
• A differentiated product which cannot be matched by the competition and for which the customer is prepared to pay a superior price
• Differentiation requires deep understanding of what creates value for customers
• Profit potential derives from the premium price
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LOW COST PRODUCT
• A unique low-cost way of creating or making available a non-differentiated product (commodity)
• Commodity: Open market has created a standardized and clearly defined product for which there is a continuing market
• Profit potential derives from cost leadership
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RESULTS (PROFITS)
• Purpose of Strategy Development– To feed expectations of future profits and
growth• Actual Profits
– Earned by the quality and efficiency of day-to-day operations
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GENERIC BUSINESS IDEA
UnderstandingEvolving Needs
in SocietyEntrepreneurial
Invention
DistinctiveCompetencies
Competitive Advantage
Results
Resources
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CONTRACTING BUSINESS IDEA
Reputation
Contracts
CompletedProjects
Profits
Investments
Training
SkilledWorkforce
Qualityof work
Responsiveness tocustomer needs Flexible
contract conditions
MotivatedWorkforce
Communications
Cohesion& loyalty
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SCENARIO PLANNING
Understanding theEnvironment(Scenarios)
Understanding theOrganization
(Business Idea)
StrategyWorkshops
Strategic Insights & Options
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THE FUTURE BUSINESS ENVIRONMENT
• An Economy in Transition• Changing Nature of Organizations• Strategy Options
– Business as Usual– The Master Builder Of the 21st Century
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THREE WAVES OF ECONOMIC CHANGE
• Agricultural Wave• Industrial Wave • Information Wave
– Information Age– Knowledge Economy– Digital Revolution
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ECONOMIC PROSPERITY
• Dow at least 21,500 & likely higher• Sources of economic strengths
– ability to deliver customized products and services to consumers at increasingly affordable prices and convenience (direct producer-to-consumer)
– success of Brand name products in the global market place
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FEATURES OF THE INFORMATION AGE
• Rapid Technological Change– Just-In-Time Supply Systems– New Delivery Systems– B2B Electronic Market Place– Mobile Telephony
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INFORMATION AGE
• Global Market– Operations, Shopping, Productivity
Improvements• Government Driven Changes
– Deregulation/Privatization– Trading blocs– The Decline of Communism– China as an Economic Power
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INFORMATION AGE• Changed Face of Competition
• Industrial Age characterized by planning,control, hierarchy, materials, processing methods, optimization, volume, scale, low cost
• Processing of Knowledge vrs resources• Competitive Advantage characterized by:
observation, positioning, flat organizations, missions, teams, cleverness, psychology, adaptation, speed, innovation, service, customization
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CHANGING NATURE OF PRODUCTION
Producer Driven Consumer Driven-Top down command/control, -Consumer needs backfunctional skills focus-Standardized products/services -Customized, choice,
personalized-Assembly line methods -Network methods-Unskilled workers -Skilled workers,
knowledge workers-Automation of physical work -Automation of routine
thinking work
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INFORMATION AGE• Changed Patterns of Employment
– 1970’s: 90% of work force worked for organizations; career-based jobs
– 1990’s: downsizing, reengineering ,etc.– 2000+: part-time work, self-employment,
independent actors (jobbers, pieceworkers, consultants, facilitators, temps, etc.),
• Responsible for career development and continuing education
• Emphasis on contributions and results
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INFORMATION AGE
• Knowledge is the Key Economic Resource– Embedded in systems and databases– Made widely available in an organization– Knowledge is being systematically
accumulated, shared, and purposely deployed to build distinctive competencies
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CHANGING NATURE OF ORGANIZATIONS
-Fast -Slow-Responsive -Inflexible-Customizing -Standardizing-Entrepreneurial -Highly managed,
planned, & coordinated
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NETWORKS OF SMALL FIRMS
• The “dinosaur” corporation of the late twentieth century was just a transitional form. In looking back we are most aware that the tiny “mammals”-entertainment production companies, construction project teams, and consultant workgroups-which operated without much public notice back in the 1990’s, were in fact the prototypes of today’s modern organization.
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NETWORKS (cont’d)• Today (2010), nearly every task is performed by
autonomous teams of 1-10 people, set up as independent contractors or small firms, linked by networks, coming together in temporary combinations for various projects, and dissolving once the work is done. When a project needs to be undertaken, requests for proposals are issued or jobs to done are advertised, candidate firms respond, subcontractors are selected, and workers are hired largely on an ad-hoc basis.
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THE NETWORK ORGANIZATION
• Consists of leaders, guiding entrepreneurs, and self-managing teams in a chaotic real-time process that is organized around the ever changing needs of individual customers.
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THE NETWORK ORGANIZATION
• They are fast, responsive, customizing, and entrepreneurial in contrast to assembly-line organizations which are slow, inflexible, standardizing, and highly planned, managed, and coordinated
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KEY FEATURES
• Leadership at the Center• Front-Line Browser Teams Organized
Around Customers• Back-Line Servers Teams (Experts &
Specialized Products)• The Radical Elimination of Bureaucracy• An Internal Free Marketplace
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STRATEGY OPTIONS
• Business As Usual• The Master Builder of the Future
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BUSINESS AS USUAL
• Competitive advantage based on cost leadership
• Consolidators as sources of opportunity– Buyouts– Innovations in engineering and construction
processes– Access to national and international
accounts
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BUSINESS AS USUAL (cont’d)
• Distinctive Competencies– Global outsourcing of engineering activities– Participation in B2B marketplaces to reduce
supply chain, logistics, and inventory costs– Improved on-site materials and labor
management processes– Increased use of off-site prefabrication
methods
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THE MASTER BUILDER OF THE 21st CENTURY
• Competitive advantage based on differentiated services at premium prices
• Outgrowth of design/build processes• Horizontal integration to combine
specialty construction tasks• Vertical integration to include strategy
planning, design, and operations & maintenance management
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FACILITY PROJECTLIFE CYCLE*
MARKET DEMANDSOR
PERCEIVED NEEDS
CONCEPTUAL PLANNING &FEASIBILITY
STUDIES
DESIGN &
ENGINEERING
PROCUREMENT&
CONSTRUCTION
STARTUPFOR
OCCUPANCY
OPERATION&
MAINTENANCE
RENOVATIONCONVERSION
ORDEMOLITION
* Adapted from: “Project Management for Construction”; Chris Hendrickson & Tung AuPrentice Hall; 1989
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MASTER BUILDER OF THE 21st CENTURY
• Distinctive Competencies:– Entrepreneurship/Technological Knowledge– Project management capabilities including
schedule and cost control systems, and computer hardware/software for collaboration
– Prime contracting capabilities– Maintenance management systems– Systems engineering capabilities
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SYSTEMS ENGINEERING/ SYSTEMS INTEGRATION
• 1. Concept Development (the Front-End Process)
• 2. System-Level Design• 3. Detail Design• 4. Refinement & Value Engineering• 5. Post Project Evaluation
– “Product Design and Development”; Ulrich & Eppinger; McGraw-Hill; 1995
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FRONT END PROCESS
• Identify Client Needs• Establish Target Specifications• Generate Concepts• Select a Concept• Economic Analysis• Project Planning