An engineering leader’s relationship with his or her CEO is clearly important. This relationship is not just about following orders; it’s also about alignment. Once an engineering leader and CEO are aligned, then few directives, mandates, strategies or initiatives come as a surprise. The trend addressed here concerns how the CEO’s top driver of profitable growth trickles down to affect engineering. The challenges that result from this trend are frank realities that engineering leaders must face.
The Board’s Directive to the CEO
Unless a CEO owns the company, the Board of Directors hires them. That means that, just like everyone else in the company, CEOs are held accountable for their performance. They often collaborate with the Board to identify strategies and initiatives to pursue. However, at the end of the day, the Board defines the company goals that the CEO must achieve. Profitable growth is almost always highly prioritized.
For private companies, the Board is composed of primary investors. They drive profitable growth to get a return on their investment. For public companies, the Board is composed of majority shareholders. They drive profitable growth in order to make the stock a more attractive investment. As more people buy the company’s stock, the price goes up and increases the value of the Board’s investment.
In summary, the purpose of a company is to make money for the investors. What does that mean for the CEO? They need to deliver profitable growth. If they cannot deliver, they are replaced with someone else. That fundamental fact drives all of a CEO’s behavior.
Getting Costs in Line with Revenues
In business, some things can be controlled and others cannot. This business reality carries some serious implications for engineering.
Fundamentally, revenue is not something that can be controlled. Executives predict it as accurately as they can. However, there are too many unpredictable variables that affect buying behavior. There may be an economic slowdown in a specific region of the world. A cornerstone customer might be acquired. An influential person that championed a company’s product might change jobs.
Alternatively, spending is something that can be controlled. There are some long-term cost commitments that cannot be rescinded. Yet other costs can be cut to immediately affect a company’s balance sheet. One such cost is staffing.
All of this sets up a scenario that occurs all too frequently. Revenues fall short of expectations. To maintain profitability, the Board directs the CEO to get costs in line with revenues. The CEO then cuts spending in the way that immediately affects profitability: layoffs.
Trimming and Offshoring the Engineering Organization
While layoffs have occurred from time to time, the past recession cut engineering ranks deeply. Those cuts didn’t just remove low performers; good engineers were lost too. Many engineering organizations took a serious productivity hit. Executives often trot out the old adage “do more with less” during tough times. However, this was more of the case of “do less with less.”
In addition to layoffs, the recession accelerated another trend in engineering staffing: offshoring. Numerous companies started up technical centers as part of low-cost country sourcing (LCCS) initiatives. As a result, companies lowered their spending while maintaining staffing levels.
The Challenge of Profitable Growth and Engineering Staffing
- There will be always be ongoing volatility in engineering staffing. Expect occasional layoffs as CEOs continue to keep costs in line with revenues. Engineering leaders need to minimize the effect of staffing volatility on the throughput of the engineering organization.
- Engineering teams in scattered offshore technical centers will come from diverse cultures with varying norms of collaboration, decision-making and technical levels of expertise. Engineering leaders must maintain a consistent quality of design and throughput despite the variations across global technical centers.