ENGINEERING AS BUSINESS

By Dr. Simon Tembo

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 COURSE OUTLINE
4 Hours Lectures + 3 Hours Lab./Tutorial per
Week
1) Management
2) Engineering as Business
3) Planning
4) Organizing & Coordination
5) Staffing
6) Leading
7) Marketing
8) Monitoring & Controlling Operations

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 ENGINEERING AS BUSINESS

 Organization structures;
 shareholders,
 boards;
 Executive management;
 Functions of shareholders, boards,
managers.

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ORGANIZATION STRUCTURE
 An organizational structure consists of
activities such as task allocation, coordination
and supervision, which are directed towards
the achievement of organizational aims.
 It can also be considered as the viewing glass
through which individuals see their
organization and its environment.
 An organization can be structured in many
different ways, depending on their objectives.
 The structure of an organization will
determine the modes in which it operates and
performs.
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EXAMPLE OF ORGANIZATION
STRUCTURE
Chancellor

University of
Zambia Council

Vice Chancellor
(CEO of the University)

Deputy Vice Chancellor

Directorate of Institute of Institute of Economic

Deans to 9 University Research & Distance & Social Research
Registrar Student Affairs
Various Schools Library Graduate Education Sciences
Studies
ORGANIZATION STRUCTURE
 Organizational structure allows the expressed
allocation of responsibilities for different
functions and processes to different entities
such as the branch, department,
workgroup and individual.
 Organizational structure affects organizational
action in two big ways.
1. It provides the foundation on which
standard operating procedures and
routines rest.
2. It determines which individuals get to
participate in which decision-making
processes, and thus to what extent their
views shape the organization’s actions. 6
ORGANIZATION STRUCTURE
 Many companies spend huge amount of time
and money in changing their organizational
structure.
 The reason behind this is that it is important for
the success of the firm.
 While the strategic decisions are taken by
the top line management, it is the effectiveness
of the organization structure which translates
this strategy into successful implementation.
 The four main blocks of organizational
structure are:

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1. Division of work: Complex work can be better
executed by dividing it among different people.
For example, every project has some people
working on different technologies. Some people
working on high level design, others do project
management etc.
2. Departmentalization: This involves grouping
people into departments based on some logic.
3. Hierarchy: Chooses who reports to whom. For
example, Engineers reports to lead. Lead reports
to PM. PM reports to GPM etc.
4. Coordination: This involves the integration of
departmental activities as a whole and
monitoring the effectiveness of this integration.
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 ORGANIZATION STRUCTURE
DIVISIONAL Vs FUNCTIONAL GROUPING

DIVISIONAL

FUNCTIONAL

1
0
 STRENGTHS:
 Allows economies of scale within functional
departments
 Enables in-depth knowledge and skill development
 Enables organization to accomplish functional goals
 It is best with only one or few products
 WEAKNESSES:
 low response time to environmental changes
 May cause decisions to pile on top, hierarchy overload
 Leads to poor horizontal coordination among
departments
 Results in less innovation
 Involves restricted view of organizational goals
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 STRENGTHS:
 Suited to fast change in unstable environment
 Leads to client satisfaction because product responsibility and
contact points are clear
 Involves high coordination across functions
 Allows units to adapt to differences in products, regions,
clients
 Best in large organizations with several products
 Decentralizes decision-making
 WEAKNESSES:
 Eliminates economies of scale in functional departments
 Leads to poor coordination across product lines
 Eliminates in-depth competence and technical specialization
 Makes integration and standardization across product lines
difficult 12
EXAMPLE OF ORGANIZATION
STRUCTURE

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EXAMPLE OF ORGANIZATION
STRUCTURE

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EEPCo Organizational Structure

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EXAMPLE OF ORGANIZATION
STRUCTURE

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 ORGANIZATION STRUCTURE FOR
COMTEL Chief
Executive

Managing
Director

Finance Operations Commercial

Director Director Director

Accounts Project NOC Network

Payable Management Management management Interconnection Marketing
s

Accounts Route Billing &

Receivable Procurement Systems managment Costs & Pricing Reveneue

P&L
Management Reports Billing Quality control New Products Contracts
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THE HIERARCHICAL ORGANIZATION
STRUCTURE
Communication
Channels

STAFF STAFF STAFF STAFF STAFF

UNDER UNDER UNDER UNDER UNDER
R&D PRODUCTION FINANCE MARKETING PERSONNEL
 Top 25 Car Brand Ranking at July 2012
4,500,000
4,000,000
3,500,000
3,000,000
World`s Car Sales

2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
Kia
Fiat

Opel
Audi
Ford

Skoda
Buick
BMW
Suzuki

Chana
Wuling
Toyota

Honda
Nissan

Citroen
Mazda
Renault

Peugeot
Hyundai
Chevrolet

Dongfeng
Daihatsu
Mercedes

Dodge/Ram
Volkswagen

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

World`s Sales

http://www.focus2move.com/item/223-top25-car-brands-ranking-at-july-2012-toyota-on-top-of-world
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 Corporate governance provides a system of
rules, practices and processes by which a
company is directed and controlled.
 Corporate governance essentially involves
balancing the interests of the many
stakeholders in a company - these include its:
shareholders,
management,
customers,
suppliers,
financiers,
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government and the community.
 Corporate governance is one of the main
reasons that these terms such as
 Board of Directors, Shareholders,
CEOs, CFOs, Presidents and Vice Presidents
exist.
 The evolution of public ownership has created a
separation between ownership and management.
 Before the 20th century, many companies were
small, family owned and family run.
 Today, many are large international conglomerates
trade publicly on one or many global exchanges.
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 Corporate governance provides a system of rules, practices
and processes by which a company is directed and
controlled.
 Corporate governance essentially involves balancing the
interests of the many stakeholders in a company - these
include its:

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 Since corporate governance also provides the
framework for attaining a company's objectives,
it encompasses practically every sphere of
management, from action plans and internal
controls to performance measurement and
corporate disclosure.
 In an attempt to create a corporation where
stockholders' interests are looked after, many
firms have implemented a two-tier corporate
hierarchy.

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 The first tier is the Board of Directors: these individuals
are elected by the shareholders of the corporation.
 The second tier is the Executive Management: these
individuals are hired by the board of directors.

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 ORGANIZATION STRUCTURE
Let's begin by taking a closer look at the Board of
Directors and what its members do.

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 The Board of Directors is made up of two types
of representatives.
1. The first type involves individuals chosen from
within the company.
 This can be a CEO, CFO, manager or any other
person who works for the company on a daily
basis.
2. The other type of representative is chosen
externally and is considered to be independent
from the company.

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 The role of the board is to monitor the
managers of a corporation, acting as an
advocate for stockholders.
 In essence, the board of directors tries to make
sure that shareholders' interests are well
served.
 Board members can be divided into three
categories:

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 CHAIRMAN:
 Is the leader of the corporation and is responsible
for running the board smoothly and effectively.
 duties typically include maintaining strong
communication with the CEO and high-level
executives, formulating the company's business
strategy, representing management and the board
to the general public and shareholders, and
maintaining corporate integrity.
 is elected from the board of directors.

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 INSIDE DIRECTORS:
 are responsible for approving high-level budgets
prepared by upper management, implementing
and monitoring business strategy, and approving
core corporate initiatives and projects.
 are either shareholders or high-level management
from within the company.
 help provide internal perspectives for other board
members.
 are also referred to as executive directors if they
are part of company's management team.

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 OUTSIDE DIRECTORS:
 While having the same responsibilities as the inside
directors in determining strategic direction and
corporate policy, outside directors are different in
that they are not directly part of the management
team.
 The purpose of having outside directors is to
provide unbiased and impartial perspectives on
issues brought to the board.

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ORGANIZATION STRUCTURE

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 The other tier of the company is the
management team which is directly responsible
for the day-to-day operations (and profitability)
of the company.
 Chief Executive Officer (CEO) – As the top
manager, is typically responsible for the entire
operations of the corporation and reports
directly to the chairman and board of directors.
 It is the CEO's responsibility to implement board
decisions and initiatives and to maintain the
smooth operation of the firm, with the
assistance of senior management.
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 Often, the CEO will also be designated as the
company's president and therefore also be one of
the inside directors on the board (if not the
chairman).
 Chief Operations Officer (COO) – Responsible for
the corporation's operations, the COO looks after
issues related to marketing, sales, production and
personnel.
 More hands-on than the CEO, the COO looks after
day-to-day activities while providing feedback to
the CEO.
 The COO is often referred to as a senior vice
president. 40
 Chief Finance Officer (CFO)
 Reports directly to the CEO
 The CFO is responsible for analyzing and reviewing
financial data, reporting financial performance,
preparing budgets and monitoring expenditures
and costs.
 The CFO is required to present this information to
the board of directors at regular intervals and
provide this information to shareholders and
regulatory bodies such as the Securities and
Exchange Commission (SEC).
 Also usually referred to as a senior vice president,
the CFO routinely checks the corporation's financial
health and integrity. 41
FUNCTION OF THE BOARD
 To represent the shareholders in insuring
that a company has clear goals, and to
measure progress against those goals.
 To improve strategy and the resources
proposed to achieve it.
 To appoint the chief executive and
monitor his/her performance and that of
the senior management team.
 To annually review succession and
management development plans.

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FUNCTION OF THE BOARD
 To develop and monitor the operating climate
of the organization by way of a statement of
values and philosophies which show the
character of the organization and its policies.
 These functions are performed to satisfy
various expectations of the multitude of the
organization’s stakeholders.
 The shareholders, who expect the Board to
provide acceptable returns in terms of
dividends and share prices.
 The government, who expects the Board to
show good corporate citizenship by taking over
some of the social functions to save on
government expenditure. It should also pay 43
taxes appropriately.
FUNCTION OF THE BOARD
 The employees, who want the Board to secure
their jobs and improve pay and other
conditions of service.
 The customers, who expect the Board to ensure
high quality product and service.
 Suppliers, who would like the Board to assure
them of continuous business and prompt
payment.

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Board Management
 To effectively perform its stated functions and
fulfill stakeholders’ expectations, the Board
should have clear policies on the following:
 Composition of the Board
 Procedures of conducting its business
 Performance evaluation of the Board and its
members
 Director’s appointment and terms of service
 Monitoring management
 Obtaining information on the performance of the
organization
 Reviewing and approval of plans and policies of
the organization.
 The Board manages its activities through various
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organs:
BOARD CHAIRMAN:
 The key question always being raised is whether a
Board Chairman should be executive or non-executive.
 According to the Commonwealth Association Corporate
Governance’s (CACG) principles of guidelines on
corporate governance, there should be a clear
separation of duties.
 The CEO should not also be the Board Chairman. The
role of the Chairman and CEO should be separated.
 The Chairman is the leader of the Board, and must be
able to give directions and set standards for the other
Board members.
 The chairman is held publicly accountable for the
performance of the organization.
 He or she is also the link between the Board and the
shareholders through reporting on the performance of
the organization.
BOARD CHAIRMAN:
 To effectively perform these functions, the Chairman must
be a strong leader, a Good communicator, energetic and
intellectually capable to deal with the complex multi-
dimensional issues characteristic of a modern
organization.
 The Board Chairman is first elected as a director by the
shareholders. Once in the Board, then he is elected by the
other directors to be chairman.
 The CACG Guidelines do not provide a clear guide for the
appointment of the chairman and other directors but
state that whatever method the shareholders should use
to appoint and remove board directors, it should be
transparent and at properly Constituted meetings.
 The Cadbury report states that a non-executive director
should have experience and be able to understand issues
of strategy, performance, etc. with regard to the
organization. They should be able to distinguish between
governance and management of an organization. 47
THE COMMITTEES OF THE BOARDS:
 Board committees play the role of ensuring
high standards of performance, providing an
acceptable level of reassurance and obtaining
greater coverage by the Board.
 Board committees enable it to focus on
specific areas of corporate management that
are of concern to the Board, and hence help
enhance effectiveness by the Board.
 The CACG guidelines say that it is good
practice for the Board to create and maintain
relevant board committees and to determine
their functions, tenure and general terms of
reference.
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THE COMMITTEES OF THE BOARDS:
 The are four main committees which a Board
may wish to form:
 Executive or management committee, whose
main role is to coordinate and monitor the
implementation of Board resolutions.
 Audit committee, basically is meant to receive
and review the recommendations of the audit
function.
 Alternatively, the audit committee could be
expanded to include finance, in which case
its functions may include consideration of
final and interim accounts, the budget and
other corporate plans.
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THE COMMITTEES OF THE BOARDS:
 The audit committee should:
 should meet regularly at least twice a year;
 have a minimum of three members, all of
whom should be non-executive and
independent of the company;
 allow attendance by both the external and
internal auditors as well as the finance
director and CEO;
 have a discussion with the auditors in the
absence of the executive directors.

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THE COMMITTEES OF THE BOARDS:
 The Remuneration Committee:
 is charged with the responsibility of reviewing
the executive and top management
remuneration arrangements.
 this committee should be made up exclusively of
non-executive directors and should determine
the organization’s overall policy on
remuneration.
 It should report directly to the shareholders,
meaning that it should report at the annual
general meeting.
 This committee should have access to
appropriate professional advice, and should
consult the Board Chairman and CEO.
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THE COMMITTEES OF THE BOARDS:
 By way of disclosure, the committee must
produce a formal statement annually on the
remuneration of individual directors.
 The committee should propose a remuneration
policy that is capable of attracting, retaining and
monitoring directors in regard to the required
qualities in the long-term interests of the
organization.
 Finally, the CACG guidelines recommend that,
where the corporations’ operations warrant, a
committee on environment should be created at
board level.
 This committee is responsible for ensuring that
the effects on the environment as a result of
operations are controlled. 52
THE COMMITTEES OF THE BOARDS:
 It is however, clear that there is a lot of discretion
and freedom for the Board to create its own
committees and assign them functions depending
upon the unique needs and situations of the
organization.

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 BOARD EVALUATION
 Board evaluation presupposes the existence of goals
and objectives acting as parameters for performance
evaluation.
 The goals and objectives must be set by the Board itself,
taking into account the interest and concerns of various
stakeholders.
 Performance evaluation of the Board is one way of
ensuring that the Board is accountable.
 Evaluation of the Board will help to tell how the Board
is performing currently, which will form an input for
future planning.
 Evaluation also helps in facilitating feedback.

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BOARD EVALUATION
 The evaluation exercise must be performed both on the
Board as a whole and on individual directors.
 The question to ask is how should we go about
implementing an evaluation exercise on the Board?

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1. THE BOARD AS A WHOLE
 Hugh Parker (1998) has developed a checklist of six
questions to guide us in helping the chairmen test the
effectiveness of their Board:
1. Has the Board recently devoted time on the long-term
objectives and strategies of the organization?
2. Does the Board have a corporate philosophy
reflecting its values, ethics, social responsibility and
image?
3. Does the Board periodically review corporate
structure?
4. Does the Board receive the information it requires on
the performance of the organization?
5. Does the board frequently monitor the performance
of management?
6. When the board requires to make major decisions,
does it have enough time and Knowledge or does it
just rubber-stamp decisions already taken by the 56
2. INDIVIDUAL DIRECTORS
 This may be split into two streams: the evaluation
of executive director on one hand and that of non-
executive directors on the other.
 Executive Directors can be evaluated by the
remuneration committee.
 The non-executive directors could be evaluated by
the chairman.
 The following criteria should be used for
evaluating directors:
 Independence – confidence, courage, avoid
conflicts, free thinker, etc.
 Preparation – briefs self thoroughly, spends
extra time when necessary, knows key staff,
respects confidentiality, etc.
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2. INDIVIDUAL DIRECTORS
 Practice as a director – preparedness, does
home work, avoids surprises, asks probing
questions, insists on getting necessary
information, etc.
 Committee Activity – source of ideas,
enthusiasm, uses ability and influence,
constructive, does home work, etc.
 Development of the organization – makes
helpful suggestions on innovations, strategies
direction, knowledge about externalities, etc.

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3. THE CHAIRMAN

 It is vital that the chairperson, who is the heart of

the board, is seen to be functioning properly.
Therefore, his/her evaluation is very essential.
 The Board will have to decide on the evaluation
criteria for the chairperson. The criteria and
objectives for evaluation must be attached to the
corporate strategy and performance, as well as
board performance.

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3. THE CHAIRMAN
 An alternative approach towards the chairman’s
evaluation may be to set aside time during a
scheduled board meeting for the whole board to
discuss the chairman’s performance.
 Another suggestion is to adopt an informal
approach and raise the issue of the chairman’s
performance for discussion among directors
outside the board- room.
 The approach adopted will definitely depend upon
the situation and the degree of concern about the
chairman’s performance.

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BOARD EVALUATION-CONT’D
 It must be acknowledged, however, that
evaluation of the board directors is a very difficult
and sensitive matter.
 Most organizations don’t do it.
 But, again, it is very essential to ensure that this
top echelon responsible for corporate governance
is performing.
 Their evaluation must be incorporated into the
structure of the organization, and done regularly.

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