engineering mindset fort corporate management
DESCRIPTION
Engineering is a better starting point for corporate management than business trainingTRANSCRIPT
Engineering Mindset for Corporate
Management
with Dr. Alan Harbitter
XBOSoft Info
Founded in 2006Dedicated to software quality
Software QA ConsultingSoftware Testing
Offices in San Francisco, Beijing, Oslo, and Amsterdam
Housekeeping● Everyone except the speakers are muted● Questions via the gotowebinar control on the right side of
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to fit them in when appropriate● General Q & A at the end of the webinar● You will receive info on recording after the webinar
SpeakersAlan HarbitterBoard Member of XBOSoft
Jan PrincenDirector at XBOsoftFounder of GripQA
Sabrina GassonXBOSoft Marketing
What I’ll Talk About
• My hypothesis: Engineering is a better starting point for corporate management than business training
• The story of the company I co-founded (in 1985) and how an engineer came to be a COO
• A couple of examples of how analytical skills adapt to business problems
The Secret to Business is Technical Analysis
• B-school is too easy after technology training
• 90% of all important business decisions can be made by understanding terminology (e.g., EBITDA, …) and a spreadsheet
• Examples– Balance sheet and income statement tell all– Revenue/earnings forecasts (following example will
be somewhat tongue-in-cheek)– Intentionally leaving out personnel management
Timeline - Millennium 1
• 1978: BSEE, Cornell
• 1978-85: Met partners at CSC (NoVA)
• 1982: MSCS at UMD (research in computer performance)
• 1985: Co-founded Performance Engineering Corporation (3 guys, $50K)
• 1997: PEC CTO
Timeline - Millennium 2
• 2001: Took PEC public (NASDAQ/NM: PECS)
• 2002: PhD CS at GMU (research in computer security)
• 2004: PEC COO
• 2005: 1,700 employees, $250M annual revenue,sold for $472M
A Little More Detail• 1985 (go-go Reagan economy): founded as
Performance Engineering Corporation—high-end IT services for Government
• 1999: $50MM in revenue; entering 15th year of solid bottom line (north of 10% net) and top line growth (30 to 35%)
• 2000: Public as PEC Solutions, 3M shares at $9.50• 2001: Follow-on offering, 5M shares at $17.00
(~$85M)• 2001 through 2004: Buying spree
Acquisitions
• 2000: Viking Technology, <$3M, state & local focus
• 2001: Troy Systems, $18M, 300 employees, Navy focus
• 2003: IITC, $33M, 270 employees, Air Force/satellite focus
• 2004: AC Technologies, $46.7M, 360 employees, USPS, CMMI rating
Example 1: How Might the Engineer Evaluate an Acquisition Target?
• There’s the qualitative stuff– Alignment of goals and culture– The addition of value that can’t be grown in-house– Are the two cultures merge-able?
• Then there’s the quantitative stuff– Will the purchase be “accretive”?– Income statement & balance sheet
What if we wanted to buy Facebook?
CY13 profit is 19% of revenue, up from 1% in CY12, up from 18% in CY11
Significant increase in sales and R&D costs in CY12 (they IPOed May 2012)
Low interest expense… probably not much debt
37% revenue growth in CY12, 55% in CY13… excellent
Balance Sheet Reveals More!
With $1.875B in annual costs, plenty of cash on hand to fund operations
There’s our low debt
Some Other Important Quantitative Info on Our Acquisition Target
Conclusion: Performance is excellent; P/E doesn’t seem bad compared to other market comparables such as Linked-In and Twitter. Deal breaker: coming up with > $200B (AOL-Time Warner was $186B)
Example 2: Revenue and Income Forecasting
February 2, 2010. MicroStrategy (MSTR) shares are down sharply this morning on investor disappointment with the company’s fourth quarter results.This morning, the business intelligence software provider reported Q4 revenue of $105.8 million, short of the Street consensus at $107.3 million. EPS, though, came in at $1.66 a share, a nickel ahead of the Street.
On Feb 2: 79.03 17.61 (18.22%)
1.3% miss (but up 11%
YOY)
3% miss (up 42% YOY)
(Wall Street expects crazy predictive accuracy)
How Might An Engineer Look at Earnings Forecast
• Accurately predicting revenue and earnings is a big deal
• If you throw in enough independent variables, and/or pick a high enough order fit, you don’t even need a CFO
Quarterly Revenue & Price
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Reporting Quarter
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normalized share price
quarterly revenue
guidance
revision
the “terror stock”
Quarterly Earnings & Price
-0.020.040.060.080.100.120.140.160.180.200.220.240.260.28
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Reporting Quarter
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normalized share price
quarterly revenue
guidance
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Revenue & Earnings & Price
-0.020.040.060.080.100.120.140.160.180.200.220.240.260.28
Reporting Quarter
Do
lla
rs
normalized share price
eps
guidance
Revenue
Earnings
Other Areas Where Engineering Analysis Can Answer Business Questions
• How can we grow?• How do we control costs?• Should we invest in infrastructure?• How efficient are our new business
development processes?• Are our clients satisfied?• Are our goals realistic?
PEC Solutions,Inc.
The FinalChapter
(June 2005)
PEC Redux• June 2005: Nortel Networks buys all shares of PEC at $15 per
(all cash, $472M)• Nortel Government Systems (NGS) is formed as a wholly
owned subsidiary• The 3 PEC founders had a 2 year employment agreement• Jan 2009: Nortel files for Chapter 11• Dec 2009: Avaya ($5B revenue, spun off from Lucent, bought
private) acquires Nortel’s “enterprise” business ($2.4B revenue in 2008) and NGS for $900M
• Feb 2014: Camber Corporation purchases Avaya Government Solutions for $100M
What My Engineering Education Did For Me
• Taught me broadly applicable analytical skills• Got me past a lot of conceptual hurtles I never
would have figured out on my own• Taught me how to research a topic I didn’t
know anything about• Taught me how to deal with people from
diverse backgrounds• Made me an expert in selected technological
fields and gave me something to sell
What My Education Didn’t Do
• It didn’t teach me how to write & communicate
• It didn’t teach me anything about business• It didn’t teach me anything about management• It didn’t teach me to be ambitious, aggressive,
and continually unsatisfied
See, see?
Undergrad DegreePercent of S&P 500 CEOs
2008 2007 2006 2005
Engineering 22% 21% 23% 20%
Economics 16% 15% 13% 11%
Business Administration 13% 13% 12% 15%
Accounting 9% 8% 8% 7%
Liberal Arts 6% 6% 8% 9%
http://content.spencerstuart.com/sswebsite/pdf/lib/2008_RTTT_Final_summary.pdf
How Can an Engineer be Successful in Business?
• The subject matter has to intrigue you• It will be one of your easiest research
projects• Use analytical thought processes and tools
to evaluate options and make decisions• Know your weaknesses, surround yourself
with people with compensating strengths• Pick options that give you more options
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