Professional engineering governance: the critical need for quality engineering advice in the boardroom

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1 Professional engineering governance: the critical need for quality engineering advice in the boardroom

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3 Professional engineering governance: the critical need for quality engineering advice in the boardroom A briefing paper by The Royal Academy of Engineering The Royal Academy of Engineering ISBN X March 2012 Published by The Royal Academy of Engineering 3 Carlton House Terrace London SW1Y 5DG Tel: Fax: Registered Charity Number: All photos courtesy of unless otherwise stated A copy of this report is available online at

4 Contents Foreword 5 1 Introduction - why is engineering advice important? 7 2 How is engineering advice sourced and used? 10 3 Problems caused by failures in procuring and using engineering advice 13 4 What external sources of engineering advice are available? 16 5 How can professional engineers work to give relevant, good quality advice? 17 References 18 4 The Royal Academy of Engineering

5 Foreword Professional engineering governance: the critical need for quality engineering in the boardroom A briefing paper by the Royal Academy of Engineering Foreword Sir John Parker FREng Engineering impacts on almost every aspect of our lives and has a critical, enabling role in underpinning the activities, products, cost-effectiveness and success of a wide range of businesses, large and small, national and multinational. Engineering also impacts on virtually every aspect of public life from national infrastructure such as roads, water and telecommunications to the National Health Service and national IT systems. In designing and operating such a wide and complex variety of systems, engineers develop a unique set of skills. They are goal-orientated, always having a successful solution to a need or problem in mind. They must take a whole system approach, combining multiple skill sets to tackle interdependent issues. And they must function effectively in well-organised teams. As a result, engineers have a great deal to offer the businesses they work for and society in general. This report gives a succinct summary of the importance of engineering advice, how it can be best obtained and applied by decision-makers and the some of the issues that arise when it is lacking. Given the current financial situation, this is vital and timely if the UK is to successfully rebalance its economy and re-establish itself on a sound financial footing. Professional engineering governance: the critical need for quality engineering advice in the boardroom 5

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7 Introduction why is engineering advice important? Good engineering advice is a major contributor to enabling us to optimise business decisions and get the best balance of cost, risk and performance. Introduction why is engineering advice important? The influence of engineering extends well beyond the traditional areas of heavy industry and manufacturing such as energy provision, automotive products and aerospace to almost any company involved with creating and delivering products and services in fields including electronics, IT, pharmaceuticals, health care, transport systems, water supply, banking and insurance. All such businesses need timely, expert- and experience-based engineering advice in areas such as identifying opportunities for improving cost-effectiveness, productivity and reliability or exploring new profitable businesses based on emergent technologies. There are few areas of government policy that do not have an engineering dimension to delivery. As well as the critical areas of innovation and growth, low-carbon energy and infrastructure, engineering underpins and delivers policies on health, defence and international development. For government, therefore, engineering advice is vital early in the policy planning stage, not just at the point of delivery. Engineers are increasingly being trained in systems and whole lifetime thinking; that is, viewing the whole product or service through conception, design, manufacture, cost, installation, operation, associated risks and disposal as part of the same project. Senior engineers increasingly have experience in managing complex projects and integrating people with physical systems (such as the modern car, MRI scanners or security systems). This gives engineers the capacity to develop overarching, strategic perspectives that can be of significant benefit to businesses and government alike. Professional engineering governance: the critical need for quality engineering advice in the boardroom 7

8 The identification and management of risk is increasingly part of the modern engineer s skill set and, since risk management is a major concern of any organisation s board, this makes engineering advice critical to key decision-making. Such risks include ensuring that legal or regulatory standards are met, that novel risks with new technologies are identified and ameliorated well in advance of their uptake, and that health, safety and environmental impacts are not overlooked. This will help businesses avoid future reputation-damaging failures as well as minimising the likelihood of personal injury or loss of life accidents involving either employees or members of the public. Given the rate of advance and change in our technologically-enabled society, the provision of adequate, timely and informed engineering advice to those making decisions in pursuance of either business success or public policy is an increasingly relevant and urgent function which we define as engineering governance. This paper highlights this important yet often unrecognised role for professional engineers in our society, distinguishing a role that goes beyond the provision of technical support to also helping make long-term decisions that will set the agenda and direction of a company in the global marketplace. Thus, boards and governing bodies must develop an understanding of when to seek engineering advice, where to obtain it and how to act on that advice. Conversely, the education of our engineers must also change to ensure that they are equipped to deliver advice in the most suitable strategic, legal and economic context for the body from which advice was sought. 8 The Royal Academy of Engineering

9 Introduction why is engineering advice important? "In my experience, company strategy is a question of spotting the most promising markets that you can address with the skills and resources that you have or can develop. It is essential that the board understands the engineering issues, they don't need to be engineers but they must be well informed on the engineering aspects." Professional engineers must be made aware of their full value to the organisation they work for and must learn to communicate effectively with others in their organisation regardless of their technological background. The following paper is based on replies to questions posed to members of the Academy s Fellowship chosen to represent as wide a spectrum of decision-makers as possible large and small companies, national and international businesses, new and established companies, major service providers, and government agencies, across the full spectrum of engineering disciplines. The quotations in the margins are taken directly from responses received. Main conclusions Company boards bear the responsibility of ensuring that they are well-informed about their engineering needs, limitations, opportunities and challenges. Government and industry alike need sufficient science and engineering knowledge to properly frame the detailed questions they need to ask within their particular context and to properly assess the responses they get. Engineers need to communicate effectively with colleagues from all disciplines and understand the broader commercial context in which their advice is being given. In government and private companies alike, problems are compounded when those who take decisions are then the same groups who regulate actions and assess outcomes. Independent advice should be sought to ratify board decisions or programmes for implementing policy Professional engineering governance: the critical need for quality engineering advice in the boardroom 9

10 "Whether finance or engineering dominates at Boards often depends on the company's recent financial performance....deteriorating financial performance can drive a replacement of engineering control at Board level with financial control...with a marked reduction in the role of engineers in governance. Where finance dominates, highlevel engineering advice must come from the senior executive level management." How is engineering advice sourced and used? Private sector In the case of the private sector, the following general principles can be drawn: Company boards bear the responsibility of ensuring that they are well-informed about their engineering needs, limitations, opportunities and challenges, if not from within their direct membership, then from technical advisory boards and experts both within and beyond the company. Boards of successful businesses tend to know where to seek the best advice, to understand what questions need to be asked and to know how to use the advice they are offered. Large companies Large companies normally have the resources to acquire their own professional engineering advice. In the case of technology-based companies, this will be in-house or through specialist consultancies. It may not be necessary for an engineer to sit on the board but most large engineering firms will normally have a senior engineer who reports directly to the board, or, in larger organisations, there may even be separate Technology Advisory Boards (or equivalents) with a similar remit and responsibility. A well-functioning company board will establish the processes and the advice it needs to conduct its activities effectively and responsibly. It is vital that board members recognise where a business is dependent on high-quality products, processes and systems engineering and, in technology-based companies in particular, this will generally happen as a matter of course. An effective CEO with any background should be able to 10 The Royal Academy of Engineering

11 How is engineering advice sourced and used? grasp the essentials of the advice they are being given in order to make successful, and sometimes risky, decisions. Many private sector companies have safety and business risk committees and risk registers that document potential problems, although in some cases these can focus too heavily on financial and legal issues while the productdriving technological base of the company is given a lower priority. Small and medium sized companies When an SME is technology-based, there is a good chance that the owners, CEO or senior employees will have an engineering background, and in these cases engineering advice is naturally and easily accessible. However, for those SMEs that do not have access to engineers in this way, the situation is more difficult. Limited time and financial resources mean that many SMEs are already stretched and engineering advice is only sought when absolutely needed rather than in a strategic or systemic manner. Given the significant percentage of both jobs and wealth creation that SMEs account for in the UK this is a potentially serious situation. Solutions are difficult and only possible when senior executives in SMEs are made aware of the importance of engineering advice to the success of their companies. Public sector Engineering infrastructure is vital to the economic success of the UK. As a result, government is engaged in a large number of complex and interdependent engineering projects. This requires internal strategic capacity to act as an intelligent customer and impartial, professional engineering advice. Professional engineering governance: 11 the critical need for quality engineering advice in the boardroom

12 Company boards and government agencies must be able to recognise and translate technical issues into business implications. Technical failure in today s instant communication environment carries huge reputational risk. Some government departments have a reasonable amount of in-house professional engineering expertise. While this has reduced significantly with the closure of most government laboratories, these sometimes remain as private research companies that maintain close links with government. Departmental Chief Scientific Advisors (CSAs) 1 often provide both scientific and engineering guidance and a number of CSAs have had engineering backgrounds. However, it should be remembered that engineering issues are often materially different from scientific issues and there are relatively few individuals capable of providing expert advice across both disciplines. The current Government Chief Scientific Advisor has established a community of Government Scientists and Engineers (GSE) to develop a science and engineering professional identity within the civil service and, among other things, to consolidate engineering advice available to government. Nonetheless, government still has only limited access to in-house engineering advice and therefore often largely relies on external consultants. Again, there are instances of important and critical decisions being made without the in-house CSA s advice being sought. The Royal Academy of Engineering and its partners in the professional engineering community have created two alliances designed to improve the government s access to engineering advice. Education for Engineering (E4E) 2 develops policy positions and presses government for action on key priorities to ensure an adequate supply of future engineers and engineering technicians. Engineering the Future (EtF) 3 supports engineering policy and has carried out studies for and with government departments on global water security, new nuclear construction, the smart grid and the potential impact of climate change on national infrastructure. 12 The Royal Academy of Engineering

13 Problems caused by failures in procuring and using engineering advice In my experience, those making decisions rarely know whether they are receiving good, bad or insufficient engineering advice and so do not perceive there to be a risk (and hence do not manage it). Problems caused by failures in procuring and using engineering advice Private sector Even in large organisations with access to engineering advice, short-term financial considerations can override high-level engineering concerns, the effects of which are only likely to emerge at a later date. Lowprobability, low-cost but high-reputational impacts can be overlooked. Companies producing established engineering products tend to have boards focused more on legal, financial and short-term issues that may make them vulnerable to either takeover or losing their market position to imports or innovative products in the field. In this case, engineering advice can often mistakenly be seen as being limited to keeping the plant running. Sometimes the structure of boards in the UK can stand in the way of their ready access to sound engineering advice. The requirement on boards is for there to be a majority of non-executives over executives normally counted as the Chair, Chief Executive Officer (CEO) and Chief Financial Officer. Thus, in order to maintain board numbers at manageable levels, engineers can be underrepresented at senior level. However, developing suitably trained and experienced individuals, able to undertake senior management and executive roles and then properly involving them in providing relevant advice as a critical part of the decision-making landscape - will help to keep engineering issues at the forefront of a company s agenda. Depending on the company involved, there may be board members who are engineers and able to provide advice, but this tends to be in companies that have a technical background and are well aware of the need for such input. Professional engineering governance: 13 the critical need for quality engineering advice in the boardroom

14 Generally speaking such risks are not properly managed. Consultants are sometimes used (usually at great expense) but their advice is not always understood by the non-engineers who requested it. Overall, there is a tendency for more boards to recognise the value of people with financial, business or legal backgrounds than people with professional engineering backgrounds. In organisations where there is insufficient engineering advice, there is a danger that serious technical risks will simply never be identified or properly managed, leading, in the worst cases, to large projects, or even companies, failing. They can lead to boards becoming overly risk-averse, thereby missing out on potentially lucrative opportunities or becoming less competitive in the future. Conversely, because of a lack of real engagement and informed dialogues with their advisors, many boards may still view their engineers as overly conservative. The key needs for boards and senior management in the private sector are: being sufficiently knowledgeable to identify when advice is required; being able to identify who is best able to provide the advice; being sufficiently knowledgeable of the subject matter to understand and act appropriately on the advice given. Public sector In large public projects the lack of engineering advice early in the process can lead to major issues further down the track. Recent examples of this have been national IT project failures where problems arise due to poorly-defined initial requirements leading to specification change (or specification drift ), cost escalation and, possibly, poor execution 4. Similarly, it is sometimes difficult to assess who owns the risk of large public projects resulting in a failure to assign accountability and responsibility. 14 The Royal Academy of Engineering

15 Problems caused by failures in procuring and using engineering advice Problems arise because, even in government departments with engineers on the staff, the engineering advice may not always be asked for, or indeed, listened to. Government must distinguish between scientific and engineering advice: they can often be regarded as equivalent within government when, in fact, they are quite distinct and there are few individuals capable of providing quality advice in both spheres. Generally, scientific advice is concerned with analysing the potential impacts or utility of new discoveries in specific scientific domains, whereas engineering advice concerns the problems, synergies, cost-effectiveness and risks involved with prospective policies and their implementation. Government often focuses more on the formulation of policy than on how or whether this will be delivered effectively. Having high level engineering input early in the policy making process would help to avoid expensive mistakes and sub-optimal outcomes. The use of externally sourced advice by government can also cause a number of issues. It is expensive and commercial interests can compromise the independence of the advice given. Government departments should ensure they have sufficient in-house scientific and engineering capability to act as an intelligent customer of research, development and technological advance and not rely wholly on external advice. Professional engineering governance: 15 the critical need for quality engineering advice in the boardroom

16 The UK has an excellent network of world-class Research and Technology organisations which offer advice, either through membership arrangements or by direct consultancy. These Centres of Excellence together with our UK knowledge transfer networks (KTNs) are admired in many other countries and must be fostered and maintained. What external sources of engineering advice are available? Engineering advice can be obtained from a number of sources: professional organisations, universities or regulatory authorities. The professional engineering community s recently formed alliance Engineering the Future (see above) provides a direct portal for government into professional engineering advice. This provides access to a wide range of engineering expertise and can provide guidance and advice in key areas of policy. Options range from producing expert reports to guide policy-making or serving on advisory boards to critically assess policy development and implementation. Both large and small companies can access advice from a number of valuable resources available such as Knowledge Transfer Networks (KTNs) 5, trade associations and professional institutions. In the UK, our KTNs are admired by other countries and can be of particular value to SMEs. 16 The Royal Academy of Engineering

17 How can professional engineers work to give relevant, good quality advice? How can professional engineers work to give relevant, good quality advice? Engineers must be aware that they have a great deal to contribute across all aspects of the organisation they work for. To achieve their full potential they must learn to engage effectively with others in their organisation regardless of their technological or sectoral background. To fulfil this potential it is important that engineers become more commercially literate and understand the variety of issues that influence the running of a business. They need to communicate the technical issues that they are concerned with in such a way that they can be understood by colleagues with different responsibilities, such as finance or marketing. There is also an onus on the engineering managers within an organisation to ensure that complex engineering issues can be communicated in a concise and understandable way. When advice is sought, engineers need to understand the need to frame their responses within the economic and legal needs of the company and recognise that often the task is to identify the least bad solution because the ideal is not obtainable. Education is the key to producing engineers with fully rounded understanding of commerce and business. This should begin at undergraduate level with the inclusion of suitable modules in all engineering degree courses. Engineering institutions also need to add the necessary business awareness to the professional training of engineers and scientists, and should also aim to foster the communication skills of engineers. Professional engineering governance: 17 the critical need for quality engineering advice in the boardroom

18 References References For examples see: The Royal Academy of Engineering

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20 The Royal Academy of Engineering As the UK s national academy for engineering, we bring together the most successful and talented engineers from across the engineering sectors for a shared purpose: to advance and promote excellence in engineering. We provide analysis and policy support to promote the UK s role as a great place from which to do business. We take a lead on engineering education and we invest in the UK s world class research base to underpin innovation. We work to improve public awareness and understanding of engineering. We are a national academy with a global outlook and use our international partnerships to ensure that the UK benefits from international networks, expertise and investment. The Academy s work programmes are driven by four strategic challenges, each of which provides a key contribution to a strong and vibrant engineering sector and to the health and wealth of society. Drive faster and more balanced economic growth The strategic challenge is to improve the capacity of UK entrepreneurs and enterprises to create innovative products and services, increase wealth and employment and rebalance the economy in favour of productive industry. Lead the profession The strategic challenge is to harness the collective expertise, energy and capacity of the engineering profession to enhance the UK s economic and social development. Foster better education and skills The strategic challenge is to create a system of engineering education and training that satisfies the aspirations of young people while delivering the high calibre engineers and technicians that businesses need. Promote engineering at the heart of society The strategic challenge is to improve public understanding of engineering, increase awareness of how engineering impacts on lives and increase public recognition for our most talented engineers. The Royal Academy of Engineering promotes excellence in the science, art and practice of engineering. Registered charity number The Royal Academy of Engineering 3 Carlton House Terrace, London SW1Y 5DG Tel: Fax: