The following day I conducted a seminar on Technology and Innovation in the Service Economy with doctorate candidates in the Business School. We had very stimulating discussions on the impact of STEM on service-based organizations, in particular, how increased access to information and sophisticated analysis and modeling tools can help managers make better business decisions, especially those concerning highly complex problems.
One of the students raised the question of whether, as service-based industries have better information and tools at their disposal, we should expect their management to become more professional in the way they make decisions, much as has been the case with engineering as it matured as a discipline over the decades.
It was a very intriguing question that has stayed in my mind since. What does it mean for a company and its management to be more professional? How is professionalism related to the scientific and technology underpinnings of the company, as well as to its use of information, analysis and modeling tools?
According to the Wikipedia entry for professional: “A professional is a member of a vocation - an occupation to which a person is specially drawn or for which they are suited, trained or qualified - founded upon specialized educational training.”
The Wikipedia entry lists a set of criteria associated with being a professional, which include: academic qualifications; expertise, specialized knowledge and skills in one’s field of practice; high quality work; a high standard of professional ethics and work practices, including often putting the interests of the client ahead of one’s own; and being motivated to do a job well to attain a high level of professionalism.
I don’t think there is much argument with these definitions and criteria. But underlying them is the expectation that to be considered a true professional there is an accepted body of knowledge, expertise and skills that a person needs to, as well as a sense of responsibility to clients, communities and society in general. This has been the case in a number of relatively mature professions like engineering.
Science and technology have clearly had a huge impact on engineering disciplines in the last hundred years. As a result, there are certain expectations that we now have for what it means to be an engineering professional, e.g., a civil, mechanical or electrical engineer. According to the IEEE: “The title, Engineer, and its derivatives should be reserved for those individuals whose education and experience qualify them to practice in a manner that protects public safety.”
We have similar expectations for engineering enterprises, such as a construction company that builds bridges, an automobile company that builds cars, or an energy company that builds nuclear power plants. They are supposed to use the best possible science, technology and talent to build bridges, cars and nuclear power plants that are both profitable and safe. They are expected to balance the interests of the company with those of their customers and society.
Well functioning societies have developed a number of checks and balances to ensure that companies do not abuse the public interest in their quest for wealth and profits. Government regulatory agencies have the responsibility to ensure that companies and markets are operating in accordance with such public interests. Examples of such agencies in the US are the National Highway Traffic Safety Administration (NHTSA), the Federal Aviation Administration (FAA) and the Securities and Exchange Commission.
Even when there is a fair degree of agreement among company executives, government regulators, academics and other experts about the science and engineering underlying an industry, major disputes will arise from time to time surrounding complex issues. The recent safety incidents and recalls concerning Toyota’s cars are but the latest example of such a thorny complex issue.If managing can be tough in relatively mature industries with sound science and engineering underpinnings, then what about managing in an industry lacking such solid underpinnings, as has been the case with the more service-oriented industries? Our ongoing financial crisis is a case in point.
A few individuals here and there can claim that they saw the financial crisis coming. But overall, the crisis seems to have surprised just about everyone else, including banking executives, financial regulators, economists - including quite a few with Nobel Prizes to their credit - government officials, and academics. It is fair to say that as a group, our country’s top financial minds, the so-called best and brightest, did not truly understand what was going on until the crisis was upon us.
Looking back, many of our financial experts may have actually contributed to the crisis by coming up with theories that leant credence to financial activities that made no sense. In retrospect, how could so many otherwise smart people have believed that it was OK to lend money to borrowers regardless of their credit history, employment status, income level or ability to make a down payment, because housing prices would just keep going up? Or that, in any event, lenders could protect themselves from the risks that homeowners would default on their mortgages by distributing the risks using innovative securitization and financial instruments like derivatives? The professionalism behind these decisions was seriously flawed.
There are many reasons why companies and industries make bad decisions, including greed, erroneous assumptions, misaligned interests, competitive pressures and perhaps mediocre management. But, equally valid is that our knowledge, expertise and skills may not have kept up with a fast changing world. What worked in the past may no longer apply. We need a better understanding of the new technology and market environments in which these industries are now operating.
Achieving such a better understanding, as well as a consensus on the underlying science and technology, is what we mean by the professionalization of an industry. I think that over the past century, we have seen major progress in the scale and public safety of engineering-based industries, including construction, transportation and energy, as we have achieved such a better understanding.
Hopefully, as we make progress in applying STEM disciplines to service-based industries – e.g., finance, health care and the public sector in general – the overall professionalism of these industries will similarly increase. If it does, that will lead to better decisions both for the companies involved and for society as a whole.