engineers, financiers, and efficiencies

both engineering and finance are unique in that entry level positions do not require further schooling (relative to medicine or law which requires several additional years of specialized education), these sectors are generally dominated by men, and both professions require long hours working at a computer.  moreover, the people that these fields produce are perceived of possessing strong mental capacity (for example, 95% of people have common sense and can learn quickly, but we accept that there will always be a few loose ones that have made it through by potentially questionable means).

both engineers and financiers have strong analytical skills.  both also have the intent of maximizing efficiency as a means to achieve the end goal (adding value to society or making money).  however, each approach varies.

as engineering culture permeates throughout google’s campus, ‘googleplex’, there are several instances that demonstrate the engineering mentality of / commitment to efficiency: google minimizes any potential ‘distractions’ (‘work’ at google is always considered fun and challenging) by providing free-to-use bikes to travel between buildings, free-to-use electric cars for running errands in mountain view (if you commute to work via the free google shuttle), umbrellas in the lobbies in case it rains and you forgot yours at home, on-site car wash, laundry rooms, and hair cuts.  google, understanding that its employees are striving to be the best engineers, also places one-page ‘training lessons’ in the bathrooms (above the urinals in the men’s restroom or in the stalls–‘learning in the loo’, ‘training on the toilet’) that is updated occasionally (when i had the immense pleasure of using a google urinal, i had the opportunity to learn about ‘loose coupling’; please refer to google, as my diminutive finance brain will struggle to explain it.  in contrast, not once had i the joy of being reminded how horrible my life was by reading a credit approval memo while peeing at my previous place of employment).

it is obvious the efficiencies of googleplex outpace that of the outside world.  Douglas Edwards, google’s 59th employee and author of ‘I’m feeling lucky‘, writes “After Google, I find myself impatient with the way the world works. Why is it so hard to schedule a recording on my DVR? Why aren’t all the signal lights synched to keep traffic flowing at optimum speed? Why, if I punch in my account number when I call customer service, do I have to give it to them again when I get a live person? These are all solvable problems. Smart people, motivated to make things better, can do almost anything. I feel lucky to have seen firsthand just how true that is.”

though google is one example, silicon valley, an entire community of engineers, operates on this premise of efficiency.  the whole movement behind tech startups is that these are nimble forces focusing solely on solving one inefficiency–i.e. to create a website as easily as possible (onepager), to provide a back-end for application development (parse for mobile, heroku for web/cloud management), to search without personalized results and data tracking (duckduckgo).  the engineer mentality, seeing the world analytically with the intent of minimizing resources and maximizing efficiencies, drive silicon valley and the startup hub.

finance breeds similar efficiency hounds, but from a different perspective. the existence of the capital markets and financial intimediaries is to provide corporations, government entities, institutions, and households with the cheapest financing and the highest returns (influenced by economic environment, supply and demand, monetary and fiscal policies, etc).  the capital markets, with participants ranging from short-term day traders, long-term value investors, arbitrageurs, and liquidity (or ‘flow’) traders (sales and trading desks in investment banks, whose main goal is to provide liquidity for the rest of the market participants), theoretically functions as the platform that efficiently allocates scarce resources, driven by supply and demand.  all market participants, intending to get the best price (either rate of return or financing costs), look for pricing inefficiencies in the market.

for those that actively invest and/or trade in the market, these market inefficiencies can be a source of income (i.e. hedge funds, proprietary trading shops, private equity firms).  value investors (the most renowned is warren buffet) look for publicly traded companies that are underpriced by the market for various reasons.  private equity firms play another role in applying efficiencies in their business: they buy ownership in other companies (either from the public equity markets or from other owners) and reorganize the business through layoffs/debt restructurings/partnerships with other portfolio companies/etc. to maximize shareholder return and return on assets.  PE firms (most recognized in pop culture via gordon gekko in the 1987 movie ‘wall street’) are known for their ability to squeeze as much value as possible out of existing assets, laying off people and even selling the company in pieces, while making a quick buck.

business, in general, requires an efficient mentality–on a basic level, knowing how to minimize costs and maximize output (on an even more basic level, knowing to buy low and to sell high). this could explain why engineers start their own companies; because their existing workplace is inefficient, they love solving challenging problems, and/or they enjoy applying their hacking mentalities to running a business.

the one main difference between the approach towards maximizing efficiency from engineers and financiers is that engineers focus on the details, whereas financiers examine the big picture (though i believe this could be attributed to the differences in the nature of the field: engineers build solutions piece-by-piece, financiers take a macro view on industries and the economy).  just the culture and campus of google compared to the stiff hierarchy of an investment bank demonstrates the differences in the attention towards micro efficiencies.  just the nature of how an investment bank operates–highly regulated and with billions of dollars on the line–defines the tight-anus corporate culture and strict organizational structure that increases bureaucracy and slows any real decision making (at a bank, to the immense disdain or the tremendous pleasure of others, you are now forced to not only nibble at the teat of your immediate boss, but also of your boss’s boss, as well as his boss’s boss).  this analogy could be extended to our congress and to the way our leaders today make decisions (though i am highly suspect that things do not have to be this way; our current leaders are just increasing the barriers to compete against their organizations as a form of rent-seeking).

of course there are exceptions, as there are specialized financial engineers who focus on the probabilities and pricing of specific derivatives (focusing on a micro aspect of one financial instrument in the market place).

perhaps engineers and financiers are not too different.  after all, the majority of silicon valley is libertarian, as is the majority of manhattan.

andy

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One thought on “engineers, financiers, and efficiencies

  1. andrewjiang says:

    The educational background of the average engineer vs financier is very different — whereas engineers typically are trained in hard sciences and quantitative disciplines grounded in analytical rigor, financiers tend to have studied softer, more ‘macro’ disciplines, which goes to explain the main difference in approach you mention.

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