Academic journal article Business Economics

The Business Economist at Work: Eaton Corporation

Academic journal article Business Economics

The Business Economist at Work: Eaton Corporation

Article excerpt

Perusal of a list of today's business bookshelves could make for some seemingly grim reading: dozens of different variations on the "Reengineering the Corporation" concept. If these are today's management imperatives, they strongly suggest that the more corporate functions and overhead are eliminated, the better. So how does an economist and the economics department that is a part of the Corporate Planning staff in a Fortune 500 Corporation justify its existence? The answer is thankfully simple and brief: adding value. Fortunately for those working in economics at Eaton Corporation, the company offers excellent opportunities to add value to the enterprise, and in doing so stretch out their capabilities.

Eaton Corporation is a $7 billion global manufacturer of highly engineered products that serve vehicle, capital goods, and construction markets. Its principal products include truck transmissions and axles, automotive engine components, hydraulic products, electrical power distribution and control equipment, ion implanters, and a variety of controls for automotive, appliance, industrial and construction applications. Its primary markets are as varied as residential and nonresidential construction, cars and trucks, appliances, aircraft and aerospace, industrial, off-highway equipment, golf equipment, and semiconductor manufacturing. World headquarters of Eaton Corporation is in Cleveland, Ohio.

ARE CORPORATE ECONOMISTS NECESSARY?

It would seem to make sense that companies such as Eaton, having exposure to markets that ride the economic cycle, would find a real need for a corporate economist or economics staff. But facts at hand seem to give lie to this belief. The "declining ranks of business economists" story has been widely reported in the New York Times and the Wall Street Journal. The size of NABE membership rolls has been an issue of concern to its board and membership. The cloudy future of the profession has led to difficulties in attracting young talent into the economics discipline at the undergraduate level. Even the Federal Reserve Bank of Cleveland canceled its quarterly economic roundtable, in part because it could not attract participation from a representative cross section of industry economists and analysts. In the heart of industrial - and cyclical - America!

Part of the explanation lies in the changes that have occurred in the corporate management model over the past fifteen to twenty years. At Eaton, and in many corporations in the 1960s and 1970s, corporate plans were the work of a centralized staff, which fed "the corporate plan" to operating divisions in a top-down process. Corporate economics was frequently a key contributor to that staff work. Equipped with newly available on-line databases and mainframe timesharing, they seemed ready to respond with the tools necessary to tame the problems of forecasting the business cycle.

But there were two problems:

1. Because of the authority that computers and computer-generated output commanded at that time, a world very different from today's PC dominated world, the economics profession probably oversold its mastery of business cycle forecasting.

2. More importantly, all too often, divisional management had limited input in the development of "the corporate plan" and little or no discretion to alter the assumptions and projections they were built upon. It follows naturally that there was little sense of ownership or commitment to seeing the plan through to success. The past twenty years have seen the development of a new corporate management model, in which decisionmaking autonomy, and the associated planning and business forecasting activities, have been pushed down the organization. This has been successful in creating less top heavy, more flexible organizations. But for the business economist, it has sometimes been difficult to find a home in the new corporate organization. There is no room at the top, and priorities are placed on disciplines such as market research at the divisional or operational level. …

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