In the changing world of consulting engineers, size and service have become critical.
In the consulting industry, you certainly can say size matters. The only problem is figuring out just what size. In some situations, being the big guy is not always the best way to go - particularly when many contracts are small and there is high overhead.
On the other hand, being small isn't always good either in today's era of increasing consolidation. A small firm may not have the scope and breadth of resources to satisfy their clients' demands for a "one-stop shop."
The consulting engineers clearly are being buffeted by increasingly powerful economic forces. There just aren't as many big-ticket projects, such as landfills, being built these days. Consequently, many firms have had to change the way they do business. Some even have gotten out of the industry.
A Matter of Survival To survive, companies now are busy diversifying into environmental areas outside of solid waste.
"Firms are trying to survive by going where the market is," says William C. Anderson, executive director of the Annapolis, Md.-based American Academy of Environmental Engineers. "The principle markets today are water and wastewater. So if you've done a lot of solid waste work in the past, then you're probably trying to retool yourself so that you can tie on this other work."
Consulting engineers agree that they are moving beyond their traditional areas of responsibility.
"Instead of just doing landfill design and closure, [consulting firms] probably are doing ground fill projects to redevelop those sites," agrees Elwin Larson, executive vice president of Omaha, Neb.-based HDR Inc. "Five or 10 years ago, people would simply work in landfill closure per the waste management plan for that site."
Consultants also are moving into areas such as facility design work, waste-to-energy plants and composting facilities. Some even agree to take on more risk and offer firmer guarantees of their work than their profession usually requires - for a price, of course.
"On the facility design area, our work is much smaller than it used to be," says James L. Walsh, project director for SCS Engineers, Cincinnati. "Solid waste plants were a huge area for us 10 years ago because of the perception that our waste needed to be managed by the public governments that are responsible for it. We did a lot of solid waste planning for a lot of counties and states that were into it at the time. But there aren't many big state initiatives any more. It's mostly projects of opportunity. So, our solid waste planning market is not as big as it used to be."
Consequently, there has been an increasing trend for firms to "partner" with other companies that have different skills and resources because, as Anderson says, "a piece of a job is better than no job."
Does Size Matter? The role a consulting firm plays often is determined by its size. There have been significant moves toward consolidation in this industry, just as there have been in many other businesses.
"Everybody's buying everybody," Anderson says. "You need a scorecard to figure who is what anymore. A major chunk of the business is being secured by very few firms. So there are people out there who are trying to get bigger and bigger. [They're hoping that] with increased size comes the mix of people and practice that will enable them to be successful."
In the meantime, an increasing number of small firms geared to a particular "niche" are beginning to dot the landscape. Those that are able to provide "quality" services are finding that they can be successful - particularly when it comes to picking up smaller contracts that the behemoths overlook.
"As a result, you end up with a big hole in the middle," Anderson says. "There always are going to be small firms - one-man, five-man. I was able to make more money with 15 employees than I was with 35. Talk to any management consultant about the business and they will say, `be big or be small; don't be in the middle.'"
However, "the middle" used to be defined as somewhere between 30 and 100 employees, Anderson says. Today, the middle is getting much bigger.
"If you're going to be a major firm, you have to have more than 1,000 employees," he says. "That's a lot of mouths to feed on an ongoing basis."
Feeding all those mouths has no doubt inspired firms to embrace the much ballyhooed concept of the full-service firm or "one-stop shop."
"We all talk about the concept [of the one-stop shop] internally," Larson says. "Clients have less staff than they had in the past, so it's just a matter of whether they have time to deal with these things. Their time is better spent if they have one contact person who can do multiple tasks. They don't have the time to deal with 10 or 15 consultants. Do they want a one-stop shop? That's what you hear."
Observers note that the push to be all things to all clients is a result of client demands plus the potential opportunity to activate additional streams of revenue.
Engineers and Contractors? As firms branch into areas that are far-removed from the pure engineering work they may have done in the past, some even are getting involved in equipment manufacturing or construction.
Good examples are the companies that have gotten into the construction business either through acquiring a construction company or by starting one of their own. For instance, SCS Engineers - an employee-owned, international engineering firm specializing in solid waste management and environmental services - has its own construction subsidiary.
"To differentiate ourselves or respond to market desires, we're getting involved in things traditional engineers haven't been involved in," Walsh says. "We are first and foremost an engineering design and consulting company, but about 12 years ago, we started our own construction company as a wholly owned subsidiary. A lot of competitors have done the same thing."
Walsh and others in the industry explain that it is not enough to simply offer "raw services."
"[Consulting companies are] getting into other lines of work," Walsh says. "These either are construction only or - here's the differential - design/ build opportunities. That's a reflection of what the market is demanding. That is, if you're a service provider, they don't want you to just provide engineering services; they want you to be involved in the project from A to Z. That creates growth opportunities for engineering firms by not confining themselves to engineering services."
What's Right? Walsh acknowledges that the perception of what constitutes ethical practices can be quite different for the engineer and the building contractor.
"That's not to say you lie, cheat or steal if you're a constructor, but it means certain things are expected and condoned as part of the construction business that aren't part of the engineering business," Walsh explains. "There are pressures when you get into those other lines of business. You look at business differently and conduct your affairs differently."
To deal with those ethical considerations, SCS has created two separate companies, and employees work for only one. "I work for SCS Engineers," Walsh says. "I'm an owner of SCS Engineers, and that makes me an owner of our construction company subsidiary. But I have different people running that business. They run their affairs as a construction company."
Not all firms, however, have the capacity to move in this direction.
"The problem as consultants get into the construction industry is that they don't have the bonding capacity to do construction work," Anderson says. "Usually, that means the company then has to partner with a construction firm - either as a joint-venture arrangement for the job or as a more integral part of the construction company. When you get into operations, contracts and big facilities, the guarantees also are relatively significant because the people who are buying your services expect a lot."
While customers talk about the one-stop shop and the need to cater to their every whim, some consulting firms have chosen not to bend. Instead of letting their customers choose them, some firms choose their customers.
Choosing Your Customers White Plains, N.Y.-based Malcolm Pirnie, for example, has chosen not to represent large national private sector companies such as Waste Management Inc., Houston; Allied Waste Industries, Scottsdale, Ariz.; Superior Services Inc., West Allis, Wis.; and Republic Services, Ft. Lauderdale, Fla. Instead, Malcolm's target clientele comprises municipal customers and smaller, more regionally located private companies.
"As the marketplace has shifted more from municipal to private, that has impacted our business because more of the industry is controlled or dominated by those large, national private sector companies," says Ronald Mills, a senior associate in the company's Columbus, Ohio, office.
"As a result, our business has had to shift from the more traditional engineering design, say for landfill development or expansion, into the peer consultancy realm. There, we work with local municipal or smaller regional private companies to determine how they want to be involved in the industry or their local markets," he says.
"If clients don't own capital facilities in the case of local governments, then [we help them determine] what options they have that can affect the local market and make sure their citizens are receiving competitive prices and quality service," he adds.
Mills notes that this has been a profound shift for his company. Because of changes in the marketplace, the firm has gone from performing projects that were valued in the millions of dollars to smaller jobs that may be as low as $30,000.
"The projects are much smaller," Mills says. "They tend to be much more focused on specific issues that a local government or a small regional hauling company is trying to deal with. We still have a good deal of traditional engineering work for both of those types of clients, but they are fewer and farther between."
He adds that as privatization continues and more of his company's municipal clients privatize capital facilities, traditional engineering work for municipal governments will continue to decline.
That has produced a re-evaluation of the kind of work Malcolm Pirnie expects to perform. Instead of providing an array of services for a company such as Waste Management, the company concentrates more on tailoring its services to the needs of a particular customer base.
For example, the company is more likely to show a number of municipalities how they can work together, he explains.
"We're looking at assisting those types of municipal clients trying to form regional coalitions," Mills says. "Multiple counties may end up entering into joint agreements. A landfill that is owned by one county might serve several. By bringing in a higher volume, the municipalities can better compete with the mega-fills that the private sector now has in place."
Helping the Public Sector to Compete Some companies also have discovered that there is a significant market in helping municipal and other public sector clients deal with the shifting political and economic landscapes. Public Works departments increasingly are refusing to submit to pushes for privatization.
"That's a hot button issue with public entities," Walsh says. "With privatization initiatives, most public governments in the solid waste management business are feeling pressures to put their services out for bid. One of the ways they're responding is to demonstrate that they can be as efficient as the private sector is alleged to be.
These government bodies are hiring firms to examine their business practices and make recommendations on how they could become more competitive.
"I'd like to think that some of that always has gone on," Walsh says. "It hasn't explicitly been called business planning for public entities before. Now we're seeing specific initiatives to look at these operations and make recommendations on how they can be more efficient."
Additionally, consultants also are helping municipalities cut better deals with private firms to deliver greater value to their citizens.
Cutting Prices - Too Deep? Meanwhile, consulting engineering firms of every size are battling pressures to keep prices low. These companies only have had to look around to see that fewer bodies of once proud companies now litter the industry landscape.
"In the traditional engineering arena, price has become an issue," Mills says. "With the decline in the number of landfills, consultants have had to become more competitive in pursuing traditional engineering design (on landfills). The result - because there are fewer projects - has been more price competition.
"Significant pricing pressures are moving the market downward," he continues. "That's one factor that has led to the development of smaller consultants, because they're better able to compete in that kind of a market. It certainly is one of the factors causing larger consulting firms such as Malcolm Pirnie to look for more of a niche market to provide higher-end consultancy services that are not driven so much by price."
Consulting engineers say that by buying quality in the beginning, clients can save money in the long-run. After all, the only reason a service can be priced low is if a firm plans to make up the difference by acquiring additional and higher-priced work. The low-end job becomes, in essence, a "loss leader."
Price competition is nothing new - the industry has faced similar pressures for at least the past 30 years, according to Anderson, who spent more than 26 years in the industry before taking over directorship of the AAEE.
"It's just a hammer that, if you're in the business, keeps hitting you in the head everyday," he says. "[With] every job that we competed for, there always was someone trying to take it on the basis of price. As companies become more efficient and productive with their personnel, that has not translated into increased return on investments for [consulting] firm owners. This just becomes a way to cut the price more so that they can get the job."
Price, customers and the marketplace clearly point to the fact that the world of the consulting engineer has been altered. Some firms have not adapted well to this brave new world and have faded from the scene. Others have taken up the challenge and found new ways to adapt and prosper. Times have changed, but the spirit that drives success is still very much alive.