Don Fusilli acknowledges that 2002 wasn’t such a great year for Michael Baker Corp. And, in many respects, 2003 wasn’t any better. But after a couple of troubled years, the president and CEO of Pittsburgh’s largest engineering company is beaming over Baker’s strong rebound in 2004.
“This (past) year, I think, is more indicative of our sustainability,” says Fusilli. “’04 is one of our best financial years.”
Despite some tough sledding over the prior two years, Fusilli appears to view both the ups and downs as simply part of doing business. And don’t expect to see him or Baker relax while the company’s fortunes are on an upturn.
“Even when you’re doing well financially, there is a sense of urgency,” Fusilli says. “You can’t throw your feet up on the table and enjoy it (or) get complacent.”
Far from it. Fusilli, a 32-year Baker veteran who took the helm as president and CEO of the 4,300-plus employee firm in 2001, spent about 150 days on the road last year — something he says he enjoys — visiting customers and Baker offices and project sites. And he wasn’t alone. Baker management feared that its sluggish performance might create a brain drain or a recruitment drought.
“For two years, senior management spent a lot of time on the road talking to our employees,” says Fusilli.
The bounce in 2004, he says, can be attributed, to a great extent, to Baker’s inherent strength as a company. It may also be attributable to the plan that Fusilli put into motion to get the company back on track. The two consecutive soft years, he says, were spent working on the strategies and the systems that would lay the groundwork for future success.
But it wasn’t easy.
“We discovered that change, culturally, physically and mentally, and in all the other aspects, was a very deep-seated challenge,” he says.
What went wrong?
In 2002, Baker suffered from some of the same maladies that plagued virtually all businesses during that timeframe. With 70 percent of its engineering contracts related directly to federal, state and local government work, contract postponements or cancellations in the wake of the Sept. 11 terrorist attacks stifled Baker’s performance. The company’s other principal segment, its energy business, sagged as ownership of assets in its core market, the Gulf of Mexico, were sold off by Baker’s traditional customers. Contract revenue increased in 2002 over the prior year, but the company’s profitability lagged.
In 2003, the implementation of an initiative designed to increase Baker’s efficiency and profitability over the long term created an expensive short-term problem. Fusilli invested in an enterprise resource planning information system, an ambitious project to integrate all departments and functions across the company into a single computer system to serve all of its departments’ particular needs, as well as provide more powerful financial reporting.
Fusilli says the overall goal of the ERP system was to achieve operational excellence, to make sure that everyone in Baker understood customers’ expectations and to make sure that Baker’s resources were aligned with customers’ needs, and determine what, if anything, the customers needed to reach those goals.
The ERP system proved to be more difficult and expensive to deploy than anticipated. The implementation created a lot of paper-and-pencil work for engineers — and virtually everyone in the company — between the time when old systems were dismantled and new ones were full online. Projects were tracked “on the backs of envelopes.” The billing process was slowed, and so were payments. Fusilli dipped deeply into the company’s line of credit to the tune of $45 million to pay for the costs associated with the ERP installation.
“There was a time when we had three, four, five different management systems operating our business,” says David Higie, Baker’s vice president of corporate communications and investor relations. “Taking all of that and then moving that into one system and getting everyone in the organization to work with it is a huge task.”
The process was far from painless, but Fusilli says Baker is a better company for the changes, despite the dampening effect on its financial performance.
“What we found is that it’s been one of those changes that’s allowed us to drive the organization in a much more seamless, consistent fashion than we previously experienced,” he says. “I think that two years, where we invested a lot of time and money, reflects in our financial performance.”
But Baker was doing well operationally “under the surface,” he says, even if its on-paper financial performance was weak.
“When we went into ’04,” Fusilli says, “we started getting some traction.”
Opportunities ahead
Despite the previous lag in its energy business, Fusilli sees the industry as one that offers promising opportunities over the long haul. The global demand for energy isn’t about to ebb soon, with growing economies in Asia putting pressure on worldwide supplies and rising costs creating incentives to exploit alternative energy sources. Prices will stay at levels that will encourage producers to invest in production capabilities, Fusilli says. He believes that Baker can offer energy industry customers not only engineering capabilities at the front end, but long-term consulting services and assistance in maximizing the potential of their existing facilities.
As an example, a Baker customer operates an oil and gas production facility in Wyoming. The customer sees production of coal bed methane gas, in light of high oil prices, as an attractive opportunity. Baker can bring to bear its expertise in solving the engineering issues involved in retrieving the gas, from bringing it to the surface to the handling and remediation of the water released in the process.
“Our operating people are looking at opportunities where we can bring in our engineering capabilities,” Fusilli says.
Those capabilities, says Fusilli, aren’t tied solely to development of production facilities. Baker’s competencies extend to facilities management, offering contract opportunities that can provide revenue for the company for decades.
On the engineering side of its business, Fusilli has decided to increase its share of work in the federal sector. Those efforts paid off last year, as Baker landed a five-year, $750 million contract with the Federal Emergency Management Agency as program manager to develop, plan, manage, implement and monitor a program for flood hazard mitigation in the United States and its territories.
In the past, about 10 percent to 15 percent of Baker’s engineering work was done on federal contracts. Currently, more than half of its engineering business is in federal contracting.
While the Sept. 11 attacks delivered a punch to Baker, subsequent events and spending decisions have provided the company with additional opportunities. Baker is providing architectural and engineering services in Afghanistan, assisting with plans for projects that include military facilities and bridges, and has a contingent of about 20 professionals in Baghdad, working in a joint effort with two other engineering firms to design infrastructure improvements. Baker’s presence could expand to other projects in Iraq, where repair of roads, bridges and water handling systems is needed after years of neglect and the war.
After taking on debt to cover the difficulties it experienced in 2002 and 2003, Fusilli secured a $60 million line of credit, a $20 million boost to the previous line, late in 2004 through several banks in Ohio and Pennsylvania. It’s a move that Fusilli views as a vote of confidence for the company. He says at least a portion of those funds will be meted out to acquire engineering firms whose owners are seeking an exit or a strategy for growth, or that offer expertise in narrow disciplines that can complement Baker’s existing capabilities.
With reinvigorated financial performance borne out of long-term planning and up-to-date information systems, Fusilli is in a position to create some growth through acquisitions, a tactic that not long ago would have been difficult to execute.
“Two years ago, buying something would have been tough,” he says. Now, after a much improved year in 2004, Fusilli is looking for strong performance in 2005 in both of the company’s segments and continued growth.
With those two troublesome years behind him, Fusilli says that getting through the tough times requires an effective plan, constant and intensive communication with every constituency and flexibility.
“That’s when you have to get out in front of people and constantly tell them what it is you’re trying to accomplish,” he says. “What it is that you’re implementing, how you see the measurement, the metrics that determine your success. Nothing is ever in concrete; you have to be willing to adjust as you go forward.” How to reach: Michael Baker Corp., www.mbakercorp.com or (412) 269-6300
