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Vision versus Reality - 1965 to 1975

Vision versus Reality - 1965 to 1975
The First Market Analysis and Business Projection for CH2M

Summarized by Dave Evans, February 2013

INTRODUCTION

For the first time, the Alumni History committee has had the opportunity to view perhaps the first of many market analyses and the rolling 5- to 10-year business projections prepared by CH2M. The source of this vignette is Archie Rice's personal copy of FROM HERE TO WHERE? 1965 TO 1975 - A Market Analysis and Business Projection for Cornell, Howland, Hayes, and Merryfield. The report was submitted to the Board of Directors on January 11, 1967. The report "was a principal responsibility of Mr. Kenneth Johnson and is the major contribution of the Business Development Director (Thomas B. Hayes) for 1966. The document cover lists four offices (the "then world" of CH2M) in the following order: Seattle, Corvallis, Boise, and Portland.

The cover letter of this 86-page document plus Appendixes states, in part:

"The general conclusions reached in this report are:

  1. CH2M has enjoyed a growth during the past decade of between 15 and 20 percent per year.
  2. CH2M has controlled approximately 5 percent of the total public and private engineering effort (outside of manufactured products design) in the Pacific Northwest.
  3. CH2M has controlled up to 40 percent of all sanitary engineering in the Northwest during the last several years.
  4. CH2M's control of more than one-half the total sanitary engineering beyond 1970 is unlikely because competition from new and/or outside firms plus anti-monopoly psychology of clients will force some such ceiling.
  5. Continued CH2M growth at the 15 to 20 percent rate beyond 1970 is unlikely unless a new outlet for engineering practice is opened."

"Accordingly, the business growth alternatives available to CH2M after 1970 are:

  1. Growth reduced to 5 to 10 percent per year.
  2. Increase activity in new fields and in fields where CH2M presently has a small share of the available market.
  3. Entry into new geographical areas."

Clearly, the hindsight of actual history comes into focus when one reads this vignette. Some of this history is reflected in this vignette. Refer to Related History and Hindsight at the end of this vignette for the "Rest of the Story." As always, your contribution is special. Please contact Dave Evans at shootmyage72@gmail.com, with copy to Gordon Koblitz at gordon.koblitz@ch2m.com, or Don Marske at donmarske@gmail.com

A SUMMARY OF FUTURE PROSPECTS FOR CH2M

THE ANTICIPATED FUTURE BUSINESS THROUGH 1975
The Business Divisions used to make the 1965 to 1975 business projections were "Sewer Projects," "Water Projects," "Ports and Structures," "Soils and Paving," "Architectural," "Power," and "Other General."

The "planned" business division percentage share as taken from Table P-1 of the report for the beginning of the 10-year planning period (1966) and the ending of this period (1975) are summarized in Table 1 below.

Table 1. Planned Business Division Share of Business - 1966 to 1975
Business Divisions 1966 1975
Sewer Projects 28% 30%
Water Projects 21% 23%
Ports and Structures 18% 13%
Soils and Paving 8% 9%
Architectural 8% 8%
Power 6% 6%
Other General 11% 11%
TOTAL $ (In Thousands) $2,966 $7,446

The 10-year plan, as presented in Table 1, forecasts real growth in the combined wastewater and water business divisions from 49 to 53 percent share of the top line; whereas, ports and structures were forecast to have a significant decline.

The Table 1 total forecasted top-line growth of CH2M by year from 1966 through 1975 is compared with actuals in Table 2 below.

Table 2. Forecasted 1966 to 1975 Business Growth Compared with Actuals
Year Forecast (1,000 $'s) % Annual Growth Actual (1,000 $'s) % Annual Growth
1966 $2,966   $5,700  
1967 $3,551 19.7% $6,800 19%
1968 $4,136 16.4% $7,000 3%
1969 $4,720 14.1% $7,400 6%
1970 $5,301 12.3% $9,200 24%
1971 $5,731 8.1% $11,500 25%
1972 $6,159 7.5% $17,500 52%
1973 $6,558 6.5% $24,000 37%
1974 $7,017 7.0% $31,000 29%
1975 $7,446 6.1% - -

The 10-year growth forecast envisioned a declining annual growth from nearly 20 percent in 1967 to about 6 percent in 1975. Actual annual growth rates suggest a range from 3 to 52 percent over this 10-year period. The authors of this vignette suspect that the "forecast" and "actual" numbers are based upon different databases. For the above table, the percent annual growth is likely to be more meaningful.

POTENTIAL NEW FIELDS

The report went on to outline the strategic direction for some current and new services and markets.

Architecture
"At present, CH2M offers assistance to architects in structural, mechanical, and electrical fields. No architectural work is undertaken without association with an outside architect. The possibilities for expanding CH2M work in this field are enormous." At the same time, the 10-year forecast shows a very modest growth from $249,000 (8 percent share) in 1966 to $594,000 (8 percent share) in 1975 with no real growth as a percent of the firmwide top line.

Electric Power
"Another area of business to consider is the exploration of the PUD market in the electrical power field. Tables P-3 and P-4 [of the report] show the great strides that have been made in the electric energy available in the Northwest and also in the ownership of that power… No particular extensive study was made on power groups; however, it would appear at first glance that this area represents further examination." The 10-year forecast again shows a very modest growth from $184,000 (6 percent share) in 1966 to $477,000 (6 percent share) in 1975 with no real growth as a percent of the firmwide top line.

Turn-Key Operations
"The largest engineering companies in the United States are design constructors. It is a very large field which will undoubtedly grow rapidly in the future. Additional study would be required to determine the degree of competition, the cyclical swings of revenue due to contract awards (or losses), the extent of specialization in the field, and the financing required. It is something to consider in the future."

Air Pollution
"One of the most promising areas of development is in the air pollution field. Our firm is a leader in water pollution control and undoubtedly this business will grow; however, little has or is being accomplished in the air pollution area."

"To date, no Federal Aid is available to industry although grants-in-aid are available to State, local, regional air pollution agencies. Industrial tax write-offs are proposed for expenditures for air pollution control. It would appear that Federal spending may come under fire by the newly elected Congress; however, the urgency of the need for air pollution will be the deciding factor and should result in much more activity in the near future."

New Offices
For the next decade (1965 to 1975), new offices became a very important part of this 10-year plan of "From Here to Where."

This Plan began by saying: "Another method of increasing revenue is to open additional office points serving new areas. To arrive at logical locations for future offices [beyond Seattle, Corvallis, Boise, and Portland], population forecasts for the next 35 years were studied. The best of these forecasts appeared to be the Urban Land Institute (ULI), Washington, D.C. forecast."

"The ULI forecast predicts that by the year 2000 there will be nine metropolitan areas of more than four million people: New York, Los Angeles, Chicago, Detroit, Philadelphia, San Francisco-Oakland, Washington, D.C., Miami-Fort Lauderdale, and Dallas-Fort Worth. [There were only three such areas in 1956.]"

"In addition, there should be 37 areas which will contain between one and four million people. This compares with 14 such areas in 1956."

"The forecast made in 1957 predicted the fastest growing areas of the future to be California and Florida. The Great Lakes-Midwest Area forecast was for growth at about average U.S. growth and the Atlantic metro area to grow at a less rapid pace than the total U.S."

"The conclusions are that areas to be considered for additional offices are: Northern California, the Denver area, Southern California, and the Arizona area; with the possibly Miami-Ft. Lauderdale, Washington D.C. area, the Boston area, and the Ohio-Indiana areas considered for later expansion."

Offices opening between 1965 and 1975 were:

  • San Francisco Area Office under Clair A. Hill and Associates (1970)
  • San Francisco Regional Office (1971)
  • Reston Regional Office (1971)
  • Denver Area Office (1971)
  • Pacific Islands Office (1971)
  • Denver Regional Office (1973)
  • Sacramento Regional Office (1973)
  • Los Angeles Area Office (1974, now known as Southern California Regional Office)


PERSONNEL REQUIREMENTS

"Before any requirements regarding personnel can be made, several assumptions had to be made:

  1. The present areas of business will remain unchanged (as in the projections).
  2. If new office points are opened, additional administrative personnel will be required, above the requirements shown.
  3. The projections are reasonably accurate."

Based on the average of the past 3 years as to hours per 100 billing dollars, the report estimated the total personnel needs (all four offices) by year. These projected personnel requirements are compared with actual growth in Table 3 below.

Table 3. Forecasted 1965 to 1975 Personnel Growth Compared with Actuals
Year Estimated Full-Time Employees % Annual Change Actual Employees % Annual Change
1965 158   280  
1966 220 39 320 14
1967 259 18 360 13
1968 296 14 400 11
1969 331 12 410 3
1970 364 10 450 10
1971 386 6 550 22
1972 407 5 640 16
1973 427 5 810 27
1974 445 4 1050 30
1975 463 4 - -

The 10-year growth forecast envisioned a declining annual staff growth from nearly 39 percent in 1966 to about 4 percent in 1975. Actual growth rates reveal an increasing annual range from 3 to 30 percent over this 10-year period. The authors of this vignette suspect that the "forecast" and "actual" numbers are based upon different databases. For Table 3 above, the percent annual growth is likely to be more meaningful.

RELATED HISTORY AND HINDSIGHT - "THE REST OF THE STORY"

Was this first recorded effort for a CH2M 10-year plan a bad effort? Absolutely, not. Was this plan a vision based upon current visions? Absolutely, yes. Were these leaders willing to take on new ideas outside of the "Plan"? Again, absolutely, yes!

Looking backward, the most noteworthy omissions from this 10-year plan are the topics of expansion and acquisitions, national strategic projects, and/or the impact of projects and project offices far away from the Northwest. The "Alumni History" under the Tabs of "History by Year" illustrates what actually occurred during the 1965 to 1975 period, and "Expansions" records:

  • Expansions [1965 to 1975]:
    • Sub Surface Exploration Company - 1966
    • H. Zender and Associates - 1968 - Joined Seattle office and became the beginning of CH2M's financial analysis capabilities
    • Clair A. Hill and Associates - 1971 - Added Redding, Anchorage, and other CAHA offices
    • Hill - Harned and Associates - 1974 - Added geotechnical capabilities

Aside from the very important past hyperlinks cited above, take a look back at the following vignette hyperlinks titled the "The Growth of CH2M HILL" and the "Global Years 2000 - 2007, A Topical Outline" to join your Alumni History Committee's wow factor for these and future years!