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The business economist at work: The Bechtel Group.

THE WORK of every business economist is shaped by three main forces: the industry in which the economist works, the particular firm within the industry; and the individual's background, capabilities and predilections. I suspect that few economists' jobs are cut and dried by a formal description and that most of us wind up doing a lot of what we are good at and ignoring (or even being unaware of) other "economist-type" things that we could be doing -- even if we are regular readers of "The Business Economist at Work". Thus, in describing what I do and what I think I should be doing, there is a vague feeling that maybe I should be doing something else -- if I only knew what it was. After ten years, I am still learning my job, partly because the engineering-construction industry keeps changing, partly because Bechtel keeps changing, and partly because I keep changing.


Bechtel's business is engineering and heavy construction. Our core is complex, large, nonresidential projects, particularly energy, natural resources and infrastructure. Depending on the project, we handle any or all stages of work: project development, feasibility studies, arranging for financing, engineering design, procurement of equipment and materials, direct-hire construction or construction management, maintenance, operation and ownership. To do all of this, Bechtel has about a dozen engineering and construction business lines (the number changes from time to time depending on structural changes in the market), regional project execution offices, a procurement organization, a financing services organization, and a project development group. This wide scope of activities and the importance of the political dimension imply that Bechtel's two corporate economists must really be political economists rather than economic specialists, in spite of the fact that I happily spent most of my pre-Bechtel career as an econometrician or managing econometric studies.

Bechtel's business is split about 50-50 between U.S. and non-U.S. customers, although the split may vary widely from year to year. At any given time, we work in fifty or more countries. Our non-U.S. work is coordinated in three major regional organizations: one covering Europe, the Middle East, Africa, and South Asia; a second covering East Asia and the Pacific; and a third covering Latin America. There is also a national presence in Canada.

A fundamental trait of heavy construction, and the engineering that is associated with it, is that its output is discrete and unique, with projects commonly having total installed costs running into hundreds of millions or billions of dollars, and no two of them alike. Each project has a unique combination of basic design, construction conditions, and political/economic/financial context. Little about this market is amenable to analytic tools based on the assumption of continuously differentiable functions. A second fundamental trait of the engineering-construction business is that it is highly volatile and does not seem to follow short-run aggregate business fluctuations very closely. For example, when the U.S. economy was booming in the mid-1980s, Bechtel and other engineering-construction firms were suffering because the U.S. had excess power-generating capacity and the world had excess petroleum-production capacity. Conversely, we were booming in the 1982 recession. Moreover, more than most industries, a real distinction exists between when we sign a contract (usually the culmination of months or even years of preparation and negotiation) and when we complete our services, typically several years later. Thus, the Bechtel corporate economists' emphasis is more on growth and long-run structural change than on short-run fluctuations. WHERE WE FIT IN BECHTEL

Bechtel's formal organization is rather flexible, changing fairly often within a well-defined general framework. To the extent possible, strategy and market analysis are the responsibility of the individual business lines. The lack of a "natural" home has given the corporate economics function a rather nomadic character, historically changing its organizational home roughly every two years. We never got far from the general areas of management information or project finance and seem to have found stability in Bechtel Enterprises, which houses Bechtel's financing services and project development activities. Moreover, Bechtel's inherent organizational flexibility minimizes the importance of formal reporting relationships in any case: you work for whomever needs you, with relatively little hierarchical involvement.

We operate mostly as an overhead operation with an overhead budget. We may be called on by members of Bechtel's Executive Committee, other directors, regional organizations or business lines. Regardless of who our client is for a specific project, the output is likely to have significant externalities within Bechtel. Thus, specific charging to internal clients is likely to result in suboptimal utilization, because they would tend to pay for no more than the direct value of the service. However. if an overhead assignment is especially large, we ask to be able to charge the sponsoring organization for our services. WHAT WE DO

Our principal emphasis is on strategic marketing and other aspects of corporate planning. This includes assessing the economic, financial and political outlook and its implications for Bechtel's business around the world. It also includes performing special analyses on topics of particular corporate interest, which may be only tangentially related to what is normally considered to be within the boundaries of economics. We also participate in developing and supporting corporate public policy positions. Finally, from time to time we engage in client-sponsored consulting on energy, environment and transportation, including feasibility and planning studies. We do relatively little work that is oriented to non-Bechtel clientele, although publication and professional society participation are encouraged by the company. A heavy workload and a fair amount of randomness in pre-emptive new assignments make it difficult to mount a sustained effort on projects that have neither an important corporate client nor a short fuse. In general, we tend to be stay-at-homes. Inasmuch as the scope of our work means that an immense amount of written material should be covered, the opportunity cost of time and expense for conferences is high and can only be justified by a very significant expected benefit.

Reports for the Executive Committee and Board of Directors

Quarterly Economic Financial and Political Outlook: Bechtel's Executive Committee and Board of Directors are major customers and our only customers of regularly scheduled products. On a quarterly basis, the Board receives an update of the global economic and political outlook and its implications for Bechtel. The outlook updates are always presented by Board members, so our input varies according to who is giving the presentation. The outlook presentations cover the overall outlook, as represented in about a dozen "core" charts -- tables, figures and "bullet" descriptions of various aspects of the economic/political/financial outlook that are important to Bechtel. They also cover one or two special themes, such as the implications for Bechtel of federal budget legislation, trade issues, or important developments in some particular region of the world.

Beyond the core charts, the Board member may ask us to provide anything from a one-off, brief outline of suggested topics to a fully scripted presentation that will undergo several drafts, as it evolves from the Chief Economist's initial ideas to the developed ideas of the Board member. I attend the outlook portion of the Board meeting to listen to discussion and to provide whatever additional information is needed.

"Economic and Political Events of Interest to Bechtel": About three years ago, our CEO requested that we compile a brief monthly description of events of potential importance to Bechtel, based on our monitoring of what is happening around the world. These "two-pagers" are background for Executive Committee meetings and are issued one week in advance. They are also circulated to other Bechtel personnel on a request basis.

We describe each event's implications for Bechtel unless they are self-evident. "Implications for Bechtel" is a crucial guide to all of our work. If an event is not potentially important to Bechtel, we ignore it, regardless of how important it may be to the history of the world. If it is important to Bechtel, we say why we believe it to be important unless it is self-evident. We never assume that others see the world as economists see it, and we believe that it is important to tell others what it is that we see.

We also note the source of news on the event, so that anyone interested can follow it up. Occasionally, we may append a page or two on a special topic that we believe to be of particular interest or a special statistical report that we may have prepared for a senior executive.

Special Studies: From time to time, we get requests for special studies that may have ruses as short as few hours to as long as several months. I am continually amazed at how much we can get done in a few hours if the request comes from an Executive Committee member. Nowhere, it seems, does the law of diminishing returns work as powerfully as in corporate economic research.

The topics can be anything that either: (1) requires economic sophistication or (2) does not fall within anyone else's particular recognized talents. Some of the latter are the most interesting and rewarding, inasmuch as they force us to stretch our conventional boundaries and think about the engineering-construction business and its broader environment in ways that we had never done before. The range of topics that we deal with runs from determining Bechtel's inherent vulnerability to severe cyclical forces, to identifying the major economic, financial, political and technological forces that will affect the engineering-construction business over the next decade, to an evaluation of the types of strategic alliances that Bechtel might enter. Speeches and Presentations: We are called upon occasionally to prepare or help prepare talks for senior executives to present to outside audiences. Like the special studies, these can be on any of a variety of topics.

Special and Standing Committees/Task Forces

I am a member of the Marketing and Business Development Committee, a Bechtel-wide committee drawn primarily from the business lines, that addresses marketing and business development issues common to the entire company. The economist's perspective here is primarily a long-run, strategic focus, whereas most of the other participants are primarily concerned with critical short-run issues of booking business with customers they already know. The main concerns of the committee are marketing and business development processes, such as determining which markets to target, how to analyze our competitive position, training, developing career paths for young professionals, and improving our marketing and business development information systems.

I chair a task force of the Marketing and Business Development Committee on the development and implementation of metrics to measure the success of Bechtel's efforts in marketing and business developments. This has turned out to be a complicated problem, inasmuch as any single measure gives a misleading picture of M&BD success. (No, Virginia, profit-maximization is not the whole answer.) Arriving at a satisfactory set of metrics has required an extensive consultative process involving all business lines, My role is to be a coordinator, traffic cop and catalyst. Ideas on what metrics should be developed and how they should be implemented come from everywhere.

Another Bechtel-wide organization with economist input is the Strategic Opportunities Development Initiative, in which a committee with staff support identifies major cross-business-line initiatives and assembles teams to develop them. The economists' function is twofold: (1) devise a formal analytic process to identify such opportunities before they become generally known; and (2) provide information on the likely economic, financial, and political contexts that will shape the development of the opportunities identified. Consultant to the Business Lines and Regional Organizations

The business lines and regional marketing organizations frequently request studies concerning their particular areas of interest. These vary from looking up a piece of economic data to major studies on the aggregate size and growth of the markets and the political and economic variables that will be important to Bechtel's success. Occasionally, we also participate directly in bid preparation for engineering-construction projects, particularly in helping understand cost issues where Bechtel may be exposed to inflation or foreign exchange risks. Direct Services to Customers

The corporate economists' major clientele are internal. We also engage in services directly for customers. Bechtel maintains a group that conducts feasibility and other studies for business lines' customers. Occasionally we participate with this group when we can augment their own economic capabilities. Also, we have performed consulting services directly for business line customers to help them understand the economics of various projects and possible alternatives.

Most of our consulting for customers has been the result of direct requests for my services. These usually involve overseas assignments of several weeks' duration, thus leaving the corporate function short-handed. This means that such assignments must be scheduled carefully and sometimes turned down if they conflict with major corporate requirements or events, such as Board meetings. Even with careful scheduling, the ability to take on overseas assignments is critically dependent on the ubiquity of facsimile machines.


One implication of Bechtel's industrial and geographic scope -- and there are just two of us to cover it -- is that much of our work is like the Platte River, about a mile wide and two inches deep. We seldom have the opportunity to do serious, time-consuming, quantitative analysis, to develop primary data, or do on-site research. We try to pay close attention to the marginal costs, marginal benefits and opportunity costs of our work and tailor our services to what is needed for business rather than what our peers would find admirable. Thus, we rely on a major forecasting service to provide information on the macroeconomic outlook for the U.S. and other countries. In addition, we spend roughly 30 percent of our time monitoring what goes on in the world through print media -- newspapers, periodicals and special reports. Our "monitoring budget," particularly time, does not permit too much field work or involvement in professional activities if we are to cover the topics and countries that we must.

Also, we try to keep close to Bechtel's business lines, merchant banking and development activities to be sure that we are relevant to current concerns and can help anticipate those of the future. I believe that the key to whatever success we have enjoyed is not in being great political economists; rather it has been our ability to understand, analyze and explain trends and events in the Bechtel context.

Not enough can be said about the importance of effective communication. We work hard at being clear, brief, and jargon-free. While economic terminology is an efficient way to communicate among economists, it is unfamiliar and off-putting to most others, so we make the extra effort. Good graphics are also important. We must use them freely and strive to make sure that they are easily understandable, meaningful and not subject to misinterpretation. In this vein, Edward Tufte's skills session at the September 1993 NABE Annual Meeting was eye-opening, and I highly recommend his The Visual Display of Quantitative Information for a thought-provoking analysis of what it takes to produce good graphical material.

Our main focus is on long-run, strategic issues. Thus, our best estimate of what will happen is likely to be wildly off the mark. (Consider your ten-year political-economic-technological forecasts circa 1983 compared to the reality of 1993 for some perspective.) Thus, scenarios and contingencies are likely to be as important as forecasts. The last thing business needs is one-armed economists. Much of the real value of an economist's training and mind-set is saying, "on the other hand...." At Bechtel, the economists need to pay more attention to this aspect of our work.


Like Bechtel itself, its corporate economists are market-driven. We do tittle on our own initiative, our plate being full in trying to meet the identified needs of others. But as opportunity permits, we seek to expand to a more direct role in the company's planning and strategy activities. A key issue is where to find the productivity gains that would allow us to do more while continuing to provide high-quality, timely service within our existing scope.

Regardless of whether or not the range of our activities increases, our work is like the engineering-construction industry itself. Each project is different from any other, most often in nontrivial ways. We will continue to be called on to address brand new topics as our markets and the way we do business change. It is a wonderful job for a certified eclectic. In the ten years I have been here, one thing that I have never had to worry about is boredom. Robert Thomas Crow is Chief Economist, The Bechtel Group. Inc., San Francisco, CA.
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Author:Crow, Robert Thomas
Publication:Business Economics
Date:Jan 1, 1994
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