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1990 - 1998: Leading the Way to Change

Despite a worldwide construction slump that began in 1985 and lingered through the rest of the decade, Bechtel had managed to stay in the black, albeit at the bruising cost of deep companywide cutbacks. Bechtel competed hard and with some success. New work booked in 1989 climbed to $5.4 billion, a six-year high and a 21 percent increase over 1988. 

Business Environment

Important market changes were under way. Globally, privatization was releasing telephone, utility, and other nationalized companies from state control. Europe was beginning to reduce economic barriers and to integrate its economies. With the collapse of communism, there was the potential for vast new infrastructure projects in Eastern Europe and the republics of the former Soviet Union. In Asia, the People’s Republic of China was attracting foreign manufacturing and investment in infrastructure and tourism, and the “tigers” of the Association of Southeast Asian Nations (ASEAN) were racking up impressive economic growth.

There were, however, vexing challenges. Generally, the economically more developed nations, particularly the United States, continued experiencing the low-growth, low-inflation stagnation of the late 1980s, constraining investment. The indirect costs of increased regulation, again especially in the United States, meant that otherwise viable projects were sometimes deferred or even canceled. At the same time, prices for natural resources such as coal and oil were decreasing for the first time since the Great Depression.

Quality-of-life issues for employees asked to move around the world, especially to remote job sites, had become significant. Bechtel, like most others in the industry, moved talented people to the work more frequently as projects were increasingly smaller and took less time to complete. Some of these employees moved with their families. Most went without them on “single-status assignments.” Information technology improvements had begun to make possible moving more, if not most, design work to the people (instead of the converse)—provided distributed work processes could be conceived, designed, and implemented. Such basic changes in Bechtel’s approach to its work would not be easy to achieve, could only start with some serious corporate “visioning and missioning,” and would require significant investment without discretely measurable near-term returns.

It was clear that the 1990s would be a decade of intense competition and change, some rapid and all persistent. Floating exchange rates, integrated international capital markets, and improved communications were weaving Bechtel into a global economic web in which competition was becoming acute. Meanwhile, the broader industry uptick in spending for plant and equipment and government outlays for infrastructure that construction analysts had been projecting turned out to be slow in coming. 

The Bechtel Response

Faced with these challenges, Riley Bechtel and his senior team resolved to meet the demands of the global economy and the listless business climate by managed change. With Bechtel resources increasingly deployed across the globe, the team focused its first efforts on sustaining and promoting “One Bechtel”—a spirit of teamwork and collaboration across business sectors and regional markets articulated by Steve Bechtel Jr. in April 1989.

With that foundation, they began a series of initiatives designed to improve the company’s delivered value: continuous improvement and changes in work processes; refining the company’s mission and strategies; restructuring the organizational operating matrix to meet the needs of a complex business in a global economy; and improving leadership, strategic thinking, and market analysis.

Riley was keenly aware that a key component of Bechtel’s success had been articulated decades earlier by Steve Bechtel Sr., who ascribed success to “real continuity of philosophy and objectives, strong traditions, and a consuming dedication to continuous improvement.”

Bechtel sees continuous improvement as a closed-cycle process that yields delivered value. During the dramatic industry-wide downturn of the 1980s, Steve Bechtel Jr. placed significant emphasis on reexamining and sharpening Bechtel’s continuous improvement methodology. Riley and his 1990s management team would take the same approach. They depicted a refined approach to continuous improvement, as shown above.

But while Bechtel was making important process changes, world events were following their own course. In early 1991, the Gulf War tested Bechtel under the most challenging conditions imaginable. 

Kuwait

On August 2, 1990, Saddam Hussein’s Iraqi troops invaded neighboring Kuwait, threatening to touch off a wider war in the Arabian Gulf. The conflict created uncertainty in international oil markets, setting off a worldwide economic slump. A host of new projects was put on hold.

Meanwhile, a drama bigger than any engineering project was unfolding in northern and central Iraq. Within days of the attack on Kuwait, Iraq took 109 Bechtel employees and their dependents hostage. In September, 10 Bechtel employees—three Americans and seven British nationals who had taken refuge in their respective embassies along with their colleagues still trapped in Iraq—were snared by Iraqi immigration authorities, who lured them out by insisting that they appear personally to secure exit visas for their wives. When they left the embassy compounds, these 10 were immediately swept up, taken to a facility on the outskirts of Baghdad, and held there. Meanwhile, their families and colleagues remained in their embassies, some camped outdoors, with winter approaching.

Riley Bechtel essentially camped out in his office for the duration. He had little choice but to keep a low profile and quietly organize activities to help the Bechtel employees held hostage. In the end, every Bechtel person was safely out of Iraq before the Allied Coalition launched its assault to liberate Kuwait. Bechtel could then savor the fact that a particularly determined (and fit) Bechtel manager had left the sanctuary of the British High Commission in early December, competed in a long-distance footrace through Baghdad, returned safely to the sanctuary, and was evacuated to the U.K. a week later. 

The Aftermath Of Desert Storm

As the Desert Storm offensive took shape in nearby Saudi Arabia, Bechtel met quietly with Kuwaiti officials in London to lay plans for the restoration of their economic engine. Bechtel’s three-person advance team landed in Kuwait early in March 1991, within days of the war’s conclusion. The destruction that confronted them was beyond imagination. Before retreating, Iraqi troops had methodically devastated Kuwait’s prized oil fields—750 wells were damaged, and 650 of those blazed ferociously. An estimated 70 million barrels of thick crude spewed onto the desert floor, forming lethal lakes. Some experts estimated it would take as long as five years simply to control the fires. Under Bechtel’s guidance, an army of workers did the job in eight months. 

Bechtel Joins the Space Program 

The mobile service tower of Launch Complex 40 at Cape Canaveral, Florida, is the most massive self-propelled building in the world. A sister complex at the Cape had taken five years to complete. Bechtel was expected to complete this one in 24 months, in time to launch the Mars Observer probe in the fall of 1992, when Earth and the Red Planet would be ideally aligned. The launch window would not open again for five years. Planet alignment, noted Bechtel Executive Vice President Bill Friend, is not something you can renegotiate if you fall behind schedule. This new job also included demolishing and rebuilding most of the other support facilities at LC-40, where the Observers Titan III launch vehicle would blast off.

There was no time to waste. During the course of work, more than 150 change orders would essentially double the scope of work on the mobile service tower. Bechtel pulled out all the stops, sending design engineers from San Francisco to follow their work modules to the Cape from design through construction through start-up engineering. At one point, 1,000 workers swarmed all over the complex, laboring in two 10-hour shifts, seven days a week. In the end, Bechtel met its schedule, and so did the Mars Observer probe, lifting off on September 25, 1992.

The mobile service tower subsequently was used for NASA missions including the launch of the Cassini-Huygens Saturn mission in 1997. In 2008, work began to demolish Launch Complex 40 to make way for the new SpaceX Falcon rocket launch facility. 

Purpose, Mission, and Core Principles

One of the critical demands placed on managers in the 1990s was to identify what a company truly does best—its core competencies, in the jargon—and then focus its activities on them. There was never any doubt about Bechtel’s core competencies or what the company’s essential mission would be. “The engineering and construction business will always be our primary purpose,” Riley told one interviewer. “Most conglomerates ultimately falter for lack of a central purpose or core business. . . . To me, designing and building projects is, and always will be, the spine of our business. We will never be a conglomerate. At least, not on my watch.” Bechtel’s essential mission was to be “the engineer-constructor of choice for customers, employees, and key suppliers in every industry market we serve.” 

Global Workload

The early 1990s saw an economy on the mend. By 1992, Bechtel revenues reached an eight-year high of $7.8 billion, the third straight year of steady growth. New work booked also enjoyed healthy gains, topping $9.4 billion in 1993. That was a 10-year high and nearly double the 1990 figure. Bechtel was at work on a host of high-profile projects in dozens of countries on six continents.

The Boston Central Artery/Tunnel project, the largest public works effort in the United States, included a freeway beneath the middle of Boston and a third vehicular tube beneath Boston Harbor to Logan Airport. When completed later in the decade, the Ted Williams Tunnel would earn the Outstanding Civil Engineering Achievement Award from the American Society of Civil Engineers.

In 1990, Bechtel Executive Vice President John Neerhout Jr. was named project chief executive of Eurotunnel, a consortium of five British and five French companies building the Channel Tunnel between England and France. Neerhout, with a very small team of Bechtel veterans, was charged with the task of turning around the enterprise’s faltering engineering and construction effort. The $14.7 billion, 32-mile high-speed rail link was burdened with huge cost overruns and delays that were causing a breakdown in stakeholder confidence. It was an enormously intricate project involving two languages, two governments, three national railways, numerous subcontractors, and a syndicate of 220 banks. Bechtel helped manage the project to its successful completion in 1994, providing management, technical, and construction expertise, which helped restore the trust of investors and financial institutions.

Also in 1990, Bechtel’s skills were called on to help manage Hong Kong’s US$20 billion program to build a new international airport and related infrastructure. The project was the largest civil infrastructure program in the world. It comprised not only the airport, built on a largely man-made, 3,100-acre island, but rail and road systems linking the island to the mainland and a planned community for 20,000 residents. The Hong Kong Airport Core Programme also included the world’s longest suspension bridge to carry both road and rail traffic, as well as a 1.2-mile tunnel under Victoria Harbour.

On the other side of Asia, Bechtel and Turkish partner Enka designed and built a 140-mile segment of Turkey’s transnational highway system. Bechtel Enterprises arranged several rounds of financing for the undertaking, part of the $1.4 billion Trans-Turkish Motorway linking Europe and Asia.

Bechtel also was busy on seven new airports besides Hong Kong, from Dubai to Dallas. At Daya Bay, Bechtel helped build the first commercial nuclear power plant in the People’s Republic of China. In fact, Bechtel would become the first U.S. company ever granted a construction license in China (as well as in Japan and South Korea during the same period). In Venezuela, the company won an engineering, procurement, and construction contract for the process units at Maraven’s Cardon refinery. In Kazakhstan, Bechtel and Enka won a contract to help develop the Tengiz and Korolev oil fields. At scores of sites in more than a dozen states, Bechtel managed major environmental cleanups for the U.S. government. In Papua New Guinea, Bechtel construction management helped Chevron extract oil in the Southern Highlands. Fifty miles off the coast of Qatar, Bechtel and Technip completed their managing contractor role helping Qatar General Petroleum Co. tap one of the world’s largest remaining reserves of natural gas. Bechtel finished up program and construction management help to The London Docklands Development Corp. in transforming a decrepit waterfront area on the Thames into a third city center. And there were new awards for gas fields in Abu Dhabi, pipelines in Algeria and Thailand, and a Motorola factory in China that would produce pagers, semiconductors, and cellular telephones.

But for all the company’s prominence, Bechtel’s management team recognized the need for profound change. Its members were far from convinced that the company was functioning as effectively and efficiently as it could or would need to be. 

Process Improvement And Reengineering

For decades, the company’s focus on improving performance centered on what Riley Bechtel summarized as “dedication to excellent results, management of quality, and quality of management.” It was time for a more rigorous, formal approach.

In mid-1992, Bechtel leadership supplemented its continuous improvement model with a corporate business model comprising seven critical processes: satisfying customer needs; finding and defining opportunity; developing opportunity and customers; performing work; developing and applying technology; planning and allocating material resources; and building teams. Led by “homegrown” continuous improvement coaches, employees formed teams across the  company to formalize and clarify what had come naturally to some but was still unclear to many.

The essence of continuous improvement is dissecting a process, improving it, measuring progress, and so on—with no end. But the nature of continuous improvement is that it yields only incremental gains. And, as Riley would note, this inherently inch-by-inch approach would in itself not be enough. In some places, a sea change was needed. “Reengineering is more than continuous improvement. It isn’t about fixing something, it’s about leaping forward,” observed Riley. Bechtel, he said, had to fundamentally rethink and redesign its work processes without destroying the underlying principles and values that had made the company great.

Intensive education about eliminating corporate waste helped crystallize the notion that breakthrough improvements were not only attainable but essential. Bechtel people enhanced their ability to cut costs, accelerate schedules, and maximize customer satisfaction. 

Improved Marketing, Business Development, and Strategic Skills

By the mid-1990s, it was increasingly clear that Bechtel’s continuous improvement and reengineering initiatives should be complemented by better marketing and strategic skills.

A special task force of marketing leaders from throughout the company convened in 1995. They combined their understanding of Bechtel’s business with their continuous improvement and reengineering knowledge to produce in two months a blueprint for sharpening the company’s marketing and business development efforts.

Bechtel had shown over the years, perhaps never as dramatically as in Kuwait from 1991 to 1993, that it could respond to customers’ needs faster and better than any other engineer-constructor. The company now needed to improve its ability to decide much earlier how, when, and where to place its bets—in terms of human and financial resources.

Efforts included conducting extensive strategic assessments of local markets thought to be attractive; making planning and budgeting processes more dynamic, substantive, and disciplined; and promoting longer-term relationships with customers, prospects, and partners.
Corporate Change

It became increasingly clear that the perception of Bechtel in many parts of the world was changing—and not always for the better. Bechtel, some thought, was a fair-weather player, maintaining a market presence only when opportunity abounded and pulling out during lulls. Bechtel didn’t sufficiently understand many local markets and important relationships. Bechtel wasn’t maximizing the use of local resources to the benefit of its customers and itself. And some found the company arrogant.

Bechtel had entered the 1990s with an organization centered on industry-oriented business lines. Since the 1960s, the company had been structured in matrix fashion with an industry axis and, secondarily, a geographic axis. The business lines made all the decisions on where and how to allocate company resources. They bore responsibility for profit and loss.

Riley wanted to create a flexible organization that could respond more quickly and effectively to fast-changing market forces. By mid-1994, the senior executive team was convinced that a more balanced matrix—built on a decentralized management structure—would make Bechtel more competitive and more responsive to customers’ needs. The global business lines and regional offices would now share decision-making responsibility and authority for project management and performance. Project managers reported into both sides of the matrix. Further, either side could serve as a customer’s “window into Bechtel,” depending on that customer’s own preference.

By the end of 1995, after extensive debate and careful analysis, senior management decided to refine the matrix further and make some attendant changes.
“Regions,” modeled on the Europe, Africa, Middle East & Southwest Asia operation formed in 1991 and led from London by executive committee member Don Gunther, were given responsibility for profit and loss from winning work through performing it. Project managers reported squarely to the regional leadership. The new regions included the Americas, which would later be split into North America and Latin America, and Asia Pacific. Some regions would create subregions.

The center of Bechtel’s decision-making was now physically closer to the company’s customers. The new organization would also give Bechtel much more local knowledge and presence. And accountability for integrated decisions (addressing benefits and costs, short- and long-term considerations, etc.) would be more clearly defined and promote better decisions.

Riley would chair an informal group called the Chairman’s Leadership Council, which would consult periodically on key decisions. Serving on the council with Riley would be Adrian Zaccaria, president and chief operating officer; Vice Chairman Fred Gluck (who retired from line duties in mid-1997); Don Gunther (who became vice chairman in July 1997 and retired from that position in July 1998); and Executive Vice President John Carter. Chairman Emeritus Steve Bechtel Jr. would be a permanently invited guest.

hough successful, the structure wasn’t cast in concrete. “When circumstances have changed—especially market needs—we have never hesitated to adjust our organization,” noted Riley. 

Privatization and Partnerships

In a world increasingly long on infrastructure needs and short on private capital and government funding, Bechtel’s financial leverage and entrepreneurial touch have proved to be powerful competitive tools.

Bechtel Enterprises grew out of Bechtel Financing Services, Inc., which had been formed in 1969 to help customers with project financing by assembling international export credits and commercial bank loans. Bechtel Enterprises would do all this as well as develop projects and take equity positions, creating a number of joint-venture companies, starting in the power sector. These capabilities help differentiate Bechtel from its competition, provide innovative world-class ownership teams, and create attractive investment opportunities for Bechtel and its partners.

Bechtel had been involved in independent power generation for some time when in 1989 Bechtel Enterprises formed a strategic partnership with PG&E Enterprises called U.S. Generating Company. When the U.S. Energy Policy Act of 1992 made it easier to build and finance independent power plants, USGen took off, successfully developing more privatized power plant capacity than any other independent power company in the country. InterGen, another joint venture with PG&E, developed, owned, and operated electrical generating facilities outside North America, starting in 1995. As power privatization expanded globally, work got under way in the United Kingdom, the Philippines, Mexico, and Colombia.

In 1997, the two companies agreed to specialize and separate their progeny, with Bechtel buying PG&E’s share of InterGen and PG&E buying Bechtel’s share of USGen. Bechtel later sold 50 percent of InterGen to Shell. Among InterGen’s projects is Quezon Power, the first large-scale independent power project in the Philippines to be financed, built, owned, and operated by a private entity without requiring the sovereign backing of the national government.
Beyond 1998

“What may be unique about Bechtel at 100,” said Riley, “is the extraordinary bond of commitment, competence, and integrity that we’ve been able to forge—with customers, with key partners and suppliers, and with each other as colleagues in pursuit of great accomplishments.” That bond has helped Bechtel thrive in a punishing industry, in which few companies survive more than half a century.

“We know that continuing to lead this industry for another century requires the will and the skill to be the best of the best,” Riley said. “That’s the only way to succeed on our scale and at our level in a world of accelerating change and rising expectations. To lead its industry for another hundred years, any company operating today will have to be exponentially better than it already is.”
Bechtel plans to be one of them.

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