Sept. 11, 2000

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Engineering Company Cashes In On E-Services

By Aaron Ricadela

nybody want to hire the IT department of an 85-year-old Kansas City, Mo., engineering firm to build a Web site? It's a loaded question, but General Motors Corp., Hallmark Cards Inc., and about 40 other companies have so far said yes to BV Solutions Group, the IT-services company spun off last year by Black & Veatch, a $2.15 billion engineering, procurement, and construction company in the power and utilities markets.

Old-line companies trying to make hay in the lucrative technology consulting field are nothing new--IT offers richer profits, higher stock valuations, and more cachet than many traditional lines of business. It's just that the odds are stacked so heavily in favor of trusted heavyweights such as Andersen Consulting, Cap Gemini Ernst & Young, and IBM Global Services. Hartford Financial Services Group Inc. and Lockheed Martin Defense Systems are among the companies that tried the trick in the 1990s with uneven results.

Yet BV Solutions Group's revenue has grown 40% to 50% in each of the last three years, according to CEO Jerry White. Sales hit $47.8 million last year; profits were $5.4 million. And the company hopes to add another 40% to 60% in revenue this year.

"Companies are looking at these IT projects the same way they looked at infrastructure projects 20 years ago," says White, who joined Black & Veatch in 1980 as a software developer. In both cases, customers operate on a predetermined budget and must meet a fixed schedule before a project can start generating revenue. For example, BV Solutions Group recently outbid IBM Global Services and others for a contract with GM to build a system to scan, store, and index the automaker's U.S. legal documents. According to White, BV Solutions Group submits bids for network-management, document-management, and Web-development jobs. Few contacts, White says, are engineering-related.

It wasn't always thus. During the unit's first year, "We were feeding off the customers of our parent," says Red Cortner, VP of IS of BV Solutions Group. "Now it's kind of switched to a two-way street." Cortner, in his 26th year at Black & Veatch, started there as a programmer. In 1983, Black & Veatch launched Powrtrak, a relational database that became a single source for all project details previously tracked on paper. The software revolutionized the company, leading to on-time, on-budget projects and a dominant share of the engineering and construction market. Black & Veatch began selling the software to customers, and it still does. Yet Cortner insists it's the company's project-management skill--not a software package--to which customers look. "Project management has been our business since 1915," he says. "It's bred into our organization."

Trying to apply that expertise to the IT services market makes sense: Profit margins in IT can approach 50%, compared with 5% or less in the construction and engineering market, according to Cortner. But schedules are also more compressed. In a 10-year construction project, "if you make a mistake in year three, you still have seven years to get back on schedule," he says. "In IT, if you get off schedule, it's more pressing to get back on."

Does BV Solutions Group have what it takes to sustain its early momentum? The subsidiary plans to increase its staff to more than 750 employees by year's end, up from about 600 today. In January, White rolled out a stock-option program to every unit employee. This fall, the company hopes to complete a private stock placement, which White says would help fund acquisitions to plug holes in the unit's IT skills. Expertise in IBM AS/400 systems and high-transaction Web environments is particularly lacking.

Yet the CEO bristles at the suggestion that an engineering company's IT department can't compete with larger E-services players. "We understand a consulting environment just like the guys at Ernst & Young," White says. "We've spent our careers talking to CEOs and chief operating officers as engineers, so we connect with them instantly." Now, Black & Veatch needs to turn those first impressions into long-term relationships.

Return to main story, "Builders Gird For E-Upheaval"

Illustration by Jeffrey Fisher

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