Government/Industry Forum on Capital Facilities and Core Competencies: Summary Report (1998)

Private corporations and the federal government have invested hundreds of billions of dollars in the capital facilities and infrastructure needed to support their lines of business or missions. Until the 1980s, owners with large inventories of facilities maintained in-house facilities engineering programs staffed by hundreds, sometimes thousands, of architects and engineers responsible for designing, constructing, operating, and managing buildings, manufacturing and industrial plants, and other capital projects.

During the last 15 years, most U.S. corporations have transformed their approach to the engineering and management of their capital projects and facilities. Functions, including design, construction, and maintenance, have been contracted to other firms, or "outsourced." In-house facilities engineering programs have been downsized significantly in number of staff and scope of work. The transformation process and the results, however, have not always been smooth or successful. Many corporations have reorganized their facilities engineering programs more than once as they try to achieve an optimal mix of size, skills, and responsibilities to support their overall business needs.

Federal agencies face challenges similar to private corporations as they seek to reorganize their facilities engineering programs to support their missions. Reorganization and downsizing of the scope and size of in-house facilities engineering programs have taken place in the 1990s. Some federal agencies face further reorganization in the next 5 years.

Government agencies and private-sector corporations today are facing a number of common challenges related to capital facilities planning and management. One of the challenges is to identify the essential technical and management skills, referred to in business management literature as "core

competencies," that need to be retained by the organization and those skills and functions that can be contracted to others. In a period of organizational downsizing and reengineering, the pressure is on facilities managers to reorganize and reinvent the structure of their facilities programs. With declining budgets, smaller staffs, and higher expectations, private companies and federal agencies alike are learning the value of identifying and building on core competencies as a strategy for more efficient facilities management.

Because the issue of capital facilities and core competencies is of great importance within government and for private companies, The Business Roundtable, the Naval Facilities Engineering Command and the Federal Facilities Council joined forces to cosponsor a forum on March 25, 1998, at the National Academy of Sciences in Washington, D.C. The purpose of the forum was to address shared concerns as well as lessons learned through the reengineering of in-house facilities management organizations. The forum was structured to provide two-way communication between leaders of industry and government on issues of capital facilities engineering and management, and on the core competencies necessary to perform those functions. There are many recognized differences between the financial bottom-line objectives and methods of operation of private corporations and the public service, mission-driven objectives and operating environment of the federal government. However, many issues of capital facilities engineering and management are common to both. This forum provided an opportunity to share experience-based knowledge in dealing with those issues.

The next two sections of this report describe the structure of the forum and summarize recurrent themes and identified issues that emerged during the course of the day. Narrative summaries of the speakers' presentations follow. Appendices A and B contain information about the forum's sponsors and biographical sketches of the speakers, respectively.

The Government/Industry Forum on Capital Facilities and Core Competencies drew highly experienced speakers and an audience of approximately 170 representatives from federal agencies, nonprofit organizations, trade associations, and private corporations. Attendees were welcomed by Jack E. Buffington, Director of the Mack-Blackwell National Rural Transportation Study Center of the Department of Civil Engineering at the University of Arkansas. The forum was launched and moderated by Rear Admiral (RADM) David J. Nash, Commander of the Naval Facilities Engineering Command (NAVFAC), Department of the Navy.

In opening remarks, Mr. Buffington and RADM Nash discussed the genesis of the forum and the three basic issues to be addressed by the speakers: (1) the role of facilities and engineering expertise in facilitating the "bottom line" or mission of an organization; (2) how engineering expertise can be best used by that organization; and (3) how organizations can determine what constitutes their specific core competencies, and, in so doing, determine which activities should be kept in-house and which should be considered for outsourcing to other firms.

RADM Nash noted the areas in which federal agencies and private companies share similarities, including capital investment, closure of facilities, environmental cleanup, cradle-to-grave management of facilities, and pressures from downsizing and reengineering. In many cases, the private sector had started to deal with these issues long before the federal government and has taken more and greater risks, focusing on the costs and efficiencies of what they do. RADM Nash described NAVFAC's effort to establish benchmarks for its design and construction processes against other agencies and private-sector corporations to identify where and how NAVFAC's processes can be improved. From this effort he discovered that there is much that federal facilities managers can learn from the private sector.

During the day long forum, eight prominent speakers offered their experiences and insights from the perspectives of facilities owners. They were John B. Goodman, Deputy Under Secretary of Defense for Industrial Affairs and Installations, Department of Defense; Ronald M. Howard, Director-Construction, The Business Roundtable; Gerry H. Greene, Manager, Global Product Supply Engineering, Procter and Gamble Company¹; David A. Skiven, Executive Director, Worldwide Facilities Group, General Motors Corporation; Terry Brandt Wood, Manager of Project Development, Worldwide Engineering and Construction Division, Amoco Corporation; Robert B. Pirie, Jr., Assistant Secretary for Installations and Environment, Department of the Navy; Robert A. Peck, Commissioner of the Public Buildings Service, General Services Administration; and Myron H. Goldstein, Director of the Project Management Center of Expertise, General Services Administration.

Speakers at the morning session of the forum presented an overview of the pressures on infrastructure and capital projects in the federal government and how similar pressures affect private companies. Corporate facilities managers gave their perspectives on capital facilities engineering functions and core competencies from an owner's viewpoint. In the afternoon, a panel of federal representatives explored the same issues from a public agency's perspective. A plenary session also was held.

Over the course of the forum, neither the audience nor the speakers were asked to come to any consensus on the issues of capital facilities and core competencies or on recommendations for federal facilities program managers. However, a number of common themes emerged and were explored in the course of the day.

All speakers emphasized the significant effects downsizing has had on their organizations. Most organizations are doing more with less-in terms of manpower and budget limits—and are seeking to establish clear savings in the way they are managing their facilities programs. In most cases, the downsizing was not a well-planned process and mistakes were made, necessitating further changes to rectify them.

The rapid change in engineering functions has resulted in a substantial loss of basic competencies in some organizations. Of particular concern is the loss of technical competency to assist businesses in defining the most appropriate projects to meet the businesses' needs and the competence to execute capital projects.

The Business Roundtable found that those organizations that have lost competence in capital projects delivery and management did not do so overnight. Instead, as their deeply experienced, critically skilled personnel retire, the organizations slowly lose the ability to define alternatives effectively. More immediate, they might become overly dependent on contractors, and find themselves in an increasingly poor bargaining position.

One speaker related how in his company, as functions were decentralized, a strong connection to discipline leadership was lost. Different units began developing their own missions and drifting away from overriding organizational goals. Organizational efforts to match people to a shifting workload were hampered. Business units developed a parochial mentality, as their success was measured on their own results as profit centers. They did not get credit for supporting other corporate objectives or other businesses. People began developing a deep understanding of one business without access to broadening assignments in other businesses and disciplines. The company was compromising its ability to nurture future leaders of the engineering discipline. In addition, the company lost the leverage of size and the use of standard designs and specifications because common work practices deteriorated as each unit developed its own version.

In a second company, the biggest challenge encountered by the organization in reengineering its processes following downsizing was in managing the change in culture. Over the years, people had developed different work processes, viewpoints, language, and acronyms—and ultimately a

different company identity. There was a division between those who were involved in developing business strategies and those who were involved in the technical work. In the reorganization, the layer that converted strategy into operations was taken out. Now, the company is seeking to improve communications and build business acumen in the organization.

The Business Roundtable found that successful companies all have downsized; the winners have changed the substance and process of their engineering functions, not just the number of people they employ. Companies that have succeeded in this new environment have fundamentally changed the way they view the business world and the capital project system. They now see capital projects as a principal way that the company's capital assets base is created. They also see technology and engineering as key elements in the supply chain resulting in competitive projects, not merely as nonintegrated functions.

As both federal agencies and private corporations reorganized their facilities engineering programs and practices, they went through a process of identifying their core competencies, that is, the essential skill sets they should retain in-house to support the larger organization effectively. Attendees were cautioned that divestiture of engineering capabilities can lead to a future in which there might not be an appropriate person on staff ready with an appropriate answer to problems that arise—at great financial and management cost. Thus, even if a company is severely downsized, a necessary competency is having a "smart buyer" on staff, even if most of the work is outsourced. That smart buyer must be someone who understands the business, its requirements, its customer needs, and who can translate those needs and requirements into a corporate direction.

One corporate representative reported that because the company had changed so much, it was recognized that different skills and knowledge were going to be needed from the staff. The company profiled its top engineers, project managers, project engineers, team leaders, and technical specialists and identified a group of competencies for all individuals. The company established the competency levels needed at particular points in their careers, then tied employees' performance reviews, development, and salary increases to these competencies.

As part of the process of identifying core competencies, organizations must determine whether something being handled internally would be better done by an outside firm, or outsourced. One corporate speaker stated that when

a company provides a service in-house that others can provide more efficiently and effectively, the company sacrifices its competitive advantage.

To determine which functions or projects should be outsourced, one company focused on evaluating the value chain of in-house services. A value-to-cost ratio and matrix were developed to help staff decide which services and projects should be provided in-house and which should be outsourced or "broker managed." Looking at the value-to-cost ratio helped convince the staff members that although there were functions they were capable of doing, they should not continue to do them if an outside firm could do the same work more cost-effectively. The company was then able to focus its energy on the high-value leverage projects for which it had in-house expertise that could not be found elsewhere.

Many owners have turned to alliances as a solution to the loss of in-house engineering staff. Alliances are long-term contractual relationships between owners and contractors intended to promote efficiency in capital projects. One of the speakers noted that at his company, a cadre of contractors has been developed who not only know the company's staff and operations, understand its technology and work processes, and provide continuity of personnel, but also adjust personnel as workloads shift from business to business.

The Business Roundtable found that there appears to be no correlation between the use of alliances and project results. It is not alliances but the substance of the process that drives the results. Alliances are good, but the owner must have an effective project system for them to work.

The Business Roundtable found that the best capital project systems (1) use fully integrated cross-functional teams; (2) actively foster a business understanding of the capital project process; and (3) have managers who can distinguish between cost-effectiveness and predictability, a difference that requires sophisticated project controls and measurement systems. Business leaders are placed in an active role in their projects, helping the team make tradeoff decisions between competing objectives, always with the businesses' objectives in mind. The engineering and project managers are accountable to the business, not the plant management. There are continuous improvement efforts that are subject to real and effective metrics. The best capital project systems maintain the in-house resources necessary to develop and shape projects in the advance-planning phase and to bind the owner functions together to find the right project and prepare for efficient execution. Finally, they all maintain some

form of central organization responsible for preparing the work process for advance planning to provide the skills and resources to pull in critical core competencies and to provide the interpersonal organizational structure that binds the operations, business, engineering, maintenance, outside organizations, and affected project systems.

The importance of advance planning, sometimes referred to as "front-end loading," to facilities projects was clear, as several speakers focused on how improvements in advance planning affects performance and project cost. An analysis for The Business Roundtable showed that 49 out of 50 projects that achieved best practices in advance planning met all of their objectives. This capability to plan effectively for projects and their delivery translates into a measurable value added to the overall process and organization.

One corporate representative stated that for his facilities engineering group long-term benefits and survival lie not just in lower prices and improved performance but in adding value and strategic advantage to customers who might not immediately recognize them. An in-house facilities engineering group needs to provide competencies not found elsewhere that empower individual business units to adapt quickly to market opportunities. The group needs to know the external and internal forces that have an impact on the business and must be able to add value in the area of strategic facilities planning. Thus, a great deal of time is spent trying to understand where facilities should be located, what they should look like, and what incentive programs are available to support the effort.

One federal agency representative reported that his organization is seeking to enhance its capabilities for the future by continuing ongoing engineering work, providing specialized engineering services as appropriate, concentrating certain types of work in particular offices, altering division staff size and functions, and strengthening program management. Two agencies are developing focused "centers of expertise" to consolidate their capabilities and move toward becoming full project management organizations.