The Great Economic Disruption of 2009-2010
Implications for career planning in the water system niche
By Don Kerr
Published in 2010
In 1998, the number of independently owned small and midsize equipment manufacturers had been reduced dramatically. NorthWest Water, Wheelabrator, Thames Water, US Filter, Waterlink, and other companies that offered broad product diversity under one corporate umbrella had altered the industry permanently. In reviewing any wastewater industry buyer's guide from 10 years earlier, it was breathtaking to see how many firms had been opened, closed, bought, merged, or otherwise transformed.
Today, not a single company listed in a 1 998 buyer's guide remains in the North American market, or at all
In 2004, Siemens Water Technologies (Warrendale, Pa.) had just bought US Filter; Zenon - now part of GE Water and Process Technologies (Trevose, Pa.) - was the largest privately held firm in the water and wastewater market, and industrywide, returns on investment were huge. With all the changes since, 2004 seems like a long time ago.
An ever-changing job market
The status quo is that there is no status quo.
The water-waste water industry is not recessionproof, but market research shows it managed to maintain modest growth during 2008 and 2009, and long-term trends favoring this niche as a place to achieve both career growth and a sense of service beyond self remain strong. Water and wastewater treatment is one of the most important market niches in the world, as it faces a world water crisis in which populations grow and water supplies shrink.
The water-wastewater niche faced the 2009 economic disruption better than most others, despite the federal stimulus package. Credit markets froze at the same time that municipalities were putting the brakes on project commitments in order to angle for free stimulus funding. Far from being stimulated, much of the industry struggled in 2009, waiting for the stimulus ship to sail. The stimulus legislation had the unintended result of bringing many planned public works projects to a screeching halt in early 2009 until the end of the year. Layoffs predictably followed at equipment providers, engineering consultants, and construction firms. There was a positive shift this year as the federal funding finally started to kick in.
In the water-wastewater niche, layoffs make less sense than in other fields. Smart executives understand that a vital part of their company's inventory gets in a car and drives home each night. Water and wastewater treatment is such a quirky business - with the complex dance among consulting engineers, manufacturers, manufacturers' representatives, and municipal and industrial end-users - that experienced employees bring tremendous valueadded to their firms. Rebuilding after layoffs can be long and expensive, and it can affect a company's ability to bounce back when the workflow picks up.
One executive remarked, "If my building burned down tomorrow, the first positions we would hire back would be the process engineers and the applications engineers." Process flow diagrams drive specifications, which drive estimates, which turn into bids. The ability of a civil or chemical engineer from outside the industry to perform these tasks well and in a manner that results in contract awards should be easy, in theory; but in practice, not so much. Understanding the nooks and crannies of how to design and sell water and wastewater treatment is not found in books but develops with sweat equity and the wisdom of experience over time. Each proposal that is not selected contains a lesson in strategy for the next round. "Newbies" to this niche don't usually become effective for 2 to 3 years. Experienced water and wastewater specialists are a tangible asset to their employers
Executive search firms have facilitated the movement of many displaced employees to new places of employment in 2009 and 2010. For individuals with qualifications and portability, there was a round of strategic hiring during the downturn (by companies with the financial ability to do so), which increased in pace in early 2010. The weak got weaker, and the strong got stronger. Companies that have downsized key technical employees with more than 2 years' tenure in the industry have done little more than provide training for a soon-to-be employee at one of their competitors.
There are some large forces at play that suggest that waterwastewater system and service providers will have increasing difficulty in attracting sufficient staff in coming years because of global, national, and intra-industry factors:
- Population. Generations that follow the baby boom generation are smaller in number and have a smaller percentage of students graduating as engineers and scientists
- Competition. The pharmaceutical industry seeks the same engineering and scientific talent as the water-wastewater industry and pays higher starting and ongoing salaries.
- Retention issues. Once equipment and systems providers have overcome global and national issues to hire up-andcoming talent, they face the fact that engineering consulting firm salaries begin to surpass manufacturing salaries after 7 to 8 years of job experience. Employees who are not vested in their place of business after this time can walk down the street to a consulting firm for more money.
The differing strategies of employers
Despite great economic disruption, the large forces that have brought big corporate players into the water-wastewater niche have not changed. The process of consolidation, while paused, will continue. Joseph A. Schumpeter wrote in Capitalism, Socialism and Democracy (New York: HarperCollins Publishers, 2008 [first published in 1942]): "This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in." An oft-heard joke is that the WEFTEC" exhibition floor of 2025 will take up the same floor space but be occupied by six big booths: three humongous systems providers and three gargantuan design-engineering-construction firms
In the real-world game of economic Monopoly™, the big companies have gotten a few more houses on the game board via the ability to absorb the financial hit better and longer than smaller firms. Most big firms instituted hiring freezes right away, and only a few of the big players slashed a large number of positions. That's where it gets interesting. All indications are that the consolidation in this niche will continue later in the next decade and that the supply of newly graduated engineers and scientists will shrink. Consolidation does remove inefficiencies in management and organization, true, but let's remember that executive's comment about the importance of process and applications engineers. When creative destruction eats away at engineering and science jobs, it makes the whole industry weaker and the coming decades harder to face.
Managers would be well served to think now about how they will respond to the emerging drought of technical employees in the future, because the most successful strategies take time. Not all companies can go out and buy free agents like the New York Yankees. Employers who currently treat engineers and scientists as commodities just don't get it. In a technical profession, intellectual capital has a face and a name. The value an experienced employee can add to a team and organization will continue to grow steadily with time.
One of the best and most cost-effective strategies is to develop the employees that you already have. One small company has made it a point to take capable blue-collar workers, who are already part of the company culture and know the products, and send them to school. Others adopt a high school science class or a university department, offering hands-on learning and intern projects to 10 or 20 students each year in hopes of hiring one or two after graduation. Organizations such as the Water Environment Federation (Alexandria, Va.) and the American Water Works Association (Denver) have a role to play in industrywide programs to attract the sorts of specialized labor that will be increasingly hard to hire.
In a recent presentation, the director of a large Florida water utility discussed the graying of his work force and the challenges that his utility would face with the impending retirement of a significant percentage of its technical human infrastructure. The amount of knowledgeable workers who will be retiring in the next decade - in Florida and across North America - is breathtaking. It's not that the graduating generation is in any way less than capable; rather, the next generation is smaller in number right now. There is no way they can absorb alt the knowledge their mentors feel is critical. The future we face is thinner ranks of technical employees with fewer mentors to guide them.
The question is not whether the supply of domestic talent outstrips demand for domestic talent, but rather when the phenomenon will begin to affect delivery dates and global competitiveness for U.S.-based suppliers. The shrinking supply of technical employees will affect the weaker firms first as contract workers become fully employed. How about outsourcing? Outsourcing localized water and wastewater project work to China or India will be challenging when those countries are going full-bore-ahead on their own domestic water infrastructure work. Why would they want to stop and design water and wastewater treatment plants?
Roughly 1 5% of the process and applications engineer positions filled by my office during the past 10 years have required sponsorship for an H1-B visa. Sponsorship of graduating engineers and scientists for working visas leading to naturalization is a currently available tool that is bound to increase in use over time. As the son of an immigrant to the United States, I personally can attest to the loyalty earned by sponsorship for a green card. In a positive business sense that provides predictability, sponsorship binds an employee to the hiring company and ensures a minimum term of service. There is a cost, but it is not as large as the cost of losing projects due to long delivery times.
Looking down the road
The big question, from 100 miles up, may become: Will the balance between supply and demand of domestic talent and demands of ongoing projects allow the water-wastewater industry to address the pressing needs of U.S. cities, states, and counties? Amid the frantic efforts that will be required to address public infrastructure needs by North American companies, as well as the associated mergers and consolidation, what does it mean to be a wastewater engineer? Is the quality of life sufficient? Does the work provide enough satisfaction and career security to sustain a young engineer who can walk down the street and make more money in the pharmaceutical niche
The answer lies in the metamorphosis of approaches to water and wastewater treatment from those dominated by steel and concrete to bioaugmented organic treatment approaches. In the long run, approaches that favor passive biobeds over laborintensive physical-mechanical systems and those that minimize energy costs by use of wind, sun, and flow power will rise to the top, with labor shortages as a contributing factor.
There is an emerging strategy that utilizes waste gas from wastewater treatment plants to generate the power that will be in increasing demand in the industrial and industrializing world. The biological process expertise required to understand how the gas is formed, what it is composed of, and where in the plant its potential can best be tapped is a meal ticket for ambitious young engineers. For those less interested in upward mobility, there is a world water crisis that needs water professionals' help and expertise. The United Nations reports that 16% of the world currently lacks access to clean drinking water; 46% of Haiti lacked treated water before the earthquake earlier this year. The expertise gained by a career in water transcends any language or border. Readers of this magazine will have an important role to play in addressing the world water crisis.
Long-term trends make the water business a great place for long-term career success. These trends provide the very same basis for big money to want a piece of the ever-growing pie. The water and wastewater systems niche promises to continue its dynamic growth and maturation in the second decade of the 21 st century. So, fasten your seatbelts, plot your course - guided by personal goals - and hold on tight. This is a great industry in which to spend one's career. As one of my colleagues likes to put it, "A career in water is a rewarding and secure choice that can enable one to save the world."