THE SURVEY:



The SURVEY:

In order to gain an understanding of the competitive environment GJPE Engineering, Inc. is operating in, a survey was conducted of engineering service companies in the Mid-Atlantic region. To accomplish this, a survey was built on the website.

Methodology:

The survey was constructed using an online, internet-based surveying tool, available at . The survey was constructed on the internet site, itself. Recognizing the reluctance of many small businesses to reveal information that could be of value to their competitors, the questions were designed to be as non-intrusive, yet informative. To this end, most answers were designed to permit answering within a range of bracketed responses. The final version of the survey consisted of sixty-three questions in twelve categories:

1. General information (name, address).

2. Basic corporate / financial data (number of employees; gross annual revenues, location (city / rural).

3. Engineering services provided (Complete list of major services provided and revenues, engineers working specific areas of effort for top two engineering business services).

4. Types of clients serviced (top two types of clients and percentage of revenues, engineers working specifically with these clients).

5. Organization of the company (senior management positions; numbers of professional and intern engineers, telecommuting).

6. Marketing (The top two states active in and percentage of revenues from these states; the companies’ top two geographic market segments (by state) were identified, including annual numbers of jobs and percentage of revenues from that state. Additionally, information was provided relevant to three questions concerning the impact of national and local economies and local incentive plans).

7. Certifications (a checklist list of 12 common certifications was provided to allow checking each one the company had achieved).

8. Planning (whether or not the company used a strategic plan, financial plan, human resources plan and/or used other planning mechanisms)

9. Teaming (whether or not the company had formal or informal teaming or partnering arrangements and were these arrangements beneficial or worthwhile).

10. Diversity (women and/or racial/ethnic minorities in key positions).

11. Computing (what operating systems are used; what network systems are used; how fast are the typical workstations the engineers use; reliability of these equipments)

12. Two administrative questions to provide feedback concerning the survey itself.

A copy of the final survey questions is attached.

Once the survey was ready, potential respondents were identified using the Small Business Administration’s (SBA) website () where e-mail addresses and other basic information is provided on several thousand companies. These lists comprised at least 95% of the potential responders. However, other sources were also used. Over two thousand e-mails were transmitted, one (or more, in a very few cases) to each potential responder. The response was surprisingly good, with the total nearing 100 responses as this study came to a close.

Potential candidates were thus identified in five states: Maryland, Virginia, West Virginia, North Carolina and South Carolina. These states were selected because they are the primary states where GJPE Engineering conducts business, but, also, because these states are adjacent and comprise an excellent cross-section of the Mid-Atlantic region. (The complete set of lists of potential candidates to whom e-mails were sent is provided in the enclosures to this report.) The e-mails invited the potential respondents to merely click on a hyperlink included in the e-mail to transport them to the website directly to the survey questionnaire. Ther respondents answered the various questions. The website maintains a database of the results and provides graphical output of the totals. The site also permits downloading all of the resultant data into a desktop computer for further analysis.

Even though the host website, , provides good graphical outputs of the results, more extensive analysis was required. Therefore, the statistical data was downloaded into Microsoft Excel format and various analyses and charting of the results were performed. The raw data and all analyses and charts are provided with this report as attachments.

RESULTS:

(Comparison to GJPE Engineering is shown in all figures by a red icon of the company’s initials.)

I. General Information:

The names, addresses and other general information are not pertinent to the analysis. All respondents provided this information even though it was not required and they could have taken the survey anonymously, had they chosen to do so. Data provided is available in the appendices.

II. Basic Corporate / Financial Data & Credibility:

A primary goal of the survey was to facilitate a realistic analysis by state to permit making recommendations to GJPE concerning expansion of efforts by geographic region. As shown in Figure 1, the numbers of respondents from more populous states are more in number than the less populous states. This type of consistency with reality lends credibility to these results. The numbers of respondents from the primary geographic targets, North Carolina and West Virginia, are also consistent with the numbers of respondents from these respective states’ populations.

Additionally, the sizes of the respondent companies (both in gross annual revenues (Figure 2) and numbers of employees (Figure 3)), as reported, are consistent with expectations based on using the Small Business Administration website as a resource. Notably, the companies in these similarly sized companies, relative to GJPE Engineering, are the target competitors for which information is greatly desired.

Office Location:

A specific purpose of this study was to gain an understanding of the magnitude of the direct versus overhead expenses of GJPE’s competitors. This information is derived primarily from two aspects of the questionnaire. First, the location of the company’s office, whether in a city or outside the city, and whether the property is owned by the company or leased / rented provides insight into a major source of overhead. Secondly, the numbers of employees, categorized by professional engineers, engineer interns and total employees provide information concerning labor costs. Virtually all other costs, such as utilities, are proportional to either the office space cost or direct or indirect labor costs. Employee direct overhead, to a first order, can be estimated in a relative way simply by the total number of employees minus the number of professional engineers. Indirect labor, including interns, is the remaining portion of the total number of employees. When this information is considered together in context, it provides significant insight into overhead expenses.

As Figure 4 indicates, GJPE is well ahead of its competitors in overhead costs from office spaces due to its ability to function with only a very small office space for meetings, rather than a large complex where all work is done. The number of companies indicating this level of efficiency in operations was very small. By far, the largest category of response were those who rent spaces in their cities, the least financially efficient space option.

Direct and Indirect Employee Expenses:

More than half of the respondents, irrespective of corporate revenues or total numbers of employees, reported having only one to three PEs on hand. This surprising result implies that GJPE enjoys no specific advantage on direct (PE) labor costs. At the same time, more than half of the respondents also reported their companies had no engineering interns, whereas, GJPE has two. Financially, this is a disadvantage for GJPE, but, the potential advantages of this approach, such as personnel development and the ability to leverage the PE’s work at reduced cost, probably outweigh the financial considerations. Finally, GJPE is fully in line with the norm in not having any dedicated CAD/CAM personnel in staff. Even the majority of larger companies with 40 or more employees have no dedicated CAD/CAM personnel.

Revenues per employee:

One of the most significant financial indicators of any commercial entity is the amount of revenue generated per employee, whether direct or indirect. Therefore, this analysis sought to calculate as accurate an estimate of this figure as possible. Additionally, and more importantly to GJPE, is the revenue generated per engineer.

Of equal interest to GJPE is the number of employees and engineers for similar-sized companies. The data for total numbers of employees is shown again in Figure 8, but distributed by income with respect to size. The primary factor that is not immediately obvious in Figure 8 is that larger companies are more efficient revenue producers. The smallest companies of 1 – 5 employees produce an average of $98,000 per employee while the next larger group, and all other groups, produce nearly twice that amount. This result is shown in Figure 6 (next page).

Even though there is a fair amount of estimation in this analytical procedure, the disparity is overwhelmingly compelling. The reasons for this are not immediately obvious, but, it could be assumed that certain synergies are gained in a very well streamlined organization that is able to respond to a wider variety of tasks in any given time constraint.

As indicated above, GJPE is in the lesser realm of revenues generated per employee within its industry. This is further demonstrated in the more simplistic display of Figure 9, below, which clearly shows that GJPE is not competitive in terms of revenues generated per employee. Still, GJPE has consciously entered this realm with a view toward development for the future.

While the above numbers for total revenues and revenue per employee are thought provoking, the distribution of revenue per professional engineer (PE) is even more so. As shown in Figure 7, the revenue per PE climbs astronomically as the company increases in size, relative to the numbers of PEs. This is, again, believed to be the result of greatly increased synergism available in larger companies. The rapid rise in productivity is so great as to cast doubt upon the validity of the outcome. However, the amounts for the smallest firms are well established, lending credence to the methodology. Regardless, the trend is clear: larger companies are more productive and efficient for generating revenue while the smallest companies are clearly at a disadvantage with respect to efficiency and revenue productivity.

Engineering Services Provided:

The respondents included a wide variety of service providers. Figure 11 indicates most engaged in consulting as either a primary or secondary line of work. Systems engineering and information technology were the next largest categories. The sample did include numerous respondents of direct interest to this analysis including 17 electrical engineering providers, 11 mechanical engineering providers and 10 facility maintenance companies. This sample constitutes a rich field for the purpose of this analysis.

As Figure 11 shows, the respondents represented a large cross-section of engineering service providers. Consulting was the largest single area and information technology the second largest. More traditional services, such as electrical or mechanical engineering, were also represented in good numbers. The respondents reported a wide variety of activities as being their largest business segment.

Identifying how the companies manage the mix of their services and to what extent they are diversified was the primary goal of this part of the survey. Therefore, figures 12 – 15 reflect these results.

As shown in Figure 12, one-third of the respondents conduct business in only one major engineering function. This single function is their largest engineering service area. These companies earn 80-100% of their revenues from this single area.

Most of the other the other two-thirds have a second single business area, as supported in the data of Figure 13, and earn up to 40% of the revenues from this second area. These companies are more diversified and, therefore, more financially secure than their competitors.

Most companies use their professional engineers to cover several areas, as shown in Figures 16 and 17. Some companies, particularly larger ones, do have certain engineers dedicated to certain functions. Larger companies have 16 or more engineers specializing in the companies’ primary and secondary business areas. Smaller companies tend to have one or more PEs dedicated to an area, but these companies also tend to have a single area in the first place.

Types of clients serviced:

Nearly half of all respondents reported that various government entities were among their major client types. This was the largest single category, in fact,

while architects were the second largest types of clients. Third was a close three-way tie among developers, industrial and owners. These results, shown in

Figure 16, are as expected.

Among the respondents, again, approximately one-third reported earning nearly all of their revenues from their largest client, which in many cases was a government entity. The other two-thirds were more diversified with a significant fraction, also about one-third, reporting they earned only a small part of their revenues from their largest client types.

It is key to note that half of all respondents reported that their companies’ relationships with their largest client types were based upon a small number of jobs per year, in most cases, only 3 to 5 jobs per year. This would seem to imply that these jobs tend to be larger contracts. It also implies that many companies, at least those of the one-third who rely on a single client type, thrive on a very small number of jobs. These would probably be long-term development or support contracts.

These conclusions are confirmed and reinforced in examination of the respondents’ second largest client types.

Organization of the company:

In addition to the insights into overheard expenses discussed previously, it is important to consider managerial positions in addition to engineers and other staff or technicians. For this purpose, several such questions were asked on the survey. The results are shown ins Figure 21a – 21d. A surprisingly large number of respondents reported that their companies had dedicated human resource managers and as many reported the same for financial or business managers.

Most reported not having a dedicated chief information manager, but many did. As expected, very few companies reported having a dedicated, PE qualified, office manager. The firms that did, as is evident in the raw data, were larger firms of 40 or more employees.

Since GJPE conducts most of its business by its employees commuting from their home offices (which are equipped by the firm), one question inquired how much each company’s employees did so. The results are shown in Figure 22.

This data also serves to verify the office space information above by indicating that few engineering service companies endorse telecommuting.

Marketing:

Marketing was examined in two respects: The specific geographic areas the respondent companies conduct business in and the extent to which travel is required to support those activities. These are considerations of prime importance to GJPE since GJPE is believed to have a distinct advantage over its competitors by having well established customers in several different states and having access to inexpensive air travel.

Geographic Market Segments:

The primary region of interest (PRI) for this study is defined as the adjacent states of West Virginia, Maryland, Virginia, North Carolina and South Carolina. This area is roughly a 500-mile diameter circle encompassing the historic areas of operation of GJPE Engineering. The greater area of interest, referred to as the Secondary Region of Interest (SRI) and defined as the further adjacent states wherein GJPE Engineering might expand operations into or where local competitors might already be operating. These additional states include Florida, Georgia, Alabama, Tennessee, Kentucky, Indiana, Ohio, Pennsylvania, New York, New Jersey and Delaware.

The respondents’ major business activities were, in general, primarily in their home states. 19 respondents listed their largest business area as being different from the home state of the company. Of these, all but three listed three their primary business state as being outside the PRI, but still within the SRI. These anomalies are not believed to have any impact on the conclusions or recommendations resulting from this study. These data are provided for examination, if desired, in the attachments.

The companies’ second largest business states (Figure 24) were very consistent with the first, which is as expected. The fact that most firms earn 40 or more percent of their revenues in their largest business state (Figure 25a) is also not surprising. However, comparing the results of Figures 25a and 25b indicate anomalous answers with respect to what fraction of revenues are earned in these states. Nevertheless, it appears that most firms do most of their business in a single state and, business conducted in other states is not significant. This supports the predilection that GJPE has a competitive advantage in its multi-state approach to conducting its business and seeking out new customers.

Certifications:

(a checklist list of 12 common certifications was provided to allow checking each one the company had achieved).

Planning:

(whether or not the company used a strategic plan, financial plan, human resources plan and/or used other planning mechanisms)

Teaming:

(whether or not the company had formal or informal teaming or partnering arrangements and were these arrangements beneficial or worthwhile).

Diversity:

(women and/or racial/ethnic minorities in key positions).

FIX THIS CHART!!!

Computing:

(what operating systems are used; what network systems are used; how fast are the typical workstations the engineers use; reliability of these equipments)

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Figure 6

Figure 11

Figure 21c

GJPEE

GJPE

(consulting)

GJPE

GJPE

GJPE-2

GJPE

GJPE

Figure 10

Revenues by Company Size

Figure 4

Figure 8

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GJPE

GJPE

Figure 23

Figure 1

Figure 3

Figure 21b

Observations:

7. Many engineering service companies rely on a single client type for most, if not all, of their revenues.

8. Virtually all engineering service companies rely on two or three client types for virtually all of their business.

9. One-third of all engineering service companies conduct much of their business directly with one or more government entities.

10. Many engineering service companies rely on a very few, probably large, ongoing contracts for their revenues.

Figure 20

GJPE

(electrical)

GJPE

(mechanical)

GJPE

GJPE

GJPE

GJPE

Observations

1. GJPE enjoys a significant advantage in overhead office space expenses.

2. GJPE is on par with the majority of companies who have 1 – 3 PEs, regardless of total employees or revenues.

3. GJPE is out of the financial mainstream in having two engineering interns, whereas the norm is none even for larger companies.

4. GJPE is consistent with the industry norm in having no in-staff CAD/CAM personnel.

Figure 7

Figure 5

Observation:

5. Larger companies are more productive and efficient for generating revenue while the smallest companies are clearly at a disadvantage with respect to efficiency and revenue productivity.

Figure 2

Figure 19

Figure 17

Figure 21a

Figure 16

Observation:

6. Professional engineers in engineering service companies most often perform multidisciplinary functions.

Figure 15

Figure 14

Figure 13

Figure 12

Figure 18

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Figure 9

Figure 21d

GJPE

GJPE

Figure 22

Figure 24

Figure 25a

Figure 25b

Observations:

11. business.

12. One-third of all engineering service companies conduct much of their business directly with one or more government entities.

13. Many engineering service companies rely on a very few, probably large, ongoing contracts for their revenues.

14.

Observations:

15. GJPE has a competitive advantage in its multi-state approach to conducting its business and seeking out new customers.

16.

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