In 1995, Freese and Nichols Inc. – a prominent water and wastewater engineering and architectural firm based in Fort Worth, Texas – found itself in dire straits. The firm had posted an annual profit of -1.7 percent, the first unprofitable year in the history of the then-100-year-old company, and morale was heading lower than wastewater flow at a broken lift station.

“We were literally on a burning platform,” notes Bob Pence, the company’s president and chief executive officer. “We were very much a clan organization … a great place to work, because everyone took care of each other, but no accountability. If you didn’t do well, no one called you out on it.”

Today, Freese and Nichols is the proud recipient of a coveted and prestigious Malcolm Baldrige National Quality Award, earned in 2010. The company is the only engineering and architectural firm to win the award, the country’s highest honor for business-performance excellence.

What happened in between – the organizational changes that created higher levels of employee and client satisfaction, reduced employee turnover, and greatly improved accountability and profitability – can be summed up in three simple words: continuous-improvement (CI) management. And the lessons behind this company’s journey from cultural complacency to utmost competency can be easily applied to the municipal water and sewer utilities, Pence notes.

“Continuous-improvement management principles are very applicable to other industries and operations,” he says. “They’re non-prescriptive too. They don’t tell you what to do, they show you how to examine what you’re doing, find the areas of weakness and figure out how to fix them. And the beauty of it is that none of it is rocket science.”

Back to basics

Fortunately for Freese and Nichols, the company’s CEO in 1995, Bob Herchert, also sat on the board of directors for a local hospital that had embraced CI. Intrigued by what he heard at a hospital board meeting, Herchert decided a CI program might resolve Freese and Nichols’ woes.

“We didn’t start out to win a Baldrige award,” explains Pence, who was a division manager at the time. “We just wanted to implement a continuous-improvement management system that would measure the things we do. … When we found gaps between our goals and how we really were doing, CI showed us how to do root-cause analysis and take action to fix things, then go back and measure them to make sure they’re fixed.”

To introduce the CI concepts, the company held several lunch meetings with managers and employees. “You’ve got to tell people about it several times,” Pence advises. “It took me four meetings before I could see where we were going, which was to identify key areas that need improvement, then develop key focus indicators that track whether or not we’re improving.”

Performing a form of corporate triage, company officials decided to focus first on profitability, realizing that if that issue wasn’t fixed, nothing else would matter. Analysis revealed that the company was overstaffed; at the time, several large projects had been completed, but no replacement business was coming in to keep the pipeline full.

“So first we had to get right-sized, which involved letting 60 people go,” Pence said. “The company had never laid off anyone, so it was very hard to do. But when you never lay off employees, you’re inevitably keeping onboard people who aren’t doing a good job.”

The company also had a problem because two of its four divisions weren’t performing very well, but employees there weren’t being held accountable. So Pence and another employee were promoted to operations managers, responsible for managing those divisions. They developed budgets, set goals and examined things like billable utilization and other efficiency measures.

Monthly status meetings also helped the company hold managers and employees accountable. Whenever gaps emerged between goals and actual performance, managers used root-cause analysis to reveal the problem. The efforts bore immediate fruit when the company regained profitability in 1996, but Pence says part of that was due to the so-called Hawthorne effect, in which performance improves merely because something is being studied. Improvements in other areas developed more slowly.

Monitoring results

Measuring the results of operational changes is one of the keys to any successful CI program. And by many measures, Freese and Nichols has been very successful. Bookings in 2014 are expected to hit $97 million, compared to $20 million in 1995. The company employs 540 employees, more than double the employment of 235 in 1995. And on a scale of one to five, with five being the best, employee satisfaction rose to 4.85 from 4.5 during the last 15 years – an incremental gain but no small feat considering the large increase in employees, Pence notes.

In addition, employee turnover stands at less than half the industry’s national average – 6 or 7 percent compared to up to 16 percent. And the percentage of new employees who stay for two years stands  at around 88 percent. Moreover, in the last 15 years, client satisfaction also increased to 4.85 from 4.5. Again, that’s not much of a gain, Pence concedes – unless you also consider that the company’s client base is considerably larger now, he says.

Another key point: Once begun, the CI journey never ends; it just becomes incorporated into an organization’s culture. Pence says that despite all the measurable improvements over the last two decades, the company still annually determines three or four areas that require improvement, though the areas of focus tend to remain the same: employee satisfaction, client satisfaction, financial growth and technical excellence.

One root-cause analysis even changed how Pence operates, he says, noting that so far this year, he’s already visited 28 clients in person. “It just popped out as a factor in client satisfaction,” he says. “We compete against national firms where senior executives don’t always have time to visit clients. But I do.

“Visiting clients in person takes up about 30 percent of my time now and it’s the best thing I do,” he adds. “It’s not that I’m some sort of great salesman. But when a senior executive visits a client, it indicates the level of focus we’re putting on a project.”

Pence takes great pride in another indicator: the company’s profitability. A review of financial results during the last 20 years revealed that Freese and Nichols did well when the economy fared well and poor when it was poor. But ever since the company embarked on its CI journey, it performs solidly no matter how the economy performs. And that sure beats standing on a burning platform.

To learn more about continuous-improvement processes and the Baldrige award, visit www.nist.gov/baldrige.