Creating the Margin - In an Improving economy

Creating a Margin - 3 dangers of recovery

Historically the recovery period after a recession can be more dangerous for companies as the recession itself. The dangers in the recovery period come from carrying through strategies that were developed for survival in recession.
The first question to ask is are we in a genuine recovery period? There has been some better financial news about and it does seem that we are entering a period of improving financial news and reports. Including 2 highly regarded reports:

From the recent Deloitte CFO survey:

Key findings

• In a sign of an improving domestic outlook UK-facing businesses, those deriving more than 70% of their revenues from the UK, have become more expansionary than at any time in the last two years

http://www.deloitte.com/view/en_GB/uk/research-and-intelligence/deloitte-research-uk/the-deloitte-cfo-survey/index.htm

And the RICS Construction Market Survey

"The Royal Institution of Chartered Surveyors (RICS) said industry activity appeared to be "edging upwards"

What then are the dangers of trading in the recovery period.

Danger 1 - financial loss due to inflation. Continuing to price at zero margin to secure turnover. This will potentially provide workload that can't be delivered without a financial loss. Contracts won now will most likely face serious inflation pressures from suppliers and subcontractors as resources are stretched.

Danger 2 - overtrading, there is a possibility in an improving market to win more work and improve turnover. However this will stretch cash and there is no reason to assume that the banks will any more helpful than they have have been. 

Danger 3 - losing your best people. For almost 4 years there has been little or no improvement in staff conditions and salaries. As we see workload increasing there will be a market demand for experienced people and it will be very difficult for even long term employees to resist attractive offers from competitors. We now have a much reduced pool of people as many have moved on, left the industry or found work abroad. Finding replacements will be equally troublesome.  We are already hearing confirmation from client's who are struggling to fill current vacancies

Business leaders and management boards now need to develop strategies to deal with these risks. It would be desperate scenario to survive the worst recession and then find failure in recovery. 
Attending the Scottish Construction Convention on October 8th can help you find how to develop and implement these recovery strategies, find out more at www.futureofconstruction.co.uk or email brian@businessfix.co.uk  

Response to FMB report – procurement must change

Business Fix gives full marks to the FMB for their report and findings re the lack of success by SME’s in winning public sector contracts. Since 2008 Business Fix has been lobbying for better procurement practices by Local Authorities, Government and other public sector bodies.

In particular we have emphasised the importance of the public sector to maintain sufficient work in the sub £5m category to allow SME’s to bid effectively. As always the process of government grinds slowly forward and the imminent procurement revue will be welcomed.

There is however a BIG factor that must not be ignored and it is often. That is for the SME businesses to up their game to compete effectively for public contracts. Many are very good and suffer only from lack of opportunity. Many however are not prepared to make that extra effort to win at every stage of procurement.

In a recent discussion with the MD of an Irish contractor who was looking to win work in Scotland, yes another one. When asked why they thought they could come here and win work. The answer was simple and difficult to take. “We can win work because the local contractors are complacent and we work harder. Our productivity is 20% better than Scottish contractors”

Is this true? I don’t know but there are plenty of Irish contractors now based in Scotland who have won work. Many are still here.

Many of the businesses that we have worked with on Prequal and tender submissions have seen significant improvements in their success rates. It is an undeniable truth that if you don’t improve you will fall behind.

As the FMB say, we need real changes in procurement practice, but businesses need to up the game to then win the opportunities.

brian@businessfix.co.uk

www.businessfix.co.uk

I think this article from Seth Godin says it all about the 2 ways to approach the future. One thing is sure, the status quo will be a slow death for any business in our new economy. 

Can you afford to wait for it to get better?

The following article is a from an email by Seth Godin blogmailfromseth@yahoo.com>

"Optimistic enthusiasm as a form of realism

How does your organization respond to new opportunities?

Most companies launch new things, try out new initiatives, brainstorm new approaches. The internal response (or reaction) to these ventures is a cultural choice, one that often turns into a self-fulfilling prophecy.

If your organization is both pessimistic and operationally focused, then every new idea is a threat.

It represents more work, something that could go wrong, a chance for disaster. People work to protect against the downside, to insulate against the market, to be sure that they won't get blamed for anything that challenges the system.

In organizations like this, a new idea has to be proven to be better than the current status quo in all situations before it gets launched.

On the other hand, an organization filled with people who are rewarded for shaking things up and generating game-changing products and services just might discover that outcomes they are dreaming of are in fact what happen. The enthusiasm that comes from believing that this one might just resonate with the market is precisely the ingredient that's required to make something resonate.

One more thing: outsiders are way more likely to approach your organization with fabulous projects if they think they're likely to both get a good reception and succeed when they get to market."

It's Time for a New Business Strategy 

Construction output contracted by 3.3% in July compared to a year ago.

Headlines like these are not good news, they give an indication of how hard the year ahead is going to be. 

All construction businesses should now be looking at their business model, yes it is important to keep a tight rein on spending but for how much longer can you batten down the hatches?

Think about your marketing, the public sector is drying up, where do you go now? how do you market to the private clients? 

Do you have a business strategy? where can you get the help you need now?

Our clients are benefiting from the recent work we have done with them so could you. 

Give me a call on 07788 102306 to discuss.

Sunday Herald Opinion piece

Constructive criticism

BY BRIAN JUKES

7 Aug 2011

Many Scottish construction companies are dying a slow death because the Scottish Government’s flagship procurement policy excludes them from competing for public work.

Following the 2006 McClelland Report on value in public procurement, the Scottish Government has used “bundled contracts”, frameworks and hubs. The effect has been to freeze out smaller contractors who cannot compete for these high-value contracts.

Alex Neil, the Cabinet Secretary for Infrastructure, last month sought to lay the blame for this mess at the foot of the EU and the Westminster Government. Speaking in Fort William, Neil said Scotland was forbidden to consider the economic impact of a contract when tendering, which is why local companies often lose out to foreign contractors making slightly lower tenders.

Neil is obviously making political points but he must know that EU rules for works procurement don’t apply to contracts below £3.9 million, which comprise up to 35% of the total. Below this value, the rules for procurement are set by national governments and public authorities are free to set their own procurement processes and priorities.

The argument that smaller contractors should work in the supply chain of bigger suppliers is a red herring. Many smaller businesses know that this exposes them to difficult contract conditions and poor payment practices, recently exemplified by ROK and Connaught going bust owing millions.

If the Scottish Government had the will it could change its policy in a couple of months and give SMEs a chance. My experience leaves no doubt about business frustration with the Scottish Government and incomprehension about why it has chosen to go this way. Businesses want action and they can’t wait for any more studies, workshops or political point-scoring.

What value do you get from your management team?

Gary Hamel is ranked as the world's most influential business thinker by the Wall Street Journal and he was asking some good questions in a Harvard Business Review about reinventing management. You know the usual guru bulls--t stuff.

But it did get me thinking about what value do companies really get from their managers. Have you ever tried to measure it ? Do they save you from disaster? manage risks? motivate your people to greater performance? find new and innovative ways to make money? increase productivity?delight clients with their performance? prevent mistakes? deliver continuous improvement?

If they do all of this then that is great, but if they don't then what do they do and why do you employ them. 

Gary Hamel believes that management should be the 5th and highest level of innovation in any business, managers should be providing the unique differentiation that sets your company apart and creates the most enduring business advantage.

Is this true of your management? is this true about you? how many times do we hear MD's and CEO's saying that our people are our greatest asset. If that is true then what value do you earn from these assets?

Time for a management audit? email me at brian@businessfix.co.uk to discuss

No Margin – how long will you last?

In recent discussions with business leaders from all parts of the construction industry it is obvious that there is huge concern about what will happen next and how long the downturn will last. This started me thinking about what needs to be done to ensure successful exit from this recession..

Is winning new work a new beginning or the start of your next set of problems asks Brian Jukes from Business Fix? We are certainly at another change point in the economic cycle, where that will take is nobody really knows. In addition there are massive changes ahead from “Green Regulations” and Government cutbacks..

All of the companies supplying construction services - architects, contractors, quantity surveyors, engineers or specialist contractors are under extreme pressure to cut or eliminate margins to win new work to keep their businesses going. This may be expedient in the short term but will undoubtedly  weaken their company for years to come and possibly fatally.

The Solution won’t be found in the past but in a new future

What business leaders need to do now is to develop a strategy for making margin. The market won’t suddenly change, and the pricing levels are set for the medium term ahead. So you need to change your approach from survival to managing in the current market for profit.

There is not a business out there that is not capable of improving their overall performance by 10% or even 15%, I know it might not be obvious or easy but in an industry that is at best only 50% efficient there is huge scope for improvement.

Many people or organisations will offer you the simple solution, do this and your business will gain massive benefit. It is unlikely there is a simple answer. The answer may be to dramatically redesign your business and start to do things differently. There are hundreds of bright and talented people in the construction sector with tremendous technical skills. They deal with many difficult issues with imposed constraints and provide brilliant service to clients. In return they are rewarded with the opportunity to tender for the next job at an even cheaper price.

What if we were able to engage that talent to improve the business rather than solving the same construction issues time and time again? This is now not an option but an absolute necessity.

A completely new approach is needed; it’s about everyone working on improving the business as well as serving the clients’ needs. It’s about taking action now to remove the internal constraints that stop your business from operating efficiently. It’s about working to generate margin at all levels in the business.

The process will be incremental, 1% at a time. But who wouldn’t want a 1% improvement right now?

Business Fix provides strategic business improvement advice to construction businesses, contact us at brian@businessfix.co.uk to begin your recovery.