Beware Action Director on Board
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Saturday, 5 September 2009
Optimism?
A time for optimism in Construction?
With few encouraging signs of “green shoots” what should business leaders in the construction industry be doing?
From conversations with business leaders across the industry it is clear there is still little reason for optimism, if anything, things appear to be getting tougher. There is increased competition for every piece of work. Tender prices are now firmly set at suicidal levels and everyone is trying to cut the throat of everyone else, including the big guys, who are now feeding at much lower levels.
Why then should there be any reason for optimism? Well it is my firm belief that despite the current economic difficulties there are still opportunities to grow or develop your business. Walking round Glasgow and Edinburgh there is still plenty of evidence of construction activity; work hasn’t come to a complete standstill.
A recent report by the Bank of England indicated that mortgage lending in June 09 has risen from 47,891 to 50,123 the highest figure since April 08. This must be encouraging news for house builders. The most recent CIPS, Purchasing Managers Index for August reported that the rate of decline eased slightly from the July figure, its lowest rate of decline in 18 months. The CIPS also reported that despite the continued decline in current construction activity, UK construction companies reported a sustained optimism over future business activity. Although not yet conclusive, forgive me but are these not positive trends?
Yes, it is getting harder to win work, but not impossible. In the very recent past the industry had grown accustomed to being able to pick and choose what projects to go for. Demand for construction exceeded supply; it meant that even average or below average companies, for that matter, could prosper. The industry had reached a state of equilibrium. In nature, equilibrium is the precursor to death, as you become comfortable with the status quo and are unwilling or unable to adapt should circumstances change.
Recession is a time of dramatic change with only the strong surviving. When the recession ends, and it will; it is these companies that will grow and prosper. Those companies who are not as well prepared will struggle, they will cut costs and then margin in a desperate attempt to maintain cash flow. We are seeing it already, with bids of 10% below cost, not uncommon. This is corporate suicide for those businesses that cannot produce significant improvements in performance and the companies who find themselves in this situation will not survive, nor should they.
Recession is hard on everyone, and particularly construction, with its very low barriers to entry, associated risk and wafer thin margins. I believe recession will bring an overdue clear out of weaker companies who are poorly managed or poorly financed. This will undoubtedly mean significant opportunities for those who remain.
So what does this mean? It means that sticking to what worked in the past or what you’re comfortable with will not necessarily ensure survival. Business Leaders need to step outside of their comfort zone and take control of their future direction. It is a time for new thinking and radical change.
Recovery from recession demands change and that means:
changes in strategy
changes in direction
changes in services offered
changes in performance levels
This is no time for average performance; we will not return to a state of market equilibrium for many years to come, businesses therefore need to respond now to changes in market need.
Those who survive, and very many will, need to be anticipating the changes needed; this means refocusing their strategies and communicating to their own people, supply chains and demonstrating to existing and new customers how they add value. If you haven’t done this already, now is the time to start.
There is cause for optimism because our industry needs this shake-out and change that recession brings. Just as with forest fires that initially cause extensive damage they are essential in promoting new growth and sustainability. Better times will come and those who have adapted accordingly have every right to feel optimistic as they will be best placed to benefit.
With few encouraging signs of “green shoots” what should business leaders in the construction industry be doing?
From conversations with business leaders across the industry it is clear there is still little reason for optimism, if anything, things appear to be getting tougher. There is increased competition for every piece of work. Tender prices are now firmly set at suicidal levels and everyone is trying to cut the throat of everyone else, including the big guys, who are now feeding at much lower levels.
Why then should there be any reason for optimism? Well it is my firm belief that despite the current economic difficulties there are still opportunities to grow or develop your business. Walking round Glasgow and Edinburgh there is still plenty of evidence of construction activity; work hasn’t come to a complete standstill.
A recent report by the Bank of England indicated that mortgage lending in June 09 has risen from 47,891 to 50,123 the highest figure since April 08. This must be encouraging news for house builders. The most recent CIPS, Purchasing Managers Index for August reported that the rate of decline eased slightly from the July figure, its lowest rate of decline in 18 months. The CIPS also reported that despite the continued decline in current construction activity, UK construction companies reported a sustained optimism over future business activity. Although not yet conclusive, forgive me but are these not positive trends?
Yes, it is getting harder to win work, but not impossible. In the very recent past the industry had grown accustomed to being able to pick and choose what projects to go for. Demand for construction exceeded supply; it meant that even average or below average companies, for that matter, could prosper. The industry had reached a state of equilibrium. In nature, equilibrium is the precursor to death, as you become comfortable with the status quo and are unwilling or unable to adapt should circumstances change.
Recession is a time of dramatic change with only the strong surviving. When the recession ends, and it will; it is these companies that will grow and prosper. Those companies who are not as well prepared will struggle, they will cut costs and then margin in a desperate attempt to maintain cash flow. We are seeing it already, with bids of 10% below cost, not uncommon. This is corporate suicide for those businesses that cannot produce significant improvements in performance and the companies who find themselves in this situation will not survive, nor should they.
Recession is hard on everyone, and particularly construction, with its very low barriers to entry, associated risk and wafer thin margins. I believe recession will bring an overdue clear out of weaker companies who are poorly managed or poorly financed. This will undoubtedly mean significant opportunities for those who remain.
So what does this mean? It means that sticking to what worked in the past or what you’re comfortable with will not necessarily ensure survival. Business Leaders need to step outside of their comfort zone and take control of their future direction. It is a time for new thinking and radical change.
Recovery from recession demands change and that means:
changes in strategy
changes in direction
changes in services offered
changes in performance levels
This is no time for average performance; we will not return to a state of market equilibrium for many years to come, businesses therefore need to respond now to changes in market need.
Those who survive, and very many will, need to be anticipating the changes needed; this means refocusing their strategies and communicating to their own people, supply chains and demonstrating to existing and new customers how they add value. If you haven’t done this already, now is the time to start.
There is cause for optimism because our industry needs this shake-out and change that recession brings. Just as with forest fires that initially cause extensive damage they are essential in promoting new growth and sustainability. Better times will come and those who have adapted accordingly have every right to feel optimistic as they will be best placed to benefit.
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