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