If you think back to your high school science class, you may remember learning about ecosystems. The premise is that all of the wildlife, plants and resources within the ecosystem are interdependent upon each other for survival and evolution.
Today’s political and economic climate has created challenges to the construction contractor’s ability to survive and evolve. A scientific study of your ecosystem, including the various entities that make up the system, can help you identify ways to help your business adapt and prosper.
Learning from Innovators and Strategic Thinkers
Thought leaders are those individuals or companies in the industry with business ideas you should know about. They are developing cutting edge services, innovating techniques and taking a visionary approach to the business. They are the people who are willing to take risks to gain rewards through increased business and visibility. They are the ones talking about issues relevant to you and the industry. Thought leaders think outside the box, find new ways to achieve results and share what they’ve learned.
Today’s successful thought leaders may show their innovation in a wide variety of areas. For example, a company might develop innovative safety procedures that not only keep their employees safe on the job, but in the end save time and resources. They might adapt Lean Six Sigma concepts to construction in order to improve efficiency in their processes, thereby reducing costs on jobs. Or, they might invest in a new technology, such as Building Integrated Modeling, to further streamline their performance and execution of construction jobs. As a result, they become industry leaders on that topic.
Having a strategic, big picture view of their business and the industry is another quality of a thought leader. Although the day-to-day operation of a construction business is certainly important, thought leaders have the ability to think in a more long-term, strategic manner about the trends they see in the industry and develop a plan to capitalize on them.
Thought leaders in the ecosystem never stop learning. They are continually researching their environment. If you want to rub elbows with them, become active within professional trade associations. While you may already be a member, now may be the time to become more involved and take greater advantage of the tools and resources these associations offer to better manage your business through these times.
Talk to other contractors within your trade, those you feel are leading edge, and find out their most pressing concerns, what they are doing to manage them and their vision for the future of the industry. Colleagues within professional trade associations can be surprisingly candid about the trends they see in the business as well as how they are working creatively to address them.
Within the construction industry ecosystem, thought leaders will survive and can provide you with information and knowledge that may help you endure. Your company’s survival may depend on your ability to leverage the knowledge of the thought leaders around you.
Finding Buyer Needs
As you continue to explore the ecosystem, study prospects that you’d like to buy from you in the future. These likely buyers can include current customers, hopeful customers and public entities – generally, anyone who could provide you with revenue in the future.
This segment of the ecosystem presents various challenges today. Revenues from the private sector continue to lag and the majority of opportunities lie in the public sector, where stiff competition drives down margins. Nonetheless, you must ask: What opportunities exist in my ecosystem to help me survive these tough times? Among the most common opportunities you might find include expanding geographically, adding new services, developing a niche, providing a service with added value and working with current customers.
Your construction business undoubtedly has a rough geographic footprint. You may have recently extended your geographic reach. But the real question is, did you strategically make the decision to extend the ecosystem based on market or customer demand? Or, did you simply take the bids that came your way? By taking a more strategic approach to studying prospective customers, you will be better positioned to develop a plan to increase your visibility and develop the relationships that you will need to get more work in that new region.
New services can provide an additional way to reach prospective buyers. To identify those services, you will need to study current clients as well as prospects to determine what services they would find valuable and would purchase from you. Subcontractors may consider starting a service division to provide long-term maintenance of equipment. On-site warranty repair may be another option. General contractors should consider whether customers would pay an additional fee for design services. Study existing niche services you provide to see if you can build on them, too. Ask your niche customers what additional services might accompany your current niche offerings.
Another area to study is those new services that can add value to customers. Do your customers and prospects value LEED certification? Green construction projects? Buyer education? Value engineering? Their responses can help you develop value-added services that will be marketable.
As the old marketing saying goes, it costs much less to retain an existing customer than to obtain a new one. By keeping in touch with potential buyers, you can discover new projects that may be on the horizon. At the very least, you can keep your finger on the pulse of your buyer’s concerns and issues, and can work to address them.
Sharing the Knowledge: Suppliers and Other Service Providers
Another crucial part of the ecosystem is the other service providers and suppliers who contribute to the construction process. They can be a wealth of information, and so can potential strategic partners. Just as a scientist studies various species in the environment, study the position of suppliers and other service providers in the ecosystem. Talk with them about their perspective on the industry and the trends they see occurring in the environment.
Your own suppliers may be a perfect place to begin the discussion. Are there opportunities to do some strategic purchasing? What emerging issues do they see occurring in the industry?
Another way to study other service providers is when bidding a job. Make sure you know who the other players will be. For example, who owns the project? Who are the design professionals? Who is the general contractor? After you know who they are, analyze their abilities. Have you worked with them before? Was it a good work experience? Did they pay timely? The answers to these questions have a direct impact on your success. And if you haven’t met them, make sure you do.
Collaboration among architects, engineers, contractors and developers from concept through completion can help reduce costs and eliminate time delays in the construction process. These other providers can also provide you with valuable information and become strategic partners in future business.
Additional service providers that you work with can also provide important information about financial and legal issues. Maintaining healthy relationships with your banker, bonding agent, surety officer, accountant and attorney may prove invaluable during tough times. Work to keep these stakeholders informed, and try not to present a surprise to them. In the end, lack of communication may cripple you when least expected. By cultivating these important relationships, you’ll be comfortable asking strategic questions which will help you plan more effectively to stay above the competition.
Differentiating from Your Competitors
You can no longer view your competitors as your enemies. If you do, you could be missing out on opportunities to form a joint venture with them or perform work as a subcontractor on specific jobs. In the instances you bid against them, you need to illustrate your competitive differentiators.
You can learn a great deal by watching what the competition does differently than your company. Pay close attention to your win/loss ratio as you bid contracts against your competitors. Learn from this information. Create opportunities and strategic relationships, which will help you acquire business in the future.
It may sound simple, but knowing what type of work you do well will help you focus on those jobs you do best. Knowing what your competitors do best can help you further differentiate your company and play to your strengths in the bid process. It is very tempting to bid on jobs that don’t match your company’s strengths, but you should resist temptation. When you win these types of jobs, you may find that you are not as efficient, and as a result, profitability suffers.
It can be difficult to say no, but don’t be afraid to walk away from certain opportunities. Making a conscious decision not to bid on a project can actually save your company money, especially if the job doesn’t fit your expertise. It doesn’t matter how much money the contract will bring in if your business can’t fulfill it efficiently and profitably.
As you go through the competitive bid process, have a conscious pricing strategy. Are there value-added items that you will price at a premium in this bid? How will you price and handle change orders? By thinking through these issues in advance, you’re taking valuable steps to help protect profitability.
Viewing Yourself from Within
By researching and completely understanding the various elements of the construction industry ecosystem, you are helping yourself survive during tough times. Don’t forget that your company is also part of the ecosystem and as a result, studying your place in the ecosystem is also an important part of the scientific study. From breaking completed jobs down, to reviewing processes, to analyzing overhead, all can help your company stay healthy in the survival of the fittest environment that many contractors face today.
An internal examination should involve a post-mortem. That means for each completed contract performed, conduct a post-project meeting to assess what went right and wrong. Be sure to hold the meeting right after job completion, while the job is still fresh in everybody’s mind. Include all staff involved, or you will miss valuable input and ideas from your team. Look for those good things you can duplicate in the next project as well as the bad items you will want to minimize on future jobs.
Review your processes to determine what you can be doing more effectively, and throw away practices that are costing your company time and money. Look for ways to reduce handling materials, improve delivery schedules and avoid over- or under-ordering inventory. If information is not communicated to your billing department in a timely manner so that invoicing can continue seamlessly, you may need to improve your office work flow.
Analyze your general and administrative overhead expenses, too. Each layer of overhead is meant to support a certain volume of revenue. Many contractors experienced a severe decrease in volume in 2009, but those who made tough sacrifices in order to manage overhead in relation to volume of work will be the most successful this year. If you didn’t cut back enough, you may experience problems managing cash flow over the winter – and you may be in a hole which may be hard to dig out of as another year rolls around. Get overhead under control soon or the situation will only get worse.
If there is one thing you don’t want to lose though, it’s your gut feeling. You probably have a gut reaction about the industry and certain jobs, which often turns out to be correct. Trust your gut. Learn to identify what doesn’t feel right. If you can first identify what is causing that nagging feeling and then put a plan in place to correct it, your company and projects will be more successful.
Scientists study the ecosystem to learn more about their environment. By studying your ecosystem in a similar manner, you can turn knowledge into power for your construction company. That can make all the difference between simply surviving and thriving during challenging times.
This article was originally published in CFMA Building Profits, November/December 2010.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.