Most contractors that I work with have already cut costs to get through the past couple of years, but many are struggling with what to do to get through the next couple of years. We continue to hear from national economic experts that the recession is over and the economy has begun to grow. However, those same experts also warn us that the recovery will be slow. Contractors are expected to continue to feel the impact of reduced work through 2012. The 2009 CFMA Construction Industry Annual Financial Survey reported that 92% of the respondents to the survey identified “Sources of Future Work” as their top challenge in the next five years. Leaders of successful construction companies realize that they must identify and exploit new opportunities to be successful in the future. Some of the more common strategies that I see:
- Joint ventures – working with another company can yield significant benefits for all involved.
- Expand geographic regions – analyze new geographic regions that could provide opportunities for new work.
- New market niches - investigate new and emerging markets for opportunities to diversify.
- Merge with or acquire another contractor.
Each of these strategies provides both opportunity and risk. Contractors must first identify the strengths of their own company/workforce and match that with the changing needs of the marketplace. This type of strategic planning will allow companies to adjust to be successful not only today, but also in the future. Questions you should be asking: Do we need to hire/create expertise in emerging industries, such as green building? Do we have the industry expertise but need to market to a broader geographic region with more opportunities? By partnering with another company will we have the financial strength and experience to perform on a project that we could not do alone?
Continuing to do what you have always done and waiting for the market to come back is not an option in today’s economic environment. Engaging your leadership in the very important work of planning for today, as well as tomorrow will position your company to thrive in the future.
For more information please contact:
Crissy Fiscus, cfiscus@ddfky.com
I recently had the opportunity to hear Lee Smither speak. Lee is the managing director of management consulting at FMI Corporation in Raleigh, North Carolina. (FMI is the nation’s largest provider of management consulting and investment banking to the worldwide construction industry.) Lee identified four strategic issues currently facing the construction industry and I have summarized below some excerpts from Lee’s presentation.
- Project financing and contractor capitalization now take “center state”. There will continue to be a shake-out of contractors as bonding capacity is cut. Contractors with the ability to “self-finance” between owner payments will have an advantage over pure “pay-when-paid” players. Firms with significant equity are in a “buyer’s market” with respect to undercapitalized but solidly performing acquisition targets.
- Government is in the driver’s seat as both customer and regulator. Government as a buyer of construction services will have a somewhat significant effect for the next two to three years. The construction economy will lag general economic rebound by 18 to 24 months. Each year, federal agencies issue approximately 4,000 new regulations at an estimated annual cost of nearly $1.1 trillion.
- A resistant industry moves towards changing systems, processes, delivery methods and technology. There still exists a need for business acumen training in the project management profession. Consistency and uniformity of practices is still widely divergent and a significant Achilles’ heel for many firms.
- The effects of demographic shifts in the US on both labor and management succession are going to be significant. Sixty percent of human resource directors say that their firms have no CEO succession plans in place. Sixty-six percent of all senior managers hired from outside an organization usually fail within the first eighteen months.
Dupont, Proctor & Gamble, Revlon and Hewlett-Packard all prospered mightily during the Great Depression. This current economic crisis is a charter for business leaders to rewrite and rethink how they conduct business. Great leaders don’t think retrenchment but will think new strengths. Your company’s success will depend on leaders who are able to identify and exploit opportunities, find new market niches, reposition and perhaps restructure their company. Expect to hear more on this later.
If you would like any assistance in possibly restructuring your operations or rethinking how you conduct business, please contact Chris Humphrey at chumphrey@ddfky.com
