Home >>
January 2009 >>
How to Survive (and Even Thrive) in Tough Economic Times
The economy is a mess, banks aren’t lending, projects that looked good a year ago are being shelved, and cash flow is tight—not a great way to ring in the New Year. However, an economic downturn can be the perfect time for serious strategic planning.
“Strategic planning is more than just a SWOT analysis (strengths, weaknesses, opportunities and threats)—it means taking time to do in-depth strategic analysis, operational planning and results management to develop and integrate short-term and long-term strategies that improve overall profitability,” says Patrick Below, a strategic planning expert and business consultant in Madison, Wis.
“Contractors are very project-driven,” Below says. “They often tell me they are too busy for planning. What construction executives need to do is apply their natural planning skills at a much higher business level.”
Ken Pientka, chief operating officer for Iconica, a Madison-based design-build firm, agrees. “Our previous efforts at strategic planning didn’t take a lot of time and largely consisted of establishing a few goals and writing up a two-page strategic plan,” he says. “Strategic plans have a way of circulating for a few months and then getting put on a shelf.”
Most contractors are action-oriented and good at managing details and workflow at the project level. This is the basic integrated thinking needed for effective strategic planning—it just has to be elevated and broadened for higher-level, larger-scale business goals.
“Strategic planning often requires a major shift in the way a company thinks,” Below says. “It’s a difficult transition for many companies to make, but it creates a consistency that accelerates growth and boosts profits.”
Finding the Driving Force
Companies that want to implement an integrated strategic plan must be willing to commit sufficient time and manpower to the process. “It’s very hard, challenging work,” says Pientka, who hired Below in 2008 to help Iconica develop a strategic plan. “Between May and October, for 22 staff, we had four two-day meetings, two half-day meetings and lots of breakout sessions consisting of four to five teams—all in addition to our daily duties and responsibilities.”
One of the first steps in the planning process is determining the company’s driving force. What are the key issues affecting the contractor’s business? What are the competitive advantages? What does the company want to be known for?
“After much discussion, we decided our driving force was integration,” Pientka says. “We wanted to integrate across our disciplines and combine our learned knowledge and skills in ways that add value for our customers.”
Building an Executive Team
One of the biggest benefits of integrated planning is the development of a top-notch executive team. “The process quickly identifies the key strategic leaders in the organization, as well as those who have the potential to be leaders,” Below says. “The results are always surprising.”
Adds Pientka: “The planning process got everyone on the same page and thinking at a strategically higher level. My respect for members of the team grew enormously as we worked together on these assignments.”
Participants included owners, senior- and mid-level managers, and individuals who were “thought leaders” in their various departments. “It became obvious who the strategic thinking stars were,” Pientka continues. “The process was absolutely essential for coalescing an energetic management team that shared the same vision.”
Tracking Results
After investing the time to create and implement in-depth strategic and operational plans, the third part of the process is results management—having the right control systems and measurements in place to monitor results and take corrective actions.
Engineered Construction, a general contractor in Verona, Wis., worked with Below to develop a strategic plan in 2007. “It was very challenging work and they didn’t give us the answers—we had to develop them ourselves,” says Dave Lombardo, president of Engineered Construction.
His executive team decided a shift from being product-oriented to being sales-oriented would be their driving force. “Too many companies get caught up in how big they are,” Lombardo says. “Would they rather be a $50 million company with $500,000 in profit or a $20 million company with $2 million in profit? We chose the latter and are working harder to build profitable, long-term relationships with our clients.”
Engineered Construction nearly doubled its sales volume in 2008 and is on course to becoming the $20 million company Lombardo envisions. “The most important outcome from the strategic planning was the shift in our culture,” he says. “We listen more to our clients, find out what their needs are and respond to those needs with a sense of urgency.”
Iconica targeted several key metrics when implementing its strategic plan. “We were experiencing a gradual decrease in both net profit and productivity—the hours/revenue dollar was going up,” Pientka says. “By making effective project operations a key part of the operational plan, we were able to reverse that trend.”
One component of the plan was restructuring fees. “We learned we should be charging design fees, construction fees and general condition fees differently according to the type of project,” Pientka says.
Rollie Stephenson, president of Faith Technologies, a 1,500-employee electrical contractor in Appleton, Wis., used the integrated planning process to develop a long-term strategic plan. “We drew a minimum and an optimum growth chart for where we thought our growth would be seven years out,” Stephenson says. “For each of those years, our actual revenue and pretax profit fell between the minimum and maximum lines. Right now our backlog is at a record high—even in this economy—so the corporate culture that resulted from our strategic planning is still serving us well.”
Stephenson believes general contractors would benefit even more from strategic planning if they elicited feedback from their subcontractors prior to planning.
Below takes it one step further: “Involving key managers from trusted subcontractors in the actual planning process would be a win-win for everyone and result in stronger, longer-term and more profitable relationships.”
The Time Is Now
With the current economic climate, the first instinct may be to hunker down and cut spending, but general contractors should be careful not to sacrifice strategic planning. “Now is the time to be proactive instead of reactive by strategically planning for the future,” Lombardo says.
Pientka agrees: “Don’t waste your time trying to do strategic planning yourself to save money. If I had tried to pull all these planning sessions together myself it would have been a huge struggle and not nearly as successful. Hire an experienced consultant who knows the industry, is an effective facilitator and can keep the process moving along.”
It takes about six months and a minimum of $50,000 to $100,000 to design and implement an effective three- to five-year strategic plan.
“Don’t let the current economic downturn and tight credit situation be an impediment to planning,” Pientka advises. “Start right away. Because of our strategic planning, we are better prepared to deal with this economy, and any other challenges that are sure to come along.”