Monday, February 8, 2010

Recession Exit Strategies

The recession reputedly ended last summer. Did you notice? Among the A/E firms I've talked to and read about, it appears the outlook for 2010 is mixed. Some are anticipating a better year. Others expect the struggle to continue. Much depends on what markets you serve.

Regardless of your prediction for the next several months, economic recovery will not come quickly. And most experts seem to think that the business world will be changed even when it comes. What shape this so-called "new normal" will take is still to be seen. But you can begin taking steps to better position your firm for transition from the lingering recession. A few suggestions:

Get close to your clients. As budgets dwindled and projects were delayed, some A/E firms failed to maintain regular contact with their clients. That was a mistake. Now is the time to demonstrate that your client relationships mean something more than a source of income. Clients still have needs, although many still lack funds to proceed with capital projects. But you can still help, either gratis or for a fee they can afford. Some things to keep in mind:
  • If you haven't already, transition your business development away from a transactional approach to a relational one.
  • Learn how the recession has transformed business for your clients. Uncover changes in budgets, schedules, operational priorities, management mandates, procurement practices.

  • Establish yourself as a valued resource and problem solver. Don't waste clients' time with self-serving "fishing trips." Bring something of value to every meeting with the client.

  • Increase marketing, but focus on delivering helpful content rather than promoting your firm.

Engage your employees in making positive changes. If your firm has endured layoffs and other cost cutting in recent months, it's important to create a sense of optimism among staff. Uncertainty and stress can drain much of the creative energy that you need to return your firm to growth mode. Don't mistake busyness for innovation and efficiency (see below).

One of the best ways to counteract the recession impacts on your staff is to give them more sense of control over the future. Enlist their active participation in one or more initiatives to strengthen the firm's prospects in the coming months. But won't this hurt the bottom line? The long-term effect, of course, is to boost profitability. To minimize costs in the short term, the secret is to effectively manage your nonbillable time.

Focus on improving work process efficiency. Other than business development, probably the most important initiative in the coming months is to figure out how to dramatically improve your firm's productivity. I'm not talking about utilization here, but the ability to produce more in less time and at less cost. Why is this important? Because the evidence suggests we will be facing a higher level of price sensitivity, perhaps for years to come.

There have long been opportunities to improve in this area. Rework in our industry averages perhaps 15-20% of project budgets. One study concluded that productivity in the design and construction industry has actually declined over the last 40 years, in sharp contrast with most other industries. To maximize profit in a new era of client austerity, you need to find ways to improve the efficiency of your project delivery process.

Rethink how you measure performance. The common financial metrics we use make sense from a financial perspective. But they are not necessarily good measures of--nor effective incentives for--human performance. For one thing, they are trailing indicators. They quantify results from past actions, and may not be that helpful in guiding what should be done now or in the future. And they may not be effective in motivating desired behaviors.

Take utilization, for example. This is probably the most heavily enforced metric in our business. But how exactly should people respond to the mandate, "We need to improve utilization"? The obvious need is to generate more revenue, but that usually takes time and is limited to the domain of a few rainmakers. You can cut staff (and this has been common in recent months), but that is clearly not the favored course of action. Or people can charge more time. But if the work isn't there, how does charging more hours benefit the firm?

The best metrics are directly tied to the actions you need to get the desired results. These are leading metrics, tracking whether people are doing the things that really matter. Another critical measure is how satisfied your clients are and how you can do better for them. Employee satisfaction is also important, because it influences performance. With some thought, I'm sure you can identify other metrics that are better aligned to the results you value most.

Be cautious about moving into new markets. If your core markets are currently depressed, the natural temptation is to look for better ones. That may well be smart strategy, but you're probably better off trying to increase your share of the markets you're already in. Competition in all sectors is tougher than ever, and you can waste a lot of time and money trying to break into new areas in the current climate.

This often leads to the transactional approach mentioned above, writing proposals for contracts you have little to no chance of getting. This is consuming the attention of a lot of A/E firms these days. That focus is better directed to the business you know, getting close to your clients, learning more about their needs, diversifying services through teaming and strategic alliances, positioning your firm as the trusted experts in your field.

The need for strategic focus is greater now than before. Pick a few things to concentrate on, and give it your best effort. That's better than the reactive, scatter-gun tactics that are common in our industry today. You may find there are more opportunities in the marketplace than you imagined.

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