Analysis
All companies that want to be successful need a strategic plan and accompanying
action plan to get where they want to end up. A successful strategic plan will
have specific goals, objectives, and issues that need to be addressed for the
company to grow and succeed. The decisions need to be based on company wide
input as to the needs to achieve success. Having a sense of being a part of the
decision-making process gives the employee a feeling of ownership in the company
and the direction it takes. It also helps him know why day-to-day decisions make
by his bosses are made, and assists him in knowing what direction he needs to
take in the decisions he makes. The strategic plan needs to be flexible to allow
the company to make quick changes as circumstances dictate.
There are various circumstances that
can affect any company’s strategic plan. These include finances available,
company size, company project experience, market conditions, and company and
project locations. Current market conditions are one of the most critical issues
for a company to consider. This is
especially true for the construction industry, both architects and contractors.
In an economic slowdown, the first thing a company does is halt its construction
projects, both new and renovation work. During hard economic times, a company
needs to focus its efforts toward maintaining its existing business. It cannot
afford to expend effort toward growth when the market does not allow it. The
last thing a company does once market forces begin to grow again is to start up
its new building projects again. It has to first regain any losses it had to
withstand and return its financial resources to pre-slow down levels. As a
result architects and contractors are usually the first to lose their jobs in a
recession and last to regain their jobs when the recession has ended. This makes
for a big issue that needs to be addressed.
The June 2000 issue of Architectural
Record addresses the opposite market issues that have driven the economy for the
last decade or so. The article refers to the last portion of this period as the
Seven Fat Years. These seven years of unprecedented growth along with new
advances in technology have had dramatic effects on the construction industry.
While the growth has allowed even the most unorganized companies to prosper,
those that had active strategic plans have faired far better and will be the
most prepared when the economy finally turns down again.
This economic boom, driven in large
part by advances in information technology has had both good and bad
consequences. It is sometimes hard to tell the good from the bad. The growth in
business has increased profits, but has also increased the number of employees
required to keep up with the increased workload. The need for employees has
outpaced the available workforce. This has driven up the salaries of the
employees at the same time that it has made finding quality employees harder.
The costs have increased but the fees (for architects at least) have not gone
up. The volume of projects accomplished each year has increased, but due to the
limited workforce, less time is available for each project. Ten years ago, we
had seven months to design, two months to bid or negotiate, and 12 months to
build. Today, for the same project, we have three months to design, one month to
bid, and nine months to build. As a result each employee has had to take on more
responsibility than someone of his experience would normally have. The increased
rate of production has resulted, in some instances, in increased errors in
design and construction at a time when the economic boom has increased owner
expectations for perfection. Liability claims have begun to rise in the last few
years as a result of these errors.
At the same time employees have been
taking on responsibilities beyond those typical for their experience level, they
have also had to learn new technology. Most architects were still drawing with
pencil or pen and paper tem years ago. Now almost all of them are “drawing”
with a computer. The Internet has revolutionized communication between
construction project participants. No one just writes letters and makes phone
calls any more. We have added e-mail, faxes, video conferencing, electronic file
transfer, and interactive web sites to the mix. These have all increased the
speed at which we communicate. We get the answers we need faster, but over the
last few years the expectation of quicker answers has increased as well. We now
have to manage technology at the same time we are managing our projects. The
projects are run so fast today that project owners are asking us more and more
to expand our services to include technology management as well.
All of these items have created new issues for inclusion into strategic plans. The technology issues have been around since the sixties, but the rapid rate of change is a new phenomenon. The intensity of the employment pressures is a new issue as well. These rapid changes highlight the need for the inclusion of flexibility into the plan. For the most part, the companies that are the most successful are the ones that were able to adapt to the new technologies and the employee pressures.
The economic
boom over the last six years has brought the unemployment rate to its lowest
point ever. This is especially true in the construction industry. Companies
cannot find enough employees to fill their available positions. The people they
can find are usually not high quality people. Those that are high quality
already have jobs at other companies. The vast majority of new hires are recent
college graduates. They have the raw skills necessary to become productive
employees in a few years. They do not have the experience to perform effectively
at the positions they are needed to fill. The result has been that employees are
increasingly being given responsibilities that would have been given only to
people several years their senior a few years ago.
The employee shortage that has been created by the current economic boom has resulted in an increased necessity for a company plan for employee recruitment and retention. If you want quality employees you have to be willing to pay what it takes to get them and keep them. The most obvious way to compete for these people is to pay more than the competition. This quick fix has resulted in an across the board increase of 10% in average salaries over the last two years. Once one firm has raised its salaries, the others have to follow if they want to keep up.
The second way to be competitive is in
the area of perks. These perks can include (at least in an architecture firm) a
better insurance package, office social activities, flex hours, a more casual
dress code, and telecommuting. The problem with these perks is that as other
firms begin to implement them, they eventually become industry standards or even
law as is often the case regarding insurance coverage. The key to a successful
incentive plan is tying it to the quality of the working environment.
Hiring and retaining employees is
keyed to a win-win situation between the company and the employee. Each party
needs to give a clear definition of his expectations. Once the employee has been
hired, a continuous line of communication needs to be maintained to make sure
both sides remain content.
I have found that I am more productive
and more content with my work when I am challenged. Of the four architectural
firms I have worked for, the one I work for now has challenged me the most. I am
also the most content and satisfied as I have been at any firm. The people I
work with make a difference to. I have worked at firms where backstabbing was
all but encouraged. Even though I was getting great experience, I had no
intension of working there long term. Where I work now, the people are good to
work with, and the work is challenging.
I
could very easily move to Atlanta or a larger city and increase my income by at
least fifty percent, but have no real desire to. Part of this is location, which
can be a perk. I have always lived in a small town close to a larger city. This
has given me the best of both worlds. I can live in a small town atmosphere with
a somewhat slower pace of life. With the town reasonable close to a city, I can
get the things I like that are found only in a larger city. While a company has
to located where the work is, the amenities and quality of life its location
provides can be an employment and retention tool.
The key to success, as far as
recruitment and retention, is the win-win situation. If the employee can be made
happy, while the company remains profitable and the employee productive, the
employee will probably stay. There are always things, like family issues, that
the company has no control over.
As with small
companies, which most construction companies and architectural firms are,
financial issues are probably the least understood aspect of the company. The
rate of bankruptcy for construction contractors is among the highest in the
country. Most of them are caused by the contractor’s ability to handle high
volumes of work with very little capital. Unfortunately, those that do this
often end up broke when payments from the owner are delayed beyond the
contractor’s ability to float his payments.
There are two problems associated with
gaining the capital necessary to start and maintain a construction business;
generating capital and using that capital efficiently enough to provide a profit
and more capital. For someone starting a company, one of the keys to success is
having enough startup capital. Experience should give the person an idea of what
he needs up front to complete a job. If he has prepared his bid or negotiated
properly, he will have gained all he needs plus profit by the end of the job. He
needs to have the capital to pay the bills he has to pay before receiving
payment from the owner. In theory this is a 30-day supply of cash based of the
worst month of the project, but can be longer depending on the owner, architect,
or other issues. Hopefully the contactor has managed enough projects to know how
to determine this number.
The contractor needs to do a cash flow
projection to get a better picture of his capital needs. In addition to the
30-day project specific needs, the contractor has to consider his needs
throughout the entire year. He has to pay the salaries of his estimators whether he wins
the jobs being bid on or not. He has to allow for the typical slow period that
usually occurs around the same time each year when income is down. Certain
overhead expenses have to be paid no matter what the project income may be.
The
cash flow projection can be used as a basis for a company budget. The budget
gives the contractor the tool to begin controlling his expenses. It is the
control of these expenses that enables the contractor to finish each project
with a profit and an increase in capital necessary for company growth.
All
contractors have to borrow money at one point or another. Typically this is as
an established line of credit used to carry a company through a lean billing
month. If a company wants to borrow money, say for new equipment, the banker
will expect to him to have some form of collateral, such as cash or stock, to
cover the loan if it is not paid. The contractor’s bonding capacity is
actually more critical to a contactor than his ability to get a loan. In effect,
the money a contractor needs to complete a project comes from the projects
owner. A quality contractor should be able to earn enough profit on one project
to carry him through the next. Assuming he doesn’t tank on his first few
projects, he should be able to set aside enough to carry him through a few money
losers. If the contractor is successful, he will have a good bonding capacity.
With this and the recommendation of his bonding company, the bank will probably
give him the loan he wants.
The successful management of cash flow along with the correct amount of start up capital should result in a successful company. The contractor needs to be sure of the experience he has gained working for others before going into business for himself. Those who take the risk, earn the bucks. The risks need to be minimized to an acceptable level, though, if the company is to become a success.