How to Return to Growth in 2010: A Blueprint for Profitability & Improvement:
John Soter, Principal with ZweigWhite Consulting, presents an in-depth approach to planning for growth that balances the challenges and risks of the current economic environment with an objective assessment of market potential and internal capabilities. Tailored to the unique needs of typical AEC firms like yours, this “blueprint” covers how to quickly recognize and address internal and external opportunities and threats—and how to plan and manage them for continuous growth.
Click on the below link to purchase the webinar:
http://www.zweigwhite.com/p-886-how-to-return-to-growth-in-2010-a-blueprint-for-profitability-improvement.aspx
1. How to Return to Growth in 2010: A Blueprint for Revenue Growth, Increased Profitability, and Operational Improvement Presented by: John Soter, Principal ZweigWhite Strategic Advisory Services Boston 321 Commonwealth Road Suite 101 Wayland, MA 01778 1-508-651-1559 Washington, DC 1025 Thomas Jefferson Street Suite 105 Washington, DC 20007 1-202-965-3390 Chicago IBM Plaza 211 West Wacker, 18 th Floor Chicago, IL 60606 1-239-280-2300
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3. Visit us at www.zweigwhite.com Business Growth and Evolution
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5. Growing vs. Aging Visit us at www.zweigwhite.com Balance maintained at Prime Growing Aging Improving performance and capability Doing the same things year over year Success to those who take risks, flexibility Success to those who avoid risks, control Function > Form Form > Function Kept for contribution despite personality Kept for personality despite contribution Cash Poor, sales orientation Cash Rich, profit orientation Expectations > Results Results > Expectations Need Consultants Need Insultants Growing Aging
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10. Visit us at www.zweigwhite.com Business Evolution Stages Infancy Paei Courtship paEi Stable PAeI Prime PAEI Adolescence pAEi Go-Go PaEi paEi Peter Pan Growing Aging P Infant Mortality Death Bureaucracy pA i E Affair P E Founders Trap
11. Normal vs. Abnormal “Growing Pains” Visit us at www.zweigwhite.com Stage Normal Abnormal Infancy Cash shortage Too much to do Chronic negative cash flow Loss of commitment Go-Go Lack of delegation Lack of focus Lack of consistency Founder’s Trap Unrealistic decisions Major crisis Adolescence Infighting Leadership crisis Not enough trained people Yo-Yo delegation Partner divorce Loss of flexibility, Premature “aging” Back to Go-Go Prime Not enough trained managers Complacency
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14. Visit us at www.zweigwhite.com 2010 Consensus Outlook
15. 2009 & 2010 Revenue Changes Visit us at www.zweigwhite.com 19.2% 7.9% 23.3% 19.9% 9.3% 5.4% 7.5% 7.5% Source AIA Work-on-the-Boards Survey, November 2009 Estimate for firm revenue: 2009 vs. 2008 Estimate for firm revenue in 2010 vs. 2009 30.3% 25.8% 15.2% 21.9% 6.8%
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17. 2010 AEC Outlook by Market Visit us at www.zweigwhite.com Source: 2010 AEC Industry Outlook Market Segment Outlook Government/Municipal 4 Health Care 4 Transportation 4 Water & Waste Water 4 Education 3 Energy/Power 3 Environmental 3 Alternative Energy 2 Market Segment Outlook Brownfields Remediation 2 Solid/Hazardous Waste 2 Residential – Single Family 2 Residential – Multi Family 4 Retail 4 Office 4 Mixed Use 4 Amusement / Recreation 4 86% - “2010 economy will not get worse” 52% - “2010 economy will be better”
18. Visit us at www.zweigwhite.com Business Planning for Growth “ A problem well defined is half solved”
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23. Operating Gap Analysis Visit us at www.zweigwhite.com Figures are for illustrative purposes only, based on a $10MM Firm Peer group benchmark analysis shows magnitude of potential opportunity (One time savings) A B C D * Top Quartile from 2009 ZW Financial Performance Survey Target Company Baseline Top Quartile* Gap Annual $ Opportunity Revenue Growth (1 yr) -7.3% 2% 9.3% $939,000 Operating Profit Margin 10.6% 16.6% 6% $605,000 Effective Multiplier 3.48 3.41 -.07 (660,316) Utilization 51.3% 60.8% 9.5% $538,000 Overhead rate 210.1% 179.7% 30.4% $883,000 Avg Collection Period (Days of Gross Revenue) 114 82 32 $885,000 Marketing Spend (% NSR) 11% 7.4% 3.6% $363,000
24. KPI Peer Comparison Visit us at www.zweigwhite.com Top Quartile from 2009 ZW Financial Performance Survey
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28. Growth Planning –Phase 1 Visit us at www.zweigwhite.com Strategic Direction Required Investment $ Operational Improvement $ (Productivity + Cost Savings) Delivery Opportunity $ (New Products + New Services) External Opportunity $ (New Markets + Expand Markets) Net $ Impact Risk Assessment & Contingencies Base Case Strategic Agenda Stay the Course
37. Contact Information John Soter (508) 651-1559 Ext 211 [email_address] Click on the below link to purchase this webinar: http://www.zweigwhite.com/p-886-how-to-return-to-growth-in-2010-a-blueprint-for-profitability-improvement.aspx Visit us at www.zweigwhite.com
Notas del editor
Greetings and welcome to today’s discussion. Thank you for your time and attention.
Today’s webinar is about planning for business growth in 2010 and beyond taking into account current economic realities. I’ll approach how to grow from 3 angles: Since BP is leadership responsibility – will examine leader attributes and how they change at each stage of growth Knowing where you are and what the appropriate next stage is is the first step in planning for growth. 2. The economic experts have weighed in and read tea leaves and I’ll summarize their consensus opinion. This will help you determine where to go. 3. I’ll walk through an Approach to planning relevant to today’s challenges and ambiguities – one that balances operating effectiveness with market & business planning. Growth can be in any of 3 areas. Given the fragile nature of our recovery, it’s critical that scenarios are explored and contingencies developed. This will help you figure out how to get there. So 1 st we’ll help determine where you are 2 nd where to go And 3 rd how to get there
How do companies grow and age and why do some thrive and others age and die? Companies are born, grow, and age As they evolve, have predictable patterns of behavior at each stage Normal development means a company deals with struggles and evolves its business model and leadership skills. When the business model or leader skills get stymied, firms can get stuck and stop growing.
Normal/predictable struggles at each stage – once problems are removed, and until they are, org not able to move to next stage Key, not to eliminate problems, but to focus on present stage problems so firm can grow & mature to handle next stage You need to know the right problems to have Describe a person that sleeps a lot, cries a lot, drinks a lot of milk, is this a behavior problem? No for a baby, what about a 45 year old CEO? The same goes for a company. It’s important to differentiate between normal and abnormal problems. Good news – companies don’t need to die.
For a believer there are no questions = grow For a skeptic, there are no answers Aging caused by loss of flexibility or E spirit and mindset, inward focus In more mature companies E is manifested as strong mktng, service and product development, business development – continually finding and satisfying new customer needs Alarm signals: Mkt share loss, talent loss Focus on systems vs. people, process vs. results Become Farmer vs. hunter, and often adopt a franchise mindset
Stage transitions require changes in leaders style, focus, roles and requirements Quality decision – makes the company effective & efficient Effectiveness measured by functionality – did it produce the desired result? Efficiency measured by how much blood, sweat, and tears, or effort was put into it 4 main leader attributes – most have some mix, every leader shares to a greater or lesser extent 1 or more of these 4 key attributes P – Perform purpose of the org, produce results, satisfied customers Who are clients and what are their needs A – Administration -Systematize, program activities of firm for consistency and predictability E – Entrepreneuring - Providing for change, creativity, risk taking Proactive, do something today because tomorrow will be different from yesterday I – Integrating – Involve and grow Team, recognize interdependence, sum > parts P – satisfy immediate needs of cust A – satisfy need of org for consistency E – satisfy new, more powerful, not immediate cust need I – satisfy needs of org for interdependence
In order to help understand each attribute, I’ll isolate them with single dimension examples. These are extremes, very rare single dimension leaders, not like this but you may recognize the types P & E together, grenades and fire extinguisher Form of communication: P tends to favor bark, A=Memo, E =I have an idea, everyone in my office, I = What do you think Firing: P = Terms are difficult you’re fired, A= Full file out, E = Great new opportunity, I = How do you think you’re doing, call Tom, Fire him Move copier: P = Moves it, A = Memo to all dept heads, E = Doesn’t know where it is, I = Has a meeting 2 Kids with drum: P = another drum = need of child or take away=need of adult for P&Q can confuse tech with need if need is to make noise A = 15 minutes each E = Next need, movie, ice cream, etc I = Take away and tell them to figure it out Get a sense of value and shortcomings of each in isolation
After 1 Need complimentary team, interaction must be right After 2 HR – usually high I Founder – usually high E CPA – usually high A Business Dev/sales – usually high P Good decisions require PAEI & different perspectives Rarely can 1 person do it all, need teamwork, as a result there will be conflict, it’s necessary and indispensable Disagree without being disagreeable Last Bullet Secret ingredient = mutual respect, accept other person’s POV, disciplined emotions
We could have an entire webinar devoted to exploring Leadership styles. For our purposes today, this very brief outline will suffice. What does your job require? P- Results focus, hit the target A – Compliance focused, do it right for self and others E – Future need focused, what will be next opportunity I – People focused, building interdependence/teams Bear in mind, unless you are Steve Jobs, being strong at more than 1 or 2 is rare
I briefly covered the business lifecycle stages and leader attributes, now we’ll combine the 2 Movement along the Curve represents ability to achieve effective and efficient results in short and long term Firms start life highly flexible and as they grow, more control is required Prime – balance of control & flexibility, can change direction quickly with predictable results Growth is about becoming capable of dealing with bigger problems Leaders function – manage to next, more demanding stage & new set of problems CY – emphasis on ideas & possibilities – respond to need, build commitment INF – Sales, there is risk, producing is key, product orientation, focus on cash Few policies, systems, procedures, or budgets = inconsistent performance, mgmt by crisis Problems – cash & founder’s commitment Infant mortality – cash shortage GG – Cash & activities stabilized, focus on sales & market share Like babies, into everything, everything they touch they eat or break Opportunities = priorities, business development orientation Exploit vs. plan, no “marketing” Crisis by management, org around people, everything is a priority Need to develop admin systems, transition often due to major crisis, someone wakes up and says we need to get organized To grow they often Assume more sales = more profit – no way to know true costs Founders Trap – autocratic style, can’t adapt Adol – Re-born, delegation of authority, focus on profits & predictability Leadership needs to change Hire prof mgr, parent, evolve Institutionalize – systems, policies, admin Prime – Optimum point, balance control & flexibility, sales & profits Functional systems & structure, institutionalized vision Predictable success, grow sales & profit Know what doing & how to get there Stable – Start of aging, focus on status quo Still strong but losing flex, more mellow, less conflict Lowered expectations, loss of creativity Bur – Denial, losing market share, focus on survive, politics Blindness to reality at leader level, internal turf wars
One way to determine where are is based on types of problems Remember can go back or forward and not dependent on chronological age Some firms sent back due to recession Certain behavior is normal for certain stages and abnormal for others Find abnormal problems and deal with CY passes reality test and moves on INF – Can have too much P GG – Can’t regain E, over commits Adol – Only talent required before, now need discipline, allocate resources
Scenario For example, Stable + buys who? Not infants, too young and risky Adol – too problematic, Prime too expensive Buys GG, wants new growth Opposite also, GG wants faster growth + cash, like AOL & TW Not easily consummated #1 – GG suffocated, loses speed & flex, can’t handle rituals of business #2 – GG paralyzes aged w/expectations of change, aged consumes GG execs time #1 cause of M&A failure = cultural integration, I would suggest that it’s the integration of the leadership team’s attributes also
Once again, we could spend an entire webinar on a lifecycle discussion. For today, my objective is to use it to set a framework for thinking about your firms Need to start planning with an honest assessment of your situation – birds and fish Build appropriate balance of PAEI Infancy – sales focus, building capabilities and market share Go-Go – Sales & mkt share focus, high growth, undeveloped procedures/systems Adol – Focus on profits and predictability, systems. Policies, admin being addressed Prime – Focus on sales & profits, functional systems & structure, institutionalized vision, predictable success, solid growth, know where going, what doing and how to get there Stable – Focus on status quo, Strong but losing flexibility, lowered expectations Bur – Losing market share, great systems and procedures, plagued with politics, turf wars Unless you’re Google Prime may be a stretch
Think about where your firm is on evolutionary cycle. Knowing that helps to plan your growth to the next stage. Now let’s look at external growth opportunities
Design firms: Less than 1/3 grew revenue in 2009, 28% up or flat (incl -5%) Just over half expect 2010 will beat 2009, 54.5% vs. depressed 09 Design firms are leading indicator of AE recovery and this is evidence of some cautious optimism. Certainly a glass half full perspective.
Structural crisis in economy makes this recession unique, more than a correction Credit, debt, labor 2010 GDP up 1 – 2% Positive – pent up AEC demand, once things start to get better, the curve should accelerate quickly AEC survey – 43% feel AEC will follow economy, 43% will be worse, 15% better Guarded optimism, still fragile Have witnessed significant job losses (arch 3X overall econ) ARRA – bulk in ‘10 M&A – buyers wary about performance of AEC business, many sellers waiting for valuations to return – not much consensus about just how ugly the baby is when it comes to valuations Competition from global players – most competent, lowest cost provider Green driven by corp, govt, & energy prices Positive outlook driven by fundamental demand, available funding, or combination Near term depends on credit markets & availability of financing for projects
More looking to expand footprint with new services to existing markets as well as penetrating new markets Challenged markets – how to help clients save money, reduce risk = business partner Differences in confidence shown by the shape and color of the balls is driven by regulatory, federal, state, and/or municipal unknowns Red = markets not expected to rebound in 2010 Conditions in construction industry remain weak Architecture firms not yet seeing a turnaround Timing of cycle points to a design recovery in 2 nd half of 2010, construction in early to mid 2011
Summary so far – stage evolution model – where you are, what you need PAEI to get to next level The consensus for 2010 is encouraged but cautious. It will be similar to 2009, but some may have to work harder to get and keep clients and achieve comparable business results. So what does this mean for business planning. We are currently involved with several Business Planning engagements and are seeing some consistent themes and shifts in focus from years past. A major recurring theme is increasing competition, both wanting and fearing it. Firms are seeking ways to retain their existing market advantages. With forecast flat to moderate growth, companies are also looking to penetrate new mkts. Its become a zero sum game as every new market win for a firm is a loss for others.
So, how will firms compete in 2010: Themes such as: Themes like Manage cash, eliminate waste, do more with less, invest wisely in capabilities (tech, training, marketing, etc) are common refrains. Despite significant job losses in 2009, many feel there is opportunity to go after waste and increase efficiencies even more. 2. Competitors can replicate technology, skills, and processes, they cannot replicate the way you operate or your environment. Buyers mkt, more competition = pricing pressures. Know and control your costs so profits don’t get eroded. Not enough to sit still, even if well positioned in hot markets, or just go where the money is. Its important to identify the need and make sure you can deliver at a good cost. Most firms are considering some or all of the following: Teaming or strategic alliances, new markets and expanding services, expense management, streamlining (process and org), operating effectiveness, working capital improvement. Things will eventually get better, those that get stronger and find ways to deliver quality and client satisfaction at lower cost will grow, those that hit the snooze button or practice business as usual, or think their position is immune may suffer.
In most markets, demand no longer exceeds supply, pool will be crowded, could see pricing pressure Most agree that 2010 will be flat / moderate growth AEC backlogs not consistently as strong as 01/09, firm valuations are soft for the most part. Winners will have balanced focus – increasing internal capability & pursuing external growth In summary, the keys to 2010 planning: How to build muscle – ability to deliver effectiveness measured by producing outstanding results and efficiency measured by how much BST/effort/cost put into it. What are the possible and probable scenarios that need to be considered and what contingencies should you plan to cover the unexpected. There were too many shocks and surprises in 2009 and leaders are looking to be better prepared. How can you strengthen and manage the tactical implementation of your strategic direction, focus on what you can control on the path to what you expect. Take advantage of opptnys & mitigate risks. More firms looking for Strategic Direction = Dynamic plan w/firm tactical components for the near term
Template to help format your thinking and approach. Integrated process, designed to create solid growth plan. 4 Parts Gap Market/Client Employee Scenario Planning
6 days to cut a tree, will spend 4 sharpening the axe. Surveys: Valuable information, prepares for new path, generates enthusiasm and energy
Purpose – compare your firm’s performance to best-in-class A – 1 or 3 year growth rate B – Operating profit margin, Pre-tax, pre-bonus profit/NSR C – EM, NSR/DL$, productivity, ability to charge a premium Util, DL$/TL$ OH – G&A, Indirect labor$/DL$ (excl bonus & profit share ACP – Avg time to collect expressed as days of Gross Revenue At ZW we have research resources we rely on. Can also use associations, public company information, and government analysis. A couple of key points: This is lens to assess and size potential opportunity areas Intended to begin discussion, not as a final answer.
TQ is indexed to 100% What areas have opportunity to increase operational capability and performance, and how much of the gap can we capture Using $ allows you to set targets and since these are existing financial and operating measures (for most companies) progress can be easily tracked every month or reporting period A key point is that the leadership team can hold people accountable for the expected result and leave the methods for achievement up to those working the issue
Segment and rank customers based on volume and profitability. Match investment to return. How brand is perceived, strengths, opportunities
The recession has focused many on P&A = control I is troubled by downsizing E is on hold Survey helps determine perceptions and shows leader commitment
Last piece of Phase 1 Given current economic realities, we are dealing in probabilities based on relatively few certainties and best available intelligence and counsel. At what level is remediation needed Re-visit scenarios and update based on most current information
Base case = gap, market, employee, scenario
Catalog Phase 1, review by leadership team
Leadership group to meet to achieve consensus on direction and plan Real consensus = speak your mind, agree and 100% endorsement
WBS = high level project plan MP – to effectively manage tactical plans
New strategy = new energy = need for leadership. Means and ends = activities, behaviors and results Engage in a discussion of what it will take
ID value potential as result of SP components Capture with tactical plans Document final plan detail Use as basis of communication plan
Particularly if undergoing or contemplating Ownership transition Balance PAEI relative to stage Thank you for your time and attention
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