Engineering for the unknown
Predicting the future is hard, but by preparing for it, your engineering firm can excel down the road.
For most firms in our industry, the past year has been a long slog through the mud. Some markets have held up better than others, but the damage is widespread and there are too few places to hide. I haven't found a single peer who has been able to avoid difficult cost-cutting decisions that have come with declining workloads. For most of us, the future has never been harder to predict.
When asked by Consulting-Specifying Engineer to share thoughts on how to work through the recession in preparation for a new and different future, I was hesitant. At the end of the day, we have more questions than answers, and each firm has its own set of unique issues and circumstances to address.
Industry-wide, the quality of decisions made today will likely be in question for months to come, as trying to focus on the bigger picture in the midst of a real economic crisis is hard work. We are now required to rethink answers to many questions we believed to be answered years ago, and then reframe these same questions based on a different economic circumstance. On one hand, we know this will pass; however, it's emotionally tough to cut costs and people to survive one day while thinking about future investments the next. I've been fortunate to take part in a peer group of 10 CEOs from firms around the country for the past 20 years, and to have outside board members for nearly the same amount of time. The advice I offer comes from various discussions and questions we've been asking one another over the past year.
First things first
To answer the question of how to get through this recession, managing cash flow is the critical first priority. If that doesn't happen, the rest won't matter. One outside board member often says to me, “This business is really simple… all you have to do is get work, do the work well, and then get paid for it.” A year ago, finding the people to do the work was the biggest challenge for all of us. Now getting work and getting paid have become the critical issues. The shift has been dramatic, resulting in a need for morebusiness development and a tougher approach to past-due receivables.
For many firms, managing cash has meant shrinking the business, restructuring, reducing staff, and cutting overhead. While managing cash flow is all about short-term survival, how we do it may have lasting implications for our future growth. Do you want to prepare to be a smaller, and hopefully better, firm by cutting staff and trying to take really good care of those who are left? Or do you cut salary, benefits, and work weeks, betting the recovery is near and the loyalty you generate will pay dividends moving forward? Depending on how the future unfolds, either strategy could be the right one. The firm size, culture, and diversity will also affect each decision's outcome. Across-the-board cuts may be appropriate in smaller, single-market firms; but in large, diversified firms, they may be the worst thing to do in markets that are still healthy.
Don't let a good crisis go to waste
A CEO friend from Texas offered this insight last February: “Never let a good crisis go to waste. Now is a good time to kill the sacred cows.” We often know what needs to be done long before we get around to doing it, whether it involves people or policy issues. When times are good, we tend to let things ride to keep the peace. Tough times often force these issues, giving us the opportunity to change “sacred cow” policies and procedures that would be difficult to do otherwise. We have a couple of these opportunities before us, and we will likely have enough time to make the necessary changes.
If you have a long-range strategic plan, now is a good time to review and validate related goals and assumptions. A lot has changed in the past 18 months, and assumptions made two years ago may or may not still hold. At Smith Seckman Reid (SSR) , we have been rethinking our underlying assumptions about the markets we serve and looking at ways to develop new markets with fewer resources. If you are in markets that are predicted to hold up over the long haul, congratulations—but don't get too comfortable. The folks who are not so fortunate are going to be looking for a way in through hires or acquisitions.
This, too, shall pass. Then what?
Because they are considered relatively painless places to cut costs in the short term, investments in training and development, technology upgrades, and business development tend to be reduced or postponed when budget cuts are on the table. Maintaining these investments is a tough sell with many firms. However, they deserve a full and lively discussion, as these investments will help increase productivity, efficiency, and backlog, and will serve us well in a new economy where we are expected to do more with less.
Just a few years ago, SSR invested in Voice over Internet Protocol. Since making the investment in this video conferencing technology, travel expenses for training and meetings have been cut by more than 50%. Two years ago, we also began converting our CAD software to BIM, which created a significant marketing advantage for our firm. Our clients now expect us to use BIM for their projects. Bottom line, this cost could not be put off for better times if we are to remain competitive.
A year ago, I received some great advice: Stay in front of your clients and communicate openly and honestly with your staff. Neither of these efforts is expensive, and it may be the best advice I've received. Our clients seem to appreciate being contacted regularly by our folks even when their account activity is slow. Maintaining those relationships regardless of current workloads has been a top priority for us, and as a result, we've received positive feedback from clients firm-wide.
Internally, we regularly share good and bad news with our staff through e-mails, staff meetings, and teleconferences. I have been amazed by the comments and e-mails that I've received after sharing numbers and unpleasant forecasts. While employees may be nervous and anxious (they read the news, too), they sincerely appreciate hearing plain talk about our business and our forecasts.
One thing that will not change going forward is the value we place on the relationships we build with our staff and clients. While we may have fewer of both, taking care of the ones we do have is one of the few things we can control right now. Also, investing in your relationships today will pay big dividends on the upswing.
I remain optimistic for the long-term. This economic downturn may last a while, but the demand for consulting engineering services will only increase if we are to solve the problems we face with regard to energy, water, infrastructure, and environmental sustainability. I believe in our industry and that our work will become more valued in the future. Project delivery methods and technology will change, as will the priorities and expectations of our clients. However, our ability to adapt and respond to those changes as individual firms and as an industry will determine our role in what is largely believed will be a very different future.
Barrick has served as CEO of Smith Seckman Reid Inc. since 1986 and has been chairman and CEO since 1995. He holds a bachelor's of engineering degree in mechanical engineering from Vanderbilt University and an MBA from Vanderbilt Owen Graduate School of Management.
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Annual Salary Survey
In a year when manufacturing continued to lead the economic rebound, it makes sense that plant manager bonuses rebounded. Plant Engineering’s annual Salary Survey shows both wages and bonuses rose in 2012 after a retreat the year before.
Average salary across all job titles for plant floor management rose 3.5% to $95,446, and bonus compensation jumped to $15,162, a 4.2% increase from the 2010 level and double the 2011 total, which showed a sharp drop in bonus.