The A/ A/E/ E/C I Industr try Toda day, T Tomorrow, a and B d Beyond nd Gerry rry Salont ntai
The A/E/C Industry… Today, Tomorrow and Beyond
The Overall Economy Is Great! We have the lowest unemployment since the late 1960’s …that’s over 50 years! Initial Jobless Claims US Unemployment Rates
Most Economic Sectors Are Doing Great! Housing starts The manufacturing and construction sectors are very busy…for now… Durable good orders
Signs Of Danger Ahead? Are we seeing some gentle hints that this longest economic expansion in history is about to end?
The Tailwinds that Keeps Us Sailing: A strong US economy Business investment is solid Consumer confidence is high A/E/C needs dominate the headlines
The Headwinds That Could Slow Us: The US economy The Global economy Talent (war) A “Black Swan” event Political uncertainty
How do the best companies outperform the rest? And prepare for the worst?
A 5-Year Study of Our Industry PHASE 1 – We analyzed over 40 years of industry and economic data to learn… PHASE 2 – Dig deeper into Phase 1 findings to learn … PHASE 3 – Dug EVEN DEEPER into Phase 2 findings to determine how companies perform in weak economic periods… PHASE 4 – Discover why some companies “punch thru” a size ceiling while others stumble…
Why Did We Do This? Small to mid-sized firms Alleged experts touting: saying: “We feel squeezed “The death of the mid-sized and threatened.” firm.” A Mega firm CEO suggested: “All firms should give up and sell to me”
How We Did Our Research • Analytics done by the University of Colorado Who • 3 independent researchers funded analytical research and performed (did the work) interviews of company leaders • Goal – Maintain independence 40+ years of analytical data to capture multiple economic cycles came from public information: What • Engineering News-Record • US Economic Census Data (sources were • US Bureau of Labor used) Questions developed by independent researchers
Takeaways from Phase 1 Research Some ENR stats… 175k| 1786| 48| 26| 18 Domination by companies in certain markets Midsized to very large firms are not endangered!
Size Definition & Market Revenue Changes 2018 ENR Revenue 2018 % of Total Category ENR Ranking Range Revenue* Range Small Not on ENR Top 500 69% (60%) <$24.3M Midsize ENR 500 to ENR 101 8% (10%) $24.3 to $148M Large ENR 100 to ENR 31 6% (8%) $150 M to $500M Very Large ENR 30 to ENR 11 6% (8%) $531M to $1.43B 11% (14%) Mega ENR Top 10 $1.45 to $9.76B *2018 market share vs. 1986 share in ( ). Note that revenue data is Also…for the 2 nd year, the Mega’s market share reported in Engineering News-Record in March decreased while Small firms share increased of each year.
That Was Then…This Is Now ENR Top 10 1986 2018 • Morrison-Knudsen • Jacobs • CRS Sirrine • AECOM • Sargent & Lundy • Fluor • Gibbs & Hill • Tetra Tech • CH2M Hill • KBR • Gilbert/ Commonwealth • HDR • Holmes & Narver • Wood • Black & Veatch • Stantec • Sverdrup • Burn & McDonnell • Louis Berger • Black & Veatch
Current Rank of 1983 ENR Top 500 Firms ENR Top 10 1986 2018 • Jacobs • AECOM • Sargent & Lundy (38) • Fluor • Tetra Tech • KBR • Black & Veatch (10) • HDR • Wood • Louis Berger (21) • Stantec …another one “bites • Burn & McDonnell the dust” • Black & Veatch
Firms Enter the “Endangered Zone” ENR #10 Break Through Were able to ENR #12 break through Almost There the ceiling and Not able to break Disappear rely heavily on the Hit the Top 12 M&A to get into Top 12 – ceiling and were Top 10… bounce between bought graduating into #12 and #19 then the “extinct drop to the 30’s zone” ENR #19
Phase 2 Effort – the Why? We performed over 75 interviews of C-suite executives to find out: • What does it takes to prosper? • What does it take to sustain success? • What might have contributed to firms who are no longer around?
How We Organized Our Findings • 5 Key Success Factors • Observations & best practices of the Drivers • Fatal Flaws – Counter characteristics of comparison firms no longer on the list 18
Key Success Factor Number 1 Factor #1 Success Drivers Use the “power of purpose” – Why are we in business Long-term approach to investing in It’s all and developing staff about Performance management incentives align with and drive success the people Extraordinary talent management – especially with retention Emphasis on work-sharing and collaboration
Key Success Factor Number 1 Fatal Flaw Losing sight of what makes up the firm – “You know what the problem is around PEOPLE here? Too much overhead!” 20
Key Success Factor Number 2 Success Drivers Factor #2 Use a “customer intimacy” approach – Extra effort to understand clients and “their” business Have a Have “agility” – Actively look for ways to provide more capability, service and value clear Continually measure client client- satisfaction and performance focused Remove internal obstacles so staff can strategy better focus on clients Promote entrepreneurial spirit to better serve and add value
Key Success Factor Number 2 Fatal Flaw Too internally focused - change & corporate complexity Carson, this is the new organizational chart and this is you.
Key Success Factor Number 3 “Smart” diversification Factor #3 is key to growth Acquisitions Use Divest of Expand are a adjacencies under- capabilities Strategic rather than performing and/or Success “accelerant” huge leaps services, geography rather units Drivers to better than just and/or serve growing the markets clients top line
Key Success Factor 3 Being a mile wide and an inch Fatal deep with their diversity Flaw strategy – spread thin
Key Success Factor 4 Results Capital Consistent driven – use Promote strategy above- goal setting/ innovation balances Success median to metrics to and short/long- upper- drive clear continuous Drivers term with quartile expectations improvement little or no profitability and to get better debt accountabiliy You gotta deliver financial Factor #4 performance
Key Success Factor 4 “What if we don’t change at all… and something magical just happens.” Poor financial performance combined Fatal with high debt &/or a triggering event Flaw
Key Success Factor 5 Success Drivers Factor #5 Success Drivers Broadening the Retain earnings & ownership group Ownership/ convert bonuses to is a priority capitalize the firm leadership succession Conservative capital taken very Leaders are structure & long- developed at seriously range planning multiple levels ensures sustainability
Key Success Factor 5 Fatal Flaw No preparation Eventually son, you’ll for the future, be in charge of this – especially assuming of course ownership & that I can’t come up leadership with any better alternative. transition (I will live to 100!)
Phase 3 of Our Study Who weathered the difficult times and how did they do it?
Phase 3 – the Questions Asked We performed another nearly 50 interviews of C-suite executives to find out their: • Approach the external part of the business (e.g. strategy, economic indicators, etc.)? • Focus on the internal elements (e.g. culture, accountability, rewards, etc.)? • Approach to the future (e.g. planning, ownership, etc.)?
The Data Revealed – 3 Major Themes Common Actions and Strategies Used By Successful Firms Going Into During The Recession Climbing Out Of Hard Times the Downturn Weathering Emerging as a Building a the Storm Living Company Resilient and Looking Ahead Long-Lived Firm
Findings Going In – Building a Resilient Firm Conservative balance sheet management Resisted chasing “shiny things” “This is a Marathon – NOT a Sprint” Focused on their core services and invested (pace yourself in adjacencies that compliments the core accordingly) High repeat business, relationship-driven and a strong client focus
Findings During – Weathering the Storm Immediate adjustments with areas/people that didn’t fit – keeping core business intact Kept full-court press (and accelerated) a strong client focus – putting the best people on the front lines “Circle Defense Counter-intuitive moves by acquiring companies – we are in this and making key hires together” Stepped up investment and development in staff Continued long-term strategic planning – 5 and 10 year looks ahead
Climbing Out – Looking Ahead Continued fiscal discipline using profitability as a growth governor “We are Remain laser-focused on clients and relationships Stewards of a Recognized staffing gap – developed people Generational and hired ahead of the curve Company” Kept their contract with staff – “we’ll invest so you can be your best, then do your best to help the company be its’ best”
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