The A/ A/E/ E/C I Industr try Toda day, T Tomorrow, a and B - - PowerPoint PPT Presentation

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!

US Unemployment Rates Initial Jobless Claims

We have the lowest unemployment since the late 1960’s …that’s over 50 years!

Most Economic Sectors Are Doing Great!

Housing starts Durable good orders

The manufacturing and construction sectors are very busy…for now…

Signs Of Danger Ahead?

Are we seeing some gentle hints that this longest economic expansion in history is about to end?

A strong US economy

The Tailwinds that Keeps Us Sailing:

A/E/C needs dominate the headlines Business investment is solid Consumer confidence is high

The Headwinds That Could Slow Us:

The US economy The Global economy Talent (war) Political uncertainty A “Black Swan” event

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 saying: “We feel squeezed and threatened.” A Mega firm CEO suggested: “All firms should give up and sell to me” Alleged experts touting: “The death of the mid-sized firm.”

How We Did Our Research

• Analytics done by the

University of Colorado

• 3 independent researchers funded

analytical research and performed interviews of company leaders

• Goal – Maintain independence

Who

(did the work)

What

(sources were used)

40+ years of analytical data to capture multiple economic cycles came from public information:

• Engineering News-Record
• US Economic Census Data
• US Bureau of Labor

Questions developed by independent researchers

Takeaways from Phase 1 Research

Domination by companies in certain markets Midsized to very large firms are not endangered! Some ENR stats… 175k| 1786| 48| 26| 18

Size Definition & Market Revenue Changes

Category ENR Ranking Range

2018 % of Total Revenue*

2018 ENR Revenue Range Small Midsize Large Very Large Mega Not on ENR Top 500 ENR 500 to ENR 101 ENR 100 to ENR 31 ENR 30 to ENR 11 ENR Top 10 69% (60%) 8% (10%) 6% (8%) 6% (8%) 11% (14%) <$24.3M $24.3 to $148M $150 M to $500M $531M to $1.43B $1.45 to $9.76B

*2018 market share vs. 1986 share in ( ). Note that revenue data is reported in Engineering News-Record in March

• f each year.

Also…for the 2nd year, the Mega’s market share decreased while Small firms share increased

ENR Top 10

That Was Then…This Is Now

• Morrison-Knudsen
• CRS Sirrine
• Sargent & Lundy
• Gibbs & Hill
• CH2M Hill
• Gilbert/ Commonwealth
• Holmes & Narver
• Black & Veatch
• Sverdrup
• Louis Berger
• Jacobs
• AECOM
• Fluor
• Tetra Tech
• KBR
• HDR
• Wood
• Stantec
• Burn & McDonnell
• Black & Veatch

1986 2018

Current Rank of 1983 ENR Top 500 Firms

• Jacobs
• AECOM
• Fluor
• Tetra Tech
• KBR
• HDR
• Wood
• Stantec
• Burn & McDonnell
• Black & Veatch
• Sargent & Lundy (38)
• Black & Veatch (10)
• Louis Berger (21)

…another one “bites the dust”

ENR Top 10

1986 2018

Firms Enter the “Endangered Zone”

ENR #12

Almost There Not able to break the Top 12 – bounce between #12 and #19 then drop to the 30’s ENR #10 Break Through Were able to break through the ceiling and rely heavily on M&A to get into Top 10… graduating into the “extinct zone” Disappear Hit the Top 12 ceiling and were bought

ENR #19

Phase 2 Effort – the Why?

• What does it takes to prosper?
• What does it take to sustain success?
• What might have contributed to firms

who are no longer around? We performed over 75 interviews of C-suite executives to find out:

How We Organized Our Findings

18

• 5 Key Success

Factors

• Observations &

best practices of the Drivers

• Fatal Flaws – Counter

characteristics of comparison firms no longer on the list

Key Success Factor Number 1

Use the “power of purpose” – Why are we in business Long-term approach to investing in and developing staff Extraordinary talent management – especially with retention Performance management incentives align with and drive success

Success Drivers

It’s all about the people

Factor #1

Emphasis on work-sharing and collaboration

Key Success Factor Number 1

20

Losing sight of what makes up the firm – PEOPLE

Fatal Flaw

“You know what the problem is around here? Too much overhead!”

Key Success Factor Number 2

Use a “customer intimacy” approach – Extra effort to understand clients and “their” business Continually measure client satisfaction and performance Have “agility” – Actively look for ways to provide more capability, service and value Remove internal obstacles so staff can better focus on clients

Success Drivers

Have a clear client- focused strategy

Factor #2

Promote entrepreneurial spirit to better serve and add value

Key Success Factor Number 2

Too internally focused - change & corporate complexity

Fatal Flaw

Carson, this is the new organizational chart and this is you.

Success Drivers

Key Success Factor Number 3

Expand capabilities and/or geography to better serve clients Acquisitions are a Strategic “accelerant” rather than just growing the top line

“Smart” diversification is key to growth

Factor #3

Use adjacencies rather than huge leaps Divest of under- performing services, units and/or markets

Key Success Factor 3

Being a mile wide and an inch deep with their diversity strategy – spread thin

Fatal Flaw

Key Success Factor 4

Success Drivers

Consistent above- median to upper- quartile profitability Results driven – use goal setting/ metrics to drive clear expectations and accountabiliy Promote innovation and continuous improvement to get better Capital strategy balances short/long- term with little or no debt

You gotta deliver financial performance

Factor #4

Key Success Factor 4

Poor financial performance combined with high debt &/or a triggering event

Fatal Flaw

“What if we don’t change at all… and something magical just happens.”

Key Success Factor 5

Ownership/ leadership succession taken very seriously

Factor #5

Broadening the

• wnership group

is a priority

Conservative capital structure & long- range planning ensures sustainability

Retain earnings & convert bonuses to capitalize the firm Leaders are developed at multiple levels Success Drivers Success Drivers

Key Success Factor 5

No preparation for the future, especially

• wnership &

leadership transition (I will live to 100!) Fatal Flaw

Eventually son, you’ll be in charge of this – assuming of course that I can’t come up with any better alternative.

Phase 3 of Our Study

Who weathered the difficult times and how did they do it?

Phase 3 – the Questions Asked

• 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.)? We performed another nearly 50 interviews of C-suite executives to find out their:

The Data Revealed – 3 Major Themes

Common Actions and Strategies Used By Successful Firms During The Recession Weathering the Storm Going Into Hard Times Building a Resilient and Long-Lived Firm Climbing Out Of the Downturn Emerging as a Living Company Looking Ahead

Findings Going In – Building a Resilient Firm

“This is a Marathon – NOT a Sprint”

(pace yourself accordingly) Conservative balance sheet management Resisted chasing “shiny things” Focused on their core services and invested in adjacencies that compliments the core High repeat business, relationship-driven and a strong client focus

Findings During – Weathering the Storm

“Circle Defense – we are in this together”

Immediate adjustments with areas/people that didn’t fit – keeping core business intact Counter-intuitive moves by acquiring companies and making key hires Stepped up investment and development in staff Continued long-term strategic planning – 5 and 10 year looks ahead Kept full-court press (and accelerated) a strong client focus – putting the best people on the front lines

Climbing Out – Looking Ahead

Continued fiscal discipline using profitability as a growth governor

“We are Stewards of a Generational Company”

Recognized staffing gap – developed people and hired ahead of the curve 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” Remain laser-focused on clients and relationships

Overarching Themes for Success

Is organized around and focused on clients That emphasizes financial success – recognizes that profit is the “lifeblood” of the company Is decentralized – corporate control low and front line control high Maintains a conservative capital structure – always with an eye to the future Some stats… 175k |1786 |48| 26| 18 Has a clear vision and strategy for the future

A company that is “purpose-driven” – focused on its people, clients, community AND:

And Themes to Become Extinct…

Financial performance is consistently low/poor AND then a “triggering” event puts things over the top… Capital structure is weak or leveraged and decisions do not consider the future Some stats… 175k |1786 |48| 26| 18 Vision, Purpose and Strategy is not set, is “lost” or becomes “muddled”

Extinction occurs when a company’s:

You are at the focal point

• f your company’s success

Questions?

Qu Ques esti tions o

• r C

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