Where do your problems lie?
If you’re in business, you’ll know that there are countless exchanges with and between your staff, customers and suppliers, and not all of them go according to plan! We assert there are gaps in the way that businesses transact, and stuff-ups happen. Amongst many other things, you are left with problems of ….
– Time taken up fighting fires – you’re often run ragged
– Trying to get the best from your team – getting the right people to do the right job
– Standing out from the crowd – so you can make the money you should
Of course, you may have tried to solve these issues in the past, but have you been looking in the right place?
Consider these (and many other issues) purely as symptoms, because at the bottom of it all is complexity - and it’s this complexity that is eroding your margins and costing you more than you think.
The root causes are generally complex
The McKinsey report identified 10 root causes of poor productivity and suggested 7 areas to focus on.
Reviewing their list, I would assert that complexity and the lack of transactional competence are at the heart of all but one of their identified causes …. while simplicity and transactional competence underpin every one of their areas of focus.
The solution is in taking action
On the back of all of this evidence-based research, and based on my own experience as a consultant and property developer, I saw an opportunity to develop an offer for the construction sector.
Work I have now done for other businesses outside the construction sector – as evidenced in my client testimonials - would suggest that other sectors have the same issues.
If you can relate to the ‘not doing what you know you should’ problem and would like to know more about how I can help you take action and gain traction, please contact me and together we’ll look at how we can reduce your margin erosion.
BUSINESS, WE HAVE A PROBLEM
“We know what to do, but we don’t always do it.” Does that sound familiar? If so, and you want to start doing precisely those things that you know you need to, you’ve come to the right place!
The statement “We know what to do, but we don’t always do it” was a theme that came up when I was studying transactional competence, and it really hit home for me as I applied what I was learning to another business of mine. As I gained more insight and understanding about this topic, what became apparent when looking at my own businesses was that this lack of doing what I knew I should be doing was costing me considerably!
Having recognised the importance of effectively tackling the issues I had previously neglected to deal with properly, I felt motivated to share what I’d discovered with others. So in response, I put together my business offer at Bowman Associates to help other business owners and managers, who also find this costly statement to ring true and who want to take action and gain traction.
Exploring the reality
As I contemplated my observations, I wondered if these issues were happening to others and so I crafted a questionnaire, and having been involved with Christchurch’s construction sector for several years, set out to interview businesses across a broad selection of construction firms in my existing network. Talking to people in over 30 businesses, I asked them about their issues in these seven key areas:
– Winning work
– Scheduling work
– Resources
– Staff
– Suppliers/customers
– Getting paid/making money
– Personal impact
Common theme, common issues
Just as I had found in my own experience, a common theme that emerged when reviewing my findings was that, people knew what they should be doing, they just weren’t doing it.
% of businesses that experienced these common issues:
81.8% Commitments/managing expectations
78.8% Marketing/differentiation
72.7% Right staff/jobs to right people
66.6% Stress
63.6% Right attitude
60.6% Productivity
54.5% Competing on price
54.5% Cashflow / margins
The common denominator
While the business owners I spoke to all expressed these issues (in various ways), there was also an underlying issue that wasn’t spoken about, which was the impact that these issues were having on the bottom line. And as nobody was easily able to quantify the cost of their issues, I kept digging.
What I found was that margin erosion – and by this, I mean Contracted Target Margin, less Actual Margin - was present in the list of every business I spoke to. From the feedback received, this margin erosion is costing businesses somewhere between 7-10 percentage points of margin.
To put this into perspective, it is not uncommon for builders to operate on margins of 7–15%, with the larger construction companies operating on as little as 3-5%. Therefore it is not at all surprising that many of New Zealand’s larger construction companies have experienced difficulty, or worse – failed!
And this is not just a New Zealand problem. A substantial paper by management consultants, McKinsey & Company, published in February 2017 outlines that the construction sector is a USD$10 trillion industry, within which productivity is an issue, showing USD$1.6 trillion as being ‘wasted’, and 52% of value-add being fragmented in Specialised Trades, where productivity is lowest. This USD$1.6 trillion ‘wastage’ is equivalent to margin erosion of 11.4%-16%. That’s 60% higher than my findings!