As usual, economic pundits disagree on the direction and pace of the economic recovery. Still –perhaps you’ve noticed as well – fewer seem to be arguing for a decline (the so-called double dip) than before. In fact, most forecasters describe the road ahead (for the general economy) as encouraging, albeit perhaps too slow for most.
In the AEC industry, future outlooks and levels of optimism remained varied. As has been the case throughout this recession, the forecast for an individual firm is highly dependent on that organization’s service capabilities, market focus, and geographic reach. A sense of cautious optimism defines some AEC leaders, while others remain more guarded – challenged by still weak and uncertain backlogs.
Expert economists following the AEC markets specifically sound rather bearish at the moment. In a January 7th press release, Associated General Contractors of America (AGC) economist Ken Simonson predicts tough times ahead for the construction industry. Referencing the loss in December of 16,000 construction jobs, Simonson notes that “At this point, it doesn’t look like there’s anything to replace the temporary help that the stimulus has been providing for the construction industry.” He further adds that “today’s figures offer yet another reminder that the construction industry remains, and is likely to remain, the hardest-hit industry in the economy.”
Additionally, in its January 13th release, AGC reports recent price increases in nearly every raw material category, and warns that the price squeeze on contractors will likely intensify in 2011, as global demand for construction materials grows while domestic demand for construction services remains tepid. As Simonson says, “bad though these numbers are, there is worse to come … with contractors unable to pass along the increases in the price of finished buildings, many firms could be pushed out of business.”
Not too optimistic…
Further upstream, the AIA reports continued (though slow) improvement in the billings index (ABI). The November index of 52.0 is up nearly three points over the prior month, and is the highest mark since December 2007. Still, AIA chief economist, Kermit Baker, PhD, Hon. AIA has stated that “while this is heartening news, it would be premature to say the design and construction industry is out of the woods yet … We continue to hear a wide mix of business conditions, with a good deal of it still indicating flat or no demand for design services. Once we see several months in a row of increasing demand we can feel safe saying we have entered a recovery phase. Until then, we can expect continued volatility in business conditions.”
Again, pretty darn cautious ….
So, how about you? How do you see 2011 shaping up – in the general economy, and in your firm?
Me? I’m optimistic – though not because I understand what to expect in this recovery. I’m optimistic because it’s clear to me that the recovery will be good enough – at least for those firms who take advantage of the opportunities ahead. I do agree that the AEC markets have a long way to go, and that not all will prosper; in fact I expect both big winners and big losers ahead.
However, as business activity grows in 2011, industry leading firms will continue to focus on issues within their control, and to take action in areas that deliver meaningful results for the firm. In particular, three ‘hot button’ areas where taking action will deliver a strong return this year include:
- Growth – the pace of recovery may not support growth for all firms, but it will for some. Firm leaders should ask now, what the organization needs to improve its success in capturing new business. Additional marketing effort, increased staff involvement, improved business development effectiveness? Start with a thorough assessment of the firm’s current situation – and opportunities for improvement. In justifying focus and activity here, simply ask this question: what’s a 5% increase in firm revenue worth?
- Profit – beyond the top line, all firms can enhance their profitability. During boom times all companies make money, but in a challenging market, only the smart operators are profitable. Most organizations have cut costs in obvious ways – trimming overhead, benefits, and staff. Still, few have really dug in to the common and huge opportunity for improvement – reducing wasted time. How much, and where is it in your firm? The short answer – it’s everywhere, and there’s likely much more of it than you think. (Note that only about 10 to 12% of available time is structurally unbillable (what’s your unbillable %?), and that waste occurs as well in billable time). Again a thorough assessment of the current reality opens up considerable opportunity for return. The pertinent question here: how much is a one or two point increase in billability worth to you?
- Transition – progressive leaders will also take steps this year to address succession and transition of leadership and/or ownership in their firm. For some, short-term exit expectations will focus initiatives on internal buyouts or a sale of the company. For those with longer horizons, succession planning will focus on developing up and coming leaders, and importantly back on points #1 and #2 above – that is, training, mentoring, and job experiences involving improving the company’s growth and profitability. This way, in accomplishing the work of organization improvement, progressive firms will simultaneously develop their next generation of successful leaders.
These three “hot button” issues – growth, profit, and transition – are not new – they’ve been at the top of manager’s agendas for years. What has changed – or is changing now – is the focus and priority successful leaders will place on taking action in these areas this year. The economy is on the mend – very slowly in the view of some, faster in the view of others. Nevertheless, in 2011 many firms will enjoy success because – instead of watching the rebound unfold – will take action themselves to achieve substantial improvement in their results – with top line growth, bottom-line profitability, and the development of up and coming leaders.
The economy is good enough. It’s time to get going.
What say you?
Cheers.
John
