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FMI Quarterly/June 2013/June 1, 2013

Four Essential Steps in Acquiring Profitable Work

workingplans18_imageNow is not the time to be cheap with business acquisition — in fact, now is the time to build superior business development capabilities.

Acquiring work, in particular profitable work, in today’s economic climate has never been more challenging. Competition is fierce and margins are painfully low. In spite of this, there are more than a few contracting firms that are profitable and several that are experiencing an increasingly higher bottom line.

One of the reasons for these better-than-average performances is the ability to acquire higher-quality work. This is not the simple result of being in a better regional market or better segment of the market, but rather having a more sophisticated and proactive methodology of building backlog.

Business development is a term and concept that is far removed from the world of Willy Loman, Arthur Miller’s tragic central character in “The Death of a Salesman.” Willy, the lonely purveyor on the road, pitching his wares to one potential buyer after another, has given way to complex, cross-functional team sales to multinational customers with multiple needs, buying practices and locations. The sales cycle is longer and less predictable; sales calls take more time and must be made to more people in order to develop business; buyers are becoming more sophisticated and, in some ways, jaded; and the procedures for purchasing have become dense, often to the point of being a barrier to forging any constructive dialogue. Furthermore, the role of the salesperson or account manager has become more difficult. The ability to navigate the internal network of the customer organization is as significant as building relationships within it.

Those companies that have mastered the art of acquiring better and more profitable work all execute four steps in their process of developing business:

  1. Build relationships with the right customers proactively.
  2. Target fewer projects to pursue and provide more resources in those pursuits to maximize chances of success.
  3. Develop a customized win strategy for each targeted project that provides true differentiation.
  4. Present the proposed solution in a customer-centric fashion that reinforces the unique value proposition to that unique customer.

Many companies will say they do these things already, but a majority of those companies are viewed as “commodity” service providers, proving these steps are not well-executed. Many business leaders pay lip service to these notions and make only superficial efforts to implement them in their organizations. Make no mistake, it is hard to inculcate these best practice steps into a routine transaction-oriented sales process. For companies that possess a quantity versus quality mentality, it is a fundamental change in strategy and philosophy. Believing that you can bid fewer jobs and win more of them requires intestinal fortitude when some are screaming, “If you don’t bid, you can’t win — so bid more!” While logically correct, FMI has discovered that in general, companies that implement these four steps with diligence are more strategic in the customers and projects they pursue, have more repeat business, higher hit rates and also are more likely to have above-average project profitability.

Additionally, a brand image is formed as a result of the business development approach, whether it is intentional or by default, as companies are viewed as specialists, well-suited for this type of work, or generalists, who will build anything that comes along.

STEP ONE: BUILD RELATIONSHIPS WITH THE RIGHT CUSTOMERS PROACTIVELY

Clearly, this step begins with the discussion of “Where do we choose to play,” meaning in which geographic areas will we concentrate our resources and in which segments of the market are we qualified to operate. Although this should be obvious, organizations must link their corporate strategy to business development (see Exhibit 1).

2013q2_four_steps_ex1

Thoughtful strategy connects the macro environment, which includes market climate, competitive positioning, customer buying practices and preferences, and a company’s internal strengths and capabilities to those target markets that are
aligned with the corporate strategy of the company. This leads to which customers within each market are preferred, and account plans are put in place to capture market share. Building relationships often happens before a specific project becomes available. When a project does become available, it must be the right type of project that passes a go/no-go decision matrix built upon the company’s overall market strategy. Once a project is won, customer expectations must be managed accordingly. Managing expectations is done best when a relationship is strong before the award. The strategic role of business development can be described as follows:

Develop the right customers and win the right projects that you can best deliver, based upon your expertise and capabilities, which maximize the return on your resources and exceed the customer’s performance expectations.

Although many would argue that the operations function turns promises into reality, business development can certainly set the table for success by managing expectations so that they are reasonable and achievable.

In short, strategy directs all of your subsequent marketing and sales efforts. Some will argue that in this current market, relationships do not matter; only price is important. Certainly, every contractor must be competitive; however, relationships allow you to get in early and perhaps shape the RFP in your favor. Better firms know that a strong relationship can make the difference between the eventual winner and second place. This is particularly true in health care, higher education and industrial markets. Most engineering and construction companies are oriented with a vertical market focus, such as health care, higher education, K–12, etc., and it is up to each account manager to ensure that he or she develops deep relationships within the assigned vertical market sector. This allows the managers to understand the key issues confronting the customers in each market, along with significant procurement and market trends. A relationship network that encompasses influencers is also important. Some companies are very procurement-oriented and will not allow their operations people to have any say in the buying decision. This can be especially difficult and requires more work from the business development staff to overcome this number-only focus and develop others within the customer’s organization who can influence the decision. Externally, economic development authorities can provide intelligence as to potential manufacturers that may be looking to build a new plant. Trustees, a university chancellor or institutional facilities architects or engineers can refer your company to another institution that is starting a building program or in the early stages of project development.

STEP TWO: TARGET FEWER PROJECTS TO PURSUE AND PROVIDE MORE RESOURCES TO MAXIMIZE THEIR CHANCE OF SUCCESS

Allocating scarce resources to fewer projects is really about focus — strategic focus. Too many companies chase too many projects and dilute the efforts given to any one project. Half-hearted pre-construction efforts and less than creative estimates add up to second- or third-place finishes. Many estimators complain of low morale and burnout in companies that have no strategy or focus as to what they should bid. Today, a hit rate of 10% or less is not uncommon for typical general contractors or construction managers. However, one E&C firm that focused its efforts to be more selective in the jobs it pursues increased its hit rate from 10% to 40% and lowered the numbers bids produced by 50%. The quality of its proposals improved while the percentage of losers dropped and profitability doubled. It takes an act of faith to do this because it is anathema to most contractors to pass up an opportunity. Leadership must believe that the outcome will be better if you spend your efforts more wisely and use a rifle-shot approach to procurement instead of the proverbial shotgun.

STEP THREE: DEVELOP A CUSTOMIZED WIN STRATEGY FOR EACH TARGETED PROJECT THAT PROVIDES TRUE DIFFERENTIATION

You must have a strategy to win more of the jobs you want. This approach encompasses highlights of your strengths and indirectly creates doubt about your competitor’s ability to be as qualified as you are. Your win strategy must address the specific key issues that are important to the customer about this particular job, and that only can be done by having a thorough understanding of the customer, its buying motivation, organization, and goals and objectives for the project.

  • How does this project fit into the bigger building program?
  • Does it represent additional risk from past jobs?
  • Will it require a contractor with 3-D engineering and BIM capabilities in order to be successful? If so, why?
  • How does this give your company an edge?

McDermott, a multinational E&C company focused in the offshore oil industry, develops a capture plan for each project as a part of its business acquisition process. It contains data on the customer organization’s procurement practices, the individual involved in the buying decision, and its view of what is essential in an engineering and construction services provider. Since McDermott often provides front-end engineering and design (FEED) to support its solution, it will invest time in developing not only a technical but also a business solution. These jobs are typically large ($1 billion or more) and require 12 to 24 months of cultivation before the RFP actually hits the street. It is imperative that McDermott has a good relationship with the customer in order to gather all the pertinent information it can, as early as possible, in order to build a winning proposal. Being selective is also important when an average job may cost as much as $3 million to estimate and bid.

For CM firms that do not self-perform work or have no proprietary technical solution, the ability to set the company apart is more challenging. As one president told us, “In the CM world, you’re just selling pretty faces.” Technical competence in the front end of a project can be valuable and provide a customer with more useful information about how its project can be optimized for success. Pre-construction services are often a big part of developing a relationship with a new customer. Leading the client through feasibility analyses, conceptual estimates, budgeting and constructability reviews can create a preferential, consultative relationship where your company becomes more difficult to dislodge.

As Phil Southerland, president of KBR Building Services, states “Pre-con is huge in our mixed-use residential, health care and institutional markets — you have to be really strong here. It creates differentiation, and without that, then it’s just shades of gray between us and our competition.”

STEP FOUR: PRESENT THE PROPOSED SOLUTION IN A CUSTOMER-CENTRIC FASHION THAT REINFORCES ITS UNIQUE VALUE PROPOSITION

This is where the rubber meets the road and many contractors lose projects they should have won. A good presentation will not win a job by itself, but a bad one will lose the job. Here again, you need customer and project information. If you have properly prepared a win strategy for this customer’s project opportunity and it reflects the points of differentiation that are important to the customer and not just you, your chances of winning have significantly increased. One of the biggest complaints we hear from customers is that contractors do not listen to them. This is a failure in business development. Issues regarding risk, schedule and price are obvious, but there are always other issues that matter to a customer and influence its buying decision. Whether it is minimal disruption of current operations at its hospital facility, safety of the students who are passing by, or community relations on a particularly sensitive project, all of these have influence. Value engineering is not just budget cost cutting, but truly provides a new plan for increasing square footage or usability due to creative thinking. This has real value if communicated to the customer, preferably before the proposal and presentation stage but at a minimum during that phase. Presentation times for projects are shorter than five to seven years ago when each candidate could expect 45 minutes to one hour to present his or her solution. It seems that 30 minutes is more the norm these days, and without a compelling presentation that highlights your differences, the customers will just read the paragraph on price. Good proposals and presentations have a story to tell, without it, the customer will assume that you are only different with your price. Some companies have developed better presentation skills through better software. For example, using Jump and Flash instead of just the usual PowerPoint slides will add interactivity and enhanced media to your presentation. Will eye candy really make a difference? Yes. Many people are visual learners, particularly younger customers. KBR Building Services has turned more of its technology over to young people, which has caused the company to migrate toward more video-based presentations and use advanced technology more fluidly in its daily interactions with customers. KBR has received positive feedback from customers who remarked of the company “raising the bar.” Good content paired with a powerful delivery is always a potent combination.

While providing the low number is a legitimate strategy, if done without creative forethought and analysis, it can be dangerous in this current market. CM firms are taking jobs at less than 1% fee in some instances. In this race to the bottom, many contractors are losing money on enough jobs to offset the profits they make on others, and breakeven becomes the best they can hope to attain. Putting a good proposal and presentation together takes time and effort, and few companies will devote enough of either. In this market, doing these well is vital because you will need every arrow in your quiver to be on target. Just having quality work and the best people is an old, tired phrase that will get you nothing more than a yawn, even if it is true. Customers want to believe that you are truly different and that is why they should choose you. If you are not low or well-established in the marketplace, you have to redouble your efforts to distinguish your company in positive ways. As one buyer of construction services put it, “No one ever got fired for choosing Turner.” Whether true or not, that statement underscores the difficulty of winning against a long-standing performer when you are seen as just another contractor and your price is virtually the same.

In conclusion, focusing on strategy that drives business acquisition efforts, better opportunities and more creative and powerful proposals, solutions, presentations and relationships is what separates the best from everyone else. There are companies today that are executing these four steps and are reaping better results. Their brand is reinforced through the application of these principles and the consistency with which they are employed. Customers know that they are getting a preferred provider and that is why those preferred providers are often competing on all the right jobs. It takes investment in people, processes and technology to get ahead of everyone else. Now is not the time to be cheap with business acquisition — in fact, now is the time to build superior business development capabilities.


Lee D. Smither is a managing director at FMI Corporation. He can be reached at 919.785.9243 or via email at lsmither@fminet.com.

 

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