Follow this six-step guide to create a long-term business plan.
Construction business owners who have made it through the worst economic downturn in nearly seven decades have something in common-they are survivors. Now is the time to move beyond surviving to growing. Taking the time to prepare a strategic plan today will help business owners reap the benefits over the next several years by recognizing and seizing new opportunities ahead of the competition.
With ongoing shifts in the economy and the construction industry, strategic planning can seem like a nice-to-have tool but not a need-to-have one. This mentality can mean the difference between capitalizing on a previously unseen market opening or missing out entirely.
Strategic planning is not a one-size-fits-all model. Strategies that work for one company may not be right for another, but any company that commits to the process should see benefits. Use this six-step framework as a guide to create a strategic plan:
1. Establish an internal baseline.
- What is your business objective?
- Identify your core competencies. What are you good at?
- What is your source of volume?
- What is your commercial objective?
2. Establish an external baseline.
- Identify market dynamics and external factors that impact your business.
- Define your market.
- Conduct a competitive analysis.
- Segment your customers by demographics, value to the business, behaviors, needs or any other essential elements on which you would base your decisions.
3. Differentiate and innovate.
- Why do existing customers choose you?
- Articulate what makes you better than the competition.
- How can you innovate?
4. Align and execute.
- Communicate your strategy internally at every possible opportunity.
- Define priorities for salespeople and align those with compensation plans.
5. Review and measure.
- Test your assumptions, demand proof they are working, and learn from your experiences.
6. Evaluate and modify.
- Adjust plans if necessary, and then begin again.
Throughout the process, it is very important to communicate across the organization. Once the plan is in place, it should be shared with all employees. GE Capital surveyed its small and mid-sized clients and found that 52 percent had a strategic plan, but only the executive team knew about it. Employees should understand the part they will play in executing the plan as well as the decisions that result from it.
Construction Industry Trends Can Pinpoint Next Steps
It is wise to look at industry trends to help identify next steps. Some figures may reveal growth opportunities in certain segments, while others may identify struggling niches to avoid.
The good news is that the United States is not likely to see a double-dip recession. Revenues are starting to grow in different facets of the economy, but that does not mean runaway profits in 2011. The economy is entering a slow growth phase. Only cyclical to moderate growth is expected over the next three years.
While non-residential building construction continues to drop overall-to $78.3 billion in the third quarter of 2010 from $104.9 billion in 2009-segments such as education and healthcare are experiencing less of a decline, while the manufacturing, commercial and office sectors continue to decline, according to GE Capital's fourth quarter 2010 Construction Industry Research Monitor.
Single-family residential construction continues to grow, while multifamily residential construction continues to decline. The renovation and improvement markets showed surprising growth in the first half of 2010, but with the widening gap between the current and future expectations of the National Association of Home Builders' Remodeling Market Index, it is uncertain how long that growth will continue.
When it comes to non-building construction, growth is steady. The construction equipment market has also rebounded strongly, with new orders and shipments at their highest levels since 2008.
Setting the Stage for Change
A construction business owner's first step in the strategic planning process is to establish an internal baseline. These early decisions will drive the rest of the strategy so it is important that the goals are specific and measurable. For example, a realistic goal might be a 2 percent increase in gross margins over the next three years, assuming that expenses and hiring are under control.
Objectives should be based on hard facts combined with the owner's business instincts. When it comes to non-building construction, for example, it is uncertain whether the federal transportation bill will be renewed in 2011. It might not be addressed by Congress until after the 2012 elections. This information may impact the forecasts of road and highway construction companies.
Next, set an external baseline by evaluating existing customers and the competitive landscape. Construction is a largely regional business. But, if some competitors have closed their doors due to the economic downturn, a survivor might grab the opportunity to gain market share by expanding into a larger territory.
This flows into the "differentiate and innovate" phase of the strategic planning process. Thinking creatively about customers, competitors, markets and goals may produce new insights. A seemingly simple question-"What's changed?"-can be eye-opening. After careful consideration, it might reveal untapped markets or new competitive threats.
With this information in hand, owners could decide to expand contracts with existing customers, identify and approach potential new customers, bundle services, develop complementary products and services, partner with other companies or develop new areas of expertise-or a combination of these approaches.
For example, a contractor might make an effort to get involved in the design process earlier than usual. Someone who is very familiar with a particular market could add value by contributing specific knowledge about the chosen building site, permitting departments and the building itself. Doing so could improve the overall quality of the project and help it stay on schedule and within budget.
Realistic Strategies Lead to Positive Results
The fourth step is aligning operations with the strategies that have been mapped out and then executing the plan. This is the perfect time to re-examine your compensation structure. Does everyone understand how they are being evaluated in this reset economy? Bonuses and salary increases should coincide with a company's expected bottom-line growth.
This is also the time to re-examine company expenses. There is an understandable reluctance to make large purchases in a slow-growth environment. Leasing equipment, rather than buying, is seeing new consideration. Even with new lease accounting rules expected from the Financial Accounting Standards Board, there are still benefits to leasing, including better cash management and generally lower payments.
While a strategic plan is a good tool, it cannot be a substitute for great execution. If a company's strategic plan is kept secret, employees will struggle to understand why the company has shifted its focus and how to prioritize their own activities.
But the work is not finished yet. Winston Churchill had it right when he said, "However beautiful the strategy, you should occasionally look at the results." There should be specific points in the year at which owners and senior managers review the plan and measure themselves against their original goals. If the plan is not working, they should evaluate their progress and adjust the plan,
Positioning Your Construction Company to Become an Industry Leader
Businesses that have used strategic planning and made it through difficult times know that strategic plans add short-term value by providing day-to-day direction. They also create a framework for activating and managing growth over the long term. Strategic plans can be a gateway to innovation and creativity, sparking new products, services and ideas. Finally, from an operations standpoint, they impose discipline and provide guidelines for allocating money, resources and time.
Creating a strategic plan can enable construction business owners to determine the best way to invest in their own growth once again. Operations should be rejuvenated, which may mean leasing new equipment, expanding into adjacent geographies or hiring new staff. Well-executed and continuously updated strategic plans that are shared throughout the company can help business owners build stronger companies, transforming the survivors into industry leaders.
Construction Business Owner, January 2011
