In 2007, firms in New England had more construction and development work than they could handle. Then, a great recession opened a chasm of dormancy seemingly too wide to bridge.
Some of the region’s most successful small firms closed, and the larger ones shrank their operations. Rhode Island-based DiPrete Engineering was not immune to the effects of the recession. Industry cost cutting became epidemic, but even the largest established firms could not thrive by simply cutting costs. Clients continued to demand quality work and expected more support services, all while profitability was squeezed between widespread price cutting and escalating operating costs.
Dennis DiPrete, DiPrete Engineering’s founder and president, stepped back to question everything about the business he had launched 15 years earlier. The firm was troubled by trying to build a future within an established business model while facing the challenges of the ongoing deep recession. “Our business planning had to be more strategic, and regaining our momentum demanded that we consider every option,” he says.
With no clear starting place, the firm engaged its entire staff to reconsider its working model. With the aid of carefully selected advisers, the staff opened themselves to some revolutionary options.
The Path to Lean
While brainstorming new business model options, the DiPrete staff began to consider Lean manufacturing methods and Six Sigma. Products of the Toyota Production System, Lean disciplines have been used by manufacturers to drive out wasted time, effort and expense. The Lean principle eliminates waste, increases capacity, controls costs for clients, supports commitment to quality and sustains profitability. Lean disciplines were designed for repetitive mass production, though, not for creative projects.
Could Lean systems be deployed in a professional engineering firm? “Our CFO was a manufacturing veteran. He got it first,” DiPrete says. With the CFO’s encouragement, the DiPrete staff began to focus on the work that was most valuable to clients. Their analyses showed that a large percentage of the firm’s work was non-value-added. But to attack these opportunities “by deploying Lean principles in a creative environment would be a leap of faith,” DiPrete says.
Tom Pesaturo, a principal at Exceeda Consulting, a firm that specializes in Lean business transformations, observes that DiPrete’s decision to transform itself through the application of Lean principles is a “pretty bold move.” For it to work, DiPrete says, he’d “need to persevere and revamp the firm’s whole culture.”
No Stone Unturned
In addition to launching Lean systems, DiPrete Engineering developed actions and metrics focused on three business initiatives: extraordinary client service, operational excellence (including Lean) and aggressive business development. “I felt that if we could get just these three things right, the rest would take care of itself,” DiPrete says. As the amount of available work was shrinking, he dedicated all his free time to the three initiatives. “While we did get some larger projects from clients, we never let up on these efforts,” DiPrete says. “And even with our smaller staff, we somehow did the projects too.” As the staff developed their competence with “Lean tools,” they found they could produce more work in fewer hours.
Pursuing each of DiPrete’s three initiatives was an expensive venture, and the firm’s income could not support the new strategy. Because the business’s past was characterized by financial prudence, however, it entered the recession with a war chest—and no debt. Thus, in the face of a revenue stream that more closely resembled a trickle, the business was able to stay its new course.
All staff were given three to five non-billable hours each week to work on Lean initiatives. Non-billable time was also built into everyone’s schedule to ensure that ready and responsive service was always available for clients.
The company trained its professional staff to develop new business. Those who were successful at it were deployed to the field to engage prospective clients. The firm provided targeted training for everyone and built a training facility.
The Human Factor
DiPrete Engineering retained the right people for its future—motivated, talented, educated and now trained—and in the right positions. To optimize the three core initiatives, the company hired additional key personnel. For example, the company created a chief operating officer position, an anomaly for smaller service firms. Dennis DiPrete knew that not just anyone from an engineering firm would be able to bring the targeted change and Lean expertise he required. The firm was able to discover and attract an engineer with a manufacturing background and the right leadership track record, expertise and personality.
Post Recession
The recession caused many good engineering and construction firms to shrink. Others didn’t survive. For too many, simply cutting costs and extending employee hours didn’t work. But, in 2013, DiPrete is profitable and growing once again.
“We’re still not out of it,” DiPrete notes, and not everything has gone as hoped. The economy didn’t come back as fast as expected. Some valued current and prospective clients remained on the sidelines or disappeared altogether. While the firm was funding its change initiatives, narrow margins were pinched between aggressive price cutting and increasing operating costs. Lean and the related culture change have been a lot more work, time and expense than he anticipated, DiPrete explains.
In the midst of recession and uncertainty, taking the risks to aggressively transform DiPrete Engineering was counterintuitive. “[It] was even a bit scary at times,” DiPrete says. “But, if our income and growth hadn’t eroded, we wouldn’t have had the motivation. We wouldn’t have moved out of our comfort zone, and it would have been tougher for our staff to buy in.”
