Quality, Consequences and the Construction Industrial Complex (part 274).
- What is your unfair advantage?
- Why should you or your firm win the project?
- How do you compete if you are a project management, architectural, engineering or commissioning firm?
To win in business, you must be able to answer these three questions.
In the context of the property industry these questions need to be answered based the “hunger games” approach to procurement. Think about it, everything, even professional services are commoditized. Your reward for doing a fantastic job is a new RFP and competitive bid process. The RFP bid process incentivizes rational market participants to:
- Compete on price only.
- Not do anything other than the absolute contractual minimum.
- To cut corners whenever possible as a way to maximize profits.
- Reduce investment in people and innovation.
If you are competing on price you can do well in bull markets because supply and demand dynamics can “lift all boats”. However, during downturns you will struggle and can go bust.
How do you know if you are a commodity service i.e. a market price taker?
- > 80% of your revenue is from the RFP process with few deep client relationships.
- You pay market rate to everyone in the firm.
- The firm owners work in the business full time at a market rate salary.
- Annual net profits are < 5%
- There is little investment in innovation or people.
- The firm is known for its “competitive prices”.
If you own a firm with attributes 1 thru 6 you do not have a business, you have a risky job with a lot of responsibility and an occasional annual bonus.
Given the commoditization of professional services what can you do if you are a project management, architectural, engineering or commissioning firm?
- Work out your unique skill, processes and point of view then develop intellectual property around it.
- Be able to articulate clearly your specialist services, unique skills, proprietary process, point of view and have objective social proof of the benefits your firm provides.
- Invest in high skilled people, automation processes and software.
It is simple, to thrive as a professional services firm you need to apply the following formula:
“Above market profits = twice the output (market benchmark) with half the people (compared to competitors)”
This formula is not a sweatshop, it is a firm with unique skills and highly competent people plus novel processes and software that can produce an objectively efficient delivery of great outcomes.
Once you have an unfair competitive advantage you can seek framework agreements with well funded clients and leave the RFP process behind.
To quote Bent Flyvbjerg:
“The construction industry needs to ask itself:
- How would your business and industry change if Tesla or Amazon operated it?
- What’s the direction of travel. Are you ready?
- Will you be a disrupter? Or disrupted? You will be one or the other.”
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