What Lies Ahead For Engineering Firms In 2015?
Sustaining profitable growth and innovative outsourcing models are just some of the topics discussed at a recent roundtable dinner held in collaboration with the Infrastructure Intelligence at the end of 2014 in London. There were a number of key topics that contributed to the challenges and opportunities the industry and market are presenting at the moment:
Sharing Resources across regions / Shifting work to effective cost-bases (UK & Abroad)
Engineering firms increasingly have to tightly manage the increasing costs that the market is presenting whilst staying competitive, but all the while still achieving profit margin. SME’s are looking for more ways to maintain a level of quality whilst keeping costs down. One way firms are doing this is by “outsourcing” or “northshoring” work out of London and other high cost bases moving to lower cost-bases including Newcastle, Birmingham and other parts of the UK and abroad.
Engineering firms need to adopt a mindset that supports the idea that cross-regional support is necessary for this to be effective. David Dryden from Cundall comments on this topic by saying that his company’s regional offices do not compete with each other on income, ensuring mutual support throughout the firm and spreading a culture that Cundall has a single bottom-line. Organisations need to look to this method moving forward if they wish to keep costs-down but maintain a level of quality for projects and sustainable growth in 2015 and beyond.
Taking this culture one-step further, having real-time visibility into resources and capacity across the firm will ensure effective management of staff utilisation, capacity to deliver the work, and effective project delivery whilst staying on-top of costs and achieving a healthy profit margin.
Maintaining and increasing profitable growth with increasing costs
Firms were unanimous on the topic of the market growth and ensuring the importance that this growth also has to be profitable. The market is seeing an increase in its existing and new cost sources whilst fees are still low. Paul Menzies from Curtins comments that because there is more work, you need more staff, which costs a lot, then as a result margins fall, fees remain low and often payments are late. Juggling all of these factors becomes critical in ensuring sustainable profit growth.
Many firms are now ensuring they take a much more thorough approach to the projects they use resource to bid, and pursue new and work. Firms need to assess where their strengths and experience lie in core markets and sectors and where they have delivered successful, quality, profitable projects in the past. Further to this, many firms are re-negotiating contract terms with their clients, and in some cases parting ways to ensure they are not wasting resource on over-servicing and ultimately un-profitable work.
Having a comprehensive project planning and management system will ensure that work is effectively scoped, assessing the costs, timelines and other fundamental variables necessary to understand if a project will be profitable and in the best interests of the firm.
Cost effective business management systems
Many firms agreed that the costs of business management systems and enterprise resource planning systems have been a large deterrent to invest in this area in the past.
Deltek have heard this feedback on multiple occasions and thus have shifted their focus over the past two years on developing an A&E best-practice cloud ERP solution in which costs can be spread over a 3-5 year period, instead of traditional model where a large-up-front capital expenditure was required to invest. SME firms are finding Deltek’s cloud offering far more attractive than they were just a couple of years ago as this can be treated as an ongoing operation expenditure.