Editorial: Know your margins
Which units are performing and which are not? Do a little research; allocate your investment appropriately.
I'm all for holistic thinking – always have been. I’ve seen a lot of silly (make that stupid) stuff done in AEC firms when they run offices or departments as profit centers. One group is hiring while another is firing, cross-selling isn’t happening, and managers are fighting with each other in senseless turf wars.
That said, sometimes you HAVE to look at how units are performing profit-wise compared to one another. If you don’t, you don’t know where you should be investing and where you should be cutting. Resources are limited. Management time, money, marketing dollars, training dollars, technology dollars – these things must be deployed where best used.
Many companies don’t ever do a margin analysis between offices, divisions, market sector groups, clients, or studios and teams. This is critical information and it should potentially affect virtually every decision made by management.
For example, one time I was asked to do a marketing plan for a client who had multiple separate and distinct market sector groups they were organized around. I had their CFO do a complete analysis of each unit – something they had never done before. When the results came in we saw that they were spending more money on the worst performing units and less money on the best performing units. It was the exact opposite of what a logical and dispassionate management team should do. Yet this is a typical scenario.
The reason this happens is that we tend to focus on our problems. They command our attention and resources. Instead of investing in what works, we do the opposite. We ignore the good and devote our energies to the bad. And that then results in throwing good money after bad and wasting months or years. Then we wonder why our businesses aren’t profitable or growing. This phenomenon is certainly one reason why...
Of course, you have to be smart about your analysis and look at longer-term performance versus just shorter-term. We do have different units and areas of business for good reasons. Sometimes they are countercyclical. That’s ok. But be sure when the cycle is right their contributions exceed their costs when the cycle is off. Some things never make money. Several times, I worked for companies in this business where we studied project performance over a 15- to 20-year period. In one case, we discovered that all of our higher education projects over the life of the company, when totaled, lost money. This certainly was good information to have, influencing our marketing efforts going forward. Another company I worked for discovered that claims paid ate all profits in one project category they worked in over a 20-year period. That told us to get out of that market.
I always say: before business planning is a good time for a little research. Have you done your homework?
Mark Zweig is the chairman and CEO of Zweig Group. Contact him with questions or comments email@example.com.
This article first appeared in The Zweig Letter (ISSN 1068-1310), issue #1084, originally published 12/29/2014. Copyright© 2014, Zweig Group. All rights reserved.
About Zweig Group
Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.