Signs of a Healthy Company

Dec 01, 1997

A lot of firms are successful right now. But the question they should ask themselves as the new year approaches is, “Are we successful because of what we are doing as management, or in spite of it?” Some diseases that make a company sick are insidious. There aren’t any outward symptoms. These outfits look healthy on the outside, but in reality are disease-ridden. That got me thinking about what a firm’s “vital signs” are so we can better help our clients that are in an acquisition mode (i.e., those that are buying companies in this industry), as well as help our ongoing consulting clients steer clear of trouble down the road. Here are some things that we at Zweig White & Associates consider good management health indicators for A/E/P and environmental consulting firms: Demonstrated ability to fire a partner. My friend Dick Orten, the VP of Human Resources at Vanasse Hangen Brustlin, and former HR head of CDM and Sasaki, once told me that he thought that firms that had fired partners were more likely to succeed in the long haul than those that hadn’t. It’s tough to do, no doubt— but it sends a strong message home that there is no such thing as a “tenured position” in the company, critical if you want to keep the rest of the partners and the employees working hard. A positive revenue growth rate. I’m almost getting sick of selling this idea, to tell the truth. Why can’t every firm owner understand that his or her company has to grow? Growth is the only way to ensure that there will be opportunities for your employees. It’s easier to take a little off the top for yourself as the owners when the firm gets bigger. Salaries are related to firm size, in virtually every role in the company. And the fact is that revenue growth rate directly impacts firm value. Little or no standing committees. Whenever I see lots and lots of committees, particularly those that are “standing committees,” i.e., they don’t have a limited life span as do “ad hoc” committees, I know there are problems! Committees on quality control, committees on employee relations, committees on committees— what this says to me is that no one is taking charge and making a decision. Or, if someone is in charge, the committee is being used as a rubber stamp to give the illusion of staff participation in decision making. Too many committees are a sign of either weak management or dictator-style management, in our experience. No director of quality control. No one is so good that they can universally mandate quality standards across varying project types for different clients. It’s the client that has to set the standard!! Yet, sometimes in companies in this business, you’ll see this role identified on the organization chart. And when we dig into it, we often find out that the person in this job is a high level principal or officer who has demonstrated an inability to manage a permanently assigned work group, such as a department or office. Or, it is someone who can’t sell work or interact with clients, so this role is supposed to insulate them from the outside world. In either case, the creation and staffing of the role is an indication of management’s inability to confront a dysfunctional employee at the top, never a good sign of management health! Conflicts are out in the open and get resolved. When people in the organization, especially those at the top, are harboring all kinds of ill feelings for one another, you’ve got problems. This means that attentions are not being directed where they should be— outside the organization— to getting and pleasing clients. It’s a big problem! Unprofitable business lines are fixed or discontinued. Show me the company with an unprofitable office that has been unprofitable for eight years, yet it still exists, and the management of that office hasn’t been changed over that time period, and I’ll show you a sick firm. On the other hand, show me a firm that identifies and fixes these situations, or at least makes continued attempts to do so, and I’ll show you a company that will probably survive anything that comes up! Good cash flow. Cash flow is a sign not just of how happy clients are, but also of how interested the owners/managers are in the business. When the accounts receivable burgeon to unprecedented highs (125-175 days), you know that somebody isn’t hungry enough or worried enough about the firm’s viability. And that’s a sign of disease. Management chain of command is known to all. I always like to ask the question, “Who is your boss?” when I am part of the management audit interview team. You know why? It tells you whether or not there is a clear chain of command, a good sign of management health. When there’s not a clear chain of command, no one is in charge. Decisions aren’t made. Employees get stressed out by getting conflicting directions. And the organization often becomes paralyzed. Consistent marketing process. There are a lot of firms out there today that are rolling in new work, particularly building design firms and the consultants that support them. In some cases, it’s coming as a result of a significant investment in process marketing and positioning that has occurred over a period of years. I feel good about these companies and their prospects for continued success. In other cases, however, it is strictly a result of an over-heated economy. In both cases, overhead is increasing, with new employees, bigger offices, and necessary investments in computer infrastructure to support the growth. But the company whose success is based on external market conditions versus what they did to make it happen will face big problems when the next downturn (which is inevitable) comes. Owners who aren’t raping the firm. Take too much out and the company will not be able to sustain itself. Even if the profits are rolling in by the wheelbarrow, every company has to preserve enough capital to roll into the next year to support the coming growth or downturn. Either case takes money. So when I see huge paychecks for the owners, completely out of whack for what you’d expect based on the company’s size or financial condition, I know there are big problems on the horizon. So there you have it. I’m sure there are other signs of management health, but I’ve run out of time. But the important question is, “How does your firm stack up?” Originally published 12/01/1997

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.