2017 all-ohio conference - oswald companies · resume review •organized presentation of...

2017 All-Ohio Conference

Managing Your A/E Firm in 2017 and beyond…

Presented by Brad Wilson, CMA

PSMJ Resources, Inc.

May 10, 2017

The A/E Industry’s Biggest Challenges:

• Commoditization

• Recruitment and Retention

• Succession Planning

Who is PSMJ?

NewslettersSurveys &

Seminars &

ConferencesConsulting

Strategy

Marketing

Project Delivery

Finance

Human Resources

Transition

Providers of management information Focused exclusively on the A/E/C industry for 40 yearsWho is your speaker?

What are the keys to success of our industry’s top performing firms?

Top 20%

Other A/E Firms

Firm NameTotal

Awards

Wright Pierce Engineers 9

Great West Engineering, Inc. 8

Ready Engineering Corporation 8

Klohn Crippen Berger Ltd 8

SPEC Services Inc 7

Thomas Miller & Partners 7

Willilam Blackstock Architects 7

A/R/C Associates, Inc. 6Brown Engineers LLC 6

Rowland+Broughton 6

Results of a Recent PSMJ Poll of 76 A/E Firms

Commoditization in the A/E industry is…

Your Value Proposition

Niche Commodity

Great Design Expert Advice Industry

Knowledge

Your Fees

Lack of Responsiveness Hassles Inconsistent Quality Change Orders

Value = Benefits – [Visible Costs + Hidden Costs]

Strategies for Firms That Are Both Niche and Commodity

Buy your niche services at commodity prices

Shop around for the best price on your commodity services

Separate pricing structure for niche vs. commodity

Bundle niche with commodity

Price the same services differently to different clients

Your Clients' StrategySome Strategic

Options

You don’t have to work for bad clients

Success Strategies

Stay two steps ahead of your competitors

Maintain high margins

Don’t skimp on overhead investments

Keep an eye on entrance barriers

Prepare for the day when your niche becomes a commodity

Be the low cost producer ($ per unit of product)

Mass production vs. custom design (Henry Ford)

Rigorously control project budgets

Subcontract a niche service

Blow them away with trulysuperior service

Or maybe simply get out!

Niche Markets Commodity Markets

When deciding which markets to enter (or exit)…

“Don’t skate to where the puck is. Skate to where it’s going to be.”

-- Wayne Gretzky

To assess your prospects, get PSMJ’s quarterly market updates

1. Survey is completed by 200-500 participants in A/E firms

2. We develop a plus/minus index for proposal activity in 55 markets and 7 regions Plus means increasing activity

Minus means decreasing activity

3. Survey participants get updated results for free

4. Detailed report each quarter is also free upon request

PSMJSurvey

Most sectors have a positive plus/minus index

Housing

Commercial Users

Commercial Developers

Light Industrial

Heavy Industrial

Energy & Utilities

Water/Wastewater

Environmental

Education

Transportation

Other Gov’t. Buildings

Health Care

0-20-40-60-80 +20 +40 +60 +80 +100-100Legend:

Q3 2016Q2 2016

0-20-40-60-80 +20 +40 +60 +80 +100-100

All regions are showing solid proposal activity

+5%+11%

Proposal Plus/Minus Index (Q4 2016)

The Hottest Submarkets

69% 68% 65% 63% 60% 60% 60% 56% 56%50%

Proposal Plus/Minus Index (as of December 2016)

Market SectorProfitability vs. A/E Industry Median

2016 2015 2014 2013 2012 2011

Transportation -2.2% -3.9% -1.5% -0.8% -1.3% -2.8%

Government Buildings +6.5% +2.3% +2.3% -2.2% +0.1% +2.6%

Water/Wastewater -2.3% +0.1% -1.6% +4.8% +1.9% +4.6%

Industrial +4.9% +4.3% +0.6% +1.5% +14.0% +5.1%

Energy-Utilities -2.5% -2.4% +3.7% +5.3% +10.5% -1.4%

Commercial (Users) +7.9% +5.9% -7.6% 0% +3.4% -0.6%

Commercial (Developers) +8.2% +9.1% +20.6% -5.8% +6.1% NR

Housing +12.6% -1.5% +6.2% +11.3% -3.7% -10.1%

Healthcare -4.2% -4.1% -4.5% +2.3% +3.0% 0%

No Specialty -1.3% 0% -0.5% -0.9% -0.6% -1.1%15

Our Latest Prioritization

MarketsShort-Term Prospects(-2 to +2)

Long-Term Prospects(-2 to +2)

Relative Profitability

(-2 to +2)Total Points

(-6 to +6)

Housing +2.0 +2.0 +2.0 +6.0

Commercial +1.5 +1.5 +2.0 +5.0

Govt. Buildings +1.0 +1.0 +1.5 +3.5

Water/Wastewater +1.5 +1.0 +0.5 +3.0

Environmental +1.5 +1.0 - +2.5

Education +1.0 +1.5 - +2.5

Transportation +1.0 +1.5 -1.0 +1.5

Health Care +1.5 +1.5 -1.5 +1.5

Industrial -1.0 +0.5 +1.0 +0.5

Energy/Utilities +1.0 - -0.5 +0.516

Things have changed since 2012!

MarketsShort-Term Prospects

Long-Term Prospects

Relative Profitability Total Points

(-2 to +2) (-2 to +2) (-2 to +2) (-6 to +6)Energy/Utilities +2.0 +2.0 +2.0 +6.0Industrial +1.0 +2.0 +1.5 +4.5Housing +1.0 +2.0 +0.5 +3.5Water/Wastewater +1.0 +1.0 +1.0 +3.0Environmental +1.0 +1.0 +1.0 +3.0Health Care +1.0 +1.0 0.0 +2.0Commercial +1.0 +1.5 -1.0 +1.5Transportation +1.0 +1.0 -1.0 +1.0Education 0.0 -1.0 0.0 -1.0Govt. Buildings -2.0 -2.0 +1.0 -3.0

Firms are growing again,increasing the demand for talent

Source: U.S. Department of Labor

Employment in U.S. A/E Industry

The long-term trend toward lower turnover may be coming to an end

3-year Moving Average

Boomers are beginning to retire

Source: U.S. Dept. of Labor20

Percent of U.S. Population over Age 65

So your biggest challenge will be winning the war for talent

Recruiting top talentMinimizing turnover

Having trouble finding mid-level and senior Civil Engineers?

10,000

12,000

14,000

BSCE Degrees

Source: American Society for Engineering Education22

The gap is less severe for MEs

10,000

12,000

14,000

16,000

18,000

20,000

22,000BSME Degrees

Source: American Society for Engineering Education

EE’s are especially hard to find

10,000

15,000

20,000

25,000

BSEE Degrees

Source: American Society for Engineering Education

There are also gaps in the availability of mid-level architects

10,000

11,000

Architecture Degrees

Source: National Center for Education Statistics25

Many architects are leaving the profession in the first few years

Source: Equity in Architecture Survey 2016, conducted by AIA and San Francisco Art Institute

The traditional recruiting process takes too long!

Determine Need

Post JobGather

ResumesInterviews

Make Offer

At least 60 – 90 days

Working the pipelines can reduce the lag time

LEADS PROJECTS

RESUMES EMPLOYEES

Are we attracting the best and brightest new grads?

$40,000 $45,000 $50,000 $55,000 $60,000 $65,000

Starting Salary for BS Graduates

Median for AllEmployers

Top 25% for A/EFirms

Sources: • 2014 Salary Survey, National Association of Colleges and Employers• 2014 PSMJ Staff Salary Survey

Effectiveness of Common Recruiting Methods for Design/Technical Professionals

1 2 3 4

Social Media

On-Campus Recruiting

Job Boards (Monster, etc.)

Professional Recruiters

Our Firm's Website

Local Newspapers

Out-of-Town Newspapers

Professional Society Ads

Employee Referral Bonuses

Source: 2012 and 2016 PSMJ surveys of100 A/E firms

The largest labor pool for new employees is “Millennials”

So how do you hire the best ones?

Overconfident; don’t accept criticism well (they all got trophies when they were kids)

Enjoy working in teams

Environmentally aware

Want to be judged by achieving goals (not for loyalty or effort)

Better at meeting others’ goals than setting their own

Work-life balance

Casual dress

Multi-tasking

Want to Get Candidates to Accept Your Employment Offer?

Source: Equity in Architecture Survey 2016, conducted by AIA and San Francisco Art Institute

Before you invite anyone to a personal interview…

Step 1: Resume Review• Organized

presentation of information?

• Typos or grammatical errors?

• Record of stability?

Step 2:Skype Interview• Oral

communication skills?

• Technically proficient?

• Why are they interested in your firm?

• What are their expectations?

• Geographical constraints/preferences?

• Identify references

Step 3: Reference Check• The most

honest references

• The 2 kinds of references

• Request portfolio/writing samples

Step 4: Testing

• Skills tests (e.g., CAD or word processing)

• Cultural compatibility (e.g., business vs. practice)

• Management aptitude (e.g., Harrison Assessment)

Conventional interviews are 7% accurate in predicting performance*

* Source: Handbook of Industrial & Organizational Psychology

Situational interviews are much more effective

Situational Interviews

“Your first assignment is taking over the management of a project from a PM who recently left the firm. After your first month on the job, you realize that your project is way over budget, far behind schedule and the client is unhappy. How will you deal with this situation?”

“We sent a letter to the Springfield Public Works Department on April 17 of last year. Find the letter. Feel free to ask for help from anyone in the office.”

Situational interviews are 54% accurate in predicting performance.

For a Project Manager For an Admin. Assistant

The Interview as a Sales Tool

Identify a "host"

Select, brief and/or train

interviewers

Define and review interview agenda

Don’t forget to recruit the spouse

Sell the opportunity

Sell the location

Sell the company

Don’t forget spouses

Close the deal!

Have an offer letter ready

Print business cards

Assign an e-mail address

CEO involvement pays!

Pre-Interview Plan The Interview

Reasons for Employee Turnover

Source: PSMJ 2015 Bonus & Benefits Survey

Turnover Due to Retirements and Health Reasons Will Increase

Source: U.S. Census Bureau

Today’s employees expect flexible working arrangements

Source: PSMJ 2015 Bonus & Benefits Survey

Professional staff salaries are a function of 4 factors

Type of degree

Office location

Manager salaries are mostly a function of firm size

Source: PSMJ’s 2016 Management Compensation Benchmark SurveySimilar data for management positions from CEO thru PM also available in this survey.

R² = 0.9566

$70,000

$80,000

$90,000

$100,000

$110,000

$120,000

$130,000

$140,000

$150,000

1-20 21-50 51-100 101-250 251 - 500 501 - 999 1,000+

Firm Size (Employees)

Salary for Department Managers

How effective is your firm’s bonus program?

Ask each of your principals and key employees to rate your bonus program using the following scale:

5 – Very satisfied4 – Satisfied3 – It’s OK2 – Somewhat dissatisfied1 – Very dissatisfied

Then average the results and compare them with PSMJ’s survey data.

Bonus Program ElementsYourFirm

2015PSMJ

SurveyOverall bonus plan satisfaction

Is bonus plan fair to our staff?

Does bonus plan reward performance desired?

Does bonus plan motivate our staff?

Is bonus plan easy to administer?

Does bonus plan meet the firm’s needs?

Why People Quit

Most Firms Have No Leadership Succession Program in Place

Source: 2015 PSMJ Bonus & Benefits Survey

So Internal Transition Has Become Very Difficult

There Are Going to Be More Sellers Than Buyers

Ownership ≠ Leadership

Ownership is a financial state. It requires:

$$$ to invest

Judgement when voting shares

It is also a way to put "golden handcuffs" on your "pie makers."

Leadership is an attribute of employment:

“The ability to get others to support your ideas"

Absolutely nothing to do with $$$

LeadershipOwnership

Employees vs. Owners

Compensation Employees Owners

Salary

Benefits

Special retirement plans

Perks (car, club membership, etc.)

Bonuses

Dividends

Share appreciation

Ability to pledge your house

How Ownership Correlates With Authority

Ownership is totally divorced from leadership. Authority is based solely on position in organization chart.

Ownership is widely spread among employees. Authority is based primarily on position in organization chart.

Ownership is evenly divided among a few employees. Authority is based on share ownership.

Ownership is controlled by a single stockholder. Authority is determined by the majority shareholder.

Stage 1

Entrepreneurial

Stage 2

Consensus

Stage 3

Corporate

Stage 4

Public

History

Mediocre Performance

Good Performance

PoorPerformance

Highly VariablePerformance

Which philosophy is right for you?

• Relatively high valuations

• Broad ownership to provide liquidity

• Must overcome skepticism from potential buyers

• Payoff is at retirement

Ultimate goal: sell firm to an outside buyer at a high price

• Relatively low valuations

• Limited ownership

• Payoff is from annual profit distributions

• Encourages shareholders to stick around

Ultimate goal: maintain the continuity of the firm

SHARE APPRECIATION

EARNINGS

Step 1 – Get a firm commitment as to when current owners will sell

2010 20402015 2020 2025 2030 2035

Bea Chao (27%)

Ed Ickard (17%)

Jim Gonzalez (18%)

Alice Day (24%)

Andrei Salas (6%)

Felix Goldberg (8%)

Start Selling Finish Selling

Step 2 – How will the new owners be selected?

• Bring in work

• Maintain clients

• Enhance firm’s reputation

• Technical/design expertise

• Manage projects

• Manage money

• Manage a business unit

• Manage support functions

Small Large

Firm Size

Ownership Criteria

Pie makers, not pie eaters.

Step 3 – What mechanism will be used to transfer ownership?

TransferMechanisms Considerations

Stock acquisition

to/from the firm

Simplest, most common form of internal transition

Stock acquisition

among individuals

Increases liquidity, especially in large firms Owners lose some control of who buys stock

Form a "Newco" Avoids buying into long term liabilities Common in construction industry

ESOP Assists in financing the transition Tax advantaged Advantageous for firms doing lots of FAR work High administrative costs Can leave new owners saddled with debt

Asset purchase Avoids buying into long term liabilities Commonly used for small firms

Platinum Firm Top 10 Keys to Success

1. Avoid commoditization by focusing on projects where you add real value

2. Repeat clients who share your values are the most profitable

3. Focus on the more complicated aspects of your service

4. Continuous feedback on employee performance helps retain staff

5. Recessions and acquisitions are great for recruiting

6. Don’t burn bridges with departing staff

7. Educate everyone on the financial realities of your firm

8. Your best PM’s are the best candidates for ownership

And In Conclusion…

Are there any questions???

Please fill out your evaluation form

Please feel free to contact me directly

bwilson@psmj.com 857-255-3204

2017 all-ohio conference - oswald companies · resume review •organized presentation of...

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