M4D Business Journal 107 Maintaining Consistent Profitability

MANAGEMENT FOR DESIGN BUSINESS JOURNAL 107 MAINTAINING CONSISTENT PROFITABILITY

The main asset of a design or engineering business is the knowledge and skills of its people. Similar to the projects they deliver, the development and management of resources becomes increasingly complex as the business grows.

It’s often said that project-based businesses become difficult to manage when all decision makers can’t fit around a conference table. In reality, scaling a design or engineering business is an exercise in deploying a finite resource (people’s time) against infinite potential (client solutions). The strategies used to manage the business aspect of this conundrum will ultimately impact growth and profitability regardless of business size or whether the entire management team can fit in the same room.

To ensure profitable growth by improving the use of resources and gaining tighter control of finances and performance, businesses need to consider the following: 1. Leverage How is the business structured in terms of the ratio between directors/principals and other client-facing employees?

In design and engineering businesses in particular, business leaders are often client

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Scaling a design or engineering business is an exercise in deploying a finite resource (people’s time) against infinite potential (client solutions).

” facing, specifically because it is their talent that is the face of a major project. To manage the spread of chargeable hours across a team, businesses will often structure with a number of high-performing client facing employees who report to one director (as opposed to many), creating a layer of trusted and skilled employees who can spread the load of the chargeable hours created by any one client.

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3. Fees Should fees be determined by the firm or the market?

Inefficient use of resources and poorly defined business strategies are two of the biggest problems in design and engineering firms.

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The reality for design and engineering businesses is that fees are often driven by external factors, such as the competition in the industry and the rate the market will pay. Firms that are providing a differentiated service and product will demand higher fees and are more likely to compete on a different level than price. They compete on the back of a superior or unique project offering for which clients are willing to pay the appropriate fee.

4. Remuneration Can a firm afford market rates for top talent, and if so, should it?

2. Utilisation How do design and engineering businesses maximise chargeable time while avoiding burnout?

Utilisation can be increased by increasing the chargeable time of your higher performing and often higher charging people, however the ability of your people to take on these hours needs to be managed carefully. Design businesses often run into problems when their highest performers work an excess of hours because those hours are often the most profitable for the business.

Avoiding burnout for your best performers is critical to business success. It can make more business sense to hire a new client-facing employee at a less senior level to take on more chargeable work than what could be achieved by top talent working overtime. Let go, and develop your people. This strategy will produce increased profits for the business without talent burnout.

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While project-based firms certainly have control over what they pay their employees, businesses need to consider the external marketplace and what competing firms are paying for talent. In times of overall market growth, underpaying talent creates a risk that you might lose them to a competitor. Fostering and nurturing creative talent beyond remuneration can also go a long way to promoting employee loyalty and excitement for the job. If businesses can broaden the skills of their employees without stretching resources, they will reap the rewards.

Inefficient use of resources and poorly defined business strategies are two of the biggest problems faced by design and engineering firms.

Left unchecked, these issues cause businesses to miss out on increased efficiencies, higher engagement and morale among employees, and consistent profitability. Getting business efficiencies, strategies and systems in place and under control will stabilise your business and allow you to focus on what you do best.

Management for Design provides integrated business systems and services to the design industry across Strategy, Finance, Information Technology, Human Resource Management and Business Systems.

By working with Management for Design our clients are enabled to focus on what they are great at and to control and build their businesses. For more information visit www.m4d.com.au or phone 03 9645 8834.