ASFE’s Business Practice Committee sponsored its second series of Business Roundtables on October 4, 2008, at the Fall Meeting in San Francisco. These tend to comprise an extraordinarily popular offering through which members discuss and share information/experiences about key issues. Each participant was allowed to attend two 55-minute sessions, separated by a 10-minute break. In San Francisco, 170 registrants took 300 “seats” at 15 roundtables. The six topics (and the number who participated in each) were:
- Leadership Development and Transition (83),
- Financial Management and Performance (58),
- Business Expansion and Alternative Services (54),
- Organization Structure and Ownership Transition (41),
- Human Resources I: Staff Recruitment, Retention, and Retirement (40), and
- Human Resources II: Benefits and Compensation (25).
Each table had moderators and moderators took copious notes, as follows:
- Leadership Development and Transition
(Moderators: Lee James, Dave Harwood, Pete Dohms and Gerard Buechel)
- How do firms get people to engage and become leaders?
- What is being done to develop leaders?
- Programs developed internally and used externally to identify and develop leaders:
- Retreats, professional societies and committee involvement, additional responsibilities, more involvement in decision making, on-the-job training.
- Senior Executives Institute program through ACEC, Center for Creative Leadership, Covey Institute and other outside sources.
- Communicate to people what is expected in leadership roles and determine their desires.
- Some expressed experience with bad leaders training new leaders, and bad results that occurred.
- Leading by example, such as mentoring and coaching.
- Using brown bag lunch training as a leadership development tool.
- Ownership transition is not leadership development. The two are important together, but are individually distinct issues.
- Leadership is more than inherited; it can also be taught.
- “Buffalo concept” of one leader who everyone follows vs. “Geese flock concept” of where people take turns leading.
- Important to find people with needed strengths and desires, and develop them.
- Request people to take initiative and being accountable for their own leadership development. Communicate to people that taking initiative is part of leadership.
- Promote cross pollination externally and internally:
- External exposure - professional societies, philanthropic groups, city programs, churches and other groups that enable people to develop their leadership ability.
- Internal exposure with different offices and groups.
- Continue to stretch people to move to another level of leadership, and recognize them for doing this.
- Present leaders’ responsibility is to develop other leaders.
- Leadership development should become part of the firm’s culture from the start and throughout the people’s careers.
- Understanding generation differences and pulling people to another level.
- Need combination of people taking initiative and organizational support.
- Start training and development process at start and throughout career.
- Develop performance management systems that promote and support leadership development throughout careers of personnel.
- Develop and communicate career paths that define organizational structure, and where people are and how to get to where they want to be.
- Leaders should support/promote leadership reading and exposure:
- Books on leadership such as Primal Leadership, Servant Leadership, Heroic Leadership, Biographies of Leaders, etc.
- ASFE materials including Legacy CDs of Founders Panel, FOPP presentations, etc.
- Leadership seminars.
- Need to distinguish the differences between leadership and management.
- Leadership traits identified - integrity, courage, drive, motivation, self-awareness, initiative, high values, emotional intelligence, strong communication skills, team view and adaptability.
- Leaders are identified by:
- Leaders stepped-up or took charge when there was an opportunity or opening.
- Asking employees within an office.
- Annual staff review process or career planning.
- Observation of an individual’s effect on others.
- How to identify leaders who do not possess the same traits we expect or who lead through quiet actions?
- How to identify leaders who had some traits, but would require coaching or mentoring to develop other traits?
- Most indicated that leaders were born with a set of skills/traits that they applied to life experiences. Without possessing basic leadership traits, an individual would likely not be able to develop into a leader.
- Firms with more than 50 employees were far more likely to have a formal leadership development program. Firms with less than about 25 employees were likely to not have any type of formal program or process.
- Formal training programs - 1 to 2 day seminars, annual or more frequent reviews, feedback, some established metrics, and mentoring and coaching.
- 360° review is a powerful tool - anonymous feedback from subordinates, peers, direct supervisors, and in some cases clients, family, and friends. This information is then used by the individual to develop a personal program of self improvement. This type of review can indicate “blind spots” that are affecting the individual’s ability to progress.
- Need to look at follow-up activities or cultural changes after leaders complete their formal programs. This could include focused goal setting based on 360 reviews, leadership groups that discuss articles and books on leadership, working on available case studies in leadership, or providing a forum for problem solving and idea sharing.
- Leadership transition is a challenge in small office or firm environment. How much and what types of activities could be effectively delegated to emerging leaders?
- In larger organizations, transitioning is usually an ongoing process and not a discrete event. The process of leadership transition requires developing a laboratory for learning, i.e. a safe and controlled environment where mistakes could be made with limited impact to others. Leaders allowed to grow in this type of environment will develop more quickly and be more effective.
- It appears that larger firms have resources available for development of training programs and have flexibility that smaller firms may not have when it comes to the leadership development and transitioning process.
- ASFE should consider a future meeting session on this topic for leaders of small firms and offices.
- Financial Management and Performance
(Moderators: Rick Ross, Susan Quiroga and Chuck Brewer)
- Need to set specific collections goals (days sales outstanding), e.g. calls at 15 days to make sure the invoice was received and to determine whether there was a problem that could hold up payment. Need to make sure that the invoice went out promptly and accurately reflected the work completed to date. DSOs were mostly in the 50-55 day range and most felt this was acceptable.
- One firm changed their contracts to read pay upon completion and asked for an upfront retainer that ranged from 10-25% on all projects. Several companies had instituted a policy of charging projects or offices a penalty in the form of interest for any collections that went beyond a stated goal.
- Tasking the PM with collections on their projects, and reducing incentive compensation for not collecting in a timely manner or increasing incentive comp for collecting early.
- Common metrics included utilization, realization (revenue factor), payroll to fee ratio and backlog. Many thought that metrics were focused on the rearview and that time should be devoted to forward looking metrics.
- Use historical trend lines of metrics and backlog (signed/awarded contracts plus percentage of bid not awarded volume) to project future revenue. This would allow resource planning or downsizing requirements if the backlog was not sufficient to support current expenses.
- Benchmarking with data from other associations, such as ASCE, to tap into a larger database to establish best practices and related metrics.
- How open to be with staff about financial results? Some only showed metrics as indicators as to how the company was performing, while others were completely open with all financial statements to all staff.
- Need to set up brown bag sessions to discuss basics of financial statements, how to read them, and what various accounts mean to the company’s health and ability to continue as a going concern.
- Need for cost control measures. Who should monitor and establish them? Top three expense items are payroll, insurance and vehicle expense.
- Cash flow forecasting methodology is done mostly at the macro level, and mostly using the direct method.
- Discussed Accounts Receivables and collection methods, including retainers, liens, send drafts but don’t send final report until receipt of payment.
- Timely timesheet entry - how to get them entered each day, is there a stick, how do other companies accomplish this?
- Accounting systems - what does everyone use?
- Subcontractor agreements - how to deal with onerous contracts and long agreements, limitations of liability issues, etc.
- Cost of gas - how is it impacting firms, how to deal with overages, can provisions be incorporated into contracts?
- Common metrics for financial performance – utilization (chargeability), multipliers, net revenues, gross revenues, AR and WIP.
- Small firms (less than 10) seem to ask for retainers on projects, more than large firms do.
- When sending out proposals, have a place in the proposal to get the following information from the client:
- Invoice closing date
- Billing address and contact
- Technical contact
- Accepting credit cards? Most firms did but found they received little payment through them, but it was good to use as a collection tool.
- Giving discounts for payment within 10 or 30 days? Few people have done this, but it is not something that is standard in their practice.
- Operating income/total labor metric should be around 2.2 for most firms. It can tell a lot about what is going on within an office.
- Are companies raising billing rates next year or holding them flat?
- What do companies think the revenues will be in 2009?
- Strong desire for an ASFE panel session to discuss the pros and cons of metrics and to dissect metrics to show exactly how they are determined, what specific factors can affect them, what types of metrics work for what types of companies, and how to manage your business based on metrics.
- Financial metrics - small firms are interested in presentation on what the results mean?
- Business Expansion and Alternative Services
(Moderators: Mike Cowell and Ted Lewis)
- What areas are companies expanding?
- Going where their current customers want them to go.
- Focused on government related projects – BRAC, embassies, Design-Build highways.
- Packaging services with other companies to offer whatever the customer wants.
- Acquisitions – civil services, wetlands studies, GT firms to provide added geographic coverage and expertise.
- Providing union services – Chicago.
- Internal geographic expansion – use of in-house manager was deemed better than use of a local new hire.
- Has growth been organic or acquisition driven?
- Organic growth takes too long.
- Danger in acquisition is in meshing cultures.
- Hybrid strategy - where there is a well established main office, and then smaller branches which grow organically or through acquisitions.
- Kleinfelder grew due to national clients’ expectations. They could not wait for organic growth and had to develop acquisition strategy.
- One strategic plan for growth involves letting staff know geographical areas they are interested in and then look for internal champions who want to start a branch in that area.
- Having the infrastructure in place is critical when growing the business, so everyone knows what the policies and procedures are.
- Kleinfelder makes virtually no changes for the entire first year, and then starts to integrate the new staff with internal SOPs.
- When growing, how do you remain one team?
- Annual meeting of management staff.
- Weekly telephone conference calls of managers.
- Annual technical meeting to present case studies and new technologies - very effective because it lets the offices get to know each other, and provides staff with information about other offices’ capabilities and expertise.
- The intranet is useful to keep offices in touch with each other.
- What alternate services are companies providing?
- Litigation support.
- Civil design services.
- Surveying.
- Energy related – NDT lab services.
- High level peer review.
- Geophysical services - identifying karst/sinkhole areas; seismic testing for IBC code classifications.
- Water resource services - storm water design (BMP); wetlands and bugs and bunnies; dam design.
- Government services that require high clearance levels – embassy; nuclear.
- Environmental – hazardous waste and site assessments.
- Geothermal services – developing geothermal wells with their drilling services.
- GeoStructural design – walls, micropiles, shoring, etc.
- Build out quality control/ building commissioning services.
- Design-build engineer led.
- Archeological.
- Building envelope.
- What percentage of your business is traditional geotechnical engineering?
- Ranged from 15% to 100%, but most firms were less than 50 percent.
- Why were alternative services started?
- Competition from other geotechnical firms was more intense than civil engineering. There are just too many geotechnical engineering firms.
- Part of growth plan was to use alternative services to grow the firm.
- Concerns about doing civil engineering and competing with civil firms that provide you work. You do lose some civil clients, but you gain new owner clients who want one stop shopping. Firms would rather work for the owner than being a subcontractor to another civil.
- Organization Structure and Ownership Transition
(Moderators: Stewart Osgood and Alex Sy)
- How do firms track or split revenues between offices?
- Firms vary between 85/15 split and 100/0, although 90/10 seemed common.
- Under 90/10, 10 percent of revenue goes to office that “finds” the work.
- Anything other than 100/0 discourages growth, but going with 100/0 does not reward marketing and business growth efforts.
- Some competition between offices in a firm may be good. Some felt it was cancerous – need to only focus on the growth and profitability of the firm overall. Is this enough of an incentive? - No consensus.
- Geographic organization vs. service line or market based organization:
- Larger firms gravitate away from geographic and toward market sector, once they reach 200 to 400 people.
- Corporate allocation by revenue is common. Some firms do it based on payroll or direct labor amounts.
- Most firms follow the model of a full service regional office with smaller satellites that report up.
- Ownership transition:
- Rule of thumb is that 10 percent of employees are owners in a firm.
- Many firms finance and assist young staff in acquiring shares.
- ESOP is more appropriate for larger companies, with more than 75-100 staff.
- Firms with ESOPs were generally happy with them, at least as a mechanism to buy out the first generation of retiring shareholders.
- LLC were fairly uncommon.
- C-Corps are the most common for larger companies.
- It takes 15-20 years for full ownership transition internally.
- Ownership transition problems go away if company is profitable.
- Firm valuation:
- Many methods are available for valuating a firm.
- One simple method is staff count times $40-45 K.
- Most firms price shares internally at book value times a factor ranging from 1.0 to 1.75. Book value times 1.3 is common.
- Human Resources I – Staff Recruitment, Retention and Retirement
(Moderators: Gordon Matheson and Denise Howe)
- Retaining employees – various strategies including investment in the firm (stock), training opportunities, and work environment (e.g. flexible schedules and alternative work weeks).
- Incentive compensation - different methods to distribute bonus and provide a carrot to employees, including spot bonus to meet monthly goals primarily focused on AR goals.
- How to recruit and retain the next generation? Quarterly bonus to keep X-Gens? Some firms have spot bonus, quarterly bonus to meet specific goals, and annual bonus that is less individual performance driven.
- PTO (paid time off) as an alternative to traditional vacation and sick leave. There are accounting rules that make PTO somewhat less attractive, but it does seem to be the industry trend.
- On benefits packages, larger firms seem to be going to “cafeteria plan” where employees are given set amount of money and they choose what they want. Smaller firms can’t do this due to administration costs.
- How is training implemented, when is it required and do you compensate employees for training on weekends?
- Applicant tracking systems?
- Human Resources II – Benefits and Compensation
(Moderators: Joe Engels and Frank Leathers)
- Firms are continuing to provide a traditional menu of financial benefits including medical insurance, dental insurance, life insurance, disability insurance and 401k retirement plans, although there has been some increase in the employee’s contribution to the medical and dental insurance benefits as costs continue to rise. Firms vary in how employee cost sharing is allocated between employee coverage and family coverage.
- It does not appear that firms have started to offer non-traditional benefits, such as child care support, which are becoming more common in the high tech world to respond to the needs of changing demographics. One firm does offer pet insurance as a benefit.
- Several firms self-insure for medical insurance, with a catastrophic loss umbrella policy to cover very large claims. The feeling was that self insurance may not work as well for a firm with an older staff census since claims may be higher on average.
- As a cost control measure for medical insurance, some firms are using high deductible plans ($2k to $8k per year per family) in combination with Health Savings Accounts (HSAs) to pay the deductibles. Firms using these plans report favorable experiences. Some firms reported making initial deposits into employees’ HSAs, representing a portion of the premium savings from the higher deductible, as a way to encourage employees to get started in the HSA program and reduce the initial employee risk.
- Some firms are providing cash payments to employees, ranging from $100 per month to the equivalent to the company contribution for medical premiums, if the employees opt-out on coverage because they are covered by a spouse’s plan.
- Most firms with 401k retirement plans provide a match of 3-5%. Others provide a profit sharing contribution at the end of the fiscal year that has been ranging between 4-6%. State DOTs may not allow profit sharing distributions as an allowable expense when computing overhead rates, but will allow a match amount to be included in OH rates. Some firms are going with shorter or no vesting on company profit sharing contributions. Also, some firms are using auto-enrollment at the company matching level (with a specific opt-out provision) to get as many employees in the program as possible.
- Some firms are using Paid Personal Leave in lieu of traditional vacation/holiday/sick time. Caps on the total amount of time that can be accrued are common.
- There seems to be a wide variability in company policies for personal use of company vehicles by employees. The policies range from requiring that the vehicle be returned to the office each day, to taking the vehicle home and allowable use on weekends. Many felt that assigning a vehicle to a person was the best way to maintain the condition of the vehicle.
- Only one company did not provide access to company owned vehicles for field use by employees. Those with larger fleets tend to do more construction monitoring and testing, requiring the transport of equipment on construction sites.
- Companies with field vehicles generally lease rather than own the vehicles.
- Cash spot bonuses of several hundred to several thousand dollars and public accolades in company newsletters and web pages are being used more frequently to reward employees on a more real time basis relative to their accomplishments. This is being driven by generational differences with younger staff looking for more immediate and frequent pats on the back.
- Many companies are starting to see increased desire for alternative work schedules by employees. For some employees, it is a life-style issue; for others, it is driven by need to manage a mix of work and home responsibilities such as medical appointments for kids or elderly family members, day care needs, impact of travel by spouse, routine errands, etc. One firm is using a 9 hour day/80 hours per two week schedule (i.e., 9 days with one extra day off every two weeks). Other firms reported not-so-favorable results with alternative schedules due to need to meet client demands.
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