By Shawn F. O'Neill, P.E., C.P.P.M, C.E.M

Small construction firms were struggling all over the country. Profit margins were very slim, typically ranging from 5 to 7%. Contractors were coming in from all over the country to compete for work in our backyard. Some contractors were finding being a 'General' Contractor or Construction Firm was not focused enough. At Carl J. Williams and Son's we consistently raised our revenues by 10% each year while increasing our net income. Here is the how and why we did it.

Other areas of the construction industry had been specializing for quite some time now. Architects, developers, engineers, and interior designers had all seen the need to shift from the generalist to the specialist. Mr. Tim Cuppage, owner and principle of T.C. Design, said the growing trend was toward specialization. In fact, Smith believed that "architectural firms who did not find a niche in this economy may not survive until things turn around again. You must find a need that is not being filled and fill it". Firms with only a handful of practitioners such as legal, accounting, high-tech, health care, and biotech were being tailored to meet the growing demand for more specialists.

Construction Management services traditionally was offered almost exclusively by big construction companies and awarded only to customers with large sums to spend on big projects. Times were changing and our medium sized construction firm needed an offering to service customers who had smaller jobs on the table to help them control costs. An important factor in a slow construction industry.

Today, business must adapt on a daily basis with the constantly changing times of the construction industry. As the former President of Carl J. Williams and Sons, a medium size design/build, construction management, and general contractor on the Eastern Shore of Maryland, I am providing you with a prime example of a company that changed its traditional menu of business expertise, general contractor, and started to refocus its efforts into smaller construction management, metal buildings, estimating, design/build, and site work projects.

We picked a target market with small construction jobs with less then one million in sales revenue and became increasingly competitive. Higher profit margins came from these jobs and we found are niche was not the 4 million dollar job we went after in the past with a lower profit margins, but the higher more profitable small job of $500,000 to $1,000,000. Due to a decline in the market caused by the recession and the increased presence of larger general contractors who are similarly squeezed in the large contract market we were forced to rethink our strategy and only pursue work in a range where we knew we could be very profitable.

Several of the industry leaders were already taking steps to refine their business, to change and to improve in making themselves more competitive in a depressed market. Ninteman Construction Company had taken several steps to refine and improve their estimating capabilities, with the ultimate purpose of improving its competitive position in both public and private markets. . Carl J. Williams and Son's Company focused on what worked more efficient and effective while eliminating what was not profitable. Many companies were turning to a more value added and focused approach.

Before Carl J. Williams and Son's Company became more profitable it had to first redesign its problem processes. Over the years, the company bought computers to accelerate their manual processes, but they did not redesign their processes, and they really just automated their inefficiencies.

In re-designing companies to provide value added and focused approaches, in many cases, the same amount of people can handle an increased workload and at an upgraded skill and salary level.

The more technical and complex an industry becomes the more important it becomes to specialize. Thompson (Strategic Management) says focusing works best when it meets the following:

1. It is more costly or difficult for multisegment competitors to meet the specialized needs of the niche.

2. When no other rival is attempting to specialize in the same target segment.

3. When a firm doesn't have enough resources to pursue a wider part of the total market, and when the industry has many different segments.

Next, at Carl J. Williams and Sons, we determined what markets had good and bad competitors. We chose markets to compete in that had good competitors. Porter (Competitive Advantage) defined a good competitor as one who challenges the firm not to be complacent: "A good competitor who results in a stable and profitable industry equilibrium without protracted warfare". Bad competitors have, for the most part, all the opposite characteristics. Therefore, Carl J. Williams and Son's Company understood each of its competitors good to bad characteristics accordingly. Porter found the following characteristics on whether a competitor is good or bad:

1. Credible and Viable. A good competitor has sufficient resources and capabilities to be a motivator to lower costs or improve differentiation, as well as to be credible with and acceptable to buyers.

2. Clear, Self-Perceived Weaknesses. Though credible and viable, a good competitor has clear weaknesses relative to a firm that are recognized.

3. Understands the Rules. A good competitor understands and plays by the rules of competition in an industry, and can recognize and read market signals.

4. Realistic Assumptions. One does not overestimate industry growth potential and overbuild capacity, or underinvest in capacity and in then provide an opening for newcomers.

5. Knowledge of Costs. A good competitor knows what its costs are, and sets' prices accordingly.

6. A Strategy that Improves Industry Structure. A good competitor has a strategy that preserves and reinforces the desirable elements of industry structure.

7. An Inherently Limiting Strategic Concept. One has a concept that inherently limits it to a portion or segment of the industry that is not of interest to the firm, but that makes strategic sense for the competitor.

8. Moderate Exit Barriers. Significant exit barriers will make one's presence in the industry a viable deterrent to entrants, but yet not so high as to completely lock it into the industry.

9. Reconcilable Goals. The good competitor is satisfied with a market position for itself that allows the firm to simultaneously earn high returns.

Carl J. Williams and Son's Company examined which areas of business contained good competitors and bad competitors. A good competitor set their prices at normal profit margin potential and did not try to provide the customer or owner with unrealistic assumptions. A bad competitor tries to buy market share rather than earn it.

There were very large construction companies who entered the market and bid on a job at a low price just to keep their men working. Clark Construction and Wohlson Construction were multi million dollar companies that dropped their prices to an unrealistic rate. The presence of bad competitors resulted in the loss of several jobs devastated our company and caused us to rethink our strategy and become more focused and value added to our customers. Identifying our bad competitors was essential in the decision on whether to specialize and become more focused.

Market demand was another factor that determined what area Carl J. Williams and Son's Company should focus in. We did not want to enter a market that was saturated by competitors. We determined the number of potential jobs by the number of competitors bidding or challenging us in negotiation on projects. This gave us an indication on what area of construction focus was saturated and therefore a very high risk to enter.

Carl J. Williams and Son's Company was successful with the new focused strategy. It had seen an increased number of competitors enter their market because of a construction recession that has left the large construction companies competing for their services. This driving force, coupled with forecasting the market demand for the profitable areas of business, resulted in Carl J. Williams and Son's Company becoming more profitable and having the ability to sustain a competitive advantage when facing other local competitors. We focused our efforts on what we did best, smaller jobs with a more design/build focus to stay away from the big construction firms. Our revenue and net income rose while hitting our operations with any significant increase.

Author’s biography:

Shawn is the former President of Carl J. Williams and Sons, Delmar, MD and he is currently the Mid- Atlantic Area Manager of Performance Contracting and Facility Consulting for Johnson Controls, Inc.