Challenge
Around 2018, Associated Construction was seeing continual erosion of profit margins in their industry with little hope for future improvement. With the help of C Squared Solutions, they made a strategic decision to focus on manufacturing and distribution in two of their business lines and greatly reduce the installation service portion of their business. When the COVID pandemic hit in 2020, they had a strong strategy in place to navigate its impact on their revenue.
Solution
- Collaborating with company management, we helped design a planning model based on the actual and projected bookings in each line of business. This enabled Associated Construction to see the financial impact over the next twelve months as their bookings forecasts changed.
- We identified KPIs linked to the business drivers for each level of management, focusing on what each person could contribute. Success targets were set and a measurement process developed.
- Gross margin targets and consistency in terms of metrics were now individualized, greatly improving accountability.
- Project managers now work with the distribution and manufacturing departments to provide materials to clients on a timely basis.
Insights
- The installation of the materials onsite had become a commodity that offered poor profit margins. Competitors continued to reduce prices, which led to a no-win situation. The only way to win in this scenario is to not play.
- As a supplier without the commodity component, it’s easier to identify the most valuable projects, rather than the biggest projects.
- Being a high-volume distributor of quality products from non-competing suppliers greatly increases revenue growth.
- Manufacturing a high-quality product in a poorly served market opens customer doors quickly, as competitors are slow to respond.
- Detailed planning, based on business drivers, leads to sharpened focus on trends.
Results
Overall, the strategy that Associated Construction implemented in 2018 significantly decreased the unforeseen impact of COVID and positioned them for a rapid recovery from the resulting recession. In 2020, their revenues declined 15% from 2019 levels, but created less of a negative impact than their competitors experienced. In 2021, this strategic change has paid off with substantial revenue growth, even while their old lines of business have continued to slow. While 2020 was slightly profitable, 2021 will see a 60% revenue growth and greatly increased profitability. Our client is back on track and has regained profitability.
