Stop Selling Engineering! By David Stone

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1 Stop Selling Engineering! By David Stone Complaining about low fees and a lack of respect for our profession are frequent topics for editorials and discussions among consulting engineers. Surveys show for the majority of design firms, bidding and price competition are common practice. Competing in this way assures that our fees will stay too low; however, there are things we can do to end this cycle. The Marketplace at Work Recall what you learned about supply and demand from your college Economics 101 and imagine that you have invented a brand widget that will solve one of mankind s most pressing problems. Although the world desperately needs your widget, you ll have to invest money in product development, marketing, raw materials, etc. before you sell the first one. But once the world has found out about your marvelous device, the demand will be sky-high and you will be able to charge any amount you want for the widget. The natural law of supply and demand allows you to charge a very high price and customers will willingly pay it. But the natural law of competition is also at work and very soon, someone else will find a way to copy your widget, put it on the market for five percent less, and still make a ton of money. As long as there is money to be made, more and more competitors will flock to your business, each charging a little bit less than the competitor before them until the only criteria left by which buyers can choose between one supplier and another will be price. Your widget will have achieved the status of a commodity. An example of this is laser eye surgery. In just a few years as competition increased, the cost has dropped from about $5,000 per eye to $250. Engineering services have been around a lot longer and in the minds of our clients, we are in a very mature industry that offers very little differentiation between suppliers. In short, traditional design services sold in a traditional manner equate to a commodity. With this in mind we have three choices. 1. Do nothing. Although this choice seems a little foolish, this is the choice most firms are taking. The commoditization of A/E services has been growing progressively worse for the past 10 years. Yet many firms choose to stick their heads in the sand and wait for things to get back to normal. They are so wrapped up in doing projects that they can t take time to see the big picture and make the necessary changes. 2. Enroll in the Sam Walton School of Business. In spite of the fact that we continually speak of commodities in disparaging terms, selling commodities is a viable and popular business model. The only requirement is to continually reduce your costs and sell in high volume.

2 Sam Walton s secret at Wal-Mart was to keep costs and prices low and sell volume. Your firm can use the same formula, but not with your current organization. You will require preestablished menus of services with fixed prices, ultra-high productivity probably done overseas via the Internet, rigid control of scope, and rigorous pricing of additional services. While it might not appeal to you, if well managed, this approach would net slim margins on each sale, but a high dollar return from the volume. 3. Stop selling engineering! This doesn t mean get out of the structural engineering business, but to modify how you re doing business. You re going to shift the focus and re-package many of the services you already provide. While you will still provide engineering, the focus of your sales effort and the value you provide to clients will shift to new areas. The following are ways to do this. What makes you special? If you are to avoid the commodity label, you must be able to definitively show a potential client what it is about your firm that sets you apart from all others. In today s tradition-bound design professions, there is little to distinguish one firm from another. Proposals have become a headbutting contest in which your list of projects is pitted against their list and neither emerges as a winner or even worse, the client merely selects the engineer with the lowest fee. To avoid this state of affairs, many firms have chosen to seek out a niche market in which they can claim unique expertise. While many choose to differentiate on the basis of a technical capability, there are other options as well. For example, design/build and hyper-track project delivery methods can apply to any type of project with a client in need of speed. Mission Critical project services are being offered to owners whose facilities, under no circumstances, can afford to go off-line or be delayed. By isolating the service and focusing on its unique requirements, the perception of expertise and value goes up, as does the negotiating leverage and price. Non-traditional, Value Added Services. Clients are willing to pay extra for services that provide additional value to them. A way to determine the value of a service to the owner is to Follow the money! Review these three numbers and select the one you would most like to have: 6 $1 $10 Like anyone else who is thinking straight, you probably picked the $10.

3 Now consider what these numbers represent. On any given project, for every $1 spent on construction, 6 cents is spent for design (only about 1 cent of this is spent for structural engineering) and $10 is spent for operations and maintenance through the life of the facility. Engineers and architects squabble over the 6 cents while the rest of the world enjoys the much higher figures. Finding a way to save the owner one or two percent of the total construction cost or a half of percent on the even larger operations and maintenance costs is much more valuable to the owner than reducing your design fee. Rather than designing a building, advising and helping an unsophisticated owner through a design/build project can be a very valuable service to the owner and produce higher profits for you. For warehouses and industrial projects, structural engineers can be as qualified to provide this service as any other discipline. One construction company has found an innovative source of financing and is approaching municipal clients with an offer to finance, design, build, operate, and maintain their parking structures and provide the municipality with 20 percent of the revenue. Structural engineers can do this also. The advantages of following the money are huge. First, activities like this produce very high profit margins. In many cases the profits are far in excess of the total fees that could be charged for engineering on the project. Second, the players in these deals are where the action is. They are involved in strategic decision-making, not standing on the sidelines waiting to be invited to respond to a request for proposal. Of course no advantage comes without a downside. In this case, high profit comes with a high risk. There is considerable exposure on projects of this sort and it requires sophisticated business and management skill. For many engineers and architects, these projects represent unknown territory and going there alone would be foolish. Fortunately, many profitable partnerships and alliances are being made with financial institutions and professional management companies. Stellar Service. Have you ever had the experience of walking into a store and then, a short time later, walking back out of the store having decided that you will never in your life set foot in that establishment again? Of course. We ve all had that experience. We ve also had the opposite experience of finding a store that was so satisfying that you decided that you will never shop anywhere else. Not only that, you re determined to bring all your friends to this great store.

4 Interestingly, these decisions are rarely made because of the prices the stores charged. Nor are they made on the basis of the store s merchandise. These decisions are almost always made based on the quality of service and attention you experienced while in the store. In some stores the clerks seem too busy or preoccupied to deal with you. If and when they finally get around to you, their attitude makes it clear that they d rather be anywhere else except serving you. In other stores, there just isn t enough they can do for you and nothing is too much trouble. It s obvious that they are genuinely pleased to be serving you and care about whether you are satisfied. What s it like to shop in your store? You don t sell merchandise, but your customers experience the quality of service that you and your staff give just the same. What do your customers say when they walk out of your structural engineering store? Are they ecstatic about the treatment they received, or merely satisfied? Do they rave about how wonderful your company is to deal with or have you simply met their minimum expectations? The A/E industry hasn t even begun to scratch the surface of real customer service. Compared to other industries, we have yet to even recognize that customer service is an important issue. For example, does your firm offer a personal customer concierge who is available to address any need your clients may have? Does your firm provide 24 hour a day, seven day a week access? Does your firm offer real-time project progress updates on the Internet? Does your firm employ a full-time, dedicated customer service representative? Do you provide money-back performance guarantees? It is easy to say that these ideas aren t applicable to structural engineers; however, each of these has aspects that can be applied to our firms. Stellar service breeds high customer loyalty, serves to dramatically set your firm apart from your competition and helps remove you from the anguish of fee competition. Adopting these new ideas will not be easy. Every one of the options we ve discussed will require a commitment to and embracing of dramatic change that hasn t shown itself in the A/E industry yet. We are in a profession that likes things the way they are and the way they ve been. Who will be the first to step up to the plate and stop selling engineering? Next month this article will feature some structural engineering firms that are using these ideas. David Stone is a Senior Consultant with FMI, a management and consulting firm specializing in the design and construction industry. He can be reached at (303) or dstone@fminet.com FMI Corporation. No part of this publication may be reproduced or transmitted in any form, or by any means, without permission from the publisher, FMI:

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