Background

Small and medium size businesses often operate without formal internal systems as they are run by a small number of people.

As the company grows and employs more people, chaos can quickly result from the lack of internal systems.

If not addressed this can have serious repercussions and, in the end, affect the viability of the company.

Here is an example.

New Market

The engineering consultancy business was targeting a new emerging market.  One of the market’s most prestigious OEMs asked for additional work to be carried out on a project that had already been completed.

Without checking whether there was any remaining budget available to carry out the additional work, the business decided to do the it free of charge regardless of cost as this OEM was seen as strategic.

Securing such a prestigious customer in the new market was an achievement.  The additional work requested was limited and it made sense not to charge for it.

However, this uncovered the fact that no budget had been set to carry out the original project and there was no reliable system in place to report how much had been spent.

Rapid Growth

Subsequently the company won several large projects in this new market from demanding customers in China, Korea and India.

For most of these projects, budgets were not formalised before agreeing a fixed price with the customer. 

Once projects started, costs could not be tracked easily as the timesheet system recording the engineers’ work on projects did not work reliably.

The large projects ran concurrently.  They were micro-managed by a single senior engineer who was focussed almost exclusively on delivering the technical content.

In the absence of internal processes there were no regular project reviews, nor any estimations of the remaining work to do and the cost to complete each project.

The sudden influx of large projects required the rapid recruitment of new engineers.  The unique technical requirements meant that it was not possible to find people already experienced in this new market.

Newly recruited engineers therefore needed extensive internal support and guidance. 

However, their manager did not have the time to provide this support as all the engineers reported directly to him and he was already very busy travelling and delivering projects himself. 

Consequences

The quality of the technical work carried out was inconsistent due to lack of training, and the absence of clearly defined methods and procedures. 

This led to dissatisfied customers, costly re-works, project delays, and negative cash flow on some of the large projects.

The absence of careful budgeting and monitoring of spend made it difficult to identify unprofitable projects. 

Due to lack of experience and without a robust method to estimate the revenue earned by each project, revenue and profit were significantly over-stated in the first year, leading to a sharp reduction the following year. 

As a result, a drastic reduction of internal costs was required to protect the viability of the company and redundancies became inevitable. 

Actions Taken

To address the engineering manager’s inability to support every engineer, teams were created for each of the main technical disciplines.  Team Leader roles were defined and advertised internally. 

Experienced and motivated engineers were appointed to create detailed technical methods and procedures, train new joiners, and check the quality of the work performed. 

To address the lack of a reliable cost reporting system, a reliable and more user-friendly timesheet system was introduced.  Team Leaders were tasked to ensure all engineers submitted their timesheet accurately and on-time every week. 

In parallel, simple project management processes were introduced, covering all stages from proposal preparation to project initiation, delivery and close out. 

Project managers were appointed and trained, with emphasis on meeting contractual obligations with customers and on taking actions to protect the project margin and maintain a positive cash flow. 

Regular monthly reviews were organised where project managers reported progress and provide updated estimations of the work and cost to complete.  This gave a much more robust basis to report revenue. 

The introduction of these simple systems enabled the company to grow fast and become a leader in this new market.

Lessons Learnt

With hindsight the analysis of the company’s issues and the actions taken may now seem obvious. 

However, it wasn't at the time when everyone was overwhelmed by the surge of workload and the demanding new market. 

There was a general reluctance to introduce any new system or structure. 

The key success factors were essentially: -

• Recognition of the need to get help to prepare the business to grow fast.
• Objective analysis of the business issues.
• Specific solutions identified instead of ready-made recipes.
• Actions implemented internally within the business.

Help

In this example my role was to analyse the situation, work with all concerned to come up with solutions, and drive the implementation.

Nowadays I work with overstretched people leading Engineering SMEs to help them prepare their business so they can achieve profitable growth. 

Please use the link below to book a free 30-minute conversation if you would like to discuss how I could help you.

http://tinyurl.com/HerveJardonCalendar