MERC 2018/The story of the Competition
|Early Years||Later Years|
|PERIOD 5: "'BBWC' set the early pace"|
After some intensive and effective trialling the Mercury Engineering Enginuity 2018 competition is underway, with a field of 10 teams all battling for supremacy against their peers. And so to the early action, and the early pacesetters after some impressive scores across the board are "BBWC" with 1,455 pts after 46% growth during period 5. However, the leaders cannot rest on their laurels with the chasing pack hot on their heels, led by "RS3 Engineering", and "LDMC Engineering". With so many teams starting well, there are sure to be plenty of twists in the weeks ahead as the journey through the Early Years unfolds.
The early signs are that the competition will be very competitive, with all the teams improving their overall position in period 5. However, this was not unexpected. After being formed at the beginning of period 1, overhead costs were incurred whilst the companies were being established, without any profits being generated. The companies were now in a position to generate profits against a more stable overhead base, and this was reflected in improved operating profits. Of course, growth will be impossible without an effective strategy, and all the management teams have had time to think about this carefully, and come up with a set of objectives to deliver business success for their stakeholders.
Looking in more detail at the world economies, in the UK following the uncertainty caused by the Brexit vote, sluggish productivity and business investment, and the Conservative Party losing their parliamentary majority in the June 2017 election, growth stuttered in the UK economy during 2017 to the slowest in the G7 economies. Despite this the Bank of England's Monetary Policy Committee (MPC) raised interest rates slightly during 2017 to counteract higher than expected inflation figures, but many economists do not expect UK interest rates to rise significantly until 2019. Chancellor Phillip Hammond announced in the November Budget that the Office for Budget Responsibility (OBR) do not expect the economy to grow significantly until 2021. For the Construction Industry this could lead to a continued period of uncertainty in the short term, although from mid 2018 onwards it is hoped there will be a steady rise in the volume of new work, although margins are expected to remain tight, and there is expected to be an increase in competition for work as more companies rejoin the construction sector, and there will be more demand for project managers and skilled labour, with the latter already being in short supply.
Further afield, and unlike the UK, the Global economy grew quicker during 2017, at 3.5%, with 3.6% expected in 2018, and the International Monetary Fund has raised its outlook for global growth, citing a postelection surge in confidence in the United States, better prospects in large emerging and developing economies such as Brazil, China and Mexico, and an overall uptick in global trade. The recovery in the Construction Industry is expected to be strongest in emerging economies such as India, and in the energy, and renewables, sector in particular, and the Qatar 2022 FIFA World Cup is expected to continue to generate new opportunities in the Middle East.
|PERIOD 6: "'LDMC Engineering take a narrow lead"|
After the impressive growth figures posted in period 5, not unexpectedly period 6 proved to be a much tougher quarter, although encouragingly every team were still able to post positive growth figures. Leading the the way with 10% growth were "LDMC Engineering" which enabled them to jump two places and takeover the lead with 1,559 pts, but the lead is incredibly narrow, only 4 points from previous leaders "BBWC". "RS3 Engineering" dropped one place to 3rd, with "GlobalWide Mercury" still well placed in 4th, and with only 60 points separating the top 4 positions it would be a brave person to predict the top of the table after next week's results. Indeed, seasoned Enginuity observers are predicting further significant changes in the table in the next period as the rollercoaster gathers momentum!
With KPI points hard earned it will become increasingly important that the management teams look very carefully at every aspect of their business for potential improvements, and those that are most successful in doing so should prosper the most. Two areas that the teams need particular attention are Marketing strategy and Procurement (rival bidders), which are discussed in more detail below.
Marketing is possibly the area of the business that requires the most thought, as there are numerous strategies that could be adopted. The market trend can only be gauged for one year ahead, and not always accurately, and as marketing departments are expanded, the choices of where to direct the marketing effort are wide ranging, by sector, country and job size. The task is not an easy one, but has a major impact upon procurement options, and the future work undertaken, and ultimately on the long term prosperity of the company.
Another important consideration is that rival bidders do not necessarily stick with the same bidding strategy, and as time goes by they can change their strategy according to market conditions. This makes it imperative that teams keep a close eye on the margins rival bidders are applying, and how they may be changing. Evaluating these strategies could make the key difference between success in securing work, or not. To complicate matters even further there may be UNKNOWN rival bidders, and the only clues to these may be in the ENGINUITY NEWS NETWORK (ENN) for the period.
|PERIOD 7: "A tough quarter for 'BBWC' who are firmly back in control"|
Period 7 proved to be a much tougher quarter for many of the teams, and just like the real world that the Enginuity Competition tries to simulate, the teams are beginning to realise that it is hard to maintain consistent growth figures. A number of factors hindered the performance of many, notably aggressive bidding from a number of simulated rival bidders, the Chota Nagpur Group in particular, and the growing pains of additional labour costs incurred from having to source jobs won in the previous quarter by either expanding the company's own workforce, or using subcontractors.
And so to the period 7 action, and in a quarter of many ups and downs perhaps the mot notable fall was that of the previous leaders, "LDMC Engineering", who found that getting to the top is one thing, but staying there is much harder, as they slipped 5 places afer a 7% decline. This opened the door for "BBWC" to return to top spot with 1,660 pts, and they have opened up a sizeable gap over well over 100 points to their nearest challengers, now "Au Construction", up 4 places to second. Further down the table in a tough quarter for growth the most successful results were published by "Wicklow Construction Plc" with 8% growth that saw them move into joint 4th with "RS3 Engineering". Many of the teams will need to reassess their bidding strategy in the next period to get back on the right track.
IEWP = SUCCESS
A leading industry think tank have come up with a simple formula for running a successful construction business.
Another essential part of running a successful business is being able to form an effective Risk Management Strategy to keep the business as profitable as possible. This can take a number of forms, firstly by building sensible risk contingencies into the original bids based upon the likelihood and cost of the risks occurring. Secondly, and just as importantly is mitigating the affects of any risks that strike through targeted investment into risk management companies, using a BIM model if available, and employing the most suitable project managers to jobs in progress. However, even when these mitigating actions are taken, risk can still be costly to job and company profits, and during period 7 problems with stakeholders not working together affected the construction of a new station for the Mass Transit Railway for the client, Hong Kong Developments, in Hong Kong with an estimated risk cost of nearly 240k before mitigation.
|PERIOD 8: "Turbo charged 'RS3' put pressure on the leaders"|
After "BBWC" opened up a sizeable gap to their nearest challengers at the end of the previous period, it looked ominous for their rivals, but not anymore as "RS3 Engineering" posted a stunning set of results in period 8, 19% growth that propelled them into second place, and to within less than 40 points of "BBWC", who remain in top spot with 1,776 pts. The top two now appear to be in their own mini battle for supremacy at the top, particularly as many of the other teams struggled in a tough quarter for growth, but with only 70 points separating 6 teams from positions 4 to 9, further changes are expected in the next round as the teams move into the critical second half of the early years as they try to build as strong a business as possible before the rigours of the later years that lie ahead.
Running a successful construction business requires effective internal decisions to be made, such as bidding
competitively to win new work, and progressing jobs as profitably as possible.
However, external economic, political and environmental WORLD EVENTS can also impact
upon the business.
Clues to some of the events, but not necessarly all of them, are reported in the
ENGINUITY NEWS NETWORK (ENN) each period, and close examination of this valuable
new source may influence the current and future strategy of the business.
|PERIOD 9: "'BBWC' firmly back in control"|
Period 9 proved to be a tough quarter for growth, and as "RS3 Engineering" posted a 3% decline it left the door open for the name in consistency that is "BBWC" to open up a considerable gap over over 200 points to their nearest rivals after 6% growth, the best in the quarter, that saw them attain 1,890 pts, an incredibly impressive score at this stage of the Competition, although not unsurmountable with the unpredictability of the Later Years that lie ahead. Further down the table there is still very little between many of the teams as they jostle for position. "Au Construction" remain comfortable in 3rd, and behind them "Wicklow Construction Plc" climbed 2 places to 4th, but are only 3 points clear of the energised "Marlay Power Corporation", who remain 5th. At the wrong end of the table there was finally some optimism for the shareholders of "ET6 Construction", who reversed two periods of decline with 4% growth that moved them closer to the teams above them, and with renewed hope for the New Year.
As well as the increasing availability of direct labour, a key factor in managing jobs as productively as possible is the choice of project manager. Employing the most suitable project manager can significantly increase the profitability of a job, by improving the productivity of the workforce, and mitigating against the affect of risk. The main factor that influences the suitability of project manager is the past experience in the job sector, which can be gleaned from their unique profle. However, there are additional factors that can improve performance, such as time spent with the Company and bonus payments, and other factors that can deteriorate performance, such as job location and taking over from another project manager. new project managers are employed directly from the Project Manager Recruitment Agency (PMRA), which is dynamic, and project managers can come and go from the agency. This makes it essential that the PMRA is reviewed each period to ensure that the best possible project managers are being used by the company.
|PERIOD 10: "Not so unlucky 13 for 'ET6 Construction'"|
After being rock bottom since period 5, and after surviving rumours of an imminent shareholder revolt, what a turnaround in fortunes for the management team of "ET6 Construction" as the company posted an astonishing set of results in period 10, 13% growth that lifted them 4 places up the table, unfortunately at the expense of "LDMC Engineering" who moved in the opposite direction, although they will surely take heart from the performance of their rivals. And at the top of the table modest 1% growth kept "BBWC" clear of their rivals with 1,901 pts, but their lead was slashed by over 50% after immpressive growth figures of 8 and 12% kept "RS3 Engineering" and "Au Construction" in second and third respectively, and "GlobalWide Mercury" turned up the heat with a 12% improvement that propelled them from 7th to 4th.
A recent report in a leading international construction journal posed the question "What makes a successful construction business ?". The author's answer, backed up by some leading industry experts, was that the essential ingredients are an effective marketing strategy, competitive tendering and successful completion of contracts, but there are many other factors that can make the crucial difference between being a 'successful', and an 'outstandingly successful' business. These included targeted investments, employing the most suitable staff and effective overhead management. Also, increasingly important is the role that an effective risk management policy can play. Take the onshore wind farm development in Horth Walsham, UK, for the client, Breeze Energy. Subsurface geotechnical problems had been identified as a low possibility, but during period 10 this caused problems for the contractor, at a reported cost of around 126k. However, it could have been far worse if the chosen contractor had not employed one of the most highly respected project managers in the Energy field, along with an investment stake in a risk management company, all of which helped to mitigate the affect of the geotechnical problems, and reduce the final bill.
|PERIOD 11: "The Swings and Roundabouts of Construction Management"|
Period 11, the penultimate round of the Early Years, demonstrated the ups and downs of running a global construction business. After their seeming revival in the previous quarter, "ET6 Construction" suffered a major setback, with an 8% decline that saw them fall 3 back places, and their woes were matched by "GlobalWide Mercury", who slumped from 4th to 9th, largely as a result of miscalculating the potential work they could secure with their current capital structure. However, in contrast the previous leaders from way back in period 6, "LDMC Engineering", who had struggled over recent periods, posted the best results in period 11, 10% growth that propelled them 4 places up the table to 6th, and there is very little to choose between many of the teams at this stage. But at the top of the table the seemingly unstoppable force that is "BBWC" kept up their consistent growth figures once more to open up a massive gap to their nearest rivals as both "RS3 Engineering" and "Au Construction" fell back. Their current score of 2,052 pts also sees "BBWC" become the first team to surpass the 2,000 barrier, and impressive performance at this stage of the competition. It will be a key round ahead as the teams burn the midnight oil in trying to find the decisions that will provide a strong finish to the Early Years, and hopefully leave them well placed to face the rigours and unpredictability of the Later Years that lie ahead, when even the position of the leaders cannot be guaranteed.
|PERIOD 12: "'LDMC' continue to go from strength to strength"|
It is not unusual for a team to have an outstanding set of quarterly results, but vary rare to do this 2 quarter in succession, but "LDMC Engineering" are going from strength to strength as they defied the odds once more wih 10% growth to climb two more places, and up to 4th, with the best performance again in period 12, the final round of the Early Years. There were further encouraging growth figures across the board, apart from for the "Dublin Construction Group", who plummeted 4 places after failing to secure some key contracts, but it was a different story for "GlobalWide Mercury", who reversed a previous decline with 7% growth to give renewed hopes to their shareholders of better times ahead. At the very top of the table there was no change in the top 3, but "RS3 Engineering" did manage to close the gap slightly on the current runaway leaders "BBWC", who have now achieved 2,116 pts.
However a word of caution for the leaders. Past experience has shown that leading the competition going into the later years is no guarantee of success, as the changing dynamics and increased competition of the later years tests the resolve of even the most experienced of management teams, with an effective strategy and collaborative team working assuming added significance. Watch this space as events of the later years unfold!
|PERIOD 13: "'Au' turn on the heat as the leaders finally buckle"|
The teams are now in the second stage of the competition, known as the later years, when they go 'head to head' in direct competition against each other. With the increased level of competition for new work in the later years, each company needs a successful procurement strategy, and the effectiveness of the decisions and strategies taken in the early years are put to the test. In particular, the marketing decisions assume added significance, and a company can obtain a competitive advantage by finding niche markets, and building strong client relationships to gain repeat business when price is not the only deciding factor in tender awards.
The increased competition for work had an immediate affect in period 13, and in dramatic fashion, as the runaway leaders until now, "BBWC", lost out on some key bids to post a slight decline in growth, 1%, although they still lead with 2,103 pts. However, "Au Construction" took full advantage of the leader's blip with an impressive improvement of 10%, the best published, to leapfrog "RS3 Engineering" into second place and close the gap on "BBWC". During period 13, and despite the intense competition for work, encouragingly every team was able to secure some new work. "Au Construction" in particular showed the value of being in a niche market after their marketing strategy in the early years enabled them to win a 17m building and commercial contract in India with Kumal Developments after being one of only 2 bidders, the other being Eifel Construction.
|PERIOD 14: "'GlobalWide Mercury' catch the eye"|
Period 14 once more saw every team able to secure some new work, despite the intense competition, and the leaders "BBWC" will be particularly grateful to their procurement team for an aggressive bid that enabled them to secure the massive 24m sewage treatment plant redevelopment contract for ANZ Water just outside Perth in Australia, after having lost out on their other bids in the quarter. It enabled them to keep well clear of the chasing pack on 2,189 pts, with no change in the top four positions. Further back it was a good period for both the "Dublin Construction Group", who posted the best results with 9% growth, and not far behind were "GlobalWide Mercury", whose 8% improvement saw them climb two places. However, things were not so rosey at the "Marley Power Corporation" HQ afer a 7% decline sparked an emergency shareholder meeting that could spell trouble for the long time management team whose days may be numbered. Watch this space!
|PERIOD 15: "'ET6 Construction' rip up the form book"|
With just one round to go, unless there is a dramatic turn of events it is looking like the name in consistency, "BBWC" are homing in on the title as another solid quarter saw them reach 2,289 pts at the end of period 15, and well clear of the chasing pack. However, the battle behind them for second place could still be interesting as "RS3 Engineering" closed the gap on second placed "Au Construction" after outperforming their rivals, albeit with modest 3% growth. Further down the table it was an excellent quarter for "ET6 Construction", whose 11% growth was easily the best published, and reversed two previous periods of decline, suggesting that they are getting to grips with the intensity of the later years. And as the teams head down the home straight, with finishing places up for grabs, the "GlobalWide Mercury" and "Dublin Construction Group" are locked in their own personal duel, separated by just 2 points!
|PERIOD 16: "A dramatic final twist sees "Au Construction" crowned Champions!"|
In one of the most dramatic twists in any Enginuity Competition ran over the last 10 years, 8% growth from "Au Construction", the best of any team in period 16, was enough to see hem leapfrog the seemingly unassailable "BBWC" to be crowned the Mercury Engineering Enginuity 2019 Champions with an impressive 2,187 pts; an incredible achievement, but only by 2 points!
So where did it all go wrong for "BBWC" ? The leaders for so long had a bulging order book, and with their capital base nearly fully utilised they were only able to win 7m of work, and unfortunately they lost their one and only bid to a close rival, "RS3 Engineering" due to a worse client relationship, and it saw their forward workload fall dramatically after progressing a lot of work in period 16, which was enough to see them drop into the Runners Up position. "RS3 Engineering" remained in 3rd, with "LDMC Engineering" finishing 4th, and at the wrong end of the table "ET6 Construction" continued to post more positive growth figures to suggest they would soon be climbing the table if the competition had carried on.
In the final analysis every team finished with stronger, more sustainable companies than when they took over in period 5, a testament to the skill and application shown by the management teams in what was a roller coaster of a journey through 3 simulated years of management.