“Tom Watson” was the CEO at “EngineersAtWork” a global engineering firm that was facing headwinds in a market downturn. Tom called me for help about how he might need to adjust to meet the demands of the economic decline and a few days later we met in his office where he described how the recent slowdown was impacting his revenue and margins:
“With the downturn, clients are demanding more for less. More agile players have entered the marketplace and our services are becoming commoditised. Clients have also moved away from ‘soft’ or cost-reimbursable contracts where we were paid an agreed margin on top of the project costs.”
These changes meant that margins were being squeezed and Tom needed to better manage costs if EngineersAtWork was to continue to survive the downturn. The CEO had grown impatient with his project managers.“They seem to be lulled into a false sense of security that they can keep doing things the way they’ve always been done. They are not managing the project costs and forty percent of our projects are running in the red.”
“What do you think needs to change”? I asked. Tom didn’t hesitate, “We’re trying to become leaner and more cost-effective, but we just seem to be losing money on our major contracts. I want to send all my project managers on a finance training course immediately!”
I persuaded the CEO to hold off on the training until we carried out a culture diagnostic. Visits to the project sites revealed the big issue at the company. Project managers at EngineersAtWork were in the role of ‘relationship managers’ who saw their job as keeping the client happy, at all costs. This meant that they were operating as if they were still in a “soft contract” world, including undertaking a lot of favours for clients without charging.
“You want us to move that wall (again) 3 metres to the left?” “Sure!”
“You’ve changed your mind about the location of the water pipes?” “No problem!”
“You want us to redesign the bridge, at no extra cost?” “Of course!”
All this pro-bono work was costing the company dearly and I caught up with Tom to explain this discovery from my site visits. While the market had shifted to tightly controlled contracts under which managers could not offer unlimited free help to clients, the project managers at EngineersAtWorkwere stuck in the old pattern. The company was facing significant losses on key contracts because the managers were doing additional work without charging.
“You have a culture problem, not a capability problem”, I explained.
“What do you mean?” Tom frowned.
I drew the big pattern that was running EngineersAtWork on Tom’s whiteboard (below) and added, “Your project managers are behaving as if they are still operating in boom times and in a ‘soft contract’ world. Instead of charging for all the work they do, they see their role as ‘relationship managers’ who must make the customer happy, at any costs”. Of course, the project managers who had worked in the firm for years had co-created the pattern and had fought to keep it in place. Changing it would cause too much angst.
Tom paused for a moment before he asked, “So sending the project managers on a finance training course won’t fix this problem?”
I responded, “No, you will need to reframe their role from ‘relationship managers’ to ‘commercial managers’. Changing the mental map that the project managers hold about their role will be critical to success in bringing about a financial turnaround.”I drew the new pattern that Tom would need to create at EngineersAtWork (below) where project managers would step into their role to manage the commercial aspects of the projects and ensure that clients were happy.
Once Tom grasped this idea, he set the change wheels in motion and gathered his project managers together to explain his expectations of them as ‘commercial managers’ and how things would operate in the future. That conversation was the start of a turnaround at “EngineersAtWork”, as Tom embarked on a shift to more commercial culture.
Project managers began to manage their budgets more tightly, introduce more efficient ways of working, and leverage technology in the design process. The feedback from clients was positive as they started to see the “value-add” from new technologies and digital platforms. The end result? The firm managed to survive the economic downturn, avoid major staff layoffs and set itself up for growth once the markets rebounded.
“I want you to take one big lesson from Tom’s story. During a downturn, it is important to examine whether the culture that got you to this point, is the culture that your business will require to survive and thrive in changing market conditions. Like Tom, an economic slowdown may require you to adjust your culture to meet these shifting demands.”
In fast-changing marketplaces, this culture change can present exciting opportunities for those who have the know-how to transform workplace culture into a source of competitive advantage. Cultural change can be extraordinarily rewarding, but it can also be challenging. Remember, the journey may require you to give up the ways that once made your organization successful.
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