Volatility increases during times of economic decline. Not every business providing contracting services will survive it, and some will fail catastrophically. But some, paradoxically, will thrive. What makes some contractors resilient and others fail?
Faced with deep cuts in revenue, resource companies seek to cut their operating costs. For organizations that depend on that business, this means both reduced volumes and pressure to cut rates.
A volatile environment will challenge even the most resilient firm. And few industries have experienced the same pressures that the resources industry has been facing recently. Commodity prices have fallen dramatically in the last two years and are not expected to recover in the short term.
Resilience is the “X-factor” that makes survivors different. But the rules for resilience are not that complex. Applying the rules makes it more likely a contractor will both survive and thrive.
- Maintain core expertise in-house, but adopt a range of measures to manage short-term demand volatility.
- Grow cautiously, and within their capacity to manage the most extreme failure scenarios on that growth path.
- Eschew rapid growth in favor of trusted relationships with their clients.
- Adopt appropriate bidding strategies for their bidding environment.
- Concentrate on developing strategic and unique expertise in niche markets.
- Carve out islands of stability through long-term relationships with preferred clients.
- Operate on the lowest possible overheads and with a flexible organization structure that can grow and shrink with demand.
- Look after their people and maintain a network of past and potential employees and affiliates.
- Actively monitor the environment for opportunities and risks.
- Remain well within their potential capacity to service debt.
- Maintain excess cash reserves.
- Protect themselves contractually from unreasonable risks and abrupt shifts in demand by their clients.
Read the full article in the Sep/Oct issue of IACCM’s Contracting Excellence newsletter.