President and CEO of Morrison-Maierle (Best Firm #27 Multi-discipline for 2017), a 280-person firm based in Helena, Montana.
By Liisa Andreassen
“It’s vital to our success,” Murphy says, referring to entrepreneurship in the firm. “For some employees, their role is outward focused with efforts to grow the business in existing/new markets. For others, it might mean creating greater efficiencies in how we deliver services, internally and externally. For everyone, it means looking to create more valuable and memorable client experiences every day.”
A CONVERSATION WITH SCOTT MURPHY.
The Zweig Letter: While M&A is always an option, there’s something to be said about organic growth. What are your thoughts on why and how to grow a firm?
Scott Murphy: We embrace both, provided it’s grounded in creating new opportunities for our employee-owners to cultivate their careers and work with clients that value our services on challenging projects that make our communities a better place to live. Much of our 16 percent net revenue growth in 2016 was due to acquisition activities that resulted in three new offices in a territory we formerly served at a distance. Our 22 percent net revenue growth in the last 17 months has been fueled by organic growth, including services expansion in the new geographic regions gained through acquisition. We anticipate using similar combined strategies in the future.
TZL: The list of responsibilities for project managers is seemingly endless. How do you keep your PMs from burning out? And if they crash, how do you get them back out on the road, so to speak?
SM: While burn-out risk has not been pervasive in our firm recently, we see the potential for it in some particularly busy market groups. An effective response must be tailored to the individual circumstances. The acute situations may simply require a strong plan and recognition that the “end is in sight.” The more troubling situations are the chronic ones in a hot market with limited staff, or those that are self-induced. In the former situation, it takes the entire team to pitch in and support their colleague(s). In the latter, it takes a manager working with the chronically overworked individual to recognize there really are ways to delegate or say “No.” Burn-out situations are never easy to address.
TZL: There are A/E leaders who say profit centers create corrosive internal competition for firm resources. What’s your opinion on profit centers?
SM: We have a long history of office-based profit centers. About 10 years ago, we introduced a market-based organization and currently operate and monitor results in a matrix-fashion. By looking at financial information in a variety of ways, and designing incentive programs to reward company performance over individual unit performance, we’ve broken down many barriers. Yet, we still question if this is the best way to achieve the optimal combination of growth and profitability. We’re nearing the end of our current seven-year vision timeframe and a hard look at our profit center structure will be a focus soon. Going forward, many of us believe fewer profit centers will remove additional barriers and better encourage optimized firm operations.
TZL: What’s your policy on sharing the firm’s financials with your staff? Weekly, monthly, quarterly, annually? And how far down into the org chart is financial information shared?
SM: We’re 100 percent employee-owned, so we share financial data with all employee-owners on a monthly basis, and office and market data is shared internally to each group by their leader about as often. Operational sub-groups within markets and offices, depending on circumstances, share financial data and project management data internal to their groups. We also regularly share other operational information such as collection days, sales performance, employee engagement measurements, etc. Following each quarterly meeting of our board of directors, a member of the board meets individually with all offices, in person or virtually, to debrief them on board topics and discussions.
In sharing data and information widely, we attempt to do so from the standpoint of setting clear expectations and promoting continuous improvement. We message the importance of working cooperatively to a client’s benefit, and have incentive/bonus programs that weigh company financial performance much more strongly than any group performance.
TZL: The design-build delivery model appears to be trending upward. What are the keys to a successful design-build project? What are the risks?
SM: Our design-build project portfolio is growing, but is constrained somewhat by public project bidding laws in states where we have our greatest presence. We’ve had the most success in those markets and with clients where regular projects of a particular type (like highway bridges) have allowed us to partner with a single contractor and build a trusted relationship using staff who are motivated and energized by the fast-pace of this type of work.
TZL: The talent war in the A/E industry is here. What steps do you take to create the leadership pipeline needed to retain your top people and not lose them to other firms?
SM: We feel fortunate that very few of our top leaders leave to join other firms. Broad-based ownership, combined with a dispersed and inclusive decision-making culture help tremendously in keeping our home-grown leaders at home. As for leadership and management training, we’ve recently refocused our efforts to ensure that our front-line managers have the training they need to succeed. We encourage all employee-owners to take their own leadership and career development seriously, and we work to offer a variety of ways for them to spread their leadership wings inside the firm, or with community or professional groups.
TZL: While plenty of firms have an ownership transition plan in place, many do not. What’s your advice for firms that have not taken steps to identify and empower the next generation of owners?
SM: We’ve always had a strong ownership transition mindset, beginning with our founders who saw the benefit of encouraging ownership among key employees to drive business results. In 1994, our leadership created an ESOP to allow all employees the opportunity to realize ownership benefits. As of 2017, we’re 100 percent ESOP owned which, combined with S-corporation status, allows us maximum flexibility to reserve cash and reward employee-owners and grow the firm. It was the right decision for us, and one that I believe many firms would benefit from. My advice – if you haven’t got started yet, start the conversation.
TZL: Zweig Group research shows there has been a shift in business development strategies. More and more, technical staff, not marketing staff, are responsible for BD. What’s the BD formula in your firm?
SM: Our business development culture is strongly aligned to the seller-doer model, and always has been. As with any firm using this approach, the challenge is keeping the BD flywheel moving during the busy times, particularly when trying to grow into new markets and geography with new clients. We watch this situation closely and are working to develop better forecasting tools that our leaders can use to ensure the pipeline is full and filling at all times. With a seller-doer model, formal and informal BD training is key. We are working to make improvements in this area.
TZL: Diversifying the portfolio is never a bad thing. What are the most recent steps you’ve taken to broaden your revenue streams?
SM: As a full-service engineering, surveying, planning, and environmental consulting firm, we’ve always embraced and encouraged a diverse portfolio of clients, markets, and services. Recent firm acquisitions in Wyoming communities brought additional geographic diversity, and are allowing us to expand from the three to four service-lines these firms operated in to the broader full-market capabilities of our entire team. We’re winning work in Wyoming that would have been unlikely before, and we’re finding client-welcoming opportunities for our buildings group and other markets.
TZL: What is the role of entrepreneurship in your firm?
SM: It’s vital to our success. For some employees, their role is outward focused with efforts to grow the business in existing/new markets. For others it might mean creating greater efficiencies in how we deliver services, internally and externally. For everyone, it means looking to create more valuable and memorable client experiences every day.
In a classic entrepreneurial sense, our industrial market group is a great example. Created only a few years ago, its genesis was the identification of a niche we could fill for large industrial and mining organizations that require full-service engineering, surveying, and environmental partnerships on projects at existing sites. These projects are typically of substantial size to our firm, but perhaps not so for large consulting firms with a national footprint. The industrial/mining organizations we work with get a level of service from us that they don’t always see from these national firms which have trouble being as nimble and responsive. Our industrial market group is one of our fastest growing and most profitable.
TZL: In the next couple of years, what A/E segments will heat up, and which ones will cool down?
SM: Making bold predictions is a fool’s game in my experience. General economic indicators remain positive and so we’re planning for all of our current market segments to remain strong for the next six to 12 months. I’m more concerned about how to plan and react to unfolding events. We’re thinking more about scenario planning and less about predictions. The next recession likely won’t be triggered in the same way as the last one, but we’re better prepared to react now.
TZL: Measuring the effectiveness of marketing is difficult to do using hard metrics for ROI. How do you evaluate the success/failure of your firm’s marketing efforts when results could take months, or even years, to materialize? Do you track any metrics to guide your marketing plan?
SM: We’ve typically tracked our success rates on some of our business development efforts, but that is a far cry from tracking marketing success. More recently, we’ve been working on development of a balanced scorecard. Within the customer perspective of this effort, we’ve been working to identify, and begin tracking, some metrics that we anticipate will help us measure the effectiveness of our marketing and external communications efforts. Check back with me in a year or two; I may have a different perspective on this question.
TZL: They say failure is a great teacher. What’s the biggest lesson you’ve had to learn the hard way?
SM: We were slow to react during the Great Recession, particularly as it played out in different ways and at different speeds in our upper Rockies and southwest locations. A strong balance sheet and cash position as we headed into the recession were significant buffers to a need to react quickly to a declining backlog and revenue. As an organization that prided itself on not being a “hire and fire firm,” we took too long to act in retrenching and retooling our staffing mix, market capabilities, and geographic locations. Going forward, we’re purposefully more diverse in our service offerings in each geographic location and have better tools in place for managing our business.
TZL: Do you use historical performance data or metrics to establish project billable hours and how does the type of contract play into determining the project budget?
SM: For most projects, historical performance data serves either as the starting point, or as an important “check and adjust” step for establishing project budgets. In either case, a tight scope of work tailored to the needs of each client is essential for budget success. We encourage project managers to use our ERP system to divide work scope into manageable tasks, with assigned budgets, so that actual performance can be tracked on current efforts, and used to help establish budgets for subsequent projects. Tightly scoped lump sum project contracts are our preference, but many of our public clients are precluded from using this approach due to funding constraints or administrative rules. In the end, any type of contract can be successful if paired with a proper scope, a budget that effectively addresses risks and a project manager adept at dealing with inevitable change.