Tactics for improving market share and profits
Last month’s article, “Shifting Markets,” introduced today’s market reality in the electrical construction industry. The national shift of the electrical market characteristics from industrial to commercial/residential, however, does not always reflect the composition of the local markets. Until now, identifying the true characteristics of local markets has been nearly impossible. Due to the lack of an acceptable uniform measuring method for local market size and share, it was impractical to develop national and local tactics needed to improve the market. The market share research, commissioned and granted in 2005 by Electri International—The Foundation for Electrical Construction, was the first scientific method that enabled the local chapters to understand their market composition and draft a strategic and tactical plan for improving the market share.
The national characteristic of the electrical construction market, by dollars available, is depicted in Figure 1, it shows that nationally, 53 percent of the dollars available for electrical construction are in the commercial (38 percent) and residential (15 percent) categories. This information, although very valuable for a high-level perspective and a general understanding of the direction of the market as a whole, is not enough to help specific individual contractors, National Electrical Contractors Association (NECA) chapters, labor unions or distributors create useful strategies or tactics to operate in their local markets.
For example, Figure 2 shows the composition of the Iowa electrical market in 2005. At that time, 77 percent of the electrical construction dollars available in the entire Iowa state market were in industrial work. The residential and commercial portions of the market, in terms of dollars available, were much smaller locally than nationally as a whole.
If these calculations are taken one step deeper to local county and city levels, the market composition changes again with the differentiation of urban and rural environments. In Washington, D.C., for example, the area inside the city limits shows 91 percent commercial work, driven largely by government work, and virtually no industrial work, Figure 3. A broader picture of the metropolitan area of Washington, D.C., shows a still very significant 71 percent of the dollars come from commercial (55 percent) and residential (16 percent) work, showing that the commercial/residential market there is much more significant than suggested by the national proportions.
Strategies and tactics have to change to address the local conditions. The electrical contractor in Iowa with its industrial base has very different labor-management needs than one in commercial Washington, D.C. Both of these differ from the needs for working in the state of Florida, which like D.C., has a primarily commercial/residential market with a much more significant residential portion (see Figure 4).
To develop any national or local strategy that will allow expansion or recovery of the market by any organization, the entire Economic Market Size and its trends need to be analyzed based on real data. The local and national market sizes need to be correctly and consistently measured using a common definition that can be reliably applied locally and nationally over time.
Using the scientifically developed market-size measurement method has already helped many chapters and contractors to evaluate and improve on their market positioning. The Iowa chapter, for example, has arranged four collaborative sessions between the NECA contractors and International Brotherhood of Electrical Workers (IBEW) locals to investigate their approach to market recovery.
A strategy that will help Iowa to operate will have to be different than a strategy or tactic used by Florida or Indiana. However, even within the same state, different markets exist and the tactics of labor management should be based on the type of work locally available.
In other words, insistence on residential agreements and workers in Iowa may not help market positioning as much as production training for the existing labor pool. In this environment, training in areas, such as material management, labor management, reduction of waste, and labor ratios and crew composites, may be far more useful than a unilateral low-cost labor agreement.
As mentioned in the previous article, the following realities can now be taken into account for local tactical application of any national or state-wide strategies. Every chapter, contractor, IBEW local and distributor can now plan their work at state, county or city level based on the facts that:
1. The local markets are different than the state and national markets.
2. The commercial/residential electrical construction work does not require as many specialized electricians per dollar as does the industrial work. Appropriate use of a less technically skilled labor force allows greater expansion into the commercial/residential market.
3. Portability and crew composite ratios play a much bigger role in the commercial/residential environment than in the industrial environment.
4. Management of the work force in the commercial/residential work environment is much more critical than in industrial. In addition, the commercial/residential work environment requires the training and education of the work force in areas of material handling, people management, time management and other managerial skills.
Visibility of the local markets through accurate and repeatable measurements can help every stakeholder to benefit from correct decision making on the tactical approach to improving maintaining local power in the market. EC
DANESHGARI is president of MCA Inc. He is a consultant for various electrical and general contracting companies. WILSON, a professor at Franklin University, is the director of research for MCA Inc.