The benefits of diversification and how to approach it
Business diversification can be a silver lining in times of uncertainty. Although a simple concept, it is often forgotten or ignored when times are good, yet vital in slower work climates to ensure viability and employee retention.
Consulting engineering company Silvester Clark made a conscious effort 15 years ago to diversify its client base and services after feeling vulnerable with much of its work tied up with one client.
We talked to Managing Director Scott Miller about how the company approached diversification and asked for some tips for companies who may be about to start their diversification journey.
Why did you diversify?
"Around 15 years ago, we had 70-80% of our work with one client and we felt a bit vulnerable. So, we decided to make a conscious effort to diversify.
"Much of this has happened organically but we spoke to different architects and clients and made a real effort to take on projects that would help us to diversify. We were working quite heavily in the primary sector, and we’ve consciously got involved in other areas, such as central and local government work.
"We were also quite exposed to developers at one stage and decided this wasn’t a good position to be in either."
How did you go about diversifying?
"At that stage we had only two offices – Palmerston North and Wellington. We are now in Auckland, Christchurch, and Hawke’s Bay as well, so we have greater geographical spread. The Auckland office was the result of a client telling us that we needed to be in Auckland if we wanted their work there.
"Although much of what has happened to us has been organic, we have had this mindset of trying to get that diversification. Our biggest client now is about 6.5% of our work (instead of 70 – 80%) so it is quite a turnaround. And our top 20 clients still don’t make up 50% of our turnover.
"The specialties of our people have changed too. We have had people getting into different sectors like seismic restraints, residential work, and others focusing on the more technically complex projects. This has also been great for the staff to increase their knowledge and capabilities. We care about our people and have a focus on wanting them to be better all-round engineers after their journey with us."
So, you now work across the board and in different sectors?
"We still do a lot in the primary sector and in industrial food and process (meat and dairy).
"We are still working in most of the areas we have worked in historically, but, with the growth of our other offices, we are getting into many more diverse areas / sections as well. This is often on the coat tails of architects or other consultants that are doing that work. In our business it is all about relationships."
Are there benefits to having diversification in the current climate?
"Definitely. That is one reason we are surviving okay now.
"We have work in a number of sectors where it is still flowing. With the commercial and government projects having slowed down quite a lot, we are able to utilise the work in the busy sectors and spread it around our offices.
"We have also focused on our systems of sharing work between offices, and having the tools in place to do this, which has really helped with being able to move the projects around the country. This has also been a process and not something that has happened overnight."
What can firms do who are yet to diversify and may be struggling?
"I have always had the philosophy that you never know where the next big job is coming from or who it will come from. So doing those smaller jobs, such as someone’s house beam, or working for a smaller architect – maybe the architect wins an award and becomes in demand.
"We have always tried to look after everyone in our market and maybe that’s come from our smaller offices in the more provincial areas, such as Palmerston North or Hawke’s Bay, where we feel we have an obligation to do everything for everyone. They do not have anyone else to do these jobs, so we need to help them out.
"Looking after everyone is hard at times because you have these big jobs and you cannot resource everything at the same time, but it is trying to look after everyone."
Has your community involvement helped?
"Yes. Our sponsorship with the likes of Cricket Wellington has been beneficial to both parties. We do a lot of work at the Basin, and we get good exposure when we take clients along to events there."
Overall thoughts on diversification?
"We’ve been conscious of diversification, but there hasn’t been one silver bullet that has helped us. We’ve been monitoring it over the years – where we are with each of our clients and seeing how reliant we are on each of them.
"It’s talking to people, being open to new opportunities big or small, having geographical coverage and a range of expertise. We’ve just had a business planning day and we are looking to seek client feedback more regularly as it's something that we could do better and learn a lot from.
"It has been very beneficial for us to be in this position. We've never had to make anyone redundant, and I think we’ll get through this current period without having to either. We’re pleased about this fact, as we have great people in our team."