The anguishes of managing in times of crisis

Filipe Azevedo leads the destiny of Lucios, a building company listed at IAPMEI's PME Excellency. In defiance of the trend in the sector, it resisted the lure of foreign markets and gave up growing beyond the 50 million euros to stay nimble and efficient. In 2011, it lies on the edge (52 million), growing 10% in a year when the industry fell at least 8%. It employs 300 people.

How does a construction company that only operates in the domestic market resist the beating the sector is taking?
The formula is the same as in the last six years. Betting on the rehabilitation segment that weighs 60% in the backlog of 60 million euros and maintaining a very aggressive commercial policy. Right now, our main concern is 2013. The next year is guaranteed, except for the last quarter. The works will be increasingly scarce and we must be prepared for increasingly smaller margins. To gain work, companies lower their prices 15% or 20%. We will respond with an increasing specialization in rehabilitation and aggressive prices, combined with our expertise and solid business image.

This is perhaps the greatest crisis in the industry.
My father often speaks of the crisis of the 1980’s, with interest rates above 20%. But he acknowledges that nothing is comparable with what we are now going through. This situation is unique, more prolonged and severe. The industry is suffering with the fall in demand and difficult access to credit. The sector has always been very dependent on credit and needs to hold on treasury between the works and customer’s payment. The years 2012 and 2013 will be terrible. I think that unemployment might double and many companies won’t avoid bankruptcy.

How is it to manage a company in such a depressive environment?
We have to push everything to the limit. Remove every “fat”, cut unnecessary costs, streamline business communications, the fleet, work on the human resources. We have to ask efforts throughout the organization, optimizing the available resources. But all this may not be enough. There is a time when you can not ask people to sacrifice more. From then on, it must be the company's ability to generate more value to differentiate themselves from competitors and refine their competitiveness.

What were the harshest measures you had to take on?
We reduced overtime by more than 50%, by optimizing the work management. Then, we rationalized transports, fuel and communications. The key is to keep the group together, involving the organization in decisions. We want to get more out of each person, without taking away privileges.

How can you maintain or enhance the motivation of employees?
Not asking for too many sacrifices. People have established lives with certain assumptions and we have to respect that. We don’t accept, for example, cuts in wages. It is most useful to work on productivity, encourage those who are more settled. We must go towards a wages model in which a variable part is linked to the performance. Having a professional management and an organization open and available to hear the employees are other motivating factors. One of the reasons that led us to limit our growth was precisely the logic of the family business where the owner is always within reach and available to employees and end customer.
We had a growth phase, but as we reached the goal of 50 million euros, the priority was to optimize the productivity of the structure. Looking on the golden years of construction, we find that most companies grew too large for our market. And often without a proper structure. Some companies “bloated”, instead of growing. They became accustomed to a pace they couldn’t keep up with. Those companies are facing more difficulties and suffering the most with the crisis.

We don’t have the market for the installed capacity?
No. Some companies of our league grew to 100 million or 150 million euros in only a few years. Grown lobby-based, in an unhealthy way. It’s easy to grow when all goes well. But you don’t get prepared for a long period of crisis, to manage in a drought. Some have engaged in other businesses, other internationalized in a hurry and without being prepared.

Aren’t the big companies more protected?
Not in the domestic market. They actually have a more complicated time and have minimized their technical staff to the least, focusing on the outside. With heavy structures, they can’t be competitive in smaller works. They are all very much linked to banks, but the degree of dependence varies. In some cases they have autonomy, in others, they are hostages of banks.

That’s why Lucios didn’t want to grow.
For two strategic reasons. Keep the feeling of a family business, professional, which forces some restraint on growth. The second has to do with the financial advantages of staying in the universe of Small and Medium Companies, and the ability to control our own dimension.

What is the most ungrateful decision that a crisis like this can force?
Having to fire people or get to the end of the month and not having money to pay salaries. It would be always dramatic. Firing people is not in our DNA and I hope to never be forced to face that possibility. Failing payments breaks trust and leaves marks that may be irreversible.

Who inspires you or who do you go to for advice on difficult decisions?
I turn to a restrict group of directors in the company. The decisions are collegial and always result from a shared vision. There are, however, two people with a special importance: my father and my brother.

If everything that can go wrong goes wrong, there will be an apocalypse in the sector?
Yes, it can always get worse. The exercise we have to do is know what will be the market that will be left. It depends on the country's evolution. But to me it seems impossible to disinvest as much as is sometimes feared. Urban rehabilitation appears to be the ideal solution, supported by all parties. Schools and public buildings will be increasingly rare, the industrial sector will remain still and new residential construction won’t come back to life. The market will be held by fewer companies, the ones that resisted and survived. Companies less prepared and more dependent on banks are doomed. At the end of this adjustment, competition will have become healthier. In our case, we can look to expand into other markets to adjust production to the installed capacity.

Source: Exame