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Low fees are stifling innovation say business leaders in the Pulse survey

New research from Infrastructure Intelligence in association with global software provider Deltek reveals that 64% of senior industry professionals believe that innovation is being stifled by low fees.

Findings from the latest Infrastructure Intelligence Pulse survey show that innovation is suffering due to low fees, which have not recovered to pre-recession levels. Only 24% of the 164 business leaders that participated in the survey have experienced fee recovery to pre 2008 levels and 48% said they remained below pre-recession levels.

“Innovation requires time and time is money. Low fees equal the poor quality of service too often provided and has resulted in overseas constructors being more innovative than UK operations."

Business director

Over 50% of respondents said that consultants needed to charge more. “We need to increase profit margins to properly invest in growing our businesses and paying higher salaries to attract and retain talent,” said the CEO of a consultancy. “We are an undervalued profession and there is now a talent shortage so we need to charge more to pay more and retain skills within the sector,” said another consulting CEO.

Respondents noted that fees had risen in the private sector but said that for public sector clients there was renewed pressure. “We have had to reduce fees by 9% this year due to pressure from a public sector client,” said the CEO. Others pointed to competition from growing firms. “Large acquisitive consultancies are seeking turnover keeping fees low,” said one director. “The problem is suicide bidding to buy a position, especially from the very largest multi-disciplinaries; it has a very bad effect on more specialist tier 2 companies,” said another consultancy director.

Firms said that low fees meant no time to innovate with thinking time being a luxury that clients don’t want to pay for, pointing out that for every new idea that brings innovation there are several more that do not. This makes it easy for innovation to be seen as not productive they said. “Innovation requires time and time is money. Consultancy is a service industry all we are doing is selling our time.

Details of the Pulse survey are in the latest Infrastructure Intelligence magazine. Download all the monthly content to read on your desktop or tablet here or for iPhone click here for PDF

Low fees equal the poor quality of service too often provided and has resulted in overseas constructors being more innovative than UK operations,” said a business director.

To encourage innovation some respondents called on firms to change their business models and drop the fee based structure in favour of more value based calculations. “Selling hours is unlikely to result in the ability to charge more. It is vital that consultants sell value and communicate that value,” said a consulting director.

“Fees remain suppressed,” said another. “But the greater concern is the increasing transaction costs of winning work and dealing with procurement, project administration and getting paid,” he said explaining that this increases business risk and means firms have to be more selective with their clients. Over 60% of respondents agreed that the cost of winning work had increased but only 39% said that their competitors were becoming more aggressive.

This is leading to firms being more selective over their client base and “not joining the race to the bottom” by working harder on their relationships with the most valuable clients. Some firms are also developing more profitable service offerings and seeking to differentiate themselves from their competitors. A drive to initiate and create opportunities with key clients was also described. The increased procurement cost is also seeing firms seek out more opportunities for negotiated contracts with clients.

“We await the digitisation of the majority of our processes - the computing power of the cloud will change the industry in the coming years, we are just slow adopters.”  

Contracting Director

For 40% of firms productivity is also an issue and they are not alone. The UK government has identified low productivity as being a barrier to growth. “Low growth in productivity is a recent feature of the UK economy but a long-standing feature of the UK construction industry,” said the director of an infrastructure company. “Productivity has not improved for more than twenty years.  The impact of this is costs that are 10-40% more than in comparable European economies and investments that are shelved because they are too expensive,” he said.

“Increasing productivity is top of our agenda,” said the director of a consultancy. Others agreed that more needs to be done. “We are unable to drive our overhead down - but we are still operating processes which date back to the way we did things years and years ago,” said the director of a contractor. “We await the digitisation of the majority of our processes - the computing power of the cloud will change the industry in the coming years, we are just slow adopters.”  

“Increasing productivity is top of our agenda.” Consultancy Director

Last month Infrastructure Intelligence published early findings from the survey which revealed that business leaders were largely positive about the industry following the election with 59% of respondents confident about the sector and a further 10% very confident. Only 7% said they were worried.

  • The full survey analysis is in the September issue of Infrastructure Intelligence

  • If you are a senior professional in the industry that would like to participate in the Pulse survey please email Antony Oliver: antonyoliver@acenet.com

 

If you would like to contact Bernadette Ballantyne about this, or any other story, please email bernadette.ballantyne@infrastructure-intelligence.com:2016-1.