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An investigation was taken to work out Willmott Dixon business environment and its influences by using a PEST analysis. (Appendix 1)
The PEST analysis indicated the benefits the company could have or constraints in the business environment. The finding indicate that there is opportunity for work for the company.
Key Factors of the Company Business & Current Strategy
In this section of the report the sectors will be analysed and the current strategy Willmott Dixon Group.
Current Strategy
The Willmott Dixon Group have been dependent on a vast majority of public work which has seen the company grow over the past few years in the challenging times the industry is going through.
The strategy the group have adapted for the past few years was to focus more on public sector work as it was more of guarantee rather than private sector. This has worked for the group as they have grown dramatically in size and turnover has increased over the years which will help the group achieve a turnover of £ 1 billion by the end of 2010.
Fig 3 – illustrates the turnover by individual companies of Willmott Dixon Group for 2008. Willmott Dixon Construction with the highest turnover of £507.9 million.
Analysis of the current Sectors
Willmott Dixon in public sector terms, the education, health and prison sector markets have held up very well to date for the company, helping to establish a good order book for the business through to the end of 2010. However longer term prospects are more doubtful, with significant government spending cuts which must inevitably impact upon capital works being widely predicted.
Despite significant pent up demand for social housing, new development programmes have been scarce over the past year, with bank debt very difficult to secure and cross subsidy from housing for sale having completely evaporated. Nevertheless, Willmott Dixon expect social housing to remain one of the more robust markets in the medium and longer term, the group have continued to commit significant resource into designing and pricing schemes ready for when conditions improve. These investments now are beginning to bear fruit, with several major schemes expected to be secured before the end of the year.
Willmott Dixon interiors business has reinvented itself over the past eighteen months, broadening its activity well beyond the commercial office fit-out market that once formed the core of its operations. Now, most of its work comes through major food retailers and budget hotel operators, whose business models and capital programmes seem to be particularly robust during these difficult times.
Housing for sale remains a difficult sector, but one to which the group has reducing short term exposure. Sales on the Harmony development in West London which is the only scheme under construction Willmott Dixon has is reasonably well ahead of target.
Moreover, the social housing maintenance business operates in one of the most robust sectors, and with contracts usually placed over several years, offers excellent workload visibility. Its market has become more competitive, but with improved commercial controls and significant recent investment in process reengineering, the efficiency improvements have at least kept pace. Willmott Dixon therefore sees the capacity for growth in this sector over the medium to longer term.
Furthermore, Willmott Dixon have had a very good first half of 2009 as they have been highly reliant upon high levels of public investments in recent years, particular in education, health and prison sectors. Over the enst few years the Willmott Dixon Group would need to quickly adapt to deal with the inevitable change over the next few years.
Balance Sheet
The group has increased heir shares to bring them trading advantages in these declining market conditions. The Willmott Dixon group have substantially increased equity shareholders funds to £130 million (2008: £31 million), predominantly through the issue of additional share capital. This is very important as this will help the capital structure to support the turnover growth to beyond £1 billion. (Refer appendix 7)
Business Plan & Strategy for increasing the Business & the Financial Implications
Willmott Dixon requires a business strategy in order to develop over the next 5 years. An Ansoff Matrix was used to aid in directing the company in looking at the number of options available. The best option for the Willmott Dixon is the market penetration strategy (appendix 6). The reason for choosing this option is that they have a current product which is in the market, which needs increasing.
After analysing different sectors and using appropriate analysis techniques it is clear that different business strategies are needed for Willmott Dixon for future years. The following strategies have been suggested:
Strategy 1
A lucrative opportunity for Willmott Dixon could be to invest money into the social housing sector. As the market is robust at the moment there is an increased likelihood for growth in this sector. Due to the population increasing in the country rapidly and not enough houses available there is a great demand for increase in social housing.
“A new report by the Local Government Association published warns that the impact of a slowdown in the economy combined with the credit crunch could lead to two million households, or 5 million people, on the waiting list for social housing in less than two years”. (Local Government Association, 2010)
This supportive evidence further highlights that the social housing sector will experience growth in the coming years. By analysing the SWOT analysis (Refer to Appendix 2) it is evident that the government have plans on increasing social housing.
Financial Implications for Strategy 1
The financial implications of strategy 1 are not significant as Willmott Dixon already operate in the social housing sector. For this reason initial capital cost is minimal. The company also has a client base in the social housing sector so the transition to increase the workforce during development will be easier.
The company may want to employ another business development manager who can manage a framework of structuring the sector to win work in the social housing market. The reason for this is that the company would need to be prepared when the market growth increases and be able to offer something additional over the competition. The company would also be required to become familiar with local councils and private investors to increase working relationships.
Strategy 2
Willmott Dixon Group needs to focus on the private sector in the coming years. The public sector work will decrease due to public spending cuts made by the government. The company strongly need to focus on the Private Financial Imitative (PFI) work. Willmott Dixon need to penetrate this sector as the scope and level of work is at a greater level. Some contractors are moving away from this sector due to the risk implications and cost. As Willmott Dixon have progressed well in the last few years in the public sector work and have made them large sums of profit.
According to the “PFI market – UK 2010-2014 report from AMA Research, high costs and the associated risks are also leading to “an increasing number of contractors to limit their exposure to PFI.”
However, the report states that long-term FM contracts associated with the majority of schemes “will continue to support a significant and growing level of repayments to participating contractors over much of the next decade.” (AMA research 2010-2014)
Financial Implications Strategy 2
The financial implications of strategy 2 are principally financial; high initial capital is needed to invest in this sector and due to the demand return is also likely to be proportionately high. The way this can be done is by Willmott Dixon investing their profit into this sector to increase the business and turnover. The company has got money in the bank which can be used to fund PFI work which would bring good return for up to 25 years and will also gain in an asset as they will own the building they invest in after time.
Another financial implication would be a business development manager would need to be employed to gear the company in the right direction and provide exposure.
Strategy 3
Willmott Dixon will also need to invest in their regeneration side of the business. They need to look at long term regeneration contracts which will create more work. The long term contracts will guarantee the company work and help see it through the recession.
Financial Implications of strategy 3
The start up costs for regeneration are low as there are not a large number of resources required. Willmott Dixon would need to employ a business development manager in this side of the business as they would focus on achieving long term regeneration projects in both private and public sector. Once growth in the regeneration sector increases, the company can start to increase the number of resources allocated in this sector. This will redistribute risk and thus decrease the level of risk involved.
Conclusion
By adopting the recommendations mentioned, Willmott Dixon will decrease the level of risk associated with a particular operation as risk is more equally spread. There is also strong evidence to suggest the sectors mentioned will experience significant growth in the market over time. Investment in these sectors will inevitably result in increase growth for Willmott Dixon. Proposed Government cutbacks in public sector will also decrease work in this area and so if Willmott Dixon are to take a proactive approach, an added focus should be placed on the private sector.
References
Willmott Dixon Group, (2010), Available on [www.willmottdixon.co.uk]
Construction Products Association, (2010). Construction Industry Forecasts, Winter 2009/2010 Edition
Construction Skills Network, (2010), Construction Industry Forecast Slow
Contract Journal (2010), PFI
Fame Databasse
Bibliography
Sunday Times
The Financial Times
Appendix 0.1
Ratios – Willmott Dixon
Corporate Liquidity and Profitability measuring ratios were calculated and compared to a BAM Nuttall competitor of the Willmott Dixon Group.
The figures below represent the Cashflow statement, finanical & profitability
ratios from 1999 to 2008 for the Willmott Dixon Group.
Appendix 1
PEST Analysis – Willmott Dixon Group
To review the different elements of Willmott Dixon Group the business environment was analysed and the following was investigated the Political, Economic, Social-Cultural and Technological developments and assess the implications of such issues. The reason for taking the PEST analysis is to investigate the external business environment and also to prepare the business for any threats that may affect the business.
Appendix 2
SWOT Analysis – Willmott Dixon Group
A SWOT analysis is used to provide information that is helpful in matching the firms resources and capabilities to the competitive environment in which it operates in. Also the reason for taking this SWOT analysis is to get a bigger picture of what is happening in the industry and what opportunities Willmott Dixon can gain in the future.
Appendix 3
4 P’s Marketing Mix – Willmott Dixon Group
Appendix 4
4 A’s – Willmott Dixon Group
The reaction of the 4 P’s will be assed by 4 A’s.
Appendix 5
Porters 5 Forces of Competitiveness – Willmott Dixon Group
Five Forces Analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products.
Appendix 6
Ansoff Matrix – Willmott Dixon Group
The Ansof matrix was used to help decide Willmott Dixons product and market strategy. From looking at the options the company has for its future is best for the company to adapt the Market penetration strategy. The reason for this that the company know there market and products well so why not become the best at what they do.
