Spend it, Spend it – just a little bit

It is interesting that sometimes several seemingly unconnected bits of information provoke a new line of thought [or reopen an old one].

Last week, Management Today reported on-line that UK corporates were sitting on over £70 billion of cash reserves and quoted an influential forecaster as saying they needed to start investing.

This week we got the GDP figures for the first quarter and they’ve generally been welcomed as they suggest we’ve avoided a double dip recession [so far]. However, it was noticeable that the figures for the Construction Sector fell by 4.7% in the last quarter.

We also had an announcement that a severe shortage of component manufacturers was threatening the future of car production in UK. This suggests a need for developing some high quality modern manufacturing capability.

As long ago as February 2001, I together with my colleague Keith Plumb commented [in a paper presented to the Institution of Chemical Engineers] on the advantages of investing in capital projects during downturns. The key element of our argument was that you get better value for money and get your new capacity earning profits while your competition is still thinking about it.

Empire State Building 2007

(c) J A Yates 2007

We illustrated this point by reference to the best known structure of the Great Depression – The Empire State Building. The drawings for this were produced in 2 weeks [OK they were what I call “Blue Peter Engineering” – modified from “Here’s one I prepared earlier”. Hopefully, you get the point: people were keen to deliver] The building [all 105 floors of it] was built in just 410 days [it can take longer than that to get planning permission these days!] and the building cost came in at just under 50% of budget! Wouldn’t you love to get that?

Our estimates at the time was that those spending in the least busy parts of the cycle could expect average tender costs to be about 21% lower than those at the peak. Given the low interest rates and higher inflation rates, the cash in the bank is gradually becoming worth less, so surely it makes sense to invest in capital projects!

A future post will discuss the results of a survey I’ve done on LinkedIn which questioned the main reasons that good ideas don’t get implemented and it was notable that funding came well behind Organisational Culture, Business Systems, Policies and Processes and Risk Aversion / Self Confidence. This suggests that the barriers to investment are predominantly internal.

Now would also be a good time to invest in training and developing staff so that they have the skills needed for up turn when it comes.

So what’s the point of sitting on the cash – it won’t hatch!

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