Interiors and more - Feedback: hit squads move in for the finish

The Interior Services Group needs to get into facilities management (FM) says David King, chief executive. "We will probably have to pay to buy somebody, probably a small-to-medium player," he says.

King has already been in numerous talks but hasn't clinched a deal, the trouble being that with everyone thinking FM to be "a hot sector", no-one is keen to sell. "In the medium-term, I'd like to see a third of ISG's profits coming from FM," King reveals.

It was the need to expand ISG that led to its floatation on the Alternative Investment Market recently. Shares opened on 30 June at 135p and have held steady ever since. The next step will be a quotation on the Stock Exchange sometime after March 2000.

profitable

ISG is proving profitable. Overbury and Morgan Lovell, the two fit-out businesses in the rival Morgan Sindall group are notching up margins of 4 per cent, said Morgan Sindall's md John Morgan recently. King smiles at the figure, reporting that Interior's fit-out margins are "the same or more".

In the 12 months to June 1998, the City expects ISG to hit its target of £200 million-worth of work, with a profit forecast of £2.9 million. The group's construction management business makes lower margins than Interior's fit-out work as it carries a lower risk.

ISG categorises the risk status of its contracts into one of four categories and the group's overall risk profile is reviewed monthly as part of its management reporting process. ISG has an internal guideline which says that projects which fall into the two higher risk categories should account for no more than 40 per cent of total current workload.

"The current figure is 22 per cent," says King. "It's just the way things have happened. We are not risk averse - in fact, we like risk when we know how to manage it."

Currently, margins are improving, notes King. He puts this down to the fact that there is less pressure on them.

Between July 1995 and March 1998, ISG was awarded one in two of the projects it targeted, a remarkable strike rate. "We have a thorough marketing operation," explains King. "We're not just a contractor but occupancy specialists.

"The one-in-two strike rate figure reflects our approach to marketing and to the way we do business, which is that you must leave the customer with the aftertaste of wanting to come back for more. Repeat business accounts for 70 per cent of our turnover."

workload

The latest addition to the ISG group was Exterior Construction Management. Formed in January this year, it now has orders worth £70 million, with £50 million of this workload waiting to be done this year.

"The logic of Exterior is that our Interior business was borne out of a requirement for contractors to take on shell and core," explains King. "But if corporations wish to commission a new building in a single contract then our business would be threatened. So we looked for a means of offering a combined build and fit-out service solution.

"We talked with five ex-Schal people who were looking for a partner to establish themselves as a new force in construction management of new build. They are running Exterior. The target is not so much an annual turnover figure so much as a 100-person business. That is a nice size, whatever turnover that translates into." Interior has its own feedback department and spends £250,000 a year in measuring its performance. King believes it to be money well spent.

"We're investing heavily in measuring performance," says King.

"Without it you don't know if you're getting better or going the other way, doing relatively less well. In fact we've had continuous improvement in quality over the five years we've been doing the measurements."

Interior's feedback department audits every project for quality. Also, there is an audit of every customer, with willing clients taking part in a three-hour interview to establish their views on the quality of their project.

Findings from the feedback department have enabled Interior to create a zero defect initiative. The company has also got a handle on its defect close-out period. "We have set up a hit squad," says King. "It gives a focus to the year after the finish of the project."

King adds: "By completion, we find that a customer has become very dependent on us, but following completion of the project, if he wanted to alter anything later on, there was no-one there for him to turn to.

"In other words, we were missing an opportunity. So we established an aftersales department to keep in touch: it's turned out to be a nice business."

King is keen for all of Interior's staff to adopt to its value-driven culture.

The company has invested in Interior Academy, its own training facility. Its training programme includes sessions on how to behave, how to change one's attitude and how to be a member of a team.

In total, inter-personal relationships account for a third of the course. "If you can change attitudes, you can change the industry," says King.