R. Tyler Paré is the senior consultant and peer group practice leader at FMI. Paré leverages his construction experience, coupled with his advanced knowledge of business mechanics, to help clients manage risk and optimize profitability. His consulting work focuses on linking work acquisition processes with project execution best practices in support of competitive strategy. Paré also spearheads FMI’s Peer Group practice. Visit fminet.com.
For every operational advantage, progressive contractors need an accompanying strategy to fully exploit that advantage. FMI has worked with many of the industry’s best contractors, including those that consistently outperform their peers. The following article explains six operational cornerstones that those contractors use to create long-term operational advantages, and an exploration into supportive strategies that can create lasting competitive edge.
1. Contractors with exceptional operations are picky about the types of projects, customers and markets that they pursue. It is almost impossible to find a construction company that is successful at all types of projects. Objectively, most contractors have a certain wheelhouse of projects in which they excel. Therefore, the best companies understand what they are good at and fill their backlog coffers with such work.
A well-developed strategy can help contractors find more of what they are good at or help them become good at something else. Strategy can guide a construction company that is currently missing out on opportunities to get and execute more good work.
2. Great companies intentionally hire and retain highly talented people. No amount of process can replace great people who bring experience, expertise and leadership to the table. As with sports, in construction, it is extremely difficult to compete against superior talent. Prudently managing talent also means knowing when to get rid of nonperformers or bad apples in your company.
You can have a strategy to recruit and develop talent, but managing your company strategically can attract talent as well. Lastly, by creating a talent-oriented corporate culture, you can effectively develop an organization that attracts quality people on its own. If your company regularly talks about innovation, change, pushing the envelope, growing, competing and winning, it will be better able to attract and retain winners, especially when compared to a company that is complacent and resistant to change.
3. Hone your operations by listening to your people. Employees who are engaged feel like they have a say in how things are done. When employees are engaged, they own the business outcomes and go above and beyond to generate positive outcomes. You will find that construction companies with best-in-class operations also have strong employee engagement and high morale.
Engaging your workforce does not happen by accident. It takes purposeful investment, planning, leadership and continuous monitoring and measuring for success.
Firms that incorporate employee engagement into their strategic thinking have a better chance of getting everyone on the same page and supporting a common objective or vision.
4. Great operations have absolute clarity on their performance and share the “numbers” with their people. Communicating objective facts about business performance helps bring operational challenges into focus, where those issues can be addressed by senior leadership. Performance clarity erodes subjectivity and opinion, both of which can be skewed or biased. Also, transparency in performance information generates trust and ownership at all levels of the organization.
Strategy informs the firm which data to capture and which metrics to track. For example, if you are focused on repeat business and creating high customer satisfaction, focus on your company’s Net Promoter Score (NPS).
Strategy also helps firms figure out their systems’ infrastructure. Reliable, timely information is of high importance to the overall business strategy. A company must determine how to systematize and automate that information generation.
5. Excellent companies don’t tolerate inefficiency or waste. Best-in-class contractors are constantly seeking a better, safer, cheaper, faster or easier way to perform work. These firms do not rest on their laurels when times are good, and they are laser-focused on daily improvements.
The biggest obstacles to operational improvement are the status quo, a hesitance to rock the boat and the simple fact that people are busy. If you want people to embrace change, convince them that change is necessary and/or warranted. Strategic planning within a firm helps determine which changes are simply good ideas and which ones are business imperatives.
6. Great operational leaders are willing to invest. When they see an opportunity to help operations, these leaders have no problem writing a check. This doesn’t mean just throwing money at a problem, but it does mean recognizing that, often, more than 85 percent of the construction dollar goes towards direct costs. Saving even just a few basis points across millions of dollars adds up to a big number over time or the course of several projects.
That thought process supports cost-benefit analyses for investing in operations. As an owner, there are plenty of ways to spend money on your construction business. Strategy prioritizes which investments will produce the biggest bang for your buck. Having a clear strategy helps contractors pull the trigger with intentionality on big investments in their businesses.
The continuous evolution of the construction industry generates constant opportunity for firms to improve their operations and gain an edge in their markets. These operational opportunities must be supported by well-honed strategies that optimize the probability success and organizational impact. In assessing your current operational challenges and opportunities, ask yourself, “Do we have a solid strategy?”