It is incumbent for business leaders to prepare for the future. No one can deny the importance of dealing with present-day issues. However, myopic and reactive management is not enough for long-term organization continuity. Economic forces have pounded and decimated organizations. Firms should emerge from the arena calloused and conditioned, lean and focused. Strategizing for the future begins now.
Take Stock and Evaluate
On the surface, the organization may appear to be performing acceptably, but through a deeper investigation one may find systemic issues that, unchecked, could lead to complications. More importantly, the organization needs to examine its operations and ascertain if this is truly the model that makes sense for the future.
It is important to gauge the effectiveness of the changes to structure, process and procedure—is everything working the way it was expected to work? Stepping back and conducting a critical evaluation of the way the firm operates can be sobering. High-performing organizations routinely take an introspective approach to their business, thus making them truly high performers. Some areas that often require evaluation are as follows:
- Customers—Are we truly valued by our customer or are we just a number?
- Markets—Is this market a long-term solution or short-term prospect?
- Execution—Are we best in class or operating with some level of inefficiency?
- People—Are we developing our people or have we reverted to a model of complacency?
- Finance—Are we in a strong cash position or simply making it month to month?
- Strategy—Do we have a mechanism that looks at the business five to 10 years out or have we become mired in day-to-day tactical issues?
- Succession—Do we have depth in the organization at all levels or are we one step away from liquidation?
Avoid Panic
Many construction industry experts have pontificated that the global financial meltdown might resemble the end of the world. Examining the behavior of some contractors would also give one the impression that the current influx of heightened backlogs requires drastic action. Construction firms are still grasping at any semblance of a project to keep people busy and keep the iron moving. It is important to avoid confusing stupidity for aggressive business development tactics. Stupidity might be defined as removing all margin or removing major cost centers in an effort to land the job. To further complicate this, contractors are employing the aforementioned tactics in new uncharted markets. Risk is inherent in the construction industry. How much is self-inflicted?
The first step is to understand the true costs of the work. There will always be plenty of firms that will do stupid things on bid day.
However, there are firms that are simply better or more efficient than others. Unsuccessful bids should garner a serious investigation in much the same fashion a firm would analyze a project at its completion. Questions to reflect upon might include:
- What additional crew compositions could we have used?
- Is there a different piece of equipment we could have used?
- Could we have supervised or managed the project with different resources?
- Is there something we are self-performing that we could have subcontracted, or vice versa?
- Is there a trade contractor our competition is using that we did not receive notice from?
Notice there is little to no discussion about the profit margin in the reflection above. So much is made of the actual margin assigned that firms rarely investigate the true cost on the project. Squabbling about pennies is a fruitless exercise when productivity rates and efficiencies make up the lion’s share of the dollars on a project. One strategy to employ is to conduct a reconnaissance mission. Go and see how a competitor operates. Are they running different equipment than you? Are they using different trade contractors and suppliers than you? What technology are they using that you do not possess? Investigate your competition and take actionable steps to level the
playing field.
Fine-Tune Execution
While the planning aspects of execution set the tone for a successful project, creating a sound understanding of the organization direct costs should become a priority for management. Now is also the time to ensure the tools are useful, especially as organizations assume new projects in new niches. Equipped with a strong “toolbox,” managers must re-evaluate production rates and other direct costs. So many organizations either fail to capture production information during the project or at conclusion. Interestingly enough, countless operation groups continue to question the soundness of their estimating department’s bids even in the face of such a noticeable disconnect. Competitiveness begins with an understanding of the business’s true costs. Consider the following tactics to improve execution:
- Estimating with operations—With added bench strength, best-in-class firms are involving project managers and superintendents in the estimating process to provide constructability review.
- Trade contractor feedback—If project costs are primarily trade contractor-related, review their specific unit costs and develop a historical unit cost database. Trending individual activities such as mechanical (dollars/ton), drywall (dollars/linear foot) and concrete (dollars/cubic yard) helps preconstruction groups through conceptual estimating.
- Post-project review audits—Identify four to five specific cost areas at the beginning of the project during a preproject planning meeting. During the project, management tracks daily production and provides a summary for estimating to adjust for future projects.
With a refocused effort on process and procedure, management can now examine the composition of its costs. More importantly, managers develop and refine the correct margin-enhancing behaviors now to ensure the organization is situated appropriately for the future. Lastly, getting project management and field supervision to correctly use job-cost feedback now reinforces efficiency message regardless of the economic state of the industry.
Make the Investment
Site contractors have become players in the oil and gas market. Commercial contractors have become biosciences construction managers. Everyone has become green. Everyone has evolved—or have they? Being late to the party can be an expensive education as well as a frustrating endeavor for the organization.
The bigger question that must be answered is “What is the next big thing?” Start researching and make an investment to explore new markets. Pioneers in a sector, niche or market allows firms to command higher margins as well as avoid becoming a commodity. It is imperative to exploit a marketplace as long as possible before saturation occurs. Flattery
creates competition.
Market conditions of the past decade have made many contractors not only rich, but also complacent. Investigating new markets and niches is hard work. Becoming a sales-centric organization is a characteristic that will define successful business in the future. Being a reactionary order taker requires little skill and tends to yield low percentages when the competition is proactively seeking the same work in the market.
Getting work must exhibit some blend of art and science to be effective. Laziness and lackluster business development are not traits of high-performing organizations of tomorrow. The high performers are already thinking about the next big thing.
Organizations must continually reflect on two specific areas of the business development cycle for the short term and the long term:
Tactical Focus: Short Term
- What are resources (e.g. managers, superintendents, estimators) doing and how can their duties include business development?
- How do we stack up against the competition? Are we losing on price or is that an excuse we make to cover for our weaknesses?
- What forums do we have to reach our current customers?
- Are there any customers now that present our organization withundue risk?
- Are we chasing everything or do we have discipline to say no? How should we decide what to chase?
Strategic Focus: Long Term
- Where are we positioned now? Is this market going to be here in one year? Five years?
- What is our exit strategy from one niche to another? Should we always have a presence in the current market(s)?
- Where should we be in five years? What should we be doing to get in that market?
Act Now for Tomorrow
Dealing with prosperity is much easier and more fun. Important decisions can be procrastinated as manager’s deal with unbridled success. Contractors now make life-altering decisions daily all with the aim of survival. Leaders must still lead and be forward thinking regardless of the impediments that cross their paths. Making payroll is important.
Estimating is important. Managing projects is important. Focusing on day-to-day details is the equivalent of having an efficient engine room with no one in the wheelhouse of the ship.
