OP-ED: After recession, focus is to be better and not bigger
Over the past several years, I have shared observations of the construction industry at different points in the recovery from the Great Recession. We now find ourselves going full speed, with more work and opportunity than we have resources. Like the roaring 2000s, we also are seeing many of the same externalities from this robust market:
- delays and disruption due to labor and material deficiencies;
- claims related to extra work caused by inadequate and incomplete planning;
- less dispute resolution and more fighting over the smallest problems.
And I suspect many companies are starting to lose momentum in regard to productivity and profit margins.
Does this signal harder times to come? Or does this suggest that companies will revisit values and goals, and/or focus more on quality over quantity?
I’m not in the forecasting business. I have no crystal ball about what is next for the construction industry. But I am quite familiar with the symptoms when companies are overextended. And I have some familiar thoughts about ways to be stronger and get more out of this current market frenzy.
Honor thy niche
So many companies scrambled over the past five years to fill their plate; now it is hard to turn away opportunity. Add new personnel, expand that line of credit and tackle the next job, right? It may instead be a good time, with so much opportunity, for companies to strategically choose the best work. Companies know their bread and butter – the work they do better than any other. This work may not necessarily be the sexiest or the most profitable. But in the long term, it will result in the most satisfaction.
A good client of mine went through the boom and bust in the 2000s, and like many, tackled the next big job because it was there and the client thought it could execute it. Though successful, the client found that it was losing productivity in these new adventures. But the bigger loss was the one that did not show up on the bottom line: the client did not have the resources to pursue all the work that fit nicely in its
wheelhouse, and missed opportunities to develop those projects and relationships (i.e., opportunity costs).
In this next boom cycle, the client has resisted those tempting new jobs and instead focused on what it does best. It’s now receiving nice returns, developing deeper and more loyal relationships, and enjoying successful projects. But most importantly, the client is avoiding the distractions caused by lack of experience and by inadequate and/or incomplete planning. Simply put, the client is enjoying this upturn
much more than the previous growth cycle.
Quality, not quantity
It is no secret that qualified labor is at a premium. I emphasize “qualified” because many companies are accelerating their hiring and/or promotion, leaving many members untested or inexperienced. The problems noted above are developing, and this is leading to an acceleration in disputes.
This has been said many times, but it bears repeating: The success of a company will hinge almost entirely on the quality of its team(s). Gone is the day of a renaissance leader who could manage all. Today’s projects are more collaborative and integrated. This puts a premium on teamwork, and on employees who not only know their job, but also know the company. And the best, most productive way to build this competence is from within, organically.
Put resources into people, and give them the time, experience and training that allows them to grow from within. Now is the perfect time to focus within, choose those who have the capacity to lead, and give them the resources to develop their skills.
Don’t ignore problems
With the fast pace of today’s market pushing all of us to our limits, it is easy to defer
addressing challenges on projects, hoping they will work themselves out. Suspending discussion and resolution of these issues often results in larger, more challenging and more contested battles later. I am not suggesting that a claim be issued, or a lawsuit filed, every time there is a disagreement over a time extension or change order. To the contrary, what I am suggesting is that the problem is shared promptly with those of interest, and either resolution reached or a clear process for resolving it occur.
For example, when an owner’s particular value engineering style results in an accumulation of extra time and expense for the design and construction team, if the specific impacts cannot be addressed immediately, at least agree on a process for developing a solution. This effort not only will retain and build trust among the project team, but the development of the issue, if not explicitly, then implicitly, will reveal the cause of the breakdown and the effect it has on the project.
In other words, tackling those uncomfortable challenges early will train the team to not commit the same errors going forward. And this process candidly is one where good consultants (lawyers and accountants) can be the most productive. Waiting until the end generally means more contests and fewer resolution options.
Processes and procedures
With the acceleration in work, companies often suspend (or dare I say ignore) reviews of risk management protocol. It is easy to see why – projects are successfully moving forward, and more work is coming in the door. But now is the time to explore and practice risk management approaches to assignments that could result in better efficiency and productivity, rather than when margins again are thin and create more downside risk if alternatives are unsuccessful. If company leaders simply have too much on their plate to tackle this important audit, there are external resources that can audit company approaches and provide recommendations on how to improve. In a downturn, these
improvements will provide an added advantage.
This article was originally published in the Daily Journal of Commerce on January 24, 2017.