final issue layout

it’s all about the people

Quarterly2004 issue 3

THIS QUARTER

Focusing on Your People 4BY JERRY JACKSON

OPPOSING VIEWPOINTS

Nature vs. Nurture 7BY RALPH JAMES AND MIKE KANE

MATERIALS

Insider Trading: Transferring Ownership to Employees 20BY WILL HILL

STRATEGY

Strategies for the Long-Term 23BY JERRY JACKSON

GENERAL CONTRACTORS

Fragmented and Mature Marketing 24BY HANK HARRIS

MERGERS AND ACQUISITIONS

Opportunism and Patience 28BY STUART PHOENIX

Value Creation Through Effective M&A Integration 30BY KEITH BAHDE

QUARTERLY PROFILE

Profile in Leadership: Lawson Magruder 36BY TOM ALAFAT AND LAWSON MAGRUDER

Basic Materials Will Hill

Contractors Rick Reese

Engineers & Architects Tim Huckaby

Heavy Highway/Utilities Jay Bowman

International Steve Darnell

Private Equity Kevin Mitchell

Manufacturers & Distributors Clark Ellis

Owner Services Gretchen McComb

Surety Lanny Harer

Business Development Cynthia Paul

Leadership Dan Wooldridge

Mergers & Acquisitions Stuart Phoenix

Project Delivery Steve Davis

Trade Contractors Adam PatnaudeKen Roper

Strategy Mark Bridgers

Training Elizabeth Dalton

CONTACT US AT:[email protected]

Board of Directors

Hank HarrisPresident andManaging Director

Robert (Chip) AndrewsJohn HughesJerry JacksonJohn LambersonKevin MitchellGeorge ReddinHugh RiceKen WilsonBob Wright

Copyright © 2004 FMI Corporation. All rights reserved. Published since 2003 by FMI Corporation, 5151 Glenwood Ave., Raleigh, North Carolina, 27612.

Printed in the United States of America.

Departmental EditorsPublisher & Senior EditorJerry Jackson

Editor &Project ManagerAlison Weaver

Group ManagerSally Hulick

Graphic DesignerMary Humphrey

FEATURES

The 10 Commandments of Contracting 50

This article serves as a good reminder for the basic business principles that are the foundation for a successful contractor in today’s competitive industry.

BY KEN ROPER AND ERIC SANDERSON

Capturing the Cheese 54

Reinforcement and transfer of learning are critical phases in the employee development process. Developing follow-up tools helps ensure a smooth transition from the classroom to the workplace.

BY ELIZABETH DALTON AND KELLEY CHISHOLM

Bugs, Sports, and War: The Role of Sacrifice in Teamwork 68

We win on construction projects, as we do at war or in a sporting event, with a team of individuals that are willing to sacrifice to ensure the project’s success.

BY DAVID SINODIS

Technology Feature: New Trends in Online Project Management 76

Online project-management systems continue to prove their value in the marketplace. Understanding the trends allows organizations to make informed decisions and grow more profitably.

BY JONATHAN ANTEVY

Technology Feature: IT Does Matter 82

Contrary to a recently published article, technology does still matter, at least in construction. The key is focusing on productivity drivers, using the systems well, and moving on to another strategy when the technology becomes commonly used.

BY CHRISTIAN BURGER

Passing the Torch Without Getting Burned 96

For successful contractors, transitioning ownership and leadership is another true test of greatness — one that will establish their legacy and provide opportunity for others.

BY W. CHRISTOPHER DAUM

Human Capital: Linking People and Their Results to the Strategy 104

The development of internal human capital strategy provides a great opportunity to improve results and bottom line, and thus increase shareholder value.

BY MIKE PERRICCIO

Dear Reader:

Welcome to the sixth issue of FMI Quarterly. Our theme this month: It’s all about the people. Catholic social teaching says people matter more than profits.(National Catholic Reporter, April 27, 2001.) Yet some big business says, “Off with their heads!” Global outsourcing incurs wrath from many and applause from shareholders. Yet, no matter where you get the labor component, it is verydifficult to get to profits without people. It’s a self-evident notion that sometimesdrops from sight: people give us competitive edge. They are not only the soul of the corporation; they are the reason for its being.

In this issue, we profile General Lawson McGruder who served 32 years in theArmy, retiring in 2001 as a Lieutenant General. He is a consultant with FMIfocused on senior leader development. In this article, he teams up with FMI’s Tom Alafat to discuss the lessons he’s gleamed on leadership in the military andhow they apply to the construction industry.

Our opinion-editorial tries to answer the question: Is it nature or nurture thatshapes our people? After decades of discussion and scientific exploration, weprobably have to admit that it’s a combination of the two that construct the people with whom we work. That’s where Ralph James and Mike Kane get to intheir op-ed dialectic with Joe Cebina.

We bring you five departments with short, shared learnings. You’ll also find 7 features in this issue surrounding our theme.

While we can praise technology, IT only provides us tools for people empowerment.An old friend, Christian Burger, provides us insights on IT strategy in this issue.Unimplemented strategy is only theory, albeit outstanding theory in some cases.Implementation of strategy is all about getting people to accept, embrace, andbehave in a certain way.

In, “Emerging Trends in Online Project Management,” another old friend, JonathanAntevy, shows us how online project-management systems continue to prove theirvalue in the marketplace. Understanding the trends allows organizations to makeinformed decisions and grow their organizations more profitably.

This Quarter:Focusing on Your People

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This Quarter: Focusing on Your People

2004 issue 3 FMI QUARTERLY n 5

We can clamor for building shareholder value through acquisitions, but withoutcareful attention to the people part of the integration equation, that acquisition is likely to destroy more shareholder value than is created. A new friend, Keith Bahde brings us ideas on acquisition integration aimed toward building post-merger value quicker and better.

Our own staff authored five features this issue. Ken Roper and Eric Sanderson remind us in, “The 10 Commandments of Contracting” of the basicbusiness principles that are the foundation for a successful contractor in today’scompetitive industry.

No matter how many star players we have in our organization, the individuals thatmake up a company must be able to function as a team. In, “Bugs, Sports, andWar: The Role of Sacrifice in Teamwork,” FMI’s David Sinodis makes the argumentthat we win on construction projects as we do at war or in a sporting event — witha team of individuals that are willing to sacrifice to ensure the project’s success.

Tying people to profits, Mike Perriccio reveals the great opportunity constructioncompanies have to improve their results and their bottom line, and thus increaseshareholder value through the development of their internal human-capital strategyin “Human Capital: Linking People and Their Results to the Strategy.”

Our people must be trained. In, “Training Reinforcement and Implementation,”Elizabeth Dalton and Kelley Chisholm illustrate how reinforcement and transfer of learning are critical phases in the employee development process.Developing follow-up tools helps ensure a smooth transition from the classroomto the workplace.

Finally, Christopher Daum explains how for successful contractors transitioningownership and leadership is another true test of greatness — one that will establish their legacy and provide opportunity for others in “Passing the TorchWithout Getting Burned.”

Rudyard Kipling penned, “All the people like us are We, And everyone else isThey.” He was talking about discrimination among people with unfamiliar customs,different origins, and behaviors outside our norms. When you carefully considerthe possibilities, it makes a lot of sense to put much effort into building lots of We … since our businesses are all about the people.

Sincerely,

Jerry JacksonFMI ChairmanFMI Quarterly Publisher and Senior Editor

Ralph James and Mike Kane, FMI consultants, discussed

the origin of leadership recently with Joe Cebina for

FMI Quarterly. They were encouraged to take polar

positions, so some of the views expressed are a bit

more extreme than these commentators actually hold.

The purpose of this dialectic is to provide our readers

with points to consider in their own hiring initiatives and

leadership development programs.

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Opposing Viewpoints: Nature vs. Nurture


Nature vs. Nurture: Are Leaders Born or Made?By Ralph James and Mike Kane

FMI Quarterly: Let’s start with an opening statement. Ralph, you have thenature side of the leadership debate.

Ralph: The nature vs. nurture debate is a very old one, and it has had expressionsin philosophy for many years. One of the noteworthy debates occurred in the17th century when the French philosopher, Rene Descartes, argued that we have an internal track where our mind operates in parallel with an externalworld. Descartes believed our knowledge of the external world is theologicallyguaranteed. In this “classic dualism,” there is an inner self and an external world.Later the German philosopher, Emanuel Kant, said the way we know thingsbegins with our categories of understanding: space, time, and causality. Weorganize everything that we know and experience in the external world throughthese categories. This, he said, makes knowledge possible. So this is the kind ofdebate that has occurred historically on the issue of how it is that our internalnature and external nurture work together.

We also have many modern versions and ways to understand this debate. We have research, for example, on separated twins. Amazing things happen inthe individual twins’ lives that parallel the other twin even though they havebeen separated. In other studies, adopted children have been taken away fromtheir birth parents and then later rejoined with their birth parents; scientists have beenamazed at how much their nature is consistent with their original birth parents. Then finally, through DNA,there has been an effort to duplicatepeople. With DNA experiments, wehave unraveled the human genome.Nature is our potential. Nurture is what happens to that potential provided by nature.

FMI Quarterly: Mike, do you have any comments on that?

Mike: Interestingly, I don’t disagree with Ralph in termsof the development andintellectual history of theinternal and the externalbeginning with Descartes. Theproblem with this approach to thinking, which is based on the age of reason andthe notion that man is a rational animal, is that it flies in the face of a lot of ourexperience, particularly as psychology has developed in the last century. Initialwork was done in the 1950s and 1960s by a psychologist named Joseph Luft. He

8 n opposing viewpoints

developed a tool called Johari’s Window that we use effectively at theLeadership Institute and in our other engagements. It takes some of the essentialtruisms about human behavior, including subjective factors, such as attitudesand values, and tells us how people see themselves, others, and the world. Now, unfortunately, most humans go through life and really do not test those

subjective factors or understandthem very well. One of the thingsthat we try to do in our leadershippractice is to uncover the choicesthat an individual has already madein terms of values and attitudes. In other words, we promote self-reflection consistent with thenotion that, “an unreflected life is a life not worth living.” Certainly, it is one less worth living. Secondly, Luft concluded that behavior is controlled more by emotions ratherthan by reason and logic. Now while we would love to be able toconclude that humans are alsorational beings and behave logically,we see every day that, in fact, a lot ofdecision making is very emotionallyand irrationally based — not logicallyand reason based. Those unseen

drivers and behavior — the emotive side, the not-so-apparent side of humanbehavior — is something that we tend to focus on in our leader developmentactivities. We don’t look at just setting direction, aligning resources, and motivating and inspiring, but we also look deeper, at issues like self-leadershipand focusing on others.

Another way to look at this is leadership from within or “interior leadership.”How do individuals control and manage their own emotional maturity? How can you take advantage of those understandings that we have of human nature,such as that people trust in an environment where they feel safe and do nottrust an environment where they feel threatened? How should leaders positionthemselves in developing trust among those they lead? Lastly, Luft concludedthat humans have little insight into the source of their behavior or the effect of their behavior on others. When pressed, some people may be generally successful in the way they lead others; others may be spectacularly unsuccessful.But, humans are hugely unsuccessful at describing the source of their behaviorwhen queried. We use a very simple technique, soliciting feedback, so that individuals can begin to get a more well-developed notion of how they interactwith others, including peers, subordinates, and managers. Then, they are betterpositioned to understand their impact on others.

FMI Quarterly: You both give us a good sociological as well as a scientific basisfor the nature vs. nurture argument. Let’s start talking about some real examples.

One of the things that we try to do in our leadership practice is to uncover the choicesthat an individual hasalready made in terms of values and attitudes.


Ralph: I have had probably 50,000 construction people in my classes in the last26 years. I am also very interested, however, in the economy of this effort because contractors only have so many dollars to investin development and training. I believe that ithas to be invested wisely. I’m thinking, forexample, of a foreman that I saw who wasasked to perform project managementtasks. The contractor spent a good bit oftime trying to teach this foreman who hadcome up through the field. He dropped out ofschool early. He loved to work with his hands,and he was an outstanding foreman. As time went along, the contractor needed more projectmanagement performed on the projects that theforeman was working on, and he didn’t have a project manager that could step into the gap. So he tried to pull the foreman into the project management role. This role involved a lot ofpaperwork, dealings with customers, and abstract thinking about project strategy.The foreman was frustrated with these demands. In the end, the contractor losta good foreman and wound up with a bad project manager because he wasn’tattentive to the individual’s basic nature.

FMI Quarterly: So you are saying that if the contractor understood that particular foreman’s personality profile and how he was “wired,” he could haveavoided a mistake upfront. He could have understood the foreman’s capacityand avoided putting both himself as well as the foreman in a position that wasdoomed for failure?

Ralph: I think that given enough time and enough resources — because thehuman potential is so great — the contractor could ultimately have developed

a project manager out of that foreman. Given the normal resource limitations andtimeframe he had to work with, however, it was an unwise investment.

FMI Quarterly: Well, that brings up aninteresting position. There are severalexamples throughout business and historywhere leadership has gradually surfacedto the top naturally, but what about theunique, unfamiliar situations in which

unexpected leaders tend to emerge? How do you explain that?

Ralph: Probabilities have to be played andthe probability in this case was not good. He


didn’t have the background for it. This particular foreman was a great guy, but his potential to return on the contractor’s investment was low.

Mike: I don’t disagree with some of the tenants of what Ralph is suggesting, butI don’t agree with others. My 30 years’ experience with the building productsand materials industry suggests that too often management teams place bets on people when they are ill-informed about the person’s abilities, interests,drive, and know-how. A lot of that, unfortunately, is driven by a mindset that saysthat the way people learn to perform and succeed is by throwing them into asituation without much forethought and planning. This is based on the idea thatyou can get something different out of this person other than what their initialeducation, background, and interests indicate are a good investment. In the area of leadership, I believe the best investment is to work on your most talentedleaders. In other words, try to identify early on those individuals with naturalleadership abilities, and then invest in them to grow that talent. It’s your bestleveraged investment vs. trying to make the “pig sing.” Moreover, we believe

that leveraging the strengths of your most promising employees is abetter investment then focusing ondeveloping weaknesses. Obviously, in an ideal world, a variety of levelsof investment could be made withvarious people in managerial andleadership roles because at everylevel of the organization people have to exercise some leadershipjudgment and capability.

Crises occur in many businesseswhen managerial appointment decisions are made in the absence of good data and are based on a retrospective view of past performance. These jobs oftenrequire more management and lessleadership judgment, and one is notnecessarily a proxy for the other.That approach to “sink or swim” inany management exercise is always

fraught with danger. I think as a species, human beings have been subject to thattype of leadership selection process throughout history. While we have thoseexamples that we can all point to, of people who have done unexpectedly wellin a unique and novel situation, I’m going to suggest to you that there have beenmore examples in history of people failing. Those failures result from peoplebeing thrown into leadership roles who are either incapable, undeveloped, ill-prepared, or the wrong choice for the job. People have failed in the leadershiprole throughout human history. In some cases, the failure is glaring. But, in manycases, people point to those exceptional leaders and say, “This must mean theleadership game is about selection, and if we just select the right person from

Crises occur in manybusinesses when managerial appointmentdecisions are made inthe absence of gooddata and are based on a retrospective view ofpast performance.


the available caste of leaders, we’ll be all right.” This assumes, of course, that a governing elite can be identified in the population and that no others needapply. In FMI’s Leadership Group, we are passionate about the notion that even those occasional leaders who appear to emerge from nowhere weregroomed by their experience, education, and mentors. We suggest that thisprocess can be accelerated by planned and programmatic learning through both experience and teachings one leader at a time.

Ralph: I understand the idea that peopleare molded by their experiences. That is what I mean by development of natural potential. If you have that natural potential, you then can moldit. Determining what that naturalpotential is is not easy. For example,if a contractor is interviewing a candidate and he is trying to sizethis candidate up, one of the worstmistakes I’ve seen contractors make in this situation is saying that in our company, we believe in teamwork. How do you rate yourself on teamwork? He has then led the interviewee to say, “Oh, I’m great at teamwork.” Or, “Yes, teamwork is the essence of construction, and that is the way weneed to go forward. I’ll be a great team player for you.” Of course, the contractor who is conducting the interview has led the witness to the conclusionthat he or she wants. In determining the potential of a candidate for leadershipor for good work in the construction company, we have to be more careful tounderstand potential in the selection process. We can actually cover up that discovery process with poor interviewing techniques.

Mike: I agree. I think that the contractor or business manager will actually be looking within his or her own organization as to who is the most likely leader in a given role or assignment. FMI believes that creating a feedback-richenvironment, including assessment tools will enable leaders to understand their individual gifts, interests, strengths, and improvement areas. This begins a process of development and a bias in the organization towards developing,not just “discovering,” talent. This ultimately gives the owner or executive more choices.

Ralph: Yes, the 360-degree assessment is an effective feedback tool in most situations, if raters know the person well enough and if there are enough ratersinvolved. We also use it in our Project Management Academy and find it effective there. One of the things I think it would not pick up, however, wouldbe whether or not a person’s nature would be best in a certain role. An examplewould be the difference between a plan-and-spec mentality vs. a negotiated


design-build nature. Let’s say that I am trying to decide whether or not a givenindividual could lead my heavy/highway division, which is a plan and spec role.The candidate has been working in a commercial division with a lot of design-build and negotiated characteristics in the role. That 360 probably would notpick up whether this is a good plan-and-spec person. The natural characteristicsof a plan-and-spec person would be more analytical. It would be somebody with patience to work through all of those specifications. It would be someonewho is probably not particularly bold relative to risk. Whereas, someone whohas been working in the negotiated and design-build arena would have thereverse of those characteristics, and even a feedback system like the 360 mightnot help us understand the nature of a given candidate for that role.

FMI Quarterly: Then, are you saying that there is a clear definition of a candidate,or are there different “skins” that a candidate can wear based on the specificsituation? Do you feel that each situation merits a different kind of person?

Ralph: Well, let me reverse it. Let’s take our plan-and-spec person and put himover into the commercial division where we have to do a lot of design-build andthe expectations on the role are not very clear. You would have to use a lot ofcreativity and take many risks. You have to get out and work with customers and

really dig into what customers want on the job. Youhave to be willing to be flexible as the design

unfolds. You are in a change-order world.Someone coming out of a plan-and-specworld might be so cautious that he or shewould have a hard time getting the job builtbecause everything isn’t clear, everythingisn’t set in stone, and everything isn’t nailed down. His nature is averse to changeand flexibility because of a plan-and-spec

mentality. This person could wind up withparalysis of analysis.

FMI Quarterly: So you have to match the personality profile with the business situation to ensure thatthe right type of individual is in that role. But, let me put it to you a different way: We deal with many

family-owned contracting firms where the responsibility of leading the firm falls upon a child, typically a son or maybe two sons that work their way up inthe business. What if that heir apparent doesn’t fit the appropriate profile ofleadership, but ownership responsibilities are going to fall on his/her shoulders.How does that impact the nature vs. nurture argument?

Mike: Oftentimes in situations where authority is driven by ownership ratherthan by merit, there is this presupposed notion, though not always true, that theheir may have started the game on third base. Clearly, the ownership situationrequires leadership of the company to identify people who can support the


strengths and weaknesses of the owners. That’s a much more interesting balancing act, but it does require, as Ralph has suggested, that we have a veryclear map as to the capabilities and skill sets of the full management team,including the owners. The leadership group uses tools like the Myers-Briggs personality assessment, theLeadership Ability Battery (hones inon natural/immutable characteristics),and the 360 Vision View tool todetermine perceived organizationaland personal leadership impact. Then, this data is compared withother standardized testing batteriesto get a fix on a key team member or members so that developmentneeds and informed managementdecisions can be made about key staff beyond the one-way impressionsa more senior or perhaps a financialinvestor might have of current performance and executive capabilities. One of the things thatwe find with many of the evaluationswe do is that people adapt their personality to meet their current circumstances. I think people have avariety of capabilities and often wesee two people approach the same job very differently and get remarkably successful results in both cases. When we mold our behavior in the workplacewith our approach and personality, we are able to achieve definitive results.

In the family business situation, leadership by default goes to family. As such,the main questions for the family should be: how much information do you haveabout the organization that you are running, the capabilities of the people, andthe interests/inclinations of these people? Second: is all this information simplybased on what you have observed and been told, or have you used a variety of feedback tools to properly assess their interests and capabilities? The worsttragedy in this situation is for someone to spend his or her entire working careerdoing something that doesn’t interest, excite, or motivate him. It is generallytragic for the individual and the company. It could be that we fully understandthat the capabilities of family members suggest that professional management iswhat is needed here rather than relying on family members. The right type ofintervention, the identification of high potential individuals in the organization,and making targeted investments in the right people can allow the company toreap the rewards of successful leadership. The alternative to me is a guessinggame fraught with tremendous danger.

FMI Quarterly: Contractors have a very difficult time hiring the people that are needed from a leadership standpoint. How do you ensure the right mix ofleadership talent?

I think people have avariety of capabilitiesand often we see twopeople approach thesame job very differentlyand get remarkably successful results inboth cases.


Ralph: Well, I don’t think you can ensure it. I think, as Mike said, you have limitedchoices not just with family members, but with outside people as well. In the19th century, a very high percentage of American families worked on farms,about 80%. In the 20th century, we now have less than 3%. The huge pool ofpeople that liked to work with their hands and were used to getting up early onthe farm has dried up. We are now in construction in the 21st century and arestuck with a smaller labor pool. So our hiring and recruiting efforts have to beespecially energetic, or we are going to be caught short again after the recentrecession with a huge labor shortage in construction. Society is not producing alabor pool for construction anymore. People want to work in air-conditionedrooms instead of pouring concrete.

Mike: That’s interesting, Ralph. I agree with you that there is a dilemma with thelabor resource pool, but from the management workforce standpoint, I’m not sosure it is as limited. Should you look at more experienced managerial prospects

vs. the less-experienced, youngerindividuals for these organizationalroles? I look to the military for a classic example of the solution tothat question. You know, more than200 years ago, we had to make adecision in this country about developing military talent, and wecreated something called West Point.It was very obvious early on, and it is still obvious today, that whenAmerica needs generals you can’thire the Argentinean generals or thePolish generals. We have developedthe leadership in our own militaryfrom scratch. Being very pragmatic,in a very disciplined way, we haveinvested in our military leadershipwith the idea that we would developour own general core of leaders and have done so very successfully.It’s not just the general staff either,but the majors, lieutenants, and field officer core who have applied

their leadership talents honed on the plains of West Point throughout the world to our great credit and with our gratitude. Sure, the academies selectfrom a special group, but they build leadership into their cadets and don’t“hope” that it miraculously shows up when the pressure is on and character and leadership is required.

Because, leadership is distinct from management. Management is about complexity. Management is about organizing, controlling, and getting thingsdone, and we need a lot of that in business and industry. But leadership is aboutchange and managing change. The development of leaders and the investment

The development of leaders and theinvestment in leadersrequires that theyunderstand not only alot about themselves,but also a lot about the people that they are to lead.


in leaders requires that they understand not only a lot about themselves, but also a lot about the people that they are to lead. If they are going to be

successful leaders, they need to be driven through aprogrammatic approach, which suggests that it is

not all about them. How you do that is by not waiting 30 years for a leader to emerge. It beginsat a very early age, educating them through experience and leadership in a variety of contexts,showing them how to take logical approachestoward developing themselves, and understanding

the motivations of their teams so that they can be more effective.

Ralph: West Point is very selective, andthat selection process eliminates manypotential non-leaders. So it is already aselection system, and the developmentalefforts that West Point makes of thepotential does have a parallel in what we at FMI are trying to provide for

construction people coming out of engineering schools. Nonanalytical individualshave a difficult time with calculus because they want to talk to people and bewith people. So the engineering schools and construction schools select by the nature of the curriculum. Those personality types are not the ones that are most interested in change. I agree that leadership involves change. But that is not a personality type that does a lot of good calculus, as a rule. So our construction industry is populated with people who were good at calculus, andthey are not the same people thatare interested in changing things theway a good leader would be. Sobecause we are engineering-oriented,we have a tremendous challenge created by the very nature of thepeople in the construction industry.

Mike: This is a point where I thinkRalph and I might agree is that the technical orientation of the engineering curriculum results in an adverse selection advantage for this industry. We end up with individuals whose interests and skills may not be as relational andpeople-oriented as they should be,and the soil for growing leaders isless rich. That makes the challenge all the more important for business leaders in the construction disciplinesto make sure that we have a

So our constructionindustry is populatedwith people who weregood at calculus, and they are not thesame people that are interested in changingthings the way a goodleader would be.


programmatic approach to the development, selection, and placement of leaders in our organization. The reality is that we may have a talent pool thatmay not be as suited to focus on people and may be much more inclined to

focus on objects and building things,as opposed to building teams, relationships, and organizations. So the task is a great one. Over thepast 50 years tremendous leadershave emerged from engineering and construction disciplines who can balance their technical orientationwith a leadership approach thattakes the human resource issues into consideration.

Ralph: Well, I guess we are not very far apart on the “nature” of the discussions. One thing I wouldadd would be risk management. It’san old joke that the definition of

redundancy is a contractor going to Las Vegas to gamble. Every job is very mucha risk. Successful contractors understand this. If we are not attentive to riskmanagement from top to bottom in the organization, we certainly put our companies in peril. Selecting people who are good at managing risks is verymuch at the core of what a contractor must do to be successful. I think if wefind people in our interviewing processes that are gamblers they may have a nature that could get us in trouble very quickly. Loss prevention is not just asafety issue; it is a business risk issue. If we look for people with a high tolerancefor risk in our recruiting process, they may help us grow, but can quickly kill a company if risk management is not a central factor. I like to see business systems that are basically managerial systems. I like to see business systems that are set up to offset human weaknesses. That’s the reason we need to use good planning, scheduling, and costing. And without these tools in the handsof responsible individuals, a contractor can get into troublevery fast.

FMI Quarterly: What happens when a firm takestheir star performers in a particular operational role and promotes theseindividuals into leadershippositions? Is it always true that the best and thebrightest automatically make leadership talent?

Selecting people whoare good at managingrisks is very much at thecore of what a contractormust do to be successful.


Mike: Now we are talking “Peter Principal.” Promoting individuals to the point of incompetence. I think unfortunately this is what happens often in the selection process. We promote people based on skill sets that they need for their prior assignment, not for the current assignment. This is really an unreflective process, but unfortunately, a path of least resistance. I think yousee it in factories, the building products industry, and certainly in the materialside. Here people who are very good at planning, organizing and controlling, andmanaging the complexity of the process are thrust into leadership roles wheremuch more leadership than management is required of them and they areunprepared for this process. This is because an assumption has been made thatthey are going to intuitively understand what they are supposed to do. I believethat whatever you might know about the person’s nature in a managerial role is not necessarily going to inform you about what they are going to be capableof on the leadership side.

Development is a deliberative process. Developing talent requires an investment in the lives of candidates that has to be purposeful, meaningful, andpersonal. Leaders need to be grown in a very meaningful way when they areready for leadership roles. You’vetested them, you’ve seen their behavior in less influential leadershiproles, and you can say, “Okay, it’s not taking an unusual risk to put this person in a larger leadershipresponsibility.” But the gambler’sapproach is to thrust leadership onthe unprepared and blame the noviceif it doesn’t work. I agree with Ralphthat management is about settingplans and controls in place, but management can’t control for theabsence of a vision, a defined mission, a strategy to capture a placein the competitive landscape, or amotivated group of followers willingto endure hardship and trials because the “WHY” of leadership is internalizedand clear. No amount of management execution can fill the gap left whereinspired leadership is needed. Once the vision is clear and the pathwayemerges, then an appropriate risk orientation is necessary.

FMI Quarterly: If you have limited resources, would you focus those resources on developing those individuals who need it the most? Or would youfocus on individuals who already exhibit leadership qualities and developingthem further?

Ralph: Well, one of the things I’ve seen contractors do — to go back to our discussion of developing children of contractors — is to take a child, put thatchild in charge of a branch or a subset of the business, and watch how they do. This has been a relatively successful way to determine the nature of that

No amount of management executioncan fill the gap leftwhere inspired leadership is needed.


individual. A lot of studies on generations have indicated that the second generation’s probability of success goes down and the third generation goes waydown. Certain personalities tend to go into construction in the first place, but

with the second or third generation,you don’t have the same personality.You have 50% of the DNA of another person in each generation.Add to this the silver spoon problem.A lot of children of contractors havelived a comfortable life and have not had to struggle as the originalentrepreneur did. So they don’t have the drive to succeed. That’sprobably an argument more on thenurture side, but their natures arealso different.

FMI Quarterly: Mike, where wouldyou recommend a contractor investhis leadership development dollars?

Mike: I said earlier to invest in yourbest people, not the people with the most problems. Business decisions are seldom about what is the ideal. The real world is you have X dollars to spend.And, if that is the case, you have to make some tough decisions about who areyour best and brightest individuals with the best runway or capabilities to thefuture. Then, invest heavily in those people because that will leverage those dollars and those results. Unfortunately, a lot of organizations take their training,development, and investment dollars and invest them on the people with problems, who have experienced performance problems on the jobalready. You can take poor performersand drive them to the average; it’s highly unlikely you are going to drivethem to superior results. Or, you cantake above average individuals andmake them superior by targetingthem into their future. We believethis is the most proven method formost companies.

Ralph: Well, I think that underscores the fact that the nature of the individualis a starting point. I’m reminded of twoforemen, Bill and Joe. Each had crews ofthe same size, doing the same kind ofwork. Job after job, Joe’s crew continued to produce 20% more on average than Bill’s crew. We were asked to look into whythat was occurring. We looked at the way Bill led his crew. He had been made

You can take poor performers and drivethem to the average; it’s highly unlikely youare going to drive themto superior results.


the foreman because he was the hardest worker. They were both defined asworking foremen, but Bill continued to outwork everyone else on the crew, eventhough he was supposed to be the leader. He was often heard to say, “Move, I can do it faster.” As a matter of fact, we observed many of the crewmembersspending time standing back and admiring his work. Joe, on the other hand, wasspending about half of his day planning, scheduling, coordinating, motivating, andcommunicating. When someone did a good job, he said, “Good job.” And he said it right then. He always had the next day planned; he had the materials outin front of the work. He had leadership and management skills. It was clear thateven though he was physically working less, his crew was doing and producingmore through his leadership. Well, the argument, of course, cuts both ways. Youcan say well, Bill’s nature was to be basically a hands-on worker, and Joe’s naturewas to be a leader. I can agree with Mike that without the training in how to plan and schedule the daily work of that crew Joe would not have been effective.So I think getting the individual with the right nature and developing on that isthe way to go. I don’t think it is an either/or. n

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MATERIALS Insider Trading: Transferring Ownership to Employees

The owners of privately held construction materials operations are generallymore fortunate than their contractor clients, especially when it comes time to exittheir businesses. For a variety of reasons, the construction materials sector hasseveral readily identifiable, strategic purchasers in the marketplace. Accordingly,an external sale is a popular exit option in the segment. Since this is the case, you may wonder why anyone would consider an internal exit strategy. Experiencehas shown that there are a number of good reasons to consider an internal transfer, a few of which follow:

• It perpetuates a family-held business.• It provides ownership opportunities to key employees as a

reward for loyal service.• It allows the company to maintain its culture and core values.• It may provide, in some instances, greater consideration than

a strategic sale.• It allows for a gradual exit from the business over several years.

In its simplest form, an internal transfer of ownership involves moving the ownership of the company from the exiting generation to the succeeding generation. This is done by using the earnings generated by the business to fund the transaction. Several mechanisms and methods can accomplish this transfer, including:

• Direct stock purchase• Stock bonuses or options• Oldco/newco or LLC structure• ESOP• Joint venture.

Regardless of the transfer method selected, the basic premise of using theearnings of the company to fund the transaction will apply. In some instances, youmay use debt financing to accelerate the process, but the debt is generally paidoff using the earnings of the business, so the premise still applies.

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Selecting the appropriate internal ownership transfer mechanism starts withthe identification of the needs of both the exiting and entering owners. In otherwords, the “who” must be solved before the “how.” Some of the concerns raisedby entering shareholders typically include:

• Do I have to provide personal indemnifications for banking or bonding requirements?

• How will voting control of the company change?• How will the value of the company be determined?• Is ownership a guarantee of employment?• What happens if I want to leave?• Will I have partners?• What if you (the exiting owner) decide not to leave — are you still in charge?• At what point will I make more money?

Exiting owners are often concerned about the following issues:

• What if I later decide that this was the wrong decision?• How much money will I make?• How can I maintain control once I drop below 51% ownership?• Do I divide ownership equally among family members, especially if some

do not work in the business?• The taxes are terrible; shouldn’t I use an ESOP to avoid them?• Why should I do this now if I can leave the stock of the business to the

children in my estate?

Of course, these questions arenot intended to be all-encompassing.Rather, we hope they convey an ideaof the types of issues that must beaddressed in formulating an internalexit plan.

As you are probably beginning to sense, creating a successful internalownership transfer plan involves a significant amount of thought, analysis,and careful decision-making. It will also involve seeking out professionaladvisors. It is not uncommon for business owners to turn to their attorney or accountant for advice asto how to accomplish the transfer.Often, this is a mistake. This does notmean that business counsel providedby both of these professions is withoutvalue. However, in the case of ownership-transfer planning, these advisors tend toprovide “one-sided advice.” In an effort to protect their clients’ interests, theyoften will recommend plans and techniques, which may not be compatible withthe needs of the entering owners.

Selecting the appropriate internalownership transfermechanism starts withthe identification of theneeds of both the exitingand entering owners.

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An effective ownership-transfer plan is one that balances the needs of theentering and exiting owners.Your business council shouldrepresent the “company” whendeveloping the ownership-transfer plan. This allows for a balancing of needs betweenboth parties that ultimatelyresults in the continuity of thebusiness, which, after all, is the overall goal of the plan.

Significant parameters in formulating an internal-exitplan include the “plan duration” and “desired sale consideration amount.” In mostcases, plan duration is directlytied to the desired amount of consideration. As mentioned earlier, the basic economic premise is that the earnings of the business will be used to fund theownership transfer. Therefore, if a business earns $1 million per year, and the exiting owner wants $15 million for the business, then it will take 15 years to earn

enough to fund the transfer. Is it reallythat simple? Unless some form of outside capital enters the picture,then yes, the plan duration will be aslong as it takes to earn as muchmoney as is required. However, the“people” side must also be factoredinto the equation. For example, a 65-year-old business owner may notwant to wait 15 years to get his or hertotal consideration out of the business.Likewise, if you are the enteringshareholder, you may not want todevote 15 years until you can begin toenjoy the benefits of ownership. Agood balance of acceptable durationis around 10 years with a typical range

of plus or minus two years. Therefore, the consideration derived from an internalsale is typically 10 years worth of net earnings. This would be approximately sixtimes pre-tax earnings, which is often equal to, or potentially more favorable than,the consideration received in an external sale.

In summary, the internal exit option, when properly designed and executed, canafford many significant benefits to both the exiting and entering shareholders. n

Will Hill is a senior consultant with FMI Corporation. He may be reached at 303.398.7237 or by e-mail at

[email protected].

An effective ownership-transfer plan is one that balances the needsof the entering and exiting owners.


STRATEGYStrategies for the Long-Term

Nothing gets your attention quite like the passing of a friend who dies tooyoung. It is a not-so-gentle reminder that it is not a matter of “if I die….” Rather, itis a matter of when.

With today’s medicines and diagnostic procedures, you can easily envision a life that lasts long past the nominal retirement age of 65. With that assurance,why even consider retiring until much later, if ever? Frankly, this argument is aimed at your immediate need for contingent planning and contemplation of theorganization’s life without you, not at defining the time of your retirement.

Most likely for your company’s strategic plan, you have values, vision, mission,goals, objectives, strategies, and action plans. You have probably investigated the external marketplace and the internal landscape and developed a plan thatresponds to things seen and to things anticipated. So what’s left?

Well for one, there is you and your role.Consider three scenarios as a part of your succession-planning effort.

SCENARIO IYou have designated an heir-apparent and have invested three years so far in

his/her active development as future leader. He/she leaves or dies. Now what?

SCENARIO II You are the picture of health. Maybe a little thick around the middle, but

otherwise almost the linebacker of your youth. You have been urged to have anannual checkup, just as you have been urged to develop a contingency plan. Like the theme song from Fame, “I’m going to live forever…” you say, “Yeah, yeah,yeah. I’m going to schedule a checkup and a planning session soon.” Except, onthe 11th hole, you complain of heartburn and soon drop, dying in one of the mostbeautiful settings on earth. Now what?

SCENARIO III You have a buy-out plan in place. Its success depends upon the success of

your take-over team in meeting certain financial covenants through their performance in running the company. The market softens. Covenants are notonly not met, the hole that is dug is likelyto be life-threatening. The five yearsyou’ve invested in the rather complextake-over plan are sunk costs. Now what?

Perhaps none of these scenarioscould happen to you. With little effort, youcan conjecture even more personalizeddisaster scenarios. Consider sharing theseor other scenarios with your key people.Get their input in crafting strategicresponses to these very real possibilities.Let them know you’re actually thinking

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about such mind-boggling subjects as the end of life and successorship within the company. Are you reluctant because you don’t want them to know that youdon’t have easy answers? This is exactly why you need to work through contingentscenarios as a team of thoughtful, concerned leaders and managers.

Part of the long-term strategy for any business must concern itselfwith succession planning. Every board of directors should insist uponcontingent and long-term planning for both management succession and disposition of ownership. To ignorethese subjects is both folly and borderson malpractice for board members.

People must develop in order to create a pool of candidates. Part of that development must come from experience, not classroom orbook learning. Normally, we think of marketing strategies as a responseto our perceived needs in the marketplace. Should certain marketstrategies exist for the creation ofexperience? Should you employ otherforms of organizational structure forthe decision-making experience that it will engender? Should the company

develop and employ different information platforms that will enable persons without your long years of service to be more effective should they step into your shoes?

You should plan strategies to develop and extend competitive advantage. You should plan strategies that aim to optimize your financial and human resources.You should plan strategies that attract and retain great people. You should planstrategies that meet the aims of your stakeholders. But you must plan strategiesthat will enable your business and your family to cope with the inevitable, as well. n

Jerry Jackson is an FMI chairman. He may be reached at 919.785.9222 or by e-mail at [email protected].

GENERAL CONTRACTORSFragmented and Mature Marketing

Firms providing construction, engineering, and related services to owners of capital projects will face some unusual future challenges. The construction and design industries in the United States are both very mature and highly fragmented — so is the marketing that is being applied to them. To some extent,this fragmentation and maturity has allowed company leadership to often getaway with a disconnect between what they say in their board meetings about

People must develop in order to create a pool of candidates. Part of that development mustcome from experience,not classroom or book learning.


strategy, and what really happens in the procurement of business. The firms that win in the future are going to move past this and achieve much closer alignment between their leaders’ strategy statements and their actual execution.Let’s consider:

• A brief history of marketing in this industry and why it is mature• What a CEO typically expects from marketing and business development• Eight other expectations that may serve the firm well beyond the norm

and help to drive a position in the market• Total organizational alignment with the marketing strategy.

Thirty years ago, marketing and business development by industry firms was embryonic and, in many cases, involved little beyond routine project chases.Design firms engaged in some business development, but their power positionwas much greater and the competitive dynamics much less intense. The concept of“selling” the services of a contractingfirm had little traction in the market-place until the early 1980s. At thattime, some general contracting firmshad breakthrough success with sellingconstruction services. During the balance of that decade, firm leadersgot the message that a structuredmarketing and sales program was highly desirable, and in many cases,necessary for survival and prosperity.

In the early 1990s, the U.S. construction and design marketscrashed en masse. Owners had justreceived a decade of education onhow to deal with the marketing andsales functions of service providers.Owners began to demand fast contactwith operating people, i.e., those who would actually be designing andbuilding their projects. As a result, therole of the business developer had to shift to more of a “lead generator,” while firms spent the balance of the decadetrying to teach engineers and superintendents presentation skills (a suspectproposition, even while it was popular).

By the late 1990s, team presentations had become the norm. The role of various types of service providers was overlapping, blending, and converging.

The marketing messages had become confusing to the uninitiated owner and highlyundifferentiated to those with experience.

As we look at the landscape today, we see an excess of service providers and service offerings, and a virtual cacophony ofmarketing messages associated with them all.

As we look at the landscape today, we see an excess of serviceproviders and serviceofferings, and a virtualcacophony of marketingmessages associatedwith them all.

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This proliferation of services and messages is prima facie evidence ofthe fact that, not only is the industrymature, but marketing and businessdevelopment has moved through theentire life-cycle curve in approximately20 years. Experienced owners knowthis, so they are cutting quicklythrough the technical jargon and usual promises to whom they feelthey can develop their best possibleprime relationships.

As industry CEOs look at thislandscape, there are some obviousand significant challenges. In a climatewhere relationships at and beyondthe point of sale have become paramount, firms find themselvesfilled with technical talent, but with a lack of individuals who can really

build and maintain the relationships necessary to win in the marketplace. Add tothis that, as services have become commodified by clients in the marketplace, the marketing and business development department has become commodifiedinternally. The expectations for marketing and business development havebecome limited — generate proposals, generate leads, manage us through theprocess, and operations will take it from there.

Maybe it’s time for some contrarian investing. Instead of lowering expectations,CEOs need to look beyond the routine to what might be an elevated expectationof the marketing and business development function. Here are eight possibilities:

STRATEGY VALIDATIONFar too often strategy development in industry firms is limited to an annual

“walk-in-the-woods.” The antidotal opinion of executives rules the day, with high-quality market research being limited or sometimes even absent. Constructionspending is really not thatmysterious. It is certainly a reasonable expectationof the marketing functionwithin a firm to be providing top managementwith the quality marketresearch necessary tomake the right decisionsabout the marketplacedirection. A primary roleand expectation of themarketing function shouldbe to help put the company“in the way of the money.”

Instead of loweringexpectations, CEOsneed to look beyond the routine to whatmight be an elevated expectation of the marketing and businessdevelopment function.


DRIVE A POSITIONWhether you seek to be branded as a market specialist or the “go-to” firm

in a region, the marketing department should be responsible for driving a specificposition in the mind of the target client base. Many people think that the mostimportant role of marketing is to “create more sales.” Not so. The most importantrole of marketing is to increase your ability to be selective — a job that neverstops. One of your key measurements as a firm should be how much work you can say “no” to each year.

MORE NEGOTIATED WORKThis is the ultimate measure of success. Numerous firms have a marketing

department, but when the analysis is done, they can point to few projects thatthey “wouldn't have won anyway.” There has to be negotiated-work opportunitiesspecifically resulting from the effort.You really don’t need a marketingdepartment to pump out RFPs, get ona lot of lists (even select ones), andmanage a lot of ad-hoc sales activity.However, you do need a robust marketing function if you are going to be in the right place at the righttime, get unique and sole-sourceopportunities, and truly lock in clientrelationships.

PURSUE CLIENTS, NOT PROJECTSOwners often complain that

they feel service providers are “transactional” in their orientation. A common refrain is, “we never hearfrom them unless it is to ask what kind of upcoming work we have.” Themarketing and business-development function should help the firm transcend this type of identity in the mind of clients. The department should take a significantleadership role in helping to mold the firm’s culture in such a way as to obviatethis perception.

REPEAT BUSINESSWe all know that this is easier to obtain, and it costs a lot less. Repeat clients

also generally tend to be easier to work with. In the parlance of Wall Street stockanalysts, repeat business is our industry equivalent of “same-store sales,” which is a fundamental driver of value in the business. The marketing and business development function should take a primary role in ensuring a growing volume ofthis. This goes hand in glove with the relationship-management function cited above.

VALUE-ADDEDThe marketing and business development function should be the ultimate

execution vehicle for the firm’s stated strategy. If the firm says, “We are going todeliver a unique team, a unique knowledge base, a unique technology, turnkey

The marketing and business developmentfunction should be the ultimate execution vehicle for the firm’sstated strategy.

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services,” or some other promise, the marketing and business development function has to ensure that it is really executed. It’s also up to the function to takea lead role in helping top management identify what unique promises can bemade (in general, or specifically for a given project).

SUPPORT A DIFFERENTIABLE POSITIONWhat is your firm’s brand identity? Is it to dominate your town’s market for

what you do? Is it to dominate a national market? Is it to stand for a specific service? A unique operating model or business proposition? Closely aligned withthe differentiation issue mentioned above, the marketing and business developmentfunction should be responsible for creating that specific impression in the

marketplace — a more objectiveproposition than you might imagine.Fundamental research can tell youwhether it is being done effectively.

SUPPORT YOUR COMPETITIVE DIMENSION

Ultimately, this will be the most important long-term role that top management and the marketing/business development function ownconjunctively in the future. The successful firm of the future will beclear and intentional about exactlywhat the firm’s operating model is

and will, ultimately, align every aspect of the firm in its execution. These firms will achieve “fluid synchronization” with the market, and the marketing/businessdevelopment function will be the prime vehicle for organizational execution.

Marketing in this industry cannot possibly stay where it is today. Respondingto RFPs and generating leads is simply not asking enough. The marketing programof the future will drive home your value-added strategy, your desired market position, and help align your organizational and operating model around thosesame propositions. The results will not be nebulous. More negotiated work, moreopportunities to say “no,” and more repeat customers will be the ultimate endgame of well-implemented marketing. n

Hank Harris is the president and managing director of FMI Corporation. He may be reached at 919.785.9228 or by

e-mail at [email protected].

MERGERS AND ACQUISITIONS Opportunism and Patience

In the construction industry, it makes sense to pause occasionally and lookaround to see who is still standing. Every year it seems that a few big names in theindustry fall. Last year it was J. A. Jones and Encompass among others. Ours is a


tough industry, and survival is no smallaccomplishment. Prospering is to beapplauded. I have always admired theentrepreneurs that drive this industry and continue to stand and even thrive in the face of change.

As industry participants for many decades, we note some commoncharacteristics of those that survive and prosper. The obvious characteristic is a fundamental grasp of the industry, its inherent fragmentation, dependenceon people, and waves of activity. This grasp often causes survivors to react withsilence when someone speaks with a seemingly brilliant business idea from another more “sophisticated” industry. Occasionally, they view the imported ideaas an opportune time for profit taking as we saw in the consolidation wave.

The less obvious characteristics of those still standing and prospering arebeing opportunistic, yet patient. Opportunism is key because the constructionmarket is continuously changing and surprising us. What seems an obvious building need is not always built. Our decaying infrastructure serves as a goodexample. What seems like a good geographic market or construction specialty in which to participate is not always a profitable venture. Those that prosper take advantage of new opportunities to add to or replace their current pursuits.

They don’t rest on their laurels, nor are they afraid to replace thegolden goose. Failure to pursue new opportunities often leaves companiesempty-handed when values shift orwhen competition drowns out marginsin markets of apparent opportunity. In other industries, grand strategy or new products may drive change; in construction, success more often comes from identifying good opportunities and building upon them.

Patience is also a virtue in construction; speed can be dangerous.How many organizations have weseen grow dramatically in revenuesonly to outrun their people or theirbalance sheet? It is very hard to turn down a seemingly open-endedopportunity, but patience to pursue

opportunity within one’s capability is more likely to bring success. We have seenmany a good contractor successfully pursue one new opportunity while patientlyturning down another good opportunity simply because it would stretch theirresources. Patient contractors tend to do their due diligence and are as willing towalk away as they are open-minded to consider new opportunity. Great marketinginvolves saying “no” as well as saying “yes.”

It is very hard to turndown a seemingly open-ended opportunity,but patience to pursueopportunity within one’scapability is more likelyto bring success.

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Being patient and opportunistic lends itself to a complex strategic plan orbusiness model, so business gurus do notwrite extensively on these topics. However,opportunism in selection and patience in execution may be more important thanthe underlying strategy itself.

Successful contractors likely developthese characteristics over time from theirsuccesses and failures. Having said that, it is not uncommon for even successfulcontractors to lose patience or fail to take advantage of opportunities, causingproblems for their business.

Often, newcomers to the industry and developing leaders in the industry are challenged in understanding the simple notions of patience and opportunism.The value of opportunism and patience is something we hope our industry’s leaders will develop. n

Stuart Phoenix is a senior consultant with FMI Corporation. He may be reached at 919.785.9241 or by e-mail

at [email protected].

MERGERS AND ACQUISITIONS Value Creation Through Effective M&A Integration

Closing a merger and acquisition (M&A) deal frequently brings about a sense of completion, excitement, and even euphoria to those involved in planningand executing the deal. However, for many at the combining firms, the hard workof integration begins after deals are closed. Further, without an integration plan

articulating the value-creating elementsof the deal, the post-deal phase frequently generates unproductiveconfusion and conflict. Poorly managedintegration is also a major cause of the50%–75% failure rates consistentlyreported by M&A scholars.

TWO OPTIONS FOR INTEGRATION:SWAT TEAM & LAISSEZ-FAIRE

The common wisdom is thatthere are only two options for M&Aintegration. The first option involvesacting swiftly and decisively by usingthe SWAT (special weapons and tactics) team approach popularizedby acquisitive firms such as TYCOInternational. I saw the disastrousaftermath of this approach in onedeal completed in the early 1990s.

Closing a merger andacquisition (M&A) dealfrequently brings abouta sense of completion,excitement, and eveneuphoria to thoseinvolved in planning andexecuting the deal.


A large division of a Fortune 500 industrial manufacturer had purchased a muchsmaller, niche manufacturer. The acquirer quickly changed information systems andother business processes at the acquired firm in order to eliminate redundanciesand realize synergies. The principals of the acquired firm were retained for oneyear to assist in integration, which was intended to be swift and hard-hitting.

Unfortunately, at the end of the first year the acquired company was in chaos as a result of the many changes that had been forced upon the acquiredmanagement team. Sales substantially declined largely as a result of dramaticchanges in the sales force. Operations personnel struggled to design and manufacture their specialized product due to the imposition of the acquirer’s systems, which were not designed with the acquired firm’s products in mind. Theacquired principals left soon after the contracted year was complete, taking alongmuch of the acquired management team (many of whom were family members) to start a new business in an area that did not violate the non-compete agreementthey had signed. As a result, the performance of the acquired firm slipped evenfurther, and many years wererequired to reach pre-deal sales levels. Some close to thissituation say this firm neverregained the level of expertiseand market presence it once had.In any case, it is clear that thisdeal did not produce returns inexcess of the cost of capital.

Some firms attempt to avoidthis type of disaster by using thesecond M&A integration option,sometimes called the laissez-faire(or leave-them-alone) approach. Inthis approach, acquired firms arelargely untouched and continueto operate in existing facilitieswith existing management teams.I have been involved in severalintegration efforts using thisapproach, and have twice servedas an integration manager using a largely hands-off approach.

In these efforts I haveobserved mixed results. Although damage to acquired firms has been avoided or at least delayed, the laissez-faire approach creates other problems. Forinstance, expected synergies may be forgone or delayed if coordination betweencombining entities is required to realize synergies. Further, the isolation createdby the laissez-faire approach can create unexpected problems in basic businessfunctions such as financial reporting, the processing of customer orders, and other areas requiring collaboration among combining personnel. Finally, the laissez-faire approach is routinely challenged — overtly and covertly — by operationspersonnel seeking to make changes despite the stated approach that theacquired firm will be left alone.

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IN SEARCH OF A MORE EFFECTIVE APPROACH TO M&A INTEGRATIONSince both the SWAT team and laissez-faire approaches created problems in

the integration efforts in which I have been involved, I sought to develop a moreeffective approach in my recently-completed doctoral dissertation. The approachI developed builds on the insights of Harvard’s Joseph Bower who noted thatacquisitions are typically done for one of five reasons. These five reasons areshown below with the percentage of each type of deal observed by Bower in the sample he studied. A sixth category, purchases by investors with none of thefollowing clear intentions, represented 13% of deals.

1. Consolidation of industries with overcapacity — 37% (example: Daimler-Chrysler)

2. Product or market extension — 36% (example: Quaker Oats purchase of Snapple)

3. Roll-up of competitors in geographically fragmented industries — 9% (example: Bank One’s purchase of numerous local banks in the 1980s)

4. Industry convergence — 4% (example: AOL-Time Warner)

5. Substitute for R&D — 1% (example: Cisco’s purchase of numerous high-tech companies)

Two things are important to keep in mind in considering Bower’s five reasons for M&A. First, the examples shown above are provided to illustrate theprimary intent of the deal rather than as exemplars of success. Second, most deals

reflect a combination of two or more of Bower’s types, but the categories canbe useful in designing more effectiveapproaches to integration. For example,the SWAT team approach is frequentlyappropriate in the first category sinceovercapacity creates redundant costs, and reducing these costs is typically a key driver of value. Further, since the acquireris typically from the same industry as theacquired firm, the acquirer is more likelyto be familiar with the acquired business.Thus, if quickly executed reductions ofstaff and other costs lead to an exodus ofmanagerial talent, the acquiring firm maybe reasonably well-equipped to operatethe acquired firms despite a potentiallydisgruntled, frightened workforce.

Despite the potential appropriatenessof the SWAT team approach in overcapacity situations, this approach is likely toproduce the kind of disastrous results illustrated above in each of Bower’s fourother categories. For example, in geographic rollups acquired entities are largelyleft alone to operate in local environments except for the imposition of new brandidentities (such as in the Bank One example), and some measure of standardized,streamlined processes. However, these processes had better be perceived by


local personnel as beneficial or anexodus similar to the one describedabove is a likely result.

In product or market extensions(such as the one illustrated above that led to disastrous results), the key to creating value is combining theacquired firm in such a way as to create synergistic effects withoutdestroying the acquired firm. Suchsynergistic effects might include introducing the acquired firm to theacquirer’s distribution network or new distribution channels, sharedsales efforts, improved R&D methods,or other strengths.

In acquisitions done as a substitute for internal R&D efforts, the primary synergy typically involves the integration of acquired technology into the acquirer’sproduct offering. Here, a disgruntled or frightened workforce can destroy anypotential opportunity to create synergies since a high level of creative collaborationis typically required to create unique hybrids of the combined technologies — suchas in the case of AOL-Time Warner.

AN M&A INTEGRATION APPROACH FOCUSED ON VALUE CREATIONGiven the different types of M&A situations suggested by Bower and the

virtually unlimited number of combinations of these five categories in a given situation, how might effective integration planning and execution proceed? The process I developed in my dissertation outlines the followingsteps. To begin, it is critical to developa basic understanding of the key drivers of synergistic value among the core group of senior managersinvolved in pre-deal activities. Forexample, in the disastrous casedescribed above, this group mighthave involved the CEO and each ofhis or her functional direct reportsfrom the acquiring firm and the two partners of the acquired firm.

My approach suggests the need to articulate the critical successfactors among the combining firms,which, when combined, offer thepotential for synergistic value creation.In the example above, these mighthave included the acquiring firm’sstrength in its distribution network andthe acquired firm’s unique products.

In acquisitions done as a substitute for internal R&D efforts,the primary synergytypically involves the integration of acquired technologyinto the acquirer’s product offering.

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There are two key components of this step. First, the combining management team must articulatethose elements of the combining firmsthat are truly critical to the success ofthe combined firm vs. those merelycollateral to its success. For example,the acquirer’s information systemsmight have offered some benefits tothe acquired firm, but candid pre-dealdialogue might have revealed thatthese systems were merely collateralto the success of the combined company, or that the disadvantagesoutweighed the advantages.

A second key component is todetermine the degree of consensus about the critical strengths of the combiningfirm. For example, had this kind of dialogue occurred prior to the close of the deal described above, it is likely that a lack of consensus about the value of theacquirer’s systems would have been identified.

Assuming consensus could be developed around a relatively small number of critical success factors, the next step is for the combining management team toarticulate ways in which these factors could be combined to create value.Preliminary action steps could also be planned, but pre-deal execution of these plans must be avoided to prevent violation of federal “gun-jumping” legislation designed toprevent anti-trust violations. In theevent that consensus could not bedeveloped around such an integrationplan, a combining management teammight be well-advised to postpone the deal closing or even considerabandoning the deal.

Execution of an integration plan typically requires the combinedefforts of a number of people fromthe combining firms who have nevermet, know little or nothing about theircounterparts and — unless specialactions are taken — know little ornothing about the critical success factors required to realize synergies.When I served as the integration manager on two combination effortsin the late 1990s, my primary role was to involve the required peopleand provide leadership to guide the

Assuming consensuscould be developedaround a relatively small number of critical success factors, thenext step is for the combining managementteam to articulate waysin which these factorscould be combined to create value.


integration effort along the intended path. However, if the involvement of scores or even hundreds of combining personnel are required to realize synergies,it can take months to properly involve them in the integration process.

To address this need, my approach suggests the need for a large meeting —similar to the Work Out process developed by General Electric — involving key personnel whose involvement is required in the integration process. In thismeeting, the key drivers of value creation and preliminary integration plans could be introduced by the senior management team responsible for driving thedeal. Timelines for completing integrative actions could also be established, andconcerns about problems unforeseen by senior managers could be voiced by the middle-level managers typically charged with executing the integration plan.Further, these middle-level managers would also be provided the opportunity to meet, form working relationshipswith their counterparts from the combining firm, and begin to developthe processes required to realize synergies.

The approach I have designedrequires candid dialogue during thepre-deal period, a time typically beset by the strategic manipulation ofinformation to influence negotiations.It also requires a moderate investmentof time, money, and effort around the time of the deal closing, and againat regular intervals to monitor progress. However, without such effort combiningfirms had best be content to face the fact that many M&A efforts fail to createvalue and that many deal closings are time not for euphoria, but for deep concern. n

Keith Bahde is director of business development for Cooper Lighting, which is headquartered in Peachtree City, Ga.

Cooper Lighting is the second largest North American manufacturer of lighting fixtures for commercial, industrial,

residential, and utilities market, and is the largest division of Cooper Industries Inc., a Fortune 500 company with

2002 revenues of $4.0 billion. Keith can be reached at 770.486.5267 or by e-mail at [email protected].

Quarterly Profile

Profile in Leadership: Lawson Magruder

“I have found that the best observations andideas can come from any level in an organization.”


When asked how General LawsonMagruder defines the “right stuff” for determining

what makes a great leader, he is harkened back to a study he conducted withthree peers in 1985 – 1986 when they were lieutenant colonels attending ArmyWar College. The primary objective of the study was to identify the common organizational characteristics of truly excellent Army brigades (units with anywherefrom 2,000 to 3,500 soldiers). They used a simple methodology: conduct background research, survey fellow studentswho were former battalion commanders, conduct field research and interviews at four Infantry Divisions, and then selectup to 10 characteristics that define theexcellent brigades. The study took morethan seven months and resulted indefining eight “Pillars of Excellence”that were promulgated throughout the Army well into the 1990s. These“pillars” are found in the vast majorityof excellent brigades, like those involvedin the recent defeat of the Iraqi Army.

This article focuses on applying theeight “Pillars of Excellence” within yourorganization. The pillars are: mission,power down, teamwork, high standards

Lawson Magruder served 32 years in

the Army, retiring in 2001 as a lieutenant

general. He served in combat in Vietnam

and Somalia and commanded the historic

10th Mountain Division. His last posting

was deputy commanding general/chief

of staff of the Army’s largest command.

He is a consultant with FMI focused

on senior leader development. In this

article, he teams up with Tom Alafat, a

Consultant with FMI and the director of

FMI’s Leadership Institute, to discuss the

lessons Lawson gleamed on leadership

in the military and how they apply to

the construction industry.

by Tom Alafat and Lawson Magruder

38 n quarterly profile: lawson magruder

and discipline, caring, consistency,excellent performance, winning spirit,and positive command climate.

MISSION Having a clear purpose is

fundamental to any organization’s success. Nothing should receive moreattention from leaders than makingsure that the organization aligns, at all levels, toward achieving their overall purpose. In our study, the best leaders understood that theirunits have a finite amount of energy,resources, and time and could notwaste time performing functions thatwere not tied to the overall purposeof the organization. The same is truefor organizations in the constructionindustry. The most successful companies have a clear purpose that everyone understands in theorganization. That purpose energizespeople and focuses their efforts in the same direction, toward thesame goals.

Develop With the End in MindIn highly successful combat units,

leader development is highly valuedand was evident in each successfulunit we studied. Leaders at every level took at least a week each quarteraway from their units to focus on honing critical leader tasks and skills.Off-duty study of their profession was encouraged and rewarded.Leader development demandedhands-on training before leading soldiers in a mission. Training of theunit was always well-planned and

practical. More importantly, it was relevant to the unit’s real-world mission andoverall purpose. Specific, timely, and purposeful feedback was also encouragedand evident at all levels with after-action reviews after every training event, largeand small. Procedures, processes, and systems were continually being improvedbased on feedback from even the lowest level. Everyone’s input was valued and appreciated.

Top firms in the construction industry have a strong commitment to developingleaders in the organization that can help them achieve future goals and fulfill their

PROFESSIONAL PROFILE

Lawson served 32 years in the Army, earning promotion to lieutenant general and the distinction as the youngest general in his peer group. He also has more than 20 years of practical experienceleading large, complex organizations. He was the commanding general of three major organizations and installations, including the historic 10th MountainDivision. He has led soldiers in combat inVietnam, on domestic disaster relief missions, and peace operations worldwide.He is recognized as one of the key trainerswho contributed to the rebuilding of theArmy after the Vietnam War.

Lawson was awarded the DistinguishedService Medal, the highest peacetime award in the military, and the Order ofAaron and Hur, for his leadership in his faith community.

Lawson holds a bachelor’s degree in international marketing from the University of Texas at Austin and a master’sdegree in personnel management fromCentral Michigan University. He attendednumerous military leadership schools,including the Army War College. His military education includes the InfantryOfficer Basic Course, Infantry AdvancedCourse, the United States Army Commandand General Staff College, and the ArmyWar College.

His awards and decorations include theDistinguished Service Medal (1 OLC),Defense Superior Service Medal, Legion of Merit (3 OLC), Bronze Star Medal (1 OLC), Meritorious Service Medal (3 OLC), Air Medal, Army CommendationMedal (1 OLC), National Defense ServiceMedal, Humanitarian Service Medal, theCombat Infantryman Badge, MasterParachutist Badge, Ranger Tab, Air AssaultBadge, and the Canadian and ColombianParachutist Badges.


mission. Developing people to fill current and future leadership positions in anyorganization is critical to sustaining the company and achieving its purpose.

Communicate PurposeOrganizations that encourage every member to contribute ideas and

suggestions are better prepared to meet the demands of the future. Employeesare more eager to “go into battle” if they understand the purpose of the organization and their role in creating or sustaining its success. Best-of-class organizations regularly conduct post-action reviews as they complete projectphases to learn from the successesand failures they encountered.

A critical element of our militarysuccesses in Afghanistan and Iraq has been a clear and consistent focuson the purpose of the organization.Targeted troop activity and training as well as a continuous cycle of evaluation and improvement havehelped to create extremely effectivecombat organizations. Organizationsthat hope to “win” in this economy will have to focus on their mission,aligning and training their people totake the organization to the next level.

POWER DOWNRetired Lt. Gen. Walt Ulmer

coined the term “power down” whenhe was a Corps Commander in theearly 1980s at Ft. Hood, Texas. Powerdown means to push enough powerdownward to allow subordinates to do their jobs. Power down means placingauthority at the lowest appropriate level within the organization.

The team’s observations of excellent Army brigades found authority andaccountability rested at every level with the next higher level maintaining ultimateresponsibility. This is extremely important in both military and civilian organizations.In construction firms, as in the military, the leaders at the top are ultimatelyresponsible for the direction of the company. The power down approach allowstop leaders to focus on the direction and strategy of the organization, forcingleaders and employees further down in the organization to make the daily decisionsregarding strategy execution.

1. Encourage risk-taking: In the units visited, one philosophy prevailed:Commanders and leaders at every level determined what to do and gave theirsubordinates the freedom to execute. Current and future leaders had freedom to learn, grow, and make mistakes. Risk-taking without fear of punishment was common. Mistakes were opportunities for growth, rather than viewed as failures.

2. Shared decision-making: In addition to risk-taking, unit members at all levelswere involved in decision-making. The best firms in the construction industry

The pillars are: mission,power down, teamwork,high standards and discipline, caring, consistency, excellentperformance, winningspirit, and positive command climate.


share leadership and authority at all levels in an appropriate manner. They areconstantly grooming employees to advance within the organization. Senior leadersstay focused on the legacy of talent they will leave when they exit the organization.

The prevailing attitude was that each member of the command was a vitalpart of the team, whose opinions and ideas were valued. Leaders down to thesquad (supervisor/foreman) level had a part in identifying safety and training

needs. This collective approach madeeach player feel like he had a part inthe success of the unit. Leaders atlower levels put the work in place andthis puts them in a unique position to witness situations in the workingenvironment and create ideas forimproving processes, procedures, and systems. Many top leaders aresurprised at the quality and quantityof ideas that come from lower levelleaders who feel valued and heard.

Intentional DevelopmentThe units in Lawson’s study

that practiced “power down” understood that the key to successrested with leaders at all levels.

Authority and responsibility rested not on rank and position but on tactical andtechnical proficiency. Providing increasing levels of authority and responsibilitybased on personal growth and proficiency resulted in increased trust by leaders higher up the chain of command. They had confidence that their reportscould do the job and supported them in their efforts to take risks, assume responsibility, and performtheir jobs more effectively.

It requires patience to evolve and structuretraining programs toimprove leader proficiency,and courage to identifyand remove those thatcannot meet the stress ofresponsibility placed uponthem. Top firms in the construction industry havea strong commitment todeveloping leaders in the organization who canhelp them achieve futuregoals and fulfill their mission. Developing peopleto fill current and future

Many top leaders aresurprised at the qualityand quantity of ideasthat come from lowerlevel leaders who feelvalued and heard.


leadership positions in any organization is critical to sustaining the company and achieving its purpose.

As you develop in your leadership skills and continue to empower people in your organization, remember that this is a slow process of growth and learningfor both parties. Be patient with yourself and others as you shift responsibility.Make an intentional effort to share decision-making and authority whenever possible. Finally, take the time to get to know your people. Discover who your starplayers are and invest in their development.

Our success during recent military operations across the globe has been due in no small part to the decentralized execution of operations under very challenging and dangerous conditions. In times of an unstable marketplace withrapidly changing conditions, it is important that organizations in the constructionindustry be equally prepared to meet challenges head-on.

TEAMWORKCooperation, trust, mutual support, and unity of effort flourished among

the soldiers and leaders in the exceptional units Lawson’s research teamobserved. Excitement and pride about collective team accomplishments seemedto emanate from every soldierobserved in these units. You could seeit in the snappy salutes, the positivegreetings, the exclamation of the unit motto and name, and the proud,sharp appearance of every soldier.Just what caused this spirit of prideand teamwork in these units? Thefollowing was found:

Reward TeamworkThe most senior leader was a

primary impetus and driver of teamwork. His primary focus was onhaving units compete against theestablished standard — not againsteach other. In the objective area of statistics, he would compare a battalion’s statistics against the standard. A great deal of time andeffort was spent in developing teamwork among all of his units, ensuring that policy and standard operating procedures were followed for theentire brigade and providing the assets and resources for battalions to collectivelytrain together. The brigade commander frequently encouraged and rewardedteamwork, reinforcing that there is no “I” in “we.” In the construction industry, firms often compare projects and project teams to one another. This creates competition and resentment between teams rather than cohesiveness and teamwork. Instead, companies should set a standard for adherence to projectdeadlines, budgets, safety, and other criteria, and hold everyone accountable tothat standard. This makes it possible for every team to be a top performer as

As you develop in your leadership skills and continue to empower people in your organization, rememberthat this is a slow processof growth and learningfor both parties.


well as to identify teams that are performing below an established standard without creating internal tension within the organization.

Open CommunicationOpen communication was strong

throughout the brigades visited. Thebrigade and battalion staffs regularlytalked and exchanged information and ideas. Commanders understood, articulated, and widely distributedcommon vision, goals, and objectivesfor the brigade in their unit. It isimportant for everyone in your organization, not just everyone on agiven project, to be working towardcommon organizational goals.

Build Relationships In every unit observed there were frequent social events bringing together

leaders and spouses from all levels for social, family, and sports programs. Therewere also strong family-support networks for spouses to help them cope with separations caused by deployments and training events.

Employees often feel they have to choose between spending time at work or at home. By separating home and work life, there is constant struggle and tension. Periodically, companies should encourage spouses and children toattend corporate functions and they should design these events to be family

friendly and foster interaction. Therelationships forged in the workplacewill grow stronger, and participationand teamwork will increase.

Reward SuccessRecognizing and rewarding

individual and group effort enhanceteamwork. Commanders recognizedteams at all levels when they exceededthe standard set forth by senior leaders.Time off, letters and certificates ofappreciation, trophies, unit coins, andceremonies were used to rewardteamwork and enhance cohesion. It

is vital that people feel recognized and rewarded for performing well. Gone arethe days that, “no news is good news.” Receiving awards and recognition for a “jobwell done” increases the pride of team members and encourages them to continueworking hard to achieve personal and corporate goals.

These observations from excellent Army organizations are still relevant today in the military and civilian sectors. Teamwork is like a muscle: the more you

Recognizing andrewarding individual and group effortenhance teamwork.


exercise it, the stronger it gets. The non-quantifiable edge can make the winningdifference on the battlefield for a military outfit and on the “business field” for an organization.

HIGH STANDARDS AND DISCIPLINEOrganizations demonstrate discipline at corporate and at individual levels.

Organizational discipline is the ability to focus on long-range plans and objectivesand the ability of the entire organization to keep its sights set on them. It is therole of organizational leaders to set the tone regarding standards expected withinthe organization. The main theme of unit discipline was the execution of its tactical mission, which the entire team typically performed asone. This is where the enforcement of the organization’s standards for performance and discipline play out in the day-to-day operations of thecompany. Organizations are only asgood as their people. One key tomaintaining quality is to ensure thatthe people within the organizationhave the personal discipline to adhereto those standards and strive for continuous improvement.

Communicate StandardsThe central role of the most

senior leader is to be the pacesetter in establishing standards and discipline for the organization. Leaders, in the study, ensured that standards were widely known throughout the brigade and were “believable, achievable, andenforceable.” Tools used to articulate and establish standards came in the form ofwritten policies or objectives, letters followed by a viable inspection, or a qualitycontrol/quality assurance program. It is vital that organizational leaders in the construction industry make the same effort to spell out what their standards are forperformance within the organization. Standards must be consistent across units,and known to all employees. Leaders must continue to set the tone and climatewithin the organization by modeling the discipline and performance standards heor she wants others in the organization to live up to. While performance issues arenot pleasant to deal with, it is critical that leaders foster an atmosphere of calmprofessionalism where integrity and honest reporting is the standard.

Enforcing StandardsThe NCOs (foremen and supervisors) in the units studied were the primary

enforcers of the standards. They took charge, reinforced the standards, and supervised soldiers in meeting established criteria. They provided continuous feedback, both positive and constructive, to their soldiers. The officers (projectengineers and managers) also visibly modeled the behaviors required to meet standards. They shared hardships with their soldiers and ensured there were no

Organizational discipline is the ability to focus on long-rangeplans and objectives andthe ability of the entireorganization to keep itssights set on them.


double standards. It is important that you model the behaviors you want to see inothers within your organization. Holding yourself to the same standards as everyoneelse builds credibility that others are not being held to unreasonable standards ofdiscipline and performance.

One-on-One CoachingWhile it is important to hold people in your organization to high standards

of discipline and performance, it is equally important to recognize that peoplemake mistakes. Mistakes may be due to a true lack of understanding of the standards, a tendency to push the envelope, or a failure of self-discipline. Takingthe time to understand the reasons for poor performance or discipline and

working to correct those impedimentscan yield far greater returns in performance from this employee and others who have witnessed theinfraction and its consequences.

CARINGGenuine care for others is

extremely important for leaders to be successful over long periods.Through his team’s research andalmost 10 years as a general officer,Lawson compiled a list of tips forleaders on how to care for their people. He also draws these tips fromhis experience as a commander/CEOof organizations and installations withas many as 12,000 soldiers, 2,500civilians, and 10,000 family members.

Know Your PeopleThe best way to learn about the

challenges your people face is to visit them at their workplace. Lawson went ontotheir turf for briefings and updates. He found them most candid when he was in their work environment, particularly if their job was in a technical field that wasnew to him. He found that a leader encourages candor, open communications, and learning if he sits down next to a direct report and has him/her coach him on his technical field.

Walk AroundDo not tie yourself to a set schedule. Lawson did this for the following

reasons: First, he wanted to catch soldiers in action doing good things withoutthem knowing he was coming. Second, he did not want any resources spent onpreparation for his visit. Last, he wanted to spur open, unrehearsed dialogue withsubordinates. You can well imagine the angst he caused when he first visited aunit unannounced. His leaders wanted to have their best foot forward for him, but after awhile they understood his visits were for him to learn more about them and their challenges.

While it is important to hold people in yourorganization to highstandards of disciplineand performance, it isequally important torecognize that peoplemake mistakes.


Lawson’s rule of thumb was to never let two consecutive days go by withoutwandering around and catching his people doing extraordinary things and thenpersonally thanking them for their hard work. If you follow this advice, you areguaranteed to enjoy your work more while you get to know your most valuedresource — your people — even better.

Give AssignmentsWhen he was a colonel, Lawson took command of a brigade of 3,500

soldiers that had suffered under a very authoritarian commander for two years.Junior leaders were afraid of the brigade commander and his staff. One of thetools he used to open communications with his leaders was a reading assignmentprogram. He found positive articles on leadership and required leaders to render atwo-page response to directed questions about the command climate, policies, andoverall environment in the unit. He personally read the responses and providedfeedback to each leader. After four months of reading responses and dialoguingwith leaders at all levels, he was able to open communications and restore theirfaith in senior leaders and the direction he was heading with the brigade.

Open Your DoorLawson seldom kept the door closed to his office. Sure, there were occasions

when he needed privacy for conversations or quiet to work on a difficult issue.However, his door was open the majority of the time. He also made a habit of getting up from behind his desk to conduct personal or lengthy conversationswith his folks, and never answered e-mail while someone was with him. He found it important to focus on them and make them feel comfortable in his office. Thiskind of atmosphere encouragesopenness and candor.

Celebrate With PeoplePausing to put the

spotlight on your winners isextremely important for morale,teambuilding, showing you care, and getting to know yourpeople. Lawson always tried topersonalize celebratory eventswith special facts about the honoree. Be sure to allow flexibility in your schedule forevents to honor employees aswell as celebrations such asemployee birthdays.

Be PersonalIn the Armed Forces, excellence is recognized with awards and decorations.

Truly special achievements and performance result in a beautiful ribbon beingpinned on a soldier’s chest. But ribbons normally are awarded after a few years of


outstanding performance in a job. Lawson found early in his career that his people needed recognition more frequently than at the end of their tour of duty.He used personal handwritten notes and special unit commander’s coins to thankhis team members for going the extra mile on a task or for excelling when he“caught” them in action. He was amazed at the special places people displayedthese notes and coins to show them off to their peers.

CONSISTENT EXCELLENT PERFORMANCEOrganizations that consistently achieve superior results have leaders

who clearly articulate performance goals and objectives; create a non-threatening environment; allow its leaders to excel and grow; and believe in publicly rewardingindividuals for outstanding performance. Leaders in the construction industry shouldconsider utilizing the following four attributes of consistent excellent performance.

Performance ObjectiveIn the observed units, performance objectives were clearly defined,

understood by all, easily measured, and considered reasonable and attainable byeveryone in the organization. Lawson’s team saw competent leaders and soldierswith high standards and discipline working together to achieve outstanding resultseven under the most stressful and demanding conditions.

Learning EnvironmentSuperior performance and excellent results were expected and part of a

common thread that bound the brigade together as a fighting unit. Missions were given and standards were clearly articulated. The methods to achieve the

desired results were empowered to the leader who was directly responsible for accomplishing the mission. Leaders operated in a non-threatening environment and had the freedom to “do it my way.”There were “few peaks and valleys” in performance in these high-performingunits. The standards were such that when there was a decline in performance, due to some externalinfluence, the level continued toexceed expectations.

Common GoalsLeaders at every level strived

to achieve common goals and consistently kept themselves and

their organizations focused on paramount goals. Rather than a few “superstars” in the brigades that were visited — the team found quality leaders throughout.These leaders set the tone for consistency and ensured the accomplishment oftasks to standard. Shortcuts were not acceptable. Leaders did their jobs andinsisted that everyone carry their weight. Leaders acted proactively rather thanwaiting for the complete picture to get started on a task.


Public RecognitionIndividuals, teams, and units that

exceeded standards and achievedsuperior results in personal and professional activities received public recognition. Excellent brigadesreceived many awards. Leadersbelieved that success and timely, public recognition not only enhancedmorale, but also contributed immenselyto continued excellent performance.

WINNING SPIRITImagine going to work with

super-charged electricity in the air.Lawson’s team called it a “winning spirit” in the brigades that were visited. You cantell a company that has a winning spirit, in part, by the display of confidence in theability to do anything “against all odds” and the team’s willingness to openly tellyou “we are the best.” How does this attitude develop? The study revealed somekey factors that were present in the four brigades visited. They are:

Common ExperiencesSubordinate units (battalions) in the brigades trained together quite

frequently and looked for opportunities to cross talk and share ideas at everylevel. There were brigade-sponsored events like social and sporting events andbrigade-sponsored training events that brought units together. They would periodically run together as a brigade and would share ideas and experiences atvarious noncommissioned and officer-professional development forums. Soldierswere imbued with the brigade’s history, its accomplishments in combat, and itsheroes and what they had done.

As leaders, how often do youbring various members of your team together to work at improvingprocesses or addressing criticalissues? I have found that the bestobservations and ideas can come from any level in an organization. Trybringing members of a business unit or team together at least quarterly to talk about ways to improve how you conduct business.

Team PrideUnit reputation was extremely

important to soldiers in these high-performing outfits. The currentand past reputation of the brigade represented a standard to maintain at all costs.Soldiers recognized success-breeds-success. Everywhere Lawson’s team wentthey saw an impressive array of visible symbols of success in all of the units. Huge

I have found that the best observationsand ideas can comefrom any level in an organization.


trophy cases and entire walls were dedicated to unit and individual accomplishments. Soldiers and visitors could not look at all of these visible indicators of success without feelingan obligation to uphold the standards,sweat a little more, and even shedblood to uphold the reputation of the unit.

What do you do for your organization, your business unit, orteam to display their accomplishments?Everyone wants to feel a part of a team that is successful and that iscontributing to the success of theirorganization.

Challenging WorkSeveral junior soldiers said

they liked the physical and mentaldemands that realistic training placedon them. Standards in training wereclearly defined. When a training event concluded, the soldiers knew whether they succeeded, and if not, what improvements were needed to achieve successin the future. Training to a very high standard was a clear focus within these excellent brigades.

How many of your people have personal development plans in place withspecific training needs identified? A great way to distinguish individual performance

gaps is for each team member to complete a 360° survey assessment.

InnovationSoldiers at every level were

involved in looking for a better way to accomplish a task or mission. Oneway this was accomplished was byholding “after action reviews” followingevery event. These were spiritedaffairs with input from every soldier at all levels of the event. “Ownership”was present at every level to improveprocesses, tactics, techniques, andprocedures. Also noted, was thatthese units sought to actively recruitand retain the best people. There wasa tremendous energy, both potentialand kinetic, that was visible throughout.

Everyone knew in advance that specific reviews would follow, which promptedthem to do their best at all times.

One way to motivate your team members for excellent performance is to regularly conduct after-action reviews on all major milestones of a project or job.

Everyone wants to feel a part of a teamthat is successful andthat is contributing to the success of their organization.


This allows for continued learning, the opportunities to acknowledge outstandingperformance and opportunities for improvement.

As Lawson looks back on his personal experience in the military and now the business world, the Winning Spirit is probably the most desired characteristicfor an organization that wants to succeed. It clearly starts with the most seniorleader in the outfit and then will normally trickle down throughout the organization.The senior leader must “walk the walk” in his daily life and demeanor. He/she must be competent, exude confidence, possess a positive attitude regardless ofthe surrounding conditions, and must look for ways to recognize outstanding performers as well as build organizational pride.

POSITIVE COMMAND CLIMATEIn every high-performing unit visited, there was present what Lawson’s

team members called a “positive command climate.” This “intangible” was a directresult of the influence and actions of the senior leader in the organization — thebrigade commander. Soldiers who regularly interacted and observedbrigade commanders frequently made comments like, “he always has something good to say and whenthings are not going well, he has a wayof asking questions that cause you to think and learn” and “he’s nevercondescending.” A young leaderresponded, “I get energy being aroundhim. He is calm, confident, and alwaysout front.”

These leaders created a non-threatening environment wheresubordinates were encouraged to use initiative and learn by doing. If mistakes were made in the processbut led to learning and getting better — then so be it. Leaders never felt like theyhad to look over their shoulders. The great leaders are upbeat and have a way ofmaking those who follow feel good about themselves. They do all the things talkedabout in this article. For them, it is a way of being … not a set of techniques to use. n

Special thanks goes to Lawson’s classmates (Retired Col. Nick Turchiano, Retired Col. Bruce Scott, and

Retired Col. Jim Gass) who teamed with him on the Army War College research paper, “Excellence in Brigades” (1985–1986).

The great leaders are upbeat and have away of making thosewho follow feel goodabout themselves.

While every construction company has its own

operating policies and every project is unique,

all successful contractors follow some basic

business principles. The following are 10 rules, or commandments,

every contractor should obey.

THOU SHALT PLANPlan for long-term business success through business, strategic, and

management-succession planning. On projects, plan for profit with pre-job planning,daily task planning, and short-interval schedules. Write, share, and use these plansand schedules. Ensure employees’ success through career planning.

THOU SHALT KNOW THY COSTSKnow your costs and where you are in terms of schedule and budget on every

project, every day. Keep your costs up-to-date. Track committed costs in addition tocurrent costs. Project actual costs and cost-to-complete on a weekly basis. Developand manage budgets aggressively. Understand hidden costs and risk factors on yourprojects and in your business.

THOU SHALT HONOR THY CUSTOMERBe kind to your customers. Construction is a service business. Ask about your

customers’ satisfaction level. Respond quickly to them. Keep them informed, and

This article serves as a goodreminder for the basic businessprinciples that are the foundationfor a successful contractor intoday’s competitive industry. By Ken Roper and Eric Sanderson

The 10 Commandmentsof Contracting

52 n the 10 commandments of contracting

do not surprise them. Share information freely. Seek to understand your customers’ needs. Placeyourself in their situation and speak in terms theywill understand.

THOU SHALT MARKET THY COMPANYIdentify your vision. Share your vision.

Define what makes you different, and build a planto make that difference visible. Everyone in thecompany should be responsible for marketing and selling the company. All employees should speak highly of and represent the company well. Build a trackrecord of success with each customer.

THOU SHALT WORK SAFEProvide the best safety training available. Invest in the safest equipment

possible. Build a culture of safety. Reward safe work performance. Require daily safety toolbox discussions. Celebrate safety success.

THOU SHALT KNOW THY CONTRACTRead the contract and understand the

provisions. Know your contractual rights and obligations. Do not perform unauthorized workwithout signed written and approved change orders.Use field change authorization forms. Price and communicate change orders immediately with customers. Remember, the project is their project.Manage your contractual and project risks.

THOU SHALT MANAGE THY RECEIVABLESBill on time and collect on time. Maintain an efficient process for billing and

collecting. Provide clear and accurate billings. Lien projects with aged receivables whenappropriate. Know whom is authorizedto sign for change orders. Bill and collectchange orders timely. Define yourprocess for project closeout and executeit timely. Bill and collect retainageswithin days of project closeout.

THOU SHALT PROCURE WISELYIdentify suppliers, vendors, and

subcontractors for performance andreliability. Negotiate a master contract orpurchase agreement. Pay subcontractorsand suppliers on time. Negotiate and take advantage of early paymentdiscounts. Gain customers’ and suppliers’respect, trust, and loyalty.

Create a work environment thatattracts the best talent.Hire the best players.Coach and developthem for success.


THOU SHALT ENFORCE ACCOUNTABILITYDefine specific, measurable objectives. Provide

clear expectations and adequate resources. Hold everyone accountable for reaching goals. Reward those who reach them and enforce consequences forthose who do not. Be firm, but reasonable. Lead by example. Expect high performance, and do notaccept non-performance.

THOU SHALT TRAINInvest in the best training possible. Create a work

environment that attracts the best talent. Hire the bestplayers. Coach and develop them for success. Help good employees to develop.Develop the next generation of leaders in your company. Build a culture of success. n

Ken Roper is a senior consultant with FMI Corporation. He may be reached at 303.398.7218 or by e-mail at

[email protected]. Eric Sanderson is a consultant with FMI Corporation. He may be reached at 303.398.7226 or by


Nationally, construction firms send millions of employees

through training classes with the well-intentioned

notion that they will go back to their jobs and perform

at an improved level. An individual training objective might be to

increase knowledge about a specific topic, decreasing mistakes.

Or perhaps it is to master a particular skill, increasing output and

productivity. Ideally, company performance will improve.

However, sending employees to a training event and expecting significantchange is wishful thinking. You can’t nurture and love employees during training and then leave them on their own to figure out how to make fewer mistakes andincrease productivity.

Guiding people to perform at their maximum capability is not achieved solelyby teaching people how to perform. Learning the appropriate knowledge and skills is certainly part of the equation, but it is a mistake to stop there. The key to successis creating a work environment that supports, encourages, and nourishes people asthey practice and experiment with new skills and knowledge.

Once a company decides which markets to pursue, geographies to inhabit, organizational issues to focus on, etc., then employees should be developed in waysthat enable them to implement these decisions. It is not enough to make a

Reinforcement and transfer oflearning are critical phases in theemployee development process.Developing follow-up tools helpsensure a smooth transition fromthe classroom to the workplace.

By Elizabeth Dalton and Kelley Chisholm

Capturing the Cheese

56 n capturing the cheese

company-wide announcement andexpect immediate, premium results.Achieving the goals of a corporate strategy requires consideration andattention to employees’ skill sets as well as to market dynamics.

Employees must be developedintentionally to fulfill the strategic goalsand mission of the company. Aligningan employee’s existing competenciesand their skill and knowledge development with the company’s strategic initiatives increases motivationand overall performance.

THE NATURE OF THE ADULT LEARNERA small percentage of people are

natural risk takers and highly motivated.These “Type A,” high-achieving perfectionists will apply some of whatthey learned without any outside influence or guidance. Conversely,there is a small percentage of people

who are distracted or simply not in the right job, and these individuals are not goingto be motivated to apply anything they’ve learned. However, most adult learners take pride in their work and share the following characteristics:

• Adult learners are independent and self-directed. They want to be in control of their decisions and will take responsibility for the results. Much of their motivation is internal.

• Adults have a rich accumulation of life experiences and knowledge that they bring to learning. Experience can be a frame of reference on which to build new learning — a very strong motivator. New knowledge should relate to existing knowledge for maximum results.

• Adults are goal-oriented and need to know “why” before they learn. The “why” is just as important, if not more so, than the “what” and the “how.”

• Adults are relevancy-oriented and practical. If they recognize a need for the training, they are more likely to embrace it and not show resistance. Training must be useful and have value.

• Adults need to be shown respect. The learning environment needs to be physically and psychologically comfortable. Adults tend to take errors personally.

Motivation is a huge factor in adult learning. Barriers to motivation include lackof time, money, or interest. One of the best ways to motivate people is to removebarriers and enhance reasons for participation in learning. Not only must learners beinterested in the subject, but they must also see the benefits of acquiring new skills

Creating a culture ofongoing and focusedprofessional developmentthat promotes skill and knowledge masteryis not difficult. It doesrequire an investment,some creativity, and commitment to the strategic plan.


and knowledge. Motivation is not an exact science — one size does not fit all. Keepin mind that what works for one employee may not work for another.

Let’s say that you have employees who are motivated to learn. Exactly how doesthis learning happen? How do people store new knowledge and later retrieve it sothat they can apply it on the job?

SHORT-TERM AND LONG-TERM MEMORYLearners receive input from the environment through sensory organs, such as

the ears and eyes. This information enters the sensory register, where it stays for a veryshort period of time. From the sensory register, information enters short-term memory(also known as working memory). Working memory is temporary and may vanishquickly if there is no value in keeping the information. However, it is here that thelearner can connect new information with previously learned information, makemeaning of it, and solve problems. Since the capacity of working memory is limited,don’t overload the learner with too much new information. Break down informationinto manageable components so that the learner’s comprehension and later ability toaccess and retrieve the information is greatly improved.

From working memory, information is then encoded in a meaningful and organized way and stored in long-term memory. Working memory allows the retrievalof information from long-term memory, which verifies that learning has taken place.Learning does not take place if the information was not properly encoded. When the information is retrieved, learners may respond either verbally or through action,indicating that learning has taken place. Feedback plays an important role, as learnersneed to know if they are performing correctly. Long-term memory is subject to fading, and several retrievals of memory may be needed for long-term memories toremain intact over the years. (See Exhibit .)

MUSCLE MEMORYHow does an individual move from beginner to expert level with a new skill?

And how does someone move from “seeing-thinking-doing” to just “seeing-doing,”eliminating the need to think about the process?Learning how to perform a skill both preciselyand quickly is known as muscle memory.Basically, you are combining what you see withyour eyes (input) with how your body performs(output). The input is seen and understood by the brain in the form of nerve signals to themuscles. An example of this is hitting a nail — a carpenter has this task incorporated in his

Exhibit 1

The Learning Process

InputInput Sensory

RegisterSensory Register

Short-term Memory

Short-term Memory EncodingEncoding Long-term

MemoryLong-term

MemoryShort-term

MemoryShort-term

Memory OutputOutput


muscle memory due to many hours of practice and can build a deck with great precision in a short time period. On the other hand, someone who has little experiencehammering a nail into a board does not have this task embedded in muscle memory.This person does not know how to hammer a nail intuitively and has to think aboutthe process so as not to smash a finger or have the nail go in crooked.

Practice is vital, so is feedback. Muscle memory is only developed over a periodof time through repetition. Practice must bedone correctly. It must be perfect. Novices needto know if they are performing properly and feelsecure and confident during the learning process.

REINFORCEMENTOne of the keys to keeping information in

long-term memory is reinforcement. In learning,reinforcement means to strengthen skills andknowledge with additional material, assistance, orsupport of others. Reinforcement may be positive or negative. Positive reinforcementencourages good or positive behavior. Negative reinforcement is used to eliminate“bad” or negative behavior. Positive reinforcement is usually preferred because itencourages desired behaviors, whereas negative reinforcement only eliminates undesirable behaviors, instead of instilling positive ones. This type of reinforcementrequires some knowledge of what the learner/trainee considers to be positive.

Reinforcement needs to be an integral part of the learning process in order toensure correct performance back on the job. Instructors should use it throughout

training to help trainees retain what isbeing taught. Once trainees are backon the job, both instructors and supervisors should continue to usereinforcement to maintain consistent,positive behavior and to help withretention of the new skills. This is wheremost companies fall short. After thetraining event, involving the supervisorin reinforcing the new skills andknowledge makes an enormous difference in whether the employee will implement the new behavior.

Ample practice throughout training is very important to help students retain new knowledge andskills. Once trainees are able to correctlydemonstrate desired performance, they should be given opportunities topractice in order to reinforce and retainthe learning. “Spaced learning” may be considered, where participants learna concept, go back to the workplace

Learners rarely master complex tasks on the first try, but insteadlearn by correctly performing smaller steps,one at a time. The role of a manager or supervisor is to supportemployees during thisphase in their learning.


to practice the new learning, and then return back to training. New learning must be related to other existing information if learners are to

retain and use it. The principle of successive approximation is very important.Successive approximation is the small steps taken toward the ultimate desired performance. Each step should be reinforced. Immediacy is very important as well.The more immediate the delivery of the reinforcement after the occurrence of thebehavior, the more effective the reinforcer will be.

Professional development experts agree that one of the major barriers to thetransfer of learning is lack of on-the-job reinforcement to support new course graduates.The organization, especially supervisors, must not only acknowledge that learning isoccurring and encourage the effort andfocus, but must also recognize andreward new skills and behaviors.

RECOGNITION/REWARDSRecognition of a job well done

is vital to reinforcing new learning. Italso reinforces the feeling of being valued. Employees need to feel valuedby their superiors, their coworkers, and their customers. They also need tosee a reward for learning. This does nothave to be monetary; it can be as simpleas receiving praise and recognition fordemonstrating new knowledge.

Recognition and rewards are valuable motivators to learning. Subjectinterest and self-benefit are as well. If the training can be shown to be realisticallybeneficial, learners will perform better, and the results will last longer.

EXAMPLES OF REINFORCEMENTThere are many ways to provide reinforcement. One way is to reflect on the

learning that you’ve experienced and the resulting successes. This helps people torealize the link between learning and success. Go beyond “reinforcing” the topics in asingle course or learning event and spend some time getting everyone to contemplatethe overall value of learning as it relates to their career. Compare and contrast whathas changed before and after training has taken place.

Another way to reinforce learning is to assign a mentor within the organization to monitor and coach each participant for three to six months or longer following a course. Mentoring is the process of building a relationship thathelps one or both of the individuals involved gain or improve skills, knowledge, andbehaviors. It can be part of a formal workplace system or it may be an informalarrangement. Mentoring programs are an excellent way for more experienced staff to transfer knowledge and skills to newer, less experienced employees. These seniorstaff members can contribute considerably to the growth and development of the employees in your organization. Staff members at all levels further their growth and development from participation in mentoring programs. It takes learning out

Training, performance,and rewards go hand-in-hand to ensurethat learning is effectivein the workplace.


of the classroom and promotes on-the-job reinforcement. Action plans and/or learning contracts are yet another method of reinforcement.

The participant develops an action plan or learning contract to integrate the learningback into the workplace, and this can happen before or during the training, or at

the program’s end. This plan serves as a commitment on the employee’s partto engage in new behavior as a result of the training. These contracts caninclude implementation plans, timelines,names of other people who will beinvolved in the plan, and the criteria tojudge if the plan is working. Learningcontracts require follow-up. For thebest results, supervisors should beinvolved in the process to offer supportand help ensure that the action plans are being completed. Positivereinforcement should be used to rewardany change in behavior.

The best contracts include earlycommitment by the participants, realisticgoal setting, review and discussion ofthe plans, supervisor involvement, andpractical follow-up procedures.

Additional reinforcement tipsinclude the following:

• Send short e-mails with key points generated by participants during the training session on a weekly basis for six to eight weeks.

• Schedule a series of conference calls or “webinars” to discuss how participants are using what they learned on the job. Dialogue with others will help build confidence, which can be compromised when a new skill feels awkward.

• Conduct alumni events that advance participants to another level in some way. Build upon previous learning with more complex ideas and skills.

• Ask participants to come back and teach a mini-session to co-workers. This helps employees to really focus on the training, take detailed notes, and consider applications of the knowledge and skills.

• Schedule a meeting with the participant’s manager to discuss transfer and removal of any perceived obstacles so that confidence can be developed and encouraged.

• Ask participants to list/write down one to three commitments, and include a timeline when possible. Follow up to see if these commitments are made.

• Form a “buddy system” by teaming up course graduates for mutual support after the training.

• Include a follow-up session as part of the training program in order to reduce fadeout and to build on the initial training.

Learning contractsrequire follow-up. For the best results,supervisors should beinvolved in the processto offer support and help ensure that the action plans arebeing completed.


MOVING SKILLS FROM THE CLASSROOM INTO THE WORKPLACEInvesting time and money in training is not beneficial if employees do not apply

the learning and new skills on the job. If new skills aren’t used in the workplace, whereis the return on investment? What we learn must be integrated into the work we do.

The ability to use information learned in training back in the actual work environment is known as transfer of learning (or transfer of training). Being able to retain and retrieve new skills and learning from memory is very important fortransfer to take place.

Transfer of learning is most likely to occur when learners can associate the new information with something that they already know, or if the material is similar

to something they have already learned. It is beneficial if the participant’s degree of originallearning was high, and if the information learned contains elements that are extremely critical on the job.

Organizations cannot simply sit back and wait until an employee returns from trainingto address transfer of training. This needs tooccur before, during, and after the training. Toensure that training actually takes, involve the

participant’s supervisor before and after the training. Managers play a very significantpart in transfer of training for their employees. They must allow opportunities for the trainees to practice new knowledge and skills in the workplace. Supervisorsneed to be encouraged to reward new learning by immediately providing positivereinforcement to the participant.

There are many barriers to transfer, including:

• Lack of reinforcement on the job• Interference from the work environment• Non-supportive organizational work culture (especially from supervisors)• Resistance to change• Peer group pressures.

Removal of these barriers helps to facilitate the transfer process.

REQUIREMENTS FOR SUCCESSSuccessful training and employee development becomes entrenched in a company’s

culture. A company’s culture is defined as how things are done on a consistent andwidespread basis. Organizations shouldselect the best employees for training.Applicants should be a good fit and possess demonstrated skills, knowledge,and attitudes needed by the company.Companies should understand adultlearning principles and what motivatesemployees. An environment that recognizes and rewards consistent and


improved performance has a much better chance of ensuring that learning will beapplied on the job. In addition, organizational culture should be forgiving — peopleoften learn best from their mistakes. This is a natural part of the learning process.

One of the barriers to transfer of new skills and knowledge is a lack of active support from the organization.The organization must have strongphilosophical support for the employees’developmental goals. Ask yourself,“what barriers currently exist that willprevent transfer of learning to the actual workplace, and how do weremove them?” Then go about removingthose barriers.

Companies that offer and promoterecognition/rewards programs, trainingopportunities, mentoring programs,and work ownership help to instill apositive, motivating culture. Positivecultures can result in increased employeemorale, productivity, performance,

and retention. When employees are continuously being developed, they feel valuedand part of the organization. Employees need to be allowed to have input into theorganization — the more involvement they have, the more ownership they will take.

FMI interviewed two construction industry businesses, GreenFiber and SlatterySkanska, who are using various methods to successfully develop staff and implementreinforcement techniques as an integralpart of their organizational cultures.

GREENFIBER REINFORCES EMPLOYEE DEVELOPMENT FOR AFOCUSED SALES GROUP

FMI Quarterly: What drove yourfirm to make the decision to invest in thedevelopment of its sales force?

Rizzo: It was a function of a very significant investment in the long-term strategy, which is a five-yearplan to grow and expand. In order toimplement the strategy, the senior leadership realized that they needed toinvest in our people to ensure they have the skills and focus needed toimplement the strategy. We recognizedthat the success of our plan was rooted in the people we have in the field deliveringthe strategy every day. The contractor channel was selected first because a) the way in

GreenFiber is a $110-million-dollar-a-year

insulation manufacturer based in

Charlotte, N.C. There are 450 employees

geographically located across the United

States. GreenFiber is a joint venture

company parented by Louisiana Pacific and

Casella Waste Management. There are 10

plants across the U.S. and distribution

through three sales channels: contractor,

manufactured housing, and retail.

Dan Rizzo is the director of the

contractor channel for GreenFiber and

is responsible for sales, marketing,

strategic business growth, profitability, and

employee development.

Employees need to beallowed to have inputinto the organization —the more involvementthey have, the moreownership they will take.


which products are brought to market is complex; and b) the company is movingfrom a cellulose company to a building products company that requires a significantchange in thinking and working.

FMI Quarterly: How are you reinforcing the skills you set out to develop when you decided to put the course together?

Rizzo: We are reinforcing skills through a variety of methods that include: Self-Assessments — Assessments were completed by the participants at the

beginning of the program to identify baseline perceptions. Each person rankedthemselves on the importance of each course topic to their job, and on their currentability to perform each skill. The self-assessments were administered again six weeks later to measure changes in perception. This exercise communicated to theparticipants that the topics were important and enabled discussion on changes inperception and attitude before the program and then again after they had a chanceto implement some of their new skills and knowledge.

Coaching — Each program graduate is coached for three to four hours on theconcepts and techniques that were presented during the training. The coaching sessions are customized to the specificelements related to individual skill setand strategic objectives for their territory.When these sessions were originallyscheduled, there was a perception thatthey would be excruciatingly long,drawn-out discussions, but managementwas very pleased to see the graduatesembrace the process and respondextremely well to the personal attention.Employees are engaged and using thesecoaching sessions to strengthen theirterritory planning.

Performance Review Meetings —The RIO (Responsibilities, Indicators,and Objectives) document is a performance-review tool that is used to identify the important performanceobjectives required by each territory manager. The action planning section at the end of the program adopts the RIO framework to ensure that participants are developing personal development action plans that are aligned with their territorygoals. Employees are asked to identify their strengths and weaknesses in the contextof topics like financial management (revenue, margin, volume, and share), territorydevelopment, market development, builder development, and key initiatives. Thesestrengths and weaknesses will be observed and employees will be supported andencouraged as they develop in these areas over the year. We asked employees to focuson one strength and one weakness identified in the sessions that directly related totheir ability to deliver their territory plan. Then, they meet with their manager, orone of the company executives, where they are asked about their progress. These discussions are intended to reinforce the strength and help them to improve the skillsthey need to improve upon in order to be successful.

We recognized that the success of our planwas rooted in the people we have in thefield delivering the strategy every day.


Teach Sessions — After the main training event, a condensed version of the program is offered to employees that were not able to participate initially. A coupleof program graduates are invited to facilitate program sections. This opportunityenables them to review the material and master it well enough to be able to teach it.

Performance Tools — Program graduatesreceive a one-page summary by e-mail everytwo weeks from each section of the course.These summaries serve as a review of the material and to keep it at the top of theirminds. The summaries also include a sectionthat prompts action.

Expanded Topic Offerings — In order tomove forward, GreenFiber plans to take each ofthe modules from the Sales Skills Developmentprogram and expand them. For instance, participants received two hours on presentationskills. In the future, a half day or full-day session will be offered to enable employees to really hone in on the specific skills they need in order to effectivelydevelop their territories.

FMI Quarterly: Are you at all worried that you’ll develop superior performers, andthey will leave to work for the competition?

Rizzo: The reality is that if we give them the skill set to be successful withGreenFiber, we have to also provide the job satisfaction and personal satisfactionrequired to retain them. I believe that the danger is not in if you train them and theyleave, the danger is if you don’t train them and they stay.

SLATTERY SKANSKA REINFORCESEMPLOYEE DEVELOPMENTPROGRAMS ACROSS THE FIRM

FMI Quarterly: What is your philosophy regarding people development?

Saunders: From a corporate perspective, developing our people is an absolute commitment. We believethat the strongest asset of a constructionfirm is its management team. What separates one company from another isprofessionalism, motivation, experience,and the talent of its people. The SlatteryInstitute was formed in accordance with that philosophy and in support ofour corporate five-year business plan.The Slattery Institute Committeeaddresses management’s commitment

to training and professional development. Committee members include the chiefoperations officer, the senior vice president, operations, the director of humanresources, the director of information technology, and the senior vice president of

Slattery Skanska is an $865.5-million-dollar-

a-year heavy civil contracting firm based out

of Whitestone, N.Y. It is a business unit of

Skanska AB, a world leader in construction

and real estate based in Stockholm, Sweden.

There are approximately 2,080 employees,

475 of which are professional staff.

John Saunders is the vice president of

operations and has been with the company

for 31 years. John leads the Slattery Skanska

Institute Committee, which was formed

in 1999. All of the company’s training is

coordinated by the Slattery Skanska

Institute. Saunders is also tapped for a

lot of special projects, such as mergers

and acquisitions.


engineering and estimating. There is also a participating member who is the vicepresident of human resources for Skanska USA Civil.

FMI Quarterly: What are some of the ways that you are reinforcing new skills acquisition?

Saunders: Slattery Skanska is reinforcing skills learned in training throughalumni events for specific training programs, special forums, a profitability enhancement program, and an advanced management training program.

FMI Quarterly: How is training and employee development tied to performancereviews?

Saunders: This is ongoing and a hot topic with us. We are in the process of trying to build training plans into performance reviews and are working on a performance review that speaks more to professional development. Our performancereviews are now driven by results, such as accountability in meeting financial goalsand performance targets. Prior to that, performance reviews were highly subjectiveand were not tracking people by results. Training alone is not going to get you aheadin our organization, although it may be more difficult to get ahead without training.It all depends on what you do with the new skills after training. The responsibilityrests with the individual and what they do with it.

ALUMNI EVENT: A recent alumni event was held for new graduates of the Foundation Skills

training program, which focused on entry-level training. Eighty-seven employees attended this event,

and they were divided into two groups of 43. Saunders prepared a one-day program that recapped

the high points of the Foundation Skills training. Participants discussed what they learned in the

training and how they were applying this knowledge of the job. A two-hour negotiation skills program

was created for this event to help build on skills learned in the original training session.

TUESDAY NIGHT SPECIAL FORUM: This forum is held twice a month for approximately 20

junior employees. These are informal sessions that are designed to impart technical information to

employees in areas in which they normally do not work. Senior employees lead these forums, and

they use a roundtable format that is highly interactive. Participants are encouraged to ask questions

in a comfortable setting where they are among their peers. These forums expose employees to

technical information, and they are a way to further technical professional experience.

PROFITABILITY ENHANCEMENT PROGRAM: A series of ongoing presentations are delivered

monthly to approximately 70 senior employees by various groups, such as project managers or

outside speakers. In addition, the president and CFO discuss the previous year’s financial results.

This program is organized by the Slattery Institute Committee, a team of employees who focus on

talent development within Slattery Skanska. The purpose of this program is to keep profitability high

on the radar screen and continually remind everyone what the issues are and what they need to

continue to improve upon. This program reminds employees of the importance of their individual

roles on an ongoing basis, while providing updates and highlighting best practices.

ADVANCED MANAGEMENT PROGRAM: A 40-hour course delivered by top management in

a three day + two-day format. The managers are trained in presentation skills and adult learning

principles prior to delivering the program. To date, three programs have been completed. Twenty

senior people have been involved in the delivery of this advanced management training. One of the

benefits is that it reinforces the need for continued and ongoing presentation skills. By having senior

employees serve as trainers, they, in turn, gain in-depth knowledge of the subject and are motivated

to do a good job. Management is currently in the process of gathering data to evaluate this training

and its benefits to the company.


FMI Quarterly: Are there any expectations of employees once they complete a program, such as submitting a list of commitments to their manager or writing an essayabout how they will use what they learned?

Saunders: In addition to standard evaluations for the Foundation Skills program,we require every Slattery Skanska employee completing Slattery Institute-sponsoredtraining to submit a one- to two-page written evaluation. This is absolutely mandatory.The evaluation is due one week following completion of training so that our SlatteryInstitute Committee can monitor what was retained after a period of reflection. We

also use these evaluations to improve thequality and content of future courses.

Above all these initiatives, Saundersalso prepares an executive summarystating the names and corporate affiliation of all attendees, programdescription, and topic summaries. Hemakes a recommendation as to whetherthe program should become part of aSkanska USA Civil Group program.Another part of this summary includeswhat participants learned from the session and what they hope to bringback to the company. This helps toform a baseline to assist in future measurement. He then follows up in sixmonths and in one year with businessunit presidents, asking them to commenton what is being done differently as aresult of this specific training.

If you are going to be best-of-classin the heavy civil construction industry,you need to have the best training and

use the best management practices to make sure you are getting the most from yourinvestment, Saunders said. If you are getting a measurable and verifiable return oninvestment for training, there is significant payback, he said.

LEARNING IS A PROCESSIf developing employees is going to be an effective and profitable initiative then

in addition to an event that involves learning, people need:

• Motivation• Management support• Mentor relationships.

People who are motivated to learn will do so much better than people who are not motivated. Individuals need to know why they are learning and how it isgoing to benefit them. Integrating adult learning principles into the design of learning solutions will increase the probability that employees will adopt new and

People who are motivated to learn willdo so much better thanpeople who are notmotivated. Individualsneed to know why they are learning andhow it is going to benefit them.


better behaviors. For employee-development programs to be effective, employeesmust perceive the skills and knowledge to be personally useful and valuable to thework they perform.

Management support is vital to successful training efforts. Management needs to take an active role to ensure that the company is getting a return on their traininginvestment by providing an encouraging andsupportive environment. Giving employeestime to practice their new skills and applytheir new knowledge in the workplace is partof the support that managers need to provide.If employees do not practice, they will likelyforget and abandon most of what they learnedin training.

Mentoring and coaching efforts play astrong role in reinforcing learning. Whenassigned mentors understand the culture oflearning, how it relates to the workplace, anddemonstrate that they care about the progressof their learners, employees flourish. Just theperception that a supportive person is paying attention gives individuals momentumto improve. Mentors can point out additional opportunities for growth as well asfocus on specific areas to hone in on.

Reinforcement and transfer of learning are critical phases in the employee development process and can be integrated with ongoing mentoring initiatives tobuild and improve the right level and type of performance. Although classroomtraining is an effective learning format, the ultimate test of this type of training is theimplementation of the concepts and techniques when people are back on the job.Developing follow-up tools and hands-on workshops to facilitate a smooth transitionfrom the classroom to the workplace makes a big difference. Job aids, checklists,workshops, and other reinforcement tools facilitate the skill mastery process. Creatingmore formalized tools such as audiotape, videotape, and CD/ROMs also provideemployees with a sense of support and guidance as they engage in an ongoingimprovement process. n

Elizabeth Dalton is a consultant with FMI Corporation. She may be reached at 919.785.9253 or by e-mail at

[email protected]. Kelly Chisholm is an intern with FMI Corporation. She may be reached at 919.785.9215 or by


S acrifice is not a pleasant word. The most positive use of

the word connotes one person suffering for another;

the most negative conjures up images of agony. Many of us

can vividly remember scenes from adventure movies where the hero

saves the bound and helpless virgin just before the half-naked natives

throw her into a steaming volcano to appease the gods. While the

human sacrifice was often not necessary, it is symbolic of the role

sacrifice played in many societies from ancient times to present day.

Today, the term sacrifice means putting others ahead of oneself. This oftenmeans going without something so that others may benefit. With this expanded definition, it becomes clear that sacrifice is an integral part of any successful team.The willingness to put the success of the team ahead of personal gain is a key conceptin any group. The following examples illustrate the role of sacrifice in teamwork inthree unique areas: the world of ants, team sports, and the military.

THE WORLD OF ANTSIt is amazing to watch what a group of ants can accomplish when working

together. It is not uncommon to see a number of small ants carrying a piece of

We win on construction projects,as we do at war or in a sportingevent, with a team of individualsthat are willing to sacrifice toensure the project’s success. By David Sinodis

Bugs, Sports, and War: The Role ofSacrifice in Teamwork

70 n bugs, sports, and war: the role of sacrifice in teamwork

food — much larger thanthemselves — a long distanceto their nest. They seem tosilently and effortlessly coordinate these Herculeanfeats. Ants are the engineersand builders of the insectworld. They can carry manytimes their own weight. They are able to build nestsin almost any conceivable location. But probably mostimpressive is their total

dedication to the colony. If an ant is attacked, it will fight to the death to defend the brood and queen of the nest. This altruistic sacrifice of the individual’s life for thegood of the whole is not the only sacrifice ants make. There are species of ants in thedeserts of the Southwest where individual ants act as storage vats for the food collectedby their sisters. These individuals spend their entire lives hanging from the ceiling of the nest. Other ants bring food to them and regurgitate it into their mouth. Theants hanging from the ceiling take food in until their abdomens swell to many timestheir original size. When food outside is scarce or absent, these “honey pots” as theyare called, in turn regurgitate the “honey” for their hungry sisters and the brood.

A key distinction between ants and human beings is that ants’ natural instinctsmake them act and react in a sacrificial way. Humans don’t possess these naturalinstincts. We consciously choosewhether to put our needs or the team’sfirst. Often, we put the team’s needsfirst only when they align with our own needs. In fact, most leadershipbooks stress the need to develop teamgoals that are aligned with individualgoals in order to gain commitment tothe team. Then, these books teach, we will learn how to be selfless and put the team first.

TEAM SPORTSWe have all witnessed situations

where an underdog team wins a gamebecause of superior teamwork. Insports, it is common for the team withthe most talent to lose because the opposing team performs better as a group. This iswhy the language of sports is full of expressions such as, “We play as a team; we winas a team,” “The team is always first,” and “There is no ‘I’ in team.”

In basketball, it is almost always the team that works together with crisp passing that best breaks down the opponent’s defense and gets the higher percentageshots. Basketball is one of the ultimate team games because a number of different

In sports, it is common for the teamwith the most talent to lose because theother team performsbetter as a group.


skills have to blend together in order for one team to succeed. Several of the greatest basketball stars and coaches have remarked on teamwork and the sacrificerequired. (See sidebar.)

Many consider Babe Ruth to have been the greatest baseball player of his time.Magic Johnson, Wilt Chamberlain, and Bill Russell have all been ranked among thegreatest individual basketball stars of their time. It is interesting to note that each ofthese individuals recognized that without sacrifice, no team would be successful.

THE MILITARYThe military is another area where sacrifice for the good of the team can be

observed. The willingness to put country ahead of self has enabled the winning ofnumerous battles and wars.

The Alamo is a perfect examplewith garrison’s sacrifice, inspiring theother citizens of Texas to fight SantaAnna. In another example, the movieThe Three Hundred Spartans depicts thesacrifice 300 Spartans made fighting the army of Persians at the battle ofThermopylae. Many consider this historical battle to be one of the mostsignificant in world history. The delaycaused by the small army of Spartansenabled Athens to prepare for and ultimately defeat the Persians. This battle shaped the course of Western civilization by allowing the Greek ideals of democracy to flourish.

In the military movie Patton,George S. Patton Jr. says that no one ever won a war by dying for hiscountry, he wins it by making the otherperson die for his country. Althoughthere is no proof that Patton ever saidthese particular words, it does help usrealize that sacrifice is not about dyingor giving up. Patton did say, “A pint ofsweat will save a gallon of blood.” Inbattle as well as at work, we preventfailure by being willing to sacrifice forthe good of the team.

CONSTRUCTIONIn our industry, we are not a

sports team or an army. And we aremost certainly not ants. Different skillsare required for our work. We do not

“Our titles would not have been possible

without the unselfishness displayed by

our teams. The team wins, not the

individuals.”

Team spirit means you are willing to

sacrifice personal considerations for the

welfare of all. That defines a team player.”

— John Wooden

“Ask not what your teammates can do

for you, ask what you can do for your

teammates.” — Magic Johnson

“The only way to win is to sacrifice for the

good of the team.” — Bill Sharman

“In the end, the best team usually wins.”

— Wilt Chamberlain

“The best team always wins.” — Bill Russell

Of course, basketball is not the only

team sport. In other team sports, players

and coaches have recognized the role of

sacrifice in team success.

“In order to have a winner, the team

must have a feeling of unity; every player

must put the team first — ahead of

personal glory.” — Paul “Bear” Bryant

“If a team is to reach its potential, each

player must be willing to subordinate

his personal goals to the good of the team.”

— Bud Wilkerson

“The way a team plays as a whole

determines its success. You may have the

greatest bunch of individual stars in the

world, but if they don’t play together, the

club won’t be worth a dime.” — Babe Ruth


have to pass, shoot, or rebound a basketball to win. However, to be successful, wehave to become as much of a team as any successful sports team. The same attributesthat are required to win a game or a war are needed to successfully compete in the

construction industry. From the estimation of a project to the closeout,the success and profitability of a projectdepends on a well-functioning teamthat shares common values and goals.There are several obstacles that get inthe way of developing a successful teamapproach as well as several incentives,which cause some team members to beless than sacrificial on a project. Let’sexamine a couple of them.

THE PROFIT INCENTIVEMost everyone working on a

project is financially driven. The generalcontractor, subcontractors, and thedesign team have all committed to theproject with the expectation of makinga profit and adding to the bottom lineof their individual companies. Theowner has entered into a contractual

relationship with the construction team and design team to add to the value of theowner’s firm. Therefore when any setback occurs that has the potential to impactproject profitability or value, it is natural for all parties to look first to protect their own financial interests. Because it is certain that if they don’t, no one else will. This is also why when a setback occurs on a project, the individuals see only the surface effect — that the pie appears to be smaller now. Each individual then scrambles to ensure that their piece of the pie will be as large as originally anticipated.Much time and effort is spent playing defense — trying to make sure that they canhave the first and largest piece of pie. The end result is that almost no effort goesinto trying to restore the pie.Instead of trying to “win thegame,” individual players in theendeavor spend time squabblingover who will get to carry theball! Many times they just wantto take their ball and run home!

THE “IT’S-NOT-MY-FAULT”MENTALITY

No one wants to be responsible for failure. We wouldall rather be the cause agent for a win. So when a setback occurs

No one wants to beresponsible for failure.We would all rather bethe cause agent for awin. So when a setbackoccurs the first reactionfor most people is tosay, “It’s not my fault!”


the first reaction for most people is to say, “It’s not my fault!” Think about how absurd this approachreally is for a moment. Using one of our sportsanalogies, let’s think in terms of a football game.The game is early in the first quarter. Our team’sfullback fumbled the first time we had the ball, and

our quarterback threw an interception the secondtime we had the ball when our receiver fell down.

The other team has scored three times, twice becausewe gave them the ball near our own goal. Since outside

observers said the game should be close between these evenlymatched teams, it becomes an uphill battle to overcome a three-score deficit. If we act as we often do in our business at this point, we decide that the game cannotbe won. Our quarterback comes into the huddle and complains about how thereceiver fell down. The receiver tells the coach that anyone could slip, and the quarterback should have seen the slipand not thrown the ill-advised pass.The tailback says that if he had carriedthe ball more than the first two drives,the fullback wouldn’t have had the ball to fumble, and we certainly wouldnot have had an interception! The linemen are getting quite frustrated atthis point and begin to wonder whythey bother to block.

Often we play the constructiongame the same way. As soon as a delayoccurs, the general contractor’s firstobjective is to make sure that the ownergrants an extension. If an extension isnot forthcoming, the next step is tosqueeze the subcontractors and causethem to accept culpability for any delay. During the rest of the buildingprocess, the delay and rejection of anextension is the topic of almost everymeeting. Rather than focusing on whatcould be done to recover the scheduleor minimize the effects of the delay,more effort is spent on protecting individual interests.

Many of us witness this on a closer scale within our own companies since most companies accomplish much work through teams. For projects to succeed,everyone on the team must be on the same page. Often people worry more aboutthemselves and their welfare than the good of the team. Individual goals are placedabove team goals. The trick to making a team work together is to align personalgoals with the team goals.

Often people worrymore about themselvesand their welfare thanthe good of the team.Individual goals areplaced above team goals.The trick to making ateam work together is to align personal goalswith the team goals.


ACHIEVING THE SACRIFICES NECESSARY FOR SUCCESSBut, how exactly do we align individual and team goals? First, we need to know

what it is we hope to accomplish. In our business, this usually means completingsome building or structure within a certain time period and within a certain budget,

and also at an agreed-to level of quality.In addition to knowing the goals, wealso have to be able to communicatethem throughout the company in sucha way that we understand how thesegoals relate to our individual success.

It goes beyond the alignment ofgoals, however. Most people in ourindustry are hardworking and dedicated.Many of us will do whatever it takes to do a good job. Does compensationmatter? Yes, of course it does. But thereis something much more powerful atwork inside individuals that drivesthem to do their best. Perhaps it iscalled a strong work ethic or maybe itis just being committed, but it is obvious that it exists. We observe thisquality in individuals that stay late tofinish work and constantly juggle workand family commitments.

As an example of individual sacrifice, one project manager movedhis family cross-country to take on a

difficult project. This project manager has been very successful in his current positionand work and had no guarantee of success in the new area and position. However, he made the move. When asked why he did this, he replied, “I try to look at the big picture,” he said. “Small sacrifices are rewarded in the end. Short-term sacrificesare worth it to see a project succeed, and to see the people working for me succeed and to see the company succeed. I have the utmost respect for the leader of ourorganization and am proudto be a part of the team.”

These examples of sacrifice all contain a commonthread, highlighting the samequality that made America a great country to live andwork in. This same quality in people is what makes usrecognize the need to liveand work as a team. We haveto approach our team withthe attitude that Benjamin

We win on constructionprojects, as we do atwar or in a sportingevent, with a team madeup of individuals thatunderstand and accepttheir roles and that are willing to sacrifice to ensure the success of the project.


Franklin recognized when he said, “We must all hang together,else we shall all hang separately.” We know that this is the caseon a construction project. If we are not able to get allthe parties working together for the good of theproject, we are doomed. It is only when everyoneis willing to make whatever sacrifices are necessaryfor the project to succeed that we all leave theproject fulfilled.

Sacrifice is one key aspect in team success. We win on construction projects, as we do at war orin a sporting event, with a team made up of individualsthat understand and accept their roles and that are willing to sacrifice to ensure the success of the project.

One final example: If you were able to take all the people in the world and place them on a giant balance, and then you took all the ants in the world andplaced them on the other side of the balance, the ants would weigh more. In termsof biomass, the altruistic ant, the creature willing to do whatever it takes to ensurethe success of the colony, wins. n

David Sinodis is a senior consultant with FMI Corporation. He may be reached at 919.785.9350 or by e-mail at

[email protected].

A recent article in Harvard Business Review entitled

IT Doesn’t Matter 1, got this author, who depends on

information technology (IT) for a living, thinking

carefully about the future. Nicholas Carr’s premise is that IT is

becoming a commodity like yesterday’s electricity. He suggests that

because it is ubiquitous and easily deployed, it is no longer a source

of competitive advantage.

To take the defense, one could argue that the comparison between electricityand IT is not really fair or appropriate. Most technology components are not just plugged in and instantly work, they are not all built and delivered to one standard, and they have not been ported down to the most basic user. Some couldeven suggest that there is competitive advantage to be had by effectively using the technology that is available in the market; something many companies struggle with today. Yet, there are elements of technology and systems that are getting to bealmost as ubiquitous as electricity, basic accounting applications, for example, or even word processing. Can you envision any construction company proudly announcingthat, along with being a great builder of complex designs and in possession of a particularly enviable safety record, that they have automated their accounting functionor use computerized word processing?

Contrary to a recently publishedarticle, technology does still matter, at least in construction.The key is focusing on productivitydrivers, using the systems well, and moving on to another strategywhen the technology becomescommonly used. By Christian Burger

IT Does MatterTECHNOLOGY FEATURE

84 n it does matter

One voice alone calling for the end of IT as competitive advantage can be cautiously ignored in spite of the fact that it was from a well-respected journal. Then,along come three McKinsey authors and consultants saying nearly the same thing. In Getting IT Spending Right This Time 2, Madams Farrell and Terwilliger along withMr. Webb, suggest that not all IT spending creates equal returns and that, in manycases, companies spend too much on IT without getting real advantage or adequatereturns. They suggest that once technology has been diffused, it is no longer a sourceof competitive advantage. It is just a cost of doing business.

Interestingly, Mr. Carr says almost the same thing, though arriving at a different conclusion:

What makes a resource truly strategic — what gives it the capacity to be the basis for a substantial competitive advantage — is not one of ubiquity but scarcity. You only

gain an edge over rivals by having ordoing something they can’t have or do.(Carr, p.)

His argument holds up better when addressing infrastructure components like hardware and communications — it’s less relative to software and applications.

So does this mean that management can ignore technologiesthat are not strategic? How can youdecide what is strategic and what ismerely table stakes? How far out on theleading edge is too far? This article triesto answer these questions, which hadtheir genesis in other industries, andtest the underlying premises relative tothe construction industry. While some

of what these analysts argue is accurate, it needs a better interpretation for businessesin construction. Considering these questions should cause deeper thinking aboutyour information systems and their value in your organization.

WHAT IS IT STRATEGY?In its simplest form, strategy is a general approach to accomplishing some specific

goal or objective. If better health is the objective, eating right, exercising more, andreducing stress represent alternative strategies with many tactics available withineach. Strategy is broader than a task, however, and is not something implementedovernight or even over the course of a month or two. Market strategies could includeideas like penetrating new geographic markets, offering new construction services, orbringing design services in-house. The same need for market strategy and operationalstrategies exists for IT strategy.

However, most managers of construction firms are not accustomed to thinking in those terms, mainly due to lack of IT experience and a very confusingarray of options. IT strategies can best be described as a series of specific approaches (with a common theme) to the selection, implementation, management, and use

Strategy is broader than a task, however, and is not something implemented overnightor even over the courseof a month or two.


of systems, software, and hardware deliberately chosen to accomplish specific business goals and objectives. While that may not seem novel, the important elementsof this definition are the emphasis on accomplishing specific business objectives and the common theme. Too many companies simply take specific actions on hardware, software, or systems because someone said they should; it seemed like agood idea at the time; everyone else was doing it; or a host of equally non-compellingreasons. A few examples may help to further clarify. (See Exhibit .)

It is also worth mentioning that business objectives are most frequently approached with a numberof different IT strategies, not just singlesoftware or system strategies. For example, the coordination of marketingand business development may beaccomplished with a combination of new software, procedural changes,and personnel training.

WHY IS IT SO DIFFICULT TO DEFINE?Equipment strategy, for example,

may not be as difficult to establish for some. Management could decide:use all Caterpillar-brand equipment,outsource maintenance, target % utilization, and repair, rather thanreplace. Market strategies are definableas well: Cleveland and surrounding suburbs, construction and service, or noplan/spec work. The difference betweenanswering these strategic questions andIT strategy development is two-fold.With markets and heavy equipment,

Exhibit 1

Example IT Strategies

Business Objective

Reduce cost associated with IT infrastructure and staffing.

Develop more structured and efficient method of generating proposals.

Ensure high degree of fit for mission-critical applications.

Gain greater efficiency and integrity between accounting and project management functions.

IT Strategy

Centralize IT resources.

Implement a corporate-wide CRM software system.

Develop your own strategic applications rather than purchasing off-the-shelf applications.

Purchase and implement an ERP system with an integrated project-management application.

Too many companiessimply take specificactions on hardware,software, or systemsbecause someone saidthey should; it seemedlike a good idea at thetime; everyone else wasdoing it; or a host ofequally non-compellingreasons.

86 n it does matter

managers have had experience withthese strategic questions from almostthe beginning. This experience enablesmanagers’ confidence in establishing a market strategy or an equipment strategy because they know their choicesand the expected outcomes of each.

With technology, the alternativesare less well-known or understood, and it seems that those choices are constantly changing. Further, marketstrategies and equipment strategies canbe developed and deployed by a few

managers. There may be some broad impact on the organization by a change in one of these strategies, but it is frequently manageable and not significant enough to require a wholesale shift in thinking. Changes in technology or systems are notthe same. Larger systems affect a number of people in the company and, if theorganization is not prepared, can create havoc and frustration in short order.

In the short time we have been dealing with technology in this industry, we havegone from mainframe service bureaus to minicomputers to PCs and LANs, fromcharacter-based systems to client/server Windows systems, and now web-enabledInternet systems, including ASP services. You would have had to have been verylucky, prescient, or both as a contractor to time each of those transitions correctlyand to move the organization to the correct platforms. The pace of change in construction equipment, while not stagnant, is not outstripped by the useful life ofthe equipment. This cannot be said for computers and software.

The construction industry’s slowness in response with technological innovationcan be seen by the fact that others outside the industry are gaining more influenceand taking a leadership position relative to systems, particularly owners. Mr. Carrseems to have predicted this: “Similarly, if an industry lags in harnessing the powerof technology, it will be vulnerable to displacement.” Owners have been mandatingcertain technologies like scheduling systems and project collaborative web sites forsome time now simply because the construction industry was slow to adopt.

WHY IS IT STRATEGY IMPORTANT?For the last to years, managers of construction companies have been

trying valiantly to direct, procure, implement, and manage various technology solutions within their organizations. Some have been successful; many others havefailed or only met their expectations marginally. Even today, with a number of technology components in place, companies continue to make decisions about everycomponent of their system with little regard for where they are or where they areheading. Further, system selections often begin with the idea that the procurement is the solution rather than the systems implementation and use. Management is notenvisioning the final use of the product, merely the selection and purchase of it.Perhaps this is at the core of the issue. Until management can appreciate the value ofthe implementation and proper use of the technology, they find it hard to committhe resources through an extended period for implementation or hold people


accountable for changing processes or complying with new procedures.Once technology has been adopted by % or more of the industry, it is no

longer a source of competitive advantage but instead is a cost of doing business. Worsethough, it can become a source of disadvantage for those who decide, for whateverreason, not to invest or adopt contemporary systems. Strategic thinking ensures thatyour organization is focusing its limited resources on the most important levers ofyour business, not just trying to keep up.

However, it is possible to gain advantage through better adoption and use evenwith rapidly diffusing technology. For example, estimating systems have been aroundfor quite some time and could be considered largely available to the industry andtherefore no longer a source of advantage. However, only % of companies in construction use a structured third-party estimating system; most rely on spreadsheettemplates designed by the estimators in their company. So even though the technologyis available and has been available for some time, the competitive advantage cancome from innovative and/or disciplined use within the organization.

IT strategy is also important because it helps management narrow its focus and communicate a consistent message to the organization. Companies do not have unlimited resources to apply to any one area of the company, be it heavy equipment, personnel, or systems. Better companies focus on efficiently and effectively deploying resources to specific strategies in the business. Assigningresources over too many initiatives often leads to poorly implementedefforts. IT strategy can lead to IT focusand better prioritization.

Does this suggest going back to aposting machine for accounting? Notlikely. However, it does suggest thatmanagement think more carefully about where they spend their IT dollarsand commit their personnel. If theaccounting system is already automatedand running adequately, providing job-cost information to project managers and equipment informationto the shop manager, then that systemmay be left well enough alone. The next area of automation should be operational in such areas as projectmanagement and estimating. Oneimportant exception to this guidelineexists. If the current ERP (back-office accounting/job-cost system) is functionallyadequate but behind with its technology, it may need to be replaced simply becauseit does not provide an adequate foundation on which to build or integrate other systems. For most organizations, the ERP system is the foundation or chassis for theoverall information system. If that system’s underlying technology (i.e. database, user screens, integration technology) is not current, it will mean building otherimportant systems on top of what is probably a weak and inadequate foundation.

Once technology has been adopted by30% or more of the industry, it is no longer a source of competitiveadvantage but instead isa cost of doing business.

88 n it does matter

HOW DO YOU DEVELOP IT STRATEGY?Developing IT strategy is not nearly as complex as you might imagine. It does

not require month-long retreats, in ancient monasteries, with lots of chanting.Depending on your company’s size and complexity, you can actually develop your IT strategy relatively quickly, provided you have a solid vision and direction for the

company and maybe just a little outsideassistance to make sure importantissues are being considered.

Begin with an honest assessment of your business. This means looking at your customers, employees,resources, and processes. Understandthe technology tools you have implemented, how they are used, andwhat systems may not be in place.Now ask yourself “why?” relative toeach of these positions. Also, ask your employees how they feel aboutthe current systems in the organizationand whether they feel like the companyis behind the technology curve or too far out in front. Now you knowyour situation.

The McKinsey report also provided a most important insight into this issue.They found that there was a direct correlation between the impact IT can have onthe organization and the specific focus of the investment. More specifically, they suggested determining your organization’s productivity levers 3 and applying resourcespredominantly on those. They define productivity levers as those functions within thecompany that can make a real difference in performance, not just keep you current in the marketplace. They recommend focusing resources on IT initiatives which

…offer the greatest opportunity for competitive differentiation: targeting the few specific levers that could well create a competitive advantage produces more reliabilitythan striving for improvement everywhere. (Farrell, p.)

Second, the McKinsey findings recommend that you pay particular attention to timing. Once a technology has been exploited and is eventually diffused in themarketplace, it is time to move on to the next priority. This is challenging for many inthe construction business who like to invest heavily in technology for a brief periodand then hope to reap the rewards for as long as possible and avoid reinvesting for as long as possible.

If the McKinsey authors were to study our industry closely, they wouldundoubtedly find many companies ambitiously involved in implementing manytechnology tools and systems in a mediocre manner or not pursuing technology initiatives at all. These authors would argue for selecting one or two technologies thatprovide productivity levers and pursuing them aggressively. Mr. Carr, on the otherhand, might suggest waiting until each system or technology has been deployedwithin the industry and then go in when the cost and risks are down. This authorfinds the McKinsey approach a little more compelling for this industry with the

Once a technology has been exploited andis eventually diffused in the marketplace, it is time to move on tothe next priority.


possible qualification that the contractor simply focus on implementing well ratherthan innovating and developing something completely new.

Consider this. Project collaboration systems have been around for a number of years now, certainly long enough to be considered available and deployed in the market. At the same time, for many general contractors, collaborative technology isconsidered optional — only used when the owner requires it. If you were to apply theabove guidelines to this situation, you would first decide whether project managementand project collaboration are productivity levers for your organization. Then, if you decide they are, set about selecting and implementing one of the collaborative or project management applications.

WHO IS RESPONSIBLE FOR IT STRATEGY?While it is tempting and fairly commonplace today to give the responsibility

of IT strategy to the IT manager or network administrator (or anyone who can spellLAN and TCP/IP), that is not the proper course. Top management must establishthe IT strategy either within the construct of the overall business plan or separatelyonce the business plan is assembled. That is not to suggest that the IT strategy does not have technical elements but instead, that it is ultimately a managementdecision because so many components are involved, not just hardware and software.Further, development of the IT strategy has to be formed using value drivers for the organization, and management usually knows those drivers best. (See Exhibit .)Management should also have the advantage of being objective, allowing them toopenly question a CIO or IT manager regarding his/her proposed direction.

This suggests that the CIO or IT manager does have responsibility in the development of strategy. In fact, they are often involved in informing management orthe executive planning team what the options are and what the costs and risks are ofeach approach. However, they cannot decide how much resource should be applied to

implement a corporate-wide system or to changeoverall work processes. IT managers are also in adifficult position to knowwhat competing initiativesexist for people andmoney, something withwhich management isintimately more familiar.

Once the businessplan or strategic plan iscomplete for the comingyear, the IT managershould review and decidewhich IT initiatives he orshe is considering and howhe or she can help achievethe overall business planor specific objectives.

Exhibit 2

Value Drivers

Driver

Business Development

Equipment Management

People

Technologies

• Animation• CAD/3D modeling• Conceptual estimating• Proposal development• CRM

• Preventive maintenance• Work-order processing• Cost history• Utilization reporting• Parts inventory control• Telemetric data capture• Interface with manufacturer’s systems

• Self-service human resources• Benefits administration• Training database and tracking• Electronic applicant processing

90 n it does matter

Allow the manager a reasonable period to align the initiatives with the business plan objectives and then have the manager present costs, schedules, and peoplerequirements to the executive team for consideration. This should include strategicparameters such as implementing more flexible systems, upgrading the overall infrastructure, providing better infrastructure for remote communications, deployingwireless solutions in the field as well as more specific initiatives such as selecting and implementing a CRM product.

IT managers can be involved with the planning or management team to provide backup information, expertise, case studies, and suggestions, but ultimately,the decision comes down to vision and direction and that has to be management’s

call. If not, it will be an uphill battle.That being said, at the end of the

day, top management and thoseresponsible for IT at the highest level,should be in relative agreement onvision and direction. Deep dissensionbetween upper management and theIT manager or CIO is bound to lead to challenges during execution.

HOW DO YOU TIME YOURINVESTMENT IN TECHNOLOGY?

As the old adage goes, “timing iseverything.” Technology initiatives areno exception. Go in too early and you

are on the cutting edge and spending unnecessary money for immature, potentiallyuntested, solutions. Wait too long and all of the competitive advantage has alreadybeen squeezed out. You also run the risk of appearing slow to adopt both within theorganization and outside the organization. A sports metaphor serves well to examinethe issue of timing.

In the world of bike riding, it is important to be mindful of your position within the peloton (that group of riders you see riding closely together snakingthrough city streets or on country roads). The lead person or pair in that group is awonderfully apt metaphor for what it’s like to be a leader in technology. The rider infront must be very strong, stronger thanmost of the other riders, if he or she isgoing to maintain that position for anextended period. In a recreational ride,that responsibility is shared and everyonetakes a turn facing the wind for thebenefit of the entire group. Business isnot recreational. It is competitive. Noone is going to take the lead positionfor your benefit. They are going to take that lead position hoping to gainand keep a competitive advantage. Riskoccurs when you take that position and

As the old adage goes,“timing is everything.”Technology initiativesare no exception.


you are not prepared todo so. Or in the case ofbusiness, you take thelead on a new technologythat is not really going to provide advantage, thereby expending energyon something that seemssexy and cool but is, in fact, only distracting.(See Exhibit .)

While the construction industrynever seems to want to be on the front edge oftechnology adoption,

the industry has reached a point where it must begin to choose to apply their ITresources judiciously. That means identifying the areas in which competitive advantagecan be gained as well as how technology can help gain and keep that position. TheMcKinsey trio calls these points the “operational levers.” Further, they claim “themost impressive productivity gains come through a focus on a single lever.” 4

The McKinsey consultants, based on a two-year study, found that the relationship between IT and productivity occurred at two levels. First, technologyallowed companies to innovate faster, coming up with better products, services, orprocesses. Second, and maybe more relevant to construction, it allowed businesses to “turbocharge their existing processes by allowing them to extend their currentadvantage in key areas.” 5

One way to determine whether real advantage can be gained is to ask yourselfthree questions:

. How prevalent is the technology? . Is it already highly matured and adopted within the industry? . How difficult is it to secure/implement this technology?

It is interesting to note that companies in the construction industry seem tohave taken the exact opposite position, spending heavily on ERP systems throughoutthe s and into the s, which fundamentally automated the least costly and least margin-contributing group in the company. Further, functions like estimating, business development, and project management have only recently beenthe beneficiary of slight IT investment, but unfortunately, not much organizationalcommitment. Here again, the McKinsey study supports this: “The most promisingIT initiatives usually evolve along with related business processes and build on anorganization’s operational strengths.” 6

COMPANY CULTURE AND TECHNOLOGY: IS YOUR ORGANIZATION READY?Many construction companies develop their IT strategy based upon a somewhat

idealized vision of their organization — their people. Some managers do not see the

Exhibit 3

Leading Edge or Close Follower: What is Right for Your Organization?

Ambition, Pace, Scope

Cos

t, D

egre

e of

Diff

icul

ty, R

isk

Pioneer/Leading Edge

Follower/Trailing

92 n it does matter

absolute thirst and drive for more advanced technology and tools and continue todeploy at a marginal pace, slowing everyone down, and frustrating most of the talented people in the organization. Others have the opposite problem. They drive

toward technology, cleaving much closer to the leading edge irrespectiveof the fact that the organization is not prepared for such advances, nor do they even understand what thetechnology is for. Some companies areslow-learning organizations reluctant to change while others are much moreadvanced and eager to use whatevertools they are given. Still another characteristic of culture within theorganization is the degree of teamworkthat exists. Advanced or not, someorganizations foster a degree of isolationin which each department functionsindependently. Implementing a highlyintegrated system that depends oncross-departmental cooperation todevelop better procedures is less likelyin such an environment.

Get an honest appraisal of thecompany’s culture before you begin. Think carefully about how the organization hasreacted during the last few implementations and realize that, without substantialeffort, that is probably how they are going to react with the next several implementations. If that is not adequate or desirable, consider your options. Mostorganizations could measure the technical proficiency and enthusiasm of their peoplealong a bell shaped curve with many people being average users and % to %being on either extreme. (See Exhibit .) It is best to not let either extreme lead the

Average Power User NoviceTechnophobe

Exhibit 4

Typical User Knowledge

Number of People

5

10

15

20

25

30

0

Some companies are slow-learning organizations reluctantto change while others are much moreadvanced and eager to use whatever toolsthey are given.


company’s IT strategy. If you let the technophobes rule, you will remain behind. By the same token, if you let the “power users” decide on pace and direction, youwill risk alienating the rest of the organization and possibly overspending.

Measure your organization honestly across these points on a scale of to with being ideal:

• Teamwork between all departments• Willingness to adapt to change• Embracing new technology and systems• Committing time to learn• Willingness to educate others

Consistently low scores argue for more effort on the company culture beforeapplying the technology.

Anecdotally, a routine part of an IT consultant’s job is monitoring softwaredemonstrations for clients. Occasionally, during the presentation of an application, a clerical person is heard exclaiming, “There goes my job!” This can be a commonreaction when someone sees all of their current functions being dramatically changed,reduced, or eliminated. Unfortunately, this can be a sign of the cultural problem weare discussing — when too many people view their value to the company as whatthey do rather than what they achieve. So when their function is changed, they feeltheir job is threatened rather that seeing an opportunity to do their job better or to do something more valuable for the company. Another aspect of information systems strategy that can be measured relative to the company culture is risk tolerance,effort, and degree of fit. All systems fall somewhere on the software continuum.(See Exhibit .) Companies that want an extraordinarily high degree of fit to theirrequirements and are willing to spend the time and money should move down thecontinuum toward a tailor-made system. For those that simply want a software product that works well and has a reasonable degree of fit, they would be better tomove to the left of the continuum, towards a flexible system. Companies that

Tailorable CustomFlexibleStructured

Exhibit 5

The Software Continuum: Implementing Effort and Cost

Risk Dollars

High Degree of Fit

Reasonable Degree of Fit

RiskDollars

94 n it does matter

misjudge their tolerance for expensive complex implementations (tailor-made products) or their willingness to sacrifice certain functionality or power (flexibleproducts) usually end up frustrated and disappointed with their choice.

Culture is one place you have to be careful. Ignoring your company’s culture asyou develop your IT strategy can leave the organization subject to risk, buying into

technology and systems that are notconsistent with the environment inwhich they are going to be implementedand used. At the same time, someorganizations have pockets of “negativeculture,” which shouldn’t be the guiding force for the company’s ITdirection either. There are times when management needs to focus on correcting cultural issues beforebeginning to implement new systemsand technology.

WHERE DOES VALUE COME FROM?To decide where your operational

levers are, it is important to thinkabout the functions within the organization that are predominantlyresponsible for the company’s success.Once decided, you can then assess

which technologies enhance those levers. For example, for truly hard-bid, public-workscontractors, the only technology that can bring advantage is systems that drive down cost or allow for more effective bidding. Value-add technologies such as CRM,CAD, or collaboration are less likely to make that kind of firm more competitive.(See Exhibit .) Using that same line of thinking, design/build-negotiated firms muststay current or slightly ahead onthe technology curve because their customers and prospectsexpect a certain level of deliverables through technology.Further, such firms are certainlycompeting against firms that have invested more heavily intechnology. And still, both firmsrequire a deliberate focus on technology and IT strategy.

A project manager recentlyprovided one example of gainingcompetitive advantage from a large Chicago contractor that was working on an amphitheater project design byFrank Gehry. It was very modern with lots of shaped metal and many interlockingpieces. The project team used collaborative D design applications to bring the

There are times whenmanagement needs to focus on correcting cultural issues before beginning toimplement new systemsand technology.


designers, fabricators, and erectors on-line together to solve constructability issues, aprocess that allowed them to get through that phase of the project early.

Technology does still matter, at least in construction. The position Mr. Carr(HBR) takes relative to hardware is far more compelling but with respect to softwareand systems, there remains considerable advantage to be derived from the effectiveimplementation and use of technology. The McKinsey trio of authors are due thanksfor a useful reminder of how to develop IT strategy and stay focused on one or two key strategies, those that enhance a company’s productivity levers. There is still plenty of value to be mined from technology and systems. The key is focusing onproductivity drivers, implement and use the systems well, and then move on toanother strategy when the technology you are using becomes commonly used. n

Christian Burger has spent the last 17 years working as a consultant on IT issues throughout the United States and

Canadian construction industry. Christian is an alumni of FMI, where he spent eight years as a senior IT consultant

before starting his own firm, Burger Consulting Group. Christian currently helps contractors with strategic IT planning,

software selections, implementation management, and best practices consulting.

1 Carr, Nicholas, “IT Doesn’t Matter,” Harvard Business Review, May 2003, Harvard Business School Publishing Company.

2 Farrell, Diana, Terwilliger, Terra, and Webb, Allen, “Getting IT Spending Right This Time,” McKinsey Quarterly,

Number 2, 2003, p. 118–129.

3Farrell, Diana et al, p. 121.




Exhibit 6

Value-add Technologies

Value

Image in the Marketplace

Efficiency

Enhanced Productivity

Information Available

Reduced Risk

Examples

Conceptual estimating, 3D design, collaborative job site.

Automated accounting functions, field-based time collection, integrated work-order processing with service dispatching and accounting.

Project management system, sheet- metal design integrated with Plasma cutting machines, laser-guided trenching and excavating.

Web-based project management, alerts and messaging, drill-down inquiry screens.

Preventive maintenance scheduling for equipment, tool tracking, subcontractor-administrative compliance integrated with accounts payable.

Description

Enhance the company’s image in the marketplace by using state-of-the-art tools to solve customer or construction challenges.

Reduce or eliminate redundant effort, streamline or eliminate paper flow.

Replace some functions in the field or office with systems and technology that can do it more efficiently or more consistently.

Provide access to all users with a need for timely information through an easy-to-use mechanism.

Put in place controls over company’s most important resources and eliminate functional areas of risk.

Owning a construction firm is like climbing

Mt. Everest, the world’s tallest mountain. Both are

relatively easy to begin, success is always difficult,

and exiting can be fatal. Successful contractors will transition

ownership, avoiding the many pitfalls that can leave them burned.

DEATH ON THE MOUNTAINThere were just successful summits of Mt. Everest between and ;

thousands attempted it. There were also fatalities, or roughly one fatality forevery three summits. Amazingly, most fatalities occur on the descent after comingclose to or actually reaching the summit. What a tragedy — to reach the top of theworld and not live to tell the story!

FAILING AT EXITThe parallels between climbing Mt. Everest and entering and exiting the

construction business are significant. To join an Everest expedition costs between, and , — about what it takes to become a contractor. Most climbersfail to reach the summit — just as most new construction firms fail to stay in businessbeyond a few years. Even if they succeed, both the climber and the contractor face acommon danger — failure to finish well. In the same way a climber risks deathdescending Mt. Everest, the most vulnerable period for the established contractor iswhen the current owners decide to exit the business.

For successful contractors, transitioning ownership and leadership is another true test of greatness — one that willestablish their legacy and provideopportunity for others. By W. Christopher Daum

Passing the TorchWithout Getting Burned

98 n passing the torch without getting burned

WHAT’S AT STAKE?The stakes are tremendous for construction firms undergoing transitions of

ownership and management. To the owners, the business represents the crowningachievement of a successful career. Ensuring it continues beyond their involvement

represents a major part of their legacy.Moreover, the majority of their personal net worth is usually in thebusiness; therefore, being able toremove their equity is vitally important.For key employees who helped buildthe company, the business is theirlivelihood and a means to achieve theirown financial and career goals. Yet,most construction firms fail to sustainthemselves beyond the first or secondgeneration. This is also a tragedy!

So how can firms successfullytransfer ownership and leadership from one generation to the next? Howcan owners realize the value of theirequity, provide opportunity for others,and solidify their legacy long after their involvement with the business has ended? How can they pass thetorch — without getting burned?

Again, we can draw lessons from the success of those who have climbed (and safely descended) Mt. Everest, known to Tibetans as The Mother Goddess of the Universe.

IMPROVING YOUR ODDSSince the number of Everest summits has risen dramatically, while

the number of fatalities has plummeted. There have been an additional ,

summits and only fatalities — less than one fatality for every successful summits. Thousands of climbers, many with limited experience, haveclimbed Mt. Everest in recent years.Even so, the current death rate is down to about %. This dramaticimprovement in success and safety isdue to better planning, experiencedguides, improved communication, and better tools on each expedition.Likewise, construction firms canimprove their odds of surviving the transition — and avoid gettingburned — by taking the followingproactive steps.

A major cause of death on Mt. Everest

results from poor decisions. On summit day,

climbers often get a late start and arrive at

the peak (29,035 ft.) late in the afternoon.

As a result of the late start or even lingering

too long at the top, a climber may end up

descending in darkness, depleted of oxygen,

and fighting strong winds and sub-zero

temperatures. Few survive above 26,000

feet, exposed to the elements. Likewise, few

contracting firms transition to their next

generation after failing to plan or waiting

too long to begin the process.

To the owners, the business represents thecrowning achievementof a successful career.Ensuring it continuesbeyond their involvementrepresents a major partof their legacy.


TO AVOID GETTING BURNEDStart Planning Yesterday!

The most recent FMI survey ofconstruction firm owners reveals that% of owners intend to transition out of the day-to-day management oftheir firms and transfer % of theirownership within the next years.This corresponds to other national surveys of private/family-business owners that indicate a large percentageof owners and executives intend to becompletely out of their businesses within the next five to years.Whether by choice or necessity, theoverwhelming majority of these owner-ship transitions will occur internallywith family members and/or keyemployees. For construction industryfirms, the percentage of internal transfers will be upwards of %.

Unfortunately, many owners fail to plan their exits or wait too long tobegin the process. In a recent survey,more than % of CEO’s over the age of who plan to retire within five years have not chosen a successor. Fully one-third of the other shareholders in these firmsare unaware of the major shareholders’ transition plans. The FMI ownership surveyreveals the primary reasons exiting owners have not put succession plans in place,including that the owner is not ready (%), employees are not ready (%), or the owner is unsure/unaware of alternatives (%). These personal issues represent a major disconnect for owners who desire to exit, but are unwilling or unable tobegin the planning process.

Time is Not on Your SideExperience teaches it takes a minimum

of three to five years for a senior executiveto develop and transition his leadershipresponsibilities to a successor. Moreover, forfirms with average capitalization and profitmargins for their industry sector, it typicallytakes between eight and years to transfer% of the stock in an internal transition.Waiting too long to develop and implement aneffective succession plan limits an owner’soptions, may delay the timing of his or her exit, and puts the business at risk. To avoidgetting burned, begin planning now.

In a recent survey, morethan 55% of CEO’sover the age of 61 whoplan to retire within fiveyears have not chosen a successor. Fully one-third of the othershareholders in thesefirms are unaware of the major shareholders’transition plans.


Use Competent and Experienced AdvisorsBusiness succession is a dynamic and complex process involving multiple

issues that most contractors have limited experience (or interest) dealing with. Theissues that must be addressed and coordinated in a manner that is suitable to yourbusiness include:

• Owner goals and objectives • Stock valuation• Employee goals and objectives • Stock transfer methods• Family issues • Contingency planning• Estate/gift/tax planning • Insurance programs• Business strategy • Executive compensation• Financial performance • Shareholder agreements• Leadership and succession • Control and risk management

Engaging an outside advisor who understands your industry and has expertise in business succession planning can be invaluable. Use this advisor to quarterbackthe process and coordinate activities with your accountant, attorney, and insurance

professionals. The challenge will be tohelp you design and implement aworkable plan that balances the goalsand objectives of the key stakeholderswith the needs of the business. Mostimportantly, it will help you get something done and avoid the dangercaused by inaction.

Communicate Your IntentionsWhen owners fail to

communicate their intentions for transitioning ownership and leadership,key employees often leave. Moreover,both current and future leaders andshareholders are vital to developing and implementing business successionplans. It is impractical for current owners to develop a plan without theinput of key employees. The goals,expectations, and concerns of all stakeholders must be considered early

in the process. Managing expectations, working through potential conflicts, and evenrisking the loss of a key employee who’s expectations are not in line with the rest ofthe firm is unavoidable, but necessary.

Develop Your SuccessorsOwners of construction firms tend to be classic entrepreneurs with “type-A”

personalities, high risk tolerance, and passion for their business. The companydepends upon their leadership and active involvement in all aspects of the business.

Managing expectations,working through potential conflicts, andeven risking the loss of a key employee who’sexpectations are not in line with the rest ofthe firm is unavoidable,but necessary.


This often makes it difficult for new leaders to emergeinside the organization.FMI associates routinely hear ownerssay, “My managers aren’t entrepreneurs; if theywere, they wouldn’t be working for me.” Usually, we agree.Even if the firm encourages risk-taking and fosters entrepreneurship,emerging successors typically lack exposure to many aspects of the business, such as banking, bonding, finances, and insurance. They typically lack the big picture of how the business operates and often do not have as many ties to the communityas the current owners do. Exposing future successors to these broader aspects of the business requires a purposeful and intentional process that’s unique to each individual. It takes time. Frequently, owners underestimate how much time it takesto develop a successor (often a group of new leaders) to carry the business forward.They are also unaware of how their own role and behavior must change to effectivelypass the torch to the next generation.

A trusted advisor can provide an objective perspective on the development needs of future leaders and provide coaching to the current ownership team as theyassume their new roles. They may employ feedback and assessment tools that provide insight on personality styles, natural abilities, and leadership effectiveness to accelerate the learning and development process.

The importance of developing an abundance of talent at all levels in a construction firm cannot be overemphasized. It is imperative that candidates forfuture ownership and leadership be identified early in the business succession processand given time to grow into their new roles. This may feel uncomfortable to currentowners who fear losing their position or authority in the business and community;however, it is a vital step toward achieving their larger goal of ensuring the firm continues long after they are retired.Business consultant and author PeterDrucker once said, “The final test ofgreatness in a CEO is how well hechooses a successor and whether he canstep aside and let his successor run thecompany.” No succession plan willwork if the business lacks the people to make it happen.

Use the Right ToolsThere is more than one route

to the top of Mt. Everest and each one will work, assuming the peopleinvolved are up to the challenge.Likewise, business succession is allabout people — everything else is justprocess. Owners “get burned” whenthey focus solely on the techniques and

It is imperative that candidates forfuture ownership andleadership be identifiedearly in the businesssuccession process andgiven time to grow intotheir new roles.


disregard fundamental people and business issues. That being the case, there are multiple techniques for transferring ownership and removing equity in a constructionbusiness. Several of the more common techniques used are listed in Exhibit .

There are advantages and disadvantages to each of the above techniques fortransferring ownership. With the exception of an ESOP, all rely upon after-tax dollars to finance the transfer of stock or build-up of equity. The use of outside capital is usually minimal due to the limited financial resources of key employees and inability to leverage the business. Therefore, the continued strong performanceof the business is critical for any plan to work.

The best succession plan is one designed according to the specific needs of thebusiness that aligns the interests of both the current and future owners. A primary

role of an advisor is to analyze all of the appropriate methods and developoptions that can work. The most taxefficient plan is worthless if it does notsupport the needs of the business andsatisfy the bonding company.

Follow Through to ImplementationTo be of any value, business

succession planning requires boththinking and doing. Once developed,the ownership must be committed to

Exhibit 1

Ownership Transfer Techniques

Direct Sale

Stock Redemption

Sub S Buyout

Recapitalization

ESOP

OldCo/NewCo

A simple method wherein current owners sell shares directly to future owners. Issues include price of stock, source of funds, and payment terms.

Stock is redeemed by the company. This is a form of leveraged buyout. Issues include source of funds, concentration of ownership, potential suretyrestrictions, and tax treatment.

New shareholders use compensation and distributions (S Corp) to purchase shares. Issues include price for stock, initial buy-in, use of debt, and control/voting rights.

Use with C Corp. Create two classes of stock: preferred and common or Class A and Class B. Preferred or Class A shares receive fixed return before profits are distributed to common or Class B shares. Current owners retain equity and receive fixed return. New owners build equity and participate in profits.

Qualified employee benefit plan that invests primarily in the sponsoring company’s stock. Subject to IRS and Department of Labor regulation. Allows for pre-tax payroll dollars to fund repayment of ESOP debt and potential tax-deferral on sale of shares to ESOP. Often not suitable for contractors. Complex regulations, ongoing administrative costs, and significant fiduciary responsibilities.

NewCo, typically an LLC, is formed and capitalized by future owners. Joint venture formed with OldCo, which is retained by current owners. OldCo provides capital, bonding capacity, and organization to JV. NewCo provides capital and sweat equity. Membership, compensation, control, and profit split controlled by JV agreement. OldCo eventually removes its capital and NewCo stands on its own. No sale takes place.

To be of any value, business successionplanning requires boththinking and doing.


implementing the plan. It will take time to put all the pieces into place and unforeseenissues are likely to occur that require modifications to the plan — people leave, new opportunities or challenges arise, or a buyer knocks on the door offering to buythe business. The plan can always be revised or amended. What cannot be recoveredis the time lost due to inaction. Therefore, follow through to implementation.

Finish WellIn , Sir Edmund Hillary and Tensing Norgay became the first climbers

to summit Mt. Everest. Since then, nearly , people have followed in their footsteps. Fifty years after the initial summit, Hillary’s son Peter and Norgay’s grandson Tashi, climbed to the summit together in tribute to the achievement ofthese great men. For successful contractors, transitioning ownership and leadershipto the next generation is another true test of greatness — one that will establish their legacy, provide opportunity for others, and allow them to realize the value oftheir life’s work. n

Christopher Daum is a senior consultant with FMI Corporation. He may be reached at 919.785.9264 or by e-mail at

[email protected].

The construction industry faces one of its greatest

challenges over the next decade. As the industry identifies

areas to improve effectiveness and drive stronger profits,

workforce issues will significantly challenge companies. Construction

companies that are able to understand and deal proactively with

the human-capital element will prosper, while those who ignore it will

face significant challenges in effectiveness, productivity, and profit.

While not all companies have a strategic plan, all companies should developone. Those companies who do have a plan, stand a much better chance of generatingpositive growth over the long term. Companies without one may suffer “operationalspikes,” capitalizing on random, but positive trends through things that are out oftheir control. Even those construction companies that have business strategies oftendon’t tie human capital into their plans. Often, generic statements such as, “We willdevelop our people,” or “We will be the ‘Employer of Choice’ within the markets weoperate,” are included. These statements probably sound familiar, but while theymay sound good, they lack clear focus as to what really is their human-capital strategy.

The good news is that construction companies have huge potential upside byembracing a human-capital strategy. The typical cost of labor in a construction company can be more than % of revenue. Before defining human-capital strategy,

The development of internalhuman capital strategy provides agreat opportunity to improveresults and bottom line, and thusincrease shareholder value. By Mike Perriccio

Human Capital: LinkingPeople and TheirResults to the Strategy

106 n human capital: linking people and their results to the strategy

it is important to understand that an organization must create its business strategy clearly and tie their human-capital strategy directly to it. A well-definedbusiness strategy will clearly outline the direct and powerful connection between the company’s strategic goals and how the human capital of the organization can helpmeet those goals.

HUMAN RESOURCES OR “PERSONNEL” VS. HUMAN-CAPITAL STRATEGY Construction companies who no longer view the human resource department

as an administrative, overhead cost center but rather, more of an operational partner,are beginning the journey to a human-capital strategy. Using your human-resourcemanager merely to oversee the administrative function of your human capital is liketrying to create a local network with typewriters — that theory should be extinct.Many construction companies view their people department as an independent,administrative function that should handle payroll and organize the companyChristmas party. Some companies even still refer to it as “personnel,” an indication

of an even less business-related partnership. Viewing human “resources”as an administrative function missesthe critical link in your business of theoperational partnership that must existbetween these two areas.

The reporting relationship within an organization can tell you alot about the company’s strategic relationship between its people, theoperations, and financial success of theorganization. Companies that tie thehuman resources function intimatelywith operational leadership will stand a much better chance of opening communication lines and implementingmethods of measurement.

For example, ABC ConstructionCompany recently realigned theirorganization, changing their personnelfunction to a human capital function.To do this, ABC converted their top HR position from the -year

administrative expert to a certified HR Professional. (Human Resource Certificationis a standardized testing process resulting in the Professional in Human Resources(PHR) or Senior Professional in Human Resources (SPHR) certification). ABCchanged the reporting relationship so the new HR Director reported to the COOand participated in strategic, senior management meetings. The move caused immediate reaction from the COO who saw the “personnel” function as a joke. He saw the department as taking away productivity from the operation with silly initiatives involving operational time and resources that produced little more than areputation for the “flavor of the month” programs. ABC had very few measurements

Companies that tie the human resources function intimately withoperational leadershipwill stand a much betterchance of opening communication lines andimplementing methodsof measurement.


in place to be able to determine if they were maximizing theiropportunities with their humancapital. They did have their occasional “mandatory” employeesatisfaction survey, which gavethem the answers they wanted tohear, and they kept turnover statistics. However, neither ofthese traditionally “soft” statisticalmeasures produced anything forfuture strategic implementation.The new HR Director immediatelybegan collaborating with the COO in an effort to understand the operationaldynamics. Profit margins had slipped to %–% from %–% years ago. Theybegan to analyze the human capital element in relation to operations and thus beganthe strategic partnership towards human capital effectiveness.

WHAT IS HUMAN CAPITAL? Human capital is the only asset of any company that is NOT owned by the

organization but represents the largest operating expense, typically % of operatingexpenses. The real issue surroundinghuman capital is why constructioncompanies do not pay significantlymore attention to the issues that influence its largest operating expense— human capital. Human-capitalstrategy can be many things, but it canbe summarized by a company’s abilityto maximize the blended strategic effectiveness of its people, culture,processes, and structure in such a waythat allows an organization to achieveits maximum potential, not just for short-term financial gain but forlong-term market domination.Construction companies who focus on the strategic issues of the humancapital will likely be the ones that drive long-term success. The ability toget, develop, and keep talent within construction companies will become a major part of the human-capital strategy and therefore part of the

business strategy of construction companies. Talent management is one critical component of the human-capital strategy, but there are several others. Measurementis the key to human capital and the return on investment for a company.

Human capital is the only asset of anycompany that is NOT owned by the organization but represents the largestoperating expense, typically 70% of operating expenses.


THE TALENT EQUATIONHow do you measure the talent within your organization? Many companies

pick the “hardest workers” who have “stayed a long time,” “made money on most of their projects,” and “who can be trusted” as “role models” for “others to follow.”The result is all too many times subjective and ultimately dangerous.

What we don’t see about those “superstars” is that the human capital ROI oftheir projects have declined over time, the expense factor (measurement of operatingexpenses) has incrementally increased over time, the revenue factor of their projects

has created limited success, the compensation expense factor is high,the turnover of their key people onprojects they have managed is high, andthe retention index is extremely low relative to other industries. If you feellike you have just read a financialreport, you are partially right. Human-capital strategy quantifies issues such astalent management. The constructioncompany that truly measures talent willwin the talent war because they willunderstand the profile and competenciesof its successful people. Then, they willbe able to recruit, hire, and developsuperstar talent continuously.

HUMAN CAPITAL ISSUES IN THE CONSTRUCTION INDUSTRY

Clearly, there are very few construction companies who have

truly made a long-term commitment to analyze and improve their human-capitalinvestment. In general, most construction companies believe attention to their people is important and commit themselves in that direction. But they are onlyscratching the surface of their human capital potential. Let’s look at what most construction companies measure within their human capital.

SOFT DATA VS. PERFORMANCE ENHANCING METRICSTypical data tracked by the human resource function provides nothing more

than an opportunity to justify the time it takes to track it. For example, companiesthat track employee satisfaction rarely do anything more with it than share it at theannual meeting and offer congratulations. Rarely is the information employees provideanonymous enough to allow employees to feel safe truly rating the organization.Even more rare is a culture that really wants to hear the “bad” stuff — the stuff thatcan help the organization implement profit-making changes. Most likely, the data is compared to last year’s data and shows a steady trend that makes everybody smile.However, what is really happening here?

Senior management is getting a false impression. Often, when a third partyspeaks to employees about employee satisfaction surveys, employees respond, “I tell


them what they want to hear. The last time one of my co-workers wrote somethingnegative, the project manager found out about it and now my former teammate isno longer here.” Thus, employee satisfaction scores give a false impression. To really

measure employee satisfaction, onemust understand the key drivers of satisfaction within an organization.

The key drivers identify areas thecompany can focus on to maximize thelong-term effectiveness of their humancapital. Examples of key drivers ofemployee satisfaction might includeemployees being “compensated becausethey actually do make a difference in the organization” or employees “continuously learning and developing,”enhancing their future career growth.These and other key drivers help the construction company to make better decisions, impacting employee

satisfaction, driving up retention rates, and increasing customer satisfaction. This, in turn, creates repeat customers, which ultimately drives PROFITABILITY.

TALENT MANAGEMENT The key to any successful organization — whether it is a professional football

team or a -million-a-year general contractor — is to recruit, hire, develop, andretain talented team members. Many companies make the mistake of saying theywant to hire only “A” players. The mistake that is often made is that they really do not fully understand the talent profile within their organization. Although not ascomplex as DNA, the talent profile of an organization holds a pattern of its own. An organization must first evaluate who are their most talented people in the mostcritical positions at their company. You cannot simply say we want to hire “A” players because the profile for a successful “A” player in a construction company will be different for an estimator, a project manager, and a superintendent.

You must first identify the position that can impact your business the most. If increasing your profit margin from % to % were the goal, the talent profile forthat strategic goal would be much different from the profile of a projectmanager with specific technical expertise to build a nuclear powerplant. Regardless of the position youchoose, you must then identify thecompetencies that exist in your currenttop project managers. The identifiedcompetencies, behaviors, and culturalcharacteristics can then be used to create a hiring profile for that position.But you are not done yet.

Although not as complex as DNA, the talent profile of anorganization holds a pattern of its own.


You must then develop a series of assessments to use in the hiring and promotional process. These assessments should be able to quantifiably measure thecompetencies and behaviors and give you a “scorecard” from which to base your hiringdecisions. The final product of this process is a customized blueprint for creating the most talented team in your company. You will no longer be throwing darts at atarget from feet away hoping to hit the target one out of times. In the exampleof a project manager, consider this. For every project manager you hire that ends up being a “B” player, it could cost you more than ,. Consider the fact

that a poor project-manager hire costs , in hiring, training, and development. Then you place the project manager on a million project.Instead of hitting your % profit margin goal, because of the lack of cash flow management (one of youridentified core competencies), the project manager comes in at %, a lossof ,. That’s just one project!

SUCCESSION PLANNINGSuccession planning allows you to

rate the talent within the organizationfor key senior management positions.These positions may vary among construction companies, but they may include CEO, COO, CFO, Director of Business Development,Construction Manager, and even theProject Manager or Estimator. At aminimum, the senior team of every

construction company should have a documented plan to address the possibility ofkey people leaving the organization. Many times, good companies are caught in apredicament when a key person is recruited away from the company (an increasingtrend) or becomes seriously ill and is unable to perform. The impact on the businesscan last for several years due to lost momentum. A solid succession plan identifiestalent in the organization, rates them objectively, and mentors and develops them in areas needing improvement. The succession plan should be reviewed annually and agreed upon by senior management. Management must realize that budgeting a junior project manager or intern to learn and grow with the company is not additional overhead, rather a huge investment in the long-term success of the humancapital strategy. Privately held family businesses should consider this early on asfinancial implications may affect ownership shifts as well.

POLICIES, PROCESS, AND BEST PRACTICES Can you imagine constructing a building without blueprints? Many construction

companies work this way because they do not have functional operational policiesand procedures. Every sizeable company has best practices from one project to

Many times, good companies are caught ina predicament when akey person is recruitedaway from the company(an increasing trend) orbecomes seriously illand is unable to perform.


another. The problem is that they donot document and communicate thesethroughout the company. Consider acompany that has been in business

years and averages projects per year.This company would create a best-practice environment on more than projects! If after each project thattypical construction company chose just one best process to carry into everyfuture project, they would have alibrary of policies and procedures thatwould make them the envy of everycontractor in their market.

So why doesn’t every company have this? The answer is not as simple as itsounds. Many times, construction companies pull their best people towards the endof a project to go work on the next important project. By doing this, the companyhas lost its ability to synergize the key learning on that project. Closeout meetings do not allow for the identification and documentation of these best practices and policies. In addition, a company most often lacks the communication process to

make it part of the ongoing operationof the company. Technology, or lackthere of, is another reason. There is not a vehicle to easily document best practices from one project site to another. No one is tasked with establishing the process, documentingthe process, communicating theprocess, and ensuring that the processis embedded in every project.

METRICS MEASUREMENT This is one of the most difficult,

yet most important, opportunities toenhance your human capital. Couldyou imagine not tracking your profitmargin or debt ratio? What would happen if you didn’t? You would beguessing at whether you were meetingfinancial targets. Consider that humancapital is the most expensive asset in acompany. Yet human capital can be

measured to determine if the human capital yield is maximized. The constructionindustry could begin to make huge profit-margin increases if companies woulddetermine the areas to measure and focus on in the company.

What matters is measured. Let’s take the estimator position as an example. Whatis your revenue per estimator on your projects? How does that compare within the

The construction industry could begin to make huge profit-margin increasesif companies woulddetermine the areas to measure and focuson in the company.


industry? Consider an estimator bids projects per year and “wins” % of those.Total the value of all the projects that an estimator bids and wins — in this case, million. Then, add all the money associated with the mistakes that were identifiedin those estimates, missing items, etc. Now divide the total value of those projects by the amount associated with poor estimating. This ratio then is the benchmark tomeasure future projects. Finally, tie that ratio into that estimator’s performancereview and annual compensation. You will begin to see some accountability in theresults very quickly. The secret to metrics measurements is to realize they are notbenchmarks — but intense measurement of key business issues. (See Exhibit .)

PERFORMANCE MEASUREMENT AND COMPENSATIONThese two components are an extremely important function of the human

capital equation. Performance measurement and the compensation strategy used to reward and incentivize performance can create financial chaos. Let’s first look atthe performance management issue. All too many times, construction companiesdesire to quantifiably measure a project while subjectively measuring the projectmanager or superintendent. Let’s discuss the issue in general and then review a specific example.

Companies often make the mistake of measuring every employee by the samecriteria. Would you evaluate the quarterback of a football team the same way youwould a defensive tackle? Of course not. The quarterback is ultimately measured by

Exhibit 1

Benchmarking vs. Strategic Performance Metrics

Benchmarking

Emphasizes administrative efficiency as performance standard

HR function is primarily a cost-center

Measures based on dollar equivalents

Low risk, low return

Can rely on current HR competencies

Focus on HR activities

Typically can collect data using off-the-shelf software

Reconfigures existing data

HR owns only HR

Requires no understanding of strategy

Results in HR being managed like a commodity

HR increasingly marginalized and outsourcedto low-cost vendor

Strategic Metrics

Emphasizes strategic impact as performance standard

HR professional is primarily a strategic partner

Measures based on strategic relationships

Higher risk, higher return

Requires new HR competencies

Focus on business outcomes relevant to line managers

Often requires customized information technology

Requires new measures

HR shares responsibility for human capital performance with line managers

Irrelevant if not driven by strategy

Results in HR being managed like a unique strategic asset

HR not easily outsourced because contribution is firm-specific and based on more than cost control


wins and losses because of his direct ability to influence the results of the game. The components of a quarterback’s review would be completion percentages, interceptions, touchdown passes, quarterback rating, etc. While a defensive tackle ismeasured against sacks, tackles, etc. Yet, don’t we often rate all of our managers inthe organization on things such as teamwork,quality of work, and quantity of work? Theemployee performance evaluation should bebased on the core competencies determined in the talent management equation. It shouldalso tie into the recruitment and hiring component. If the project manager talent equation consists of technical managementskills such as effective scheduling; financialskills such as profitability measures and cashflow management; and leadership skills such as team alignment, motivation of staff andcoaching, then those must be the basis for theevaluation. What matters is measured.

So why don’t we do it? The usual reason is that often as managers we want to have thediscretion of evaluating our people. The truth is, if we measure too much, we mightactually not have any average or below average employees that we really like left in the company. It’s not very difficult to evaluate people on measurable results, but it really is difficult to evaluate people on measurable results. That’s right; it’s not a“typo.” This is the paradox that must be dealt with by successful companies. Noteverything in an employee’s evaluation must be measurable and quantifiable, but

% of it should be. The remaining% can be left to discretion.

Once we have determined the criteria for measurement, the compensation strategy must be determined. The compensation strategyshould be tied into the strategic plan of the specific department, division, oreven (depending on the size of thecompany) the company. Incentivecompensation is many things. However,for our purposes, we will limit it tobonuses. What is a bonus and why dowe offer bonuses? A bonus should begiven to people who reach extraordinaryresults in their positions. Hard work isnot a reason for a bonus UNLESS itdelivers results beyond what is expected.Oftentimes, bonuses are given to allemployees. What does that say to thoseemployees who put in extraordinary

A bonus should begiven to people whoreach extraordinaryresults in their positions.Hard work is not a reason for a bonusUNLESS it deliversresults beyond what is expected.


efforts and are given the same bonus as those who take social breaks every hour for minutes at a time? The compensation metric is quite complicated and requiresa great deal of analysis, both historical and future. Nevertheless, one thing is quite simple. Compensation MUST be linked to the desired results. Incentives, then,

should be linked to results beyond whatis expected and given only to thosewho create those results. This shouldinclude support staff not just businessdevelopment staff or the sales team.

Now, let’s get operationally specific. Let’s look at a project manager.A project manager should be able tomonitor and track performance withease throughout a project’s life cycle.Some of those key metrics should beprofit margin, revenue factor (revenueper employee), and expense factor(expense per employee) among others.Companies should be steadfast in onlypaying bonuses to project managerswho produce measurable results and hit budgeted targets. You are probablysaying, “If I do that, I would lose all myproject managers because they wouldrarely get bonuses.” You might say thereare factors beyond their control, likepoorly executed estimates or weather

delays. Perhaps this is true. However, what would happen if a project manager whotypically would accept an estimate they knew was doomed from the beginning suddenly said, “If I am being held responsible for this estimate, I will not accept it as it is right now. We made this mistake last time, and it has not been corrected.”Now all of a sudden, the project has taken its first step towards accountability under the direction of a focused compensation strategy that rewards results and not average performance. What matters is measured.

RECRUITMENT/RETENTION Where talent management identifies

the profile of competencies important to the success of strategic positions within thecompany, the recruitment plan drives what is determined by the talent management profiles. Oftentimes, companies do not havea viable recruitment strategy. It more often resembles a strategy of placing ads in the local paper and hoping to find someone good. “Hope” is not a plan. An effective,proactive recruitment plan will require constant looking for good talent even when

Oftentimes, companiesdo not have a viablerecruitment strategy. It more often resemblesa strategy of placing ads in the local paperand hoping to findsomeone good. “Hope” is not a plan.


there is not an immediate need. Therefore, when there is a need, the company isready to act quickly and accurately with a solid hire. Here are some areas that shouldbe considered in a recruitment plan:

. Based on the talent competencies, identify what areas of the profile should be targeted. For example, is there a particular college or university (not in your backyard) that has a curriculum for project managers that stresses financial and leadership competencies?

. Use technology to leverage your company. Have an employment page on your web site that provides positive marketing about your company. Display company successes such as employee awards and promotions.

. Make sure your jobs are posted strategically, not just anywhere. Identify key trade journals and associations and have recruitment ads on their web sites, not job openings. Be proactive.

. Prepare a corporate recruitment brochure that is professionally printed and that highlights why you are an “Employer of Choice.”

The issue of retention often brings false comfort because it can create either ahighly functioning organization or an organization whose future is slowed because ofits past. Let’s explore this in terms of raw human capital issues. Most companies donot measure retention, but turnover.Turnover measurements give you only asmall picture of what is out there. It tellsyou how many people have left yourcompany during a finite time. Sometimes,turnover is separated to measure bothhourly and salaried positions. Do you think a company with an annualhourly turnover rate of % is a goodcompany? The answer is...maybe.

Why maybe? Let’s look at the other side of the equation, retention.Oftentimes, we speak with CEOs who highlight their stellar retention statistics. But when we start peelingback the layers of the onion, we findthat project profits have deterioratedover time or not grown to the desiredlevel. One reason for this is that average performers overrun a companyover a long period. Team members who have been with the company – years are respected but are often lower onthe list of talented performers. We “carry” these “good” men because they haveworked hard for the company over the years. Don’t get me wrong, hard work shouldbe rewarded. But positive, profitable results keep companies in business.

Consider this, if you are again a company who has been in business for yearsand % of your workforce has worked with you for years or more, what are the

The issue of retentionoften brings false comfort because it cancreate either a highlyfunctioning organizationor an organizationwhose future is slowedbecause of its past.


odds that complacency ormediocrity exist? Prettygood if you have thecourage to really evaluateyour talent pool with ahard edge. The real issuehere is to manage youremployees in a way thatdoes not allow for averageperformance. We MUSTweed out those belowaverage performers quickly and unemotionallyso that we can infuse new talent into the company with new ideasand renewed energy.Approximately % to% of management’stime is taken up with people-related issues. Considering that most of that time isfocused on trying to get average or below average employees to produce better results,the manager’s time is being utilized improperly.

Human capital strategy is tied together: Talent management, competencies,recruitment and hiring, performance measurements, and retention strategy are allwoven together with the thread of measurement.

OTHER MEASUREMENTS OF HUMAN CAPITALCost per hire = (Advertising Expense + Agency Fees + Referral Expense + Interview

Costs (travel, time of interviewees, etc) + Relocation Costs + Recruiter Salary and Benefits)

Human Capital ROI = (Revenue – (Operating Expense – ((Compensation Cost +Benefit Cost))/Compensation Cost + Benefit Cost)

Human Capital Value Added = Revenue – (Operating Expense – ((CompensationCost + Benefit Cost))/Total Number of FTE)

Revenue Factor = Revenue/Total Number of FTE

Training Investment Factor = Total Training Cost/FTE

Retention Index = Turnover Percentage + Retention Percentage/

Turnover Cost = (Cost to Terminate + Cost per Hire + Vacancy Cost + Learning Curve Loss)

People want to be associated with winning companies. Companies cannot win without their people. The human-capital strategy links the organization and its

Exhibit 2

Human Capital Strategy

Retention (Includes Compensation

Strategy)

Processes and

Best PracticesHiring

Process (Including

Assessment Management

Recruitment Strategy

Talent Management

METRICS


people and creates that winning environment. In order to win at anything, the outcome of the event is known BEFORE the game starts and measured as a result.Construction companies have a great opportunity to improve their results and theirbottom line, and thus increase shareholder value through the development of theirinternal human-capital strategy. Construction companies that measure the processes oftheir recruitment, hiring, development/retention, and best practices documentation;tie compensation directly to goals; and finally, demand talent throughout their companies will help lead the industry to achieve new heights. n

Mike Perriccio is a consultant with FMI Corporation. He may be reached at 919.785.9306 or by e-mail at

[email protected].

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