Growth and success are almost synonymous in the construction lexicon. There are a couple of reasons for this:
- Ongoing business for construction contractors is, in fact, new business. As soon as we sign one contract, we begin to look for the next. Contractors must continuously find new business just to stay in business. Therefore, growth and success are synonymous.
- With the dawning of the age of slim margins, fresh cash flow became the life blood of the contracting business. “Front loading” became a survival technique. As current jobs wind down the cash flow dries up and retainage continues to put pressure on cash flow. The “fresh” cash flow from a new project is necessary to cover ongoing overhead and pay the final bills from the jobs that were front loaded but are now wrapping up. Growth and survival become almost synonymous.
The Problem with Growth
So, growth is baked into our DNA. Getting new business is the ongoing business of contractors. The question is, how can we manage growth to ensure expansion leads to ongoing success? Can there be too much growth? What are the conditions that determine the risk factors at different levels of growth?
Span of Control
The US military recognized and analyzed the limits of an individual’s ability to lead a large complex organization. Military theorists at West Point coined the phrase, “Span of Control” to identify the outer limits of an officer’s capacity to effectively lead a military unit. Military planners recognized that there were real limits to even the most talented individual’s attention span, intellectual versatility, energy level and personal magnetism.
Organizational Behavior
Almost no organizational question is asked more than ‘What is the ideal span of control?‘ Many business scholars believe that you should have no more than eight layers and no fewer than eight direct reports, but everyone agrees that there is no such thing as the ideal span of control. It differs from organization to organization, from position to position, and from industry to industry.
The construction industry is unique in that it is made up of more than a million companies, the majority run by founders or their heirs. The “span of control” in many closely held businesses is often “the boss is the boss”. The boss calls the shots in the office and in the field and only reluctantly turns over “some” control to subordinates as the company expands beyond their control. Eventually, the leader has no choice but to turn over more control as the company expands into “mid-size”. However, even this amount of delegation is not absolute. Contractors often reserve major decisions to themselves and remain ultimately responsible for the success or failure of the organization.
Size Matters
As we discussed last week, the law of Corporate Darwinism states that once a business enterprise achieves the “success” stage, the impulse to continue growing to the “take off” stage is irresistible. Accelerated growth in the “take off” stage requires the delegation of authority and responsibility to professional managers in order to survive and prosper. However, the entrepreneurial owners of construction enterprises seem to resist giving up power and struggle to achieve long term success for that reason.
Practice Delegation
The natural impulse to retain control that all successful contractors display is understandable. It is critical for contractors to recognize this impulse in themselves and take steps to surrender some control to trusted subordinates before they lose control of the business. Consider the following steps as a sort of practice before the big game.
- Begin by compartmentalizing your business – seeing each major project as a separate “company” with its own revenues, budget, and profit or loss.
- Elevate one of your trusted “project managers” to the position of “project executive” and hold him/her responsible for the successful completion and profitability of their project, separate and apart from the consolidated corporate results.
- Allow the new project executive to make decisions and mistakes without interference. (This is hard to do but necessary if you are going to train yourself to delegate).
- Negotiate the amount of corporate support the project will be needing as opposed to dictating it. (If they prefer not to use home office estimators or accountants for example, let them do it themselves).
- Tie the new project executive’s compensation to the project’s profitability. If the project is profitable, they share in the profits, if not no additional compensation. (In some cases, you may have to consider termination.) Unless the new project executive is held completely responsible for results, this experiment in delegation will not work for either of you.
A Delicate but Crucial Balance
The balancing of responsibility with accountability is the key to successful delegation. Begin small with trusted employees but begin early before you are forced to delegate by default. If you cannot resist the urge to grow your company after you have already achieved success, your ability and willingness to delegate will make the difference between continued success and potential for failure.
Next week we will continue this discussion of growth risk factors.
For a deeper look into education for success, read more here: GROWTH
For a broader view into attributes for a successful leader, read more here: DELEGATION
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