Unique Construction Business
In many aspects the construction industry is unique in all American business:
- It sells a service but produces a product.
- There is no ongoing transaction. Construction companies migrate from one project to the next. It’s like starting a new business each time.
- 99% of construction concerns remain in private hands forever.
- Contractors rarely access growth capital from public stock markets or turn control of their companies over to professional managers.
- They rely on borrowing and internally generated profits for growth capital.
- Contractors provide the financing for the customer’s asset they produce.
- Contractors utilize partnerships with sub-contractors to complete projects they are solely legally responsible for delivering on budget and on time.
- Even if a construction concern grows from $5 million to $100 million, the original owner and founder usually remains the boss.
- Construction founders or owners may have technical or engineering education, but rarely any formal accounting, business, economics. or finance education.
Need Leaders
The features above that render the construction industry unique in all American business also make profitability and cash flow particularly problematic because the resulting unique transactions are so complex. It is decidedly simpler to make a profit manufacturing and marketing Tide laundry detergent to a worldwide market than to build a $200 million modern office tower over several years with 40 plus independent subcontracting partners while waiting for delayed contingent payments.
When a contractor is producing $5 million a year, an energetic boss is just what the doctor ordered. But when that same company begins turning over $100 million annually it takes leadership to stay on a profitable path. The irony is that the bosses who built companies from $5 to $100 million rightfully consider themselves a success and are loath to seek advice, turn management over to professionals, or pursue further education in professional business management. Many construction companies stumble and fail during this high growth period because the founder, owner, and boss does not (and doesn’t think he/she needs to) understand the difference between being a boss and being as a leader.
Leadership
A boss runs a company; a leader guides it. What is the difference? Let’s look at the leadership skills needed to guide large complex organizations to their objectives.
- Imagine: The leader of a complex organization must always have the “big picture” in mind. He/she must have the company’s “long-term goals” in mind.
- Evaluate: The leader must take honest and accurate stock of the company’s present capital and personnel capabilities to assess the distance and direction to future success capabilities.
- Plan: The leader creates a plan of action to take the company from point A to B.
- Inform: A leader then must communicate both the objective and how to achieve it to the entire organization.
- Train: He/she must teach every key employee what their role is in reaching the overall company objectives.
- Motivate: The leader must attach motivation (commonly monetary) to every key employee’s unique contribution toward achieving the company’s overall long-term goals.
- Refresh and Recreate: As a construction company succeeds and grows, the leader is responsible to constantly reevaluate and recreate the company’s long-term objectives.
Management by Objective
- Business management academics have evolved a formal procedure for business leaders to follow called Management by Objective (MBO). Simply stated, the goal of MBO is to align the goals of the organization with those of its employees to improve productivity and performance.
- In the case of established industrial American manufacturing and retailing giants, an MBO program can be “icing on the cake” designed to wring the last 1/2 of 1% out of potential profitability.
- However, in the case of the highly complex and unique construction industry an MBO program is a primary and essential element of success.
What’s On Your Mind?
- I have consulted with literally hundreds of contractors and construction industry CEOs over the years. Most of them, I admit, resist any of what they perceive as academic approaches to construction management.
- However, they all report a feeling of “out-of-control uneasiness” as their companies grow larger and more complex over time. They are all successful “bosses” that nonetheless share a common sensation of “horses running away with the wagon“. I suspect that many of you share that same feeling.
- I present today’s blog and, indeed, this entire series on planning and leadership, as a suggestion to engage in a mental transition from being the boss you have always been, and have been successful being, to seeing yourself as the leader of your organization.
- To make this transformation, the first step is to trust your top managers and delegate more responsibility for day-to-day management to them.
- A second critical step is the topic of next week’s blog. Stay with me.
For more information on leadership read more here: LEADER
For a broader view on Management by Objective, read more here: MBO
To receive the free weekly Construction Messages, ask questions, or make comments contact me at research@simplarfoundation.org. Please circulate this widely. It will benefit your constituents. This research is continuous and includes new information weekly as it becomes available. Thank you.
