The process of building an organization that can execute profitable construction contracts sometimes begins with asking your spouse to answer the phone two days a week. Regardless of how incidental it may feel, every time you hire new personnel you are building your organization. Many first-generation contractors tell me that their company gradually grew behind the need curve and suddenly materialized out of thin air. Step by step the work would become too much for one person to manage, the contractor would hire someone they knew to take up the slack. Piece by patch the organization would slowly materialize into a patchwork of personnel all pulling on the same oar.
Function + Function + Function
Construction contracting is organized chaos. Architects, engineers, tradespeople like carpenters, plumbers, iron workers, heavy equipment operators, etc. bookkeepers, estimators, marketers, accountants and lawyers all perform separate functions necessary for the successful completion of a construction contract. Management (a specialized function itself) must coordinate all these functions into a blended whole and complete a construction project on time and under budget.
A Functional Organization
Each function requires an expert. As the construction industry grew and became more complex, the concept of the “subcontractor” began to emerge. The individual functions (skilled trades) had been evolving for hundreds of years but the business models of “general contractor” and “sub-contractor” became dominant in the latter half of the 19th century. This model was a testimony to the complexity of coordinating multiple functions into a cohesive whole and gave rise to the modern construction industry comprised of millions of specialized business entities. Some contractors decided to “stick to their knitting” and manage one function becoming Sub-contractors. In response to the size and complexity of many modern construction projects, other contractors (General contractors) decided to become functional managers and serve project owners by organizing the many skilled functions it took to complete the modern construction contract. In both cases, contracting is a business that requires functional management.
The Pyramid
Most modern construction companies are organized on the traditional pyramid model. It is the most natural organization model with the company president at the tip of the pyramid having two or more “functional” vice presidents (Operations, Finance, Marketing, etc.) reporting to him or her; multiple department heads reporting to the vice presidents; group supervisors reporting to the department heads; foreman of work gangs reporting to the supervisors; etc., etc. on down the line.) – a pyramid shaped organization chart.
Functional Organization
Our recent discussion on the proper role of the CFO in a construction concern is one example of looking at “function” first, then deciding where that “functional manager” belongs in the organization chart. A functional organization is characterized by a hierarchical structure where employees are grouped based on their specialized roles or functions. This structure encourages employees to focus on their specific functional contribution to the project and allows management to see clearly in what functional area the project progress is bogging down.
In our discussion on hiring a CFO the implication was that the contractor would be looking at the functional role of the CFO and the importance of that function for the profitable success of the concern. Only after the “functional” qualifications of a potential CFO were established would the personality and familiarity of the candidate come under consideration. In other words, we discussed hiring for “function” first. If you apply the same perspective to all your organization building as you go along, you will end up with a functional organization where each head of function will be held accountable for the contribution of that function to the success of the company.
A Time For Change
Historically the construction industry was made up primarily of thousands of small and mid-size concerns built by selecting friends, relatives, associates, and trusted old school chums to manage the various functions. Most of these concerns end up with no efficient management structure at all and everyone looked to the founder/contractor to make all the decisions. When these companies grow beyond “start-up” size and acquire some bulk, confusion and inefficiency often sets in. No one and everyone are held accountable if things start to go bad. The contractor takes the problems on his/her own shoulders and blames him/herself when things don’t go well. In other words, accountability gets murky and you’re not sure who is responsible for what.
On the other hand, if the founder had hired based strictly on functional qualifications and always assessed the business from a functional point-of-view, they could manage efficiently by addressing functional deficiencies. If the company runs out of operating cash, the contractor looks to the CFO not the chief engineer. If the building falls down, they don’t blame the CFO.
Next Week
Next week we’ll delve a little more deeply into how to design and manage a construction concern from a functional point-of-view.
For more information the growth of a construction business, read more at: GROWTH
For a broader view on leadership, read more here: LEADERSHIP
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