Leadership & Economy

One popular industry trade magazine recently carried an article telling contractors that to survive the current economy downturn they should “Cut everything to the bone.” That’s not real leadership. Any butcher can cut and trim. A high-performing contractor seeks more effective means to address the challenging economy. Let’s carry the analogy out – if an individual is overweight and unable to compete in a race - does it make sense to amputate an arm or a leg or cut off muscle to the bone to better run the race? The thought makes us shudder and would make the athlete very challenged to compete. It would take much rehabilitation to even come close to being able to run again.

If it doesn’t work for athletes why do some think it would for a company? Just like people, companies sometimes become over weight and out of shape. The company can do OK in good times but when the economy turns south, it hampers the ability the company’s effectiveness.

So what is to be done to get in shape? I recommend getting Lean by applying Lean techniques. This is NOT a cost cutting exercise pronounced another way and any who try to use Lean as such will not cut much costs and will give the whole concept a bad name. Lean is about increasing value and reducing waste. By reducing waste the company becomes lean and agile. Using the previous analogy, the athlete would apply the appropriate exercise and diet techniques and workout hard. He would seek to learn from those who had already been down the path or was knowledgeable in the techniques. He would have to follow the exercise requirements consistently to achieve real success. He would have to change bad habits.

Leadership is not using a meat clever but providing a vision and coaching to change behaviors. If you are like most contractors – you need to become lean to make it through this downturn. You have choices – none are easy. You can cut people, benefits, tools and equipment (but only so far). Or you can roll up your sleeves and learn how to manage using Lean tools and techniques. Lean has proven effective in manufacturing, service, government, health care and yes – construction. The question is not - if Lean will work but if you are a real leader or a butcher?

Strategic Planning

As the end of the year approaches a few sobering thoughts to consider:
Most contractors go year to year without a strategic plan
Research shows that 70 to 90% of organizations fail to realize success from their strategies. The failure is mostly due to a failure to deploy and execute the strategy. *
One might conclude that having a strategic plan is of limited value. But one other fact the research also shows is that companies with strategic plans average 40% larger annual revenues than those that lack plans.

It does take time to develop a strategic plan and even more time to deploy and do it, but it is worth the effort. Why don’t most contractors have a strategic plan? I can come up with several possible answers:
They do not know how
They think they are too small
They think that strategic plans are too complicated
They are so wildly successful they don’t need a plan

Ignorance is no excuse when it comes to knowing the laws of the land. It is also no excuse for business failure. There is probably more written in business publications about strategic planning than is even known. There are many consultants and teachers in every area of the country that can help educate about doing strategic planning. The process doesn’t have to be complex. It needs to answer these questions:
What is our mission – reason for being in business?
What is our vision - where we want to be in a few years?
What are the key actions we need to take to achieve our vision?
What do we need to do this coming year to move toward it?

Size is not a valid excuse for not having a strategic plan. People can have their own individual strategic plan for their life. Companies, with more that one employee, need a formal (in writing) plan so everyone is on the same page. Without a vision of where one is going, one is left to random opportunities. Without a plan to get there, one is just dreaming. Dreams don’t come true without effort. With no goals an individual and company will wander around like a cow trail in a meadow.

Strategic plans need not be complicated and should be able to be summarized on one page. THE KISS principle applies to strategic plans.

I once went to hear a man speak. He had become very wealthy in a short period, and of course his wisdom was valued as a speaker in the professional society chapter meeting. After hearing him speak, I realized he was not blessed with great wisdom but by dumb luck he had been in the right place at the right time. It was not surprising to learn a few years later that he had lost all of his fortune in unwise investments. Companies who feel they are successful without a strategic plan will find it hard to have sustained success in today’s complex market place. He who fails to plan – plans to fail – by default!

If you want to learn more about doing simple and effective strategic planning – contact Dennis Sowards.

* Strategy Maps – Converging Intangible Assets into Tangible Outcomes, by Robert Kaplan and David Norton, Harvard Business School Press, 2004.

Customer Focus

For a very thought provoking video on excellent customer service watch this video: http://www.youtube.com/watch?v=YG48U5iPESA
Then list the ways the cab driver gave real customer service. How can you replicate this in your business?

Managing the Process

In the “cut everything to the bone” article referenced above, the author also suggest that to survive the challenging economy contractors should start bidding more jobs in hopes of getting more. While I understand why some people think this approach is useful, I disagree. It is like trying to catch more fish when the fish are not as plentiful or biting as readily. Just making more casts may net a fish or two and wear out the arm. Blindly trying all the random bait one can find may also yield a few fish but may not. Instead, I suggest the way to catch more fish is to study the ways of fish and what they eat during this season in this part of the river. Fly fisherman call it match the hatch. Obviously, if there are no fish to catch – no technique will be successful, but when fish are few and not biting the usual lures - match the hatch. Be smarter in what one bids not just bid more. One contractor called the latter technique throwing bids on the wall to see which ones stick. This can be resource consuming and yield little results. How to match the hatch in biding jobs, consider this:

Which generals focus in which markets – partner with like skills. If you are experienced at hospitals seek the G/Cs that usually land that work. If you are not skilled in this work, then either commit resources to get the certifications/skills and learn how to perform successfully or stay out. Why bid if you don’t have the qualifications or experience?
Get Lean – use target pricing. Don’t bid jobs based on past performance but bid on what the market price is and learn (using Lean) how to eliminate the waste. You can be profitable at a lower direct cost. There is 30 to 50% waste in almost all construction jobs. Take out the waste and you can lower your bid while still maintaining a sound profit.
Work with general contractors to establish a “we get – you get” bidding process instead of giving bids to several generals for the same job. While bidding to several generals may seem to be better odds, working with a general in the details of a bid can allow you to value-engineer the bid and make it more useful to the owner. Design opportunities to work with the general to create a win - win approach to bidding.

Keeping Score

Do you know the score? Are you better than a year ago? Even with the tight economy are you able to do work more productively? How do you know? Here are some measures to consider:
Shop:
How many times (percent) do you deliver the materials on the need date?
How many times is it complete – not missing any parts?
What about quality – what percent is it done right the first time?
What is your safety level in the shop?
Field:
What is your quality level – what percent is it installed right the first time?
How many times do you deliver the project on time?
What is your reliability? This is measured by the average Percent of Planned Worked completed in the week it is promised. This is called PPC.
What is your safety level?
Customers:
What is the level of loyalty from your customers? How did your customers rate you on a satisfaction survey?
What percent of customers gave you a ‘top box’ rating on your satisfaction survey?
How much of its work did each customer give you this year?
How many previous/current customers gave you no business this year?
What is your Net Promoter Score – the percent of customers that would enthusiastically recommend you to a peer in need of your services less the percent of customers that would not.
How many customer complaints did you receive this past year? How many did you resolve?
Employees:
How loyal are your employees – what did they rate as their satisfaction level on an employee perception survey?
How many employees left the company for reasons other than being released as jobs come down or were fired?
What is your absentee rate?
What is your overall safety level?
Finance:
What are your earnings before taxes & interest? How does this compare to the last five years?
What is your days-sales rate (days invoices are outstanding to be collected)?
What is your inventory level? (Inventory is waste.) What should it be?
For each customer, what is the Fair share Customer Ratio? This is the % of profit from that customer of the total profit divided by the percent of revenue from that customer of the total revenue.

Last of all – how do you know? Do you have numbers to show the score or do you go by gut feel? We all have a general feel for what time it is but what if the world ran that way? It’s about time to … start a meeting, broadcast the news on the radio, or the plane take off. What if you checked the time on your cell phone and it said ‘around 8 AM’, what would that mean? What if scoreboards showed approximate scores for basketball games? It would make a confusing last few minutes. We want exact times and scores for certain aspects of life and we need measures for evaluating success in business. How do you know?

Learning Opportunities

You may be interested in attending one of these training seminars by Dennis Sowards:

• Jan. 15, 2009 - Introduction to Lean in Construction, – Phoenix, AZ – Sponsor: PIPE & 469 JAC, contact Cathy
• Feb. 19, 2009 - Eliminating Treasure Hunts”– Applying the 5S’s for Lean Construction – Phoenix, AZ – Sponsor: PIPE & 469 JAC, contact Cathy
• March 19, 2009 - Job Planning the Really Works – The Last Planner System, – Phoenix, AZ – Sponsor: PIPE & 469 JAC, contact Cathy
• April 16 & 23, 2009 - Making Meetings Work for You (must attend both session), – Phoenix, AZ – Sponsor: PIPE & 469 JAC, contact Cathy
• May 14, 2009 - Problem Solving Lite (No Carbs) - Getting to the Root Cause, – Phoenix, AZ – Sponsor: PIPE & 469 JAC, contact Cathy
• Sept. 17, 2009 - Customer Loyalty by Design, – Phoenix, AZ – Sponsor: PIPE & 469 JAC, contact Cathy
• Oct. 15. 2009 - Introduction to Lean in Service, – Phoenix, AZ – Sponsor: PIPE & 469 JAC, contact Cathy

Contact Dennis Sowards if you want a special workshop exclusive for your company.

Thought for the day

“Enterprises also have to reshape organizational cultures to emphasize teamwork, personal accountability, and the customer’s importance; redefine roles and responsibilities so that managers oversee processes instead of activities and develop people rather than supervise them.”
- Dr. Michael Hammer, in The Process Audit

For more information about becoming a High-Performing Contractor and the assessment process - contact Dennis Sowards at 480-835-1185 or at dennis @ YourQSS.com