Quar te 2014 issrue 2 ly€¦ · Jerry Harmon, HR director, said those candidates have either just become project managers or are ready to move into such roles within the company

changing the future

Quarterly2014 issue 2

THIS QUARTER

Changing the Future 4

BY JERRY JACKSON

PROJECT DEVELOPMENT

Giving Project Managers a Unique Edge 6

BY SABINE HOOVER

OPINION

The Four Levels of Organizational Success 10

BY BOB UHLER

QUARTERLY INTERVIEW

Better Teamwork Can Create Better Futures: Heath Shuler 14

BY KELLEY CHISHOLM

Construction Materials Will Hill

Engineers and Architects Steven Isaacs

Heavy Highway/Utilities Jay Bowman

International Steve Darnell

Private Equity George Reddin

Manufacturers and Distributors John Hughes

Surety Tim Sznewajs

Business Development Cynthia Paul

Leadership Tom Alafat

Mergers and Acquisitions Stuart Phoenix

Project Delivery Gregg Schoppman

Trade Contractors Randy StutzmanKen Roper

Strategy Brian Moore

Talent Development Ken Wilson

Compensation Grant Thayer

CONTACT US AT:[email protected]

Board of Directors

Hank HarrisPresident and Chief Executive Officer

Stuart PhoenixChairman

Jason BaumgartenChris DaumLandon FunstenScott KimplandKel LandisCharles ThorntonScott Winstead

Copyright © 2014 FMI Corporation. All rights reserved. Published since 2003 by FMI Corporation, 5171 Glenwood Ave., Raleigh, North Carolina 27612.

Printed in the United States of America.

Departmental EditorsPublisher andSenior EditorJerry Jackson

Project ManagerSarah Avallone

EditorKelley Chisholm

Group ManagerSally Hulick

Graphic DesignerMary Humphrey

Information GraphicsDebby Dunn

FEATURES

Get Your Compensation Systems in Good Order for the Market Upswing 22

The winners during the next upswing in the business cycle will be those companies that can attract, retain and develop the best people.

BY GRANT THAYER

Improving Teamwork Through Effective Compensation Design 30

Whereas incentive plans provide rewards for meeting specific team-based goals, performance management can also reinforce teamwork.

BY SAL DIFONZO

Creating the Future 38

Creating the future will require a comprehensive and integrated approach to performance management.

BY KEN WILSON

Project Delivery: An Eclectic Menu 46

If the menu of project delivery methods has left you with a bit of heartburn, you are not alone. Digesting the challenges of project delivery is a difficult task.

BY TYLER PARE

Technology and Successful Construction and Design Firms 56

A company’s IT strategy must be in alignment with its business strategy, supporting operational, financial and/or resource initiatives.

BY CHRISTIAN BURGER

The Lamborghini and the Country Road 66

Best-of-class firms of today recognize that high performance relies on not only the vehicle but also the environment in which it operates.

BY GREGG SCHOPPMAN

Future Shock: When Good Is No Longer Good Enough 76

Leading for the future demands a leader that thinks strategically about their business.

BY MICHAEL MANGUM AND PAIGE FERGUSON

Keeping Your Insurance Provider in the Loop 84

By opening up two-way communication streams with their insurers, contractors can ward off major job-related problems before, during and post-project.

BY ERIC CITTADINO AND JOE RIELA

The Key to Effective Leadership: Understanding Your Worldview 92

Do your beliefs help you move forward as a leader, or are any holding you back from achieving your peak potential?

BY TIM TOKARCZYK AND KIM MORTON

Dear Reader:

Creating the Future is a lofty, ego-centric, even audacious notion, isn’t it?The future is created by something else or someone else. Surely, it is not mybusiness to create the future.

Or is it?

In 1988 G. Michael Durst penned “Napkin Notes on the Art of Living.” His thesis? We are 100 percent responsible for what happens to us. His blend of western and eastern philosophies aims to strip the notion of victim awayfrom our warehouse of excuses. Without someone or something else toblame for our failures or achievements, the list of responsible partiesbecomes very short indeed. Under this scenario, we are not creatures of circumstance but rather creators. Not creators in the spiritual sense; thatrole is well-established and most certainly filled. But we are creators ofwhatever awaits us in our dimly seen future.

Regarding my question posed in the second paragraph, your answer is “Yes.It is my business to create my future. And in so doing, I create futures andpossibilities for others.” Every entrepreneur, every leader, every manager,every parent, every chairperson, all of us have a mission to take responsibilityfor our futures.

In that context, we choose Creating the Future as our theme for this editionof The FMI Quarterly.

Herein, you will find such on-theme articles as:

“Technology and Successful Construction and Design Firms” by ChristianBurger discusses how important it is to understand the direction of technologyand how it is being deployed in the construction industry when developingyour company’s strategy.

Michael Mangum and Paige Ferguson outline tools leaders need to utilize

This Quarter:Changing the Future

2014 issue 2 FMI QUARTERLY � 5

now in order to lead for the future in “Future Shock: When Good Is NoLonger Good Enough.”

In Grant Thayer’s article, “Get Your Compensation Systems in Good Orderfor the Market Upswing,” readers learn why getting strong compensation and performance management systems in place now will help them to beprepared for the next upswing in the business cycle.

Additionally, you can read other offerings focusing on topics relevant to our readers:

Tyler Pare sheds some light on the pros and cons, opportunities and pitfallsof different delivery options in his article “Project Delivery: An EclecticMenu.” Sal DiFonzo explores how to incorporate effective compensationdesign techniques to reinforce teamwork in “Improving Teamwork ThroughEffective Compensation Design.” In Sabine Hoover’s article, “Giving ProjectManagers a Unique Edge,” she highlights how project managers are gainingan edge in a business sector where ongoing professional development andsupport translate into long-term success and bottom-line results. In the article“The Lamborghini and the Country Road,” Gregg Schoppman discusseswhich is more important — project management or project collaboration —when it comes to the timing and approach to improving a firm’s managementand collaborative approach.

In our “Quarterly Interview,” Kelley Chisholm speaks with Heath Shuler, senior vice president of federal affairs for Duke Energy, about his new rolewith Duke Energy as well as his earlier years with Congress and the NFL.

Another contributor for this issue is Bob Uhler, founder of a strategy advisoryfirm, The UHLER GROUP, and former MWH Global, Inc. chairperson. Bobshares his leadership knowledge and expertise in “The Four Levels ofOrganizational Success.”

If these offerings leave you thirsty for more, you may want to read Durst’sbook for yourself. Now available from Amazon and other sources as “NapkinNotes on the Art of Living Responsibly,” it is a quick and pleasant read foranyone, including others in your life who may need reminding that they, too,are responsible for their futures.

Sincerely,

Jerry JacksonFMI Quarterly Publisher and Senior Editor

6 � identifying text goes here

Departments

PROJECT DELIVERY Giving Project Managers a Unique Edge

In today’s competitive business environment, successful constructionfirms have to go the extra mile to ensure that their project managers receive asolid mix of ongoing training, support and personal development. When doneproperly, this training serves as a cornerstone for continued project success in an environment where keen attention to accuracy, quality and customer service can mean the difference between succeeding and failing. It also givesbuilders the opportunity to fulfill the role of a true construction entrepreneur.

As training and developmentmanager for the New York-based,full-service construction servicesfirm Structure Tone, Inc., AllenAvakian knows the value of solidproject management education. As a longtime participant in FMI’sLeadership Institute, the companysigned up for the Project ManagerAcademy (PMA), in order to provide further enrichment for its international team of project managers. A high-level, immersionexperience, the PMA finds project management professionalsexamining themselves, their organizations and their processes on the road to transforming from talented builders into true construction entrepreneurs.

“We knew about the PMA and also had a few managers whohad participated in the program asemployees of other constructionfirms,” said Avakian. “When it

When done properly,this training serves as a cornerstone for continued project successin an environmentwhere keen attention to accuracy, quality andcustomer service canmean the differencebetween succeeding and failing.


came time to expand our overall project management training program, weincorporated the PMA into one of our learning tracks.”

Just a few months later, Structure Tone is already seeing the results of itsdecision to send its project managers through the academy. “Participants aretelling us that they now have much better perspectives on their individual personalities and how that relates to their project management skills,” Avakian explained, noting that PMA’s assessment process has been especiallyuseful. “Our project managers are gaining new perspectives on their individualtechnical skills and really appreciating the feedback and assessments.”

On a more personal level, Structure Tone project managers who have participated in the academy are coming to the table more prepared to tacklechallenges and solve problems.Exercises and scenarios discussed in PMA courses allow managers to make more educated, experience-based decisions. “They are much better equipped to work through the situations thatthey were [exposed] to during theirPMA experience,” said Avakian.“Whether it’s from a personal or a technical perspective, they’re certainly better prepared.”

BREAKING DOWN THE BARRIERSAs one of the construction

industry’s most valuable developmentprograms for project managers, thePMA goes beyond scheduling, budgeting and cost tracking to helpprofessionals join the ranks of thebest in class by learning to think and act like business owners. The academy’s curriculum is built aroundfour core themes: Profitable customerrelationship development; powerful, integrated project teams; financial controlof projects; and planning projects for profits and customer satisfaction.

The PMA shows project managers how to effectively engage and coordinateemployees and resources in a way that attends to customer interests and returnsprofits. Recognizing that there are key differences between an entrepreneurand a manager, the PMA comprises four days of tough, hands-on, total immersion into the business of construction. Program graduates emerge fromthe experience knowing how to think and act like construction entrepreneurson every project.

At the program, a variety of practical experiences, one-on-one coachingand small-team sessions continue the development process through a highlypersonalized feedback process as well as by analyzing and interpreting behavioral preferences and communication styles, and developing a personal

Recognizing that there are key differences between an entrepreneur and amanager, the PMAcomprises four days oftough, hands-on, totalimmersion into the business of construction.

8 � departments

action plan to capitalize on assets and compensate for weaknesses. “Each participant comes away with the tools and potential not only to lead projects,”says Ethan Cowles, PMA director, “but also to be recognized as a leader in his or her firm.”

BUILT ON SUCCESSWhether constructing a new office complex or a multifaceted

manufacturing facility, XL Construction Corporation (headquartered inMilpitas, Calif.), focuses on building strong partnerships and successful projects. Armed with ingenuity and the latest technology, the firm relies on a team of bright minds to identify customer needs and then tackle projectplanning to develop an individualized plan to deliver maximum value.

As part of that commitment, XL Construction added FMI’s ProjectManager Academy to its training curriculum in 2006, sending candidates tothe PMA as part of their individual career development journeys.

Jerry Harmon, HR director, said those candidates have either just becomeproject managers or are ready to move into such roles within the company.“We try to send our senior project engineers to the PMA as part of the [process] of becoming project managers,” said Harmon.

With a track record of developing and promoting 91% of its project managers from within, XL Construction has proven its commitment to careerdevelopment. According to Harmon, the firm leverages the PMA’s strengthsand program offerings on an ongoing basis to help boost its own internal training power. “The academy is part of the broad curriculum of developmenttools that we use to develop our employees at an extremely high successrate,” said Harmon.

Calling the PMA experience a “purposeful journey” for XL Construction’sup-and-coming project managers, Harmon said the company has used the

experience to develop a “job familymatrix” that is used to outline jobopportunities and requirements foradvancing employees. “It’s similar to a college curriculum [flow chart],”Harmon explained, “and it serves asa guide to ensure that all of the basesare covered and that employees getthe balanced development that theyneed to achieve their career goals.”

BROADENING HORIZONSOne of the things Harmon

likes most about the PMA is the fact that it takes place off-site andextends over a four-day period. “The fact that we handpick the candidates — and that they go awayto participate in the PMA — helpsthem take the experience seriously,”

With a track record of developing and promoting 91% of its project managersfrom within, XL Construction has proven its commitmentto career development.


Harmon said. Of particular value, he noted, is the program’s assessmentprocess and the invaluable feedback that participants receive during thecourse of the four-day experience.

Finally, Harmon said the fact that students get to see “how other companies do things” gives the XL Construction project managers new perspectives on processes, challenges and problems. In some cases, studentsreceive validation on their current practices and processes. In other instances,they learn new ways to tackle pressing issues. “They see how we stack up in the industry,” said Harmon, “and appreciate the fact that they’re working for a firm that’s willing to send them away for professional development and training.”

Like Harmon, Avakian agrees that the collaboration with and exposure toproject managers from other firms has gone a long way in helping StructureTone’s professionals gain expanded perspectives on the construction industry.

“When they return from the PMA, a lot of our project managers mentionhow much they liked the contact that they established with construction professionals from other regions,” said Avakian, “and from other types offirms. That’s great exposure that they wouldn’t otherwise have, and it helpsour managers gain different insights and perspectives that they can bring back and put to work here.”

Armed with those insights and their expanded knowledge bases, projectmanagers from XL Construction, Structure Tone and the myriad of other firms that participate regularly in FMI’s PMA are gaining an edge in a businesssector where ongoing professional development and support translate intolong-term success and bottom-line results. �

Sabine Hoover is a senior research consultant with FMI Corporation. She can be reached at 303.398.7238

or via email at [email protected].

10 � identifying text goes here

Opinion:The Four Levels ofOrganizational Success

By Bob Uhler

I’m not really one for reflection. I prefer to look ahead, plan out things and focus on the future. So when I was asked to attend FMI’s recent CEO Forum and speak about my time as the CEO of an engineering firm, I hesitated because I do not live in the past. I also know that it is hard to talk to a group of experienced and senior CEOs about what they should bedoing, without looking as if you are standing on a podium of superiority. I donot have any right to do that, and I didn’t want to come off that way to thegroup. I was torn on what to do and how I could possibly impart any valuewithout offending my audience, who would undoubtedly be saying to itself,“Who is this guy?” and “Who does this guy think he is?”

After working through these issues, I agreed to do the talk. I jotted downsome notes and then spoke from my heart while up on the stage. I was talkingto many CEOs who were in their 50s and basically saw me as a senior citizen— someone who they could talk to not about MWH or engineering, butabout their careers and how to lead their own enterprises. As a CEO, onething you quickly find out is that you cannot talk to other CEOs about yourweaknesses, even if you doubt yourself. You simply can’t share those concerns.

You also cannot talk to your clientsabout it because you are trying toproject an image of having your stuff together; there are no issues or problems at your organization.Period. Your colleagues and co-workers cannot help in this areaeither because you really don’t want to share your problems andweaknesses with them.

That’s when I realized that there was a unique position openfor “unpaid” CEO coaches, and Iwound up becoming one for aboutfive clients. These clients would askme philosophical questions about

As a CEO, one thingyou quickly find out isthat you cannot talk to other CEOs aboutyour weaknesses, even if you doubt yourself.


how I organized my time, managed day-to-day activities and other topics.Some were taken by my philosophies, which included discussion about training my successor. This took place about four years ago and involved amove from the COO position into my position. It doesn’t sound like a bigjump, but it was. To help him bridge that gap, I started building a vocabularyframework to which we could both relate. My aim was to shorten our discussions by using the vocabulary, which involved four different levels oftime and dimension, and actually meant something to both of us.

THE FOUR LEVELS OF CEO ACTIVITYAs I worked through the exercise of developing a vocabulary for my

predecessor, I realized that the outcome of this activity would be applicableacross many different organizations. After all, as CEOs we face many of thesame challenges, regardless of ourlines of work. Here’s how I brokedown the vocabulary into fourdigestible, understandable chunks:

Level One. This level revolvesaround operational decisions that, in most cases, are presented to theCEO based on historical issues. For example:

• Someone is leaving the company, so what are we going to do about it?

• Someone filed a claim, so how are we going to handle it?

• We are competing for a big job — how are we going to name a project manager and win the bid?

All of these questions involvemomentary, operational decisionsthat are relevant today. They usually are driven by the past andeat up our time. People initiatethese level-one issues for all sorts of reasons. They want to spend timewith you so that you know who theyare. They ask you to buy into theidea and cover them if they arewrong. These problems fill up youragenda and cut into the time thatshould be spent working on morestrategic areas of the business.

Bob Uhler retired from MWH Global,Inc.’s management team after 36 yearsand his service included roles as chiefstrategy officer, president, CEO andchairperson. He acted as MWH’s chiefbusiness visionary for more than 20 years,and led the MWH business platformfrom one country to 36 countries andfrom $100 million in total revenues tomore than $1.7 billion.

Bob also started MWH’s constructionpractice, which was ranked No. 3 waterinfrastructure builder in volume by theEngineering News Record in 2011. He has experience in construction activitiesfor federal, state and local governmentsas well as the commercial sector. MWH Constructors has an internationalreputation for innovation and success inconstruction health and safety.

After retiring from MWH Global in 2012,Bob formed his own strategy advisoryfirm: The UHLER GROUP. Through theUHLER GROUP, Bob provides consultingservices to CEOs, investors and boardson strategy and globalization. The firmassists senior executives and corporateteams with the successful execution of technology-enabled strategic and marketing objectives. Services includeexecutive coaching, strategic prioritization,organization design, global market expansion and resource re-allocation toenable future competitive advantage.

12 � opinion

Level Two. Here is where we make sure that something does not happenagain. What can we do over the next two, four or six months to prevent some problem from ever occurring again? The company screwed up in some way; it had a claim filed against it or it ran into a quality control problem.Whatever the issue, this is the time to get a team on the ground to assess theproblem, report back to you and then come up with a way to prevent it fromhappening again. These are all short-term problems of three to six months in duration and they are corrections of level-one problems. In our industry,most executives are eaten up by level-one and level-two issues. In fact, CEOsare often calling meetings on the level-two issues because they’re botheredby the level-one problems. Other people are driving level one, but now, youare starting to say, “I care enough. I want to be involved in level two, so I’ll call those meetings.”

Level Three. This is where we start thinking out a little further.

• Where is the firm going to be three to five years from now? • How is its portfolio going to have to change, based on the sources

of income, the growers and technological advancements taking place in the world?

• What are we doing to hire the right people who would actually get us there?

As you can see, level three is much more futuristic and it almost takesthe full incentive of the CEO or the chief of strategy to get your company tothis level. Without that support, the level-three initiatives just do not get offof the ground.

Level Four. Now we’re at the enterprise level. Key questions asked at this level include:

• What is this enterprise? • Should it be public or private? • What is our capital structure? • What is our stockholder obligation? • What is the philosophy of the firm? • What is the brand of the company? • Should we be a multisector company or should we be a

single-sector company? • Should we be a Cartier or a Walmart?

Level four is the enterprise design and the very heart of your organization.

DON’T JUST WHITTLE YOUR WAY DOWNMost business strategy books will tell you to start at level four and then

whittle your way down to one. But, from a CEO’s standpoint, you can onlyget to level four if you have the time in your schedule to reach that point.Mired in level-one and two issues, the typical CEO often does not have enough


hours in the day to do any strategic thinking, let alone enterprise-level decisionmaking. As a result, many CEOs who have come up through the ranks oftheir organizations are very familiar with level-one and level-two problemsand they are pretty good at handling them.

The last two levels remain a persistent challenge for them to reach,assess and solve. Most CEOs, for example, are challenged by level three andare not even educated in level four, so they use outside consultants. I’d askmy CEO coaching clients, “How many hours a week are you spending onlevel four?” Because if you do not spend the time, who will? If you do not do it, nobody else will, and no one is assigned to level-four problemsexcept you. So, you will fail as aCEO if you do not spend enoughtime making decisions at level four.Many people can do level one,some can do level two, but only one individual can do level four, and that is you.

My clients did not want to hearthat, of course, and immediatelybegan asking questions like, “How do I know when level three or fourissues need to be addressed?” They would also say things like, “I come into work every day and my schedule is completely full. Howdo I know whether I’m spending my time wisely and in the areaswhere it really needs to be spent?”

These are, of course, the million-dollar questions that CEOsask of themselves every day as they strive to run their day-to-day operations and strategize effectively forthe future. My acid test is pretty simple to use. At the end of every week,just look at yourself in the mirror and ask, “How many hours did I spend this week on honest and productive level-four thinking and not tangentiallevel-four thinking?”

If the answer is less than four hours, then you have a problem. You need to rearrange and “own” your time; you cannot let the organization ownyour time. Yes, you are a tool of the organization. You are the only one whohas “CEO” written on your door. You do the interviews and you solve clientproblems, but you really have to be able to control your time in order to get into level four. Ignore this step and you will continue to spend your timeputting out fires while your organization languishes. �

Bob Uhler is former CEO and chairman of MWH Global, Inc. and current president of The UHLER GROUP

(www.theuhlergroup.com).

You will fail as a CEO if you do not spendenough time makingdecisions at level four.Many people can dolevel one, some can dolevel two, but only oneindividual can do levelfour, and that is you.

Quarterly Interview

Better TeamworkCan CreateBetter FuturesHeath ShulerDUKE ENERGY

I think that is the missinglink right now within the

transportation community.They are not speaking withone voice, and they are

not speaking loud enough.

FMI Quarterly had the pleasure of speaking with Heath Shuler about his newrole with Duke Energy as well as his earlier years with Congress and the NFL.

Chisholm: Tell us about your current role at Duke Energy.

Shuler: I am the senior vice president of federal affairs. Much of my job and duties are to coordinate with our different business units within thecompany, to identify areas as a company to promote our business and our policies and then relay that information to a group of consultants anddirectors of federal affairs in Washington, D.C. They, in return, communicatethat to lawmakers.

Chisholm:What are some of the things you communicate? What are some of the policies you are working on?

Shuler: For example, tax issues could come up, so we would look at areaswithin possible tax reform for our federal team in D.C. to educate membersof Congress. The group would look at issues related to Duke Energy, certainlyas they relate to the costs of the assets we have. It is very capital intense. I donot go lobby on the Hill. I help identify the areas, but I am not a lobbyist.

Chisholm: How did you come to work at Duke Energy?

Shuler: I met one of the senior management team members — I was lookingat another job and wanted to educate myself on some energy policiesbefore I went on the job interview. So, I met with Dhiaa Jamil and we had a


You may remember Heath Shuler from his glory days as the

University of Tennessee’s quarterback and Heisman trophy

runner-up in the early 1990s. Or, if you are a pro football fan,

you may recall his not-so-glorious three-year career with the

Washington Redskins, and then later with New Orleans and

the Oakland Raiders.

Perhaps you know him from his recent six years (2007–2013)

of service in the U.S. House of Representatives as a Blue Dog

Democrat from North Carolina’s 11th district. Regardless of

where you may have heard his name, one thing is certain:

Heath Shuler has been on a number of teams, some functional,

others not so much.

16 � quarterly interview: heath shuler of duke energy

conversation that led to a job opportunity at Duke. I had not looked at Duke as being a possibility — I was looking at another job in the energyindustry, but I think the questions I was asking Dhiaa led to the opportunityto move forward with Duke.

Chisholm: How long have you been there?

Shuler: Since January 2013.

Chisholm: Let’s go back to your days as a U.S. representative for North Carolina's 11th congressional district from 2007 to 2013. What madeyou decide to run for Congress?

Shuler: I wanted to give something back to the community and do somefoundation work to improve the community. Every person I turned to said,“You need to run for office, you need to run for office.” So, I felt a calling todo that and to serve my country. I didn’t want to do it for a long time, but Icertainly wanted to try to make a difference. I’m what they call a “Blue DogDemocrat,” which is a moderate, conservative Democrat who looks at the

issues and the policies based onwhat’s good for America and notwhat’s good for the political party.Unfortunately, we’re seeing fewerand fewer moderates in the U.S.House and Senate, and therefore,we are getting extremes. I had a bellyful of extremes on one side ofthe political spectrum and I decided,after serving for six years, it wastime for me to do something else.

Chisholm: Let’s talk about the transportation bill you spoke about at FMI’s corporate meetingin August. Give us some backgroundon that — why is it so importantand what needs to happen to makeit a reality?

Shuler: I think the greatest takeaway is to understand why weneed the highway trust fund to bereinstated for a long period of timeand to have a long-term vision of

the infrastructure in America. Obviously, when we are competing globally, we need that infrastructure. The greatest thing is that we get a return on our investment. So for every dollar we put into transportation, we get $6 inreturn. Those investments that we are making in this country’s infrastructure

Those investments we are making in thiscountry’s infrastructurenot only make our highways safer and make us more efficient,but are certainly ways to grow our economyand the workforce in America.


not only make our highways safer and make us more efficient, but are certainly ways to grow our economy and the workforce in America. So, forthe federal tax dollars we spend, we get a return on that investment. Andthose are the best investments that we can make for our future — not onlyfor the economy, but for the infrastructure to move into what would be thenext great era of transportation.

The highway trust fund was a very short-term fix. But I do have confidence in the House from the standpoint of Nick Rahall, the ranking member, andBill Shuster, the chairman, that the two of them will be able to work together.If there have ever been two members of Congress that I think could worktogether on a highway trust fund bill and make something happen, it certainlywould be the two of them. Before that, there was just too much partisanship,which never affected the highway trust fund bill before. It had always beenvoted on in the past in a bipartisan way, but now the funding is such that theCongress is trying to cut back, trying to make different deals and it’s becomevery political.

Chisholm: Do you think that the state and local governments should havemore control?

Heath Shuler serves as senior vice president of federal affairs for Duke Energy. He overseesDuke Energy’s Washington, D.C., office and isresponsible for structuring and steering a successful government relations program for the company’s diverse businesses. In addition,Shuler works with national trade associations representing the electric, natural gas and nuclearenergy industries.

Shuler previously served as a member of the U.S. House of Representatives for North Carolina’s11th Congressional District. He served as chair ofthe House Small Business Subcommittee onRural and Urban Entrepreneurship during the110th and 111th Congresses. Before being elected

to Congress in 2007, he founded a real estate company in eastern Tennessee that grew into oneof the largest in the region. Prior to that, he played quarterback in the NFL.

Born and raised in North Carolina, Shuler earned a Bachelor of Arts degree in psychology andplayed football at the University of Tennessee in Knoxville.

He currently serves on the boards of directors of Big Brothers Big Sisters and Friends of theSmokies, a nonprofit organization to help protect and maintain the Great Smoky MountainsNational Park. He has served as a board member of the Boys and Girls Club of America and asa national spokesperson for CHARACTER COUNTS!, a character education program reachingyouth through affiliated schools, agencies and organizations. Shuler has also served as memberof the University of Tennessee Athletic Board.


Shuler: That’s happened over time. If you look back 50 years ago, the federal government paid for almost all of the infrastructure — water, sewer,highways — and now it pays much less of a percentage, certainly less than10%, I think, in the cost of total infrastructure. So that has taken place. What hasn’t been addressed is that we have better fuel efficiency, but the

collectible fuel tax, based on theconsumption of fuel, hasn’t changedsince 1993, so we’re operating thebudget based upon a revenue number from 1993. We’re more efficient with the use of our vehicles,but we’re still generating the same revenue and that is always the topicof conversations — how we actuallypay for a really big infrastructurehighway trust fund bill.

Chisholm: How does that happen?Teamwork in Congress sounds likean oxymoron these days.

Shuler: As an industry, I think it’s important to identify to the lawmakers the importance of infrastructure and what it means to our economy, growth and workforce — what that return on

investment looks like, and how we move forward as a nation to ensure thatour critical infrastructure, such as our bridges and other things, are paid for.We need that as a country. It really comes down to the industry as a wholeto educate members of congress and get their feedback and allow the voice of the transportation industry to be heard. And, when they’re heard,together their voices speak extremely loud. I think that is the missing linkright now within the transportation community. They are not speaking withone voice, and they are not speaking loudly enough. They’re spending atremendous amount of money, but that voice is not a consistent voice — itdoes not have a consistent message — and I think that is an area that mustbe addressed within the community.

Chisholm:What do you think about public-private partnerships (P3s) as asource of funding?

Shuler: I think that’s a great avenue and an area that some states are obviously investing in, but it needs to be a stronger point of emphasis. That,in itself, is what I mean about educating members of Congress — there’s not a handful who even understand what public-private partnerships mean,what that investment looks like, how the funding process goes and how themaintenance and upkeep over a longer period of time would look. That’s an

It really comes down to the industry as awhole to educate members of congressand get their feedback,allow the voice of thetransportation industryto be heard.


area of interest and stress that should be communicated to lawmakers togive them a better understanding of what it means and how their constituents’needs can be met as well. That’s a huge area and something I completely support and we need to do more of.

Chisholm: Let’s move from teamwork in Congress (or lack thereof) and go toteamwork in the NFL.

Shuler: I think the great thing about teamwork in the NFL is you are all working together — offensively, defensively, special teams — toward thecommon goal, and that’s to win the next game. You want to put together astretch of several wins to make the playoffs and ultimately to go to the Super Bowl and win. So, the common goal and the common theme for all ofthe teams in the league is to win as many games as possible to put you in asituation where you’re playing in the Super Bowl.

That’s what’s so dysfunctional about Washington — that members of Congressand senators have never figured out that we’re all playing for the same team,and that’s the United States of America. Too often, they’re playing for theirown political parties. Moving forward, we need to make sure we’re gettingpeople elected to Congress and the Senate that are focusing on the countryfirst, and not their party. That’s what I tried to stress to people when I was inoffice — it’s all about winning for America, not your political party. It may notbe the right vision for your party,but if it’s the right vision forAmerica, that’s the direction weneed to go. That is the great thingabout athletics — there is a commongoal that everyone is workingtoward. Unfortunately, I don’t thinkwe have the overall leadership togain that type of commitment fromthe individual members of Congress— that the focus is America, notthe political parties. The politicalparties and the gamesmanship thatthey’re playing far exceeds what thefocus should be on — America andits people.

Chisholm:Often there are individuals on football teams whoare more concerned with their ownegos and/or contracts instead of focusing on the real purpose of the team.And that is what is happening in Congress — people with ultra conservativeor liberal views are not working together toward a common goal as a team.

Shuler: That’s exactly right. I have some close friends who are tea party

Moving forward, weneed to make sure we’regetting people electedto Congress and theSenate that are focusingon the country first, and not their party.


members and others who are extreme liberals, and they are not willing tomeet in the middle or have a conversation. Their views are such polar opposites that neither side is willing to compromise. That is a big problem.

Shortly after this interview with Heath, the U.S. government partially shut down on Oct. 1, 2013, and 800,000 federal workers were furloughed. From October 11 to 14, a bipartisan group of senators worked on a bill toreopen government and avoid default. On Oct. 16, the senate majority andminority leaders announced they had come to a deal to temporarily halt thegovernment shutdown until Jan. 15, 2014, and extend the debt limit until Feb. 7, 2014. The proposal passed through both the House and Senate shortly before midnight, and President Obama signed the deal into law onOct. 17, shortly after midnight.

I asked Heath if he thought this was a good sign that Congress could workmore like a team, and this was his response:

Shuler: I wish I could tell you that it gave me confidence that they were going to work more like a team, but it seems more at this point that Congress is still only operating in crisis mode — when there is a difficult task at hand, something with very large impact, you’ll start seeing them work

and come to short-term conclusions.The most difficult thing to do is tocome up with long-term solutionsand I don’t think this Congress andadministration are willing to worktogether. That makes it difficult forplanning and any long-term solutionsfor the government.

Chisholm: Do you know of anyupdates on the transportation bill?

Shuler: No, I don’t have any updates on that. We have a shorttransportation bill, but chairmanShuster will continue to work acrossparty lines. If there’s someone inCongress who can work across the

political spectrum, it is certainly chairman Shuster with the House. I expect big things from him. But in 2014, there is going to be little to no activity going forward for the simple reason that so many people are going to be incampaign mode. There is going to be less and less time spent in Washingtonand more time spent in their districts starting in July. Once August hits, theywill be almost completely in their districts, running the campaigns for themidterm elections.

One of the biggest negatives is that many of the moderates or members who havebeen willing to worktogether are retiring.


Chisholm: Do you see any of the midterm elections offering any hope of positive change in Congress?

Shuler:One of the biggest negatives is that many of the moderates or members who have been willing to work together are retiring. For example, in North Carolina you have Mike McIntyre from the Wilmington area (7th district) announcing his retirement. He was a Blue Dog and able to workacross the political spectrum. Most likely he will be replaced by one extremeor the other, because the extremes are winning the primaries and you’re notgoing to have someone who is going to compromise easily with the opposingparty. It’s difficult going forward. Jim Matheson of Utah is another example.He’s been one of the leaders of the Blue Dogs, but also is retiring.

The Republicans are in the same situation. There are fewer and fewer ofthem willing to cross the political spectrum, which leads to more extremes.It’s not a good situation to be in as a country because we relied so heavily onthe moderates to make significant improvements, politically speaking, bybringing the different parties together. The moderate members are leaving,and that’s very, very frustrating.

Chisholm: Yes, it is. When do we see change?

Shuler: You know, I think it is going to be some time before we see any major changes, unfortunately. I wish I could say we would see changes quickly, but I don’t foresee it any time soon. It starts from the top down, somaybe the next administration will be able to help. But it’s not going to beany time soon. �

Kelley Chisholm is an FMI alumna.

Is it easy in your market to recruit and retain top estimators,

project managers and superintendents? Have you been

surprised by the recent turnover of a high-potential employee?

Many of your peers have. Just a year or two ago, FMI was hearing

from clients that there was plenty of available talent on the street

because of downsizing during the recession.

Now those same clients are reporting difficulty finding qualified candidatesfor open jobs, multiple competing job offers when they do find them, salary compression (having to offer new hires salaries at or above tenured employees)and a large group of baby boomers ready to retire without obvious replacements.Now is the time to get your compensation and performance management systemsin line with the new normal of higher competition for talent, worries about retention and experienced managers aging-out of the workforce.

DEFINING THE “NEW” BEST PRACTICE APPROACH IN THE CONSTRUCTION INDUSTRY

The process seems simple to describe in a few bullet points, but, in practice,it requires a hard look at how you do things on the “support side of the house.”The overhead-cutting approach that got you through the Great Recession is simply

By Grant Thayer

Get Your CompensationSystems in Good Order for the Market Upswing

The winners during the next upswing in the business cycle will bethose companies that can attract,retain and develop the best people.

24 � get your compensation systems in good order for the market upswing

not an effective method to address the upswing that seems to have arrived in mostmarkets. In many cases, companies have not looked seriously at their compensationor HR systems since the Great Recession. Now that things are turning around,they are surprised that they are having a hard time attracting talent, or they havelost one or more high-potential employees for which the company had big plans.

At the very least, a company should migrate to known best practices in thefollowing systems:

• Establish a compensation philosophy for your company and share it withyour people.

• Benchmark base compensation levels to objective, external market data.• Benchmark short-term incentives (annual bonuses) to the same objective,

external market data.• Offer an incentive (bonus) system with clear structure, including

measurable goals where the employee understands what the incentiveopportunity is and how he or she can “move his or her number” based onpredefined behaviors and outcomes.

• Offer long-term incentives in senior positions that are vested over the courseof a few years to create “golden handcuffs” that will retain key managementtalent when it would be disruptive to the business to lose them.

ESTABLISH A COMPENSATION PHILOSOPHY AND SHARE IT WITH YOUR COMPANY

Let’s define a compensation philosophy first. For our purposes, it is the mix of base salary and bonus that a company offers versus what is available for a giventitle in the labor market. For example, consider a company that has a compensationphilosophy that states, “We pay less than market base salaries, but pay more thanmarket incentive compensation in order to deliver an overall compensation packagethat is market competitive or better.” Another common philosophy is, “We payour employees more than market base salaries because we want to attract top talent, but in order to stay market competitive with our labor costs, this meansfairly low bonuses.” Finally, a common, but often unstated, philosophy could bedescribed as, “We play it safe. We try to pay as close to average as possible on both base and bonus; that way we rarely lose a person over compensation.”

Many companies in the construction industry have never formally articulateda compensation philosophy, but evenif they have not stated one, there is a“phantom” compensation philosophythat exists based on their historic practices. The trouble comes whenactual practices do not match up withthe company’s self-image, or when thecompany leadership believes they arefollowing one philosophy, while therank and file believes something muchdifferent. This occurs often whenmanagers have been with the company


so long that they are disconnected from the realities of the external labor marketand start to believe that everyone’s compensation is just as fair as they believe their own is. You can be sure that younger employees, who are closer to the experience of changing jobs, have a clear idea of their value and how (or if ) thecompany is rewarding them appropriately. In this situation, employees begin togripe that they work for a “cheap” company and talk about management beingdisconnected from the reality of beingan employee, which can result inproblems with morale.

The next logical question whendiscussing compensation philosophy is, “Which one is best?” Each approachhas pros and cons. The answer really depends on the culture of yourcompany and the kind of environmentyou are trying to build. FMI hasworked with companies that effectively execute on any of thenamed philosophies. The low-basepay, high-incentives approach worksbest for companies that have (or want)a culture that strongly rewards topperformers and is willing to pay for itby accepting low incentive paymentsto role players. The high-base, low-incentive approach favors a culturefocused on collaboration and makingthe most people happy, but role players may get a bit lazy and entitled,and top performers may feel like they are not getting the recognition they deserve.One longtime FMI client that uses this approach complained, “I have greatmorale, but during hunting season, I can fire a cannon in the office, and no one is there to hear it. My guys are just not motivated to do more than expected.”

One thing an astute reader will notice is that all of the compensation philosophies assume a company knows where it is relative to the market value of the jobs it has at the company. If you do not benchmark this and really know(rather than guess) what your compensation package looks like relative to yourcompetitors’ packages, then your compensation philosophy will always be a guessand subject to drift. This brings us to the subject of benchmarking.

BENCHMARK YOUR BASE COMPENSATION LEVELS TO OBJECTIVE, EXTERNAL MARKET DATA

In FMI’s recent survey of compensation practices in the industry, we discovered that the vast majority of companies do not use objective labor marketdata. Even though many managers know this data is available and know that theyrun a risk of over or underpaying employees by not using it, they still wing it. The excuses for this are numerous. We hear things like, “I know my markets” or

You can be sure thatyounger employees,who are closer to the experience ofchanging jobs, have aclear idea of their valueand how (or if) the company is rewardingthem appropriately.


“I polled three of my competitors over golf last weekend, and they saythis pay package looks okay,” or “I callaround and see what my contractrecruiting firms are paying.” Yet thesesame companies complain they cannot recruit top talent, they lost anemployee that they were optimisticabout or that they cannot understandhow competitors can bid work socheap “when their labor costs must beabout the same as mine.”

There are layers of risk to a construction business that result from paying base salaries that are too high or too low. The consequences of paying too high should be obvious in a competitiveindustry like construction. Letting fixed labor costs get even a little bit above market norms can have a devastating effect on the ability to win work. Thinkback on a few projects you lost when you were second-low on the bid list. If therewere less than a few percentage points in labor cost between your company and the winner, and you had not benchmarked your pay in recent memory, then yourpotential over-market pay may have cost you that job.

On the other hand, underpaying your people has a less obvious, but moreinsidious, effect on your business. First off, if you do not pay market salaries, youwill not be able to attract top talent. Many companies rationalize low base pay by observing, “We are able to fill open positions, even with a low pay scale.”Nevertheless, it is often those same companies that have problems with performance

management and productivity. Theirlow base pay has resulted in attractingonly the employees who are not goodenough to be hired at a competitor thatdoes pay market-level compensation.Therefore, they get the candidates that are left over. If the company is able to attract a few quality hires,despite the low base salary environment,then it runs the risk of becoming atraining ground. A smart competitorthat pays attention to compensationwould let your company hire and train a few key professionals, and oncethey are ready for more demandingassignments, have a recruiting firm

steal your people by offering them market-competitive pay. Oh, and note thatthey do not even need to overpay to do this, because you pay below market! Thisagain leaves you with the less talented employees from the group you have hired.This just adds to an already difficult situation, the turnover cost of hiring andtraining replacements for those who are poached away.

There are layers of riskto a construction businessthat result from payingbase salaries that aretoo high or too low.


Some companies do make a smart, strategic decision to offset low base salaries with higher incentive pay as part of their compensation philosophy, but that only works if they know what market pay really is by benchmarking it to external data and adjusting their pay-mix from there. Otherwise, that is just an excuse a company uses to cover up a lack of knowledge about the competitiveness of its compensation and thus the lack of competitiveness in itslabor cost structure.

BENCHMARKING SHORT-TERM INCENTIVES (ANNUAL BONUSES) TO THE SAME OBJECTIVE, EXTERNAL MARKET DATA

A company should benchmark annual incentive pay externally for many ofthe same reasons it should benchmark base salary levels to external data. Noticewe did not use the term “bonuses.” While many people use the term bonus andincentive interchangeably, FMI strongly believes that incentives connect the payment in the employees mind to desirable behaviors and outcomes. Bonuses are more of a thank-you in a good year (but more on that later).

When you look at the various available sources of data for base salaries, theinformation is usually in a format where a particular job description has a thpercentile, a midpoint (or th percentile) and a th percentile. Themarket pay for that job description“lives” between the th and th percentile. The midpoint is the mathematical median, but if your pay falls between the th and thpercentile, it can be said to fall withinthe market. If you pay below the th percentile, you risk turnover ofexisting employees and difficulty infilling open positions. If you pay abovethe th percentile, you risk having an uncompetitive cost structure andthe opportunity cost of not havingthose dollars to invest elsewhere in the business.

How does this connect to benchmarking annual incentives?Most compensation datasets provideaverage annual incentives as a percentage of median base salary. This information guides a company toset the “right” level of annual incentive compensation to ensure that the companyis market-competitive. For example, the market data may suggest a midcareerproject manager should have a base pay of , and a bonus opportunity of%. That would mean an average bonus would be ,. You can structure asystem where a truly excellent project manager could get more, and an averageproject manager could get less, but you are targeting an average that makes sense

Some companies domake a smart, strategicdecision to offset lowbase salaries with higherincentive pay as part of their compensation philosophy, but that onlyworks if they know whatmarket pay really is.


in the marketplace. Then it is up to the employee to perform at a level that warrants the big number. It is empowering to him or her and it ensures you getwhat you pay for with incentives — above-expectations performance.

OFFER A FORMAL SHORT-TERM INCENTIVE (ANNUAL BONUS) SYSTEM WITH CLEAR STRUCTURE INCLUDING MEASURABLE GOALS

Common practice in the construction industry is to approach incentive compensation in a way that most other industries in the U.S. abandoned in thes and s. Companies build a bonus pool by accruing a set percentage of each profit dollar and, at the end of the year, the CEO or senior managers run through a spreadsheet and assign bonuses on a discretionary basis to theemployees that they think did a good job. This is the smoke-filled-room approach,which is often a legacy of when a company was smaller and less sophisticated. Thepool approach appealed because it is easy. However, this approach is problematicon many levels:

The funding mechanism of a bonus pool is flawed. It ignores two vital driversin a business:

• Pay a return on the capital base that is a reasonable risk-adjusted return on equity

• Be externally competitive to retain your best people

The pool approach typically does neither. It often pays out bonuses longbefore the ROE is reasonable and it completely ignores what a competitive bonuslevel is from the point of view of the external labor market. When combined witha discretionary distribution of those funds, you get a bonus plan where the employeedoes not know how his or her individual efforts drive the bonus. FMI hears comments such as, “I wish I could understand how I can move my number” and“Bonus time is when everyone gets mad because it seems so arbitrary and unfair.”

What should replace the pool-funded discretionary plan? FMI advocates three things:

. Create a plan that clearly connects clear measureable goals for employees with:• Their individual performance• The performance of the small team they belong to, which can be as

small as a functional team like an estimating department or as large as a business unit

• The performance of the company as a whole. Benchmark the bonus opportunities (as a percentage of base salary) to

objective external market data.. Self-fund the plan by setting a goal for pre-incentive net profit that is equal

to the sum of all of the individual bonus opportunities at target plus anappropriate ROE for ownership.

A detailed explanation of how to build one of these plans is beyond the scopeof this article, but readers should notice a key concept. The three factors FMI typically uses in a bonus plan drive good behaviors, while offsetting the possible


negative behaviors that could result from the other factors. For instance, the individual performance incentive ensures top performers are recognized and compensated. But it is important to have the corporate incentive in the plan to offset the possible selfish behaviors that could result if the individual incentive wasused alone. Many corporate-only profit sharing plans effectively share the wealthof a successful company; but without the individual factor to drive accountability,a profit-sharing-only plan can suffer from free riders.

FOR SENIOR MANAGEMENT POSITIONS WHERE TURNOVER WOULD BEESPECIALLY DISRUPTIVE, CONSIDER A LONG-TERM INCENTIVE PLAN (LTIP)

Long-term incentive plans (LTIP) are incentives that are targeted at seniormanagers of a business and typically vest over the course of three to five years. Theseare designed with the retention of top talent in mind and often prompt participants

to use the description “golden hand-cuffs.” Unlike short-term plans thatfocus on driving annual business andindividual performance, long-term plansusually offer incentives for attainmentof goals that are lengthier in nature.

The vesting of LTIP awards over time gives a current employer astrong position when a competitorattempts to hire away a plan participant.Even if the competitor offers a competitive salary and short-termbonus opportunity, to make an attractive deal, the competitor alsomust buy out the unvested long-termincentives that are payable in thefuture. Therefore, the competitor hasto pay up now to get the employee to

defect, while the current employer gets to wait until the awards vest later. Thus,the competitor has no choice but to either overpay in the shorter term or lookelsewhere for its new hire. Objective, external market data is available to helpbenchmark the amount of long-term incentives for a given position.

FINAL THOUGHTSOnce a company gets its base salaries, short-term and long-term incentives

in line with best practices and market norms, it will be in much better shape toaddress the tightening labor market for construction professionals. The winnersduring the next upswing in the business cycle will be those companies that canattract, retain and develop the best people. Getting your compensation systems in shape is the first step along that road. �

Grant Thayer is a senior consultant with FMI Corporation. He can be reached at 303.398.7255 or via email

at [email protected].

The winners during the next upswing in the business cycle will bethose companies thatcan attract, retain anddevelop the best people.

W ebster’s Dictionary defines teamwork as “work

done by several associates with each doing a part

but all subordinating personal prominence to the

efficiency of the whole.” This article explores how to incorporate

effective compensation design techniques to reinforce teamwork.

The challenge is how to create this dynamic when there are several

variables that influence the ability of a team to exhibit “teamwork.”

TEAMWORK INFLUENCERSManagerial ability and training

Forbes (//) states that a manager’s relationship with an employee is thesingle most important factor in employee engagement. Disengaged employees are likely to be more disruptive and less productive. They are also expensive to the company by turning over more. Unfortunately, many managers were once “non-managers” whom companies promoted on technical or execution expertise asindividual contributors. Bruce Tulgan, author of “It’s Okay to be the Boss,” claimsthat there is an under-management epidemic in the U.S. There are managers whoare either not managing their people or managing them ineffectively. Effectivemanagers focus on the work and do not reward all team members equally. They

By Sal DiFonzo

Improving TeamworkThrough EffectiveCompensation DesignWhereas incentive plans provide rewards for meeting specific team-based goals, performance management can also reinforce teamwork.

32 � improving teamwork through effective compensation design

provide higher rewards for higher performance. Therefore, managerial and leadership training are essential to improve teamwork skill sets.

Employee ability, attitudes and biasesIn order for an employee to contribute to the team, the incumbent must

possess the appropriate skills to complete the job. Having employees who are notqualified or are the wrong fit for the position will make it more difficult to havean effective teamwork environment. Personality type, attitudes and biases also play a role. Are employees naturally altruistic or defensive and posturing?Teamwork can still exist with selfish individuals as long as the behaviors theyexhibit contribute to team goals and outcomes.

Historical company culture Companies tend to value certain aspects of their organization. In the

engineering and construction industries, business developers may hold the highestesteem because they are revenue generators. In , FMI Compensation statistics

showed that business developer payincreases are in the top five of all jobs. Other companies value executionover sales, so project managers onshowcase projects may carry prestige.In this case, owners may be the “sellers” and project executives, projectmanagers and superintendents are the company heroes.

External threats and competition The U.S. provides examples of

teamwork during times of war andcrises. Current political environmentsare highly partisan, but during the / tragedy, Hurricane Katrina and Superstorm Sandy, Americans dropped their political leanings towork together as a team to help others.

Unfortunately, the effect does not last long. Companies may also respond to threatsor significant competitors by having business units work more closely together toincrease productivity, efficiency and innovation. Again, the heightened teamwork inresponse to economic or competitive threat may be short-lived without reinforcementsuch as performance management systems or structured incentive plans.

BALANCING DESIRED OUTCOMES AND BEHAVIORSEffective compensation design can assist a company with its efforts to create a

teamwork dynamic. The caveat here is that the compensation plan cannot act as a surrogate for good management. Under the premise of “people do what you paythem to do,” compensation design can reinforce teamwork behaviors to benefitthe collective outcome of the organization.

Having employees who are not qualified or are the wrong fit forthe position will make it more difficult to have an effective teamworkenvironment.


Exhibit shows a diagram incorporating three performance measurement levels:corporate, business unit/team and individual. Compensation design strategy onthe weightings of these components must be unique to each company and reflectwhat the company wants to accomplish. A formal business strategy can providedirection for the compensation plan, but employee interviews and surveys are alsouseful tools to assess the current teamwork environment. For example, if employeesindicate that everybody values individualism first or that business units competewith each other, then this is an indicator to increase teamwork. Weighting the corporate component more heavily over the business unit and individual measureswould reinforce a teamwork environment. Conversely, if employees report that thecompany is like a socialistic Eastern European Cold War country and it does notmatter if they perform any better, then it would be wise to shift weight to theindividual measure in order to increase accountability.

What happens when the corporate measure is overweighted? FMI Compensation has encountered profit sharing plan arrangements where

the corporate measure was all that mattered. One employee stated, “My goal hereis not to get fired. It doesn’t matter whether I work harder because I won’t get paidfor it.” Therefore, there is the possibility that teamwork can be too dominant. Allteam and no business unit or individual accountability may result in “free-riding.”This term comes from economic theory and describes when a worker benefitsfrom the rewards of others without the commensurate individual contribution.

What happens when the business unit measure is overweighted? This problem occurs often in construction firms with diverse business units.

FMI Compensation works with mechanical contractors where this is a frequentoccurrence. For example, the Heating Ventilation Air Conditioning (HVAC)

Exhibit 1

Balancing Desired Outcomes and Behaviors

Corporate(All Outcomes)

Desirability High Corporate PerformanceIs the most desirable outcome for owners and senior managers

Low Level of Individual ControlEmployees may feel their contribution is diluted

This Factor Rewards1. Collaboration across units2. Playing well with others3. Balancing out selfish impulses

High EU/Team PerformanceIs a very desirable outcome for owners and senior managers

Medium Level of Individual ControlEmployees see a closer connection between their behavior and results

This Factor Rewards1. Growing a geography or segment2. Efficiency and effectiveness3. Team excellence by measuring

grouped performance

High Individual PerformanceIs a somewhat desirable outcome for owners and senior managers

High Level of Individual ControlEmployees have the most control and influence around results

Emphasizing this Factor RisksFree-riding

Emphasizing this Factor RisksSilo mentality

Emphasizing this Factor RisksSelfish, “all about me” behaviors

This Factor Rewards1. Individual excellence2. Avoids overpaying free-riders3. Demonstrates the value of

development

Control Level

Risk/Reward

Business Unit/Team(Outcomes & Behaviors)

Individual(All Behaviors)


group may be competing or even in direct conflict with the plumbing group.There will be competition to put construction deliverables in place before theother group gets there first and blocks access. They may not even share laddersand tools, despite the fact that these resources are company-owned! Often, thesebusiness units have separate leaders, different employees (mechanical techniciansversus plumbers), competing priorities to install equipment in a limited space and may have historical biases against each other. It is no surprise that all of theelements are here for conflict.

What happens when the individual measure is overweighted? When the individual measure is overweighted, selfish or “me first” behaviors

may appear. Many contractors use project-based incentives to increase productivityand profits. The weakness of the purely project-based approach is the risk of too much weight on individual performance. This is especially true if there are

cost-saving or margin-gain commissionsoffered to project management. Itbecomes more about “my jobs” and“my projects” than about teamwork.Try to move a project manager from ahigh-margin project to a money-losingproject where commissions areinvolved. The project manager orsuperintendent may claim to be toobusy to transfer or offer significantresistance to assisting on other jobs.Honest supervisory incumbents maytell you that you are reducing theirincome when you assign lower-marginjobs to them.

There are successful ways toreward project success without resorting to commission-style plans.Using goal-based measures instead ofcommission-based measures usuallysolves the problem. For example, aproject manager goal may be to average % margin gain over estimate

on all jobs completed during the next months. Another goal may be to reducelosses on a money-losing job. This way, a supervisory incumbent can still win,even if there is no margin in the job. The company benefits from minimizing losses and improving margins.

The right mix of team, business unit and individual measures provides the best outcomes. While it is desirable for owners and managers to have the corporate and business unit measures weighted more heavily, it is more desirablefor employees to have maximum control through a heavily weighted individualmeasure. What does a company do with corporate employees who support many or all business units? Employees in human resources, finance, information

There are successfulways to reward projectsuccess without resortingto commission-styleplans. Using goal-basedmeasures instead ofcommission-basedmeasures usually solvesthe problem.


technology, etc., would simply havetwo performance measures and nothave a business unit measure.

In a recent FMI Compensationstudy, the majority of contractorsreported having discretionary plans.Most discretionary plans obtain theirfunding from a “pool” of moniesderived from a formula based on corporate performance. Then managers apply discretion at the individual level to determine final payouts. The problem is that employees do not know how much they will earnand do not know the path to earn more. They also cannot explain the amount ofthe payout they do receive. Structured incentive plans were found to be rated asvery effective three times more often than discretionary plans. The use of definedperformance measures in the three-performance measure model in Exhibit1 is anexample of a structured incentive plan.

HOW TO USE TEAMS TO INCREASE PLAN DESIGN BUY-INAn effective way to encourage teamwork and increase buy-in of your new

incentive plan is to create a steering committee and a design team. The steeringcommittee consists of ownership and senior managers of the company. This teamevaluates and approves design team recommendations. The design team consists of business unit leaders and key managers or influencers in the business. Designteam members interpret employee feedback, select performance measures, decideweightings of performance measures and determine performance standards (minimum and maximum achievement and payout levels).

REINFORCING TEAMWORK AND COLLABORATION THROUGH PERFORMANCE MANAGEMENT

In a recent Small Business Trends article (//), having no clear-cut goals is one of the mistakes to avoid when building a team. An effective performancemanagement system allows a manager to create achievement goals or a managerial“wish list.” If teamwork is experiencing shared outcomes, then the team needs toknow what it has to accomplish. Interim and final goals can be great reasons forteam celebrations.

Here are some guidelines to implement a performance management system.The goal of this system is to manage overall performance, beyond purely production measures.

• Define strategy, values and vision. There is the formal business strategy, but what are the values of the company? Teamwork is often a stated and salient objective.

• Select the performance dimensions where the performance criteria will be built. For example, if teamwork is a value, then create criteria foremployees to demonstrate teamwork.


• Set the measurement scale after selecting teamwork criteria. What defines below-average, expected and exceeds-expectation performance? The measurement scale will require anchors to define achievement.

• Include a section for employee talent development. Where are skills deficient? What training does the employee need to advance careerprospects? Performance management systems are effective for identifyingtraining needs without having to pay an incentive to make it happen.

Administratively, any company would be wise to invest in a system thatwould automate the performance management process. Unlike the incentive plan,

STEERING COMMITTEES AND DESIGN TEAMS GUIDELINES

Steering committee• Should have five to eight members, including senior managers, leaders of key business

units and the leader of the HR or compensation function at the company.• Should include, but is not limited to, representatives from finance (often the CFO or controller),

field operations (often COO), human resources, project management and estimating.

The purpose of the steering committee is to:• Monitor the progress of the project.• Advocate for the timely completion of the project, including pushing company personnel to

complete tasks when appropriate.• Review the work of the design team and revise if necessary.• Receive the final deliverables and commit to implementation.

As a rule, these people need to have the ability to see financial statements, compensation forindividual employees and bonus data. They should also be open and receptive to constructivefeedback about human resources and compensation practices.

Design team• Should be composed of five to eight mid- to senior-level managers, including leaders of key

business units and the head of the human resources or compensation function at the company.• Can have a one or two of the same members as the steering committee, otherwise known

as “pivot members.” • Should include business unit leaders, representatives from key functional groups and

middle-level managers who are expected to rise in the organization.

Frank discussions of base compensation and bonuses will occur in these meetings. Chooseemployees you trust to keep this information confidential.

The purpose of the design team is to:• Provide advice and suggestions on plan design assumptions and elements.• Provide informed technical insights — company culture, elements to include, outcomes

to target, etc. • Generate team consensus on the preferred compensation plan design.• Develop the recommended plan that will go to the steering committee for final approval.

This team should be authorized to view financial statements, compensation by employee andbonus data. It also should be allowed to hear interview findings.

FMI Compensation’s experience reinforces the value of collaboration and consequent buy-in ofnew incentive plans. When the owner simply tells employees, “I have this great new plan,” withoutany grass-roots involvement or buy-in, employees typically do not accept these plans as well.


these systems require robust documentation and tracking. To keep the system simple, FMI Compensation recommends to clients that managers have one meeting with each employee at least once per quarter to track progress. This minimalamount of communication should prevent surprises at the end of the year.Automated systems also hold managers accountable for managing performance.

CONCLUSIONResponding to external competitive threats is one way to bring employees

together, but there are more proactive ways to do this.

• Invest in management and leadership training. Good leaders are also good learners, and continually developing people management skills is an ongoing process. Managers need to foster collaboration and build teamwork. They are the owners and creators of shared purpose.

• Determine if the right people are in the right jobs. It is not impossible tohave successful teams with underperforming or selfish individuals, but it is certainly much easier when everybody can pull his or her weight andaccomplish tasks that contribute to positive team outcomes. Many companies are beginning to weigh cultural fit more importantly than hardskills. Pick the right people with the right skills and attitudes or providetraining for them to get there.

• Emphasize performance measures more at the corporate level to encourageincreasing teamwork or at the individual level to increase employeeaccountability, depending on the company’s strategy and culture,

Structured incentive plans can encourage teamwork through their design. Use a bottom-up process where key leaders of the business make the initial plandesign decisions for performance measures, weightings and performance standards(design team). Ownership or senior management (steering committee) shouldhave final say on the design, but it should not autocratically impose the plan without field input or triangulation with the business strategy.

Whereas incentive plans provide rewards for meeting specific team-basedgoals, performance management can also reinforce teamwork. Performance management systems operate outside of the incentive plan and can reinforce cultural values. If teamwork is a cultural value, then rate employees on how wellthey support this value. Provide better merit increases to those who are team players. Send corrective messages to individuals who do not espouse teamwork.

You cannot do it alone — just ask any entrepreneur who started a successfulbusiness. The only way to grow was to work collaboratively and add more contributors to the team. This message is still true for long-established companies,especially in the ultracompetitive engineering and construction industries. �

Sal DiFonzo is a managing director at FMI Corporation. He can be reached at 602.772.3427 or via email

at [email protected].

H ow do we define the future? Is it the economic

residue left after the tidal wave of the Great Recession

recedes? Is it the burdensome debt and financial

hangover inherited from those overachieving baby boomers? These

are just two dismal situations that we see as the envisioned future.

But as eternal (or hopeless) optimists, those in the construction

industry would prefer a more positive view of the world as it evolves

over the next five, 10 and 20 years.

Many of us intend to pass this industry along to a capable group of youngleaders who will apply their brand of creativity to overcome some of the samehurdles as well as conjure up innovative solutions to problems that we couldnever imagine. However, whatever scenarios we face moving into the next phaseof the construction cycle, we will need to become more proactive with the nextgeneration to help it prepare for the future.

Who will be around to run our businesses when we finally arrive at thisimagined future? Are we developing the well-rounded managers and leaders withthe broad-based skills needed to transition our companies into the next generation?

By Ken Wilson

Creating the Future

Creating the future will require a comprehensive and integrated approach to performance management.

40 � creating the future

In addition to keeping these future leaders engaged to do their current jobs, wemust identify the select few who have the potential and build their skills to enablethem to execute an effective succession plan and keep the business operating efficiently after the boomers and the Gen Xers are long gone.

For years, the impending shortage of skilled craft workers needed to keep pace with growing demand for services in the construction industry has been inthe news. The recent recession provided a short-term reprieve from this gap, butthe inevitable demand for workers has come roaring back as the construction market continues its recovery. This trend is occurring across the country and inmany industry sectors, but it is most obvious in the Gulf Coast region, where billion worth of projects driven by the oil and gas sector boom. During thenext three to five years, this demand for new workers in this region will require an estimated , to , additional people in most of the skilled trades.Some are predicting a massive shortage of as many as million skilled workersnationally by the year .1

With this inevitably looming shortfall, many proactive contractors are implementing their own internal training programs in order to anticipate thedemand and supply well-trained resources for their own projects. However, somecontractors are concerned they will invest their hard-earned training dollars inthese people, only to see them go to work for the competition. Not a great scenario, but just think about the alternative — not training them and they stay!

Perhaps the more significant challenge may be finding the people to manageacross all of the various levels within a contracting organization. That is, findingpeople with the innate ability to lead and manage the multiple disciplines requiredto captain a company successfully through the risky seas of the constructionindustry. This combination of broad skills is often difficult to predict or assess inindividuals, but invariably will include many of these elements of business acumen:

• Appropriate risk tolerance • Decisiveness• Ability to evaluate and seize opportunity• Communication skills — written and verbal• Listening skills• Motivating and inspiring others• Strategic thinking• Leveraging competitive advantage• Customer empathy• Negotiating favorable contracts• Bias for action• Accurate project scheduling

HOW DID WE GET HERE?Unfortunately, as the younger generation starts filling the management

positions vacated by the retiring baby boomers, the industry has not provided the training and development needed by this group of emerging managers to prepare them to take over their companies. This crisis has been compounded bythe construction boom of the past years. As contracting firms have grown,


company owners hired specialists to focus on specific functional responsibilities tohelp them manage relatively narrow aspects of the business. Thus, the industry’sexpanding succession problem has been intensified by this practice over the years,since there are few generalists available with the broad skills to lead companiesinto the future.

WHAT CAN WE DO ABOUT IT?Although FMI does not have a simple answer to this impending dilemma,

we have developed a model that addresses several of the problems we are all facing.As a generation of seasoned veterans, we must force ourselves to accept new ideasabout how we lead and motivate this younger generation, the most obvious candidates for future leadership roles.

INTEGRATED PERFORMANCE MANAGEMENT (IPM)Creating the future will require a comprehensive and integrated approach to

performance management. The influx of millions of members of the millennialgeneration will force company leaders and managers to proactively manage theperformance and provide routine feedback for this needy group of future leaders.In fact, the construction industry has been woefully inept at providing meaningfulfeedback for any group throughout the years, and these folks just will not respondwithout this interaction.

Does that really matter? Considering that we are already competing withcareer choices in more attractive industries, it is imperative we modify our ownbehaviors to engage with this target pool.

There are many proven components we can use to create a comprehensiveapproach to managing and motivating people. Several of these are particularlybeneficial in responding to the needs of members of Generation Y. Although wecan implement these elements separately, FMI’s Integrated Performance Management(IPM) model is designedto link together thesebest practices in order tocompound their impactwhen applied as a cohesiveprocess (see Exhibit ):

• Well-defined position descrip-tions to establishresponsibilities

• Individually craftedperformance metrics to setexpectations

• Regular perform-ance feedback toprovide continuousreinforcement

Exhibit 1

IPM Model

01POSITIONDESCRIPTIONS

02INDIVIDUALIZED PERFORMANCE METRICS

03REGULAR PERFORMANCEFEEDBACK

04STRUCTUREDCOMPENSATION

05 ROTATIONALASSIGNMENTS

06WORK-LIFEBALANCE


• Structured compensation plans, both baseline and incentive components toreward the right behaviors

• Rotational assignments to keep them challenged and motivated to applytheir creativity

• Flexibility in work scheduling to validate their perception of work/life balance

Well-defined position descriptionsPeople want to do a good job, but must understand what is expected of them.

We might think of these as the “tools without the tool belt” (i.e., the managementand leadership skills needed to accomplish chosen tasks and leverage inherent

talents to increase effectiveness). Sincethe majority of jobs in the engineeringand construction industry are basedon technical knowledge, we are able to establish the requirements for thosepositions with a fair amount of detail.However, it can still be a challenge to

translate those desired skills into core competencies that are recognized universallyas those needed to accomplish the job across the industry.

For example, not all project managers’ roles are the same, and the requirementsneeded to achieve specific goals may vary dramatically depending on a variety offactors, such as the type and size of project, specific industry-sector focus, publicversus private owners, or even an urban compared to a rural jobsite. Althoughthey may require a similar technical foundation, the stellar performers tend to differentiate themselves when it comes to leveraging their management and leadership talents to get the job done. They also rise above the other technicianswhen they begin to use business-oriented acumen to truly act like a business manager and take on the role of driving the earnings of their profit center.

Hence, it is important to translate traditional project management competenciesinto behavioral components and business criteria to stretch the expectations ofincumbents beyond just the technical elements of their roles.

Individually crafted performance metricsOnce you have identified the core competencies and skills required to

execute a particular role, develop individual benchmarks against which to trackthe contribution each person is making to get the job done. These performancecriteria must be representative of theoverall strategic objectives of the company. These goals should be established as a team, with the activeparticipation of both the individualand supervisor/manager. This jointprocess will result in better-definedtargets with a greater commitment from both parties and a much higher potentialfor success in achieving the goals. Thus, when the Generation Y employee asks,“How am I doing?” there will be no confusion about the definition of the metric.Both parties will have a clear understanding of the expected performance.

POSITIONDESCRIPTIONS

INDIVIDUALIZED PERFORMANCE METRICS


Eventually, both modify the targets, as the employee’s improving performancegradually becomes the norm, making it natural to set targets for the next phase inhis or her development.

Regular performance feedback Do not fall into the trap of waiting for a once-a-year event to let people know

how they are doing. Not only does it intensify the drudgery associated with theseannual trips to the principal’s office,but also it is particularly important for members of the new millennialgeneration to receive regular reinforcement that they are on theright track. In fact, if we do notprovide regular and frequent feedbackto members of this generation, we run the risk of alienating them or having thembecome bored in their roles and start looking for other opportunities. Do not beso naïve as to believe that this group will maintain loyalty to your organization andbe happy just to have a job, as the baby boomers were. There will be a shortage ofpeople in this generation, and they will be under constant pressure to jump toanother job. It might not even be for more money, but for more of the perks andworking environment that Gen Y’s are seeking to bring meaning to their lives.

Once again, baby boomers and Gen Xers were conditioned to put their heads down and keep working. They thought that if the boss believed they weredoing a good job, surely he or she would let them know it. Worse yet, they carriedon with the blind faith that the ultimate reinforcement would show up in theirpaychecks. After all, isn’t that really what matters? Or the reward for their sweatinvestment was evidenced by a promotion or, at the very least, a new title todemonstrate to others that they had achieved the next level of performance. Workyour tail off, put in lots of hours to prove that you can outwork that other Type Alunatic in the next office, and the boss will surely reward you handsomely.

But let’s be realistic ... Gen Y’s are not programmed to respond to this kind ofgrind-it-out work environment. We must establish a culture that is more conduciveto the creative mentality of this new group of workers. If we get over our own perception of “hard work,” we just might realize the potential contribution thatthis generation can make to our long-term success.

Today’s new workers need constant reinforcement that they are on the right track. If you neglect to work with them to craft appropriate targets, they will choose their own goals and might end up focused in the wrong direction. You owe it to them and the organization to translate corporate strategies intoshort-term milestones that will drive desirable behaviors in younger team members.

Structured compensation plansWhile there are intangible benefits of offering positive feedback to motivate

and retain key employees, a market-driven compensation plan also is needed to keep the best and brightest focused on doing an outstanding job. In order toreward the right behaviors, this plan must be representative of realistic marketplacecomparisons. People have instant Internet access to a wide range of wage and

REGULAR PERFORMANCEFEEDBACK


salary data to compare their pay packages. Net surfing may not always result in an accurate or realistic analysis of positions and responsibilities, but it might create enough dissatisfaction in people if they think they are being underpaid

and unappreciated that they will jump at the next opportunity to test thegrass-is-always-greener theory.

Any plan must be structured and provide specific targets for eachindividual. It is not necessary to have a “one-size-fits-all” reward plan. In

fact, if you think about your employees, they all make distinctive contributions atvarious levels and should receive incentives commensurate with those results.

Each person’s incentive package must be tied directly to three elements:

. Company profits. Divisional or project success. Individual performance as defined by the aforementioned performance

metrics.

Ensure the plan has been challenged and tested so that it can be explainedand justified when driven by actual scenarios. Although you may be tempted tobreak down the reward into smaller increments, some of which could be grantedat monthly or quarterly intervals to gain more impact, this process can be cumbersome and create more tracking work for your accounting department. Infact, it could backfire if you were to pay interim bonuses and then find that anindividual’s performance falls off later in the year and he or she finishes “in thehole” at year-end. As an alternative, devise appropriate methods of nonmonetaryrecognition for your team members and grant those throughout the year, asopposed to just a once a year.

Rotational assignments If developing well-rounded managers and leaders in construction is a necessary

strategy to support the long-term growth of successful construction companies,then it is logical to implement a program consisting of rotational assignmentsdesigned to represent all facets of thebusiness. In addition, this process will serve to keep this next generationchallenged and motivated to apply its creative talents productively as itbuilds its own inventory of practicalmanagement skills. After identifyingthe individual capabilities and the gaps that might keep these employees fromexcelling at their jobs, create tailored development plans to provide the trainingand mentoring that will propel them quickly up the career ladder.

We must focus on management, leadership and business-oriented skills development that will prepare this group of future leaders to take on the heavyburden of providing inspired guidance and leadership for the construction

STRUCTUREDCOMPENSATION

ROTATIONALASSIGNMENTS


companies of the future. In addition to building the foundation of the rotationalassignments, provide an in-depth training curriculum consisting of core coursesdesigned to develop skills in several basic competencies.

Flexibility in work scheduling to enhance work-life balanceWhat is this work-life balance thing and why should I care about it? Once

again, the boomers provided a bad example of how to work day and night becausethey thought it was the only way to get ahead in the wicked world. Now herecomes a group of people who have the nerve to expect to go home to honor theircommitment to their families at night. Or maybe they will resist pulling up stakesand moving to work the oil patch in North Dakota where there is little social orcultural infrastructure to support their families. Where is their sense ofcommitment and sacrifice for thegood of the order?

Maybe this is an extreme example,but where do you draw the line? Howdo organizations and leaders changetheir behavior and culture in order to create an environment conducive to keepingand growing newer generations? It does not have to be the holistic playground ofsoftware developers in Silicon Valley, but managers must be cognizant of the realobjective, and that is to get the job done right. Just because the new -year-oldproject engineer is not at her desk at : a.m., when you show up, does not meanthat she has not figured out a more technologically efficient way to get that jobcost report done in half the time it takes you to grind it out.

WHAT DOES ALL OF THIS MEAN? Considering the expansive scope of these developmental needs to prepare

our next generation of leaders and managers, it is not realistic to implement all of them simultaneously. In order to reduce the effect on the organization, create a prioritized list and rank those initiatives that will generate the most immediateresults for people and ultimately will benefit your company overall.

Take it one step at a time. Some of these processes could conceivably belaunched on parallel tracks, depending on the resources required and who willneed to participate. Above all, do not be tempted to be carried away with yourown enthusiasm and risk alienating your loyal employees by launching too manychanges at once. The payoff will be worth the patience in the end. �

Ken Wilson is a director at FMI Corporation. He can be reached at 919.785.9238 or via email at

[email protected].

1 Urbain, C. (). Stand up to the coming skilled worker shortage. Contractor’s Tool Source, May/June , p. .

WORK-LIFEBALANCE

T here is more than one way to skin a cat. While it is hard

to doubt the veracity of this idiom, you may call into

question why someone would skin a cat in the first place.

Perhaps, before the domestication of our furry little friends, felines

provided commonplace table fare in the form of stew or other savory

dishes. Hence, the meal preparation would require the skinning of a cat,

for which there are many methods.

And when it comes to project delivery, there is more than one way to skin acat, such as:

• IPD (Lite) • CM At-Risk• Design-Build • Design-Bid-Build

Contractors do not have direct control over the delivery method used byowners. If there is a preexisting relationship with a customer, contractors mayhave a slight opportunity to advise, nudge and provide delivery options to theirclients. However, contractors can control which projects they select to competefor and in which delivery systems they participate. If a construction firm does not

By Tyler Pare

Project Delivery: An Eclectic Menu

If the menu of project deliverymethods has left you with a bit of heartburn, you are not alone.Digesting the challenges of project delivery is a difficult task.

48 � project delivery: an eclectic menu

have the luxury of blackballing prospective clients based on their preferred deliverymethod (which most do not), at the very least, it is important that it participatesin various project delivery methods in a manner that reduces risk and increases

reward opportunity. By understandingcommon pitfalls, contractors can better prepare to face the challengesinherent in project delivery, regardlessof method.

IPDThere is little doubt that the

future of construction project delivery revolves around increased collaboration by entities party to a particular project and contract.Integrated Project Delivery (IPD) isthe hallmark of information sharing,

design coordination, value engineering, cost savings and ultimate project success.However, true IPD has yet to establish itself as a commonplace delivery method.As the industry limps along the learning curve for this nascent delivery path,many firms question whether the downstream synergies and efficiencies justify the front-end investment.

Without question, IPD requires significant investment. Participating entitieshave to be vetted and qualified in order to establish the trust necessary to drivecollaboration. Processes have to be implemented to ensure accountability andincentivize a “project-first” mentality. Overhead must be allocated by all to provideresources that will adequately support the methodology. It is no wonder that thesentiment around the water cooler is that IPD is reserved for large, complex projects driven by highlysophisticated firms — i.e., the “bigleagues” of pre-construction servicesand project coordination.

APPETIZER: IPD LITE Whether IPD can be applied

to comparably smaller work in lesssophisticated markets remains to beseen. The challenges of today’s construction environment remain,nonetheless. More and more of thedesign onus is being placed on thecontractor. Much of the detail work in today’s plans and specifications isdrafted by contractors instead of architects and engineers. The centralpoint of design control has been

More and more of thedesign onus is beingplaced on the contractor.Much of the detail workin today’s plans andspecifications is draftedby contractors instead ofarchitects and engineers.


disaggregated. With design being formulated across multiple parties, increasedcommunication is vital. But, what if the project is not IPD, contractually? Onecould argue that it is just as, if not more, important for project managers to fosterand embrace collaboration in this scenario. With IPD, there exists mutual interestand motivations are aligned. In the absence of IPD, contractors are left up to theirown devices to put forth good faith efforts in coordinating design and, ultimately,construction. However, collaboration does not happen without trust. Therefore,building trust becomes the starting point for contractors who are seeking highervalue for clients and mutual rewards.

The key is design coordination. Contractors are already controlling a largeportion of the design input. However, the constructability of most, if not all, trade packages relies on the ability of those designs to come together in concert.Trades that depend on one another, especially the MEP packages, must have aheightened sense of responsibility to drive collaboration forward, regardless of thecontract structure. More and more, firms are leveraging technologies such as BIMand teleconferencing to make designintegration as efficient and cost effective as possible. But collaborationdoes not happen by accident andaccountability does not occur withoutstandard processes.

Leadership From many a pulpit, FMI

professionals have preached the tenetsof the “Three C’s” of project leadership— communication, cooperation andcollaboration (see Exhibit ). They aresequential, hierarchal orders of humaninteraction. Properly sown, the seeds of the communication sprout into mutualtrust on our projects, leading to the ability to cooperate. Effective communicationand strong cooperation allow teams to flourish in highly complex, volatile environments. A collaborative sense of “team” is necessary to deliver a quality-finished product, regardless of delivery method.

It is easy to talk the talk of the Three C’s model, but which member of the teamgoes first? That is, who extends the olive branch of trust? Quite simply, projectmanagers must be the first on the scene to drive collaboration. Their leadershipwill have a ripple effect throughout their respective organizations and inspire ateam-first mentality. Who knows? It may even rub off on the designers as well.

Accountability How do you hold people accountable if there are no financial repercussions?

Barring formal doctrine, contractors are left to muddle through project challengeson their own. If a team member decides to break rank and sacrifice project successfor individual gain, are there recourses available to the patriots?

Fortunately, if all or the majority of parties to the contract buy into the concept of collaboration and the notion that a rising tide floats all boats, very

Exhibit 1

Three C’s Pyramid

Collaboration

Cooperation

Communication


seldom does one rogue contractorattempt to crash the party. Call itsocial responsibility or moral guilt, but peer pressure is often more intimidating than contractual obligations. People want to do right by others when they feel that othershave their best interests in mind.

Pre-job PlanningThe best opportunity to set the

table for project expectations and goals is before mobilization. Pre-jobplanning is often achieved through aseries of kickoff meetings, where tactical approach and schedule coordination isdiscussed amongst participating contractors. However, seldom does the conversationreach the level required to build the trust necessary to collaborate effectively. Most will talk about the “what” that needs to be communicated, but rarely do the“how” and the “why” receive the attention deserved. Significant value results fromdiscussing communication channels and general expectations for collaboration. By addressing these matters up-front in the pre-job planning phase, contractorscan gain consensus long before communication becomes an issue downstream.

Setting GoalsGoal setting is extremely important. Having a destination to strive for makes

all the difference in the productivity of teams. However, goal setting can becomean exercise in futility if goals do not meet the following criteria:

• Specific • Measurable • Meaningful • Results-Oriented

“Do a great job, reduce costs and accelerate schedule” is not a specific goal.Goals can and should be unique to the project, and specific enough to drive tangible results. Additionally, goals must be measurable in order to maintain focusand urgency. If goals are only assessed at the end of the project, the ability to correct course and alter outcomes goes out the window. By tracking measurablegoals, project teams can ensure that they do not lose sight of the initially agreedupon objectives. Ultimately, achieving the goal is less important than having thegoal and striving for it. The mere presence of specific goals helps bring a new levelof accountability to the job. Like all things, the task of goal setting is conductedbest through collaboration. If all parties buy into the goals set forth, the likelihoodthat the collective will be motivated drastically increases.

SOUP OR SALAD: DESIGN-BUILD In truth, design-build is not remotely a novel concept. The method has been

used for thousands of years by master builders, who provide design and constructionservices under one shop. We doubt, however, that the master builders of the

Significant value results from discussing communication channelsand general expectationsfor collaboration.


Renaissance, for example, were subject to the same contractual risk exposures asare contemporary builders. Nonetheless, the modern interpretation of design-build has brought tremendous value and opportunity to the construction industry.

Intended to be a panacea for all owner stress and frustration, design-buildoffers a single point of contact and ultimate risk deferral. Theoretically, by reducingthe number of contractual parties involved in the delivery process, the overallmarkup on costs of services is reduced. Additionally, design-build absolves theowner of arbitration responsibilities when designers and contractors disagree.

Arguably, the greatest advantage of design-build is the ability to accelerateproject schedules by overlapping the design and construction phases. The so-calledfast-tracking of projects enables construction activities to commencebefore the complete design is finalized.In modern economies, when time-to-market is a pivotal fundamental of business pro forma, the ability toaccelerate project schedules is of greatvalue to construction purchasers.

Detractors of design-build would argue that the method eliminates the checks and balances system inherent in traditional design-bid-build deliveries. With design andconstruction under one roof, there is potential for contracting firms tomake decisions in the interest of project budget and schedule that inadvertently undermine the quality of the finished product.

The loss of owner involvement is also a risk related to design-build.Fast-tracking and value engineering can steer the project down a road not destined for the client’s ultimate wishes. It is extremely important that contractorscontinuously engage the customer throughout the design-build process. The master builder may have the best of intentions, but inviting owner participationand creating buy-in is essential for ultimate client satisfaction.

CM AT-RISK Guaranteed Max Price (GMP) contracts have created many win-win situations

for owners and contractors. However, the jury is still out on the overall cost savingsfor owners. CM At-Risk relies on the premise that the designer, in consultationwith the CM firm, has sufficient incentive to mitigate construction cost. Whilethe CM At-Risk typically raises the overarching value delivered to owners, thefinal price tag may be greater as well.

The final gross margin realized by CM At-Risk firms is invariably greater than the contract fee for which competing firms are partially measured during theselection process. Construction managers achieve mark-up on direct costs buried

In modern economies,when time-to-marketis a pivotal fundamentalof business pro forma,the ability to accelerateproject schedules is of great value to construction purchasers.


in the overall project budget. While such pricing strategies are more the rule thanthe exception, contractors should educate the customer about their profitabilitymodels. Transparency in construction costs drives trust between the owner and the contractor, increasing the likelihood of repeat business.

If the contract stipulates shared savings between the owner and the contractor, transparency and trust are evermore paramount. Because these contracts can become quite lucrative for the CM, there is potential for the ownerto feel sandbagged by the construction manager. Therefore, it is important not to give the impression that the contractor is reaping windfall benefits by virtue of the owner’s “savings.”

MAIN COURSE: DESIGN-BID-BUILD Commonly referred to as “plan and spec,” design-bid-build is the most

ubiquitous form of project delivery. Ironically, it is arguably the most frustratingand inefficient delivery system. Design-bid-build inherently invites conflict,redundancy and inefficiency. The details of these challenges are explored below:

The DesignContractors largely are left out of the design conversation on the front-end.

All clarifications and adjustments are made ad hoc, after the bid solicitation.Instead of collaborating with the design team from the start to improve the overallquality of design, contractors become the quality control agent for the designer(s).A contractor’s natural inclination is to comb through the bid documents in searchof mistakes, and rightfully so. Any stones left unturned before the submittal of the bid represent potential risks andmargin erosion for the contractor inthe construction phase.

Unfortunately, many contractorshave an innate aversion to designers,and vice versa. The communicationand triage of design deficiencies often become contests of wit and construction know-how. Instead ofcollaboration to resolve issues, the two parties jockey for position to look good in front of the owner. All the while, the best interest of theowner has been abandoned.

It is important for both parties toput aside engineering hubris and strive to resolve issues amicably. Contractors shouldrefrain from playing “gotcha” with designers, realizing that no set of plans is everperfect. The best way to build trust between the two parties is to overcommunicatefrom day one. By fostering a strong working relationship from the start, contractorsand designers can set the stage for downstream success on the project.

The BidConstructability flaws in the design lead to an extremely cumbersome RFI

Unfortunately, many contractors havean innate aversion todesigners, and vice versa.


process. There are multiple dilemmas facing contractors that discover design deficiencies in the bidding process:

• If you submit an RFI, all competitive parties receive a response to designdeficiencies to which they may otherwise be oblivious.

• If you price in the potential extra work to safeguard against future contractchanges, your bid may be noncompetitive.

• If you provide pricing for alternates, the selection process may not allow for those options to be considered.

These frustrations are not news to contractors that play in the “plan and spec”space. One could argue that contractors have an ethical obligation to announcethe findings of deficiencies through the RFI process. Regardless, the larger risk for contractors lies in potentially overlooking design deficiencies and suffering significant ramifications after award.

Therefore, it is extremely important for contractors to have a purposeful, standardized bid review process. Every estimator goes through the process ofreviewing bid documents to make sure that everything gets “picked-up” in theestimate. However, in a company that employs five estimators, there may be sevendifferent ways of reviewing the bid package. Every contractor should establish acompanywide, standard process for reviewing bids. Many firms make use ofchecklists to ensure that all potential areas of exposure are addressed before the bid is stamped on bid day.

Adverse Selection The majority of contractor selection processes used in design-bid-build rely

heavily on the lowest (qualified) price. “Qualified” is in parenthesis because mostof our readers know that price ultimately reigns supreme in most design-bid-buildarenas. The resulting challenge occurs when a minimum standard of due diligenceis not performed by the owner entity, and the lowest price is accepted at facevalue. The caveat to such a cavalier approach to contract procurement is that low price does not equal a grand bargain. Potential ramifications range from lowquality product to contractor failure, claims and mechanics liens.

Many construction firms bemoan the administrative hoops they have to jump through to prequalify for bid opportunities. However, contractors shouldwant to work for owners that have highly sophisticated, comprehensive selectionprocesses. This ultimately protects the most qualified contractor with the bestnumber from being scuttled on bid day by a gunslinger that clearly misunderstoodthe scope, has ulterior motives or is plain crazy. Most would agree that bid daylosses to irrational bidders sting more than closely contended losses to respected,legitimate competitors.

Go/No-Go The quality of the selection process is just one factor that contractors should

explore when examining design-bid-build opportunities. Ultimately, contractorsshould have a detailed, systematic approach to defining the opportunities bestsuited for their competencies, market position and strategic direction. Factors to


be considered in a go/no-go process include, but are not limited, to:

• Manpower• Bonding capacity• Strategic fit• Likely competitors• Owner sophistication and experience• Geography• Etc.

By fine-tuning the above criteria, contractors can ensure that the projects thatleak out the other side of the go/no-go sieve are realistic opportunities for whichthey have strong ability to win and certainty to perform.

THE BUILD Continuous Planning

For design-bid-build projects, planning is inherently reactive. Until notice ofaward is issued, contractors have little to gain by planning for a project that maynever come to fruition for their firm. Once the project is awarded, the projectintelligence gathered by estimators has to be translated to and absorbed by theoperations team. The conveyance of project information from bidders to executerstakes many forms.

Due to the velocity of bidding cycles and organizational capacity, the “handoff” of information is often just that, a handoff. A binder or folder of sortsis hurled across the organization chart from estimating to operations, with littlediscussion or collaboration. In the defense of estimators, project award can occurmonths after the compilation of an estimate, long after the bid team has movedon to shinier objects. The details of a project that was bid last quarter begin tofade in memory and the bid book is the only artifact that remains of countlessestimating hours invested. Best-of-class contractors work diligently to avoid this tendency by forcing their people to engage in purposeful dialogue about the idiosyncrasies of the project. By obligating estimators to collaborate with operations, contractors can reduce the redundancy in efforts aimed to discoverproject challenges. The transfer of information from estimating to operations isjust the first step in properly planning a job.

In the weeks that follow the project handoff, contractors continue their efforts to hone project intelligence. No matter the risk involved in the project,contractors should always conduct a jobsite visit. This allows for a thorough assessment of existing conditions and the discovery of previously unforeseen challenges. During the jobsite visit, contractors can begin to formulate their sitelogistics plan and brainstorm how to attack the job.

Recasting BudgetsBids are compiled in a vacuum, based on limited information. In the wake

of award, more and more project details come to light. Additionally, operations hasa completely different worldview of constructability and feasibility. For instance,estimators lack a realistic understanding of the resources it takes to execute a


project properly. At the same time, if we let operations bid projects, we wouldnever win a job. As the game plan of project execution begins to materialize,assumptions change and realities are defined. The breakdown of how resources are allocated in execution is often radically different from the way in which estimators projected. Translation: an estimate is not a budget. If managing costs isa fundamental measuring stick for success, costs should be recast into a sequenceand format that makes sense in the minds of the operations team. By not recastingthe budget, the field is held to unmanageable standards. When field operations feelas if it was set up to fail from the point of mobilization, the motivation to achievethe budget is extremely damaged. Conversely, if operations has the opportunity tomassage the numbers into a breakdown that is logical for execution, field buy-inand enthusiasm to stay within budget becomes more feasible.

Managing Change Orders No plan survives contact with the enemy. In the context of project execution,

the enemy is the unforeseen challenges and changing conditions that materializethroughout the life of a project. Significant changes to assumptions may warrant a change to the original contract. More so than any other delivery method,design-bid-build relies heavily on the mechanism of change orders to facilitate jobprogress and maintain schedule integrity. If left unmanaged, a large number ofchange orders can quickly become a significant risk to the gross margin. Projectmanagers must take great strides to ensure that outstanding change orders aretracked, monitored and managed. Accounting for the cumulative impact ofchange orders can be difficult. An endless stream of paperwork can develop intolibrary-sized volumes of documentation that are daunting to review on a regularbasis. The best way to manage change orders is to track outstanding change orderdollars on an easy-to-read spreadsheet or project dashboard. This allows projectmanagers to identify long outstanding items and take action before bargainingleverage is eroded at the end of the project.

DESSERTIf the menu of project delivery methods has left you with a bit of heartburn,

you are not alone. Digesting the challenges of project delivery is a difficult task.Regardless of the delivery method in which contractors engage, it is prudent towork within the confines of that structure to maximize returns and decrease risks.This requires the identification of all sources of project risk and margin erosion.

The advice outlined in this article may or may not be applicable to every situation, but hopefully, we have shed some light on the pros and cons, opportunities and pitfalls of different delivery options. There is no one-size-fits-allsolution to the navigation of project delivery. It will ultimately be up to the participating entities and respective management teams as to how they decide toplay the game. After all, there is more than one way to skin a cat. �

Tyler Pare is a consultant with FMI Corporation. He can be reached at 813.636.1266 or via email at

[email protected].

E ach new decade seems to bring several significant

changes in technology and the way in which construction

uses it. The 1980s saw departmental solutions, stand-alone

PCs and eventually networks. The 1990s saw Windows, better

networks and more user-friendly applications; the Web followed.

The 2000s was “all net,” with a focus on enterprise solutions,

collaborations and specialized solutions for each functional area.

Now we are in the 2010s, and the focus appears to be on improved

point solutions,1 interoperability and mobile technology.

The lines are not as well-defined as these decades and categories might suggest, but it is worth noting that technology and solutions evolve over time.Businesses should not be so fixed in one decade’s technology and bound to legacysolutions that they find themselves behind their peers and competitors, limitingtheir future or even survival.

It is important when considering your company’s IT strategy to understandthe direction of technology and how it is being deployed in the construction

By Christian Burger

A company’s IT strategy must be in alignment with its businessstrategy, supporting operational,financial and/or resource initiatives.

Technology andSuccessful Constructionand Design Firms

58 � technology and successful construction and design firms

industry. In other industries, some technologies are applied more quickly or perhaps not at all. Occasionally, that, too, is instructive. Most importantly, what are your competitors, peers and customers doing and looking for in terms of technology? Consider all these shifts; then plan, select and implement according

to what is best for your company andyour markets. And remember that thelast step, which sounds easy, is actuallythe one that determines value andreturn on your IT investment. Anaverage system chosen and very wellimplemented is more likely to providegood return than the best of systemspoorly implemented.

The following are specific ITtrends to be considered as you developyour company’s strategy. Some of thetrends are functional or applications-oriented, like building informationmodeling (BIM), enterprise resourceplanning (ERP) and mobile (tablets,smartphones and such), and affect the conventional application architectureand solution choices. Others are

more technical (e.g., Cloud, agcXML) and affect interoperability and deploymentoptions. Still others are more market-oriented (e.g., PPP/IPD) and could changethe nature of how different collaborative systems work together. These trends andtheir various descriptions are offered for your own awareness as you contemplate,plan and execute your IT strategy.

BIM AND INTEGRATED DESIGN: WHERE IS THE MODEL HEADING FROM THERE?To suggest that BIM is affecting construction and technology is almost too

obvious. Clearly, the influence is present on the design function and close-in functions, like clash detection, schedule visualization, conceptual estimating andtakeoff. However, what is equally interesting, but maybe more subtle, is an emerging data model from the use of BIM tools. As the all-data model movesfrom a design and marketing function to an operational tool, the data becomesricher, more accurate and ultimately far more valuable downstream.

Today a contractor can perform takeoff functions within the model, perform scheduling tasks and coordinate RFIs. Soon submittals and procurementwill be performed within or in conjunction with the BIM model. The emergenceof this larger and richer data model is bound to influence the way in which downstream applications, like ERP and facilities management (FM), are developedand deployed.

Companies will not be required to input as much data into base systems likeERP nor require as much function if those same functions are performed outsideof ERP and within BIM tools using model data. The data will only need to betransformed or migrated over to the next system in line.

An average system chosen and very wellimplemented is morelikely to provide good return than thebest of systems poorlyimplemented.


Currently, for example, estimating software develops a bill-of-materials(BOM) which may be transferred to a bid-solicitation software program in orderto receive quotes. That same BOM is transferred to the purchasing application,which is commonly hosted within the ERP (accounting) suite. The purchasingtransaction usually is completed with receiving and invoice processing. Now suppose someone develops a BIM solution, which uses data from the model toperform the bid request and purchasing function. This would leave the ERP solution to pick up the commitment transaction and post it to the appropriate job and vendor. This also leaves the major material purchases within the BIMmodel and transferrable to the owner’s facility maintenance system once the project is complete. Documents (e.g., warranty documentation, O&M manuals,etc.) associated with the items purchased as well as to the item records, but storedin enterprise content management (ECM), can be transferred too.

This evolution is just beginning, but the signs seem clear. The BIM modelwill have the data first, either before or during preconstruction and certainly before the ERP systems. Unless ERPsystem developers build cooperativesolutions, they could force others inthe BIM application area to build outcompetitive functions and therebyencroach on the traditional footprintof the ERP technology producers.

PRECONSTRUCTIONThe common preconstruction

functions, such as takeoff, estimating,bid solicitation, prequalification andscheduling, are changing rapidlybecause of specialized tools for thosefunctions and the emergence of BIMtools and BIM data. Scheduling, estimating, buy-out and submittal processing historically have been performed by stand-alone tools, resulting in stand-alone data sets. This data wasre-entered when necessary into the next system in line. BIM solutions are eithercreating their own capability in these areas or working with stand-alone solutionsto integrate and move data back and forth.

For example, today many contractors move drawings generated by the model to an electronic screen-based takeoff solution, only to have those quantitiesmoved to an estimating system and finally on to a budget in job cost when the job is awarded.

Further, plan-room solutions are developing both bid-solicitation capabilitiesand contractor prequalification. They are either building it themselves or buyingsolutions that accomplish the function. This is creating application overlap, whichis a consistent theme in this article. This ultimately forces contractors to decidewhich applications they want to work in for a specific function, as they frequentlyare confronted with a choice.


ERPThe landscape ahead for some ERP solutions is treacherous. If software

developers are not already prepared to work with BIM data and in a more interoperable manner with project management solutions, ERP software developers’ futures are likely bleak. Point solutions and the emergence of the BIMmodel are changing the way ERP applications are going to market, designingapplications and anticipating the next generation of software. As described earlier,the BIM model is hijacking some of the data and function normally handled bythe ERP solution. ERP solutions were developed with a double-entry design paradigm that ensures integrity and auditability, necessary for the accountingoffice. Operational functions that required less structure were built with the samelevel of stringency, which led to the comment, “It feels like a PM application builtby an accounting software vendor.” This was the gap the project managementsoftware vendors were looking for as they developed more functional and intuitive free-standing applications.

Separating project management and accounting systems failed in the sfor a number of reasons, which have since been overcome in the early s.Collaboration has become more important as owners and architects demand a

solution they can work on with thegeneral contractor. More owners aredemanding the contractor use theirproject management system of choice.Internet connectivity at jobsites has improved to the point where contractors are willing to choose aweb-based platform versus one thatcan run disconnected from the site.The functionality of these stand-aloneproject management solutions hasimproved and broadened, makingthem more appealing to operationspersonnel.

Truly cloud-based ERP solutionshave not caught on yet, but may notbe far away. Today many solutions are being marketed under a “cloud”moniker but are in fact simply a software as a service (SaaS) solution, which is software hosted outside of a contractor’s office but provided

through an Internet connection. Until the benefits of a truly cloud-based approachare made evident to the construction marketplace, an application service provider(ASP), hosted or SaaS strategy may prove sufficiently compelling to get the software and hardware out of the contractor’s office.

The ERP software developers are facing confrontation and competition onmany fronts. The battles they choose will determine their fate. As a contractor, thesolutions you choose will certainly affect your organization’s success with technology.


COLLABORATIONCollaboration was popular in the early s when Internet applications

were at an early peak. However, collaborative solutions for project managementmet with resistance due to lack of architect participation and concerns over duplicate entry. New solutions have entered the market to have another run andare showing promise. Interoperabilitywill also have a positive impact on this trend (see Interoperability below).Collaboration can be provided in multiple ways rather than the singleweb-based platform of the early s.Integration technology has improved,allowing for transactions to movebetween one solution and another.Others are using a workflow approachand email as a means of moving transactions from one solution toanother. This is not the final solution,but is more easily established thanexpensive point-to-point integrationexercises.

Collaborative solutions are also bringing other needed platform functions, such as dashboards, alertsand workflow. These could become theplatform for operations personnel. Anddata from other systems will feed necessary tables within the project managementor collaborative platform to provide the project manager access to the tools anddata needed to monitor and maintain the project data. This can include cost data,project administration details and invoices for approval. In the years since theexperiment began, subcontractors and architects have come a long way in terms ofwillingness and ability to participate in these collaborative solutions. Finally, as theBIM solution providers move toward a more collaborative platform for workingwith BIM data, they will come into direct contact with the project managementcollaboration systems. These two solutions will benefit from having a more transparent integration model, sharing documents and records.

PERSONNELMost personnel in construction organizations are now younger than years

old and have grown up with technology and probably learned some constructionfunctions (e.g., scheduling, estimating) directly on a computer in school. Thedemands from personnel for state-of-the-art tools, along with a need for people to“get on board,” are driving adoption among the current generation of users. Thismore advanced user community presents a double-edged sword. In addition tobeing more compliant and easier to train, they are also more risk-tolerant andexperimental. They will download applications, share data and “play” with systemsmore readily. They are also members of the group that spawned the term “BYOD”

The demands from personnel for state-of-the-art tools, along witha need for people to“get on board,” are driving adoption amongthe current generationof users.


for Bring Your Own Device … to work. This means IT has more devices to support and needs better controls in place to protect the enterprise environment.

And this movement within the organization has spawned an important newposition, the super-user. Super-users are effectively the first line of defense for theuser of a given software solution or application. Someone within the companyfamiliar with the project management solution the company uses could beassigned to be the super-user, thereby being responsible for training new users,keeping documentation current and being the “first responder” to support calls

from operations. This opportunity toleverage personnel from operationswas not feasible in years past.

CLOUD DEPLOYMENTCloud computing is the rage

these days, but the term is often misapplied and misunderstood. Therewill come a time when constructionneeds the cloud, but for the timebeing, ASP, SaaS and remote hostingachieve much of the desired results.Cloud computing seems to have morecachet than prior versions such as ASP and SaaS.

The objective of these differentdeployment models was to get thehardware and software out of the customer’s office and onto a serverhoused in a well-managed data center.This was achieved when applicationproviders teamed with data centers to provide co-location capabilities.This meant the contractor owned thehardware and software but allowed itto reside at a professional data centerand be maintained by its staff. Thiswas followed by ASP and SaaS, whichallowed the software to be provided to customers based on a different

licensing model. Instead of licensing the software in perpetuity for an upfront cost,the developers were willing to “rent” the software out and include the hardware,services and storage in the price. This had the effect of lowering the upfront cost ofthe software and allowing software costs to scale up and down as the organization’sneeds changed. Having software priced on use is appealing, as is moving the hardware and software maintenance out to a third-party service, particularly whenyou have complex software involved.

Contractors should move cautiously into these new deployment models andunderstand the license agreements. It is another trend here to stay, but also one

Someone within thecompany familiar withthe project managementsolution the companyuses could be assignedto be the super-user,thereby being responsible for trainingnew users, keeping documentation currentand being the “firstresponder” to supportcalls from operations.


that is early and being fine-tuned bythe software developers. Knowingwhere your data and backup facility(in case of a disaster) are and how you can integrate with other systemswhich reside elsewhere are important.

MOBILEAs with much good

technology, mobile field applicationswere introduced ahead of their time. Management’s desire to havesolutions in the field for foremen andsuperintendents has been around fornearly years. Attempts were madewith early devices, which were veryspecialized and with software writtenspecifically for them. Today it is common to have an application running on an iPad or tablet that can collect time cards, units of production and equipment hours. Some of these devices canoperate stand-alone without a persistent Internet connection, while others dorequire a constant connection.

More applications are being developed for field operations every day, andsome application developers, who have server-based programs, are converting specific functions (e.g., foreman daily reports) for use on a mobile platform. In addition to importing time sheets into the payroll application, these deviceswill send copies of time sheets to the ECM application for permanent storage and reproduction when needed for an owner audit or billing backup. Tablets andiPads also are being used to access drawings and capture photographs and video.Companies are becoming wise, though, in their deployment of mobile solutions,finding the applications first for functions and then settling on the device.

ENTERPRISE CONTENT MANAGEMENTECM is one of the best-kept secrets in construction, unfortunately.

Enterprise content management has long served other record-intensive industries,but was only lightly deployed in construction. Contractors seemed happy enoughto get an invoice routing and storing function implemented. Early solutions to the industry were helpful with invoices but were misdeployed for many otherimportant functions, like the handling of human resource records, project management documents, photographs, email and other important “content” common to a contractor’s business.

Interestingly, the vertical application providers, those working to bring ECMto construction, were initially focused on one of the big problems, invoice routing.Once that was solved, new workflows and document storage uses were next. SomeERP software applications are now offering an integrated document managementfunction with some workflow capability; but the long-term storage and specializedrequirements of ECM seem to require a more unique application and one that

Companies are becoming wise, though,in their deployment ofmobile solutions, findingthe applications first for functions and thensettling on the device.


operates enterprisewide, rather than simply within a single application. More contemporary software products seem to be developed with this in mind, associating links with records stored elsewhere, rather than with the files. Thisallows the permanent records to be accessed from either within the originatingapplications or the ECM system.

The ability to access all records that pertain to a single project, sub or employee quickly, easily and accurately is worth a lot. Today’s discovery requestsare expensive when you do not have good record management policies documentedand supported by systems software. If you look around and find you have documents and records within shared drives, cloud solutions, locallaptops, email, file folders and bankerboxes, you are likely a candidate forECM technology.

INTEROPERABILITYFor some time now, there

has been a significant demand for systems to share data easily from oneapplication to another, both inside a single company and between companies. There are several industry-wide IT initiatives underway to standardize data design, thereby makingthe exchange of data (interoperability)easier. This will make data sharing across platforms and between companies far simpler and less costly for the contractor and vendor. Others are converting various common transactions or data sets into a standard version for industry use. This will allow every software developer who produces or “consumes” thatparticular record (e.g., RFI, submittal, time card) to depend on its data elementsand thereby be able to import that transaction more easily. Today many of those interfaces have to be manually developed and maintained by one or moredevelopers or someone who designs special “middle-ware” software that acts as anexchange. ACORD, agcXML and XBRL are a few key examples of public-privateinitiatives that are currently underway to standardize various data sets or transactional models. They are described in detail on the Internet for those who want specifics.

HOW TO PLAN FOR THE FUTUREFirst, it is never a good idea to pursue technology for technology’s sake. This

can be expensive and fraught with risk. It is tempting when these trends are readand seem right simply to pursue some solution within an appropriate category.But in fact, these trends, as published, are meant to direct strategy, not initiate apurchase of one thing or another.

A company’s IT strategy must be in alignment with its business strategy, supporting operational, financial and/or resource initiatives. For example, if acompany is labor-intensive, solutions that support development of personnel,

It is never a good idea to pursue technology for technology’s sake. This can be expensiveand fraught with risk.


safety, mobile access to field solutionsand productivity management seemnatural. Also, the pace with which you move is very important. It isunlikely you can or should race tocatch up or move quickly automatingany one area of the company. Rather,it would be prudent to plan for athree- to four-year rollout and upgradeof current systems. Within this period,if well planned, a company can moveto current technologies, improve theuse of solutions already in place, trainpersonnel on better use and integrate solutions new or in place. This is a sustainablepace the organization can handle and the IT department can support. It is unlikely decisions made within this three-year window will become outdated soonunless one was to disregard the markers provided in the article.

CONCLUSIONThe above-mentioned trends will mean different things to different people.

For some it could be a wake-up call to catch up and remain just behind the curve, rather than falling behind again within a few years. For others, there maybe an indicator here of a strategy that should be adjusted slightly or a path thatshould be continued as it is already in alignment with the prevailing winds. Ineither case, there is no single time frame for these trends. They are all currentlyhappening in varying degrees and will affect your business, depending on the type of contactor you are, the type of customers you serve, and other external andinternal considerations. �

Christian Burger is president of Burger Consulting Group. He can be reached at 312.651.4150.

1 Point Solutions are applications that are far narrower in scope and function than traditional programs, such as accounting,

estimating or even project management. They typically do one function well, better than any other does.

I n 1963 Ferruccio Lamborghini embarked upon the quest of

creating the ultimate luxury sports car and surpassing its

ultimate rival — the Ferrari. Almost 50 years later, Lamborghini

continues to create handcrafted machines of raw power as iconic as

the raging bull emblem adorning the hoods of its vehicles.

The Countach, the Diablo, the Gallardo and the Murcielago represent a family of cars that embodies the traits of some of the world’s most exquisite art, all while pushing the limits of conventional automobile engineering. The latestrelease was named the Aventador. This model featured a V-, hp engineenabling the car to go - mph in . seconds. The staggering base price tag of, USD paled in comparison to a limited edition release of the Aventador(one of one) that topped the auction at more than million.

There are few frills in any Lamborghini model in that it is designed for one role — performance. The airfoil design and hand-built engine have beenengineered and synchronized to enhance the vehicle’s speed, agility and power.The Aventador as a machine has few rivals. The greatest enemy to any sports caris the surface on which it runs. The top speed of mph assumes optimal conditions. Now consider an old, unpaved, country road complete with potholes,ruts and occasional sandy patches. With the playing field “leveled,” the Aventador’sperformance is equalized to that of a midsized sedan, minivan or a utility vehicle,albeit at a slightly higher cost.

By Gregg Schoppman

The Lamborghini and the Country Road

Best-of-class firms of today recognize that high performancerelies on not only the vehicle but also the environment in which it operates.

68 � the lamborghini and the country road

The construction industry today has the tool capability of the Lamborghini, but many firms lack the appropriate infrastructure to drive performance commensurate with their contemporaries. Project management exists as the main framework, guiding the smooth delivery of today’s constructionprojects. Collaboration, on the other hand, is the engine that enables smoothercommunication and coordination across multiple platforms, leveraging the latest technology. Unfortunately, the lines of project management and project collaboration have become blurred and convoluted. As technology evolves at anexponential rate, firm management infrastructure fails to maintain lockstep. Worse yet, leaders believe that collaboration alone without modification of a firm’s management practices will enable higher performance.

THE ENGINE AND THE ROAD: WHERE MANAGEMENT MEETS COLLABORATION

Whether a best-of-class firm has million or billion in revenue, it has a set of tools that enable higher performance. Best practices are not defined by thetools of one individual, but the amalgamation of tools and processes created bythe entire organization with one goal — enable superior project performance.While the framework is easy to illustrate, creating a high-performing organizationis limited by the frailty of human behavior. Companies often seek the “one trueway” of management, but wrestle to overcome individualistic behavior. For example, it is not uncommon to witness a project manager of an average-size contracting firm create his/her set of forms and logs, suited not only to their tastesand proclivities but also to those of their customers and projects. Now consider afirm with project managers with separate ways of “managing.” Considerthen the number of permutations introduced when these managers interact withtheir field manager counterparts. While one set of superior project managementtools may exist, the firm drowns in inefficiency. It is important to note that best practices are not to be confused for the results they achieve. For instance, manyfirms will deem a best practice anything that achieves high profitability. A true set of project management best practices is defined by consistency, organizationadoption and profitability. The main tenets of high-performing organizations andtheir applicable management dogma are as follows:

• Management processes must be applied and improved continuously.Examine management processes to ensure they are relevant to today’s business. As clients, markets and delivery methods change, so should the processes.

• Measurement is necessary to change behavior and validate results.Once the processes are established and employees are trained, measure compliance.

• Management tools must be examined, sharpened and retooled as the business strategy dictates.In the same vein as the processes, the tools must be evaluated for relevance,much like applications in smart technology, checklists, logs, planning tools, etc.,should be honed and recalibrated accordingly.

• Leadership must identify and implement process improvements continuously.Leadership’s role is to encourage the use of the firm’s practices and the consistentrefinements to them.


• Training is required to give associates the skills needed to use the management processes. Best practices become the core curriculum for training and are introduced in the onboarding process. This reinforces the right way of doing things in the firm.

Three factors have largely limited the role of technology in project management.

• The industry’s slow adoption rate of said technology• High initial expenses and maintenance costs of the technology• A reluctance to invest in technology, that, when improperly integrated,

yields a low return on investment

On the continuum of technology adoption, only a minority of companieswould classify themselves as early embracers. However, technology change for the sake of change is not innovation. It is always important to differentiatebetween true “game-changing” technology and technology investment fumblesthat serve only to distract the firm’s practitioners. Innovation implies change forthe good. Secondly, while hard investment dollars of new technology and the cost of change have largely become less of an issue, stigmas abound about the true return on investments. Lastly, one of the tragic errors in implementingappropriate technological solutions lie in the firm’s belief that the tool will be anappropriate stopgap measure for poor management. Enter the Lamborghini onthe country road.

Collaboration tools have evolved at lightning speed. With communicationbarriers limited merely by bandwidth, firms have the ability to communicate at alllevels within an organization and with all stakeholders of a project. Additionally,firms with both internal and external stakeholders have the ability to transmit critical data as well as apply appropriate ownership rights. Put another way, a contractor can share appropriate information with its management team but stillprovide data to its trade contractor team without compromising itself or sharingconfidential business information. Consider Exhibit .

The concept of Exhibit is simply to provide a summary of some of the elements that true collaboration can achieve. In some cases, true collaborationmay be limited to the actual delivery system. For example, a lump-sum, hard-bidevaluation process may offer a less collaborative environment, while a true design-build or integrated project delivery model might facilitate the greatest collaborationat all levels, from designer to trade contractor. Consider the benefit of a tool that

Exhibit 1

Collaboration Throughout the Construction Life Cycle

Pre-construction• Interim Budgetary

Review• Conflict Resolution• Value Engineering

Coordination• Clash Detection• Life-cycle Analyses• Procurement

Construction• Pre-construction

Planning• Logistics Coordination• Team Communication• Estimated/Actual Cost

Analyses

Operation/Management• Service and

Maintenance• Alteration Feasibility• Investment Tracking


provides streamlined coordination during the design phase as well as allowing anend user to conduct virtual feasibility studies regarding a potential interior renovation.While high-performance project management and truly boundless project collaboration are different concepts, the synergy created by a well-orchestratedproject management delivery system and a collaborative vehicle driving proactivecommunication creates the perfect marriage — Innovative Building (see Exhibit ).

The conundrum lies in differentiating the two concepts and understandingthat one relies symbiotically on the other, much like the Aventador relies on thesmooth test track. No one expects perfect project conditions, but poor performanceis often masked and disguised. For instance, a smooth test track does not intimateperfect weather conditions. However, it is easy to visualize how the converse ofthis argument — a rough, country road — is further exacerbated by inclementweather. The same could be true for weak project management. The items inExhibit below are examples of “management excuses” and the corollary root cause.

It is important to note that there is merit to certain excuses. For example,many contractors would agree that the quality of design documents is on thedecline, particularly on projects that are not design-build or design-assist. In theseinstances, it would be ill-informed to place most of the blame to the contractor ortrade partners for a weak design. The only insinuation made is that if there is acertain “expectation” of weak engineering or poor design, wouldn’t the construction team have amanagement process inplace to develop effectiveproject strategies earlier?This would be the equivalent of driving onthe same stretch of roadevery day for a week,experiencing high trafficevery day and then blaming the car for getting into the traffic

Exhibit 2

The Intersection of Project Management and Project Collaboration

ProjectCollaboration

ProjectManagement

“InnovativeBuilding”

Exhibit 3

The Blame Game

Weak and incomplete design documents leading to project delays and poor productivity

Poor response time to “Requests for Information” or pertinent design questions

Weak trade contractor performance and productivity

Margin erosion late in the project due to “unforeseen conditions and circumstances”

Budget overruns in both direct and indirect costs

Poor planning on behalf of the project team

Weak document control; Lack of standardized approach; Poor planning; Weak upstream metrics

Poor trade coordination; Poor planning

Poor financial control; Poor planning; Weak leadership

Poor budget development; Poor planning; Ineffective/inept communication

Project Management “Excuse” Potential Root Cause


in the first place. Knowing that certain conditions exist allows management to alterits approach to the work or simply not to engage in the work at all. Additionally,general contractors and construction managers that leverage themselves with ahigh percentage of trade-performed scope should have processes and tools to cope with weaker-performing subcontractors. In short, these excuses only serve to perpetuate the project-victim mentality that is pervasive in so many firms in the world today.

What is more important, project management or project collaboration? Both are important, and the real question lies in the timing and approach to improving afirm’s management and collaborativeapproach — the chicken before the egg or the Aventador before the roadway? Arguably, a management infrastructure is the most important componentrelative to timing. The challenge lies in how firms approach the solution. Knowingthe road is flawed is not nearly as attractive as buying the new sports car. Projectmanagement infrastructure is essential to harness the capability of collaboration,but organizational leadership must make a strategic decision to implement bestpractices and avoid the distraction of the bright, shiny object.

FORM MEETS FUNCTION — THE INTERSECTION OF INNOVATIVE BUILDING With a codified set of consistent best practices, the collaboration engine

is optimized. Collaboration is more than software that manages the drawings orschedules. Collaboration is not just about access to job cost information. Thetransparency and access to information to make empowered decisions ultimatelyimproves decision-making in the end. Collaboration means working in cooperationto achieve results. This is a rather simple definition for such an all-encompassingprocess. With appropriately aligned behaviors, true collaboration can exist.Collaborative tools abound and, together with project management best practices,have the ability to revolutionize the construction industry.

Whether a database, the cloud or a software suite, true project collaborationshould push the envelope of conventional thinking. Consider the concept of augmented reality. Augmented reality (AR) is simply a “live feed” of the physicalworld, which has been altered with some element of computer graphic interface(i.e., sound, video, graphics, etc.). What sounds like a world of science fiction isactually as commonplace as Monday Night Football. Every football fan witnessesaugmented reality as he or she sits in front of the television and watches his or her team straddle the line of scrimmage (the red line), clawing for the imaginaryfirst down marker (the yellow) that is drawn across the field. Similar technology iscurrently in use on most smartphone/tablet applications. Whether it is playing an augmented reality board game with a child or looking through the lens of asmartphone at a landscape to find a great restaurant, interactivity in the real andvirtual world has become a viable business outlet.

Can the construction industry leverage technology enough to facilitate better


collaboration among designers, end-users and contractors? It is important toaddress the advantages of a true collaborative environment. What incentives doesan end-user have to participate in such an environment? The illustration inExhibit is an example of how a concept such as augmented reality would beapplied to the various stakeholders on a simple building project.

In this example, the rooftop air-handler units — designated by RTU-XXXX— receive a QR code as shown in the diagram. By using a tablet or smartphone,an end user or contractor can either scan the QR code or use the augmented realitythrough the device’s lens and quickly receive any important information for saidequipment. Life-cycle data, replacement parts, service history, “lessons learned”and productivity data are mere samples of the data that can be stored and accessedin this collaborative setting. Similar applications could be applied to switchgear,fire pumps, generators, elevators, main structural components and other functionalbuilding systems. Additionally, the virtual project is constructed simultaneously asthe “brick and mortar”version. Each stakeholderhas real-time access toinformation about theproject and providesinput at appropriate leveland clearance. A summaryof the collaborative datais listed in Exhibit ,detailing the appropriatedata utilization for each group.

Once again, it isimportant to note thattrue collaboration asillustrated above is alsopredicated on the delivery system utilized

Exhibit 4

Application of Augmented Reality

Contractor Applications• Productivity Data• Lessons Learned Data• Historical Costing

End-User Applications• Critical O&M Data• Loading Criteria• Life-cycle Data

Use of Tablets for Augmented RealityUse of Tablets for

Augmented Reality

g y

QR Code

Unit RTU-XXXX

Exhibit 5

Benefits of Collaboration

Clash Detection

Financial Dashboards

Document Control

AR Virtual Setting

Elimination of construction management expense

“Real-time data” of performance

Metrics on performance

Constructability validation

Elimination of costly project delays

Realization of true cost of construction


O&M interface, Life-cycle analysis, Future alterations

Elimination of lost overhead and general conditions

“Real-time data” of performance, AR/AP expedition


Lessons learned library, Performance history

Elimination of lost productivity due to delays

Monitoring of labor productivity, AR/AP expedition


Lessons learned library, Performance history

Collaborative Item Designer End User GC/CM Trade Contractor


by the team. Even in settings that are more restrictive — say design-bid-build versus design-build or integrated project delivery — business units can apply elements of a collaborative system to serve their own internal needs. For instance,if a contractor were to use an AR virtual setting, it would be able to provide fullyintegrated as-built documents while also creating a viable educational tool for its organization. Furthermore, the team could use this system to enhance the management of specific trade partners. For example, the illustration detailed inExhibit below provides a different perspective on collaboration.

The purpose of this diagram is to map the collaborative process from designthrough construction. The use of radio frequency identification, or RFID, isanother element that is being used throughout the industry. In this example, thetags are used to track a wide flange steel member from production at a foundry toits final resting place as a beam on the third floor. The data is then uploaded,which feeds the following items:

• Critical Path Schedule— Each uploaded element provides crew-size data,production data and sequencing.

• Building Information Model Documents— Similar to that of the CPMschedule, component parts can be uploaded with structural information,which can support future renovation/retrofit, building loading and possibleforensic data in the event of failure or disaster events.

• Document Control Software— Product data that supports operations and maintenance can be uploaded with critical attic stock and replacementpart features.

• Financial Dashboards— In addition to providing real-time productivity data,information gathered from RFIDs can be tied to labor statistics to drivetrue-earned-value reports real time and as historical unit cost information.

Exhibit 6

Application of RFID Techonolgy as a Collaborative Tool from Design to Construction

BIM Drawings Issued to the Fabricator and Erector for:• Spooling to Fabrication• Clash Detection• Future Coordination

Steel Member Tracked from Fabricator to Jobsite for:• Storage• Invoicing• Project Status Updates• Future Loading• Forensic Analysis

RFID Scanner at the Jobsite

canner Jobsite

RFID ScRFID Scat the J

RFID Tag Welded to the W-Section


Ultimately, the one detractor to a completely collaborative environment iscost. Assuming the controls and infrastructure are in place and coordinated appropriately, there is still the need for human interaction to track these parts,pieces and systems. It is difficult to argue the initial upfront expense of any collaborative tool. However, it would be myopic not to see the long-term value in such information. If one were simply to examine the benefit of calculating historical production costs or the value of a real-time teaching tool for a future generation of managers, it becomes apparent how collaboration can support a

best-of-class firm. Additionally, as the data is collected and used in the management of day-to-day operations,it is assumed that it will provide savings through higher productivityand efficiencies in the enhancements tothe firm’s project management model.

It is also important to note thatthe items capable of examination arealmost infinite. A firm entering thiscollaborative workspace would probably begin with the subjects ofhighest risk/return. For instance, amechanical contractor might choose to utilize some semblance of the toolsdescribed to track industrial piping orsimply follow the example featured in Figure concerning rooftop air

handlers. This data may assist its service department’s efforts in growing that component of its business. A general contractor that exclusively builds utilizingthe integrated project delivery methodology would undoubtedly seek to explorethe outer bounds of an AR setting to drive higher customer satisfaction. As withany investment, the level of project collaboration should be closely coordinated tothe firm’s overarching strategy. Much as the Lamborghini thrives on the openroad, it is hardly a utilitarian vehicle that benefits everyone.

THE TEST TRACK — IMPLEMENTING SUPERIOR PROJECT MANAGEMENT AND PROJECT COLLABORATION

The single greatest hurdle to overcoming the inertia most organizations experience is found in the human element. Challenging the status quo requiresunwavering resolve and persistence in the face of equally persistent contrarianorganizational behavior. It is easy to understand why organizations prefer implementing collaborative tools instead of attempting to change individualbehaviors. Implementing software and management best practices faces an uphillbattle when employees dig their heels in and spout the trite rhetoric of, “We’venever done it that way before,” or “I have my own system for handling that.”Furthermore, project management implementation requires an investment of time and energy that few firms feel they can dedicate, especially as businesses wrestle with project challenges and volatile futures. In the spirit of the Aventador

Challenging the statusquo requires unwaveringresolve and persistencein the face of equallypersistent contrarianorganizational behavior.


analogy, this would be similar to the driver failing to maintain the car becausepulling over to change the oil will take time away from the enjoyment of driving.To keep a machine of this magnitude operating efficiently and effectively, it must be serviced as needed. Construction organizations should be maintained inthe same light.

Exhibit briefly examines the steps of project management and project collaboration.

With a steady underpinning of project management processes, an organizationcan undertake the installation of collaborative tools. Both steps are similar in that they require a holistic and all-hands approach to implementing successfully.Both require a strong connection to the firm’s overarching strategy. Lastly, bothrequire a strong element of education and training to reinforce the main tenets.Many organizations utilize training to drive change in their business. However,without a codified body of knowledge in the firm, training alone has the ability to undermine and frustrate managers and field leaders. In the absence of process, a vacuum is created and there is ultimately a reversion back to individualisticbehaviors. This is not to say training is not important, but rather to say that thetiming of said training should come at the end to bolster the management practicesand collaborative tools more effectively.

More than years ago, Lamborghini strived to create a driving experienceunlike any other. Best-of-class firms of today recognize that high performancerelies on not only the vehicle but also the environment in which it operates. Inanother years, will firms manage and collaborate like the Aventador of its dayor like the Pinto of yesteryear? �

Gregg Schoppman is a principal with FMI Corporation. He can be reached at 813.636.1259 or via email at

[email protected].

Exhibit 7

Project Management and Project Collaboration Implementation

• Examine the current organizational capabilities• Identify the mission critical processes

necessary for a robust cadre of project and field managers

• Empower teams that will use the tools to create the new tools

• Apply upstream metrics to ensure accountability and compliance

• Train and reinforce these best practices• Continue to evaluate the effectiveness

annually to ensure processes are germane to the firm's current strategy

Project Management Project Collaboration

• Identify the strategic direction of the firm to determine the appropriate level and type of collaboration

• Empower teams and champions to implement specific collaborative tools, specifically in the areas of highest return to the firm

• Evaluate and examine the utilization and effectiveness of the collaborative tools to ensure they are working and driving value for the stakeholders

• Train and illustrate the benefits of the tools

It is a safe bet that no one in the construction industry who

experienced the decade of 2004-2013 would characterize

it as stable or consistent. To the contrary, an apt one-word

description might be turbulent: five years of explosive growth

followed immediately by a gut-wrenchingly steep downturn. Its effects

still linger across the industry. Hundreds of thousands of workers

have left the industry unlikely to return. The carnage of companies

that closed their doors or sold out is scattered across all industry

sectors. Average industry profit margins continue to be squeezed and

are well below those from pre-2007.

Consider former White House Chief of Staff Rahm Emanuel’s classic quote:“You never want a serious crisis to go to waste. And what I mean by that it’s anopportunity to do things that you think you could not do before.” Emanuelknew that in times of crisis people are looking for answers with an intensity thatdissipates (or perhaps disappears) during periods of great success. The Italian poet

By Michael Mangum and Paige Ferguson

Future Shock: When Good Is No LongerGood Enough

Leading for the future demands a leader that thinks strategicallyabout their business.

78 � future shock: when good is no longer good enough

Horace well understood this years earlier when he coined the famous phrasecarpe diem — or, seize the day. Such a day is indeed at hand!

Odds are that if you are reading this article you have survived this crisis. Yet some thrived in the midst of the chaos while others still hang on by a thread.Others were not so fortunate. Were these widely divergent outcomes more theresult of good fortune or good preparation? Can the lessons learned from this turbulent period inform today's leaders of potential paths that mitigate the downside risk of recurrence? Most importantly, can we take steps today that swing a business from crisis survivor to crisis thriver?

Let us begin with the premise that many of the tools leaders need in order to make that survivor-thriver shift are not in today's toolkit. This era of high volatility, unprecedented complexity, and constantly accelerating rate of changedemands a retooling.

By now, many are familiar with the Jim Collins-popularized notion that thegood is the enemy of the great. If this is true, then we should be on search-and-destroy missions to root out pockets of goodness in our organization. In the following pages, we will explore how you can effectively lead for the future, and

what tools along the way will help you capitalize on opportunities thatmay not be obvious at first glance.

LEADING INDICATORS VS. LAGGING INDICATORS

No one in their right mind pulls their car out of the driveway after dark without turning on theheadlights. Even on routes we have driven hundreds of times, allmotorists instinctively understand the importance of illuminating potential perils that lie in our path.Moreover, with increased velocity ofmovement, the need for some type of early warning system becomes even more imperative.

Yet in the business context, we rarely focus on systems and measurements that give notice to acompany of changes ahead. Incomestatements and balance sheets mostly

tell us where we have been and not where we are going. Cost-to-complete reportsare little better at warning us of an approaching disaster.

We recently spoke with a construction executive who told us that he receivedphone calls on the same day from two different clients that resulted in % of his backlog disappearing. Would it have been useful to have a notion or

days sooner that this was a distinct possibility in light of market conditions thatexisted at that time? You bet! Were there opportunities in the preceding weeks

Income statements and balance sheetsmostly tell us where we have been and notwhere we are going.Cost-to-completereports are little betterat warning us of anapproaching disaster.


and months when he could have detected what was barreling down the track?Again, an emphatic yes.

The risk in this particular instance closely correlated to certain commodityprice fluctuations and the interrelationship between the spot price of product “A”versus product “B.” A subsequent review of commodity price charts showed a trenddeveloped three to four months prior to the decision to terminate the contracts.

Similarly, the CEO of a major engineering company shared with us that his firm had been in search of an external metric to assist in benchmarking team performance. After much study and analysis — naturally, all are engineers — theydecided to utilize total U.S. housing starts and total construction spending as thetwo most salient measures.

How did this serve the business in - when U.S. housing startsdropped by . million units? Similarly, what of construction spending as it fellby over billion in the period from -? Were there different metricsthat could have predicted the roughly% drop in the housing sector?Alternatively, are there metrics thatwould have given a clearer warning?What would it have taken to set offalarms inside the boardroom beforethe tsunami hit?

In both instances, these executivesbased today’s business primarily onbenchmarks derived from lagging indicators. According to Merriam-Webster, the definition of a laggingindicator is a measure that more oftenthan not maintains an existent trendfor some time after an opposite trendemerges. Reliance upon indicators ofthis nature links a company’s future to historical outcomes, thus lesseningopportunities for rapid adjustment to changing circumstances. Conversely, leadingindicators, while typically more difficult to track, illuminate factors that we canpositively influence for superior results.

To better illustrate the concept of leading versus lagging indicators, let usexamine one of the top concerns in today’s construction industry: safety. By far,the most widely used safety metrics are the Occupational Safety and HealthAdministration Total Recordable Injury Rate (“TRIR”) and the ExperienceModification Rate (“EMR”). Both are clearly lagging indicators and of little valuein reducing or eliminating future injuries.

However, a new trend is emerging in safety best practices to embrace leadingindicators. A recent Construction Industry Institute report defines such indicatorsas “measures of attitudes, behaviors, practices, or conditions that influence construction safety performance.” Examples of leading indicators for safetyinclude near miss analysis, worker safe behavior observation, safety audit trackingand analysis, and pre-activity project hazard analysis process and compliance

STEPS TO UTILIZE LEAD INDICATORS:

• Review your current metrics and keyperformance indicators; assess thedegree to which each is predictive of future success (vs. a statement ofsuccess past).

• To the extent that you detect gaps in your early warning radar, identifyalternative indicators.

• Assess for metrics to track lead indicators and procedures to implement measurements.

• Determine the specific scoreboardthat will display leading measurementsand how you will communicatedaily/weekly/monthly scores.


measurement. Each are indeed morechallenging to measure yet stronglycorrelate to the likelihood of seriousand costly future accidents.

ADAPTABILITY VS. EFFICIENCYRunners are just crazy enough to

think that running marathons is fun.It takes a great deal of time and manymiles of running to train the body to be efficient enough to make the. miles from start to finish. Almostas important is knowing the racecourse: flat or hilly; gravel or paved;shaded or sun-drenched, etc. Runnersthoroughly break-in their shoes, drink the same liquids to hydrate, eat the samefoods at roughly the same time pre-race — you get the point. We control as muchas possible in order to be as efficient as possible. Adaptability falls somewherebetween secondary and irrelevant in the training pecking order.

Yet every world champion marathoner knows that it is his or her ability toadapt to ever-changing road conditions that separates the good from the trulygreat. The body is a fickle thing; one minute all is well and the next you are readyto step to the curb overcome by fatigue. Accurately reading those often conflicting

signals and discerning those true fromfalse requires a clear mind and rivetedattention. Failure to adapt appropriatelycan ruin a potentially great day.

Looking back to pre-crash and knowing what ultimatelytranspired, would you prefer to investin a company that was particularlyadaptable or particularly efficient?Naturally, a shrewd investor wouldlook for both characteristics but in turbulent times, adaptability is theultimate trump card.

Adaptability is different fromreacting on the fly. Whereas reactionaryis after-the-fact, adaptability takes into account the power to detect andrespond to change, no matter how

surprising or inconvenient. This is important because if you see change coming,yet sit on the “fix” until it is too late, obviously you do not model adaptability.

Blockbuster provides a great example to this end. As Netflix and Red Boxstarted their climb to extreme movie-rental disruption in and , respectively, Blockbuster watched and denied that this change was material innature. This blunder proved fatal as Blockbuster ultimately filed for bankruptcy

ADAPTABILITY:

STEPS TO PROACTIVITY

• Generate a list of the 10 factors withthe greatest potential to cause a majordisruption and/or adverse impact toyour organization.

• On a simple one to five scale, assess the degree to which your team has fully developed and clearlycommunicated contingency plans.

• Based on your analysis of the threeareas of greatest risk — the gapbetween potential consequence anddegree of preparedness — designappropriate contingency plans.


in . In Blockbuster’s case, increasing efficiency would not have been nearly asimportant as immediately adapting to the rapidly changing business environmentdictated by its new competitors.

Consider that engineering and construction companies spend millions of dollars each year measuring and enhancing productivity. Rarely are we aroundindustry leaders where productivity is not mentioned prominently. Conversely, wecan count on one hand the number of times we have participated in discussionsconcerning their firms’ ability to adapt to changing conditions — arguably far morecritical to their future success.

LEARNING VS. KNOWLEDGEThe old news is that we live in a knowledge society. Yet we find it ironic that

never before has knowledge been so useless. Consider that the current estimate of the half-life of medical knowledge is between five to seven years. Moreover, in arecent report the National Academy of Engineering estimates that the half-life ofan engineering education is between two to four years. As leaders, we run the riskof becoming functionally irrelevant absent a commitment to lifetime learning.

A superior approach would be to acknowledge this condition and take proactive steps to remain connected to emerging trends and research-relatedadvances. Most of us are familiar withpopular search engines like Googleand Bing. Few are familiar with thehundreds of content-specific alternativeslike LazyLibrary (to locate books on aspecific topic) and Yudu (to searchover million current publications permonth). In a learning society, power isbalanced between what we know andknowing where to find (and learn)what we do not know.

Yet this environment demandsthat leaders not only know the vitalinformation, but that they must wiselyapply it to a given situation. This represents a far more nuanced challenge made even more challenging by the riskof data overload. Much has been written about the difference between raw data,which is in overabundant supply, and actionable intelligence. Former SupremeCourt Justice Oliver Wendell Holmes, Sr. recognized the data dilemma over a century ago. “I wouldn't give a fig for the simplicity on this side of complexity; I would give my right arm for the simplicity on the far side of complexity.”

Our mission as learning leaders is to find the simplicity that lies beyond, sharing its wisdom with our teammates. To achieve this end, there are no shortcuts, only deep, reflective thought. Further, as leaders constantly immersed in the chaos of urgent matters, how can we bring this gift to our respective teams?It is impossible to do so. Great leaders must periodically detach from currentaffairs for the sake of improving the state of future current affairs. If we fail to doso, we fail our organization.

LEARNING: PUSHING NEW LIMITS

• Make a 1-hour appointment with yourself to conduct a research studyon a topic of personal interest.

• List 3 questions concerning this topic that if understood more deeplywould potentially transform your levelof enthusiasm and/or expertise.

• Conduct the research study in a manner of your choosing, noting yourfindings as you encounter new andinteresting facts.


SYSTEM VS. GOALSThinking back on our marathoning experiences one quickly learns that

multiple goals are essential. Say you decided on a singular goal of running yourfastest time ever, called a “PR” in the trade, or personal record. Yet you arrive onrace day to find it unseasonably warm, humid and quite sunny. The chance for aPR is gone before taking the first step. After perhaps - hours of training forthat moment, do you shuffle back home in disgust? Hopefully you anticipated thepossibility of circumstances arising that were beyond your control. Otherwise allthe sweat, commitment and preparation of the past months goes up in flames,rendering that singular focus of a PR relatively useless.

Scott Adams, creator of the Dilbert comic strip, addressed this very predicamentin a recent Wall Street Journal article. His view is that systems are much betterthan goals to avoid the continual “cycle of permanent presuccess failure.” Dare hesay a discouraging word about the importance of setting goals? Indeed, he goes onto slaughter the sacred cow saying, “To put it bluntly, goals are for losers.”

Wait just a minute, you say. Allsuccessful people are great at settinggoals. Perhaps, but what about theUniversity of Scranton research thatsuggests just % of people achieve theirNew Year’s goals? Is there somethingbeyond the mere identification ofnoble, uplifting targets that predictssuccess versus failure?

Adams’ penetrating and politicallyincorrect perspective comes from thesearch for his first job. A CEO seatednext to him on a plane shared thisnugget of wisdom that stuck with

Adams. “He said that every time he got a new job, he immediately started lookingfor a better one. For him, job seeking was not something one did when necessary.It was a continuing process [emphasis added].” Instead of the goal of finding a job, he felt best served by having a system to continually look for better jobopportunities. In Adams’ example, the goal was subsumed by the system.

As leaders, consider how a systemized process of always being on the lookoutfor better opportunities serves us well. Such a mindset continually reinforces thenotion of incremental improvement and sustained growth. It is also valid to assertthat a system, when faithfully followed, usually turns into a habit — and in thisinstance, a particularly good one.

Eric Haas, founder and CEO of ThinkTQ, Inc., built an entire businessaround the notion that goals alone, indeed, are for losers. ThinkTQ offers itsclients a rigorously systematic approach to the accomplishment of objectives. Haas figured out that it was not the goal setters — the people seeking to raisetheir personal bar — that were the losers. No, it is just that their likelihood of success was ridiculously low absent a system to support their best intentions.Rapidly changing circumstances allow a given goal to come and go with ease ifthere is an underlying system.

SYSTEMS:

SUSTAINING FORWARD MOMENTUM

• Select one strategic plan for review —organizational or personal.

• Assess the degree to which systemsexist to support the accomplishmentof the targeted goals / objectives.

• Select the top goal to outline a system— the actions that you will DO andsystems to put in place (how you willcontinue to succeed beyond the goal).


When FMI works with its clients, we typically go through anextensive process that identifies the big goals (or objectives) a companyseeks to achieve. Beyond that, we work to think through and establishthe actions necessary to achieve thosegoals. When rephrased in the contextof this article, we mutually identify thenecessary systems to achieve a big goalthat at first seems overly challenging.

Perhaps you are familiar with the notion of a Big Hairy AudaciousGoal, or “BHAG.” James Collins andJerry Porras first coined this phrase in their book entitled Built toLast: Successful Habits of VisionaryCompanies. We propose that a team canonly achieve a BHAG after establishing

the necessary actions and systems to provide feedback on progress made to date.Further, midcourse corrections in pursuit of a BHAG are most efficiently madewhen informed by the accurate feedback derived from supporting systems. It bears witness to the fact that the combination of a powerful system coupled with a stretch goal truly can transform an entire business (or leader) for the better.

CONCLUSIONThere is no silver bullet or secret formula for leadership excellence. It is not the

case today nor will it be in the future. Some have equated leadership more to anart than a science. Whereas great artists never follow a set script for generating ariveting novel or impressionistic masterpiece, leaders, too, must look for inspirationand guidance from multiple sources. Moving into the future, tapping multiplesources for guidance, as well as the ability to synthesize this information to tracktrends and opportunities, will be what mitigates the future shock.

The phrase, “what got you here won’t get you there” is all too familiar. Yetmany still rely on the same practices until it is too late to adapt. Leading for thefuture demands a leader that thinks strategically about their business. He or sherelies upon a variety of diverse tools, many of which are discussed in this article.While it may seem overwhelming at times to bring all of these aspects together,leveraging just one of these can produce positive, sustainable momentum. We arecertain that the future holds many changes for our industry, and utilizing thesetools to impart continued agility for your business may prove to be the differencein transforming today’s good into the great of tomorrow. �

Michael Mangum is a senior consultant with FMI Corporation. He may be reached at 919.785.9219 or by email

at [email protected]. Paige Ferguson is a staff consultant with FMI Corporation. She may be reached

at 303.398.7254 or by email at [email protected].

Whereas great artistsnever follow a set scriptfor generating a rivetingnovel or impressionisticmasterpiece, leaders,too, must look for inspiration and guidancefrom multiple sources.

A fter years of managing the lows of the Great Recession,

construction firms are now experiencing what Joe Riela

called a “dam release” of projects that were on the

shelf for two to four years. “Many of these projects were released at

a very high frequency,” said Riela, regional vice president, East region,

for Zurich’s construction group. The pace is both a blessing and a

curse for firms, many of which reduced overhead to combat the

effects of the recession.

Insufficient overhead, staffing, equipment, numbers of subcontractors and a myriad of other challenges are coming into play and creating a riskier environment for today’s construction firms. “From a financial standpoint, the cash flow implications of this rapid increase in work is top of mind,” saidRiela. “It’s created a high degree of risk for our contractors — general contractorsin particular.”

One way contractors can head off potential risk is by involving their insuranceproviders in projects early in the game and then keeping those insurers in the loopas those projects progress and complete. Zurich, for example, uses a comprehensive

By Eric Cittadino and Joe Riela

Keeping Your InsuranceProvider in the Loop

By opening up two-way communication streams with their insurers, contractors canward off major job-related problems before, during and post-project.

86 � keeping your insurance provider in the loop

prequalification process that is tied to the firm’s Subguard® risk management solution. Using this process, risk engineers work closely with subcontractors to review fiscal year-end financial statements, interim financial statements and quarterly work-in-progress schedules. This prequalification process allows contractors to maintain close financial tabs on their subcontractors. “That degreeof information flow has improved considerably,” said Riela, “but it still needs constant monitoring.”

KEEPING UP IN A FAST-PACED BUSINESS WORLD In today’s fast-paced construction world, Riela advises contractors to err

on the side of over-communication when working with insurance brokers and carriers. This is especially important when business plans change — whether bythe degree of self-performance versus subcontracting they’ve been doing, geographic changes, change of state mix or even types of work (residential vs.commercial). “Based on contractor size, I always recommend a midyear review orstewardship meeting,” Riela said, “where all aspects of the insurance program,

including the underwriting claims andrisk engineering, are openly discussed.I think that’s critically important.”

With insurance being such a large component of contractors’ overhead, Riela is a firm believer inconducting financial reviews in concert with thorough discussions ofwork-in-progress schedules. “This issometimes overlooked in the insuranceprocess, but it’s a critical componentfor the underwriters to understandwhere the work is being performed,”Riela pointed out. “I do think thatthere is a direct correlation betweenfinancial performance of the jobs and safety.”

So how do customers react to suchmeetings? Riela said feedback typicallydepends on the company’s size. Thosefirms with million or more in

revenues, for example, generally feel that midyear reviews are beneficial. “What itboils down to is that no one likes surprises,” said Riela. “The more time ourunderwriters have to digest the information and, most importantly, understandthe root cause of the change, the better the outcome for everyone involved.”

COVERING A BROAD SCOPE One of the reasons Eric Cittadino, Zurich’s regional vice president, Midwest

region, encourages contractors to keep him in the loop is due to the broad scopeof those customers’ operations. Many contractors work on an “in trust state” basis within a single state, for example, while others are national in scope and

The more time ourunderwriters have todigest the informationand, most importantly,understand the rootcause of the change, thebetter the outcome foreveryone involved.


manage jobs across the country. “When a company starts operating in a differentmarketplace and/or state,” said Cittadino, “it typically encounters a myriad ofchallenges in terms of base insurance rates that apply in any given state.”

Litigation and labor challenges also come into play when companies operateacross state lines. For example, Cittadino said New York tends to be slightly morelitigious than, say, Indiana. “As an insurance company, when we’re in the loopearly, we can provide contractors with a much broader view of the type of risk thatthey may encounter,” said Cittadino.In terms of labor, general contractorslack knowledge of local labor forcetrends in their target markets. Insurancecompanies can provide both nationalviews on potential labor litigationpoints and trends, said Cittadino, as well as insights for specific local markets (i.e., are there labor shortages?).“We can provide a broad overview ofthese and other labor-related issues toour customers or contractors as theyget ready to start their jobs,” saidCittadino, “and then proactively manage that type of communicationwith our contractor-customers.”

Contractors that are working overseas face a different set of challengeswhen it comes to insurance, risk and litigation. Cittadino pointed to constructionelements, tax implications and labor challenges as just three of the key areas wherean insurance firm can help a contractor ward off issues and be more productivewhen working overseas. “We have a global construction underwriting divisionwhere dedicated underwriters provide insurance solutions to contractors for thespecific countries where they are working,” said Cittadino. Insurance firms likeZurich not only provide a broad view of potential tax implications for foreign

countries, but also possess the insuranceand underwriting expertise that appliesin most countries.

TRACKING THE TIGHT LABOR MARKET

It’s no secret that the U.S. labormarket is tightening up — a trendthat’s already obvious in some contracting segments and that isexpected to continue for at least thenext few years. After cutting back tooffset the impact of the Recession, forexample, construction firms — andthose in many other industries — are

Contractors that areworking overseas face a different set ofchallenges when itcomes to insurance, risk and litigation.


now scrambling to ramp their employee bases back up to accommodate theexpanded project flow. “We tend to find an ongoing issue with acquiring high-quality talent, training individuals and giving them opportunities,” said Cittadino.

The fact that the million baby boomers in the U.S. are on track to beginexiting the workplace over the next five to years makes the labor shortage particularly tricky. Without an equally large generation of workers following in the boomers’ footsteps, filling out the workplace with qualified personnel will be achallenge. To overcome this hurdle, Cittadino said many contractors are developingtalent internally by sending workers to trade schools, colleges and universities to

earn their associate degrees, bachelor’sdegrees and MBAs.

“There’s a lot going on with training, partnering with unions andtaking other steps to help build outtalent infrastructures within the construction industry,” said Cittadino.“Many contractors are developing talent that can work in a given state,on a certain project or projects or for a specific time period. Finally, they’reencouraging those employees to relocate as needed to ensure thoseworkers can continue to meet theorganization’s needs.”

GET YOUR INSURERS IN ON THEGROUND FLOOR

When contractors involve theirinsurance companies in upcomingprojects early enough, the odds thatthose projects will be completed in a safe, risk-free manner increase

exponentially. “One of the key tenets we look at is a firm’s risk managementprocess or the safety culture that’s instilled within the construction companyitself,” said Cittadino. This is important because many times risk managers getpromoted, move to different positions or firms. Keeping your insurance carrierapprised of these changes, Cittadino advised, is important in terms of ensuringthat the given contractor’s risk management program will be maintained for the long term.

“What companies are doing from a safety and cultural perspective — and thetype of resources they are providing to that given endeavor — is critical for us interms of how we assess our pricing, coverages and the program structure that weoffer,” said Cittadino. “So keeping your insurance company in the loop aroundthose elements is extremely critical.” When asked whether contractors understandthis imperative, Cittadino said top-tier companies that are national in scope tendto be the first to comply. “Those with solid reputations and good credibility in themarketplace,” he said, “usually proactively manage this aspect of their businesses

When contractorsinvolve their insurancecompanies in upcomingprojects early enough,the odds that those projects will be completed in a safe, risk-free mannerincrease exponentially.


and keep us informed — rather thanhaving us push things forward.”

In some cases, Cittadino said larger, national contractors approachZurich for guidance, help with currentprograms, support in handling lawsuitsand assistance from their insuranceprovider’s risk engineering group. By taking this proactive step, these contractors essentially hold themselvesout as firms that are aggressive about“setting up risk management programsand strong corporate cultures with aninsurance company’s assistance — notthe other way around,” Cittadino said.

COMBATING COMPLEX CHALLENGES WITH GOOD COMMUNICATIONConstruction firms face a number of complex and unique challenges on a

daily basis. According to Cittadino, one major obstacle right now is constructiondefect. A construction defect is a deficiency in the design or construction of abuilding or structure resulting from a failure to design or construct in a reasonablyworkmanlike manner and/or in accordance with a buyer’s reasonable expectation.Multifamily housing is one particularly complex area for potential constructiondefects right now, according to Cittadino, who said a number of related classaction lawsuits have either been filed or settled in the last few years.

“There’s been increased demand for new apartment buildings over the last few years, typically on a single-ownership basis,” said Cittadino. The problemstend to enter the picture when those apartment buildings — particularly in

higher-profile cities — are convertedinto condominiums (i.e., the ownersells out all units to multiple individualson a condo basis). When that happens,the potential for litigation increasesexponentially from a constructiondefect perspective.

“Multiple litigants can come intoplay at that point,” said Cittadino,who added that insurance carriers arecurrently working out the details ofhow to manage this growing issue,underwrite such projects, analyze thepotential exposures and price their

coverage accordingly. “We’re looking at the type of program structures we need to offer to make sure that we’re mutually engaged (i.e., both insurance firm andcontractor) in terms of addressing this issue,” Cittadino said.

But construction defects aren’t the only potential risk area that contractors can mitigate through close contact and relationships with their insurers. According

Construction firms facea number of complexand unique challengeson a daily basis.


to Cittadino, financial risk is another prevailing obstacle in today’s business environment. To offset this challenge, he said Zurich carefully analyzes loss-sensitive customers for potential credit risks. “We want to understand the financialviability of a given contractor,” he said, “to get an idea of its financial health andviability. Then we try to maximize the flexibility of the coverage and renewalprocess for those that are financially strong.”

THE LINES ARE OPEN Without a solid line of communication between a contractor and its insurance

provider, everything from quality control to safety to financial wherewithal cansuffer. “If we’re not getting that clear pipeline of communication, there is a directcorrelation to how we underwrite the given risk,” said Cittadino. “The lack ofunderwriting information gives us a sense to pause. We then have to really thinkabout how we’re going to offer up a renewal, whether we need higher rates orwhether we need to improve or enhance the deductible levels on a given account,for example.”

Those issues can be resolved or avoided completely through more transparentconversations between the contractor and the provider. When those talks occur,

Cittadino said insurance firms gain abetter understanding of potential riskareas and can develop optimal insurancesolutions to address those issues.“That’s really the key, because the lack of transparency has a significantimpact in terms of how we offer upour insurance programs,” he said.“We’d like to have that transparencyand consistent dialogue take placebetween our firm and our customersin order to help respond to existing orfuture challenges that they may have.”

“Verbal communications extendto the contractor’s safety culture,” said Cittadino, “and help insurancecompanies provide risk engineering to support that culture and enhancethe contractor’s financial health. Byassessing the key challenges aroundspecific projects, the issues associated

with loss-sensitive products, and the type of payment schedule flexibility that isavailable, Zurich can serve as a key thought collaborator for contractors from arisk management perspective.”

Riela concurred and said contractors that are moving into new geographicalmarkets should be particularly aware of the need for good and early communicationwith their insurance providers. “There is a big difference between operating in New Jersey, Connecticut or Pennsylvania versus New York. If that’s not communicated upfront, and if we wind up in a reactive position, it could have

Without a solid line of communicationbetween a contractorand its insuranceprovider, everythingfrom quality control tosafety to financialwherewithal can suffer.


drastic impacts on not only the premium, but also the program structure (the use of deductibles andself-insured retentions [SIRs], forexample).”

In many cases, those open lines ofcommunication flow in two directions.When developing Subguard®, forexample, Zurich listened to the needsof its customers and pinpointed problem areas where it could be doingmore to help. “If we understand the

problem, we can try to find a creative solution for it,” said Riela. “Whether we’recoming up with a creative way of approaching coverage on an existing product ordeveloping a new product, we’re constantly thinking of our customers and theirneeds during the process.”

CONCLUSIONCommunication is the backbone of good working relationships in most

every arena. Open and continual communication between the contractor and the insurer will mean better results for all. The experiences of both firms can bebrought to bear upon the immediate and anticipated needs of the participants. �

Eric Cittadino is a regional vice president, Midwest region, with Zurich. He may be reached at 847.413.5784

or via email at [email protected]. Joe Riela is a regional vice president, East region, with Zurich. He may be reached at 617.570.8818 or via email at [email protected].

.

By Tim Tokarczyk and Kim Morton

G reg is a 32-year-old senior project engineer for a

successful civil/geotechnical engineering firm in

California. Like many in the industry, he is ambitious,

driven and extremely hard-working. Greg loves being involved in his

projects, which typically include everything from pre-construction

through project closeout. While he is undoubtedly intelligent and

successful, his manager, Bill, has heard some troubling feedback

about the young man.

Greg always gets the job done, typically with great efficiency and effectiveness,but others do not seem to like working with him. He has been called pompous,arrogant and abrasive by coworkers, designers and subcontractors. On the otherside, clients seem to love him for his straightforward, honest approach.

Bill sees Greg as a potential superstar within the firm — his potential is nearly unlimited, except for the fact that the field and the design team continuallygrumble about working with him. This has perplexed Bill, because he has neverseen any of these negative traits in his interactions with Greg. As the complaintsmount, Bill decides that Greg needs to change his behavior before he can move

The Key to EffectiveLeadership: UnderstandingYour Worldview

Do your beliefs help you moveforward as a leader, or are anyholding you back from achievingyour peak potential?

94 � the key to effective leadership: understanding your worldview

up in the organization. Ideally, Bill would like to get an external perspective on the situation.

IDENTIFYING A WORLDVIEWWe have seen situations similar

to this countless times in our clients.In Greg’s case, his greatest strengths —his ambition, his drive and his tenacity— are also what are creating hisbiggest weaknesses: that he is full ofhimself, abrasive and difficult to workwith. The question in this case is howto help Greg modify his behaviorwithout losing the great characteristics that make him so effective. Traditionally,Bill could send Greg to training to help him learn the right techniques, tips andapproaches to interact effectively with others. While training may be helpful, thelessons learned are not likely to “stick” long term. In reality, the root causes ofGreg’s issues go much deeper.

Following a directive from Bill, Greg reluctantly signs up for executive coaching. He recognizes he could always improve, but he points to his bottom-line results as proof that he is not “broken.” He selects Samantha as his coach,although he questions whether he needs help in the first place and how much shecan actually help him. In their early sessions, Samantha works to understand thecurrent situation he is in and to help Greg see it clearly himself. Through severalsessions and some frank conversation, Greg begins to realize he is alienating those

around him. That is troubling to him, because he is not intentionallyupsetting people; he is simply tryingto get the job done as effectively andefficiently as possible.

As Greg’s coach, Samantha soonrealizes that his worldview is holdinghim back. A worldview is the set of beliefs and assumptions that eachperson holds consciously and unconsciously about the way theworld operates and the way we operate in the world. A worldview islike a pair of sunglasses, meaning it isthe filter through which we see theworld. Our worldviews are developedfrom the time we are children andcontinue to develop as we age. Manyfactors, such as experiences, culture,surroundings and upbringing, caninfluence how you view the world.

A worldview is like a pair of sunglasses,meaning it is the filterthrough which we see theworld. Our worldviewsare developed from thetime we are children and continue to developas we age.


That view of the world shapes what we value, which directly influences our behaviors. Now, for many of us, our worldview may be accurate and it usuallycauses us no problems. However, we all have certain beliefs and assumptions thatmay not be true. Our beliefs and assumptions may be holding us back fromachieving our peak potential. This seems to be the case with Greg.

In one of their coaching sessions, Samantha asks Greg, “As we talk about your approach at work, it seems like you are very competitive. Is this a personalcompetition where you always want to better yourself, or is it a competition withthose around you?” Greg does notmiss a beat. “Oh, it is definitely acompetition with those around me.The most important thing I can doevery day is prove that I am betterthan those around me.”

This remark takes Samanthaslightly by surprise. She has hit on the root cause of Greg’s currentpredicament with his co-workers,designers and subcontractors. There is something in his worldview aboutcompetition and needing to prove heis better than others that is causingGreg to behave abrasively and noncollaboratively. This may create some positiveresults for him, because it is likely leading him to work harder, remain dedicatedand strive for excellence. However, it is also creating issues with those he workswith because he is probably flaunting himself, seeking to prove he is superior toothers, which will turn people away from collaborating with him.

EXPLORING YOUR WORLDVIEWWhile this scenario may seem severe, it is a common example of how our

worldview can sabotage our ability to be effective leaders. We all have aspects ofour worldview that are holding us back in some way or another. For Greg, it is anunnecessary desire to prove his own superiority. For others, it might be a fear ofconflict, a lack of appreciation for others, or any myriad of beliefs or assumptionsthat derail their leadership. For example, if a leader has a belief that she cannottrust others, that one belief could have major consequences for her leadershipbehavior. She will likely avoid any transparency, revealing little about herself andnothing about her weaknesses. Others may see her as closed off and struggle toconnect with her, which can cause serious problems in her working relationships.This leader’s worldview might also wrestle greatly with delegation — how can she give important tasks to people she does not trust? She therefore may haveproblems with work-life balance and believe she has to do everything herself. Oneineffective belief or assumption can create a domino effect of different issues forleaders. That is why it is so important to go beneath the surface and examine our worldviews.

How do you examine your worldview? The process is not easy, simply becausewe rarely ask ourselves what we believe and whether or not our beliefs are accurate.

We all have aspects ofour worldview that areholding us back in someway or another.


While this process may feel uncomfortable at first, it can create huge benefits forus as a leader. Similar to the scenario described earlier, one avenue to explore yourworldview is with an executive coach, who can provide an outside perspective onyour beliefs and assumptions, especially those that may not be valid. You can alsoexplore your worldview by simply asking others for feedback. Is there somethingthey see about your behaviors or actions that you are not aware of that is hurtingyou as a leader? This view of ourselves through others can certainly identifystrengths and weaknesses but is unlikely to surface the root causes without additional conversation by trained parties. We can be self-aware of our behaviors,and a trained coach can help us understand what is driving our behavior.

Lastly, you explore your worldview by looking internally and asking yourselfsome deep questions about why you behave a certain way or believe something to be true. Here are some questions to ponder:

• What do I believe about the people I work with?• What is the most important thing I can accomplish each day?• What do I do when I realize I have made a mistake?• How do I treat other people?• How do I deal with conflict?

Consider that last question. Someone might answer, “When I see conflict, I try to avoid it. It makes me uncomfortable.” That answer reveals somethingabout that person’s worldview. If you believe you should avoid conflict, you maybe seen as being too easygoing or a “pushover” around others. Something as simple as giving someone constructive feedback about a behavior he or she needsto change requires a certain amount of conflict. Does this person avoid giving constructive feedback, due to his or her fear of conflict? What about when he orshe has a differing opinion from that of a teammate? Will he or she push back and

challenge the person or meekly give in,simply to avoid a confrontation?Leaders could be significantly moreeffective if they re-examined theirworldviews and came to the realizationthat some conflict is healthy and toavoid conflict will limit their ability to lead others.

UNDERSTANDING YOUR WORLDVIEWIn regards to Greg, he needs to

explore his core belief that he mustprove that he is better than others are.One of the questions he can ask himself is, Where did that belief comefrom? Our worldviews are shaped overtime — through the experiences ofour childhood, our education, wherewe grew up geographically, the culture

You explore your worldview by lookinginternally and asking yourself somedeep questions aboutwhy you behave a certain way or believesomething to be true.


we have been exposed to, our friends, work experiences, travel and much more. It is rare that we have a belief or assumption that did not come from somethingwe experienced or witnessed in the past. At some point in Greg’s life, perhaps heneeded to prove his worth to someone. Perhaps he was pushed as a child to bebetter than others were, and the lesson stuck. Regardless of where it came from,Greg needs to ask himself if that belief is still valid. Does he truly need to provehis superiority to others? Is that an effective way to go through life? If he digsdeeply into this worldview, he maygain the insight that this belief is causing him to act in ways that aredetrimental to his overall goals. AsGreg reflects on his behavior, he recallstimes when he highlighted his ownsuccesses but others viewed it as bragging. He thinks about the timeswhen he pointed out the failures ofothers, which they saw as “rubbing itin their faces.” He remembers timeswhen he could have collaborated withothers to the benefit of both parties,but instead chose to make it a competition to beat the other people.

CHANGING YOUR BEHAVIORGreg’s exploration of the beliefs

and assumptions that make up hisworldview is not a quick process. Forseveral months, he works closely withSamantha to explore various aspects of his worldview. He recognizes thatmany of his beliefs and assumptions are valid and they have led to some of hisbiggest successes. He also recognizes that he does not need to prove his superiorityand can still be successful, even while he helps others succeed as well. Over time,Greg begins to modify his behavior, as he slowly changes his worldview on competition at work. He starts to repair the relationship with his co-workers,designers and subcontractors by changing his behavior, communication style andworldview. Bill recognizes a major shift has taken place, even though Greg onlyaltered one belief that he had. Such is the power of examining our worldviews —a small insight can reap major benefits for us as leaders.

Worldview is not a concept that is discussed frequently in business today, but it has the ability to transform the way we approach our co-workers, our organizations and ourselves. Over our lifetimes, we collect a vast array of differentexperiences, which lead to a number of personal beliefs and assumptions. Fromtime to time, we need to turn our eyes inward and reexamine those beliefs andassumptions, looking for any that may not be true and may be holding us backfrom achieving our full potential. Through this process, we are continually readjusting our leadership course and ensuring future success as leaders.

Worldview is not a concept that is discussed frequently in business today, but it has the ability to transform the way weapproach our co-workers,our organizations and ourselves.

If you have not thought much about your worldview, now is the time to start. Use the chart in Exhibit to begin the process of exploring your specificworldview.

What do you believe about the world, your industry, your organization, your team, your co-workers and yourself? Are those beliefs true, or are they simplyassumptions you have made? Do your beliefs help you move forward as a leader,or are any holding you back from achieving your peak potential? If there arethings holding you back, what can you do to change that belief so that you can be the best possible leader you can be? Closely examine all of these beliefs to begin changing any that are no longer valid, thereby ensuring your future success as a leader. �

Tim Tokarczyk is a consultant with FMI Corporation. He can be reached at 303.398.7222 or via email at

[email protected]. Kim Morton is an FMI Corporation alumna.


Exhibit 1

Explore Your Worldview

What are your five strongest beliefs about the world?

What are your five strongest beliefs about the industry?

What are your five strongest beliefs about your organization?

What are your five strongest beliefs about your team?

What are your five strongest beliefs about yourself?

Is each of these beliefs valid?

For those that are not valid, what is the danger in holding onto them?

What can you do to change those beliefs?

1.2.3.4.5.

1.2.3.4.5.

1.2.3.4.5.

1.2.3.4.5.

1.2.3.4.5.


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