By Ron Black, Owner, The Mentor Group
This article originally appeared in the CONEXPO-CON/AGG 365 newsletter. For more information, visit www.conexpoconagg.com.
The gross output of the construction industry—essentially a measure of sales—shot up 14.5 percent in the first quarter of 2016, according to the Bureau of Economic Analysis. This significant growth followed a strong fourth quarter in 2015, which saw output increase by almost 5 percent.
Now the bad news: Too bad all that sales activity isn’t delivering optimal profits.
Low efficiency and high waste continue to plague our industry. In fact, construction has the dubious distinction of being one the few U.S. industries that haven't increased productivity in the past 50 years.
Why do we continue to waste so much time and money, and watch profits go down the drain?
Here’s a good example. Around 2005, the U.S. was in the midst of one of the largest construction booms in history. As my friend and mentor Ted Garrison pointed out, the average return on investment across all U.S. industries was 16.7 percent—but in construction, it was a measly 9.6 percent. Four out of every 10 contractors managed to lose money, despite the booming market.
Yes, we have many challenges in construction. The difficulty in finding competent workers and managers is a critical one. As Peter Drucker observed, the first sign of a declining industry is its lack of appeal to qualified and ambitious people. But that’s a current we all swim against—along with the natural ups-and-downs in the construction market.
If we’re all contending with the same conditions, what makes the upper tier of construction companies succeed where so many others fail?
After 35 years in this business, as a contractor, author, and business turnaround consultant, I’ve come to believe that many of us are victims of our own personalities.
Let’s face it—construction attracts people with big egos and a high tolerance for risk. I’m one of them. And that’s not necessarily a bad thing if we can also think strategically and lead with our head, not with our egos.
Making ego-based decisions is what gets many of us in trouble, and here are some tell-tale signs. How many times have you heard someone (maybe even yourself) say:
- “Don’t worry about it. We’ll make it up on the changes.”
- “We’ll train our people on the job.”
- “Let’s just put more guys on it.”
- “We have to keep our crew busy, so we’ll take it.”
- “Let’s show them what we’re made of. We’ll figure out staffing after we get the job.”
- And my all-time favorite, since I once said it: “We’re right, and if we have to, we’ll win in court.”
A high comfort level with living on the edge is one of the driving factors in taking jobs that deliver low, even negative, profit margins. Construction people are smart in so many other ways, about control systems and lease-buy decisions and other operational issues. But how many of us get to the office or job site on a Monday morning, pause and think: “Gee, I wonder if my ego will get in the way of my business success today?”
To change outcomes, we have to change our minds. Literally. Instead of falling for the adrenaline rush of high-risk scenarios— “Six weeks to complete and the specs aren’t decided? Count me in!”—we need to take an objective, strategic approach to business decisions and weigh the value of a customer or project against our company resources, goals, and objectives. Taking a job should depend on whether it matches our expertise, skills, crew and ability to create value for the customer, NOT because it will be a big job and make us look like a bigger player at the expense of profitability.
If we can change the decision-making process at the critical point where strategy meets personality, I’m convinced we can change the productivity and profitability picture in construction—for the better.
Thinking strategically and finding value-centric customers is critical to your success. Learn more by attending the education session, "Success or Statistics? Why Some Contractors Fail & Others Thrive in Today’s Volatile Market" at CONEXPO-CON/AGG in March 2017.