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FMI Quarterly/March 2012/March 1, 2012

Creative Strategy Can Transform Your Company

Through steadfast determination and perseverance, companies can establish themselves as top contenders among their competitors via their strategic plan.

In  today’s difficult construction industry, action matters. Strategic plans alone are not action. Putting a comprehensive corporate strategy into place can be both a rewarding and thought-provoking process. By its very nature, the new strategy challenges the organization to change and focus energy and efforts in different areas with longer-term payoffs.

Therein lies one of the early obstacles of plan implementation:  Rewards are seldom instantaneous. For action-oriented people, distant payoffs are less satisfying than quick hits. The result of a successful implementation is the accomplishment of the strategic goals that will propel the company forward and achieve its vision of the future.

However, in many organizations, somewhere between developing a comprehensive strategic plan with specific actions and achieving the well-defined, carefully crafted goals, the balloon loses lift, and some firms return to terra firma without accomplishing the milestones or affecting any significant change. This can produce dissatisfaction with the strategic planning process and lead to cynical thinking that the plan itself was ineffective at best or, worse, a waste of time. Organizations need to be as creative in the deployment of their strategy as they are in the creation and articulation of it. After all, it takes much more energy and effort to deploy strategy than it does to create it.

Since real strategy is about winning, not just surviving, all companies need to consider how the deployment of that strategy will be so effective that they increase their competencies and performance to the degree that they beat the competition. Here is a look at some major themes that have been used in the creative implementation of strategy within our industry.

TRAIN AND DEVELOP YOUR PEOPLE

In the mid-1990s, Skanska needed a mechanism that would combine all of the best practices that existed from the various companies it had acquired in order to make itself more competitive through improved efficiency. The overall strategy was one of standardization and centered on developing the “Skanska Way” of execution as a means of lowering costs and improving quality. Through a companywide training program, the strategy was consistently reinforced to all employees at all levels. Every position was instructed in the specific areas that affected its particular responsibilities. This effort was an indoctrination of philosophy, processes and tools, all designed to create a unified approach to managing projects and customer relationships. Not only did it serve to advance Skanska’s operating performance, but also it created a cultural glue for all employees, old and new, that bound them together in the path forward.

In order to prepare the way for change, education and communication should be upfront and continuous. Once is never enough. As a company shifts its strategic direction, employees confronting change need education not only on the change itself, but also on the very nature of organizational change. They need to know what to expect. They should anticipate emotional responses in themselves and others. They need coping tools. And they need these lessons more than once. Employees are more likely to buy in and understand the shift in strategy if they have early participation and involvement. For the planning team to go up on the mountain, “discover” the new direction, then come down and inflict it on the masses, is not an appropriate process.

IMPLEMENT BEST PRACTICES

Best practices are very similar to the “Skanska Way” but have their roots in Quality Circles, Centers of Excellence and even in FMI’s own productivity improvement work. Many FMI Peer Group members have embarked on the path to implement learned best practices within their organizations. Whether those best practices are from within or from someone else, the idea is simple: Eliminate wasteful practices and inconsistency by repeating those processes that bring about the optimal results. “Do the right things all the time.”

Hayward Baker, a geotechnical engineering and construction company, gathered its best internal practices for project management and documented them into a codified set of standard operating procedures. It took almost six months of analysis and documentation. These were disseminated through a series of training programs, performance reviews and branch office evaluations that kept the focus on implementing the Hayward Baker way of setting up and managing projects. As a result, the number of jobs with write-downs decreased substantially and performance, along with profits, improved. Note that Hayward Baker used training and performance reviews to ensure compliance, not simply expecting change to result from new documentation.

The best organizations will be the ones that are never satisfied with their current operations and are constantly pushing themselves to dig deeper, to think in new ways and to relentlessly pursue improvement. Albert Einstein once was asked what characteristics separated his mind from the average person. He responded that when the average person is asked to find a needle in a haystack, he or she stops once a needle is found. When Einstein searches a haystack and finds a needle, he continues to tear it apart looking for more needles. When we find an answer or solution, most of us stop searching. However, simply because we have one possible answer (a current best practice) does not mean that we have found the only answer or solution, or even the best one. Being inquisitive after arriving at one possible solution will most likely lead to even better results. This is the essence of an innovation strategy that is implemented on the platform of companywide best practices.

KEEP SCORE

By building both a performance- review system and information system around key metrics, Zurich was able to focus the entire organization on process standardization and key performance measures. In 2004 Zurich’s chairman, Jim Schiro, wanted to create a common language, methodologies, metrics, toolboxes and core processes for the company. Zurich grew up out of both organic and acquisition growth. Many of the business units had a different vernacular and different ways of doing the same type of business. It was very difficult across the organization to measure or work on improvement processes in a common way or, better yet, to take some of the lessons learned and consistently apply them across different parts of the organization.

2012q1_creative_strgy_ex1They used a process similar to a Rapid Results Initiative (RRI), which is an organized method of stating the issue, how to study it, the anticipated outcomes and, of course, how to measure the results (See Exhibit 1.)

An executive-level manager assigns the RRI to a team leader. Members of the team who are necessary to achieve good project discussions have the support of engaged senior leaders for participation in the project. This creates recognition and incentive for participation. Through a series of meetings, the team creates a results funnel (See Exhibit 2.). This keeps the team on course so that everyone knows the plan. The group goal is to achieve results in 100 days or less. The challenge statement in the RRI calls for certain expected outcomes. The implementation of the project at 100 days calls for a period of monitoring to test for possible adjustments. The outcomes are then embedded into the business unit’s strategic plan or performance measurements. It is important that the goals are measurable. They take shape in terms of the expected outcome and might include increases in customer retention, product density or process efficiency.

2012q1_creative_strgy_ex2One example is how Zurich handled professional liability claims for contractors. The evaluation stage of the initial report of claim was taking too long and its customers wanted faster analysis. The investigation phase was straining the contractor and its customer’s (the owner) relationship. Zurich assembled a team of claims, underwriting and risk-engineering experts to respond to the challenge. What they found was that most of the time, delay in the analysis involved expert evaluation of the design error; yet in many cases, the “fix” was obvious to those experienced in construction management. The outcome was to develop a procedure whereby risk engineers would work with the customers to determine if a “fix” could be affected to the design issue and the case resolved quickly. Working closely with claims, the risk engineers now “triage” claims with their customers. As a result, their customer satisfaction rating on the handling of claims reached an all-time high of 92%.

As Scott Rasor of Zurich Construction stated, “One of the key ingredients to deploying a new strategic initiative, beyond assigning the strategy work team, the executive sponsor and the team leader, is to work out the metrics and the measurements prior to entering into the project. This includes providing guidance and direction around getting the project to a point where there was a measured outcome. Often people enter into a project or core process improvement  with the aim of making something better — more efficient, delivering at a lower cost — but they don’t think about how they are going to measure that before they begin the process of what methodologies and what work streams are going to be put around it. Determining what you are going to measure, whether it is the economic value, the actual bottom-line value or a growth in sales, helps the team get to a focus point around what is necessary to achieve the outcome. The executive sponsor envisions what needs to change, and the work group goes to the executive sponsor to articulate what the metrics or measurements of the work team are going to be.”1

Key measurements concentrate efforts on achievement of the right results, so when developing “score- boards”, understand the core of what you are trying to achieve and determine what measurements will let you know when your plan is working. Clarity and focus of key measurements enable visualization of the result or deliverable that comes from successful implementation.

HIRE THE RIGHT PEOPLE

When Beers Construction Company, now a part of Skanska, focused on entrepreneurial types in hiring project managers and promoting division heads, it was reinforcing its strategy of building an entrepreneurial organization. That strategy depended upon acquiring people who felt as if they were owners, had a knack for finding opportunities, and were also comfortable with a certain amount of risk. While seeking certain personality or behavioral types might seem to be a stretch insofar as strategy deployment is concerned, nothing is more important than having the “right people on the bus”. “Right”, of course, is dependent upon what strategy you are trying to reinforce.

A great plan or business strategy alone does not ensure success. It must be executed well for the profits to flow, and successful execution lies in the hands of the firm’s people. Taking your business strategy into consideration, determine what it is that you need from your people to make it happen. For instance, for a low-cost provider, having employees who are cost-conscious, somewhat risk-averse and resourceful and do more with less goes a long way toward helping the firm ensure that profit margins are not eroded. In contrast, a firm that is known for its innovative practices will need to invest funds in new ideas and training in new techniques to maintain its competitive edge. A firm’s people need to understand its strategy and engage in behaviors that support this strategy. Investing in the human side of the business should be geared toward promoting employee behaviors that support the business strategy, as this provides the greatest long-term payoffs. Ask yourself, “How can our people help the firm leverage its place in the market?” In addition, “What investments can the firm make to provide our people with the tools and incentives required for them to enhance the success of the firm?”

One large general contractor developed a strategy to outsell its competition by hiring more business development resources and creating a more sales-oriented culture. It invested in three times the number of salespeople it had on the payroll and eventually proceeded to dominate its primary market. It hired these employees from architects, developers and competitors. Its expectation that “everyone is a salesperson” reinforced the significant role of sales in the organization and its vital place in ensuring future success. Business development became a place where any aspiring executive had to spend time and succeed before moving up. This company recognized that more and better people working to secure projects were distinct competitive advantages.

PAY FOR PERFORMANCE

What gets rewarded gets done. Tying together performance and reward is a powerful mechanism for ensuring that strategy implementation is supported. Many clients have created incentive plans that pay for the accomplishment of strategic goals. However, if those goals are only financial (i.e., profitability), it could backfire. One of the biggest failures of incentive compensation programs is that they often do not take into account all the key drivers that will make the company successful. The best incentive plans promote behaviors that are consistent with the company’s strategic plan, marketing efforts, financial goals, productivity processes and personnel development. For example, if the company performs negotiated, high-margin, value-added work, the bonus should factor in the level of customer satisfaction. Or, if the company’s strategic goal is to be involved in the local community, a portion of the bonus should be tied to an employee’s individual involvement in boards, associations and other community events. Without purposeful linkage to the company’s strategy, incentive plans risk-promoting behaviors that are contradictory to the stated strategy.

The following questions will help evaluate your current compensation plan:

  • Have we defined our corporate strategy and communicated it to the rest of our organization so that employees understand what we want to accomplish?
  • Does our incentive plan drive behaviors that lead to the objectives outlined in our strategic plan?
  • Do we have well-defined and communicated “best practices”?

To create a pay-for-performance environment, you first must develop and communicate a formal strategic plan that creates a unified direction for the company and provides a platform for performance expectations, decision-making and people development. Without a formal strategy, it is impossible to design an incentive plan that promotes behaviors consistent with overall corporate goals and strategies.

The second step is to develop and implement standard best practices within the business. The development of best practices establishes expectations for all positions within the company and enables management to hold employees accountable for their performance. These best practices vary depending on the type of work, size of company and structure of the organization. The key is to identify the essential processes that affect business, then standardize and communicate them.

Finally, employees must be held accountable for complying with and using the company’s best practices. For example, one company might determine that formal pre-job planning meetings, change-order procedures, customer service and project-closeout processes are its most important best practices. Establishing standard criteria for how to perform each of these processes creates a platform for accountability. Once this is established, employees can be evaluated based on objective criteria, and an incentive program can be developed that compensates individuals for consistently doing the right things.

By following these major themes when implementing a strategic plan, companies can look forward not only to providing outstanding performance, but also to achieving their long-term goals for the future. Through steadfast determination and perseverance, companies can establish themselves as top contenders among their competitors via their strategic plan.


Lee Smither is a managing  director at FMI Corporation. He may be reached at 919.785. 9243 or via email at lsmither@fminet.com.

1   Chisholm, K. (2010). The Zurich Way: An Interview With Scott Rasor. FMI Quarterly (2010 #4), p. 44.

 

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