In order for construction firms to remain viable and successful within a new economy, they must continue to invest in their human capital.
The Great Recession has significantly affected today’s business environment. Organizations trimmed budgets, reduced overhead spending and “rightsized” to a much leaner and meaner version of themselves. Companies also put talent development on hold while they tried to survive.
As the economy turns around, emerging trends show that businesses will have to reprioritize their human capital needs, a multigenerational workforce is the norm, and aligning your talent development strategy to your business goals will be crucial to survival. These new realities make it even more important to employ solid talent development strategies moving forward.
For more than 15 years, FMI has distributed surveys to construction firms nationwide in order to identify current training and development practices, challenges and trends that are influencing the construction industry. FMI’s “2011 U.S. Construction Industry Talent Development Report” examines the challenges, concerns and innovations affecting the construction industry in the past year and includes articles on emotional intelligence, development of high potentials, ethical compliance and best practices in the industry.
We sent surveys nationwide to more than 4,000 construction firms of all sizes and specialties. General contractors made up 71% of the respondents, followed by construction managers (14%) and engineering (6%), as shown in Exhibit 1. Forty-four percent of the responses were from firms with revenues between $100 million and $499.9 million, which is very consistent from our past surveys (see Exhibit 2). Also consistent with previous surveys was the number of employees at season peak, with almost half of the respondents employing 100–499 workers (see Exhibit 3).
Contrary to previous years, more than half of the respondents (56%) were presidents, chief executive officers or vice presidents (see Exhibit 4). Previous years’ respondents included mostly training and human resource directors. These figures indicate that since our last survey in 2007, the economy has certainly shifted, and the C-suite has become even more proactive with its approach to the development of its employees.
We asked how many people prepared a yearly budget for training activities, and 81% indicated that they did. This number has decreased slightly from our 2007 results (82%). We also asked what percentage of your company’s payroll was spent on training, and this averaged 3.3%.
According to the American Society of Training and Development’s (ASTD) 2010 State of the Industry Report, the 3.3% figure is slightly more than what other U.S. companies are spending. In the ASTD Report, training expenditures were determined for three groups of respondents — those who responded to their survey (Consolidated), large Fortune 500 companies (Forum), and organizations from their Best Awards program (BEST). As Exhibit 5 illustrates, ASTD projected that companies would spend between 1.91% and 2.15% of their payroll on training in 2009, which is slightly less than what we are seeing in the construction industry. However, we expect these general industry numbers to increase slowly over the next few years as the market continues to recover.
HOT TRENDS IN TRAINING
Over the past several years, we have looked at some of the latest trends in training and development and have highlighted topics such as blended learning, online coaching, simulations and mini-360 feedback, just to name a few. This year we offer some insight as to how the industry has changed since the recession.
One major trend that we are continuing to see impact the industry is use of social media. According to Jobville’s 2010 Social Recruiting Survey, 73% of employers are using sources such as LinkedIn, Facebook, Twitter, YouTube, podcasts, instant messaging and blogging to recruit new employees. These applications, commonly referred to as Web 2.0, were not developed for learning purposes; most people use them for social purposes, such as gaming and communication. However, the basic mechanics behind social media are very similar to those in high-end Content Management Systems (CMS). Therefore, we will continue to explore ways to utilize social media in the context of training. We can already think of social media as an extension of our current communications etiquette. Learning portals will no longer be sites just for tracking, scheduling and reporting training activities, but also places for collaboration and conversation.
A remarkable 50% of companies who responded to this year’s survey plan to offer Web-based training over the next year to increase employee performance and development. Web-based learning has become increasingly popular over the past few years as companies begin to realize the benefits, including reduced travel expenses, less time away from the job and just-in-time training.
FINDING AND RETAINING THE BEST TALENT
We asked respondents what recruiting strategies they were using to recruit the best talent, and 77% reported that they were using internships and co-ops, exactly as it was in 2007 (see Exhibit 6). Internships are usually a win-win-situation for both the employers and interns, as they allow both parties to see how the job fits.
The National Association of Colleges and Employers’ (NACE) 2011 Internship and Co-op Survey found that employers expect to increase internship hiring by about 7% this year and co-op positions by nearly 9%. The bigger question for us is, how many of those internships and co-ops are materializing into full-time hires? According to NACE, companies are making full-time offers to interns 67% of the time. After one year on the job, new hires recruited from an employer’s own internship or co-op program are retained at a rate of 75.8%. In comparison, 60.7% of new hires recruited without any internships/co-op experience were still with the company after one year. However, when we look at those same hires after five years, 55.1% coming from an employer’s program are still at the firm, while only 44% of hires without an internship/co-op experience remained.
The benefits of hiring former interns include increased retention rate of new employees, reduced training periods and improved personnel selection by using on-the-job performance as a real measurement of future success.
BEST OF CLASS
As it relates to finding and retaining the best talent, FMI spoke with Art Corwin, president, CEO and chairman at Moretrench, about his company’s approach to talent development. Moretrench is a nationally renowned geotechnical contractor, officially incorporated in 1931. Headquartered in Rockaway, N.J., and with locations throughout the U.S., it has been a respected and trusted name in the civil, environmental, construction and geotechnical engineering communities. Since 1999, Moretrench has been a 100% employee-owned company.
FMI: You have a robust internship program — how many of your high potentials (top performers) come out of that?
Art: Probably 70%. While we have always had interns, we started a serious internship program about 10 years ago. We’re a firm of 500 or so, and it’s not unusual for us to have eight to 12 interns. It is costly — if we have 10 interns at $1,000 a week for 10 weeks, it comes to $100,000. But out of that, we offer more than half of them jobs. Some of the interns are with us for two or three years, so when we do offer them a position and they accept, the interview process is over, questions on whether they will work out are over, and we know we have someone that we’re willing to invest time and money in going forward because he or she has already proven his or her potential. Does it always work out? No. We also had interns who, at the end of their internships, decide that this is not what they want to do. Well, we’ve just saved ourselves a miss-hire.
The other thing I find with interns is that they are relatively inexpensive and you get a lot of work out of them. We save certain tasks for interns to do over the summer that need to be done but nobody on staff really has time to do. You can assign an intern to do it, and he or she will be very excited about it. A useful, worthwhile assignment gets done cost effectively.
FMI: In addition to the internships, where else do you recruit?
Art: We have excellent relationships with many of the local universities, including the heads of the civil engineering departments who understand what we do as a company. This has developed over time. They will send us prospective candidates. There have been years when they have not sent anyone because they do not feel they have what fits what we need, and that’s why we have an excellent relationship. When they say they are going to send us a candidate and he or she is your person, we go through the interview process, but it’s pretty much a done deal because if they feel that strongly, we’re going to hire him or her.
The entire interview may be found in FMI’s 2011 Talent Development Report.
DEVELOPING HIGH POTENTIALS
Avoiding turnover completely is unlikely, as it is not always easy to increase salaries or benefits. In most cases, a little turnover is welcomed, especially in the case of low performers. While losing low performers can enhance the bottom line, losing talented high-potential employees can negatively affect the bottom line.
We asked if your company has a formal process to develop high-potential employees. Comments indicate that the process of developing high potentials exists, but results show that only 38% of companies have a formal process. Furthermore, when asked if this was part of a structured management succession process, 71% of respondents said no.
The cost of losing talented and high-potential employees should not be underestimated. Companies should certainly be cognizant of the immediate replacement expenses, including recruiting, hiring and training replacements. However, the long-term costs of losing high-potential employees are difficult to calculate until they limits the organization’s ability to win work or conduct business. In fact, the true effects of the loss may not be felt for years.
Fortunately, there are several ways for construction firms to develop and retain their top talent. A few of these include:
- Identify the employees worth keeping. Organizations tend to have three types of employees: team players, technical experts and high potentials. Companies must identify their high potentials and tell them that they are valued. In all likelihood, they know it, others inside and outside the company know it, and they expect to be treated differently.
- Create development plans. Leadership development plans should be created at all levels of the organization from field leaders to seniors executives, but in particular for high potentials. These plans should include the competencies required at each level of development and a way to measure success along the way.
- Make learning a priority. Organizations that value, promote and reward leadership development are much more likely to retain employees that are worth keeping.
Whatever you decide to do, talented employees are just too valuable to let them walk out the door. Best-of-class employers will provide development opportunities to retain that talent.
PREPARING FOR A CHANGING WORKFORCE
The makeup of the U.S. workforce continues to change. Several years ago, our primary concern was the quickly approaching retirement age of baby boomers and the diversification of the workforce with respect to gender and race. The Great Recession has changed everything.
The oldest baby boomers turn 65 this year, which not too long ago meant retirement for most. That is not necessarily happening right now. They are finding that not only are they taking care of themselves, but also are responsible for the welfare of their parents and even their adult children who return home after college to look for work. Many baby boomers are finding that they have to continue working because they cannot afford to retire on their current 401(k). However, tenured employees do continue to leave the industry, taking with them valuable experience, business contacts and years of knowledge that are difficult to replace.
Regardless, companies must restart any succession planning they may have put on hold during the recession if they want to ensure that they will have an adequate supply of talented employees in the coming decades.
We asked how organizations are preparing for a changing workforce (see Exhibit 7), and at least three-quarters of those who responded indicated that they were:
- Promoting internally to key positions (84%)
- Training to improve performance in specific competencies (78%)
The leadership transition process is a key component of a firm’s leadership- development plan as well as its overall strategic plan. Yet, the transition from one leadership or management position in the firm to a higher level is often difficult. Leaders- or managers-in-transition often find it hard to let go of their fondness for familiar duties, perspectives and work habits, hampering their ability to assume new responsibilities.
This phenomenon will continue to cause a surge of challenges and opportunities, including:
- Transferring ownership to a new generation of leaders
- Capturing and embedding the cumulative knowledge of outgoing employees
- Developing intentional, purposeful succession plans
- Growing high-potential employees’ abilities to lead versus manage and think strategically versus operationally
- Preserving organizational culture for future generations
- Shaping business models to meet the demands of a volatile and uncertain market
For several years, succession planning has been top of mind for many firms within the construction industry. Unfortunately, the economic crisis threw retirement and leadership-development plans of many construction firms into disarray. Now that the shock is over and recovery strategies are in place, it is time to put leadership transition plans back on track. In fact, based on the survey results, it is evident that most companies realize that failure to move succession plans forward is much too large a gamble. Ninety-two percent of the respondents said that their organization has a well-defined plan for its executive leaders, an increase of 6%. This was followed by 66% who were planning for senior managers, 39% for project managers, 21% for field managers and 5% for experienced trade and craft personnel.
Succession planning is an ongoing, systematic process and should be tied to the organization’s strategic plan. In other words, the details of your succession plan are dependent on what the business wants to be in the future. It includes identifying, assessing and developing talent to ensure leadership continuity and must allow for unforeseen and constantly changing business needs. It must reflect the way a company wants to evolve in the future by aligning with strategic objectives and goals. Careful succession planning now can make all the difference in retaining key talent and ensuring your firm’s ongoing profitability and success.
Most people working in construction have experienced the pressure that results from the convergence of demands on schedule, price and quality. Construction is a highly competitive industry; leaders at every level are forced to respond to demands that may push them to the breaking point. Leaders who have difficulty managing emotions or lack sensitivity to the emotion of others inevitably have an adverse effect on the teams they lead. The inappropriate responses can vary widely from person to person, but may include explosive outbursts, unproductive comments and isolation. These types of responses are typical of leaders struggling with developing their emotional intelligence skills.
Most respondents identified “being an employer of choice” as the key strategy to attracting and retaining talent (see Exhibit 8). If an organization’s employees are forced to deal with leaders inside the organization who cannot effectively manage their own emotions in this demanding environment, then how can the organization claim to be an employer of choice? Marlin Company’s 2007 Attitudes in the American Workplace poll found that “nearly 20% of U.S. workers are aware of a threat or verbal intimidation. Eleven percent report being aware of an assault or violent act, which is up from 9% in 2000.”
It is more important today than it has ever been for leaders to define clearly what behavior is acceptable and what is not from members of the organization, particularly for the leadership team. The adage that people do not leave companies, they leave managers is appropriate today, and top talent will always be able to find a job at another firm if they are dissatisfied with how they are treated in their current organization. Outlining behavioral boundaries and setting the example are excellent ways to prevent problems before they arise by identifying guardrails to keep leadership consistent and positive throughout the organization.
ESTABLISHING AN ETHICS CULTURE
The construction industry has long had an image problem. More companies are living in the “gray”, pressing beyond their own ethical comfort zone just to stay in business. Apparently, the potential for financial loss or gain is a strong incentive for companies, and the individuals within them may feel pressured to take a detour from the ethical, principled way. The challenge going forward is to establish clearer standards to elevate the industry’s reputation.
Ethics policies are rarely mentioned when contractors speak of their success, though ethics has become a defining issue for the design and construction industry. Driven in part by societal pressure, ethics programs are gaining prominence within firms whose leadership have made it a priority and throughout the industry, supported by associations like the Construction Industry Ethics and Compliance Initiative (CIECI), the ABC and the AGC.
The establishment of effective ethics policies also provides strong evidence that the company is striving to be ethical, and that, in turn, raises the bar for the industry. It also provides a passive defense against undetected incidents of unethical behavior and reduces company liability when an ethical breach occurs. Companies need to start talking more about their ethical successes and beginning to do more to prove that they truly care about being ethical.
By now, you have likely gone through a workforce reduction, a compensation adjustment or both. As companies begin to position themselves for future growth in the face of an uncertain economic recovery, they are also faced with some strategic decisions. In order for construction firms to remain viable and successful within a new economy, they must continue to invest in their human capital. Organizations that strategically address the need to develop talent through recruiting, hiring and retaining, training development and delivery, performance management, career pathing, succession planning and evaluation will maintain a competitive advantage.
Ashley Sisk is an FMI Corporation alumna.