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FMI Quarterly/September 2013/September 1, 2013

Why Strategy Fails

workingplans24_image“Too long. Too short. Too outdated. Too irrelevant.” This may sound like your childhood “Goldilocks and the Three Bears” book, but they also may be adjectives you use to describe your company’s strategic plan.

Strategy determines how you will invest the limited amount of time, talent and treasure you have to align with market opportunities. There are countless books and articles written on strategy, and a simple “business strategy” search of Amazon’s book offerings yields a staggering 85,000 results. This search will provide you with several catchy book titles, some of them containing words about blue oceans, ninjas, safaris, pumpkins and even one about a fat smoker. At an average price of $20 a pop, you would need to shell out nearly $1.7 million to get through Amazon’s collection of business strategy offerings alone. Even worse, at an average of two hours per read, it would take you 20 years to get through all of them — assuming no sleep (which we know is not a problem for you contractors), but at some point your families are going to take offense that you prioritized ninjas and fat smokers over them. Even if you do not care about your family, something tells us that the industry is going to change slightly over the next 20 years, so you may need another approach.

With all of these resources and clever ways to learn about strategy, why do so many firms in the construction industry struggle with this subject? If there are enough individual books on this subject sold on Amazon that would cover the surface area of one and a half football fields, we surely must have this strategy thing nailed, right?

Few applicable books are available to contractors that address the complexities relevant to their environment. Construction is a high-risk venture with risk concentrated in specific markets and occurring over tight time frames. Geography constrains contractors more than it does other industries, and while contractors often expand beyond their core footprint, these types of expansions can bring on inordinate amounts of operational risk for a business model that does not enjoy
substantial economies of scale through increasing volume.

Buyers of construction services have many choices, which increase the difficulty in gaining a strong foothold with a steady customer base. In addition, since owners are the ones paying for anything new, the urge to get ahead in terms of innovation must be accepted ultimately by this generally risk-averse group, and then competitors can often imitate innovations. Furthermore, we cannot forget to mention the team needed to execute strategy. Contractors often are pulling from the same talent pool, resulting in a lot of time and investment to build a team that gives a competitive advantage, many times losing much of that talent during a down cycle. To put it simply, it takes a lot of time, resources and effort to gain an edge in this industry, and the outside world is moving at a pace that can make investments obsolete in weeks or months, as opposed to years or decades.

So what should contractors do, within their influence or control, to give them a clear competitive advantage? While there are no silver-bullet solutions, a successful strategy will typically answer some or most of these questions:

  • What will give customers in your core market a compelling reason to pick you over your competitor?
  • How will you gather and use business intelligence about, and develop key relationships with, targeted customers in your core markets?
  • How can you generate a well-balanced customer mix that provides a diverse stream of revenue, while staying focused on being a forerunner in your chosen markets?
  • How will you continuously drive operational and organizational effectiveness?
  • Why will talented prospective employees pick you over your competitor and why will existing employees decide to stay and develop their careers with you?

As represented above, sound strategy often focuses on setting direction for the external environment, then aligning and motivating internal resources to capture that market potential. Traditionally, more thought and brain power will go into deciding what that direction is, and more blood, sweat and tears will go into the execution of that strategy.

FMI has been fortunate enough to work with many contractors over the past 60 years in developing strategic plans. We have seen companies elevate their organizations to new highs through great strategy as well as some that flounder in executing the words they put down on paper. By our observation, a few clear distinctions exist between those that succeed and those that obtain mediocre results or even fail at strategy.

If you find yourself struggling with your strategy, here are some of the top reasons that contractors fail at strategy and some advice to avoid being ensnared in these traps:

You failed to focus on the few things that really matter. Contractors, by their very nature, are about getting things done. If you are going to invest the time sequestered in meetings for days on end, you want to identify as many strategies as possible. Contractors often measure their day’s success by quantity and therefore tend to produce voluminous chapters of a strategic plan. Instead of asking, “What are all the things we could do in order to accomplish our objective?” ask, “What are those few things that we can accomplish in the next X days that will give us momentum and propel us to the next phase and eventual success?”

The few things that you should focus on will ultimately be those that set a culture of excellence by showing real progress and generating excitement about change, thus developing a “rhythm” for the strategic direction of your organization. The few things that really matter to the strategic direction of your company can be the most difficult, such as making a key management change, starting or stopping your focus on a specific market or admitting mistakes to your people and making a commitment on changes going forward.

You forgot that strategy is about aligning with market opportunities, which sometimes are not always right in front of you. Many contractors have a hard time looking up and outside of their own organization and therefore neglect to gather sound data to make business decisions around markets, customers and overall trends that will influence where and how they work. Let’s face it; research is time-consuming, expensive and often hard to understand in an  operationally driven business. However, if you agree with the following statement: “It’s a different world out there,” then your decision not to engage in external market research before cementing your strategic plan is only half-baked. To have clarity and confidence around your strategy development, you need divergent thinking, followed by convergent thinking. That is, you have to surface many possible options and then sort through them with facts to settle on the few that really have promise. Assumptions about the “4 Cs” — climate, customers, competitors and capabilities — must be developed and tested before you can truly have good strategy based on sound understanding of the market.

You focused too much on the outside world. Yes, there is an outer bound to the amount of information that you realistically can collect, digest and base business decisions upon. Too much data leads to “paralysis by analysis.” Some management teams have a hard time realizing when they have enough information to make a decision and realize that some things are impossible to prove “beyond a reasonable doubt.” Management judgment must come into play. Some management teams simply do not have enough experience in dealing with ambiguity. The best management teams have a mix of people who are comfortable with ambiguity and those who are okay being a “devil’s advocate.”

You based your strategy primarily on achieving some arbitrary revenue figure. While the primitive nature of all human beings is to think that “more is better,” the truth is that in this risky industry, “more risky” is something that you may not want to be. As avid readers of the Engineering News-Record’s Top 400/600, we all can name the top contractors in our market segments. The contractors that can make those lists for generation after generation deserve much respect, but those firms are rare. Instead of focusing on volume, you should concentrate on maximizing earnings on sustainable revenue levels and mitigating the risk associated with those levels.

You forgot about how, who and how much? Well-crafted strategic plans are meaningless unless you know who is accountable and responsible for strategies and actions. We become so overwhelmed by information that we often forget to
ask who is accountable — the individual who will take ownership of a task and who is responsible — the person or persons who will have the obligation to support the accountable individual. Additionally, without specific measurements or milestone goals that are scripted, we never know when we get to our goals and when they may need revision.

One of the best ways to help keep the organization accountable to strategy execution is to have regular sessions to review smaller parts of the strategy, constantly revisit and reinforce the overarching strategic themes that the company is pursuing. Constantly ask, “What’s working,” “What isn’t working” and “What’s next?” The intent is to create a management rhythm that will constantly drive the organization forward to execute its strategies.

You forgot one last and minor detail — to tell your people about your strategy! When it comes to strategic planning, the “What happens in Vegas stays in Vegas” syndrome will not suffice. Over the years, FMI has seen some brilliant strategies professionally printed and bound, only to be placed in the filing cabinet. When your employees know that you and the rest of the senior leadership of your company took off for a strategic planning event, they deserve to know some high-level outcomes of the strategic plan. A good communication plan will include the who, what and when of actionable outcomes of your strategic planning efforts. The plan will also provide an avenue for ambitious and up-and-coming employees to get involved, be measured and show their successes. After all, it is those employees who will ultimately be responsible for delivering results and will one day be participating in setting the future strategy of the business.

While these reasons are not necessarily indicative of overall failure, they are what we tend to see from companies that describe prior strategic plans that failed to gain traction or did not produce results. No strategy is perfect, and any strategy development process has flaws. Based on our 60 years of experience, we offer these classic flaws as a cautionary tale, so you can assess your current strategy processes and better position your organization to deliver the results you are expecting.


Brian Moore is a principal with FMI Corporation. He may be reached at 919.785.9269 or via email at bmoore@fminet.com. Jeremy Brown is a consultant with FMI Corporation. He can be reached at 303.398.7205 or via email at jbrown@fminet.com.

 

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