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FMI Quarterly/September 2014/September 1, 2014

Building Great Strategic Business Unit Managers

workingplans11._imageWhat is your plan to grow or hire the “right person” for your strategic business unit?

As optimism and sustained growth make their way back into the engineering and construction industry, a familiar threat is returning: the war for talent. But this time the landscape is different. Not only is the war back on, but it has become even more acute. The current domestic oil and gas boom in the United States is rapidly driving high salaries and a return to aggressive recruiting tactics.

In this environment, key positions such as Strategic Business Unit (SBU) leaders are essential as companies expand market reach. Broadly defined, an SBU leader has primary profit and loss responsibility for a region, office or practice area. Essential functions include business development, revenue and profit growth, operational expertise, staff leadership and management.

Finding the “right person” for an SBU position is critical to business expansion. Yet because of the demographic bubble that brought us waves of baby boomers (and few Generation Xers to fill in the gaps), the available pool of talent is very small. Additionally, very few engineering and construction firms — other than the megafirms — have historically been successful in integrating key outside hires for executive positions like SBU leaders. Most still find experienced outside hires a high-risk, expensive solution due to uncertainties of cultural fit.

With all of these factors in play, finding the right person can feel a lot like bobbing for apples. However, using and assessing specific competencies when hiring candidates from the outside or promoting from within can significantly increase the likelihood of a successful hire or promotion. In this article FMI examines five critical competencies that separate star performers from average performers in SBU positions.

#1: Skilled in Leadership

Leadership is an essential competency at the business-unit-management level, yet many companies promote people into SBU positions because of their long and proven histories of successful management. The best business unit leaders combine the more observable and quantifiable planning, organizing and driving-results skills with the less tangible — but equally important — leadership abilities. Specific leadership abilities in these positions include:

  • Setting direction. Developing, communicating and aligning a business unit toward a common vision that transcends day-to-day operations and communicates a compelling sense of purpose.
  • Aligning resources. Putting the right people in the right positions that play to individual strengths and creating a driving sense of personal ownership for business unit success.
  • Developing talent. The best business unit managers recognize that talent acquisition and development is an essential part of their role. They actively and constantly recruit, coach, provide feedback and manage talent.

True leadership is a rare and valuable commodity. There is usually a direct correlation between leadership competency and revenue/profit growth in a business unit. When selecting SBU leaders, executive teams should take a deep and honest look at how candidates drive results in their current roles. Many make the mistake of selecting candidates who get results through individual gifts like the stamina to work extreme hours, exceptional intelligence and charisma. The most effective performers in these roles, however, know how to balance the subtleties of understanding when to lead, when to manage and how to bring the best out of individuals and the team.

#2: Strategic Thinker

Great leaders in business unit leadership roles possess a deep and nuanced understanding of the volatility, uncertainty and complexity of construction markets. They know how to move quickly to take advantage of opportunities. They also know when to act and when not to act. They focus intensely on their markets and customers and are students of political, economic and social trends that drive their businesses. Most importantly, they can quickly and intelligently sort through all of this data and clearly articulate the information into a specific plan that creates a sustainable competitive advantage. Effective leaders in these positions are close to key stakeholders (i.e., owners, developers, designers, financiers, general contractors/construction managers and local craft labor), and they understand how their deliverables bring value to their customers.

Successful SBU managers are opportunistic and entrepreneurial. They also operate with disciplined and purposeful strategic intent. These leaders constantly encourage their staff to challenge traditional models of execution, business development and planning. The most effective among them deeply embed this ability at all levels of their business units, ensuring that they are not the sole source of strategic thinking for those units. They also take on the hard work of ensuring that the strategic thinking is captured, tracked and reinforced constantly.

#3: Growth-Oriented

Top business unit leaders recognize the difference between rapid, opportunistic growth and controlled, intentional expansion. They also understand the important distinction between revenue increases and profit growth. Controlled, profitable expansion is highly desirable in a construction business and aligns the organization to customers that are also growing. However, growing faster than one’s capacity is a primary cause for contractor failure. In other words, an extreme rate of growth is neither sustainable nor healthy.

The SBU manager should have the core competency and strength to resist out-of-control conditions and build adequate organizational capacity that sustains the growth rate. Controlling and managing the construction process is key to managing the high-risk environment in the industry. Few people realize that the construction industry’s pretax profitability is 2.0% (or less) at the general contractor level and 3% to 8% for the trade contractors. At those profit levels, you must manage growth rate and the associated risk from operations. SBU managers who succeed have controls and processes in place to ensure balance between capacity and growth rate.

#4: Systems Builder

SBU management requires a passion for consistent execution. While a company like McDonald’s is known for delivering a consistent product and experience in every restaurant, a construction leader faces the unyielding demand of driving repeatable process in a business where each project has unique challenges. This role requires being close enough to the work to know what needs to be done and then building the systems and processes to do that work consistently and profitably. Process and procedures that are self-reinforcing and driving the right behaviors are the cornerstones of project execution.

Edwards Deming, the master of quality, stated, “Variability is the enemy of quality in manufacturing” (productivity in construction). Insistent compliance, coupled with appropriate process, will yield high rewards. Managers who have the discipline to create effective and efficient systems benefit from higher quality, productivity and profitability. The SBU manager understands this investment results in superior execution and performance for the company. Compliance with prescribed process and procedures is not optional in these companies, and people are trained in application of systems as part of their organizational roles.

#5: Business Acumen

Many times, a nose for profit appears to be an inborn set of instincts when it is actually the product of many years of experience and intentional reflection on experiences — both successes and failures. As the lifeblood of a construction business, cash flow requires considerable attention along with the constructability of the projects. The ability to anticipate cash flow behavior and constructability issues are all part of the business acumen required of the successful SBU manager. Other critical business acumen skills necessary for the job include knowledge of banking, bonding and relationship management with all stakeholders.

Conclusion

Using these competencies in a disciplined and rigorous process of identification and selection, and subsequent talent development will significantly improve hiring and promotion decisions, speed up time to contribution for new SBU leaders, and ultimately drive business unit growth and profitability. Training and developing these skills is not easy, but these tasks are more achievable using specific, measurable and assessable developmental areas. In today’s competitive business environment where critical business units play key roles in financial performance, the development of these positions is a strategic imperative. What is your plan to grow or hire the “right person” for your strategic business unit?


Jake Appelman is a principal with FMI Corporation. He can be reached at 303.398.7220 or via email at jappelman@fminet.com. Ken Roper is a principal with FMI Corporation. He can be reached at 303.398.7218 or via email at kroper@fminet.com.

 

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