Forget the conventional wisdom about how the industry used to operate.
The construction industry has changed significantly over the last 10 years, with the most successful firms adapting with the expansion and contraction of the marketplace. Just 15 years ago, while interviewing for a position with a civil contractor, I asked my potential new boss, “How do you guys keep on top of all of the industry innovation and keep up with technology and its benefits?” The division president laughed as we drove past a grader and suggested that nothing had changed for hundreds of years in this industry and that he didn’t expect any changes in the future. After attending the latest NUCA annual conference, I realized just how flawed his perspective was. Contractors have a host of adaptations and enhancements to add to their operations and fleet. These knowledge-rich systems provide instant access to costs, and information, along with endless distractions. Despite this fact, equipment- and labor-intensive contractors have been “pinched in the middle.” Costs to maintain and operate (fuel) equipment have increased, and most trade-based contractors are caught on the losing side of the war for talent. Labor prices are increasing as a result, and while work appears to be increasing, in most markets, profits are smaller than ever.
Now is the time to forget the conventional wisdom about how the industry used to operate. If you are running a company that performs highly complex projects without clarity in your structure, it could be costing you big money on project results. A small utility contractor that lacks a clear strategy — for example, trying to perform private work, public work and residential work — is a great recipe for end-of-year losses. Each type of work mentioned requires specific systems and processes as well as clearly defined roles to be successful.
Introducing Lean Principles
The Lean Enterprise Institute defines lean as “Maximizing customer value while minimizing waste.” (www.lean.org) Starting the definition with the concept of customer value emphasizes the need for a clear strategy. In the quest to keep up with (and get ahead of) the dynamic and evolving market, some companies have turned to Lean principles. Some of these principles were first employed by Henry Ford with an integrated assembly of automobiles. Made most popular by the Toyota Production System, Lean originated in the manufacturing field. James Womack co-authored the book documenting this system in “The Machine that Changed the World,” highlighting critical principles that made the system successful. Lean concepts entered the construction industry on several levels.
In some ways, the industry has adapted these three Lean options:
- A Lean program is often supported by an owner and involves an architect, engineer, contractor and the owner promoting the value of Lean and focusing on removing waste from an overall project.
- A Lean project centers on removing waste from a project across all company systems and processes.
- A Lean firm is tightly focused on providing and delivering value to the customer at the lowest cost.
Lean isn’t a magic pill taken that helps achieve incredible productivity without effort. In many instances, companies adopt one or two Lean processes (typically a variety of the last planner process and fail to engage their employees in the bigger, goal-oriented picture. First introduced to the construction industry with Lean tools, Lean management can be a great advantage when adopted effectively. The Lean standard is not about just applying a set of tools — it is about creating a lasting culture.
Establishing Customer Value
Lean starts with knowing customer value. Many companies fail because they don’t understand client needs. Others assume they know what their companies value, especially when shifting into different markets or customer types with little or no market research to support strategic plans. For example, companies built to support only “low cost” may not excel at schedule-oriented projects (incentive bonus-associated) with high safety standards (no room for safety violations at all).
Lean firms can be recognized through their use of:
- Continuous improvement
- Identification and reduction of waste
- Engaging people
Another hallmark of Lean companies is cultural in nature. Companies positioned on the front end of the adoption curve will gain distinct advantage implementing enabling technologies. Many of these tools provide clear and timely measurement and feedback, which, in turn, assist in identification and subsequent reduction of waste. This may include equipment use (GPS and telematics), labor management (on-the- job remote clocks embedded on smartphones), material management with RFID, integrated project management and accounting software, and 3-D model integration.
Solution to Skilled Worker Challenges?
Adopting the Lean standard can help organizations overcome the skilled worker shortage. With engaged employees across the company, strong training programs and a mandate to “think” at the front lines, we can onboard new employees faster and more readily promote current employees. As it impacts how we train and learn our best practices, a Lean culture is immersed in constant study of “how” we do things and “how” we can make it better. This all leads to a cultural reinforcement that, in turn, adds up to much greater gains.
Continuous improvement is a buzzword bantered about in some companies and embedded in the culture of other organizations. Those who focus on continuous improvement become very good at measuring the items that truly matter. They conduct frequent internal and external evaluations to see themselves as accurately as possible. From there, they can expend just the right amount of effort in order to see improvement.
This improvement triage is vital to the continuous improvement concept. The majority of companies that conduct self-evaluations don’t do it well enough. Also, most companies in the industry don’t have an abundance of time or energy to constantly improve everything. Too many office meetings, for example, tend to pull everyone out of the field. This is counterproductive. Done correctly, evaluations and measurements point to the critical focus areas. Efforts are made and results measured to quickly determine if the right gains were achieved. Consider the Lean definition above. Given the resources we have, how can we maximize the value?
Previous studies have revealed that almost 32% of labor spent in the field does not support productivity. This recoverable lost time is spent waiting for the right materials (superintendent ran to Home Depot again!). Sometimes time is spent working less efficiently, using the wrong piece of equipment to do a job (JD 410 rather than a dozer). Sometimes time is spent installing something incorrectly due to a lack of correct (or complete) information. This leads to rework, which only adds to frustration.
A cultural dimension of profitable contractors is that the office (PMs, estimators, admin, accounting, shop, etc.) recognizes that the field makes the company money. If asked, “Who is your customer?” the office folks are clear on the fact that “the crew in the field is one of my most important customers.” The diagram below depicts a typical crew’s support requirements. We could argue that the arrows would flow both ways. It is clear that the lack of support from any one of these supports could cause the field to lose production and wait for the resources (or information) it needs.
Exhibit 1 shows the view of one crew, but the challenges faced by the company staff (office support as identified above) are significant when you have 11 crews on various projects. Stacking 11 separate crew-centric models may reveal the true difficulty that a company faces when attempting to “coordinate chaos.”
Consistent, yet variable support requires integrated communication across several key functions and positions in the company. Often the general superintendent is involved with manpower assignment and has input into equipment moves. This is often refined by the equipment shop manager and foremen out in the field. Effective equipment management, material management and manpower alignment are critical to a successful job. Companies must build these systems to include effective two-way coordination through the duration of the job not only at the beginning. (See Exhibit 2)
Full implementation of Lean principles is nothing less than a corporate transformation. It is about making change stick. By that measure, less than one-third of corporate transformations succeed. Many companies spend significant money on software, only to find that the real challenge was effective implementation. Similar to that, implementing the lean standard requires strong leaders. Walking the fine line between creating systems (mentioned above) and ensuring they are simple to use is a challenge. Getting buy-in requires mature leaders to help companies overcome the normal resistance to change. Sharing positive results from systems developed becomes paramount to getting support to continue the initiative. Seldom does brute force across the company yield the culture in which Lean flourishes.
Learning and Adaptable
Creating a learning organization is critical to success in this changing market. Piloting or beta-testing new ideas gives managers the room to test things out, to feel comfortable experimenting. The ideas can be successful in yielding an advantage or may be one of several “bad ideas.” Sharing these ideas across the company gets new ideas flowing and creates a focus on improvement. Another value to a learning organization is to rapidly adapt the company based on one crew’s learning experience. Not everyone in the company has to learn that the ’stove is hot.” This ongoing learning environment is preferred, rather than happening only at the end of jobs. Some firms wait until the end of the project to share ideas with the project team and then hope these lessons are shared on successive projects. Learning organizations feel comfortable sharing ideas and have a culture where it is commonplace to share mistakes with peers without waiting for the project’s end. Lessons learned libraries exist, and ideas are shared at group meetings, staff meetings and project meetings. More advanced companies have developed online libraries made easily searchable. (See Exhibit 3)
Moving Beyond Projects
Construction companies can significantly benefit from Lean concepts as they shift to Lean management principles. Tailoring company operations to deliberately deliver only what is needed for a successful strategy is key to minimizing waste. To do this effectively, employees need to be engaged in the strategy at all levels. Garnered by a clear vision and purpose, managers lead and contribute their ideas from the boardroom to the site trailer. This involvement allows for a continued refinement of the strategy as the market evolves.