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FMI Quarterly/June 2015/June 1, 2015

Raising the Concrete Curtain

PeopleOutline_imageThe world of construction in the U.S. and Russia is more alike than you’d think.

Most consulting business trips begin and end with little fanfare. From the fun associated with airport security to the monotony of the typical business hotel, business travel rarely looks as fanciful as George Clooney presents it in his Academy nominated performances. However, many of the industry’s challenges are fun to triage, and the solutions are equally rewarding to discover.

Imagine the intrigue associated with a consultative trip to Moscow during the chilliest international relations since the Cold War. Exit George Clooney, enter “The Bourne Identity.” What might normally have been a 10-minute travel search for a domestic flight and hotel became an arduous two-week exercise to simply acquire work visas. How different would the Russian construction marketplace be relative to our own? Ideologically speaking, there are only a few countries that might be as far apart from the United States. Would this dichotomy exist also in the construction industry?

Interestingly enough, the two markets have more in common than one might think. As part of the engagement, it became important to document observations and provide solutions. What began as a seemingly impossible task to assimilate in a new culture, muddle through a complicated language and navigate the quagmire of bureaucratic red tape quickly morphed into an engagement with an all-too-familiar theme. The observations below are three of the most commonly aired observations from the client’s perspective.

“We don’t have time to plan at the project outset — things happen too quickly to plan.”

Apparently, things eight time zones away are no different than they are in the U.S. Projects are awarded and, in our fervor to get things done, we send crews, materials, equipment, trade partners and so forth to job sites with little to no advanced planning. Why does any firm think this model will be successful? Even those contractors that create a “Job Book” for their field managers are leaps and bounds ahead, but it is imperative that some level of planning and face to face take place. There are those customers that will insist on having boots on the ground — in those cases, planning has to occur in tandem.

Excuses abound when it comes to preconstruction planning failures. Things happen too fast, the project is too small, the project is too big, the customer won’t allow us to plan, and so forth. The excuses must end if firms expect to be more productive and more profitable. One of the primary reasons customers fail to buy into the notion of planning is because contractors fail to buy into planning. Planning is not simply “checking the boxes,” but rather a constructive, collaborative dialogue that occurs between the office and field, estimating and operations — with the end game being a winning project strategy.

“We get to the end of a project and have just enough time to start a new project, barely thinking of the one we just finished.”

The “Superintendent Shuffle” is a dance that’s not exclusive to western contractors. The superintendent that started a project rarely gets to finish it as he or she is swooped away to begin the next big thing. Getting to the end of a project and finishing strong requires as much planning as the start of the project. While analogies of an NFL “Two-Minute Warning” may have been lost with the Russian contractor, firms must develop an effective strategy to close out projects, cognizant of items such as demobilization plans, utility transfers, equipment returns, punch list completion, commissioning and closeout documents. Often these items are afterthoughts that lead to margin erosion.

The corollary of closeout is the project postmortem. If there is little time to close out a project effectively, it is a safe bet that there is little done to evaluate the successes and challenges of a completed project. In this case, failing projects were only examined in the cases of catastrophic failure (and we’ll avoid the easy jab to say that project team was sent to Siberia…). A post-job review is less about sharing the wins and losses with the people that lived the project and more about sharing those lessons with the rest of the firm. Think of a post-job review as an opportunity to populate the firm’s “Wikipedia” of best practices. The “Lessons Learned Library” becomes an essential resource in training new associates wherever they are located — Siberia or otherwise.

“We have a real labor issue. Most of our labor comes from outside of the country. Young, local ‘kids’ don’t want to be in the construction industry.”

It was easy to see the parallels of this conundrum. There is a distinct shortage of labor worldwide, particularly among the trades. Simply put, construction is a “dirty job” (thank you, Mike Rowe), and regardless of your zip code, young people are not as interested in being part of this industry. While no one can argue the fact that construction is a rewarding career, and one in which a decent living can be made, it is far from being the most desirable occupation. While the Russian market might be lagging at this moment, the American construction market is on fire. So as backlogs surge, who will do the work?

While there may be no immediate solution to a large, systemic problem, firms can work to secure their current employees by taking these steps:

  • Realize the value of training and career development and invest in the people within the firm. This doesn’t mean everyone has to have tuition reimbursement to an Ivy League school, but spend the time to grow talent within the confines of the firm.
  • Next, communicate with the people within the firm. This doesn’t mean leaving the income statement on the break room table, but it does mean sharing the direction of the firm with employees.
  • Listen to the firm.More often than not, firms fail to listen to the pulse of the firm. Leaders will preach from the pulpit but fail to listen to the congregation.
  • Lastly, reward the top talent. Develop a sound, incentive-based compensation system that rewards the right behaviors. Superstars should be compensated like meritocracy.

The simple fact is, with a strong infrastructure built on talent development, robust internal communication and performance-based incentives, employees are content. When the first two areas aren’t addressed, associates look at one another and say, “I put up with all of this AND I only make XXXX.”

Moscow offered an insight into a world that many only read about in the news. To see the city from a business perspective rather than as a tourist, I caught a glimpse into a construction industry that was more similar to its American counterpart than most would think. For all its bluster, once the Concrete Curtain was pulled back, it was easy to see the similarities of the construction world. Well, maybe the next visit we’ll get to work on international relations. For now, das vadanya! Q


JUST THE FACTS
According to IHS Global Insight for Eastern Europe:

    • Russia is the largest construction market in Eastern Europe, accounting for half of the construction spending in the region.
    • In 2014, total construction spending in Russia was expected to post a 1.4% decline, to be followed by a 3.4% rebound in 2015.
    • Construction spending in Russia will increase at a 2.3% CAGR between now and 2018.
    • Construction in Russia will also pick up in preparation to host the 2018 World Cup, with spending amounting to an estimated 632.37 billion rubles (US$22 billion).
    • For the World Cup, 241 billion rubles will go to road construction and 123 billion rubles will be spent on stadiums in 13 different cities.
    • Russia and Bulgaria will spend the most on infrastructure over the next five years when compared to their Eastern European peers.
    • The Russian/Ukrainian conflict put pressure on growth potential across the region, where GDP was expected to increase 2.9% in 2014 and 3.4% in 2015.

Gregg Schoppman is a principal with FMI Corporation. He can be reached at 813.636.1259 or via email at gschoppman@fminet.com.

 

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