Succeeding at Succession – Part II
In this second article in our series on succession, we will continue the discussion of the internal transfer of responsibility and ownership, the most common method for construction companies. It does bear repeating that self-performing contractors, not required to bond, can usually be sold, as can established general contractors with a strong brand franchise and a reliable client base, especially in preferred growth markets. Still, most construction firms transfer ownership and control internally.
Many construction companies will face the need to transfer leadership and ownership internally in the coming decade, perhaps sooner as baby boomers (now 55-75 years old) retire. This challenge becomes a major strategic priority, requiring intense time and focus, as there are not enough Gen Xers, (now 35-55 years old), to replace them. This reality is forcing companies to accelerate the development of millennials, the oldest in their early 30s. This fact fractures the traditional leadership development model in construction and pushes senior leadership teams way out of their comfort zone. However, since this need is so pervasive, many tools and programs have been created that help educate, expose and season these younger high potentials. These consist of aptitude and psychological assessments, 360-degree feedback instruments and experiential education that helps people truly understand who they are, essential for senior leadership responsibilities. There are also tools and software to help the company truly implement a talent or human capital development function.
These aids and programs have all been validated, especially if selected and implemented with experienced consulting advice.
In his powerful book “Good to Great,” researcher and teacher Jim Collins found that great companies develop successors from within, a preference of most construction companies. These organizations wound up with leaders who had two distinguishing characteristics—professional will (an unwavering focus on results) and personal humility (sharing successes with their team and taking personal responsibility for failure). Both are highly recognizable hallmarks of successful contractor leaders. There is reason to be optimistic that these future leaders can be developed from within the current pool of high potentials in most construction companies. Many people attracted to construction have these attributes in embryonic form, and they become visible in people early on, when they are estimators, project managers or superintendents. These qualities can be nurtured and expanded. The leadership skill set can be trained, refined and observed.
Consistent value-based decisiveness that reflects the company culture will become highly evident. Thoughtful, analytical risk analysis, acceptance and management will be clear and measurable. The desire to be a leader and owner will be reflected by the willingness to write a check and to put “skin in the game.” With proper focus and time, and the judicial use of external resources, construction companies can ensure successful transitions in the CEO and other senior management roles.
Houston’s Monthly Metrics
On June 2, the Dallas branch of the Federal Reserve Bank released its latest economic update for the region. Texas, overall, is growing at a moderate pace and “boosted by the recent stability in oil prices, Houston employment expanded for a fifth consecutive month in May, registering the fastest year-to-date growth among the major metros,” as evidenced in the chart below.
However, Houston’s unemployment rate of 5.1 (actual) is still well above Texas’ 4.4 and the United States’ 4.1. And the recent slide in oil prices is only going to prolong Houston’s recovery, making the forecast of Patrick Jankowski, vice president of research at the Greater Houston Partnership, of a bathtub-like recovery increasingly probable. Revisions to the Houston employment numbers in April brought the unusually strong numbers down, while local economists still expect the year-end total employment growth numbers to be around 40,000-50,000, which is slower than our normal pace, but significantly better than the relatively zero job growth experienced in 2016.
There are many other positive indicators for our region. The Purchasing Manager’s Index remains well above 50, signaling an expansion in the market, and auto retail sales in May were the best since August, suggesting consumer confidence is improving. The American Institute of Architects’ Billings Index jumped up, as did its project inquiries and design contracts indices, all indicators of growth nationally, with the southern region, where Texas is located, being especially strong. City of Houston permits, while still down slightly from a year ago, show a significant shift from renovation-type work to new construction. CBRE continues to track the strong light industrial and retail markets. Despite several retail chains announcing closures, a recent Time magazine article revealed Americans are now spending more at restaurants than at grocery stores, with no signs of reversing trend. CBRE is even hinting that multifamily could be poised for growth as early as next year.