The other day I had an early flight out of Atlanta and was sitting in my car about to reverse out of the garage. As a bit of an admitted geek, my radio was tuned to an am morning news radio station. For some odd reason, the local Atlanta channels don’t tune in real well within a mile or so radius of my home. We live in a rolling area and I have pretty much attributed this problem to physical geography. I fiddled with the dial and turned it up a notch to 760, which came in loud and clear. My point? AM 760 is WJR radio from Detroit!

Physics and radio technology aside (of which I know about zero), I was pretty happy to be presented with the opportunity to listen to WJR radio for about 3 miles of the trip to the airport. Don’t ask me how this was physically possible, I don’t know. Maybe someone can help me with that. But this radio station defined the “Center of Influence” that was Detroit during my youth. The sports teams of my youth came to life on that station. I still remember Ernie Harwell with his immaculately sweet southern lilt bantering about a Kirk Gibson home run, a Trammell to Whitaker to Evans double play or a Jack Morris fastball.  I remember hearing the play by play of Stevie Yzerman carrying his team yet one more time to the Stanley Cup playoffs; Barry Sanders twisting, turning and juking his way to superstardom; or Isaiah Thomas and Joe Dumars teaming for an NBA championship.  The sound of WJR was always on in the background of my family’s home spilling the local and national news of the day.

I was born in the City of Detroit. I was raised a couple of hours north of there in Michigan’s rural thumb. The thumb is, socially if not physically, light years away from the big city, but Detroit was our center of cultural influence. The Detroit that springs to mental image to many folks now-a-days (abandoned, high unemployment, crime ridden) is not the Detroit I was born into and remember. Detroit was an international city that built automobiles and trucks for the entire globe. The Detroit automakers were the envy of the developed world thanks to an innovation by Henry Ford that brought the automobile to the masses and gave rise to high wage manufacturing work. Immigrants spilled into Detroit for manufacturing work and opportunity, creating small burgs and hamlets that resembled their homelands but melded into American culture and society – in fact, helped to shape our culture and society.

This trip down memory lane does have a point. Detroit was the manufacturing capital of the world for a number of decades. Not just the Big 3 car companies themselves, but the suppliers, engineers, designers and product developers that sprang up to compete for and build components and sub-components for the automakers. Much of the economy of the area I grew up in reveled in the status of being the world’s great manufacturing giant. We became complacent with the status quo. We grew up with the expectation that additional education was a nice but not necessary accomplishment because one could earn a solid middle class living in the factories. In fact, the financial paradigm was tilted towards manufacturing work!  One could earn more money in the factories than many positions requiring college degrees. I never did work in a factory personally, but my siblings and many of my family, friends and neighbors did indeed choose that route. It is simply what one did. As a state and as business leaders, we grew complacent with success and status and failed to innovate. It is difficult to innovate when you have no one to emulate – and we did not. We scoffed at the “junk” imports that foreigners tried to make and introduce into the global market. For the most part, those initial attempts by foreign auto companies deserved some skepticism. They were not very good. We chuckled under our breath and went about building the best cars in the world. Since trucks and high powered muscle cars were the most profitable segment of the auto industry, most of the product development and marketing dollars went into them. The small car was best left for the “foreigners” to build. Who in their right mind would buy a small, shabby car from a foreign auto company? Why buy a glorified golf cart when you could listen to and feel the rumble of a 396 Super Sport Chevelle? The world must be mad to even consider such a thing.

But as history would show us, the world can be made mad very quickly.  Any great business or product can be rendered obsolete by forces outside of their immediate sphere of influence. The oil embargo of the 1970’s was the initial shock that sent our version of the world, and the fortunes of my home state, careening on a difficult path. Unbalanced trade laws, archaic labor rules and outsourcing are providing the final few notes of “Taps” to an industry and keeping the state in turmoil. We have not yet recovered, although by most appearances at least two of the companies have a good shot at becoming profitable again – although incredibly smaller and leaner versions of themselves.

The foreign auto companies, not wanting to compete head to head with muscle cars and trucks, developed small, fuel efficient cars from the get go. They looked to our automakers and emulated what worked and, more importantly, learned from what did not. They were hungry for success, yearning to gain market share in an arena dominated by huge national conglomerates. They were crazy for even attempting to do so. They failed, sometimes miserably, at first. They were small and nimble organizations that focused on efficiency way before Process Engineering became the consultancy de jour. They kept working, adapting, fine-tuning their development and engineering processes until that day when external forces beyond their control (the Oil embargo and fuel rationing) suddenly made their products a viable and desirable product for the consumer.

The trap was set, by no one in particular other than the hand of fate. Detroit would spend the next 30-40 years playing catch up in a game that they mastered in a market that they created. The masters had been overtaken by the student. I know it is easy to see with the benefit of hindsight, but no one (or at least a very few in my home state) saw this coming. The fortunes of Michigan would be forever changed the day that OPEC stopped shipping us oil in October of 1973 in response to the U.S. supporting Israel in the Yom Kippur war. The 20% interest rate cycle of the late 1970’s added even more fuel to the economic situation – but the city and domestic auto industry was already metaphorically burning. I think the same parallel on a broader scale can be seen in our peculiar relationship with Communist China. They are learning what we do well and are improving on what they can in several industries – not just manufacturing.

What is the lesson in all of this? Events that are unforeseeable often play enormous impacts on our fortunes. In a blink, what seems like common sense is lost to a new reality. If organizations do not remain nimble, agile and capable of rapid market corrections, those that are capable of those qualities will dominate the new industry. To those that are managing successful companies now – understand that your competition is studying how you do things and are learning to do it even better than you. They are seeing where you market, how you develop your products and services and the efficiency with which you convey them to your clients or customers. They are scouting what you do well and what they can improve upon. They are preparing to compete with you, in a market you may dominate currently, with improved versions of your own processes! And, if another of those unforeseen events occurs, (think cash crunch, credit markets freezing, etc.) these outsiders will be in a position to become the hunted rather than the hunter.

Even the best organizations with a large market penetration must constantly re-imagine, re-tool and re-think their processes and methods of engagement and be prepared to react when the unforeseen occurs. How many builders and developers were laughed at when they did not hold huge notes on land positions a few years ago? How many were scorned for not loading up on overhead and debt – even though debt was thought to be the magic carpet to affluence and overhead was code speak for “Positioning for future growth – because we will grow forever and ever, amen”? Those organizations that have been at the forefront of energy efficiencies and emerging technologies now hold the upper hand. Where does your company fit into this equation? Are you reacting to the marketplace or are you proactively defining your place in a new one? Discerning the difference between the two isn’t easy – but failing to do so has many negative consequences.

To wrap up – always, always remember and keep it as your organizations guiding influence – the competition is agile, smart, efficient, capable, proactive, always learning from you and hungry. You must behave like the competition – even in markets you may currently dominate.

Once again it has been a long time since my last post.  The biggest thing still taking up our time is helping our clients deal with the economy.  Our clients along with most of the solid companies in the industry have already made all the cuts they make.  They have stabilized their businesses by sizing their cost structure to deal with the realities of their revenue streams. 

So what’s next?  The smart contractors are preparing for the future.  Economies cycle – it’s a fact.  Truly strong businesses are built to survive in a downturn and have the systems to really thrive and grow when the market is growing. 

One of the key systems a contractor relies on is their accounting, job costing and project management software.  Today these are often found in integrated packages that minimize duplicate data entry and speed up data flow from one department to the next. 

While we find these systems extremely valuable we are also know they are very difficult to implement and create a huge disruption to the business.  We often caution our clients against the implementation of these systems unless there is a very strong business case and their team is truly ready for the challenge. 

There are hidden challenges everywhere that typically surface within the first year.  There are also tons of hidden opportunities but those don’t usually present themselves or provide any substantial return until year two or three.  When it comes to big investments that have delayed gratification system conversions have to be near the top of the list! 

One of my biggest personal frustrations with system conversions is the loss of relevant historical data to run analysis on.  Typically one of the key drivers for a business to upgrade their software systems is that the current system lacks the management reporting required to support decisions effectively. 

When you buy a new piece of software it should come with all kinds of detailed analysis tools and a great database structure.  The rub is that without the historical data being there many of these tools are relatively useless for the first couple years until you really get comparative historical data. 

Our financial and technical teams have been working hard during each conversion we manage to preserve as much historical data as possible.  The focus is not just preservation but also having that data ‘Cleaned & Organized’ to reflect the current business model the contractor is working with. 

This is a time consuming process and requires a lot of commitment up front but it absolutely can be done.  The additional commitment up front definitely shortens the implementation timeline as well as providing a higher-quality conversion.  There should be two primary focuses during a conversion:

• 1. No Data Left Behind: Including all the details from the prior system(s) and as much of the data that is stored in various little databases and spreadsheets throughout the company.
• 2. Minimal Disruption: Ideally this conversion process should provide an absolute minimum of business disruption. The learning curve for a new system is difficult enough to go through for the team. The faster the actual conversion happens the faster the learning curve can start.

When we see most conversions the data portion is OK at best.  The historical data is usually brought over in summary and many times the structure remains the same even if the new system works completely differently.  Why?  There are two general reasons – (1) bringing over all data in detail that is cleaned and completely re-organized to match the current business model is VERY difficult.  It requires a ton of up front planning; a lot of skill and a lot of desire.  The second reason is also just as simple – many of the conversion consultants and the teams leading the conversion are accountants.  Accountants typically works at a much higher level of summary than operations does.  The data that is appropriate for accounting to be able to do their jobs effectively often leaves operations a little short.   

We are by no means perfect at this however our technical and financial teams just managed our first conversion that was done ‘database-to-database’ where they cross-referenced all of the client’s data back 8 years enforcing their new business model on the historical data.  During the process they combined data from two companies; two separate systems and a variety of spreadsheet data. 

The point of ‘database-to-database’ is critical so let me describe briefly – the data was extracted live from the multiple databases.  It was then run through a central database that ran a variety of the conversions and cleaning functions on the data.  From there it was pushed into the new system in detail.  Because the data never left a database we were able to work with it live and test right up to the last minute. 

This allowed the conversion to happen quickly over a weekend with the contractor being able to leave their business for the weekend and come back on Monday morning dispatching service, writing POs and running their jobs from the new system. 

The lessons learned were valuable for anyone involved in the system conversion process.  We will be touching on more of the lessons learned in future posts but please don’t hesitate to ask any questions.  We will post responses in the comments section of this post.

The quest for efficiency from our supply chains is important to any business.  In an industry like ours, where our supply chain consists not only of raw materials but of finished goods and labor, our suppliers and subs present as much of a public face of our organizations as our own employees do.  “Squeezing” them for every last dime just doesn’t cut it.  Threatening to fire them unless they reduce their fees isn’t a magic solution, either.  Instead of fighting a losing battle with our suppliers, lets partner with them and get their feedback on where they think efficiencies may be found.  It may sound like an irrational statement, but oftentimes, getting more efficiency out of our supply chain has nothing to do with the suppliers and subs themselves, but how we and our staff manage these relationships and our projects.

Many of us have been there before.  The client dawdles in making selections on unspecified items (Terrible inefficiencies – thus wasted dollars – exist in allowances.  Eliminate them whenever and wherever possible).  They choose an ornate Italian stone that must be steamed over on the next ship, which may take six weeks.   In the interim, the quarry union went on strike.  Another two week delay occurs.  We can’t finish our custom bath tile.  Without tile, we can’t trim out the plumbing.  Without trimmed out plumbing, we can’t complete the project and final bill.  The plumber wants his payment, the tile setter is getting out of whack with his schedule.  The client wants the crew out of their home.  Anger ensues and a great project can easily turn to mush.  Sure, we will ultimately get the project done and the final bill will be sent and paid, but we are floating the project with our company’s money until we get it wrapped up and bills in and accounted for.  I don’t know about you, but I would much rather use client funds to float the project, not my company’s.  Cash flow is paramount.

While it is easy to blame the client and the supplier for this mess, we aren’t paid to lay the blame at someone else’s feet.  Clients don’t pay us to be finger pointers. Believe it or not, construction is not a production business.  It is a customer service business with a production component.  Our suppliers and subs, like it or not, are part and parcel of the public face of our organizations.  Choose them wisely, and not based solely on price.  Look at them as a critical component of your business, not the enemy.  While the example above is not the fault of any supplier, but the choice and delay in selections, it does not matter one bit to a client.  Let’s work with our suppliers and subs at the onset of a project.  Work hard up front to find areas that will cause problems down the road.  Selections are always a project delayer and game changer.  Your subs should be able to compile a list of items that are often found on punchlists or tend to be longer lead items, like the example above.

In this environment we are all trying to do the same or more with less.  This includes your subs.  Browbeating them now will not produce the intended result.  It will only drive a good sub away the moment they have enough backlog.  The only way this efficiency equation works is if we get more efficient in managing our projects, staff and supply chain.  Don’t expect everyone else to have all the answers, but, rather, work with them and gain their particular knowledge.  Small efficiencies can add up to big dollars.  We can’t manage a successful company unless we manage our supply chain as efficiently as possible.

Happy New Year.

The dust hasn’t yet settled from the residential real estate correction and we have begun to discuss a similar correction in global commercial real estate markets.  Already we are being sold by numerous outlets on the business potential of “green” products, alternative energy and sustainable construction being the “Next Big Thing”. 

We all want a differentiator for our businesses.  We all want to have that one special thing about our companies that helps us to market and define our niche or specific position in the marketplace. It may be tempting to jump on the the bandwagon and market ourselves as green constructors.  But there is a proven folly in chasing bubbles.  When they finally slow down enough for you to catch up with them, they pop – and leave us with nothing.  My careful market research has uncovered that anything that grows beyond what fundamentals say they should or becomes the next big thing before it is proven as viable eventually deflates.

I am not preaching that we stop pursuing education in sustainable practices, LEED accreditation or building science.  I firmly believe it is best to build energy efficient structures and reduce the amount of waste, energy and materials that goes into each one.  This practice is called stewardship and should be another differentiator for our organizations.  What I am suggesting is that a better understanding of building technologies and practices should be a part of our overall strategy for our companies, and not the main focus of our efforts.  Being certified green by an agency may gain you a customer lead or two.  But instilling sound business, marketing and trade fundamentals into your organizations, along with keeping abreast of and becoming expert in bleeding edge technologies will be the method of differentiation that we all seek.  Believe it or not, a company built on excellent business principles and sound management is in a very unique position that should be a huge part of your marketing plan.  Especially in our current market.  The marginal operators are ripe to be sent packing to different pastures.  There is one thing I have learned through the years and that is that recessions correct inefficiencies and weed out poor performers who make poor choices.  Unfortunately, this deep recession has removed even decent companies from the marketplace.  But those that have survived thus far should realize that sound business processes are the reason that these organizations are still around.  Not luck, not timing, not an expense account from Aunt Mildred (although these things are nice).  Don’t be afraid to market your permanence and position in the marketplace. Being on top of new technologies is a no-brainer.

So go ahead and chase new opportunities all you want.  It is incredibly important to be diverse and seek new avenues of growth. Your organization may make some money in the process.  But don’t ever forget to follow sound fundamentals and never, ever, never betray your core business.  Watch your debt load, be mindful of overhead and discretionary spending, don’t ignore staff training, define your market niche and keep abreast of new technologies.  These items have helped to define successful companies for generations and will define them for generations to come.  Chasing bubbles never has and never will.  Market corrections make certain of that.