Strategic Collaboration: The Path to Greater Value

If you were to place five people in a rowboat and each rowed in a different direction, where would the boat go? In circles. So, why are we surprised that the adversarial approach to construction has our projects spinning out of control? Simply put, if people believe they can only improve their situation at the expense of others, conflict is inevitable.

For the construction industry to take its rightful place in the 21st Century, it must adapt. The focus must shift from price, to delivering greater value, and in order for that to happen, greater collaboration must develop between all industry stakeholders. These stakeholders include the “five major food groups” within the industry-the owner, the general contractor/construction manager, subcontractors/vendors, architects/engineers and the workers.

The Importance of a Strategic Goal in Collaboration

The Thomas-Kilmann Model Instrument, used for analyzing different styles of handling conflict in management development, states that the five ways to deal with conflict are avoidance, accommodation, competition, compromise and collaboration. Unfortunately, the first three create a winner and a loser; therefore, they are not effective solutions over the long haul because the loser will eventually sabotage the process. Many people think compromise works, but this usually ends with no one winning. For example, the husband wants a red car, the wife wants a white car, and so they compromise and split the difference. They end up with a pink car that neither wants. Therefore, the only option that produces a sustainable solution is collaboration where all the parties create a win-win solution, in essence, a strategic goal.

A strategic goal, for the sake of this article, is defined as, “a project outcome that is mutually agreed upon that creates a win-win environment for all stakeholders.” The “outcome” can relate to a project, as the definition applies, or the much larger goal -redesigning the construction industry’s method of doing business.

Rosabeth Moss Kanter wrote in the Harvard Business Review that companies in need of a turnaround exhibit characteristics of secrecy, blame, isolation, avoidance, passivity and feelings of helplessness. The construction industry often exhibits these same characteristics. Instead of an adversarial approach to business, the industry should focus on greater collaboration. The more complex a system is, the greater the need for cooperation-and the construction process is very complex. This strategic approach offers significant benefits.

Joe Calhoon and Bruce Jeffrey report in their book Prioritize, “According to studies funded by Harvard Business School, businesses that focus obsessively on meeting the needs of customers, employees and owners while developing leadership at all levels, outperform comparison companies in four critical areas:
 

•     Revenues increase 4 times faster
•     Job creation is 7 times greater
•     Owner equity grows 12 times faster
•     Profit performance is 750 times higher.”

Yet despite evidence of the benefits of cooperation, some groups still resist changing. Owners complain about poor quality, out-of-control change orders and litigation. Contractors complain about declining profit margins, increased competition and shortages of skilled workers. Design professionals face declining profits and a shortage of skilled talent. The workers continue to leave the industry, which is not surprising when you consider that Job Rated Almanac rates all construction trades in the bottom 21 percent of career opportunities.

Despite the evidence, too many people attempt to hold on to the past. Either they don’t realize the negative impacts on their business caused by adversarial relationships, or they actually believe they have an advantage or have too much invested in the current system to change. These views are misguided and shortsighted.

Collaboration Leads to Improved Quality of Work

Dr. Dean Kashiwagi in his book Best Value Procurement explains that the typical design-bid-build format lowers quality, shifts the risk to the buyer, has a high level of contractor-initiated change orders and encourages the use of poor performing workers. Unfortunately, when buyers attempt to extract the lowest possible price from contractors and designers without considering performance, they are actually working against their own best interest. Therefore, developing a process in which the general contractor, subcontractors, architects and engineers all work together to develop the most cost-efficient design will add greater value.

Architect’s and general contractor’s fees represent about 10 percent of the total cost of construction. Further, construction costs are only about 10 percent of the total lifetime cost of a building. Therefore, the combined architect’s and general contractor’s fees only represent about 1 percent of the total lifetime cost of a building. In reality, their fees are virtually insignificant when compared to the total cost of the project. Instead, the driving factor should be selecting the best of each for the project to insure the best solutions are found for the remaining 99 percent of the lifetime costs. In essence, selecting the general contractor and the architect based on their fees is truly pennywise (1 percent) and dollar foolish (100 percent).

Of course, there are general contractors that argue that low bid is the only fair way to award work. OK, let’s assume they are correct for a minute. Then why not apply the same principle to selecting subcontractors? Oh, they argue, that’s not the same thing. However, one could argue they are being hypocritical and trying to manipulate the system to their advantage. This process only supports lower quality, since price becomes the driving factor and everyone on the project is in an adversarial relationship because there are no funds available for cooperation. Instead, it’s in everyone’s best interest to select the best subcontractor for the project based on the value they deliver, instead of the lowest price.

It’s not that price should be ignored, but it must be compared against performance. For example, hiring a roofing contractor with a reputation for leaky roofs because he offers the lowest price doesn’t make sense. Edwards Deming has argued that trying to get the lowest price from each subcontractor will not achieve the lowest project cost. Instead, cooperation across the entire system produces the best results. This is true regardless of the method of project delivery.

While many people understand that collaboration works on negotiated projects, they argue it won’t work where the contract was awarded based on highly competitive bids. Two examples dispute this position. First, a reader of my monthly newsletter, The Garrison Report, wrote with the following comment, “We have always believed your ideas that it’s better to work with the customer. We have always believed we did a good a job in that area. However, on a recent competitively bid project we decided to raise the bar.  In what way did they raise the bar?  Can we add a little here? The project was more profitable than usual and the customer said it was one of their best projects.”

In the second example, a road builder got a job the hard way-he was the low bidder. He realized he had a problem once he was awarded the job-he took the project too cheap. The company president sat his people down and told them to go back to the city and find every way to simplify the process and speed up the project because the only way to make money was to get the early completion bonus. They did just that and finished early, but the surprise was they actually made a nice profit before the bonus. The bonus turned the project into a great project. When the president was telling me this story, he then smiled and said the best was yet to come. He went on to explain that other cities wanted them to design-build their next road so they could take advantage of his aggressive schedule. Very few people really want confrontation. By turning to collaboration, all kinds of doors are opened.

Collaboration is not a silver bullet that will automatically eliminate all the challenges within our industry. However, without collaboration, the problems may be unsolvable. Construction is a great industry with a glorious history, from the days of the pyramids, through the Renaissance with its great cathedrals, to today’s creative projects. However, the industry can soar to even greater heights if only we work together for the good of the industry and society. If we collaborate and use our collective knowledge and experience to deliver the highest possible value to the collective unit, there is no telling where the industry can lead the world. Each of us must stop blaming others for the problems in our industry, instead we must be accountable and contribute where and what we can. When people start helping each other, it tends to become contagious. This is no easy task, nor will it occur over night, but we really have no other choice. Keep in mind that even the longest journey begins with a single step. Enjoy your journey!

 

Construction Business Owner, January 2006