In the construction industry, productivity and profit are always doing a dance. They are always partners no matter whether your firm is a global giant or a local sub. Whether productivity and profit perform well enough to make it onto the professional stage or just at the local club depends on both productivity and profit doing a well-choreographed performance. If the productivity on the jobsite is good, then your profit is likely better. If your work crews are not performing and productive, then your profits are likely not performing well either.
McKinsey & Company recently did a study authored by members of their team titled “Beating the low-productivity trap: How to transform construction operations” that focuses on 30 major UK infrastructure engineering and construction firms over the decade from 2005-2015 to measure their growth and to determine whether they either performed or underperformed in their markets.
Even though this study was about infrastructure engineering and construction firms centered in the UK, the points made and the tips offered can apply to every company doing the productivity-profit dance, no matter what your size, should “read and heed.” First, of the 30 public engineering and construction companies studied, “Fewer than 15 percent consistently enjoyed double-digit growth and margins for earnings before interest, taxes, depreciation and amortization (EBITDA).
In the companies examined, within the UK companies, the labor productivity when compared to other industries was tepid to say the least. While other industries' productivity gained around 30% for the 2005-2015 period, the engineering and construction industry gained only around 7 percent. Not robust to say the very least. The picture was similar in North America as well. That might even apply to your own dance floor too.
What about the other 85% of us who struggle every day with the “productivity-profit” dance by trying to perform at professional level on every tier in our businesses? There is good advice for us as well.
The study examines a number of internal and external factors impacting those companies and I would venture that you can identify one or two that might sound familiar to you. “The Internal Challenges.” While most of us point to the market conditions and the competitive bidding going on in our markets, we forget or don’t want to look at our operations to see what we could do to improve our productivity and profit dance.
The study identified five factors that you should be sensitive to. “Shortfalls in accountability” or no one is accountable for the performance of the field crews, the budgets or schedules. Second was the lack of “Talent management.” Not only are the firms not able to recruit and retain, they do not have the training skills necessary to grow the talent for ever larger more complex projects and technology.
Companies who are not managing the productivity profit dance are constantly “Reinventing the wheel” on their projects, in their business units and throughout their operations. Sound familiar to anyone?
“Failure to adopt new technology” is pointed out as critical in gaining the productivity in the systems that can provide for better productivity throughout the company. This is especially critical when we are still adapting to BIM and enhanced VR is layered on top of 5D BIM, LEED 4.0 and the IT systems needed to incorporate those technologies into the office and into the field.
All of those previously mentioned issues could cause overall “Problems utilizing resources.” No management ability to make it all work together.
"External Challenges." The combination of the internal factors are also impacted by a number of external factors that we see every day. “Fragmented value chains,” caused by complexities, other principles making problems for you, the disruptions caused by delays in supplying a job or waiting for another party to get “off of your dance floor” can all contribute to a lack of productivity in your company.
“Extensive subcontracting” with subs who have differing goals, different levels of expertise and who are slow or inept makes our dance more difficult. “Complex portfolios” with tough budgets, bids, schedules and “partners” make the productivity-profit dance sometimes impossible.
“Competitive Pressure” is one that we all know well. In the global markets it is the Chinese, South Koreans and European companies. In the domestic or local markets it may be the stat up down the street or the “new dance team” who is moving onto our dance floor right in front of us.
In spite of all those possible issues and influencing factors that threaten to sweep our feet right out from under us, the McKinsey study suggests an extensive list of common sense things that you should consider whether you are on the “dance floor “ for the first time or are a seasoned professional. Those tips include some broad areas to counter the factors, both internal and external, that you are dealing with in the productivity – profit dance. They call these tips, “How to do better.”
“Articulate a clear set of values and targets.” Tough to do when you have grown and spread around the world, even tough when you are a family owned business dealing with succession or market planning. Necessary in both cases in order to know which dance it is and what the music is that you want to dance to in your construction business.
“Build a development program for project managers.” Sending a rookie project manager to another country or even another project is a big mistake. The dance music is different, all of the conditions are new and the chances of success are more like luck. You need a development program for project managers at least.
“Create an integrated data system.” What good is big data if it sits somewhere and is never used to analyze what happened at the last dance. Were we productive? Were we profitable? Who knows? Without an integrated data system in the 21st century you will never keep up with projects of any size.
“Encourage speedy risk mitigation and decision making.” Losses are one of the most damaging to the dance. Any risk issue that pops up has to be dealt with quickly and efficiently to minimize the possible downside in short term and long term business and reputation.
“Make project-delivery teams more accountable.” This advice applies to every team and crew from the first day to commissioning and hand-off. In engineering and construction it should be clear from the very beginning who has what roles and what the expectations are for the field crews and everyone supporting their efforts. “Standardize systems and practices.” Just like in the dance, there are standard moves, positions and music, in engineering and construction there should be standardized systems and procedures that everyone understands and utilizes.
Last and something that should be obvious. “Minimize the number of changes.” Every change order or change of project manager or superintendent of foreman cause disruption and time wasted. Like changing dance partners in the middle of the dance, it takes time and costs money for everyone involved.
In the productivity-profit dance, we are always struggling to maintain balance, train our lead dancers, learn new instruments, and do it on a variety of dance floors and projects throughout our markets. By incorporating the tips in the McKinsey study into our own company processes our productivity will improve and our profits increase. When that happens we can look for new growth and can improve the results we see in our businesses.
I would encourage you to read the entire article to see the other details that the authors have proposed.