Building Foundations for Future Organizational Development

After sorting through the rubble of the recession, construction firms need to look closely at its business structure, says consultant

By Terry Kramer

There is no doubt that the construction industry has been turned upside down during this economic debacle. Bodies have flown out the door in droves. The employee cuts were sometimes made in a coherent manner and at other times the cuts were emotional, reactive decisions to rapidly declining revenues and profits.

As the smoke clears, some owners and management are sifting through the remains of their organizational structures and are starting to believe that they might be able to salvage a business out of the people that remain.

How should construction firms build their organizational foundations? What should their organizational structures now look like as preparations are made to look ahead? The most critical guideline is that all organizational structures should follow strategic revenue targets in conjunction with services and supporting tasks provided. But there are other significant factors that influence the design of organizational structures.

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1. How Large? Decide strategic revenue targets first by choosing an option. This is most important criteria for organizational development.

a. Plan lower revenue levels

b. Repeat the prior year revenue goal

c. Plan to grow revenues by a stated percentage

2. What Services? Select customer services and detailed support services that your company will offer. The depth of service provided to customers determines organizational workloads and fuel accurate organizational designs.

a. Pre-construction services early in the project schematic design and design development stages

b. Preliminary budgets after construction documents are completed

c. Only collect subcontract bids with limited take-off and limited estimating of work by division

3. Who is Involved? Which employees will be included in supporting customer tasks? How employees are expected to spend their time will dictate personnel needs.

a. Some companies limit their estimators to dealing with customers

b. Some companies like to have the business development and estimating personnel team together to meet with customers

c. Other companies involve PM’s and superintendents with customer meetings along with BD and estimating personnel

4. How Much Communication? Construction firms must choose the methods of communication along with the receivers of communication to determine the size of their organizational structure. If employees spend a lot of time in communication-type activities, more personnel are needed.

a. Some companies are highly confidential and keep information within a tight-knit group

b. Other companies will allow participation down to mid-level management

c. Some go overboard and like to involve all employees in all meetings and share all information distributed

5. What Should Production Levels Be? Knowing the production output of employees allows construction companies to clearly calculate the number of people they need to reach overall company goals.

a. Some companies allow their employees to work without any production goals. These types of companies are easily influenced verbally as to performance expectations

b. Other companies set end goals in mind and as long as they observe effort by employees, owners are satisfied. These types of companies often borrow from competitors when it comes time for staffing guidelines

c. The most sophisticated companies set short and long-range goals with specific, detailed production goals. Reaching the production goals implicitly leads to reaching overall company goals. These companies typically have the right amount of people in the right places

6. Who Will Cover Your Business Functions? Companies should not omit important business functions and then expect to be successful.

a. Some companies have no BD, IT, or HR personnel and hardly anything is done in these areas

b. Other companies take pieces of individual position roles and allocate them among personnel in a variety of departments

c. The good companies commit to a full slate of personnel to ensure that all business functions are covered

7. To What Extent Should Managers Delegate? Quite a few construction firms like to pour responsibilities on managers without any sense of what constitutes a full plate. In addition, managers are guilty of hoarding tasks because it makes them feel relevant.

a. There are companies that have managers that handle 15-20 projects without any supporting personnel

b. Some companies will provide limited support to managers in the hopes that the work will get done

c. The smart companies will utilize a 6 or 8 to 1 ratio for Subordinates to managers so that managers are not overwhelmed. In addition, these companies will encourage further delegation so that Managers can see the big picture

There are other organizational tools, after they are created, that enhance organizational structures while limiting the number of personnel that are needed to operate a successful construction firm. The decisions that should be made below by companies help tremendously in maintaining a compact organizational structure.

1. Choose the type of organizational structure that you want

a. Hierarchal
b. Matrix
c. Organic

2. Create efficient report formats

a. Make information transparent, which means clear on its face
b. Establish proper distribution routes so that the right people receive information
c. Provide interpretive reports and business activity reports to Managers that explains the transaction data

3. Streamline communications

a. Focus on hard data communications, not verbal
b. Limit the number of meetings through prior information distributions
c. For those meetings held, distribute minutes

4. Define positions through job descriptions

a. Outline performance task summaries by function and business area
b. Set goals through key results areas (KRA)
c. Conduct performance reviews on a semi-annual basis

5. Compensation systems

a. Create an Incentive Plan to drive performance by assigning scores to KRA achievements
b. Establish Base Pay System according to construction industry standards & compensation philosophies
c. Establish policy of pay decreases for non-performance as well as pay increase for superior performance

6. Publish & distribute company manuals

a. Orientation/Hiring Manual
b. Company Policies and Procedures
c. Project Management Manual

While construction firms wait out this economic calamity, it may make sense to start to think about what your company should achieve in 2010 and 2011.

Terry Kramer is president of Kramer Consulting in Scottsdale, Ariz.