By: Ted Garrison New Construction Strategies 800-861-0874 Ted@TedGarrison TedGarrison

1. Strategic Thinking & Planning For Contractors By: Ted Garrison New Construction Strategies 800-861-0874 Ted@TedGarrison.com www.TedGarrison.com www.StrategicPlanningforContractors.info Follow on twitter: www.twitter.com/tedgarrison (c) 2012- New Construction Strategies

2. Part I What Is Strategic Thinking & Planning (c) 2012- New Construction Strategies

3. Module 1: Where Are We? (c) 2012- New Construction Strategies

4. It’s Not the Economy • AIA - construction industry only significant U.S. industry that hasn’t experienced an increase in productivity the last several decades. • Difficulty attracting enough qualified workers and managers • Peter Drucker: “The first sign of decline of an industry is loss of appeal to qualified, able, and ambitious people” • Profit margins have declined for years • Industry ROI in 2005 - 9.7%, average of U.S. industries 16.9% - in the middle of a construction boom • Highest turnover except for restaurant industry • Half of U.S. contractors don’t make a profit (c) 2012- New Construction Strategies

5. Self-Inflicted Wound “In many industries, what some call hyper competition is a self-inflicted wound. The root of the problem is failure to distinguish between operational effectiveness and strategy. Operational effectiveness is necessary but not sufficient. A company can outperform rivals only if it can establish a difference that it can preserve.” Michael Porter (c) 2012- New Construction Strategies

6. No Excuses! “Clear-eyed and stoic, 10Xers accept, without complaint, that they face forces beyond their control, that they cannot accurately predict events, and that nothing is certain; yet they utterly reject the idea that luck, chaos, or any other external factor will determine whether they succeed or fail.” Jim Collins & Morten Hansen Great by Choice (c) 2012- New Construction Strategies

7. A Whole New Mind • Historically, the greatest capabilities of a technical business were its: • Logical, analytical, fact-based and quantitative abilities that defined the Information Age • Yet, despite this approximately 70% of projects fail • According to Daniel Pink left-brained capabilities “are necessary, but no longer sufficient.” • He adds, “the ‘right-brain’ qualities of inventiveness, empathy, joyfulness, and meaning —increasingly will determine who flourishes and who flounders.” Daniel Pink – A Whole New Mind (c) 2012- New Construction Strategies

8. Why Is This Important? • Last century machines replaced human backs – this century technology is replacing left-brain analysis • Engineers will have to rely more on different attitudes, more on creativity than competence, more on implied knowledge than technical manuals, and more on the fashioning the big picture than sweating the details. Daniel Pink • “Investigations revealed that even in such technical lines as engineering, about 15% of one’s financial success is due to one’s technical knowledge and about 85% is due to skill in human engineering – to personality and the ability to lead people.” Brent Danner (c) 2012- New Construction Strategies

9. Competing for the Future “If a top management team cannot clearly articulate the five or six fundamental industry trends that most threaten its firm’s continued success, it is not in control of the firm’s destiny.” Gary Hamel and C. K. Prahalad Competing for the Future • Jim Collins, Good to Great - most successful companies are realistic about conditions • The biggest challenge in making a leap into a new direction is creating a sense of urgency reports Prof. John Kotter • The good news is the current economic situation has created a sense of urgency (c) 2012- New Construction Strategies

10. The New Reality: Industry Must Change! • How many of you want a satisfied customer? • 86% of satisfied customers will go to your competitor on the next project • Need to convert them to clients • “For business, it’s no longer enough to create a product that’s reasonably priced and adequately functional.” Daniel Pink • The industry must reduce construction costs by 20% - 30%! • Why? • Because client’s can’t afford to pay more • How many think I’m crazy? • It can be done • Toll Brothers • P3’s • UK example • NREL project • China examples (c) 2012- New Construction Strategies

11. It’s a New World Out There China builds a 30 story office building in 15 days! http://www.youtube.com/watch?v=Hdpf-MQM9vY (c) 2012- New Construction Strategies

12. It’s a New World China’s proposed new 220 story building – construction schedule 7 months (c) 2012- New Construction Strategies

13. Albert Einstein defines insanity as: “Doing the same thing over and over and expecting to get different results.” The construction industry must change Too Many People In the Construction Business Are Insane! (c) 2012- New Construction Strategies

14. How Many People Wake Up & Can’t Wait to Buy a New Air Conditioner? (c) 2012- New Construction Strategies

15. Self-EvaluationApproach to Your Job # Option A Check A Option B Check B 1 Do you administer? Or do you innovate? 2 Do you copy? Or do you originate? 3 Do you maintain? Or do you develop? 4 Do you focus on systems and structures? Or do you focus on the long-range perspective and people? 5 Do you worry about “how and when”? Or do you worry about “what and why? 6 Do you always worry about the bottom line? Or do you look for the horizon? 7 Do you maintain the status quo? Or do you challenge the status quo? 8 Do you do things right? Or do you do the right things? Total # of A checks Total # of B checks (c) 2012- New Construction Strategies

16. The Right Things “Management is doing things right; leadership is doing the right thing!” Peter Drucker Strategic thinking is about determining what’s the right thing! (c) 2012- New Construction Strategies

17. A New Perspective Is Needed (c) 2012- New Construction Strategies

18. Module 2: Ten Construction 3.0™ Strategies • Effective leadership • Strategic thinking • Value-based construction • Increased innovation • Increased collaboration • Systems based • Effective risk management • More efficient operations (lean) • Better use of technology • Measurement (c) 2012- New Construction Strategies

19. #1 - It Starts with LeadershipEvent - Project Initial conditions Final conditions Time • The more info we have before the event, the easier it is to predict the final outcome • The less info we have before the event, the harder it is to predict the final outcome • However, the lack of info will never change the final outcome • Probability occurs when people don’t understand • Must think proactively – not reactively (c) 2012- New Construction Strategies

20. A B C “Types” of Individuals 100% Perceive Perception of Information 100% Information Change Process 0% Apply Time Reality:The more “perceptive” individual perceives faster---- changes faster ---- makes more accurate predictions----requires less data ---- makes less subjective decisions! (c) 2012- New Construction Strategies

21. Exercise on IndividualsType A or Type C Type A Type A Type A Type C Type C Type C Type A Type C Type C Type A Type C Type C Type C Type C Type A Perceives more information Knows their constraints Measures performance Tries to controls others Manager Emotional Long term planning Works harder Gets surprised Prepared Makes decision Has expectations of others Tries to change others Tries to influence others Aligns personnel in optimally (c) 2012- New Construction Strategies

22. Effective Leadership • Leadership is not about control • Leadership is about the ability to perceive, in essence to look ahead, then allocate the resources (human & capital) in the best possible way • Jim Collins referred to this as “Getting the right people on the bus, in the right seats.” • Who needs to demonstrate leadership? • Notice – neither of the above two statements mention anything about this being restricted to staff • The right people can be outsourced team members • It’s not about finding the cheapest person, but the best (c) 2012- New Construction Strategies

23. #2 - Strategic Thinking • Strategic thinking leverages knowledge, skills and resources • Strategic thinking examines things from a different perspective • Strategic thinking challenges the status quo & conventional wisdom • Forces people to think • Not just during crisis • Strategic thinking is applied to business strategic planning, pre-planning projects, and solving problems (c) 2012- New Construction Strategies

24. What is Strategic Thinking? • Strategic thinking is an intensified exploration or discovery process from a new perspective • Strategic thinking masters information, skills, and ideas • Strategic thinking is about the right ideas (higher purpose) • Strategic thinking is about the right questions – not the right answers • Strategic thinking is a journey, not an event • Many companies focus on the inside of the company, but must also consider the outside (c) 2012 New Construction Strategies

25. #3 – Value Based Construction • Focus on the process of adding value • How can you help the client? • Redesign (value engineer is the obvious) • New thought: add value or reduce operating costs? • Need to focus on life-cycle costs – not just construction costs • Innovation – the key to value • Go beyond building process – how can you help the client reduce costs or increase revenue? • Lean factory (c) 2012- New Construction Strategies

26. #4 - Increased Innovation • “Tomorrow’s victories will go to the masters of innovation! Period!” Tom Peters • What’s the purpose of outsourcing? • Innovation • Occurs by focusing on desired outcome instead of fixing problem • The keys to innovation • Continuous learning • Continuous improvement (c) 2012- New Construction Strategies

27. #5 - Increased Collaboration • Involve the people who must do it • PM’s & Supt’s should be active in estimating process • Pre-planning should start as early as possible • No one knows where the good ideas will come from • The more complex a system the greater the need for collaboration • Integrated project delivery works • As a PM/Superintendent – what’s your most important task? • Rainmaker! (c) 2012- New Construction Strategies

28. #6 – Systems Based • Companies with systems are more efficient • It’s easier to train people when systems are used • Necessary for sustainable innovation (c) 2012- New Construction Strategies

29. #7 – Effective Risk Management How to Reduce Risk • Transfer control and risk to • the best qualified entity • along with accountability • Make responsible entity “center • of universe • Don’t look the other way • Pre-planning (Risk Assessment) • Use a matrix – 80/20 rule • Minimize subjective • decision making • Risk management starts • with value based selection • process of team members (c) 2012- New Construction Strategies

30. #8 – More Efficient Operations • The lean process fosters collaboration, better communication, and mutual respect • Lean is all about adding value by eliminating waste • Lean manufacturing/construction focuses on creating a better delivery method • Lean implements 10 principles of Construction 3.0 • It works! (c) 2012- New Construction Strategies

31. #9 - Better Use of Technology • Technology is never the answer to problems, but it can help implement the solutions Jim Collins in Good to Great • Identify the solution first, then ask how technology can help implement it • Better use of technology • It can help transform the industry • BIM (3D-Modeling) • Project software (c) 2012- New Construction Strategies

32. Customer Satisfaction Financial # 10 - What to Measure Innovation & Learning Operational Performance (c) 2012- New Construction Strategies

33. Company Success • No silver bullets for company success – each one is unique • However, strategic thinking is the key – without it you can’t out-think the competition • Looking ahead is where you can create better value • The opportunities are there – you just need to find them, but not with last year’s thinking • Reframe your business as a problem solver – not as a contractor or you will compete based on price • Measure your performance to create dominant proof • Accept that change is coming to the contracting industry – like it or not – or lose the battle! (c) 2012- New Construction Strategies

34. Module 3: Strategic Planning & Thinking What’s the difference between strategic planning and strategic thinking? (c) 2012- New Construction Strategies

35. Strategic Planning • Most people accept that strategic planning is important – but many still don’t do it! • 25% of contractors surveyed doing over $50 million/yr didn’t have one • My recent survey on strategic thinking – 50% of contractors reported they didn’t have a strategic plan • Those that pre-plan projects (a project’s strategic plan) are more profitable • Contractors without a strategic plan are 35% less profitable • Effective strategic planning requires strategic thinking • A facilitator can be a big help to the process • Company can’t outsource strategic thinking • Strategic planning expertise is more available than strategic thinking • Strategic Planning is about process • Strategic Thinking is about looking over the horizon (c) 2012- New Construction Strategies

36. Strategic Planning • Purpose • Vision Statement • Mission Statement • Objectives • Strategies • Action Plan (c) 2012- New Construction Strategies

37. Why Strategic Thinking • “The purpose of strategic thinking is to help a company’s CEO and management team to make conscious decisions whose rational and underlying logic are clearly understood.” Michael Robert • It’s critical to understand what a company does best (areas of excellence) • No company has resources for all areas • Critical areas should get resources • Critical areas last to be cut in tough times • Strategy is the company plan to deal with environment • The stronger the strategy the greater the competitive advantage (c) 2012- New Construction Strategies

38. Where Is Strategic Thinking Needed • Developing a company’s strategic plan • Don’t let the company’s strategic plan impede strategic thinking • Planning projects • When selecting projects – does the project support the company’s strategic plan or direction? • Planning a project – what’s the project’s purpose – how can we add maximum value for client? • Solving problems • Large problems require a more systematic strategic thinking approach • Smaller problems rely on continuous improvement • Without a strategy it’s impossible to have day-to-day alignment • Allows consistent & intelligent decisions (c) 2012 New Construction Strategies

39. Strategic Thinking • Business requires two skills for true success • A good strategy – the what of a company • Quality operations – the howof a company • Strategic thinking is about the right ideas (higher purpose) • Without knowledge & experience it’s impossible to think strategically – need to leverage knowledge • 1st step is strategic thinking to determine what needs to be done – define the problem • The second step is to learn how to do it right (c) 2012- New Construction Strategies

40. Strategic Thinking • Strategic thinking is about looking ahead – which is why it’s the leader’s responsibility • It’s about being proactive • Covey’s #1 Habit – Be proactive • It’s more about preventing problems then implementing solutions (managing risk) • Solutions after next principle (end in mind) • Covey’s #2 Habit – Begin with the end in mind • Use strategic planning (pre-planning) to identify & develop future leaders • Contractors that pre-plan projects are more profitable (c) 2012- New Construction Strategies

41. Why Do You Need Strategic Thinking • Sorry - but if you aren’t making sufficient profits – you have a poor strategy – time for strategic thinking • Strategic thinking is the basis of a company’s vision • Strategic thinking enables contractors to out-think their competition • Strategic thinking enables contractors to maximize the value they deliver to their clients • Strategic thinking enables contractors to maximize their performance and profitability (c) 2012 New Construction Strategies

42. Why Do You Need Strategic Thinking • Strategic thinking allows you to grow & stay ahead of the competition • Strategic thinking allows you to identify & seize profitable new opportunities • Strategic thinking allows you to make smarter decisions • Strategic thinking allows you to minimize potential project problems • Strategic thinking allows you to solve problems (c) 2012 New Construction Strategies

43. Barriers to Effective Solutions • De Bono’s Intelligence Trap • Only one answer – people stop looking for better answers • Too quick to classify problem & jumping to conclusions – not questioning purpose & assumptions • Critical Thinking/Reductionism • Emphasis is on data collection – analysis – judgment • Accepting the problem as stated – solving the wrong problem • Need ideas to evaluate • Need to get beyond what doesn’t work – proving the other way doesn’t work doesn’t make your way work • Focusing on Conventional Wisdom – resisting new ideas • Focus on beating the competition • Instead – what’s needed is Integrative Thinking • Roger Martin, Dean of Rotman School of Management @ Univ. of Toronto (c) 2012- New Construction Strategies

44. Do You have a Superior Strategy? • Without a superior strategy you will be forced to compete on price • You must understand your SWOT (strengths, weaknesses, opportunities, & threats) • Your strategy must consider services provided, customers clients, markets, and geography • Need to adjust to the new priorities • Surveys indicate 80-90% of CEO’s feel organizationally competent, but strategically deficient (c) 2012- New Construction Strategies

45. Superior Strategy Sun Tzu The Art of War “Those skilled in war subdue the enemy’s army without fighting. Their aim must be to take all under heaven intact through strategic superiority.” • Must out-think the competition • Best advice – get out of the mechanical contracting business! (c) 2012- New Construction Strategies

46. Why You Should Get Out of the Mechanical Contracting Business? • Not suggesting you stop installing mechanical systems because that’s what you do – but it’s not your business • Your business is how you add value for the client • Must compete based on value – not on mechanical equipment • Need to outthink the competition • Do what they don’t do • Or do what they do significantly better • Companies that benchmark current practices slowly fall behind their competitors • Must differentiate – “me-too” is deadly (c) 2012- New Construction Strategies

47. Module 4: Blue Ocean Strategy for Contractors • Blue Oceans create new or redefine existing industries • In construction the most common approach is to redefine the market • Blue Oceans are based on out-thinking the competition • Blue Oceans create demand instead of fighting over existing demand • High opportunity due to lack of competition • To create a Blue Ocean Strategy requires Strategic Thinking (c) 2012- New Construction Strategies

48. Blue Ocean Strategy for Contractors • The ultimate strategy makes the competition irrelevant • Incremental improvement produces incremental revenue increases – need new ideas to increase revenue • Strategy must be distinct enough to control or at least influence the contest • Idea is to lock in desired clients and lock out undesired competition • Mistaken belief: rules are the same for everyone – so who masters them the best will win! (c) 2012- New Construction Strategies

49. Avoid Red Oceans 49 • Red Oceans represent existing industries & markets • Boundaries are defined & accepted • The rules are established • Set by competition • Competition understands better • Services are a commodity • Need to out-muscle the competition (price wars) W. Chan Kim & Renée Mauborgne – Blue Ocean Strategy (c) 2012- New Construction Strategies

50. Marketing Strategies for Construction (c) 2012- New Construction Strategies