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Ted’s Blog: Discussing critical industry issuesThe Garrison Report #2008-5
Using Strategic Planning to Develop Company Executives
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The author advises contractors that everyone from the project manager/superintendent level up should participate in the company's strategic planning process. For smaller companies, with only 10 to 12 people, this isn't a problem, but larger companies have a bigger challenge. After all, a large number of people can't participate in the senior-level strategic planning session. However, the author still maintains everyone needs to participate, and next month's report will explore how larger company can achieve this level of participation. This report will focus on why it's essential that everyone participate in the process.
Strategic planning may be the most important exercise for a company to improve its performance and bottom line. While this is a pretty audacious statement, the facts support the claim. Typically, strategic planning is considered to produce the following benefits:
- Help the company focus and, therefore, stay ahead of its competition
- Help it identify and seize profitable opportunities
- Help it better allocate its resources of time, money, people and energy
- Help it overcome challenges facing the industry and the company
The last bullet point brings us to potentially the most important reason everyone needs to be involved in the strategic planning process, namely the shortage of qualified business executives in the construction industry. Further, the demographics indicate the shortage will get worse because of the lack of experienced people available to replace the baby boomers when they retire. Therefore, the only solution is for companies to develop their future executives.
The challenge is that the requirements of an effective project manager are different than those of a senior executive, so how do we develop executives? The answer is by involving them in the strategic planning process. When successful CEOs are interviewed, they often point to their strategic planning skills as one of their keys to success. In fact, many state their corporate management skills improved significantly when they became involved in their company's strategic planning process because it forced them to understand the company's strategic issues and to think strategically. In the construction industry, exposure to strategic planning is probably even more important because of the industry's intense focus on projects.
Therefore, it's essential to involve all your professionals in the strategic planning process to properly develop them for the higher executive positions within the company. But even if they never rise above project manager, their participation in the process is still critical to the profitability of your company. Of course, many companies see the long-term benefit of this idea but are frightened by the short-term costs associated with it. They shouldn't be. The reason is that the short-term benefits will more than pay for the cost of this exercise, thus making the long-term benefits virtually free.
While the rate varies significantly from company to company, the overall turnover rate for construction industry professionals is approximately 15 percent per year. However, if the labor shortage in this area grows during the next few years, as is expected, the turnover rate could dramatically increase as companies fight over the shrinking number of qualified individuals. But even at the 15 percent rate, a company will lose three people a year for every 20 on its payroll. U.S. government studies indicate that losing an employee at this level will cost a company from one and half to three times that individual's annual salary including all costs. This means it would cost your company at least $150,000 every time you lose a project manager, superintendent or higher-placed individual. For most companies, the short-term cost savings of keeping one person from leaving more than pays for the strategic planning exercise.
The reason participation in the strategic planning process reduces turnover is because it taps into the two top motivators of today's workforce, namely being appreciated and feeling "in on things." How much more in on things can employees be than to help set the company's strategic direction? Also, by inviting them into this inner circle of thought, you are demonstrating that you appreciate their thoughts and contributions to the company. This approach isn't magical; it merely creates more loyal employees, and that requirement has never been greater.
Yet the long-term benefits to the company may be even greater. First, the longer quality employees remain with a company, the more valuable they become; therefore, it's essential to retain your high performers.
Everyone does not have the same level of ability with regard to strategic thinking. Therefore, it's critical that companies identify those individuals with those skills as early as possible in order to concentrate on developing their executive skills and to build a wall around them to protect them from potential raiders. It's bad enough losing a good project manager, but losing one of these special people could be devastating. This process is important because too often good project managers are promoted to a senior corporate position only to fail because senior management doesn't recognize the two jobs require different skills. The strategic planning process helps identify those individuals with the appropriate senior management skills.
However, while developing future senior executives is essential, it's also valuable to the company to involve those who will not reach that level. For example, by improving a project manager's strategic thinking, the project manager will become a better project manager for the company. She will be better able to implement the company's strategic initiative and to explain it to other employees, subcontractors and clients. When individuals have been part of the process, they became disciples of the program instead of reluctant followers of senior management's wishes.
Like any initiative, there are no silver bullets. However, involving all your professionals in the strategic planning process can produce tremendous benefits for your company in both the short and long term. So what are you waiting for?
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