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NEW CONSTRUCTION
STRATEGIES ARTICLES
Southeast
Construction Magazine: January 2006 Issue
Strategic
Collaboration - The Path to Greater Value
By Ted Garrison
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. Okay, 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. 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!
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THE END *
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Ted
Garrison, the author ofStrategic Planning
for Contractors, works with businesses
in the construction industry. He can be reached
at
Growing@TedGarrison.com
