Demystifying Knowledge - Business Process Reengineering - Cup of Tea Anyone?

I've worked on a few business process re-engineering (BPR) projects and they have the ability to be spectacularly brilliant and completely turn the business around. In my very humble opinion, they're well worth the money that is spent on them, but the question that has been bugging me is, why are they needed at all. The most common answer I've received when I posed this question was:'people don't know how to operate in a continuous improvement environment' and this bugged me even more. This is why.

People use continuous improvement principles all the time in their day-to-day lives. Take the very basic process of making a cup of tea. Think about the steps you follow. What do you do? Do you put the kettle on and then wait for it to boil before you put the tea bag in the cup? Or do you put the tea bag in the cup with the sugar while you wait for the water to boil? It does not matter what route you follow but there is a very high probability that the process that you follow has been tweaked by you to be quicker and more efficient. Congratulations, you have just re-engineered your process for making tea and until you have got it down to an art form you will continue to improve it.

Part of the reason that BPR projects work so spectacularly is because they're based on leaps of improvement. A consulting firm comes in and changes the process from what it is (as-is) to the future state (to-be) in a short period of time and yield spectacular results. The reason for this is that they're addressing large periods where the business was stagnant and did not improve their processes at all so it stands to reason that the improvements will be marked. None of this would be needed however if staff internal to the company were constantly looking to improve how they do things. If they constantly looked to improve processes then there would be incremental improvements in the business. Adding the increments up would give yo similar if not the same results to those realised by the consultants.

My BPR skills come from a place that I'm not very proud of but hey they works. By nature I'm very lazy and I'm constantly thinking...surely there is an easier way to do this. This is another reason why I can't understand why more employees are not employing BPR principles, why are they not looking for 'short cuts' or an easier way to do things? Is it because there managers are not willing to listen or is it because they're not using a skill that they so readily use in other aspects of their lives?

So part of what I'm saying, is comon folks be lazier and look for those short cuts (don't break the law though) and who knows you may save your company a few bob and put me out of work (god forbid).

Starting a Construction Business (a bit long but I think a good read)

There are many requirements for starting and running a successful business, but two of the key ingredients are that you have a good quality service offering and that you have some business management sense. That’s not to say that you need to have all of this yourself, if you don’t, you always have the option to enter into business with someone who has a wider or different skills set to yours. What is inescapable is that these two must be present in the business for it to be successful. You can’t only offer a great service/product without having some level of business management sense. If you do you’ll have a business that will run inefficiently and may even fail. The flip side of this is to have a super-efficient and effective business, but the quality of your service offering or product may not meet clients’ expectations. In either of these two scenarios, you could find yourself on a path to self-destruction.

While all of the above will seem obvious to most of you reading this article, it isn’t to the majority of people who are taking that first, brave step to becoming a building contractor. Prior to the economic meltdown, the South African construction sector held lots of promise and, as a result, many South Africans considered getting involved in the industry. Some of the parastatals and state-owned entities had large capital development programmes planned, and this, coupled with the spend planned for the 2010 World Cup ,led many people to believe that the construction industry was alive with possibilities. The problem with all of this was this situation only holds true for a very small percentage of contractors. A large majority of contractors would not benefit at all from the spend that was planned for the periods that I mentioned earlier.

The Construction Industry Development Board (CIDB) currently has approximately 100,000[1] registered contractors in all building categories, with a CIDB grading of 1 (all regions of the country). The grading allows you to competitively tender for work to the value of R200,000.00 (two hundred thousand rand) across all trades or categories. Some of the categories listed include civil engineering, electrical work, general building work, mechanical engineering, bulk excavation etc.

The term, ‘Bakkie Builder’, was a very disparaging term used in the construction industry when I first started there. It was used, by the professionals, to describe a contractor whose primary asset was a bakkie. He had very little else in terms of equipment and may also have had very limited business management skills. The one thing that he did usually have was good technical ability. So, if he was a bricklayer or plasterer, he was usually very good at it. There were other less than favourable connotations attached to the term, but I will not go into those, as they will detract from the true purpose of this article. The ‘bakkie builder’, I will have you know is still alive and kicking within the South African Construction Industry (see the CIDB statistics mentioned above), but some of the elements or characteristics of the builder have changed. One of the changes has been that the term ‘bakkie builder’ has been replaced by the more politically correct ‘emerging contractor’, but the nature of the contractor has not changed substantially. The other more significant change is that the new entry-level contractors seem to be missing critical skills that are required to run a successful construction business, while their predecessors had what it took to make a go of it

The new entrants to the market seem to lack skills, either in the capacity to execute the work required to complete the project, or in the areas of business management. The third element which may be missing, but that I will not touch on here, is entrepreneurial flare. Many of them have left careers, in other industries, to try and start a construction company. This, I feel, was the first mistake they made. Current literature[2] will suggest or recommend that if you are thinking about starting a business, you should do it in an area where you already have some of the requisite skills to make the business successful. All this having been said, if Construction Company hopefuls are to make their start-up companies a success, there is still hope. Noteworthy consideration is that some of the concerns I am raising are not only limited to contractors that have a CIDB rating of 1; their counterparts who have higher ratings of 2, 3, 4 and 5 will face similar problems. In some instances the contractor is technically sound and able to execute the project wonderfully, but his cash-flow management will be of such a poor quality that he will end up placing his business at risk. There are nuances to the construction industry that will make it slightly more difficult to enter the market and make a success of it. People entering it need to make themselves aware of what these nuances are before they enter it.

In my experience these are five of the more common mistakes that emerging or start-up contractors make:

·                Not learning how to price using first principles (rate build ups)

·                Cash-flow management

·                Stores or materials management

·                General business management

·                New Business Development

Learning pricing through first principles

Most quantity surveyors and estimators will remember this part of their curriculum as a very painful experience. This is because there is huge attention to detail and lots of time is spent on understanding what actually goes into a rate build-up. There are a number of IT packages and textbooks, out there, that can make this process easier, but they’re meant to be short-cuts for people who already understand first principles. So, while on the surface they may go a small way to helping emerging and start-up contractors, they’re actually going to confuse them. It is critical that all contractors get a good understanding of how the work will be executed, as this will affect the pricing. Let me illustrate this with a small example. A bill of quantities requires a price for concrete. To take this price and simply add on a mark-up would not only be incorrect but also dangerous. While most professional QS’s will ask you to clarify a rate that seems low, if the tender is accepted with the incorrect price, you will be forced to deliver at that price. What you should also be considering when you price the concrete is:

·                Will the mixer be able to ‘place’ it where it is required? If not, then you need to price for placing.

·                Are the height differentials involved? If “yes” you may need a pump or front-end-loader to assist with placing the concrete.

·                Are you allowing for waste, if the concrete is being placed by hand.

If you have not considered all of the above, then the price that you present in your BOQ will be too low, and you will be placing the concrete at a loss to your business. Some of what I have mentioned above shows where a business decision needs to be taken about using an external resource to price tenders. In the beginning this may be necessary, as the skill may not be present internally. However, this should only be when you’re starting out; the skill of pricing a tender needs to be developed internally. Estimators make or break tender submissions, because they ultimately decide how individual BOQ items are priced. As with the previous shortcoming, I suggest that emerging contractors engage the services of a consultant who can help them through the teething phase and assist with understanding the principles, so that they can use them later on when the consultant is not required.

Cash-flow management

This used to be the number one reason why small construction firms failed. The nature of the industry meant that they would spend money to build and they would then carry that debt till the end of the month, when they were paid by the client. The problem always arose when there was a difference between what the contractor claimed and what the QS approved. That difference would have to be covered by the contractor, for another month, at least, and if the difference was significant enough it could lead to excessively bad cash-flow management. It is for this reason that I suggest that contractors set up a projected cash-flow for the project, before the project starts. If you do this you can then track actual cash flow versus what you projected and then make the necessary adjustments. Also, unless you are allocating all staff to projects, you will have to run project cash-flows separate from your business cash-flow. Cash-flow management, especially in construction, is a critical skill. Either learn it very quickly or outsource it till you have it. Within this problem is cross-subsidizing. This is where a contractor will use money from one project to ‘finance’ shortfalls from another. This borders on the criminal! If you have to do this then it means that one of your projects is not profitable, running at a loss and messing with your liquidity.

Stores or materials management

The complexity of this task is directly proportional to the size and value of the project. Knowing when and how much to order is critical to not only the delivery of the project, but it has the potential to negatively affect your cash-flow. There are a number of variables that must be considered when doing this. A common mistake is assuming that all items can be purchased off-the-shelf and that there are no lead times. Buying materials that are not needed in a specific month ties up cash that would otherwise be used in improving your liquidity. Purchases should be timed to match when materials are required for actual build activities.

General business management

Just having a skill or service offering is no longer good enough. You need to marry that skill with good business management skills. Gone are the days when those aspects of your business will ‘just take care of themselves’. In some instances, where skills levels are the same between two companies, how you run your business could be the differentiator that gives you the edge over competitors. Your system and processes need to be in place. I know its sounds like a cliché, but its true now more than ever before. Many of the contractors only develop good business management documents because it is a tendering requirement. They have policies that they don’t follow, and organizational structures that are badly designed, and job descriptions that are vague, to say the least. They submit these as part of compliance for projects, but don’t really properly engage with them. Besides the human resource aspects of the business, owners need to focus on getting their systems up and running early and should focus energy on monitoring them regularly. Your back office, which would be site administration and support, must be running smoothly to properly support your site teams. The correct systems for ordering materials, payment of suppliers, and petty cash disbursements, are just a few examples of where contractors need to get it right. Then they also need to allocate some time and effort to staff management through what would be human resource processes. This would mean having good job descriptions in place, good performance management systems and well-designed rewards and recognition practices.

New Business Development

Or to use terminology that is better understood in the sector, tendering for work. The majority of the government tenders will state, upfront, what gradings are required in order for contractors to participate. In this way they are forcing contractors to focus on the segment of the market in which they have  capability. So, for instance, only contractors with a CIDB grading of 5 will be able to tender on a specific project. The system does allow for joint ventures, which means that you can add two (or three) lower gradings to get a higher one. But I digress. What I want to speak about, in this section, is understanding what segment of the market you want to play in and then start to develop a skills set that works (and is required) in that market. I worked with a contractor once, who only did civil engineering work (mass concretes and structural steel). When they tried to operate in the general building class they came unstuck. Once you have identified which segment or area of construction you want to focus on, you then need to set up the correct processes to help you operate. Have a dedicated resource look at the possible options for sourcing tenders. Once the sources have been identified, choose a day in the week when these tenders will be discussed, by senior management, so a decision can be made on which tenders will be submitted. Resources then need to be allocated to price the tender. Some time must be set aside to check the tender for arithmetical errors and to confirm that prices being submitted are realistic.

The silver lining

And now, to the hope I spoke about earlier on. Even though contractors may find that they may not have the full basket of skills internal to the business, it may be possible to still source these skills and use them optimally, to assist with running an efficient and effective construction company. First prize would be to engage with a business consultant who understands the construction industry. That way, besides providing advice on the technical, administrative and governance matters, he will also be able to look at the company through a ‘construction industry’ tinted lens and ensure that all solutions that are designed are customized to suit the industry.

Cost management is essential to the emerging contractor. It means that you’re controlling one part of your income statement (the other side is a bit more difficult to control). This process needs to be done tactically though. Spending money that will improve the quality of your offering should be seen as an investment rather than purely as a cost. Construction professionals have a wealth of knowledge on how the industry works, including the fluctuations of the construction economy and are in a position to provide you with sound advice on issues that you are facing. They would therefore be in a position to save you a lot of time money and effort.

Arctic Consulting has formed a network of partnerships that will allow the team to provide end-to-end construction consulting services, from concept all the way up to delivery. The nature of the skills, in the team, as well as their wealth of experience will allow them to provide a customized solution to the emerging builder.

The skills-set present cuts across all professional disciplines. Because all our professionals have operated at all levels in the construction industry, we feel that we can comfortably offer our services to almost all the contractors registered with the CIDB. Both the nature of the solution and the fee structure are always custom designed, which means that not only do we provide superior technical services, but they are affordable as well.

The important skills mix comes from three key areas:

·                All the team members are qualified construction professionals

·                We have introduced management consulting elements to the construction industry, and, finally,

·                All our team members either are running or once ran a small- to medium-sized construction related business

Our team is constantly growing in size and we continue to look for new ideas and fresh skills. At the moment we have access to Architects, Civil Engineers, Quantity Surveyors, Project Managers and many other professionals in the broader design environment.

This means that not only will you benefit from their professional capabilities, but also from the experience that they have gathered over the years. Winning a tender is not the end of the road for a successful project. What comes after is even more important. Successful projects help build your CV and track-record. Focus on doing things right, as well as doing the right things, and you’ll be fine. If you go in pursuit of excellence you will achieve success.

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[1] http://registers.cidb.org.za/reports/ContractorListing.asp

[2] http://sbinfocanada.about.com/od/startup/a/businesstype.htm

Engage first, customise second and then implement

There are so many wonderful consulting models, principles and strategies out there. I would describe them as gems, brilliant pieces of insight offered up to us by great thinkers. They were developed by individuals who pour their collective hearts and souls into understanding the nature of businesses (both big and small). They do tons of research and then analyse the content to design wonderful solutions to help you overcome all the obstacles that you would come across when you run your very own business or company. If you looked hard enough you're sure to find a solution for the problem that you're facing. They provide us with the necessary templates and tell what rules to follow to arrive at the correct solution. The question is what do you do with the solution once you've found it?

Now I'm going to be very brave and tell you that its as important to learn (or at least read) about these pearls that are offered up by these management consulting gurus...as it is to know when to bend or break them. The reason for my bravery is this, I feel that even though the work being presented comes from experts, it is also for a given set of circumstances and variables. They will give you figures that will cover almost all segments and sizes of companies but you need to be very careful before you implement models, strategies and solutions being proposed by said Gurus.

You need to really understand how they arrived at all the conclusions they have and why they are suggesting that implementing a Balanced Scorecard is the way to go. If you don't engage with the solution properly I fear that you will be Shoe-horning...just trying to force something into a space where its is having difficulty getting into. Now, I'm not suggesting that you throw out the entire solution but rather that you look at customising solutions. This is actually weird coming from me considering that I used to come from the all-or-nothing school of thinking. Previously I rolled my eyes at clients that attempted partial implementations of solutions but now I advocate 'fiddling'. Get something that works for you and as long as you are achieving the required results I think you will achieve the success you require. Don't be afraid to change your mind about an implementation but always give each option a fair chance to positively influence you business...