012915 How to Succeed Despite the Labor Shortage

8/9/2019 012915 How to Succeed Despite the Labor Shortage

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BY JAMESC. SCHUG

H O WTOSU C C E ED

Despit e t he Labor

Economic improvement s and

posit ive t rends of increased

const ruct ion spending are

wel comed sight s. As a result, revenues are growing

and many companies are enjoying

improved bottom lines.

However, despite this upswing

many leaders are struggling

to find, develop, and retain

talent for the future.


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January/February 2015 CFMA Building Profits 25

As of this writing, the unemployment rate is below 6%,

which is good news for the general economy. Most contrac-

tors recognize direct project costs will be increasing, poten-

tially squeezing margins. Several factors have combined to

form a perfect storm of sorts:

1) General demographics (i.e., the Baby Boomer

generation retires with a much smaller replacement

rate from Generation Y).

2) Employee engagement levels are at an all-time low.

3) Society has created a mandate of sorts for all high

school graduates to attend college, rather than learn

a trade.

4) The oil and gas boom is pulling many of these employees

from our industry at much higher pay rates.

Many in the industry are targeting nontraditional sources for

talent (e.g., police, fire, teachers). Others are hiring based on

raw talent and have significant investment in development

programs. “Hire for integrity and work ethic and we’ll train

and ‘grow’ them into a skill set.”

In order to succeed in the future, companies must change

quickly. Otherwise, they may face challenges with increasing

labor costs, static company demographics, and challenges

executing their strategies.

This article identifies some deliberate steps contractors aretaking to combat these challenges. The first step is to focus

on the company culture, which impacts the ability to attract

and retain employees. The second step identifies mecha-

nisms and organizational development to re-engineer the

company, streamlining the need for talent. A renewed focus

on these areas will yield results and allow great companies to

attract and retain the right people.

Focus on Company Culture

The first suggestion is proactive and may not be considered

a best practice: Build a company culture that attracts

workers rather than a company that just employs workers.

The referral network from a mid-sized construction com-

pany can extend past friends and family to many

others in the community. Your employees should

be proud to bring a friend to work with your

company. Great companies have a contagious

sense about bringing other great people on

board. Every company in your market is com-

peting for talent much like they are competing

for customers.

K EEP GENERATION Y IN MIND

Attracting Generation Y employees is a challenge, but it

shouldn’t be. Characteristics most in favor with Generation Y

employees include:

• Dynamic and challenging workplaces

• Fast-paced and merit-based environments

• Making a difference in their community

• Being a part of something bigger than themselves

Fortunately, our industry has an abundance of these quali-

ties; unfortunately, they are not well known. “Old-school”

construction industry images have overpowered the truth

about our industry that needs to get out. For example, one

contractor in a large city has always paid its employees well,

empowers them to help guide the direction of the company,

and follows a work-life balance approach. Based on these

measures and more, it treats employees exceptionally well.

The company’s general superintendent feels it is why they

always get the top talent from the union, which makes a

significant difference in how the company performs.

Developing a clear core purpose and vision for your com-

pany is critical to its success in this complex and uncertain

industry. Generation Y identifies more with your company’s

mission statement than its incentive program. They are

motivated by purpose. (In the past, Baby Boomers often

searched for the best incentive programs as a motivator.)

R ETAIN E MPLOYEES

Not only do great cultures and companies attract great

employees, but they also retain employees. Many com-

panies are investing more in training and development for

their newer workers. After investing at this increased level,

developing a culture that retains employees is also a priority.

Much as the best soldiers fight in battle for their platoon, great

leaders build upon the ageless concept of team-

based morale. Building a unique bond among

superintendents and perhaps another among

project team members reinforces a company’sidentity. This culture within a culture is much like

a braided rope and acts as a mechanism to retain

employees.

Streamline the Need for Talent

The second step is more reactive, yet just as important:

Streamline your company to do more with less. The way

in which business was conducted in the past (i.e., with an

abundance of available talent) will not work in the future.


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26 CFMA Building Profits January/February 2015

This means tearing down the silos, burying bureaucracy,and re-evaluating workflows. Company leaders must ensure

employee engagement and remove wasteful efforts. Here are

some ways contractors are accomplishing that.

A LIGNMENT

Alignment enables focus and discipline on important issues,

relating operational performance to the direction of the com-

pany. Most companies have many initiatives, but operational

initiatives should not exist in isolation. Great companies focus

on those tasks that tie in to the company strategy rather than

wasting time on lower return items.

As an example, a recent client focused only on hard bid work,

yet went through great efforts to conduct customer service

training. Customer service training is important, but given lim-

ited time, many other skills and initiatives should have been of

higher importance for that company. Tying operational initia-

tives to company strategy also allows for a natural motivation

or rallying cry to achieve results. By doing this, the leaders

can focus on what is essential while the company continues

building projects and remains disciplined to follow through on

the initiatives it starts.

OUTSOURCING

During a presentation at CONEXPO-CON/AGG in March

2014, I asked attendees if they outsourced their maintenance

services; almost everyone raised their hands, and several even

suggested that they outsourced completely. The number one

reason cited was to offset the challenge of labor, along with

financial improvements and better control.

For example, one heavy/civil construction company often

operates as a prime contractor on major infrastructure jobs.

The company pays more (in the short run) to have extended

warranties and (in some cases) leased equipment. At set inter-

vals, the fleet is rotated and new equipment is brought in tomaximize salvage value and minimize extensive repair costs.

If a breakdown occurs, then time spent ordering parts, diag-

nosing, and tracking mechanic hours is limited or nonexistent.

The “experts” (outsourced vendors) handle those tasks, leaving

the company to focus on its expertise – finding customers and

building projects. According to the company’s CEO and owner,

“we aren’t a maintenance company, we are a construction

company. I’m not threatened at all by getting out of that line

of work…I love equipment, but I love building projects more.”

LEAN CULTURE

The Lean Enterprise Institute (www.lean.org) defines the

Lean standard as maximizing customer value while minimiz-

ing waste (i.e., creating more value for customers with fewer

resources). By this definition, a lean company understands

how to create value for its customers and directs its pro-

cesses to continuously increase that value. Lean contractors

can be recognized through their use of measurement, con-

tinuous improvement, identification and reduction of waste,

field crew support, and continuous learning and adaptability.

While many companies have learned about Lean projects,

few have created Lean cultures. A great place to start is with

an attitude of overall support toward the field. Lack of sup-

port or improper timing from estimating, tools, equipment,

materials, payroll, and more could affect field production

and cause needed resources (or information) to be delayed.

These root causes often add up to more than 30% of waste

on a typical construction project and are never deliberately

intended. Effective leadership and management works hard

to remove the obstacles in front of the crew so that they can

maximize their time putting work in place.

One of the greatest challenges in providing the constant

and variable support that a crew needs is that it demands

integrated communication across several key functions andpositions within the company. The general superintendent is

often involved with manpower assignment and has input into

equipment moves, which is often refined by the shop man-

ager and foremen in the field. PMs and estimators start with

information, which is frequently updated from the field and

through the customer by actions occurring on the ground.

Effective equipment management, material management,

and manpower alignment is critical; the systems should be

built as two-way streets of communication.

Implementing the Lean standard requires strong leaders.

Knowing the fine line between creating systems as previ-

ously mentioned and ensuring they are simple is very difficult.

Getting buy-in from employees requires mature leaders to

help companies overcome the natural resistance to change.

Sharing positive results from developed systems becomes

paramount to getting support to continue the initiative.

Seldom (if ever) does brute force across the company yield

the culture in which Lean flourishes.

SOFTWARE & TECHNOLOGY

Technology is no longer solely the role of IT departments,

as companies are becoming increasingly “operational” about


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H O WT O SUCCEED

Despit e t he Shortage

technology. For example, when time sheets are automated, ittypically frees the efforts of those people who used to manu-

ally process the time sheets, not to mention the field man-

agement time spent collecting, reviewing, and dropping off

the time sheets. Integrated with accounting systems, these

automated systems aren’t new, but they are rapidly increas-

ing in use – improving reporting accuracy and increasing

efficiency throughout a company.

Project collaboration with the field, typically enabled through

tablets and smartphones, radically changes the impact of

foremen and superintendents. Most companies experienc-

ing this transition are initially met with resistance, but afterimplementation would not be able take back the iPads from

field management if they tried!

Some clients hold regular internal meetings to share apps

being widely used that improve time and execution. Other

companies have called vendors requesting apps and some

have designed apps on their own. Accurate communication

and access to the right information is a pillar of great opera-

tions. For example, one company internally developed an app

that allows the field to quickly view what equipment is set to

dispatch from the shop on any given day, with a status-based

color code (ready to depart, departed, en route, arrived).

F ABRICATION & MODULARIZATION

During a meeting held in the booming U.S. Gulf region this

past summer to evaluate the fabrication efforts across sev-

eral mechanical contractors, the average labor “outsourced”

to the fabrication shop was 25%. Projecting out five years,

companies felt that they would each have more than 50% of

their field labor performed in the fabrication shop. In fact,

one company has changed its internal vocabulary from call-

ing it “prefabrication” to “manufacturing.”

While the industry will not entirely move out of the field,

the trend is real and the benefits are significant. Bottom line

results are improved and these companies are better able to

most effectively utilize their field labor.

Every company has areas to streamline operationally. These

may include specialized training, leadership, lean operations,

automation, technology, or many more. When coupled with

great leadership to gain buy-in for change, these ideas improve

the efficiency of the company and better allocate the existing

talent to accomplish the task at hand. Many will remark that

their company is running as hard as ever while juggling many

initiatives. Clear vision and strategy will help guide and filterthe most important initiatives and improve the company’s

ability to implement change without getting pulled into the

“day-to-day” whirlwind.

Conclusion

Great companies continue to adapt to their customers and

the evolving context around them. A driving force all contrac-

tors face includes the demand for labor. Supply and demand

suggests that the average rates for construction workers will

dramatically increase, resulting in attracting new talent from

otherwise saturated fields. Often these forces take time to

work through. In order to succeed in the future, companiesmust act now to prepare.

Developing robust recruiting efforts, new roles for HR, and

getting field leadership involved is helpful. It is more impactful

to create a winning culture that attracts talent. In addition,

developing systems and processes to be performed with fewer

resources will help manage the limited talent companies have

today. These two forces complement each other well to help

smart contractors adapt successfully and win in the future. n

Copyright © 2015 by FMI. All rights reserved. This article first

appeared in CFMA Building Profits. Printed with permission.

JAMES C. SCHUG is a Principal and EngagementManager with FMI in its Tampa, FL location. Jim helpsdevelop customized strategy and best-in-class operations,and applies practical experience with an in-depth under-standing of leading lasting behavioral change in dynamicenvironments.

With more than 10 years of experience as an ArmyOfficer, Jim led operations in complex and challengingenvironments. He refined these skills working for a nationalbuilder, repeatedly leading his teams to successfully inte-grate operations, sales, and customer service.

Jim is a graduate of the U.S. Military Academy at WestPoint, holds an MS in Engineering Management fromthe University of Missouri, has completed post-graduatework with Cornell University in Achieving CompetitiveAdvantage, and is certified in Lean/Six Sigma. He hasserved in leadership positions on various local and nation-al nonprofit industry associations and frequently presents atindustry events.

Phone: 254-681-7867E-Mail: [email protected]: www.fminet.com


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CULTURAL & WORKFORCE CHALLENGESFacing Construction Today

BY PATRICIA KAGERER & GRACE HERRERA

W HERE H AS A LL THE L ABOR GONE?

According to the AGC of America’s 2014

report “Preparing the Next Generation

of Skilled Construction Workers: A

Workforce Development Plan for the

21st Century,”2 the shortage of labor

in construction is driven by “a seriesof policy, education, demographic, and

economic factors that have decimated

the once robust education pipeline for

training of new construction workers.”

The booming energy sector has also cre-

ated a demand for more skilled workers

(e.g., pipe fitters and heavy equipment

operators). Some workers may lack the

skills to qualify for those jobs.

According to results from CFMA’s 2014

Construction Industry Annual Financial

Survey Online Questionnaire, 43% of

companies are losing skilled trade work-

ers. (Turn to page 56 for more about

these survey results.)

The overall labor shortage could under-

mine the recovery of all construction

industry sectors and have a negative

impact on the broader economic growth

by creating construction delays, high

costs for projects, and potential contrac-

tor defaults.

And, as the construction industry has

evolved with new materials and pro-

cesses, contractors have not ensured

that the existing labor force and lead-

ers know everything needed for proper

installations.

Technology and delivery systems contin-

ue to change (including a heavy emphasis

After surviving the Great Recession, the industry is finally on

the rebound. All construction sectors are reporting growth, andfor the first time in history the U.S. is now the world’s leading

producer of oil thanks to the refinement of hydraulic fracturing

technology.1

This unprecedented event has created a plethora of oil and gas infra-

structure and construction jobs as well, generating competition for

construction labor among all sectors. But as the competition increases,

there are limited resources for labor, talent, and training.



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on BIM, LEED, and Lean), and the contractual exposures to

contractors have skyrocketed. These factors create a perfect

storm that could lead to catastrophic risk exposures related to

safety, quality, and schedule.

HOW DID W E GET HERE?

How can an industry that lost millions of jobs in a few short

years be faced with such a significant labor shortage? Where

did the workforce go and why aren’t they coming back?

During the downturn, many laid-off workers found positions

in other industries, retired, or went back to their country of

origin. Furthermore, the makeup of our supervisory and

project management teams has drastically changed over

the years. Lifelong industry professionals who grew up in

construction and apprenticed under their families are now arare breed, replaced by college graduates who have studied

construction science and theory in books.

Practical experience (the sheer know-how of watching,

doing, and learning) has vanished from the industry. A

desperately needed transfer of knowledge never took place.

In addition, several factors have contributed to the lack of new

talent gravitating toward the construction industry. Spurred

by the recent emphasis on attending college, federal fund-

ing has shifted from public construction vocational training

programs to college preparatory programs.

Decreased union participation has resulted in decreased

access to union apprenticeship training programs. Federal

and state rules make it difficult for open-shop contractors to

form similar apprenticeship programs. As a result, many con-

tractors hesitate to invest in training for fear that competitors

will hire their newly trained staff and underbid them on their

projects.

M AKEUP OF U.S. CONSTRUCTION W ORKFORCE

The construction industry has heavily relied on a foreign-

born workforce in the past and will continue to do so well

into the future. According to a 2012 report from the U.S.

Bureau of Labor Statistics, nearly 25% of construction work-

ers are Latino.4 Over the past 15 years, the U.S. has spent

billions of dollars on border enforcement, yet the number of

undocumented residents has increased from approximately

seven million to 11 million.5

Construction labor grew by 16,000 jobs in September of2014, and it is estimated that more than 230,000 jobs will be

added in 2014 alone.6 One would think this could be a win/

win situation: Hispanic workers coming to the U.S. need jobs;

the construction industry needs workers.

Immigration Challenges

Unfortunately, the current immigration system does not

provide the appropriate mechanisms for legal work entry

into this country. Permanent U.S. work visas for unskilled

workers are limited to only 5,000 per year for all industries.7

According to a report from the Workers Defense Project,8

the challenges of entering the U.S. legally creates many

problems for both workers and contractors. Without proper

immigration reform the government may be inadvertently

creating a demand for undocumented workers.

President Obama’s recent immigration reform provides a

hopeful step toward repairing a broken system and would

potentially allow for more than four million who are in the

U.S. illegally to ultimately fully integrate into American soci-

ety. It remains to be seen how effectively the current reform

will impact the construction labor force.

Key Areas for Reform

The AGC report highlights comprehensive reform

focused on nine key areas:3

• Reform and reinvigorate the Carl D. Perkins

Career and Technical Education Act of 2006,

• Encourage private funding for craft training

programs,

• Improve the Workforce Investment Act,

• Encourage veteran training and hiring,

• Create partnerships with community colleges

for apprenticeship programs,

• Expand federal resources for apprenticeship

program,

• Offer high school programs for free,

• Establish public school vocational and technical

programs, and

• Enact immigration reform.

While these items are critical to the future vitality of

the construction industry, they all take time, money,

and resources to implement. However, profit margins

are still down and schedules are tighter than ever,

leaving little room in the budget for training and edu-

cation and even less room for any failure related to

safety or quality.

30 CFMA Building Profits January/February 2015


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Supporters of the reform indicate that current foreign-born

workers will now be able to obtain work permits and ulti-

mately legitimate employment. Some critics say that while

the reform is a necessary step, it did not go far enough andwill ultimately require additional steps to fix the broken sys-

tem (e.g., verification, border protection, streamlining the

legal immigration process and fixing the visa system to allow

businesses to address the need for new hires).9

Undocumented workers are exposed to poor and unsafe

working conditions, less pay, and wage theft and have a

higher propensity to be killed on the job than U.S.-born

workers. In 2013, 66% of fatal injuries involving Hispanic

or Latino workers were foreign-born.10 Also in 2013, almost

half (42%) of foreign-born workers killed from fatal injuries

were Mexican.11 These workers are inherently willing to take

more risks and less likely to speak up when it comes to safety

issues because they feel lucky that they made it to America

and actually secured work.

Contractors hiring undocumented workers fare no better.

They put their companies at risk for fines and criminal

charges. Yet contractors in certain geographical areas (e.g.,

the southwest) that chose not to hire undocumented work-

ers face unfair competition, labor shortages, and an inability

to meet production requirements.

The fact is that the construction industry will continue to rely

heavily on a culturally diverse, predominately Hispanic work-

force. The construction industry needs to accept that cultural

recognition and awareness is necessary to end the unaccept-

able trend of Hispanic death and injury rates.

The Current Climate

Latin American immigrants often come to the U.S. for a

chance at a better life, searching for the American Dream.

Yet, there is a much more basic motivation – survival. Latin

American countries such as El Salvador, Honduras, and

Guatemala are considered some of the most dangerous places

in the hemisphere. People are no longer coming to the U.S. for

economic opportunity; many are fleeing for their lives.

In fact, it is estimated that more than 90,000 unaccompa-

nied minors have illegally crossed the U.S.-Mexico border

in the past fiscal year. A survey by the United Nations High

Commissioner on Refugees of 404 children who arrived in

cultural & Workforce

Challenges Facing Const ruct ion


CohnReznick is an independentmember of Nexia International

cohnreznick.com/construction

Joe Torre

2014 National Baseball

Hall of Fame Inductee

STRATEGY IN CONSTRUCTION WILL

MOVE YOUR BUSINESS FORWARD.

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012915 How to Succeed Despite the Labor Shortage