Industry’s Survival Depends on Productivity

This month, the author preaches about the ultimate win-win-win – increased industry productivity.

By Ted Garrison

The reason productivity is construction’s savior is because it’s the only response that improves the environment for the three critical industry stakeholders—namely, the owner, the contractor and the worker. Yet, productivity in several studies still measures in the 30 to 40 percent range.

Unless scenarios are win-win-win the loser will sabotage the process. If the owner doesn’t feel like it is being taken care of, it will go to another contractor or use a highly competitive bid process that focuses on price, which drives down contractor margins and worker wages. If the worker doesn’t feel appreciated and rewarded appropriately, then he or she may elect to leave the company or the entire industry—a scenario which obviously has contributed to the labor shortage in the industry.

Finally, if the contractor doesn’t make sufficient profits, it will not survive as demonstrated by the fact the construction industry has one of the highest rates of business turnover. 

This is not an indictment, but a statement of fact. First, owners are under tremendous pressure to keep their capital costs down. In contrast, contractors have seen their profit margin erode for years. According to BusinessWeek magazine, the return on equity for contractors is approximately half the average of all industries. Additionally, today’s worker has many options. Therefore he must decide if the industry provides sufficient reward and compensation for his physical efforts, the hassle of dealing with the elements and his skills.

The idea of dumbing down the job to attract lower-skilled workers at lower wages may appear to be a good idea, but instead it’s eroding the dike. Eventually the dike will fail with catastrophic consequences. Dumbing down the job drives away the best workers and eventually even the less skilled workers become bored and frustrated because there is little hope of advancement or security. It’s not about making the driving of a nail more complex, instead it’s about allowing the worker to participate in the process.

The two top worker motivators are appreciation and wanting to be involved with decisionmaking. Therefore, allowing the worker to participate in designing process, instead of merely following simple directions, helps creates highly motivated workers.

The answer to increased productivity is not about working harder. It’s about eliminating the waste in the system. The only way to truly eliminate the system’s waste is for everyone to collaborate. It’s not about merit shop or union workers. Instead of fighting each other, these groups must work together to create a stable, high-performing work force that is well paid yet cost effective because of high productivity. Just like price without comparison to value received is meaningless, wages without comparison to productivity is meaningless.

The more complicated a system, the greater the need for collaboration. Since the construction industry is one of the most complex systems, it requires significant collaboration. The workers, whether union or non-union, need to work with contractors to find the most effective way to increase productivity. This means simplifying work rules that prevent efficient operations, but this doesn’t mean eliminating rules that protect the worker’s well being. Obviously, this is a complex issue, but only through legitimate dialogue can work rules be established that are fair to all parties.

Before management attempts to blame poor productivity on the worker, it needs to consider a study by Clemson University’s Roger Liska on productivity indicates that over 40 percent of potential productivity is lost due to poor management techniques. These practices negatively impact the hard working craftsman by creating frustration. Therefore, contractors are advised to work with their craftsman to develop the most efficient work practices in the field. But as the productivity increases, contractors must realize that they must share some of the cost savings with the workers.

Finally, the buyer needs to understand that they can’t just evaluate short-term costs. While high-performing contractors may cost a little more at bid time, they eliminate later problems in the project. This results in lower change orders and delay costs. Finally, if the work is done right the first time, there are fewer problems after turnover, saving additional costs.