How Expansive Can Expensive Be?
The cost of living, in particular the price of new homes, has risen and the trend shows no signs of slowing down. Especially large construction companies are boosting this trend by designing and building residences directed primarily to a wealthy clientele. This may not be a fully deliberate decision, but rather a consequence of a somewhat fragmented progression from lot acquisition through design, building, marketing and sales of the finished residences. Without shared information and objectives, the design phase may produce premium specifications whose construction costs far exceed their value to the end-users. The siloed process ends up with sales struggling to find affluent buyers in a market where they don’t necessarily exist. Is it really the most profitable, sustainable operating model for major construction companies?
The high-income target market can be very profitable, but is also risky and limited in size. The high-end segment may demand massive marketing efforts and extended time-on-the-market unless the demand and supply in each specific situation is well understood. And even so, the high-income segment is present in only a limited share of the national housing market.
Rather than focusing exceedingly on the higher income segment, large construction companies can find growth and profitable business by other means. Informed insight of the surrounding community, population and trends, as well as existing projects already under way in the area can be utilized to define the target groups and create concepts suitable for the specific situation. When potential buyers and their needs are taken into account early on, the whole process from design to sales can be fitted to support it.
There is plenty of internal and market data available to generate educated decisions. What’s needed is the identification of the right questions, data needs and sources to support the decision making, drawing of the right conclusions and crafting of the most functional and desirable recipe in an economically feasible way.
There’s a real win-win opportunity at play here. The needs and desires of individuals and communities are taken into account and fulfilled better. And a great starting point for a growing, profitable business for construction companies is established.
The change is significant, but essentially pretty simple. It requires that the construction companies put more effort into understanding the circumstances they intend to serve and tailor their sales and operations based on that knowledge. The answer is in the combination of strategic thinking, economics, data analytics and integrated operations. The end result is the right home, at the right time, in the right place, for the right price, for the right buyer. And good business for the construction company.
Transforming productivity in a stagnant industry by building a culture of trust and cooperation
Now after Slush 2017, it’s easy to remember how technology development during the past 20 years or so has greatly changed the ways how people live, work and recreate. However, there’s one industry which has stagnated in its renewal: construction sector.
Since the 1970s, construction sector’s labor productivity has remained almost flat. This poses a positive opportunity for change and as stated in the article in Helsingin Sanomat: “It’s funny to imagine that the outcome is something else if things are done in the same way.” (https://www.hs.fi/talous/art-2000005350624.html)
Some companies are already capturing this opportunity. According to August analysis, mid-sized general contractors and special contractors have clearly outpaced the market growth in Finland as the incumbent TOP 5 general contractors have stayed flat. One of the success factors for mid-sized contractors´ high performance is their innovative service concepts and business models both for new build and renovation. Consequently, the mid-sized contractors now capture an equal share of the construction profit pool with the large ones – a dramatic shift in just five years.
Does the poor productivity development matter to anyone outside the construction industry? Well it does since we all are customers and end-users for built environment. Finnish consumers have experienced constantly increasing housing expenses taking a larger share of their disposable incomes, despite the negative interest rates. Government holds a huge renovation debt in the public buildings and infrastructure, needing to choose which mold-school or hospital to renovate, while new infrastructure is desperately needed in the growth centers. These issues are difficult to resolve unless construction sector can produce more valuable outputs with the same inputs.
So, what can construction companies do to achieve their productivity leaps? According to August experience, the answers include well-managed design and planning, higher level of industrialization, lean construction site operations, technology and data utilization, aligned objectives across the parties, and a culture of collaboration. One thing that’s common to the most productive construction organizations I have worked with is that they identify themselves closer to running a repetitive production business rather than practicing the craft of construction in unique projects. Should I need to prioritize only one means for productivity improvement, I would choose culture: trustworthiness and collaboration are self-evident building blocks of many high-performing teams. Sometimes these traits are difficult to see in construction, but organizations which do succeed in embedding trust and collaboration into their DNA have a healthy foundation for experimenting new things, learning and becoming slightly better every day. Just like the cool tech start-ups in Slush.
Get Your Facts to Pitch Finland Right!
August Associates, in cooperation with Amcham Finland, has put together a Finland Fact Pack setting out the rationale for foreign businesses to invest in Finland and its people. Aimed at country managers and others dealing with investments, it showcases Finland’s stable and growing economy, and its tech-savvy, reasonably priced, highly educated and skilled workforce.
Like other Fact Packs produced by August Associates, putting the Finland Fact Pack together involved breaking complex problems down into manageable chunks before embarking on fact-finding interviews and other data collection strategies. The result is a one-stop shop containing all the information a company might need to provide the grounds for potential business here.
As the name suggests, the Finland Fact Pack contains hard facts and figures, such as taxes, labor costs, industry break-down, and so on. However, it also communicates something rather less tangible but no less important — the high level of trust that permeates throughout both the public and private sector in Finland. As Le Thuy, Analyst at August and creator of the Fact Pack, says, “If you say something will happen, [in Finland] it does.”
Read more about the creation of the Fact Pack from Tomi Ere´s and Le Thuy´s blog post:
Download your own copy of the Fact Pack by clicking the picture below or this link: http://goo.gl/UWq1xH
Change requires dialogue
In cooperation with Directors’ Institute Finland (DIF), August Associates hosted a breakfast seminar on November 17, 2017 for DIF members that addressed the topic of organizational change management as part of corporate transformations. The opening words for the seminar were held by Risto Murto, CEO of Varma. August Associates’ partner Pasi Torppa presented a perspective on how to identify the true drivers of organizational behavior in transformation situations (further on the approach in this blog post), and Timo Vuori, assistant professor in strategy at Aalto University, presented his latest research on how board of directors influence on the success of strategic initiatives. Following the presentations, Heikki Kapanen, Country Manager of Nets Finland, provided a DIF member comment on the topic, before opening the floor for discussion.
Pasi Torppa comments: “My expectations for the seminar were high, and I am pleased to say they were exceeded. Improving the understanding of to how drive change in a pragmatic way and catalyze transformation are essential topics for companies. I was hoping for discussion on board’s role in catalyzing the transformation and also more strategic considerations on corporate transformations and shareholder value. It was great to get to hear the thoughts and comments of DIF members on this fascinating topic, the level of discussion was truly impressive.”
Read more about the seminar on DIF’s website (in Finnish): http://dif.fi/ajankohtaista/muutos-edellyttaa-dialogia/
What truly drives organizational behavior and decision making?
The board receives its information from the management, but what happens if the management does not understand the factors truly driving organizational performance?
Even if it sounds absurd, we have observed in several cases that the management, with a good understanding of the market trends and strategy, is not actually aware of what truly drives the performance of its middle management and personnel. This weakens the management’s ability to develop the business and to implement change.
Thus, the facts that the management relays to the board about the culture, motives and performance of the organization might be based on illusions or narrow key performance indicators that do not reveal the reality. As a result, the advice that the board, in turn, provides to the management regarding, for example, change management or post-merger integration, might be reactions to the false notions of the management and not fit to the actual situation.
The reasons behind the top management’s inaccurate understanding can be many, starting from a complicated organizational structure and unclear responsibilities to an extreme pace of change. When assessing organizational performance, one also often forgets the significant role of intuition and emotions as a factor that governs human actions alongside rational thinking. Traditionally, the focus has been on the latter, and management will optimize the rational incentives of the organization, even if the middle management is aligning their own behavior in accordance with what they think feels the best. No one in the management necessarily knows how the middle management is really feeling or what affects these feelings.
Analysis brings surprising results
There are new ways of forming a clear picture of the factors that guide behavior and decision-making. Our approach is based on in-depth interviews and their detailed analysis. In practice, we examine from the point of view of the individuals what motivates their actions, what helps them in carrying out their work well, and what in turn prevents them from achieving top performance. By comparing, analyzing and combining these descriptions we can form a picture of the most essential issues affecting performance on the company level. The method is called grounded theory, and is also used by the world’s leading management researchers. Based on our experience, the analysis often provides surprising results for the management.
A company’s recently appointed managing director was planning actions to turn around his organization’s financial performance. One idea was to give local units direct profit and loss responsibility, but our analysis showed that this would have been a mistake. There was no unified organizational culture in the company and the strong local focus led to blatant suboptimization, which the management’s original idea would only have made worse. The benefits of the ‘one company’ program which the company had undergone had not been realized either. To correct the situation, the role of local performance measurement was decreased, work rotation was increased and communication was improved, so that people could form a complete picture of the whole and act as a part of it.
In another company, employee engagement surveys had led to the finding that poor engagement was due to dissatisfaction with how the organization was managed. The senior executives assumed that the cause would lie in the management system and initiated a project to improve it. The management system was examined in comprehensive detail focusing on processes conducted by finance and HR functions, from performance measurement and appraisal practices to the reward systems. However, urgent improvement needs were not discovered. Our analysis, however, revealed that the true challenge lay within the interaction between the head office functions and its various units. The centralized functions of the group were trying to launch concepts that did not work in the local, decentralized organization. The concepts would not work, because there were significant differences in the local conditions, which the management was not sufficiently familiar with. However, due to pressure from the head office, the units ended up implementing concepts that were ill-suited to their business conditions. This incurred significant additional costs and satisfaction among employees went down. With our analysis, the management discovered the reason behind poor employee engagement and could initiate corrective actions.
Experience and intuition are not enough
One of the strengths of our method is that it produces a comprehensive description of people’s experiences at different levels of the company and of the factors affecting these experiences. This means that the management no longer needs to rely on a vague description of the organization’s culture in discussions with the board. Instead it can use concrete terms, descriptions and examples of behaviors that impact organizational performance, as well as of the factors that are affecting them. This makes it possible for the board to give more specific advice, instead of very generic guidance or reiterating previous more generic learnings.
What is essential is the identification of the levers that will enable implementing the desired change and improving organizational performance. Even the most experienced board professional’s intuition is not always enough in order to identify the right decisions in new circumstances. Forming a clearer and more granular picture of the factors affecting organizational performance will quickly pay off.
Assistant Professor in Strategy
Don’t Compromise on Compromise
Years of consulting on strategy and organization have taught me the value of balancing between different factors and interests to achieve progress. There is always a degree of compromise in the air, from first planning exercises to final implementation. In my personal experience, it is always more or less a bitter, if sometimes unavoidable pill. Converting aspirational into reasonable.
Diving into Finnish football as a member of FA council I discovered even higher levels of tolerance. Decades of accumulating good faith and compassion, devotion to seeking an all side encompassing balance of interests. Real empathy for the unselfish sacrifices of individuals, excusable even in the rare extremes that have led to inflexible positions producing no evident common value. All human.
The final outcome: compromise feeding on compromise.
After a long, taxing and successful organisation design process the implementation stage cannot be subjected to compromise. Quite the contrary, it should be a critical part of planting the seed of a new reconciled, open and broadminded culture. With aim tirelessly fixed on the collectively set goal.
Cultures are shaped by behavior
What makes an effective corporate culture?
That’s one of the questions we recently asked ourselves in a bid to deepen our brand and sharpen our Manifesto. Through self-evaluation and customer inputs, looking into what makes August Associates special and successful, we discovered the key attributes that characterize our organization and make us what we are.
The outcome can be seen in our brand poster (below, click on the picture to see in full size). It was great to discover that every individual plays an integral part in making August Associates a team braving the future.
Strategy, Fit and Intimacy
We talk a lot about how strategy fits the organization. How it guides corporate functions as well as individual choices made by people in the frontline.
The thing is, there is an element to fit that requires more than years of experience in consulting and extensive research and brainstorming. It’s a crucial element, yet often overlooked in the process.
I’m talking about intimacy. There is no fit without it. Don’t get me wrong – I’m not proposing we invade our customers’ privacy or plant ourselves indeterminately at their doorstep. I’m talking about trust and rapport achieved through long term relationships.
That trust or intimacy is gained only through common experience. Facing challenges together, committing to impact rather than delivery and yes, sometimes even through failing together.
Building an understanding of the task at hand and the best fit solution for it demands true intimacy. Its relevance needs to be based on knowing, not hypothesizing and it needs to account for a much broader view of the playing field than what can be acquired on demand beforehand.
The silent signals, shared experiences, insight based on seeing people relate and understanding of the deep values of the client organization are key to success.
Our name August Associates means more than just defining us a specialist organization built on a partner-driven business system. It reveals the attitude we adhere to. We are an association of smart, capable, empathic and yet analytical people who choose to work together. And it is also a guideline for how we work with our clients.
We associate ourselves with our clients. We delve deep, commit to finding fitting solutions and seek a level of trust that creates intimacy. We extend our firm belief in the benefits of a neo-generalist perspective to our clients, seeking and valuing their views and experience to enhance our own.
That’s why we take Best Fit so seriously. We associate ourselves with the organization, breathe the air and sense the atmosphere. We seek understanding of the individual’s capabilities within the organization and go beyond structural nuances to find hidden opportunities for impact.
We believe the era of Taylorism is doomed for the simple fact that no-one can afford it anymore. A single-minded solution may bring gains in the immediate or even the near-term, but does not try to provide real added value over the long term.
An understanding built on intimacy does. It makes it easier to brave the future.
Silos or Synergies?
Capturing synergies is especially critical in our increasingly digital business world, where companies are finding it more and more difficult, or even impossible, to stay competitive if they are not fully aligned with customer expectations.
While this is pretty self-evident and it sounds quite simple in theory, reality is unfortunately an entirely different story. In recent years, a number of Nordic companies have tried to capture synergies by centralizing functions, only to find that in optimizing those individual functional efficiencies they’ve compromised their overall advantage. The good thing is that there are ways to avoid these kinds of traps – you can read about them in the article below and feel free to reach out to discuss more!
Understanding The True Drivers of Organizational Behavior – Article in Director’s Institute Finland’s Online Publication
A recent article in DIF’s online publication (Q2/2017) by August’s founding partner Pasi Torppa and assistant strategy professor Timo Vuori from Aalto University outlines an analytical approach designed to help management identify and understand the true driver’s of organizational behavior.