Independents Days!

Omaha, Ne. – Omaha Local Independent Business Alliance’s second annual Independents Days is reaching out to consumers to show their pride for local business during the two weeks of festivities.

The campaign got underway June 28 when OLIBA’s website: www.shoplocalomaha.com was officially re-launched. Included on the website is an opportunity for consumers to vote for their favorite independently-owned business in the Omaha area. By voting, site visitors also register for a chance to win a bundle of gift certificates from OLIBA members.

The website will also house discounts, applicable to many of the member businesses. Independents Days discounts include offers at Rockbrook Women’s Gym and The Bookworm, among others.

According to “Local Works,” a 2008 survey, $68 of every $100 spent at a local business stays local, while only $43 of $100 spent at a national chain remains local.

Millard Lumber is proud to be part of this year’s Independents Days!  Once again go to: www.shoplocalomaha.com for an exclusive discount from Millard Lumber!

Your Homebuilders’ Success Report for June 2010

Edited by Ted Garrison and Ron Black

Should You Venture into New Niches to Survive the Recession?

The worst construction industry recession that anyone in the trade has experienced is causing many companies to seek new types of work. But is that the right decision for your company? There is no definitive answer to that question because every situation is different. For example, if 30 years ago you were building nuclear power plants, you would have had to change niches no matter what. But for most contractors, it’s not that simple.

Doug Woods, president and cofounder of DPR Construction, said in an interview, “I think it’s important to stick with what you are good at. I think oftentimes as contractors we all have big egos, and we think we can go do something different that you haven’t done before. We may take chances during economic crisis or downturns, and that path has gotten a lot of us in trouble. Stick to what you are good at!”

In How the Mighty Fall, Jim Collins wrote the mentality that “we’re so great, we can do anything!” leads to disaster. While he was referring to how companies fall even during good times, this type of attitude is even worse during a recession because there is virtually no margin for error.

Obviously if the niche your company operates in totally dries up in your region of operation and it’s not feasible to expand to other regions or the other regions are no better off, then drastic action will be required. This situation offers three basic options. The first is to shut down before losing a bunch of money. Several companies did this in the late 1980s in New Orleans. The second option is to shrink to a size that will allow your company to survive the economic crisis. The first two choices are painful and not the solution most companies are seeking. The third choice is to shift into a new niche, which is what this report is about.

A common mistake in this situation is to chase what appears to be the industry’s most attractive opportunity. The problem is that in a severe recession, there probably aren’t any truly great opportunities, and those that appear attractive get lots of attention and experience hypercompetition. For example, this past year has seen an excessive number of bidders with some bids going for below cost. That doesn’t sound like a great opportunity to me.

The recession notwithstanding, any time a contractor is considering entering a new niche, it needs to consider the facts. The rules of economics will apply whether in a recession or during a boom, except during a recession the competition will almost always be greater.

Therefore, the decision to enter a new niche must be based on sound economic reasons, not desperation. The contractor must find a niche not only where the economic conditions don’t work against it, but also where the contractor offers something that the other competitors don’t. If the contractor can’t differentiate itself, it will be forced to compete solely on price, and in a recession that is a formula for financial disaster.

Entering a new niche will often create additional costs, including the following:

• Additional marketing expense to establish business in the new niche
• Additional investment in technology
• Lower margins than originally anticipated because its entry in the market increased competition and lowered prices
• Subcontractors and vendors might give you the lowest prices
• Unanticipated problems can occur
• The recession might suppress the volume of work in the niche

Michael Porter in his classic book Competitive Strategy identified five competitive forces: entry cost, bargaining power of suppliers, bargaining power of buyers, substitution and rivalry. Historically the entry costs into the construction industry have been fairly low, which has contributed to a significant increase in the number of contractors and the corresponding decline of profit margins in all segments of the industry. However, moving to a new niche may still incur additional costs than found in your original niche. The bargaining power of the various subcontractors and vendors might be less than normal since they are under pressure too, but if you are the new kid on the block, you might not have as much clout as other competitors. In a recession, owners certainly have tremendous power, and many are bashful about squeezing contractors.

Depending on what kind of work you perform, substitution may or may not be a major factor. If you’re a general contractor, obviously it doesn’t matter what the building is made of, but the owner does have the option of buying an existing building instead of constructing one. Subcontractors often face substitution issues. For example, a concrete subcontractor must not only compete against all the other concrete contractors, but he must deal with structural steel contractors. Finally the rivalry is the host of other contractors, so the idea is to select a niche where the competition is at least reasonable.

If you are considering entering a new niche, especially during a recession, you must look for a niche where you can minimize the above forces. A few suggestions include the following:

• Bring something special to the niche. This could be a special skill you developed in your prior niche that can now be applied to the new one. This is probably the most important point because no matter what niche you are in, if you don’t have something that gives you a competitive advantage, you will be forced to compete almost solely on price. You must be able to ask the question, “What makes us different than our competitors?” If you can’t answer that question and back it up, you will be forced to compete on price.
• The level of the competition should be less skilled than you, so you can bring superior management skill to bear. However, be careful; some projects might run very well with limited management and, therefore, not allow your more sophisticated management approach to pay dividends.
• Your experience and reputation should be an asset and minimize your effort in establishing yourself in the new niche.
• Look for a niche that might help other aspects of your business. For example, if you are a mechanical/plumbing contractor, you might enter the service niche on the types of projects that you build.

In the end the decision about whether you should move into a new niche, whether in a recession or not, depends on the sound economic principles. If you attempt to move into a niche that doesn’t fit your company’s strengths, then it will probably result in an economic disaster, whether it’s during a recession or not. In fact, it might be worse in a recession because the margin of error is less. Do your homework before jumping because the grass may not be greener in that other niche.

Andersen Wood Insert Replacement Window Clinic

Looking to get some new windows and/or patio doors for your home? Be sure to join Millard Lumber this Saturday (May 1st) from 10am – Noon for a FREE Andersen Wood Insert Replacement Window Clinic! See a demonstration and visit with an Andersen rep. Be sure to bring your measurements and ideas!

Your Homebuilders’ Success Report for April 2010

Edited by Ted Garrison and Ron Black

Increased Productivity

The primary role of management is ensuring maximum productivity from all its resources. This is achieved through effective leadership by properly aligning all resources, including labor, capital, knowledge and equipment.

Prior to 1875, poor performance was blamed on the worker, but Frederick Taylor learned that work could be managed with a resulting increase in productivity. He explained the way to improve results was to “work smarter.” He also concluded that productivity was the responsibility of not the worker, but the manager. While he never included it in one of his formal theories, he recognized that knowledge was a critical capital resource.

The Garrison Report 2010-2: Effective Leadership explained that leadership is about perception and alignment, not control. It also argued that knowledge is a critical aspect to someone’s ability to perceive. Therefore, it’s essential that managers are well informed and have the necessary knowledge to perform their responsibilities. Unfortunately, too often people are promoted into supervisor or management positions because they know how to perform “the work.” The problem is required knowledge is more than simply “how to do the work.”

Peter Drucker wrote, “Knowledge must be able to be applied to all resources: capital, key physical resources, time and knowledge itself.” It requires the know-how to judge other people’s abilities so the right people can best be assigned or aligned to the required work. The effective manager needs an understanding of the big picture because without this insight, it is virtually impossible to establish the right priorities. While knowing how to do the work is helpful, if the individual doesn’t know how to coach or instruct others in how they can improve their performance, this knowledge is useless to the person who needs the help. In other words, the manager’s required knowledge goes beyond how to perform the tasks.

Since the economic well-beings of both the company and its employees are dependent on the company’s productivity, the managers can’t be allowed to fend for themselves. Instead companies need to invest in educating their supervisors and managers. Yes, educating, not training. Training is what you do to teach someone a skill, but to develop the depth of knowledge required to effectively perform the role of manager, namely perception; managers must be educated with the information necessary for them to understand impacts of various factors on the performance of their teams.

Today’s managers need to understand the importance of innovation, the constant need to shift from obsolete or declining methodologies to new and more productive ones, even when the necessary changes threaten their comfort zone. Of even more concern is the idea that some of their subordinates might actually have good ideas to change things that would improve productivity. In essence, this idea of constant improvement is the underlying concept of lean construction and Construction 3.0™.

If you don’t think the construction industry needs change, consider it’s the only significant industry that hasn’t increased productivity since 1960. Other nonagricultural industries have averaged doubling their productivity during the same period. The industry’s approach to supervision and management is a major contributing factor. In part, the problem is an issue in mindset. The industry invests a large amount of time and money on technical training, but often courses that would truly improve supervisor or management performance are overlooked except for individuals at the highest levels of the organizations.

Too many forepersons are promoted simply because they are the best technicians. Without the necessary information, how can we expect forepersons to perform properly? Their source of knowledge is usually someone else promoted the same way, who also lacks the necessary information to perform adequately. In many companies the situation is even worse because the same procedure is applied to superintendents and project managers. The reason it’s worse is because these individual have substantial responsibility and can have a major impact on a project’s performance and productivity.

Many clients have placed tremendous pressure on contractors to reduce project overhead because they believe it will reduce costs. Unfortunately, they are misinformed; it actually increases costs. When there are no positions between foreperson and superintendent, it should be obvious there is gap in the necessary knowledge of the individual when he or she is promoted from foreperson to superintendent. The costs related to this lack of knowledge are greater than the cost of an assistant superintendent. Not only does the assistant superintendent perform valuable functions on the project, but the position allows the individual to gain the necessary background information to perform as an effective superintendent.

When companies hire college graduates and immediately install them as project managers, they do everyone a disservice. The author has a B.S. in civil engineering, but he also knows how stupid he was when he first walked on the job. Fortunately, he had several important mentors who allowed him to grow into the necessary responsibilities of being a project manager. While today’s college graduates from engineering and construction management programs are very knowledgeable with regard to the technical skills of the job, they still lack critical knowledge to perform properly. No one has ever learned how to build a building by reading a book; one must do it. Again the investment in properly developing a company’s project managers will handsomely reward both the contractor and the client.

The recession offers a lesson that proves the above claim. One CEO the author interviewed told him that his company’s volume is down, but its profits are up. When asked how, the CEO explained that since they had less work, he assigned more management people to the projects. The result was that costs came down significantly more than the cost of the additional people. This proves that many of the so-called overhead personnel who have been removed from projects actually had important tasks to perform. The result is less efficiency and greater waste or mistakes.

Tom DeMarco in his book Slack helps explain why this occurs. He points out that middle management’s roles include dealing with change and problems. Superintendents and project managers as well as their assistants are all middle managers. To deal with change and problems requires knowledge and time to think. However, when the staff is reduced to a minimal number, no one has that time, which results in poorer perception and results. DeMarco explained the myth of total efficiency. He found that companies that increased efficiency to high levels actually had a decline in productivity.

Jim Collins wrote that he learned in writing Good to Great that most successful companies are realistic about conditions. It’s time the construction industry embraced Construction 3.0™ concepts and become realistic about what has caused its failure to increase productivity for a half century. The industry can’t afford to do anything else.

The Omaha Home Show

See thousands of home, remodeling and decorating ideas come to life.  March 25 – 28th at the Omaha Qwest Center.

Show Hours:

Thursday, March 25th from 5:00p.m. – 9:00p.m.

Friday, March 26th from Noon – 9:00p.m.

Saturday, March 27th from 10:00a.m. – 9:00p.m.

Sunday, March 28th from 10:00a.m.-5:00p.m.

Admission:

Adults      -      $9.00

Students      -      $5.00

Kids 5 & Under      -      FREE!

Homeowners more likely to remodel in 2010

In the recent U.S. Remodeling Sentiment Report (a survey done by www.remodelormove.com) homeowners were found to express increased interest in wanting to remodel within the next 12 months.  The report  surveyed around 5,000 homeowners in the U.S. and found that there was an overall 13% increase of people who said they will remodel in the next year.  Compared to only a 5% increase in 2009.

Summary results from the report (2008 – 2010):

Homeowners who report they:                                    2008              2010
Plan to hire a general contractor                                 66%                 64%
Plan to do some of the remodeling work                  67%                 66%
Are excited about remodeling                                      48%                 54%
Plan to remodel a bathroom                                          49%                 42%
Plan to remodel the kitchen                                           55%                 48%
Plan to add a bathroom                                                    49%                 53%

Read the full article here.

Nebraska Builders Home & Garden Show

Come browse through approximately 300 exhibits for the newest ideas in home and garden!  Speak with hundreds of businesses about your next home project, build, or remodel.

February 11-14, 2010

Lancaster Event Center (84th & Havelock Avenue), Lincoln, NE

HOURS

Thursday & Friday:  5 p.m. – 9 p.m.

Saturday:  10 a.m. – 8 p.m.

Sunday:  10 a.m. – 5 p.m.

ADMISSION

$6 per person OR

$5 with a non-perishable food item for the Lincoln Food Bank

Children 12 and under FREE

New 2010 ENERGY STAR Criteria

Effective January 4, 2010, new ENERGY STAR® performance criteria will be implemented for windows and patio doors. In many instances, the new ENERGY STAR performance criteria will increase performance requirements across all four (4) U.S. ENERGY STAR climate zones.

*Northern zone windows can meet prescriptive (1st row)
or alternative energy performance (2nd & 3rd row) criteria
to qualify for Energy Star.

New Energy Star Climate Zone Map