1

Acknowledgment

The translation by Pan Jiabin and Liu Ruixiang, Peoples Republic of China, is used for the

quotes that appear at the beginning of each lesson.

A complete copy of that translation can be found in the book Sun Tzu for Execution: How to Use

the Art of War to Get Results by Steven W. Michaelson

Strategies for Contractors from Sun Tzu

by Ted Garrison

Published by:

New Construction Strategies

Ormond Beach, Florida

1-800-861-0874

Copyright 2014 by Ted Garrison, all rights reserved

2

Table of Contents

Introduction 3

Lesson #1: The Importance of a Superior Strategy 6

Lesson #2: The Offensive Strategy 9

Lesson #3: Knowledge & Experience Critical to Planning 12

Lesson #4: The Strategy of Massing or Focus 15

Lesson #5: The Strategy of Flexibility 18

Lesson #6: The Strategy of Opportunity 21

Lesson #7: Know Yourself 25

Lesson #8: Understand Your Situation 28

Lesson #9: Strategy Requires Commitment 32

Lesson #10: Strategy Is About Picking the Right Battles 34

Lesson #11: Planning Dictates Who Will Win 37

Lesson #12: Make Speed Your Ally 41

Lesson #13: Defeat Your Opponent at Its Strengths 43

Lesson #14: Be Careful of Frontal Attack Against Entrenched Competition 45

Lesson #15: Seize on Opportunities 48

Lesson #16: Planning 52

Lesson #17: Be Prepared 55

Lesson #18: Understand Your Situation 58

Lesson #19: Perception 60

Lesson #20: Understand the Competition 63

Conclusion 65

About the Author 68

3

Introduction

There are those who object to using The Art of War, written in the fourth century BCE, as

a business book, but it merely illustrates they have not read the book. Sun Tzu certainly

understood the perils of war and, therefore, his book emphasized the need to avoid war because,

as he points out, if you fight enough battles, you will eventually lose. If you doubt that theory,

consider two of the worlds greatest generals, Napoleon and Hannibal, both lost their last battles.

However, Sun Tzu was a realist and further advised that if one is forced to fight, one

must be prepared in order to increase one's chances of winning. It is no different in business;

planning will improve your chances of success. Numerous studies indicate that contractors that

preplan their projects are more profitable. For example, one of my clients that emphasizes project

preplanning has been able to reduce his labor costs by 30 percent.

Clemson University professor Dennis Bausman in an NCS Radio interview stated that his

research indicated that contractors with a strategic plan are 35 percent more profitable than those

without one.1 (To listen to the entire interview go to: www.TedGarrison.com/ncs-radio/strategy-

change/why-you-need-a-business-strategy/)

For those who think a war analogy is not appropriate, consider that though contractors do

not typically shoot at one another, a price war has casualties just like military wars, and these

wars often result in the death of a business in the form of bankruptcy. When contractors attempt

to compete on price, instead of by outthinking their competitors, they are in a war. So maybe the

analogy is justified. One misunderstanding about the analogy is you are at war not with your

1 Dennis Bausman, NCS Radio interview, 9/4/07 (www.TedGarrison.com/ncs-radio/strategy-change/why-you-need-

a-business-strategy/)

4

customer, but with your competition. Most military wars are usually over land; in business, the

battle is over the right to service the customer.

The term strategy comes with a significant military reference because the term was

initiated by the military. As military campaigns became more and more complex, the generals

learned there were many hidden costs that intensified without an effective plan or strategy, often

leading to exhaustion and destruction of even the victor. Its no different in business. Companies

that dont have an effective strategy end up wasting their valuable resources, which often leads to

self-destruction.

Strategy comes from the ancient Greek word strategos, or the leader of the army. In

essence, it was the commanding generals role to plan the entire war effort, including the

formations to deploy, the terrain to fight on, and what maneuvers to use. In a business the CEO is

responsible for the strategy. The business commander must plan what products or services to

sell, where to sell them, and to how to position the company in the marketplace. Business leaders

have learned, just like military leaders, the more thought and planning, the greater the chance of

success.

Just like innovative military strategies have allowed smaller armies as Alexander the

Greats to defeat the larger Persian army, an innovative business strategy can enable smaller

companies with fewer resources to succeed against larger competition.

Helmuth von Moltke, the chief of staff of the Prussian Army from 1857 to 1887, stated,

Strategy is more than a science: it is the application of knowledge to practical life, the

development of thought capable of modifying the original guiding idea in the light of ever-

changing situations; it is the art of acting under the pressure of the most difficult conditions.2 In

2 Robert Greene, The 33 Strategies of War, Penguin Books, 2006, xvi

5

essence, in business we need a practical approach on how to use our knowledge in lieu of greater

force to achieve our goals. Whats needed is a rational approach to defeat ones competition by

managing the situation through deft and intelligent maneuvers.

As explored in Sun Tzu Lesson #1, Sun Tzu wrote, Those skilled in war subdue the

enemys army without fighting. Their aim must be to take all under heaven intact through

strategic superiority.3 In other words, contractors need to outthink their competition instead of

attempting to outmuscle them in battles over price.

The common ways that people deal with [conflicts]trying to avoid all conflict, getting

emotional and lashing out, turning sly and manipulativeare all counterproductive in the long

run, because they are not under conscious and rational control and often make the situation

worse.4 In contrast, the effective strategist plans ahead to avoid conflict where possible,

prepares properly where its essential, and does it all in a controlled emotional state.

One obstacle to creating effective strategies is the fact that most people are tacticians, in

other words we are meshed into the day-to-day battles and find it difficult, even unnatural, to

focus on the long-term objectives. However, the effective strategist understands the need to

balance long-term and short-term objectives. Strategic planning and more specifically strategic

thinking needs practice and needs to be developed.

Since strategy is the art of getting the desired results, it is a valuable skill for everyone.

This skill is important whether someone is responsible for developing the company business

strategy, developing a project strategy, or even solving a problem. They all require a strategy to

achieve the desired goal. Therefore, Strategy by Sun Tzu for Contractors should be required

reading for all construction industry executives and managers.

3 Sun Tzu, The Art of War, Chapter 3 4 Robert Greene, The 33 Strategies of War, Penguin Books, 2006, xvi

6

Strategy by Sun Tzu for Contractors is divided into twenty individual lessons. Each

focuses on one piece of advice by Sun Tzu.

Sun Tzu Lesson #1

The Importance of a Superior Strategy

Those skilled in war subdue the enemys army without fighting. Their aim must be to take all under heaven intact through strategic

superiority.

Sun Tzu, The Art of War

Chapter 3: Attack by Stratagem

As indicated in the introduction, contractors need to avoid competing on price as much as

possible because that is the equivalent of going to war in business. To do this on a consistent

basis, contractors need to develop strategies that allow them to compete on value by

differentiating their services from the competitions.

Its important to understand even if you are forced to fight, you are fighting with your

competitors, not your clients. In war, armies fight over land to give to their sovereignin

essence, their client. In business, we fight our competition for the right to serve the client.

To differentiate their services, a contractor must outthink its competitors by doing one or

both of the following:

Do what they do not do.

Do what they do, but do it significantly better.

Unfortunately most contractors focus on the second option, but its difficult for a builder to be

significantly better than other good builders.

7

The solution is to do something different. To provide services your competitors do not

provide, you must become a Blue Ocean Contractor, a contractor that does different things than

the competition. Being different requires expanding how we define construction services. For

example, contractors need to offer value from the day the project is being considered all the way

through the projects life cycle until its torn down. Why is this essential? First, the time frame of

the construction process in most cases is only a few percentage points of the projects life cycle.

Second, the construction cost typical ranges between 10 and 18 percent of the total lifetime cost

of the building. When a contractor expands its services beyond the narrow construction phase, it

opens up many opportunities to provide clients superior value.

Many clients understand this concept. For example, my NCS Radio interview with Robert

McCoole, vice president of the Facility Resource Group at Ascension Health, offered some

insights. When I asked how contractors could do business with his organization, he responded,

The only firms that would get through the filters we have would be really good firms to start

with, really strong firms that we know are that just from their reputations in the industry. But the

real thing that I look for that would perk up my antenna is preconstruction expertise. Expertise in

the preconstruction phase with very reliable early pricing capabilities and to be able to sit at the

early design table with the client, architects and engineers, and a few user groups and contribute

in that early phase when its being programmed and designed into the schematic phase and not

just wait until there are lines on paper and then take those back to their office to price. We need

real-time pricing and constructability and scheduling input as the project is being developed, and

so I look not at their ability to build the buildingthats a givenI look at their ability to

8

contribute in the preconstruction phase.5 (To listen to the entire interview go to:

www.tedgarrison.com/ncs-radio-clients-delivery-methods/)

What does this mean for contractors? It means they must be experts not only on

construction because, as McCoole said, that is a given, but also on the clients needs so they can

help provide solutions that maximize the value for the client.

Of course, if you are successful, others will try to copy you. However, Al Ries and Jack

Trout explained in their best-selling marketing classic, Positioning: The Battle for Your Mind, if

you introduce a new idea, you will create a superior strategic position. Being first at something

will be explored in greater detail in the next lesson, but for now its sufficient to understand that

you need to initiate new values then work hard to constantly improve that value to maintain your

leadership position.

At the end of the day, if you are not making sufficient profits because the competition is

too intense, I hate to tell you, but you do not have a superior strategy. Of course, there are bad

economies and other issues that affect the marketplace, but in those situations, you need a

strategy that addresses those issues. A great strategy for a boom period might not be a very good

strategy in a recession. However, even in the tough markets that occurred from 2008 through

2013, I have seen contractors not only survive but thrive and grow substantially as a result of

their superior strategies.

Avoiding competing on price starts with the creation of a strategy that differentiates your

services by understanding your clients current needs and creating superior solutions that address

those needs.

5 Robert McCoole, NCS Radio Interview, 9/21/11 (www.tedgarrison.com/ncs-radio-clients-delivery-methods/)

9

Sun Tzu Lesson #2

The Offensive Strategy

Generally, he who occupies the field of battle first and awaits the enemy is at ease; he who arrives later and joins the battle in haste is weary.

Sun Tzu, The Art of War

Chapter 6: Weakness and Strength

The prior lesson introduced the importance of being first to propose something new, and

this lesson from Sun Tzu reinforces that concept. Reis and Trout reported, History shows that

the first brand into the brain, on the average, gets twice the long-term market share of the number

two brand and twice again as much as the number three brand. And the relationships are not

easily changed.6 When their book was published, the conventional wisdom was that they

offered some revolutionary marketing strategies, but their most powerful marketing position

wasnt a new strategy. Sun Tzu had introduced the strategy nearly twenty-five hundred years

earlier, demonstrating that great strategies have a long life.

All three authors argued the leadership position established by being first creates a strong

competitive advantage. Reis and Trout stated, You just get there first with the mostest.7 Other

studies support this position as they find that companies that benchmark against other firms

slowly fall behind their competitors. The problem is that benchmarking against the leader has

you playing catch-up because while you are attempting to catch the leader, the leader is moving

further ahead.

6 Al Reis and Jack Trout, Positioning: The Battle for Your Mind, Warner Books, 1981, 43 7 ibid

10

For the customer, the question is simple: If the leader is better qualified, why should I

even consider someone else? The only reason is for a lower price. When the follower attempts to

promote the initiatives value that he is copying, he often ends up promoting the leader. If the

client agrees with the value being presented, why shouldnt he select the leader to provide it? So

the first company to stake out a position is the leader. The next best position is goes to the low-

cost provider. Everyone else falls in the unsustainable position of the undefined middle.

To be able to create a new environment of limited competition, or become a Blue Ocean

Contractor, requires planning. Planning is about identifying your companys direction, or North

Star. You must ask yourself what you are trying to accomplish. Once you have that answer, you

need to ask, if you deliver on that, how you will differentiate yourself from your competitors. In

addition, the planning process needs to identify potential opportunities that can add value for

clients then develop a strategy to maximize that value. It should also identify the risks to that

strategy then determine what needs to be done to eliminate or at least minimize those threats.

One danger of planning is paralysis by too much analysis. Since the company is

attempting to sail into unchartered waters, there is a tendency to want more and more

information, which postpones action. Instead, just consider the major factors and develop a plan

to address them; then take action. Your initial plan will not be perfect, but you can keep

improving it from the knowledge gained from the action. Thats OK! General Dwight

Eisenhower said, The plan is useless; its the planning thats important.8 The key is to learn

from the process and keep adapting the plan to the conditions as they unfold. A sailor wouldn't

set the sails in the proper position to get out of the harbor then just leave the there for the entire

trip across the ocrean. The rigging needs to be adjusted as new environmental factors pop up.

8 Dwight Eisenhower, www.chacha.com

11

However, the planning process enables you to anticipate problems, so you are better prepared to

deal with them when they occur. The unknown was no different for the great explorers. Not

knowing what they would encounter, they trained and prepared as best they could, so they were

better able to adapt to the actual situations they encountered.

The real opportunities begin to reveal themselves when contact is made with the client.

Instead of telling clients what you can do for them, it is critical to discuss what challenges they

are facing then explore how you can work together to solve the issues. Open dialogue builds trust

and a sense of common purpose. Prospects are more likely to bring you into the process as a

partner when they believe there is a common goal. A sound business relationship with clients

helps to protect you from attacks by competitors.

12

Sun Tzu Lesson #3

Knowledge and Experience Are Critical to Planning

Those who do not know the conditions of mountains and forests, hazardous defiles, and marshes and swamps cannot conduct the march of an army. Those

who do not use local guides are unable to obtain the advantages of the ground.

Sun Tzu, The Art of War

Chapter 7: Maneuvering

In the previous lesson, we discussed the importance of planning. In this lesson, Sun Tzu

emphasized effective planning requires one to be on the ground and to understand the situation.

How often do we see people who are far removed from the event giving orders? How often do

we see people giving orders when they do not understand the situation even though they are on

the ground?

The sad answer is far too often.

Alan G. Robinson and Sam Stern reported in their book Corporate Creativity that when a

company wins an award for innovation, more than 50 percent of the time the idea was initiated

by someone not in management. They added that ideas generated by the rank-and-file typically

have a greater effect than those generated by management.9 This happens not because the

frontline people are smarter or because management does not know what its doing. It occurs

because the frontline people often have a better understanding of the situation as a result of

dealing with it on a day-to-day basis. Therefore, they are able to develop the best solution. The

9 Alan G. Robinson and Sam Stern, Corporate Creativity, Berrett-Koehler Publishing, Inc., 1997

13

Japanese have a term genchi genbutsu, which means go and see. This is an important concept

of Lean construction.

The dangers of not being on the ground can be disastrous. For example, in one case an

estimator for a contracting firm bid a project and won the bid. When the operations manager

went out to the site, he was surprised to see an existing building because there was no mention of

it in the estimate. When he asked the estimator about it, the response was, There was nothing on

the plans about an existing building. The operations manager pointed to the note indicating that

the contractor was responsible for clearing the site as necessary. Clearly a site visit was required.

This mistake resulted in the estimators being fired. In Sun Tzus terms, he fell into a swamp he

did not know existed.

But maybe a bigger problem is having people without sufficient experience making

decisions. Despite my civil engineering degree, I was shocked at how little I knew when I arrived

on my first job site. Sure, I knew a lot, but probably just enough to be dangerous. Fortunately, I

survived my ignorance because I was mentored by several men who knew the lay of the land and

had the experience to guide me. In essence, they were my local guides.

In reality, companies can get themselves into trouble by doing the same thing, namely,

taking on types of projects where they have little or no experience or knowledge. Different types

of projects have different minefields. The problem is if you are unfamiliar with those types of

projects, you are likely to step on a mine. Its not only about navigating the minefield

successfully. The greatest-value contractors and designers bring their experience and knowledge

to the project to help the owner make the right decisions. If you are like Lewis and Clark, with

everything totally new, you are not likely to anticipate potential threats or opportunities. This

practice is costly for clients, who deserve better.

14

The contractors job is more than knowing how to install the bricks and mortar; it is

knowing if the bricks and mortar are the best solution.

Of course, contractors want to expand on their experience and not get frustrated by a

catch-22. If you do not have experience, you cannot get the job, and if you cant get the job, how

do you get the experience? The answer is to find your local guide, someone who has the

necessary experience who will do that first job with you. When new types of projects come along

where no one has the exact experience that is required, its important to find someone who at

least understands the type of terrain. In other words, they may not have traversed the actual

marsh in question, but they are at least familiar with the challenges presented by marshes.

Experience building foundations on bedrock is not of much help when attempting to build a

foundation in New Orleans, where you are building on unstable soil.

15

Sun Tzu Lesson #4

The Strategy of Massing or Focus

We can form a single united body at one place while the enemy must scatter his forces at ten places

Sun Tzu, The Art of War

Chapter 6: Weaknesses and Strength

The massing of ones forces has been a basic military tactic for at least twenty-five

hundred years. In recent years, General Colin Powell was noted for his position that whenever

the United States deployed troops, they should be in a position of overwhelming superiority.

Massing of resources is an important concept because every army as well as every business has

limited resources and needs to focus those resources where they can do the most good, or they

will dilute their strength. When the military spreads its forces too thin, it becomes vulnerable,

while businesses lose their competitive advantage.

In business its typically not about massing sheer numbers of people or capital. Instead,

its about bringing the necessary knowledge or expertise to bear to deliver superior value to the

client. However, its essential that a company provides sufficient human resources and capital to

implement the initiative. Attempting to pursue any initiatives without sufficient resources is the

equivalent of being spread too thin, and it weakens the contractors competitive advantage.

Another problem is revealed when contractors are asked, What do you build?

Unfortunately some respond, We can build anything. Its true a quality commercial builder can

most likely build any type of building, but thats not how a high-performing contractor provides

its greatest value. Every type of building has its unique minefield, and the high-performing

contractor knows those unique problems. Not only can it anticipate the potential problems, but it

knows how to prevent them from occurring. The solution is about accumulating knowledge and

16

experience by focusing on certain types of buildings, not by doing a little of everything. In

essence, contractors need to mass their learning experience.

Some contractors become experts on the local market. This local market expertise occurs

where the environment is sufficiently different to create problems for contractors that are not

familiar with its irregularities. Whats important is massing ones expertise by focusing on a

limited number of specialties. Large contractors have the resources to develop more specialties,

but even the largest contractor cannot do everything, especially at a high level.

Its no secret that in many industries today, upstream activitiessuch as sourcing,

production, and logisticsare being commoditized or outsourced, while downstream activities

aimed at reducing customers costs and risk are emerging as drivers of value creation and

sources of competitive advantage.10 This opinion is especially true in the construction industry,

where construction activities are believed to be a commodity. However, when contractors can

mass their knowledge about their clients needs, they deliver superior value. In this way, they

become more profitable because their clients are willing to pay more to receive a superior value.

How does a contractor mass its necessary expertise? It starts with identifying what it does

better than its competitors and focuses on that. Companies as well as people create breakouts by

focusing on improving their strengths. It also helps to talk to clients. One contractor I

interviewed in writing Strategic Thinking did just that and asked, What could we be doing for

you that were not currently doing? Based on those conversations the contractor adjusted its

services and was able to increase its profit margins by 4 percent.

Contractors should determine their strengths then work on further improving them. However,

dont make the mistake of trying to focus on too many things. According to the Pareto Principle,

10 Niraj Dawar, When Marketing Is Strategy, Harvard Business Review magazine, December 2013, 101

17

better known as the 80-20 rule, 20 percent of what you do will generate 80 percent of the results.

The equivalent of massing your resources is to focus your effort on the most valuable 20 percent

of opportunities.

18

Sun Tzu Lesson #5

The Strategy of Flexibility

In battle, there are not more than two kinds of posturesoperation of the extraordinary force and operation of the normal force, but their combinations

give rise to an endless series of maneuvers.

Who can exhaust the possibilities of their combinations?

Sun Tzu, The Art of War

Chapter 5: Use of Energy

Invariably there are those companies that are looking for a simple solution to solve their

current challenges. Unfortunately there is no silver bullet because clients cannot be placed in

simple boxes either. They are almost as many different types of clients as there are clients. They

each have their own set of priorities, biases, and needs. Its the responsibility of the contractors

and designers to sort through them and offer a proposed solution that best fits the clients

circumstances.

The two postures that Sun Tzu addressed can be applied to business today. The first is

what you do, and the second is how you do it. Businesses should compete on value because that

approach is more profitable. Unfortunately that statement leads to some confusion or

misunderstanding. Some contractors will argue that they are forced to compete on price. Since

their work is awarded to the lowest bidder, they must compete on price. If two products or

services are exactly equal, then the one with the lowest price has the best value. However, if a

contractor can find a better way to do something that lowers its costs, the contractor can lower its

19

price and still maintain its profitability, which is an example of competing on value even in the

low-bid environment.

The solution is to start with the right thing to do. This approach is what allows the

company to maximize the value it gains from its knowledge, experience, and wisdom to

differentiate its services from competitors. A client of mine, a road builder, earns higher-than-

average profit margins because they bid only work their competitors do not know how to do. The

competitors throw money at the uncertainty, while my client puts the right number on the work

and adds a higher fee because he knows he will get it.

No matter how much we would like to avoid price, its impossible. Virtually all clients

have budgets that define what they can afford. We might like the value offered by a Rolls Royce,

but for most of us, it exceeds our budgets, so it does not matter how good a deal it is. This brings

us to the how of the equation.

Lean construction, best-value procurement, and integrated project delivery are all about

delivering what the clients want at minimum cost or maximizing what they can have for their

budgets. It is not about squeezing the players but about creating an atmosphere of collaboration

to squeeze out the waste from the construction process. The mistake that most people make when

attempting to reduce costs is focusing on improving the efficiency of the tasks. While there is

always room for improvement in the tasks, the greatest opportunity for improvement is between

the tasks. For example, Clemson professor Roger Liska has discovered there is a 20 percent loss

in construction workers efficiency due to waiting for materials, information, equipment, or

supplies. Another 15 percent is lost due to poor scheduling, resulting in work areas that are too

congested. Both of these problems affect the workers efficiency in performing his work, but the

cause is outside the task.

20

The two above examples account for more than a third of a workers potential

productivity and result from poor planning. In contrast, a union electrical contractor eliminated

the 30 percent loss by better planning its projects. The planning anticipates the potential

problems that would cause delays, which allows the company to take the necessary actions to

prevent the problems from occurring. This contractor gets the work because he has a lower price,

but he has a lower price because he brings superior value to the project through superior

planning.

The contractor has an almost endless list of ways to differentiate itself by the way it combines

what the company does and how it does it. Its the contractors job to identify the mixture that

will best fit the needs of a particular client then deliver those results.

21

Sun Tzu Lesson #6

The Strategy of Opportunity

The commander must create a helpful situation over and beyond the ordinary rules. By situation, I mean he should act expediently in accordance with what

is advantageous in the field and so meet any exigency.

Sun Tzu, The Art of War

Chapter 1: Laying Plans

Often value-based contractors identify their uniqueness as their ability to manage

complex or difficult projects. Its not just that high-performing contractors do a better job on

complicated projects, but on complex projects, they have less competition. In other words,

because of their special expertise and knowledge, they eliminate competition. Since their

competition often doesnt know what to do, they increase their contingency that gives the high-

valued contractor a cost advantage. This fact is supported by the Performance Based Studies

Research Group at Arizona State University, where their studies indicate that the more complex

the project, the more likely the high-performing contractor offers the lowest cost. Professor Dean

Kashiwagi states, Price is always most important because the high performer can always

perform at a lower price.11

Kashiwagis statement causes confusion because some people think it means they can

simply accept the lowest bid. Unfortunately if the contractors ability to perform is not

considered as part of the determination, it can result in a low-performing contractor turning in a

lower bid because that contractor does not understand whats required. When the low-performing

11 Dean Kashiwagi, Ph.D., PE, 2014 Best Value Standard, Kashiwagi Solution Model, 2104, 3-2

22

contractor runs into unanticipated problems, it usually results in cost and/or schedule problems.

Unanticipated problems help explain the results Nadine Post uncovered during her research for

an Engineering News Record article. She found that 33 percent of construction projects were

over budget, 42 percent were completed late, and 13 percent had claims and litigation pending.12

In contrast, the Performance Based Studies Research Group has documented that when the

contractor was selected based on performance and not just price, 98 percent of the time, there

were no time delays or contractor-generated change orders.13

Its important for every contractor to understand how it maximizes the value it delivers to

its clients. Clients who understand this value will be willing to pay the contractor more;

therefore, the contractor should focus on these clients. The previously mentioned contractor who

increased his profit margin by 4 percent by asking what else he could do reinforces this point.

Contractors should use their special expertise as the companys North Star to indicate the

direction they should pursue.

Focusing on the companys North Star will afford opportunities to help create client

value in ways beyond the mere construction activities. In other words, if a contractor has special

knowledge in the operation of a warehouse facility, the contractor can help to ensure not only

that the building is built to the highest standards of construction but also that the completed

facility operates at peak efficiency, allowing the building operator to maximize its profitability.

Ive seen buildings with numerous truck bays, similar to warehouses, which have turning radii in

the delivery area that prevents trucks from using all the truck docks at the same time. This

mistake is expensive and could have been prevented. When a contractor brings expertise beyond

12 Nadine Post, Building Teams Get High Marks, Engineering News Record, 240(19), 3239 13 Dean Kashiwagi, Ph.D., PE, 2014 Best Value Standard, Kashiwagi Solution Model, 2104, 1-3

23

pure construction activities, it becomes helpful beyond the ordinary rules. While this type of

expertise is not directly related to the construction process, it certainly offers contractors an

opportunity to differentiate themselves from the competition.

The other advantage of this expertise is the ability to plan better to meet any exigency.

Unfortunately too many contractors do not properly plan their projects. They create a schedule

and a budget and determine a method of operation, but they fail to perform a thorough risk

analysis. If a contractor doesnt follow through with risk analyses of its projects, including risks

to schedule, budget, and quality, the contractor misses an opportunity to differentiate itself. My

client that decreased his labor costs by 30 percent did this by eliminating delays and issues

caused by unanticipated problems.

There are several potential reasons for this failure to plan properly. First, they do not

understand the value of planning. How often have we heard the comment from people when

asked if they spent time planning, My boss expects me to hit the ground running! My response

is, What if you are running in the wrong direction? Second, they do not understand how to

properly plan, including effective risk analysis. Third, they dont have the experience and

knowledge in a specific type of project to anticipate the potential risks.

The problem with poor planning is that when problems are not anticipated, the contractor

is surprised when they occur. Surprises result in higher costs and delays. While many contractors

attempt to address the major problems, they ignore the smaller ones and fix them as they occur.

But the solution, which is probably not ideal, tends to be more of a Band-Aid and costs more to

implement after the problem surfaced. Field people often complain the same problems occur on

every project. The costs from correcting these routine problems are often merely included in the

24

companys unit prices and hide their true cost. Eliminating these problems can drastically reduce

a contractors costs.

25

Sun Tzu Lesson #7

Know Yourself

Know the enemy and know yourself, and you can fight a hundred battles with no danger of defeat.

When you are ignorant of the enemy but know yourself, your chances of

winning and losing are equal.

If ignorant both of your enemy and of yourself, you are sure to be defeated in

every battle.

Sun Tzu, The Art of War

Chapter 3: Attack by Strategem

It does not matter what kind of competitive situation you are in, the above words of

advice by Sun Tzu are obvious. Unfortunately its often ignored at ones peril.

Leadership is the ability to perceive ones situation and align ones resources, both

human and capital, in the most effective way. Alignment requires understanding ones own

capabilities as well as ones competitors capabilities. The most successful strategies are those

that pit ones strengths against ones competitors weaknesses.

Every person and every organization is perceived in three distinct ways:

1. Who you think you are

2. Who others think you are

3. Who you really are (This one is the most important.)

Too many people and organizations spend too much time on their weaknesses instead of

focusing on their strengths. The reality is if you are weak at something, you will probably never

become dominant in that area, so it is difficult to compete successfully in that arena. However, if

you are deficient in a critical skill, you must bring that skill up to an acceptable level. For

26

example, if your estimates have many errors, its important that you create a procedure that

eliminates that problem, but its not necessary to become the worlds greatest estimator; you

merely need to do a satisfactory job.

Your strengths are where your opportunities lie because your strengths are what will give

you a competitive advantage. For example, if you build projects in less time than your

competitors, then on projects where speed is critical, you would have a competitive advantage.

Owners might even be willing to pay a slight premium for your speed. However, if you are going

up against someone who is faster than you, then you are probably wasting your time.

Marcus Buckingham and Donald Clifton explained in their book, NOW, Discover Your

Strengths, To excel in your chosen field and to find lasting satisfaction, in doing so, you will

need to understand your unique patterns. You will need to become an expert at finding and

describing and applying and practicing and refining your strengths.14

In other words, once you identify your strengths, its your job to continuously improve

those strengths because that is how you can create a world-class advantage. Of course, most

contractors do not need to start out by being world class at something; they simply need to be the

best in their niche, whether geographical area or type of work. As that expertise increases, their

sphere of influence will increase.

The other part of this process is identifying where that competitive advantage delivers the

greatest value. The process starts by understanding what your clients need and which clients can

benefit the most from your competitive advantage. Matching your advantage to what is important

to your clients is critical because if your clients value your strengths, they may be willing to pay

a premium to gain that advantage. The process must also include an analysis of your competitors.

14 Marcus Buckingham and Donald O. Clifton, Ph.D., NOW, Discover Your Strengths, The Free Press, 2001, 3

27

For example, you are thinking of expanding your geographical area. There appear to be several

opportunities in a city on the other side of the state, but that city has a company that has strengths

very similar to yours. This new city might not be a good place for you to attempt to compete

because if you are similar, they have the advantage of being a local contractor. However, if you

can bring something extra to the client, you might be able to break into the market. Another

approach would be to have a past client, who used your services in another location, select you to

do a project in the new city.

There is no way I can cover all the potential scenarios because they are virtually endless.

Therefore, its your job to honestly evaluate your strengths and opportunities against your

competitions. One way to develop an accurate evaluation is to talk with your past clients and

prospects and ask the following:

Why did you hire us in the past?

Why are you considering hiring us in the future?

What are your concerns about using us?

This information will allow you to develop the best strategy based on your strengths.

28

Sun Tzu Lesson #8

Understand Your Situation

One must compare various conditions of the antagonistic sides in terms of five constant factors:

1. Moral influence 2. Weather 3. Terrain 4. Commander 5. Doctrine

These five constant factors should be familiar to every general. He

who masters them wins; he who does not is defeated.

Sun Tzu, The Art of War

Chapter 1: Laying Plans

Sun Tzus five constant factors can be translated as follows for business:

1. Moral influence is the equivalent of the companys mission.

2. Weather is the equivalent of the outside forces that affect the business.

3. Terrain is the equivalent of the marketplace.

4. Commander is the equivalent of the leader (CEO).

5. Doctrine is the equivalent of guiding principles or ethics.

Companies that fail to address these critical factors in their business planning will place

themselves at risk. Lets examine each of them.

29

Mission

As I wrote in Strategic Planning for Contractors, The most important thing concerning

a mission statement is that it must reflect the business owners commitment and passion. Those

are what create the staying power to overcome the inevitable obstacles on the way to the gold

ring. You need to ask yourself, What is the company promising? What does the company

guarantee? In essence, your mission should be your North Star.

A sustainable competitive advantage is attained by creating a win-win environment,

which means there must be a balance between the companys and the clients needs. Therefore,

the mission is not about money, but ideas and beliefs. The good news if you have the right ideas

and beliefs, the money will follow.

Outside Forces

The outside forces that are affecting the construction industry are almost endless. Gary

Hamel and C. K. Prahalad addressed this challenge in their book, Competing for the Future,

when they wrote, If a top management team cannot clearly articulate the five or six fundamental

industry trends that most threaten its firms continued success, it is not in control of the firms

destiny.15 Each company is affected differently by the events swirling around it because each

comes with a different set of strengths, weaknesses, and circumstances. Your role is to identify

the trends that you can turn into opportunities and those that require protection.

Marketplace

Understanding the marketplace comes down to three simple questions:

15 Gary Hamel and C. K. Prahalad, Competing for the Future, Harvard Business School Press, 1994

30

1. What are you selling? (Hint: It better not be construction services.)

2. Who are you selling to? (Hint: It better not be whoever will buy.)

3. How do you differentiate yourself from your competitors? (Hint: It better not be

price.)

The idea is to stake out a portion of the marketplace where you have a competitive

advantage because you provide better value to the client than your competitors do. When the

client understands the value you are delivering, he may even pay a premium for your service.

However, if you merely do what your competitors do, then you will be forced to compete on

price. Differentiation is the key.

Leadership

Leadership is not about command and control. The command and control stifles

ingenuity of those below the leader and is counterproductive in the long term. When command

and control leaders leave an organization, the organization usually flounders. Effective

leadership is about perceptionthe ability to understand the current conditions and align the

resources, including both human and capital, in the most effective manner. What makes this

approach so powerful is all the participants now know what they are supposed to do, and if

anything happens to the leader, they can still function and perform as required.

Outstanding military leaders understand the importance of alignment over command and

control. The commanding general of the division considers the mission before him then aligns

his brigades in the most effective manner. He then explains to the brigade commanders their

mission within the larger division mission. The brigade commanders do the same thing with their

battalions. The battalion commanders do the same with their companies, and so on down the line.

31

In this process each leader defined the mission, developed a master plan, and aligned his

resources. It should be noted the leaders did not tell their subordinates how to do their jobs; they

merely told them what mission or job they had and how it related to the bigger picture. This last

step is critical because the various entities do not operate in silos. Everyone needs to know what

those around him are doing, so appropriate plans can be made and support can be provided.

Just think how more effective projects could be if they followed the above process.

Guiding Principles or Ethics

The definition that I prefer for client is someone under the protection of. It should be

obvious that a business must treat its clients fairly and honestly. The above definition of client

embraces that concept. While clients may deal with you if you do not follow that philosophy,

they will avoid you if they have a choice. If you doubt that, consider the following questions.

How long would you keep your doctor, attorney, or CPA if he or she were not protecting you? I

would venture to say not long, so why should they keep you as a contractor if you are not

protecting them?

So how are you addressing those five factors?

32

Sun Tzu Lesson #9

Strategy Requires Commitment

To win battles and capture lands and cities, but to fail to consolidate these achievements is ominous and may be described as a waste of resources and

time.

Sun Tzu, The Art of War

Chapter 12: Attack by Fire

Obviously contractors do not fight battles for land, but they do fight battles for marketing

turf. Breaking into a new market area or niche is usually difficult at best. Why? Because those

entrenched have an advantage. Then why do contractors work so hard and put so much effort

into obtaining a particular project in a new city then not make the necessary commitment to

remain?

Its even crazier when you consider that often the conquering out-of-town contractor has

to make concessions to get the initial project because otherwise the incumbent would win the

job. Unless one has a plan to take advantage of the success created by the initial project, a

considerable amount of resources and time will be wasted. That time and effort could have been

better spent in obtaining work in markets where the contractor was already established.

Unfortunately too often contractors go after a project because the project is appealing or

they simply need work and are forced to take work anywhere they can find it. In reality, this is

not a business acquisition plan; it is a reactionary plan that can be very costly. If the obstacles are

too great for the contractor to overcome and it does not get the project, then the entire effort is a

waste. If the contractor spends the extra time and money necessary to win the initial project in a

33

new city or niche but doesnt have a plan in place to leverage that success into additional

business, then its also a waste.

Often contractors establish their project job site as the companys office in a new city.

But the truth is that the people on the job site are focused on the current job, not on getting new

work. The result is no new work comes about, and after the project is over, the contractor closes

its office and wonders why it had trouble breaking into new market.

The first step always should be to decide what markets you want to pursue, whether you

are talking about geographical markets or some particular market niche. Once you identify

potential growth markets, then you should develop a plan to exploit that market. If the project is

not in one of those markets, you should pass on the project. The exception would be if the project

is for either a past or current client because your client relationship might level the playing field,

if not tilt it in your favor. However, this situation is not the same as trying to break into a new

geographical market because, in this case, the market is the client. But if this new location is

attractive, then you should not only mobilize for the project but make the necessary effort to

obtain additional work and take advantage of the leverage the current project created.

Every company, no matter how large it is, has limited resources; therefore, it cannot

afford to waste them. Not taking advantage of opportunities that you have created is a big

mistake. Strategic planning is about identifying opportunities, but once those opportunities are

identified, they must be prioritized. Starting at the top of the list, you should commit sufficient

funds and effort to the highest opportunities to maximize their chance of success. Any less of a

commitment, as Sun Tzu would say, is a waste. When there are insufficient people or funds to

prosecute an opportunity properly, it should at least be postponed until sufficient people and

funds are available.

34

Sun Tzu Lesson #10

Strategy Is about Picking the Right Battles

If you are not sure of success, do not use troops. If you are not in danger, do not fight.

Sun Tzu, The Art of War

Chapter 12: Attack by Fire

Unfortunately too many contractors chase any job that comes along then wonder why

they are forced to compete on price. Typically road builders make less than the average for all

general contractors, yet one of my clients makes more than the average. He explained, We only

bid jobs our competitors do not know how to do. In essence, he picks his battles.

Of course, I understand that when contractors do not have work, they are forced to be less

selective or, even worse, not selective in the jobs they seek. When people or companies are

desperate, they will do whatever is necessary to survive. We have all heard stories where

someone cut off his own arm to survive. Contractors get into this situation for a variety of

reasons. Sometimes management is negligent, not identifying the companys strengths and

positioning it as the expert in that particular niche or geographical area. Other times it is simply

bad luck. For example, the economy simply turns bad and there is virtually no work of any kind,

so one must chase what little there is. Finally, there is the possibility of a combination of those

two situations.

However, I am not writing about those situations. Contractors in those situations are

desperate, and they do not have many options. Their problem was getting caught in that situation,

but that is a discussion for another day.

35

When I talk to contractors and ask how many bids they must turn in to get a job, their

answers are all over the place. They range from three (33 percent of bids accepted) to twenty (5

percent of bids accepted). My question is, What is it costing the contractor to turn in all those

bids? When the contractor finally is awarded a project, he is recovering only his estimating costs

if he is getting fewer than one out of ten bids. Sun Tzus advice was not to commit troops unless

you were sure of success. In the contractor wars, contractors should not commit manpower or

money to bids unless there is a reasonable chance of winning the bid. A 10 percent or less chance

is not reasonable.

In contrast, one contractor in Montana and Wyoming has 96 percent of his bids

acceptedthats right twenty-four out of twenty-five bids. He gets that kind of ratio because if

the prospects start talking price, he does not even bother to turn in a bid. He knows he is wasting

his time, so he does not commit the resources. This approach is not hindering his business. He

has more work than he can handle, and he is certainly not the cheapest contractor in town. He has

built a reputation for delivering quality work, being reliable, and providing a fair price that

represents great value for his clients when all factors are considered. While many of his

competitors offer lower bids, his clients realize the savings cannot justify the problems the lower

bid brings. They realize in the long run, he is the lowest-cost contractor.

While not everyone buys his value proposition, he finds more than enough clients, and

most of them are repeat customers. He is very profitable because he does not waste resources

chasing low-probability projects, and he earns a fair profit on the projects he gets. He does this

by focusing on things he does better than his competitors.

So what are you doing to stand out from your competition so you do not have to chase the jobs

that are not a good fit? Answer that question, and you will begin to improve your profitability.

36

Sun Tzu Lesson #11

Planning Dictates Who Will Win

The commander who gets scores during the calculations in the temple before the war will have more likelihood of winning.

By examining the situation through these aspects, I can foresee who is likely to win or lose.

Sun Tzu, The Art of War

Chapter 1: Laying Plans

Planning, planning, and planning are the three keys to project success. Exaggeration?

Maybe a little but it is almost impossible to overstate the importance of planning. And Im not

repeating myself by listing it three times. There are three specific levels of planning. The first is

the strategic planningthe companys plan on what types of projects it will pursue. The second

level is the project planning required for a specific project. The last level is at the field level and

is often referred to as pull planning. Here the people actually performing the construction work

plan their activities. Sun Tzus quote in this situation focuses on the first two levels of planning.

Many of the problems that contractors get themselves into are a result of not taking the

time to define their strategy in terms of what types of projects they should pursue. Contractors

should always attempt to compete on value, even in a competitive bid situation. Therefore,

contractors must identify where they have a competitive advantage and focus on those types of

projects. For example, some contractors have developed systems that allow them to build faster

than their competition, so they focus on projects where speed of delivery is the most important

issue. A client of mine, who happens to be a road builder, makes higher than average profit

margins on its projects. They accomplish this because they focus on bidding on projects that their

competitors do not know how to do. The value they bring to the project is their experience and

37

knowledge. This allows them to properly plan the project, including the right costs, and increase

their fee because they know they can get it. If their competitors do get the job, the competitor is

at risk because they do not know how to do the work and are not sure what it will cost.

Project planning is the key to the projects success. An electrical contractor improved its

project planning process and was able to reduce its labor costs by 30 percent. This contractor

does not wait until he gets the project to start the planning process; instead, he starts before he

turns in a bid. The planning process is actually a risk analysis. In other words, the planning

process is used to identify the potential problems and to develop strategies to eliminate or at least

minimize them. If a problem causes sufficient risk and can't be reduced to an acceptable level,

then the contractor should pass on the project.

Therefore, by identifying all the potential problems on the project, the contractor can

ensure that he is capable of overcoming them and ensure the estimate includes the necessary

resources to complete the project. While this approach might appear to increase the estimated

cost of the project, it does not. The project is properly estimated and scheduled, instead of

relying on figures that have hidden contingencies to deal with unknown problems.

When contractors do not properly preplan their projects, they tend to experience

problems in the field. Since many of the same problems occur on every project, they are thought

to be normal and fixing them is built into the unit prices. Unfortunately fixing problems after

they occur costs more than preventing them from occurring. Therefore, contractors that address

these problems in the preplanning phase are able to reduce their costs and lower their estimates.

Many contractors resist fixing the problems because they do not believe their unit prices

are inflated. A recent McGraw-Hill Construction report confirmed how many contractors even

believe there is a problem, and there is a huge difference between those practicing lean

38

construction and those that do not. Their report titled Lean Construction found that 62 percent

of Lean practitioners believe the construction industry processes are either inefficient or highly

inefficient, while only 14 percent of non lean practitioners believe the same. While only 19

percent of lean practitioners believe, the industry practices are efficient or highly efficient as

compared to 62 percent of non lean practitioners.16

Another example is explained in Glenn Ballard's doctoral thesis on Last Planner. He

reported, a key early finding was that only about half of the assignments made to construction

crews at the beginning of a week were completed when planned.17 Good contractors dont

believe that information until they test it themselves. They cant understand how they can finish

their projects on time yet have tasks be late. They dont take into account additional people

and/or overtime used to catch up. The problem is adding costs, but since this is standard practice,

the unit prices reflect these extra costs, and no one seems to notice or care. Why is there so much

resistance to fixing the problem?

Harvard professor John Kotter, author of Leading Change and other books on change,

explains the problem. He wrote, I became more than ever convinced that it all starts with

urgency. At the very beginning of any effort to make changes of any magnitude, if a sense of

urgency is not high enough and complacency is too low, everything else becomes so much more

difficult.18 In other words, contractors need a sense of urgency to make the necessary changes.

The good news is more and more contractors are feeling that pressure.

16 Smart Market Report, McGraw-Hill Construction, Lean Construction: Leveraging Collaboration and Advanced Practices to Increase Project Efficiency, 2013, 6 17 Herman Glenn Ballard, The Last Planner System of Production Control, Doctoral Thesis at University of

Birmingham, 2000, 316 18 John P. Kotter, A Sense of Urgency, Harvard Business Press, 2008, ix

39

Sun Tzu Lesson #12

Make Speed Your Ally

There has never been a case in which prolonged war has benefited a company.

Sun Tzu, The Art of War

Chapter 2: Waging War

Speed is an ally. Learn to use it wisely!

If you reduce a projects duration by one-third, you can double or even triple your

profitability. For example, if you take a project that normally takes six months and reduce the

time to four months, you could do three similar projects in a year instead of two. The short cycle

means you would have three profits instead of two, and the overhead that was originally

expended over two projects would be spread over three. In essence, the faster schedule increases

the volume of work while improving the overhead efficiency. The resulting increase in

profitability comes without reducing the direct costs.

In many cases, the faster schedule can be achieved simply through better planning.

However, the amount of waste in the construction industry is substantial. Clemson professor

Roger Liska has estimated that the average construction worker operates at about 40 percent

productivity. Waiting for material, information, or equipment results in 20 percent loss in

productivity. The use of poor systems or procedures results in another 20 percent loss. And poor

scheduling of the work, resulting in congestion and interference, results in another 15 percent

loss. In other words, by reducing the waste in the schedule that prevents the mechanics from

doing their jobs, the work can be completed faster without the mechanics having to work faster.

40

The pull planning process can help contractors reduce these time wasters. The Lean

Construction Institute has discovered that more than 50 percent of the tasks that are assigned in

any given week are not finished on time. The number one reason projects do not finish on time is

because they could not start on time. Lack of coordination and collaboration among the various

stakeholders is a primary reason for delays on the project.

However, when the various stakeholders use a pull planning process, such as the Last

Planner process developed by LCI, significant improvements are experienced. For example,

the percentage of tasks completed on time on a weekly basis increases to about 80 percent.

However, maybe more important, LCI consistently reports reduced costs of 15 to 20 percent on

projects that implement this and other lean construction practices.

One of the major problems with the construction industry today is the high cost. This puts

a damper on the construction market, so if contractors can reduce their costs by eliminating

waste and speeding up their projects, they will lower costs and experience an upswing in

construction work. With faster schedules, contractors will be able to do more work with fewer

people, also increasing their profitability.

Do not misunderstand; speed just for the sake of speed is not necessarily beneficial. We

are not talking about just increasing the speed of the treadmill. We are talking about eliminating

the waste factors that delay the projectin essence, things that stop the treadmill. Good planning

increases project speed.

41

Sun Tzu Lesson #13

Defeat Your Opponent at Its Strengths

The best policy in war is to attack the enemys strategy. The second best way is to disrupt his alliances through diplomatic means.

The next best method is to attack his army in the field.

The worst policy is to attack walled cities. Attacking cities is the last resort when

there is no alternative.

Sun Tzu, The Art of War

Chapter 3: Attack by Strategem

This is interesting advice from Sun Tzu, but how does this affect a business strategy?

In essence, in business as in war, the best strategy is to trump your competitions

strategies. When you develop a strategy that takes away your competitors strength, they have

nowhere to go, which puts you in a powerful position. Of course, if it were easy, everyone would

do it.

You cannot be just a little better; you need to make their strategy irrelevant, or they will

still be able to sell their strength. In other words, if your competitor has established its strength in

a particular area, you must demonstrate that strength is no longer the best value to the client. If

you attempt to claim you are a little better than someone who is already established, it is a tough

sell. Since you are an unproven entity and offer only a little more, why should the client take a

risk working with the unknown? It is much safer to stick with the proven entity since there is

little to be gained by taking the risk to work with you.

However, when you can introduce a new way to substantially lower cost, speed up the

schedule, or improve performance, you will have a powerful position. This position can even

enable you to take clients away from your competitors.

42

The second best approach is using referrals to penetrate your competitors market. But

even with good referrals, it will be difficult to take clients away from your competitor unless

there is a substantial difference in what you provide. However, the referrals can help you

compete for clients that are not already aligned with your competitors.

The next best approach is to get into the trenches and battle your competitor. The

problem is this approach typically becomes a price war, and if there is not a significant

difference between you and the competitor, the battle will continue to be fought over price.

Unfortunately this is possibly the most common strategy in the construction industry, and it has

resulted in an industry with low profit margins and high turnover of contractors as reported by

Ken Simonson, Associated General Contractors of America's chief economist. However, if the

contractor can create a substantial difference, he can transition to a better approach. For example,

a road builder bid a project then worked with the city to speed up the project as much as possible

to earn the early completion bonus, but the town was still delighted by his successful

collaborative approach. In fact, other cities then began calling the contractor and asking the

contractor to design-build their next road so they could take advantage of its aggressive schedule.

Finally, contractors need to avoid taking on competitors that are well entrenched. In

business, it means companies that have established their superiority and own the market. Unless

you find something that a prospective client highly values and is not being provided by the

market leader, you will typically be unsuccessful. Unfortunately too many contractors attempt to

compete in this type of market by competing on price. This results in a bloody battle at best.

In the end, the best strategy is able to provide something the client values in a manner

superior to the competition. The further you are forced away from that position, the less

profitable and desirable the strategy.

43

Sun Tzu Lesson #14

Be Careful of Frontal Attacks against Entrenched Competition

The art of employing troops is that when the enemy occupies high ground, do not confront him uphill, and when his back is resting on hills, do not make a

frontal attack.

Sun Tzu, The Art of War

Chapter 7: Maneuvering

Sun Tzus advice should be self-evident, but too many contractors do not heed this sound

advice.

In their classic marketing book, Positioning: The Battle for Your Mind, Jack Trout and Al

Reis explained that marketing is about the battle for the customers mind. They went on to say

whoever establishes themselves first in the customers mind is in the strongest position.

Bear in mind that customers are inherently risk averse. Therefore, they are leery of trying

someone new if they are at least satisfied with the current vendor. In the 1960s there was the

saying: You cannot get fired for hiring IBM. IBM, as the established computer company, was

the safe bet. The Rogers Curve demonstrates the uphill battle one has to introduce new ideas.

Only about 2.5 percent of people create innovations while another 13.5 percent are what he calls

early adopters, people who like trying new ideas or products. In other words, fewer than one out

of seven people are interested in exploring new ideas until they are well established.

To overcome their entrenched position, you need to offer something substantially

different and more valuable to the client. However, even this approach can face obstacles

because if what you offer is too new or revolutionary, it may not be accepted or even believed.

Trout and Reis pointed out that the mind tends to reject information that doesnt compute.

44

Therefore, you need to lead customers in little steps because large steps make them very

uncomfortable. Unfortunately if the prospects do not understand or they are uncomfortable, they

will reject the idea. However, in most cases little steps will not allow you to differentiate yourself

from the leader sufficiently to get the work.

The situation is not hopeless. There are strategies to address this problem, but they do not

rely on a frontal assault, which could be suicidal.

One option is to establish your credibility in a market where there is not a dominant

leader. Credibility allows you to establish past performance standards that would support your

claims and provide credibility. It will also allow you to establish references and referral

opportunities in the new marketplace. The combination of strong supporting data and referrals

can certainly help level the playing field. Remember, unless you offer something different, you

will still run into a challenge: Why should I change vendors if Im happy with my current

vendor?

Option two addresses this problem. What contractors need to do is find a window into the

clients mind, a concern that is not being addressed. If the problem you are addressing is

important enough to the prospect, you have a good chance of getting him to change vendors, not

because you beat the current leader at its game, but because you changed the game. Your

position would be substantially stronger if you combined both options. In other words, if you

have documented proof that you can solve the clients problem and you have referrals that

support that claim, you will find yourself in a strong position. We see this occur in the

technology arena as the leader constantly changes as companies introduce new and different

products.

45

In the end, any strategy must be about providing superior value that is not only different

but can be substantiated. This condition is true whether you are the leader or someone

challenging the leader.

46

Sun Tzu Lesson #15

Seize Opportunities

Take advantage of the enemys unpreparedness, make your way by unexpected routes, and attack him where he has taken no precautions.

Sun Tzu, The Art of War

Chapter 9: The Nine Varieties of Ground

In the previous Sun Tzu lesson, he advised not to make a frontal attack on a well-

established enemy. His advice in this lesson could be considered a corollary of that lesson. In

essence, he is advising to attack where the enemy is not or at least where he is not well

established. What does this mean in business terms?

Typically it means entering a market where the competitor is not entrenchedin essence,

a marketplace he is not prepared to defend. This can be accomplished in several ways. One

approach is to enter a geographical area where your competitor is not established. However,

there is certainly someone in that geographical area that will provide competition, and since they

are already there, they will have an advantage unless you bring a strong reputation that can open

doors. This reputation can be achieved by having done high-profile projects that the local

community is aware of, or obtaining referral letters addressed to potential clients in your new

market. Just changing geographical areas might solve the problem with one competitor, but then

suddenly you are confronted with new competitors, so nothing has changed. The solution is for

contractors to introduce new values for the client.

When you introduce something no one else offers, you have little or no competition

because any potential competitor is unprepared. W. Chan Kim and Rene Mauborgne identified

a strategy they referred to as Blue Ocean Strategy, which is a euphemism for a market without

47

competition. They explain an intensely competitive market, such as the construction industry,

becomes a blood battle that turns the ocean red. In contrast, when there is limited or no

competition, there is no blood spilled, and therefore, the water remains clear blue. If contractors

want to escape the blood battle of hypercompetition, so common in the construction industry,

they need to strive to become Blue Ocean Contractors.

How does one become a Blue Ocean Contractor? It starts by redefining the contractor's

role, which means contractors must stop thinking of themselves as just builders. Unfortunately

for contractors, construction activities are perceived as a commodity, resulting in many people

feeling they can simply buy that service based on price. Contractors disagree with that mentality,

and though I agree with the contractors, the truth is our opinions do not matter. If the client

thinks you are a commodity, you are a commodity. However, maybe construction activities are a

commodity. If your competitor placed concrete properly and on time, how are you going to

differentiate your service? That would be difficult, and that is at the heart of the problem for

contractors, which is why contractors need a major shift in their thinking. They must stop

thinking of themselves as just builders and start positioning themselves as problem solvers.

While there are opportunities to solve problems and offer increased value in the

construction process, such as faster completion, this represents only the portion of the iceberg

that is visible above the water line. Contractors need to look at how they can improve the

building for its operational life, not just during the construction. They need to focus on how to

reduce operating expenses, including maintenance, energy consumption, and even operational

efficiency of the building user. The savings the contractor can generate in these areas can far

exceed the savings they can generate in construction. The reason is that construction costs

represent only about 10 to 18 percent of a buildings total lifetime cost and the construction time

48

frame is even a smaller percentage of the buildings life. Obviously its easier to find savings

when one considers 100 percent of the building costs, instead of just construction costs.

As an example, let us examine energy costs. Reed Construction Data states that the

national average square foot cost for a ten-story office building, including architectural fees, is

$163.48 per square foot.19 The energy costs for an office building run between $1.75 and $3.50 a

square foot per year.20 This means that every year an office building spends 1 to 2 percent of its

construction budget on energy, and this is before we build in the increasing cost of energy.

Therefore, if a contractor could eliminate all energy costs, in around fifty years, the energy

savings would cover the cost of the building. Compare this to a typical value engineering

exercise that finds a few percentage points in construction savings, which is only equivalent to a

few years of energy costs. You may argue that you cannot eliminate all the energy costs, but that

is not true. The Department of Energy built the National Renewal Energy Laboratory in Golden,

Colorado, in 2012, and it is an energy-neutral building. In other words, it produces all the energy

it needs. Further, this highly energy-efficient building was built within the DOEs original

budget. Originally this project was bid conventionally and came in over budget, but when the

DOE went to the design-build approach, they got everything they wanted for their budget.

Of course, when you factor in present worth and inflation and the other variables, it is

impossible to predict the exact savings, but I think the above example demonstrates that the

potential to create value outside the construction work is significant. This is true even if you do

not get to a net-zero-energy building but only create significant energy savings. In another

example of adding value outside the construction work itself, a contractor used a lean-

19 Reed Construction Data, www.reedconstructiondata.com/rsmenas/models/offices4/ 20 Alphonse DellIsola and Stephen Kirk, Life Cycle Costing for Facilities, Reed Construction Data, 2003, 92

49

manufacturing expert to reduce the size of the factory and improve the factorys operating

efficiency. This example will be discussed later in greater detail.

Many contractors are afraid to specialize, or create niches, where they can build a strong

reputation and, therefore, a defensible position. They are afraid that if they do, they will lose

work outside that specialty. That is true, but when they go outside their specialty, they will be

forced to compete on price. When they provide unique solutions, their profitability increases

because there is no competition, and they provide superior value for clients. The trick is to ensure

that you create niches that have sufficient volume to support your organization.

The greatest opportunities today for contractors exist before the construction starts. By

contributing in the design phase of the project, they can provide significant value to the client,

and by using their knowledge and experience, they can differentiate themselves from the

competition.

While contractors often know the most cost-effective type of wall to use, they should also

help determine where that wall should be installed because that decision may create more

savings than the type of wall.

Competing on value, contractors need to not only be experts on construction, as that is a

given, but they need to be experts on their clients issues. By offering a better solution to a

problem, they can differentiate themselves from their competition. In essence, contractors need

to seek out client problems that are not currently being addressed. Filling these needs with

unique solutions offers the Blue Ocean Contractor outstanding opportunities that will make their

competitors defenseless.

50

Sun Tzu Lesson #16

Planning

A wise general in his deliberations must consider both favorable and unfavorable factors. By taking into account the favorable factors, he makes his

plan feasible; by taking into account the unfavorable, he may avoid possible

disasters.

Sun Tzu, The Art of War

Chapter 8: Variation of Tactics

It should come as no surprise that Sun Tzu states that wise generals need to plan as

planning is just as critical to generals as to the business CEO. Sun Tzus recommendation

mirrors the planning process because it consists of two aspects: identifying both risks and

opportunities.

In an NCS Radio interview, Gregg Schoppman, a principal at FMI, discussed the

importance of planning. Their research confirmed that companies that plan properly are more

profitable.21 (To listen to the entire interview go to: www.TedGarrison.com/ncs-radio/project-

management-productivity/improving-productivity/ )As stated earlier, one of my clients reduced

his labor costs by 30 percent by improving his project preplanning.

The process of identifying potential risks to a project allows you to plan ways to

eliminate, minimize, or avoid risk. Its impossible to eliminate all risk, but if you cannot reduce

potential risk to an acceptable level, then you should avoid the project. The important point is the

planning process should begin before you bid the project. It may be too late to identify the risk

and properly address it after you have been awarded the contract.

21 Gregg Schoppman, NCS Radio interview, 10/13/10 (www.TedGarrison.com/ncs-radio/project-management-

productivity/improving-productivity/)

51

Risks occur as a continuous range from minimal to extreme. Many risks can be

eliminated by proper planning, such as long lead items being ordered in a timely fashion. Others

can be minimized through proper planning but still create exposure. For example, a complex

installation may take longer than estimated, therefore increasing the projects labor costs and

requiring acceleration in other areas, but this can be handled through a contingency that covers

the worst case. The real risk occurs when a problem has no remedy because this can cause severe

damage to the company.

The qualified or expert contractor has little risk related to technical issues because the

contractor knows what it is capable of doing and bids according to its capabilities. The real threat

is caused by nontechnical issues that the contractor does not control. An example is a client that

is insufficiently funded for a project, and after the contractor has spent a considerable amount of

its own money, it learns the client cannot make the necessary payments. Another example is a

client promising to provide the necessary permits and approvals by a certain date, but they do not

meet that schedule, and now the contractor will not be able to close in the building before cold

weather sets in, which would cause severe delays. While the contractor may get additional days

for the permit delay, they often do not get compensated for the shutdown that results over the

winter.

The need to avoid or at least minimize risks is obvious to most contractors. However,

maximizing opportunities is not as obvious to many contractors. Contractors need to focus on

maximizing value for their clients, which means exploring every opportunity to increase the

value for the client. It is more than just how to reduce construction costs; it is how the contractor

can build a better building that will either increase revenue or decrease operating costs. Today

there is a great deal of interest in sustainability, but reducing maintenance costs are just as

52

important. Potentially the greatest opportunity to provide value is in laying out the building in a

more efficient manner. On a factory project, one contractor used a lean-manufacturing expert to

increase the value for the client. After reviewing the clients existing factory, the lean consultant

advised the factory owner he did not need a new 100,000-square-foot factory. He reported they

only needed 90,000 square feet, and he could arrange the factory layout so they would be more

efficient going forward. The resulting construction and operational savings were subs