FULL INTERVIEW TRANSCRIPT

The transcript has been lightly edited for clarity…

“A MESSAGE FOR INDUSTRY LEADERSHIP”

Ted Stiles: If I’m CEO of a general contracting firm watching this conversation and I’m still not 100 percent convinced, what are your final words for me to consider taking this [Lean] leap?

Tim Reimann: I think about CEOs and senior leadership teams, and just the things that are pressing for those organizations and individuals. So much of it is driven by day-to-day delivery and financial performance, but if you step back and take a high look and think about your responsibility for guiding a company forward in a very competitive marketplace; the best you’re going to place; and the strategic investments you’re going to make – I would ask you right now what are you doing right now that’s going to improve financial performance across organization?

Deliver your projects with excellence, but how are you looking at tuning up your organization? How are you looking at applying Lean thinking and principles to make your overhead as productive as it can be to leverage those critical shared services and resources that support the project teams in ways that make sense for the world we see unfolding in front of us with more technology and distributed teams?

How are you looking at engaging and growing your people? Are you giving them the opportunity and the reward of sharing the mantle of leadership with them and navigating your business plan and company forward? Having them do the work but also having them commit to improving how it’s done and building the asset that is the company.

I think the final one I would say is how’s your culture? Is your culture one that is healthy, supportive of people, challenging them to be problem solvers and innovators – or is it something other than that? Are you happy with the current state of culture? I think all those questions – in my experience over 25 years of doing this type of work – points back to what Toyota first put together over many years and was articulated as the Toyota Production System, but this idea of building a Lean organization or enterprise that’s going to weather the storms, retain the best people and that’s going to be buoyed up by a culture of accountability, improvement and problem solving. I’m excited to be part of that future.

“Current State – Productivity and Efficiency Challenges Facing the Construction Industry”

TR: If you look at productivity and productivity indexes for our industry compared to others since World War II to the present day, while agriculture, retail and other industries have shown 100x or 1000x improvement, the construction industry has more or less flatlined during that same time span. Some cuts of the data actually show falling productivity – and that’s at a macro level. At a micro level, there are industry studies that have shown that about 70 percent of construction projects fail to deliver on time or on budget. Then another sobering statistic is about one-third of a dollar spent in construction are lost due to inefficiencies, rework or quality-related issues.

Those kinds of alarm bells for a lot us in the industry have compelled us to look at operations differently across the complex supply chain that we have in collaboration with our partners. What I’m seeing that’s happening that’s very encouraging is with those alarm bells going off and clients of ours expecting better from us, general contractors have really taken note. They’re heeding that call and applying Lean not only at the project level to improve project delivery, but they’re now starting to apply it to their own organizations to reap benefits as we’ve seen Toyota and others in manufacturing, healthcare and financials services do as well.

“How McGough Got Started with Lean”

TS: When you came in from those other industries, how did you know where to start? What were some of the first things you started to take on?

TR: In early 2015, my boss Tom McGough Jr., had retained a Lean consultancy. The consultancy had worked with our senior leadership team at the time to really talk about what true enterprise transformation looks like; the commitment that’d be involved; and essentially how to get started. A lot of that was work that resided in the senior leadership team and understanding what Lean meant for us, so starting to define what Lean meant from an operational perspective.

Starting to look at areas of need or opportunity from a learning and experimentation standpoint within our business, we chose to start our experimentation with what’s called a value stream analysis and then rapid improvement events and self-performed structural concrete. Those were areas that we controlled and areas to drive improvement.

The consulting firm with our leadership from the time started down that path, and probably somewhere in mid-2015 had discussions about a long-term commitment to Lean thinking; you need to hire a senior operations executive that has Lean transformation experience. And importantly, need to hire a senior HR leader who has good grounding in people development strategies; organizational design work; and cultural evolution. In mid-2015, Tom McGough Jr. started looking for candidates who could play those two roles. I was hired in September 2015 for the Operations role and Cassie Nelson was hired as our head of HR to bring those skills and competencies of people, team and organizational development and experience with high-performing work cultures. Cassie and I have been very active collaboration partners together, and within the rest of the senior leadership team.

“The Lean Roadmap at McGough – Lean Links to Strategic Priorities”

TS: What’s the structure of the Lean enterprise model? How’s it built?

TR: One of these things that were very important to me in that first 90-day period of the company was defining Lean and how we want to convey it to our company and our partners; developing some guiding principles that we would share as a senior leadership team.

One of them is we’re pursuing Lean to very intentionally affect our five strategic priorities in positive outcomes: 1) Growing high-quality revenue 2) Improving bottom-line profitability 3) Driving operational excellence 4) Engaging and growing our people 5) Fostering innovation.

A second guiding principle is a Lean transformation by its nature is significant work in the business; and therefore, it’s a shared senior-level executive responsibility. My role was to help architect the transformation and collaborate with the senior leadership team to embrace it, understand it, support it and lead by example. 

A third example is that Lean is going to be new, and we’re an organization that’s growing and busy, so we always wanted to make sure that as we’re pushing forward on our Lean roadmap that we would take pauses and reflect. As a senior team, gauge the rate of progress – what we’re asking the organization to do – against the available capacity of the entire company and a lot of our partners to commit to new ways of doing things because it’s a heavy lift. I’m going to be honest with you, one of the things I appreciate about our senior leadership team and owner and CEO, is the thoughtful discussions we have – they’re about balance and happen pretty frequently. More than once, we had to take our foot off the pedal just to pause and let ourselves breathe, catch up, ask questions and wrestle with new problem-solving approaches we’re using, or challenges on projects.

TS: Change is hard, and we see this with a lot of our clients, particularly with industries that are new to Lean. There’s this tendency to want to get there faster, and the importance of meeting them where they are, and making sure you’re pacing it to their ability and the culture’s ability to absorb it and hold onto it is really critical.

TR: Right. Going back to your original question about how we got started, one of the things that was really helpful in those first 90 days was in Q4 – we were in the throes of building our plans for 2016 – was that we visually built our Lean transformation roadmap and that roadmap was a way of honoring the guiding principle that Lean is a shared senior executive responsibility. In our visual roadmap, we looked at the next three years, but we always wanted to take a high look down the path because everything I’ve learned about transformation planning at the enterprise level and execution is that it’s a multi-year pursuit; it never stops because you’re always tweaking, learning, reflecting and adjusting. We found a three-year planning horizon is a good one.

Our roadmap has specific swim lanes if you think about those lanes going across and the years going through it as well. The swim lanes are the major investments in work that in our view need to be planned and executed to support an enterprise transformation.

So the top one is strategy deployment: How are we aligning the senior leadership team and the supporting leadership elements of the company to those five strategic priorities that I mentioned? In our business and every industry sector I’ve been a part of, you’re busy deep in the business doing the work for your customers, but take a pause and ensure that the business plans are monthly and quarterly reflections tying back to the results that really matter to the company and those strategic priorities.

“Lean Enterprise Model – Building a Lasting Asset”

TS: Getting back to an industry view of taking this enlightened, yet much harder, Lean enterprise model approach complete with policy or strategic deployment model; cascading down; standard work; the focus on leadership and capability development – that’s a lot harder than what I imagine to be just running a last planner approach hoping for a great results. It sounds like if you put in the work, you’re then opening up to get some of these gains you’re talking about in scalability. Is that the why behind this effort from McGough?

TR: I think the why is maybe a bit more noble – and I think probably not just for McGough but other industry leaders wrestling with the same challenge and opportunity of bringing Lean thinking to the enterprise at scale and as a cultural enabler and structure. The noble piece for McGough is very much around creating opportunities for growth, employment and for our people and partners. In this industry, it’s extremely volatile. We’ve been running for about 10 years now with a lot of growth across North America. We know a downturn will come, and everybody’s thinking about that and planning for it, but longer term when we think about the next 10, 20, 30 years – our company looks at opportunities we can create for employees and partner organizations that we’ve worked with for a long period of time.

Part of the transformation I think is very much about building a lasting asset for the organization and ownership. I think at the people level it’s about creating paths for growth and prosperity. When I think about the industry, I think it’s gone to a place where we realize that if general contractors, who sit at the highest order of the food chain, if we’re not changing the way we do our work; changing our cultures to cultures that are based on collaboration, active problem solving within and across organizations, how are we going to get sub-contractors, design partners and engineers to buy in to these new ways of operating?

What I see in the industry is these larger players touching this body of work and wrestling with it. Trying to figure out how to do it – and I think some of it is motivated by that why; by that desire. I use the word “noble” because that really calls all of us to think bigger than we are, collaborate across the industry and take a broader view of what it’s going to take.  

“Lean Enterprise Thinking – The Next Horizon for the Construction Industry”

TS: I’m listening to the language you’re using around principles and the behaviors of leadership. You’ve gone out and brought in someone like Cassie on the OD side – that’s a pretty mature enlightened view of how deep culture transformation with Lean works. Is that common in the industry, or were you guys out ahead of the class a little bit on that?

TR: I think we may have been on a leading edge probably with some other general contractors, design firms and engineering firms that have been experimenting with Lean principles as applied to construction project delivery, but have had that same curiosity to learn more about what has helped Toyota be so successful and other industries: manufacturing, healthcare, higher education, financial services – even the military borrow learnings from Toyota and build their own results oriented high-performing cultures. I think it’s very much in the subset of our industry now. What’s encouraging to me is I see through some of the collaboration at the Lean Construction Institute that’s fostering some of these active discussions now.

I see more people showing an interest in it wanting to share and kind of figure those pieces out.

TS: So the industry as a whole might be starting to move beyond viewing Lean as simply last planner and project management toolset?

TR: I think that’s fair to say. I’ll throw some rough numbers out, and this is based on conversations I’ve had with the Lean Construction Institute. Of all those member organizations, I’d say probably 80-90 percent of member organizations would look at Lean in responding to what does Lean mean to you and go to the project level. They’d talk about improving project outcomes using Lean thinking principles and tools like the last planner system, target value design and honoring conditions of satisfaction … maybe 10 or 20 percent of the industry looking at LCI are looking at this level of Lean thinking.

TS: More of a Lean enterprise model that’s more broad and deep throughout the organization.

TR: Using that thinking to build higher-performing cultures – that was one of the reasons we committed to it – but also further developing their people and problem-solving skills and capabilities.  

“Results to Date at McGough”

TS: Talk to me about some of the target conditions you established in your first 90 days at McGough.

TR: We set about bringing accountability to our transformation using four target conditions or metrics. Two of them are more metric based and two are more subjective. Each year we go back and see how we’re progressing against both. The first one is we knew that to support a 12-13 percent compound annual growth rate across multiple markets, we needed a base level of organization structure; and process definition or standard work to support the growth, especially knowing we’re going to be hiring a lot of people who would have logical questions about how we do it here at McGough.

The second one is a hard metric, and that ties to EBITA. We said in five years, we wanted to improve our operating profit by 50 percent. The third is all about retaining talent. In our industry, we’ve had a mass exodus of talent after the Great Recession, so we and a lot of other people wanted to retain the best in the business. We wanted to retain our voluntary turnover rate at less than five percent.

The fourth is a little more subjective. We viewed our transformation as way to shift and evolve our culture to one of clear accountability and higher performance. We said we wanted to initiate Lean activities, continuous improvement and experimentation across the company with the full engagement of our leadership team.

TS: To date, how are you guys performing against those goals?

TR: The first one about putting enough structure in place. By the way, we never want to be bureaucratic. We never want Lean to come off as overly structured or disciplined, but where we are now with hiring over 50 percent new employees over the last four years, we hear from our employees that the structure, standard work is extremely helpful in helping deliver results. Probably, most importantly in our new areas of the business – some of the new market areas that we’ve launched in the last few years and hence new employees – our aggregate level performance as a company against all markets would bear out we’re riding that right line of balance between lose tight. Or, we’ve given enough prescription or enough definition, but also give people latitude to problem solve and do their work in independent and entrepreneurial ways.

The second one on profitability. So, our target condition there of improving profitability by 50 percent in five years. In the first three years of our journey, we’ve realized 31 percent improvement in operating profit. Some of that has been influenced by revenue mix, but there’s no doubt the project success rate financially has improved over that period of time and developing our layered accountability in oversight for our independent project teams has been a key enabler to that.

The third one about retaining critical employees and talent in a market that’s got a scarcity problem, we have been able to maintain a level under five percent – and we feel really good about that considering the growth mode we’ve been in and the fact we’ve been asking employees to do their work but also commit to continuous improvement in new ways to support the transformation.

The final target condition about shaping the culture to continuous improvement with broad leadership engagement. We’ve heard some very positive feedback for the company. We’ve had townhall meetings where we’ve very intentionally asked how’s Leaning working for you; are you being supported by your boss; are you able to get access to new standards of work, problem-solving tools, etc. We’ve heard an overwhelming response that we need to continue what we’re doing. We did learn some things about access to standard work and making it easier on our employees to get it, so we’ve already launched efforts to make that happen. We’ve also been recognized with some awards in our local markets about the best employer to work for.

The final piece I’ll share on that target condition is in May, we run a leadership poll survey across our top-40 leaders of the company. Questions around investments we’ve made that have benefitted the company, employees, clients and partner organizations. Committing to Lean transformation was either No. 1 or No. 2 across all categories.

TS: Especially that four- to six-year period is usually when that honeymoon is over. That’s when you see a lot of organizations blink.

TR: I would tell you – to be very candid and fair – we have taken pauses and reflections to really do a pulse check on how we’re doing: Are we overdriving or are we at the right rate of forward progress given the capacity of the organization to support it?