Strategy

Last month I had a very lucrative, but sad day.

I spent nearly four decades in the same private employee-held service sector company, the final eleven years as its CEO. Over my career, I witnessed it achieve world-class status in its focused sector of global water infrastructure. Three years ago, I left the management for an independent consulting practice but, as did other senior retirees with large holdings, retained a stock position in a multi-year sell-down allowing the company continued use of my investment capital.

Since I left the management team, the firm repeatedly told its employees of its exciting future as evidenced by its ever-growing record backlog, strategically enhancing acquisitions and improving internal efficiency. They credited much of the success to the dedication and care of employees who were also the sole owners.

But last fall, the Board quietly self-initiated a structured sales process with about a dozen self-chosen firms and sold this spring to a public company—to the surprise of its shareholders, employees and the industry. When the deal closed I benefited through my residual stock’s escalation, but it was a depressing day for me. Another mid-sized, privately held, services company was gone…this time; it was the firm to which I had dedicated my career.

As a result of the acquisition, many of the latent ambitions of both individuals and the company’s leadership, that was not possible before the sale, may now be achieved with the new configuration. The buyer is an established public company in the infrastructure space with proven leadership and better accessibility to growth capital. All this may be true, but sadly, the merger results in the rapid evaporation of my former company’s enterprise legacy and independence. And that change is irreversible. There is no warranty or a ‘try out’ period.

Why is it that private companies often do well in their earlier years, but start to stall and then sell when they get to mid-sized? I am sure there are many reasons, but my theory is that when they get big enough, they start competing against larger public companies and decide that copying them is the more appropriate strategy. As a consequence, their growth stops and they can’t raise the stock price or pay the bonuses required to keep their investors or management happy.

Private companies have many distinct advantages and disadvantages compared to public companies. Private companies do not have the pressure of making forecastable quarterly earnings or non-controllable stock market volatility, so can be more patient in developing new and transformational initiatives that take time. Yet, if the private company has no transformational initiatives, this advantage is worthless. Private companies can be much more agile and less bureaucratic, but do they really exploit that advantage?

On the other hand, public companies have much more capital to complete acquisitions, can de-emphasize organic growth and still grow. If a private company copies that strategy, it is doomed to eventually make a fatal acquisition mistake with limited capital. Public companies require more legal caution and discipline in governance, but if a private company tries to mimic this practice, they lose employee-owners’ investment trust. The examples go on and on.

So many private companies fall into the trap of thinking that there are advantages to copy publics, instead of emphasizing strategy that exploits their advantages or the public companies’ disadvantages. If it were a military battle, one would attack the other’s weakness rather than copy it. In the end, if private companies don’t position to their strengths, the public companies will have the capital to buy out the troubled private companies, but not vice versa.

Today I consult for private equity companies and sit on a public company board, but I have a very soft spot in my heart for employee-owned, private companies. This spurred me to ask—with what I have witnessed in my 40 years of business life, and in studying the sale of some 10 other private firms, how would I advise an employee-held private company if they want to sustain private ownership and control?

Here are my thoughts on creating sustainability for employee-owned private companies:

Governance and Employee Investors

• Employee-owned private companies are really quasi-partnerships of family investors under the legal umbrella of a corporation. As corporations, they have boards that are representatives of the family partners that should not operate in total isolation. There should be some set terms rotation of internal directors to emphasize that they are not representing their management assignment, but the total shareholder population. Outside directors should have terms and non-negotiable term renewal limits to avoid getting too cozy with the CEO and key executives.
• There are no adversarial or activist shareholders in an employee-owned firm. Therefore, private boards should have an open and transparent governance system. The company needs employee trust to sell stock over their financial advisors’ advice not to put retirement, employment and investment under one roof. Secrecy is the enemy of trust. Therefore, open the boardroom to shareholder guests and distribute board minutes that reflect the board’s real conversations/concerns. It should be transparent to all owner inquiries and, on big decisions like sale, get some significant shareholder input outside the board.
• Getting a sustainable stock valuation formula is critical. It needs to hold up over time under different economic conditions, liquidity requirements and equity adjustment through acquisitions. Private companies’ stock valuation formulas should be conservative. They should be at least 30 to 40 percent lower than comparable public companies. On the other hand, a stock valuation formula that is too low, which vastly underestimates the company’s true value, is too tempting to not exploit a sale by senior executives (probably on the board) ready to retire and at the peak of their power to influence.
• Private companies need to pressure current employees to step up to the accumulation of significant stock ownership over their career. There needs to be an employee buyer for every seller of shares over successive generations and this has to be a cultural expectation of consequence. This is getting increasingly difficult, as most financial advisors will recommend against doubling down on your employees’ compensation with their family wealth investment. But employee investment is essential in all private service businesses unless they are extraordinarily profitable.
• You should not allow any owner over 60 years old to carry greater than five percent of the total shares. Make your buy-back rules flexible enough to work out special win-win re-purchase arrangements with your largest shareholding retirees, if necessary.

Strategy

• Once a private company gets to mid-size, it cannot be successful with a ‘cost leader’ strategy. Private firms need to be ‘value leaders.’ At mid-size, private firms have entered the competitive arena of public company competition due to project scale. Public firms are larger and thus can play the ‘low cost leader’ game far better. Private firms must be more focused and deserving of differentiation by specialty expertise, relationship and innovation to justify a higher value pricing point. As a ‘value leader,’ if the field operations claim that clients are saying that you are too expensive, hear that as the market saying you are not adding enough customer value to justify your price. React by creating more differentiation, rather than just cutting costs. If you are the ‘value leader,’ not everyone is a potential client.
• Private companies that are in more than three or four sectors are probably very small market competitors in each, but with a larger company’s overhead structure. Too many sectors create a defocused company that does not create internal synergy. It is only the sum of units, each lacking differentiation against other smaller firms that focus on one or two specific segments or publics that have huge divisions.
• Private companies should discipline themselves not to over-commit to booming sectors that historically have high volatility and are cyclical like commodities, catastrophes or war zones. Private companies require a stable profit/cash flow from a balance of reliable sectors. Trying to capitalize on a temporary boom can drive the stock value too high for normal times.
• Due to limited resiliency of private company balance sheets, private companies need to avoid “bet the company” risks in large lump sum projects that they do not control just because their public competitors do. Avoiding joint and/or several liability or parent guarantees at all costs is critical. A private company’s risk profile needs to be far lower than that of a public company. The company needs a high sophistication relative to structured risk management: from project selection to contract negotiations to risk mitigation techniques is a strategic imperative.
• Private companies are often dabbling in the public-client sector of ‘red’ corruption countries. I would argue they should avoid these completely. Competition for ‘red’ countries’ work is lower for a reason. They are alluring for employees who want to ‘do good’ in poorer countries or want intriguing foreign experiences, but all violations, or even accusations, with the Foreign Corruption Practice Act (FPCA) or EU Corruption laws have catastrophic impact. For field personnel, it is very difficult to determine the blurry line of facilitation or illegal activities; and domestic practice usually doesn’t align with the U.S./U.K interpretation. ‘Red’ country profit is usually minimal to nil after absorbing long-distance project oversight, paying the ‘dumb dividend’, installing compliance training and realizing the huge payment risks within immature legal systems.
• Private companies should shift their product development investment to automation, solution bundling and intellectual property initiatives. The digital and connected world will remake the labor-based, hourly rate playground faster than one can imagine. You need to be obsessed in how you are using technology to gain competitive advantage and always thinking how to disrupt the industry earnings stream through solutions, not selling hours.
• Private companies need to emphasize organic growth with occasional smaller acquisitions in the newer strategic frontiers. You can’t compete with public firms’ capital, so don’t try. An acquisition mistake for a private company can be deadly, while public firms have 10 years and financial scale to absorb them. A better strategy is to target smaller firms that are not in the public companies’ gun sights and who want to stay private.
• Realizing that there is current generational decline of employee ownership interest, a private company’s survivability is dependent on a strategy of predictably high profit margins. Private companies should set a strategy to be in the top quartile of profitability of their industry to take some pressure off employee stock purchasing. Liquidity comes from free cash flow and it is best obtained by profit rather than increased personal investments.

Leadership

• For a private company it is always preferable to have internal CEO succession, but insider grooming requires structured—and uncomfortable—executive sorting, rotation, training and testing. Otherwise, success is just luck. An insider will never have proven CEO experience until they are made one, and then the complexities of the job require monumental and sudden jumps in skills growth. The advantages of an insider are that they know the ethos of the firm and own its history and traditions. Many firms find cause to sell when they realize that there is no existing visionary succession and they have not allowed talented outsiders in. To avoid this, when a sufficient number of promising internal CEO candidates is lacking, it is important to import outside executive talent at least five years before CEO succession is planned so you have more alternatives and time to evaluate. When they arrive, support them and let them speak their mind, as there is a tendency to run new executive talent out of town by the incumbents.
• It is an essential cultural characteristic for the top leadership of an employee-held company to be non-hierarchical and much more personally biased. Building trust and corporate transparency go a long way in employee investment confidence. An executive of a former iconic private company that was sold, told me: “Our company really died when the last great partner-leader left and was replaced by a CEO.” Since ‘his last great partner-leader’ was also entitled CEO, I think he was talking about approachability and empathy of a senior partner-type, rather than a title. Private employee-held companies are really a partnership with its employee-families that invest and risk both salary and equity. There are probably safer investments employees can make other than in their employer, but I have always believed in investing in the businesses I know best. You need to convince your employees of this through trust and setting an example.
• With private companies especially, a new CEO leader must be a leader with a vision and consistent philosophical foundations that match the company’s historical ethos. Every company will name the wrong CEO at some time. When that happens, private companies have difficulty making timely leadership change. Private boards are often stacked with conflicted inside subordinates to the CEO; the wrong CEO can be fatal due to slow action. The private company needs to have strong enough outside directors to correct the situation before it is too late. A private company should never name an unproven CEO to the roles of both chairman and CEO, as it destroys proper CEO accountability.

Operations

• Private companies should not just analyze short-term financial results, like month-to-month or even on a quarterly basis. Use rolling year-over-year quarters for five years to see the long-term trends of ascent or decline. Avoid the ‘frog slowly boiling’ syndrome that happens by measuring only against an annually reset budget. Executive management should look at the longer-term trends of the enterprise. Unless a catastrophic loss is experienced, private companies usually die over time rather than by a single event.
• For a private company free cash is vital and, as such, total accounts receivables should be under 80 days. The company needs to choose a strategy, clients, geography and sectors that allow that. Private companies cannot afford to act as a bank for their clients, as cash equals liquidity.
• Private company managements should not be lulled into thinking about backlog as just ‘revenue resupply,’ but look at backlog as a barometer of profit (free cash flow) health. Many companies have several different services combined in backlog, each with a different predictable margin. Don’t assume all revenue has the same profit. Private management needs to reduce focus on revenue and measure backlog in terms of profit potential. Pace that potential over a 12-month period to see if it really supports near-term profitable growth. If the next 12-month authorized backlog does not predict 80% of your profit budget, you are probably in trouble.
• Large project losses wreak havoc with a stock formula and they need to be avoided. Private companies need to invest in technical/project internal audit capacity in addition to the normal financial and control compliance audits. This is a great use of content knowledgeable retirees. A project manager resigning at the 75% completion point is a significant red flag. Don’t fail to detect large overrun project disasters before it is too late to save/mitigate them.

In closing, there are really good reasons for a private company to turn to public ownership, or re-capitalize themselves with outside investors; or even to sell to a larger public company. I would not advise all privates to stay employee-held and private at any cost or risk, especially if they have a visionary dream that requires significant capital or takes increasing enterprise risk. But it is a shame to lose a private company due to poor planning, strategic positioning, failed succession or low profit growth. Employee-held private companies have a valuable place in the service industry but require visionary care, leadership and planning to stay sustainable over generations.

© 2016 Robert Uhler and THE UHLER GROUP.  All rights reserved.

Don’t Cling To History

Today I seem to be doing more strategy consulting and advisory work for engineering and construction firms, after a three-year hiatus to avoid conflict of interest after leaving corporate management. I am usually called in when things aren’t going great—either revenue is flat or declining and overhead is rising. That formula leads to declining profit and sustainability.

Engineering firms are the easiest enterprises to determine what is wrong and the hardest to get to do anything about it. They are stubborn and set in their ways. They are a people business, so business change means getting a mindset change in a diverse and distributed leadership base. At the exposed level of the iceberg, the problem will appear to be poor personnel utilization and low backlog. But that only indicates a more critical, below the surface problem of not having a competitive product and/or the marketing ability to sell it. The firm is just not winning enough work to allow it to hire new people and stay fresh, so they get older. The older the firm, the more energy goes down and expectations decline. The older managers complain that the new generation is not as talented as they are. It can be self-fulfilling prophesy and a resultant downward spiral.

Many of these firms have a long heritage of success that proves to the management that they must have had the ‘right’ model. Awards, plaques and project photos line the walls that beautifully describe the past leadership, the company’s stages of growth and landmark projects. Many older firms also have their age embedded into their business cards and letterheads.

I think all this is fine…if the company is doing well. ‘If it is not broken, don’t fix it.’ But I am usually called in because they are not growing and they don’t understand why. They want an outsider’s viewpoint.

Let me divert for a minute: assuming the education is from a similar fine teaching institution, do you want a 30-year-old doctor, a 45-year-old doctor or a 65-year-old doctor diagnosing your ailment? Forty years ago, the latter would be the quick answer because so much rested on the diagnosis judgment of the individual. The older doctor’s experience with more trial and error would mean many more replications. More experience was associated with more accurate diagnosis, which led to the correct remediation. But today, for me, if it were a serious illness requiring diagnosis and treatment plan, I would pick the 45-year-old. If it required a robotic microsurgery I would pick the 30-year-old to perform the remediation (i.e. technology versus wisdom). I might prefer the 65-year-old doctor to explain the aging process and what fails next (i.e. wisdom versus technology.)

Why would this be true? Technology is moving very fast. Technology is dividing and crossing over the lanes of traditional segmentation. Older might be wiser, but not necessarily better in technological terms. So, why do engineering firms believe that the historic projects on the wall are proof of solving client problems today? Further, if the company is not growing, could there be a correlation that the firm is living in the past?

Engineering has been an apprentice-to-master business model that started in England and Europe at the start of the Industrial Revolution. Hence, the older people in a long-established firm are more senior and theoretically have the most knowledge. They set the firm’s tone and fund the initiatives. But what happens if they have lost touch with the speed of change in the market and their competitors? Some attributes like client intimacy will never go out of style, but the products and services will. Furthermore, the solutions are now often bundled concepts that have nothing to do with the base historical technology.

Another example is the future of transportation. Smart cars…sure, they are automobiles with motors, tires and frames, but that is an insufficient expectation to influence a sale today. As a result, the auto manufacturers have had to bundle mechanical engineering, electronics and software to differentiate. Tesla, Google, Apple and Amazon are beating the large Detroit manufacturers to the smart car market because they don’t have their leadership wrapped up in historical achievements that honor their mechanical engineering prowess. They are younger companies defining themselves by an advanced solution rather than clinging to legacy.

So let’s go back to engineering firms. They are technology firms. Why are their walls covered with history? Would it not be more logical, like Apple or Microsoft or GE, that their latest innovations and future product concepts be displayed?

Certainly the corporate decor does not make any difference except in communicating culture and value to its employees. But when a company is stagnant—not growing or shrinking, this motif may provide an important clue. In today’s world, technology is moving so fast that companies have to change to survive. They need to be nimble and agile. Over-celebrating the past can be counter-productive. It hardens resistance to the younger generation’s ideas and blocks innovation. If a company is not growing (but the market is), the company is not offering products that clients want to buy that are better than your competitors’. It is as simple as that.

The challenge all technology companies have in this era is finding the right blend of age-related wisdom, advanced technology and energetic youth. Products must be driven by the youth, while the elders, who have a better ability to unlearn and re-learn, drive the business platform.

Simply put, if you are not growing, you either don’t have a product that people want to buy or the marketing capability to sell it. Either way, without rising backlog you have difficulty adding new personnel costs or initiatives. You have few options for adding resources without first stopping previously failed initiatives or trading out non-performers, but you need to do something!

If you have this issue, find a way to reengage with your younger population and then hire from the bottom as forcefully as you can, even if you don’t need the people. Overpopulate and cull out the least valuable. You need the technological ideas and energy that they possess. You also might want to sprinkle a few MBA’s who can better apply your technology to efficient business practices for the clients and bundle value.

© 2016 Robert Uhler and THE UHLER GROUP.  All rights reserved.

At Harvard Business School, I learned several simple broad strategy theories, which have always stuck with me and set my “strategic sails.’” One of these theories was: “the profit margin rapidly increases with identical repetitious products, while the risk of failure dramatically decreases.”

I met with a venture capitalist, who described his acquisition strategy as buying a set of “razor blade” businesses. “Razor blade” strategy specifically refers to the business concept that, if a company like Gillette sells a new Fusion razor with a proprietary design for the blade head, they are actually selling a multi-year annuity of razor blade replacements. These proprietary razor blade heads are mass-produced for several pennies and yet sold for close to $1 per blade, yielding an enormous profit that lasts as long as the person uses the razor. In fact, so much profit is generated in the annuity that it pays to spend enormous amounts on advertising in order to get people to switch to the newest razor. The razor itself can even be thought of as a lost leader.

Of course, this concept is well documented in pharmaceuticals, CDs, water purity cartridges, apparel, automotive parts, software products, iPod and tablet apps, etc. The real profit is not made in the original capital cost of the first item, but rather the repeat sale of a proven solution. Additionally, the greater the volume, the higher the margin goes up. Therefore, the profit can be exponential for repeatables.  Repeatable product companies carry the highest profit margins in all industry sectors.

Many service company firms think very differently. They believe in customization and near “perfect fitted” solutions. They traditionally make profit from the margin in the labor rate and are not motivated to standard products. Customization requires more labor, thus more profit. Regardless, it just so happens that continuous customization without a sellable repeat is the least profitable thing you can do. It is akin to consistently producing the first razor with no blades in the aftermarket. Customization is also the prime characteristic of the most risky businesses.

Engineers are perhaps the worst when it comes to needing customization. Engineers are taught through years of education that there is a “right” mathematical answer to every problem. The professors and instructors demand to see not only your answer, but also the calculations that lead to that solution. There is only one right answer; leaving no room to estimate that a 25 horsepower (HP) motor is needed, when the answer they are looking for—the “right” one—is 23.67HP.  It is only in the real world of equipment and pipe suppliers that engineers encounter people who understand razor blade and “racking” theory, and subsequently make and stock certain repeatable sizes, forcing engineers to round up to the nearest equipment fit.

This revelation caused me to study other consulting industries staffed with people holding advanced degrees. I started with the higher-margin labor sectors—accounting/auditing, financial and management consulting companies all generate considerably higher profit than engineering firms. I looked at how these sectors did their work and if there were “repeat” processes and solutions versus a continuous customization.

I found that if you divide a client consulting engagement into (a) the process of approach; (b) the data, content or client’s information; (c) the analysis or conclusion; and (d) the final physical presentation—you could see a repeatable pattern. For those higher profit industries, the process approach (sometimes called a template) and the final presentation formats create “repeatables,” using a set of company standards. The only customization needed relates to data/content specific to that client/project and the analysis/conclusion. The different audit firms I researched all had standard covers, formats, approaches and density. The data and the conclusions were the only customizable elements. This drastically reduced the cost of doing a project. It also increased the quality, as the approach was proven over and over. This launched me into the journey of creating standard corporate process templates and changing the pricing from hourly rate to lump sum.

Like the custom tailoring industry of the early twentieth century, we are heading swiftly into the era of “racked” products and solutions. Firms will realize that they can be leaders or laggards in this macro-trend. The Digital Age will drive efficiency through repeatable, proven solutions.  Automation will crash the number of hours required to customization. It will make a significant headwind into the profit growth potential of services firms that depend on hourly profit margins. They will need to move to racked approaches at lump sum prices or shrink. Labor-based service companies that formerly judged their success on growing headcount will realize that profit potential tops it, and a growing head count might actually indicate a failing strategy.

We are already seeing this in the construction industry (a formerly renowned customizer) through the rapid emergence of modular construction that replaces customized construction approaches to custom designs. Construction companies are becoming the assemblers of modules or ‘kits,’ which are built offsite. The modules are racked solutions. The construction by modulization proves faster and cheaper, with more consistent quality. This trend will reduce labor while increasing quality. It will disrupt the profit models of the industry. So, even construction is headed to using the ‘razor blade’ theory.

Welcome to the repeat world.

© 2016 Robert Uhler and THE UHLER GROUP.  All rights reserved.

While I typically focus my articles toward high-ranking profit and loss leaders such as CEOs and line managers, I’d like to take the opportunity to discuss Level 1 leaders for staff departments, including: accounting, human resources, IT support, corporate communications, and legal. Oftentimes, top executives struggle with determining these individuals’ roles and evaluating their contribution, as Level 1 staff members are often seen as costly necessities to the rank and file employees, and have little impact on the company. They can be seen as bureaucrats or policy gatekeepers living off the revenue execution talent of others, and are often known to make business difficult.

Level 1 staff executives are paid sizable salaries and often benefit from large bonuses immune from enterprise performance. They can be seen to have little direct effect on profit, and are not held accountable except by subjective opinion relative to “likeability,” or their relationship with the CEO. Because they lack direct ownership for numerical KPIs, mediocre functional staff chiefs can skate for years without much quantitative accountability. Many are perceived to contribute only as process advisors when a crisis occurs for the line officers and client servers.

In numerous companies, employees have a right in evaluating the functional staff leadership as ‘maintenance personnel,’ in that they do not have the long-term competitive impact to justify their costs. This leadership can have considerable authority, but little quantitative accountability. If their only role is proven to be only functional transactions, the positions would be cheaper being outsourced or even automated.

Despite this, Level 1 functional staff can be the most valuable business leaders in the organization, if they are talented and their position is clearly defined and regulated.

I believe the most successful chief functional leaders of the best corporations are:

1) Leaders with a vision (versus bureaucrats); and 2) accountable for reshaping the enterprise to a more competitive position by spending much of their time on the future facilitation of the strategic intent. (If their focus is only on execution of daily transactions, they are the wrong people for the position. In my opinion, these individuals should have a title starting with “Manager of…” rather than “Chief of…”).

Let me briefly digress to make my point. In the early 1990s when the Japanese took major market shares from U.S. car manufacturers, it was speculated that the amazing quality of Japanese cars was their secret to success. That difference was measurable and certainly correct, but even as U.S. manufacturers improved (remember the Total Quality Management fad?), the Japanese still seemed to be one step ahead in attracting customers. I remember an interview given by a Japanese executive who explained their growing advantage with: “While the U.S. manufacturers are putting all their energy into unit quality improvement measured by number of defects per automobile, we defined quality a different way. Zero Defects is our base cultural minimum standards. We strive for that plus evaluating what features our customers want by relentlessly asking them, and even more, we are guessing by macro-trend and observation what features they could not describe, delighting them when they saw it.” The Japanese were actually two levels of value interpretation above their base culture of Zero Defects! That is why they were winning.

The same-tiered value-added concept is appropriate to corporate functional leaders. They should strive to be two levels above just doing transactions well. With that said, senior functional staff could be rated as follows:

Talent Level 0 (“Lost Opportunity”): Inconsistent and late delivery of transactions with unhappy customers.

Talent Level 1 (“Adequate but Mediocre”): Timely, accurate, effective, systematic and client-friendly transactions. This should be the base cultural level of performance acceptance.

Talent Level 2 (“Above Average & Operations Improvement”): All of Skill Level 1 plus understanding the cause, meaning, trend and forecast from the historical transaction data. Improving the organization to avoid the repetition of past issues.

Talent Level 3 (“Excellent Strategic Partner”): All of Skill Level 1 and 2, as well as using data analysis, future predictable macro-trends and knowledge of corporate capacity to prepare the enterprise in building the necessary capacity to fulfill the strategic intentions of creating a competitively superior future.

Let’s examine an example: the Chief Human Resources Officer.

If that person is at Talent Level 3, they are designing the workforce of the future, which takes roughly a decade to create. They are describing the seniority concentrations at different levels and identifying the skills to combat the future disruptors to the business. They are tilting the hiring criteria to get the talent to match the strategic intentions for repositioning, and are working to create assignment rotations that might be five to seven years in the future. They are building a robust executive succession program for future top leadership.

But if all they are doing is processing the benefits programs, monitoring the annual salary increases, and renewing the health care programs, then they are, at best, Level 1. If the company can say: “We have no internal successors for the CEO,” then there is no effective succession program and the Chief Human Resources Officer should look in the mirror for failing their responsibility. The same self-examination can be done with other staff leadership jobs.

Finally, it is the obligation of the Chief Executive to have the vision of their Level 1 staff’s proper role. If they don’t see the functional leaders as executive leaders and assistant CEOs, (having a futuristic leadership responsibility), it is nearly impossible for the staff to assume the authority and responsibility on their own. Great companies are made of teams of talented people with different strengths and educations. If the top leader thinks it is an individual sport, the company is doomed for mediocrity. While a company might manage itself well today, more agile and futuristic competitors will inevitably pass it.

© 2015 Robert Uhler and THE UHLER GROUP. All rights reserved.

You don’t win big without sacrificing your best talent for the interest of the client.

Throughout my career, people have told me, “When your company mobilizes leadership from the top of your organizational hierarchy to win a job, it seems to have an incredible batting average.” Over the years, I’ve given a lot of thought to this comment, considering it’s been conveyed both inside and outside my company. Perhaps the reason I have given it so much thought is because it consistently rings true. Throughout my career, we have watched ourselves and competitors win and lose mega-jobs and have learned from the experiences.

We have found that when a company really wants to focus on winning a large project, it is forced to make difficult leadership decisions. It requires a company culture that believes the client’s largest project is equally as important as the enterprise management. The most common prerequisite of winning a mega-job is re-assigning senior talent (often Level 1 or group/division presidents) to lead a project for up to several years.

Of course, when a company does this, the enterprise leadership is disrupted with the need to replace that executive while they are gone; however, very few firms have the courage and culture to do this. Companies rationalize that the leader is irreplaceable (which, in my opinion, is not true) and that removing them from their position would be too disruptive to the organization. Rarely does an executive volunteer, leaving it up to the company to make the decision. But in my experience, when a company truly wants to win a large project, it will find a way to provide the client with one of their most senior executives for the entire duration of the project. The fact is, successfully completing a large project takes the same or greater managerial skills as the internal business.

So why does devoting a senior executive to a project prove to be so effective in the clients’ eyes? Simply, it reduces the client’s risk of failure. Further, having a company’s president-level executive assigned provides assurance and signifies how important the job is to the company. Finally, if a president-level manager is in charge, the client is ensured a solid team and resources for the entire project.

As easy as this is to advocate, few companies do it. It is difficult, but overcoming these challenges are what set competitors apart—it almost has to be in a firm’s criteria for upward ascension. Even though a company might receive hesitation from an executive, it is in the company’s (and client’s) best interest to place the most qualified leader in charge of a project. Overall, it is up to the CEO to set a standard within the company in order for this type of reassignment to be effective.

In the event of an executive reassignment, a company faces several major hurdles. First, it must convince the proposed executive that they should risk their stable position for a temporary assignment. Typically, this responsibility can only fall on the shoulders of the CEO to “sell” the candidate. Second, the company will need to replace the executive with an interim. The biggest problem with assigning a temporary replacement is that their skills are not typically proven for the role. Third, the company will have to deal with the return of the executive. Oftentimes, the replacement feels forced to leave the company due to unwillingness to move back to their previous position. Without resolving these crucial issues, the company is at risk of “under-competing.”

Companies that are great at winning large jobs have developed a culture where rotating between internal operations management and project assignments don’t equate to loss of prestige or career potential. This willingness to trust the company is an important element of a successful company culture. In my experience, our company won every job when we were able to allocate top executive leadership talent.

Without mega-jobs, most firms stay flat and do not transition to the next level—it is a critical component to the success of a company. It requires that the company is willing to cut off its right hand to win. It needs to be engrained in company culture that large project leadership efforts are rewarded just as much as operational leadership. Furthermore, it is imperative for leaders to be honored after project completion to illustrate this virtue. When these ideals are in alignment, the chances of winning are extremely high. It is not a single mega-job pursuit—it is a company culture of priorities and expectations that favors corporate growth and reputation.

© 2015 Robert Uhler and THE UHLER GROUP. All rights reserved.

The secrets to the best solutions are found where the greatest challenges of the world exist.

When our U.S. based company first contemplated global expansion strategy in the early 1990s, there stemmed an appropriate internal challenge from the senior management team as to why. The U.S. market was very large and profitable. At the time, we held a >5% overall market share of our water sector and the market was growing. Globalization seemed, to some, a difficult diversion to a proven domestic approach. The management challenges of differing currencies, cultures, contract styles and languages, in addition to the issue of management time required, seemed like a tall order. There was no indication that a non-U.S. market had any advantages in profitability, but certainly would add disproportionately to corporate overhead. We were inexperienced in transcontinental travel—we knew it and were not kidding ourselves—and we were unsure of the time dedication it would require of a few of us. So why?

The major reason for globalization was rooted in the conviction that the best technologies in the world are found at the location of most severe challenge. These challenges were often not located in the U.S. If we were a technology company, how could we detect and learn the best technologies without an international presence? For instance, the best dredging and pumping technology in the world resided in the Netherlands. The best desalinization technology existed in Arab countries and other places of severe drought. The best dam and reservoir technology was found in emerging countries harnessing large rivers for energy.

At that time, computer science was elementary and email was just evolving. Software compatibility was problematic and equipment costs were very high. There was no satellite or high-speed cable lines available to a small consulting firm. So, a real challenge was when we found the best technologies, the feasibility of moving that technology freely across geography. This concern spurred the company to focus special attention on electronic knowledge management, and we got good at it. Just like a country overcomes technical challenges when they are critical to its survival, so does a company become good at overcoming internal impediments when they are critical to their success.

We established a global platform over ten years through trial and error. Every country was entered by acquiring established enterprises rather than a ‘green field organic’ entry. By accomplishing a global presence, we certainly found advanced technology to share throughout the world. What we underestimated from the beginning was the richness of thought and ideas a diverse community brings. This was both true for the company and the individuals. We could recruit better people because we offered a global experience others could not. We also underestimated the extreme qualities of thought, unrelated to technology, some countries brought due to their histories. For instance, the United Kingdom brought system and process discipline. The Italians brought flair and creativity. The Australians and Kiwis brought an innovation and competitive spirit, etc. The ability to capture these attributes on project teams and create more valuable solutions was not originally contemplated, but turned out to be enormous. Had we not taken the chance to go global, we never would have guessed the magnitude of competitive advantage cross-national teams offer in the eyes of the clients. Accents do sell!

With the speed of digital revolution, the synergies of a stable and long-term global firm are just now blossoming. Mobility, miniaturization, bandwidth, transmission speed, and the “cloud” are all facilitating a total collapse of geography and magnifying the advantages we started to realize 20 years ago.

In retrospect, the company could have grown faster and made more money by focusing on better penetrating its partially served North American market in the ’90s and early 2000s. It was an investment to go global. The cost of the global expansion was paid for by the stockholders of that era in lower bonuses and stock appreciation. However, the benefit now is a global company that is comfortable with the international integration of talent and its mandatory requirement to perfect knowledge-sharing, making it very well positioned for the future. The digital revolution has caught up with our strategy.

Now, once again, the company faces other transformational strategies in starting new service groups and focusing on automation and digital harvesting of data. The same question of 1990 will be asked again: why are we diverting to endeavors before we capitalize on our existing geographical footprints? The answer is the same—to begin building a new future on the back of current operations. That is how corporations evolve and position in differentiating ways.

© 2015 Robert Uhler and THE UHLER GROUP. All rights reserved.