Note: This is the third in a five-part series of blogs on Flexible Overhead, a business model pioneered by Thomas C. Schleifer, Ph.D. In this blog, our panel discusses staffing implications associated with integrating Flexible Overhead into a construction business. Panelists include Roger T. Gingerich, CPA/ABV, CVA, CCA, the partner-in-charge of the Skoda Minotti Real Estate and Construction Group; David Mustin, MBA, partner and head of Skoda Minotti’s Management Consulting Services Group; and Heidi Hoyt, managing director of Skoda Minotti’s Professional Staffing Services Group.
You can read part 1 of our Flexible Overhead blog series here.
To read part 2, click here.
So, the time is finally at hand for construction firms big and small to embrace Flexible Overhead, right? Not so fast, cautions Heidi Hoyt, managing director of Skoda Minotti’s Professional Staffing Services Group. According to her, Thomas Schleifer’s concept was potentially viable several years ago; but today’s employment landscape is vastly different – particularly for temporary help – and in her mind, that currently makes Flexible Overhead a risky proposition for any contractor.
“The unemployment rate is low right now, and has been for at least the last three or four years,” she says. “Whether you’re talking about construction trades, accounting, IT or nearly anything else, most of the good talent is working full time. If we only consider temporary talent, we’re talking C candidates— maybe a few Bs in unusual circumstances. And, there’s already a shortage of trade talent in general, because millennials don’t see trades as a ‘sexy’ career path.”
Hoyt has extensive construction industry experience, having worked for construction firms for several years, so she under- stands the complexities of the business, the challenges construction firms face in every aspect of their operation, and the mindset and culture that permeates the industry. Hiring qualified temporary workers is tough enough these days, she cautions. But when it comes to training them in whatever construction business they’re hired to perform, the prospects aren’t good.
“Most construction industry people, up and down the line, aren’t savvy trainers,” says Hoyt. “They don’t want to spend time and effort training some- one—whether it’s back office, trades, whatever. When we get a search for a construction controller, our client wants someone with experience. They want someone who understands unions, contracts and everything in between. There are so many details in the construction business; you have to understand a contract implicitly—you have to know every detail. It’s an intricate business—and everyone’s time is stretched incredibly thin.”
Indeed, U.S. residential construction spending alone topped $36 billion in August 2015, which represented the highest monthly total since October 2007. Yet despite this windfall for construction firms, 676,500 fewer skilled laborers were available throughout the U.S. to handle the work compared to the number of workers 10 years earlier in 2007.
For his part, Dave Mustin believes adopting Flexible Overhead is less risky for firms than holding on to employees during a downturn, when firms would be unsure whether they would be able to pay those employees. The losses a firm may incur under such a scenario could be significant—possibly even threatening the viability of the company. According to Mustin, the key challenge is in positioning the growth and work a firm takes on as appropriate. “Critical staff, which can be sustained throughout, should be employed. Flex staffing (i.e., those over minimum capacity) should be contracted,” he says. “If the focus is on profitability, then the objective is to make the firm profitable at all times, not just peak seasons.”
With regard to training challenges, Mustin agrees that training must occur—and must be integrated into the business model. “If that happens, then those firms that become good at it will actually have a strategic advantage,” he says. “And if the focus is on maintaining profitability, the firm will have the resources to invest in training for all staff.”
That said, Hoyt maintains that, with few exceptions, quality job candidates generally don’t seek temporary employment. Full-time employment, with the job security and benefits it provides, is the primary goal of most candidates in today’s job market, she says. If and when temporary employment is secured, that employee will continue to seek full-time work. If they’re successful in that regard, they’ll quit, leaving the construction firm in a potential bind.
Still, recent studies show that companies in diverse industries are increasingly migrating to a business model that uses more temporary (i.e., contract) workers. According to Mustin, many Fortune 500 firms today are utilizing temporary workers based on a variety of reasons, including greater flexibility, less benefit expense and lower long-term costs.
Mustin believes construction firms already are adopting that approach to varying degrees—even if they don’t necessarily recognize it formally as Flexible Over- head. He maintains that more and more construction firms will likely follow the path toward temporary employment once established firms prove its viability.
“Ultimately, I believe it will take one or two big (construction) firms to adopt this model wholeheartedly and make it work,” he says. “At that point, we very well may see a tipping point inside the industry.”
Empirical data add considerable credence to that notion. According to a 2015 CPWR Data Report, temporary employment in construction was more common than the combined amount in all 11 major industries studied as part of the report. This aligns with Mustin’s assertion that employers have, and will continue to, rely more on temporary workers to achieve greater workforce flexibility and reduced labor costs.
An argument can even be made that Flexible Overhead might serve to at- tract millennial workers. While this generation has generally migrated away from construction trades, contract work provides millennials the opportunity to work within reasonably flexible hourly parameters.
For her part, Hoyt remains grounded in the realities of her daily work—and that means fewer candidates of any reasonable merit than in years past.
“When a construction client comes to us and says, “We want to hire a temporary accounts payable person,” we tell them it will be extremely tough, because most of the good talent is working,” Hoyt says. “Even if the entire construction industry migrates to a Flexible Overhead model, it still won’t free up enough talent to fill the market demand, given the current market conditions.”
Gingerich echoes Hoyt’s sentiments, citing specific findings from Skoda Minotti’s 2016 Real Estate and Construction Survey that point to finding skilled labor as the industry’s biggest current challenge. “Contractors can’t find enough good skilled labor these days,” he says. “Many of the folks who lost their jobs during the last recession either transitioned into another field, or retired, or found employment when things started to pick up. So now, the workers who you’d think would still be available, in fact, are not.”
Mustin counters that the situation would be less dire if a firm’s employment pool is tuned to a minimally viable work load. “If and when that occurs, then the firm will be able to deliver profitable work as long as it doesn’t over-commit. Profitability will still go up, and the firm will avoid taking on risky and out-of- scope work.”
Hoyt asserts that Schleifer’s Flexible Overhead model is potentially practical given suitable labor market conditions. Such was the case in the past; but those days, she says, are gone.
“If you came to me in 2010 with this concept, I would say that there’s enough flexible talent in the workplace that you can probably pull it off,” she says. “In 2010, we could have potentially placed a sharp construction professional who wasn’t working with a client, and that person could have potentially brought new ideas to the table and moved the business forward. But the quality of temporary talent in today’s marketplace is just not good, and until the market opens up, I don’t know that this is doable.”
Considering Flexible Overhead for Your Business
At Skoda Minotti, we embrace new ideas, new technologies, new ways of thinking, and business approaches that create positive outcomes. From our perspective, Flexible Overhead is an intriguing concept with sizeable benefits—and some equally sizeable risks. We see value in presenting it to you, and we encourage you to think about ways in which it could potentially help your enterprise grow intelligently. You may or may not choose to dive head-first into Flexible Overhead. Alternatively, you may find some of Flexible Overhead’s strategic tenets or tactical ideas potentially useful, and perhaps you integrate them into your business over time. In this spirit, we hope you approach the topic with an open mind and judge it objectively on its merits.
Do you have questions about Flexible Overhead or other real estate / construction matters? Contact Roger T. Gingerich, CPA/ABV, CVA, CCA, the partner-in-charge of the Skoda Minotti Real Estate and Construction Group, at 440-449-6800 or email Roger. For questions about management consulting issues, contact David Mustin, MBA, partner and head of Skoda Minotti’s Management Consulting Services Group at 440-449-6800 or email Dave.
To download the full Flexible Overhead e-book, click here.