March 25, 2004

Do you know who your successor is?

The construction industry is changing, and strong business management and leadership skills are needed by company executives for them to be able to lead their companies successfully in the 21st century.

The primary responsibility of the chief executive officer (CEO) is to position the company and its employees for growth and success. Because of growing sophistication and competition within the construction industry, the demands on a CEO and the skills required to meet those demands are increasing with each succession of company leaders. A great challenge for many construction companies is how to identify potential CEOs and how to prepare them to lead successfully.

CEOs not only see things, they do things and make things happen. They not only help craft a vision for the company, they take actions to ensure that the vision becomes reality. The CEO is the focal point to whom everyone within the firm looks for direction, leadership, values, recognition and assurance that the company is moving in the right direction.

These executives, knowingly or not, set the example for their companies' employees regarding values, ethics, attitudes and behaviors. They also must listen to the companies' customers and learn what they value, for the success of a company lies in its ability to provide value to its customers.

An effective CEO builds dispersed and diverse leadership within the company and empowers subordinates to accept responsibility for the company's success. Agile companies succeed because they innovate and empower employees to make fast and responsible decisions.

The effectiveness of a CEO can be measured in at least three ways: through the company's business performance, its organizational structure, and its working environment.

• Business performance results from strategic business decisions regarding types of services offered, pricing of services, quality of service delivery, quality and size of work force, and attention to customer expectations.

• The organizational structure indicates the degree of subordinate empowerment regarding decision-making.

• To define and develop the working environment, the CEO needs to identify and communicate company core values and principles, describe expected employee behaviors, establish systems for individual performance feedback, and develop rewards systems that are consistent with the company's values and principles.

As we move into the 21st century, construction company CEOs face an increasingly complex, information-rich, and highly competitive world. To be successful, they may need to develop specialized expertise or more competitive business processes. Their basic responsibilities, however, will not change. They must monitor and develop the quality of company leadership, motivate the work force and build external relationships.

While the work force is the lifeblood of the company, customer service isJ why the company exists and is the primary foundation for increasing the firm's volume of work.

Picking a new CEO

Given the critical role played by CEOs in construction companies, how are they developed and selected? As current CEOs retire, where will their successors come from? Leadership development and succession planning are critical management issues.

Succession planning is a deliberate and systematic effort to ensure leadership continuity in key positions and to retain and develop intellectual and knowledge capital for the future. Leadership development and succession planning are significant strategic issues for a construction firm to ensure that it has the leadership needed to be successful in an ever-changing business environment.

What does it take to be a successful construction company CEO? Good people skills and leadership abilities are essential.

People skills include the ability to communicate, motivate and manage, a reassuring demeanor, and a willingness to listen. Successful CEOs have a presence about them that draws respect and brings out the best in people without threatening the use of power. Effective CEOs exhibit self-confidence, but are not arrogant in dealing with others.

Employee selection and development are critical CEO skills. Construction is a people-oriented industry, and recruiting, developing and retaining committed, loyal, and productive employees are essential for company success.

Construction knowledge, business development, and accounting and numeric interpretation are also important skills. CEOs should not get caught up in the details of numeric data, but be able to review and interpret the data and draw conclusions regarding company performance.

Finally, a CEO must be able to make tough decisions. These may relate to business strategies, employment decisions, or ethical choices.

Where do you find potential future CEOs? Generally within the company. A successful CEO must be steeped in the culture of the company and have credibility with company employees.

Potential future CEOs must first have the personal motivation to seek leadership positions, and then develop leadership skills through education, experience and mentoring. The secret is to identify ambitious employees who aspire to leadership positions and craft leadership development programs to allow these people to acquire a variety of experience.

Research indicates that CEO succession planning is an eight- to 10-year process, with three years needed to identify the individuals, and five to seven years for leadership development. The sustainability of a company relies on management developing its replacements. This requires a continuous process of leadership identification and development.

To develop future CEOs, it is important to identify leadership potential early and get them experienced in every division of the company. During the identification and development process, a CEO needs to analyze and concentrate on any weaknesses that the individual may possess. Any weak areas need to be strengthened by education and experience.

Effective succession planning is essential for the long-term success of the construction firm. Current CEOs should create programs for early identification of leadership talent and implement effective development programs to provide a pool of good candidates for their successors. Development programs should contain a mix of formal education and practical on-the-job experience.

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John Schaufelberger is chair of the Department of Construction Management at the University of Washington.

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