Strategic Planning for Closely Held Contractors
by Jon Nobis & Jim Shrier
Real Estate/Construction Advisor, Fall 2006 Issue

Strategic planning, more commonplace among large contractors, is also essential for small and mid-sized closely held contractors. There are, however, some additional planning considerations important for closely held contractors that are often overlooked in generalized strategic planning methodology.

Establish a Planning Base

This initial phase of the planning process is designed to produce an agreed-upon and written understanding of what the organization is today and where it is presently headed. Although this activity may seem superficial, a surprising diversity of opinion often exists among owners/management. Accordingly, it is essential that a common understanding of the mission and current direction of the company be developed.

It is critical that during this initial planning phase the short-term and long-term personal plans of the owners be considered. These plans include:

• Personal financial and income tax plan
• Estate plan
• Ownership transition plan
• Career and management succession plan

Since the closely held business is often the owners’ major asset, their long-term equity commitment to the business must be considered. The personal career intentions of owners, especially those involved in active management, must be communicated at the onset of the planning process and be considered in the company’s strategic plan.

Identify Key External Impact Factors

The success of this phase depends on the planning team’s ability to identify and focus attention on a limited number of key factors that have the greatest influence on the future of the organization.

While key factors will vary, depending upon the type of contractor you are, the planning team should typically consider economic, legislative, technological, demographic, and industry trends. For example:

• Increasing trend in corporate outsourcing of real estate and construction activities
• Trend toward design/build and turnkey development service delivery models
• Use of web-based project collaboration and virtual construction technology tools

A profiling of the organization’s major competitors should be included in the contractor’s external analysis. Because of the need to make assumptions for certain factors, the planning team must also decide how the organization will monitor the actual behaviors of key external factors. Keep in mind that external factors can represent both opportunities and threats.

Identify Internal Strengths and Weaknesses

In this phase, each member of the planning team should prepare a list of the organization’s existing strengths and weaknesses. Some examples of strengths that are typical of closely held contractors includes:

• Exceptional reputation in local markets
• Exceptional employer/employee relationships
• Excellent customer relationships

Typical weaknesses may include:

• Lack of discipline in field reporting of labor, equipment usage, and production
• Lack of performance-based culture and supporting compensation systems
• Limited management depth or concentration of management decision making with one owner/manager, especially in family-owned companies

“Voice of the Customer” and “Employee Company Culture” surveys are also used to identify internal strengths and weaknesses.

Identify Objectives, Supporting Strategies, and Action Plans

At this point in the planning process, the planning team should possess a common understanding of where the organization is now, where it is presently headed, what its strengths and weaknesses are, and what external factors pose opportunities or threats to the organization. With this knowledge, realistic objectives can be established to describe where the organization wants to be at a particular point in the future. The objectives must be stated in measurable terms with specific milestones established for achieving each objective:

• Objectives related to capital investments, divestitures, and net income should be developed in conjunction with the owners’ personal income tax and estate planning strategies.
• Objectives related to leadership development and ownership transition should be developed in conjunction with the personal career/retirement plans of the owners.
• The objectives should be communicated to all management personnel within the organization.

The results of this analysis should be an agreed-upon set of strategies that the organization fully intends to implement. For each strategy to be executed, a detailed action plan, including identification of key activities and tasks, personnel assigned, and target start and completion dates, should be developed.

These action plans, when assembled with the organization’s objectives and strategies, constitute its strategic plan. Together they present a concise written statement of what and where the organization intends to be at points in the future and how and when it intends to get there.

Monitor and Control Plan Execution

This is an ongoing activity designed to ensure that strategic objectives are achieved according to plan.

To ensure ongoing commitment to the organization’s strategic objectives and to help overcome the dilemma of short- versus long-run performance, strategic milestones should be incorporated into the contractor’s annual plans and budgets.

Team members responsible for implementing action plans should regularly present status reports to the entire planning team. These reports should clearly identify progress against plan, problems requiring increased management attention, and recommend solutions.

Throughout the implementation process, the planning team must continually monitor the organization’s planning assumptions and their relationship to the owner’s personal plans.