The Great Debate

By Al Bachman as featured in Construction Today

Do unionized contractors really hold the competitive advantage? Proper management – union or non-union – is the key

When a construction company struggles to succeed, it’s tempting for the owner to find a scapegoat. There’s certainly no shortage of them, whether it’s a soft economy, skyrocketing business costs, cut-throat competition or this perennial favorite: labor unions. Such finger-pointing, however, is an all-too easy way for poor managers to deflect responsibility from themselves. When an owner ignores the real causes of unprofitability long enough, the result is nearly always the same: One more contractor going out of business.

Unionized labor has a significant impact in the construction industry. The question often asked is: Can unionized companies – even medium-sized and small ones – be successful in difficult economic times? The answer is: absolutely. However, that success depends completely upon how the business and its employees are managed – not whether or not they’re union members.

The Big Difference

Significant differences exist between unionized and non-unionized construction businesses. As a rule, a unionized labor force costs more per employee-hour than non-union workers do. Owners of unionized shops generally have higher overheads and must comply with a variety of regulations regarding staffing levels, work restrictions and clear delineation of duties, such as who performs what, when, where and how. Wages are nearly always paid according to job classification, not merit. Moreover, union businesses usually are unable to compete with smaller, independent contractors for the same projects.

But for each general observation one can make about unions, there are many exceptions and variables that should be taken into account, such as:

• The specific trade under discussion – Union density and representation, for example, vary dramatically from trade to trade.
• The type of construction business and its marketplace – No two businesses are alike. Many are highly specialized, and as for the marketplace, change is a constant.
• Geography – As in real estate, location matters. Business conditions, labor availability and prevailing attitudes toward unions, for example, can be quite diverse from one area to the next.

Some business owners claim that dealing with unionized labor ties their hands and forces them to surrender their rights as managers. That’s true – but only if the owner allows it to happen. The fact is that good managers can reach the goal of profitability with union or non-union labor. Studies show that construction workers want to work for a well-run company, where they can trust their foremen and there they’re paid fairly.
One Common Trait

Success is the direct result of informed managers making sound business decisions. Bonfield, Ill.-based JK Steel Erectors is a good example of that principle. The company disproves many of the beliefs people have about unions. JK Steel specializes in ironwork on large-scale commercial and public works projects – roads, bridges, public utilities and buildings. Founder and President Katherine Cloonen has 10 permanent employees, and during the busy season, employs upwards of 30 union ironworkers. “Being a union shop was a conscious decision I made in 1991, when we started the business,” Cloonen says. “Our work is highly specialized, so union labor is simply the best way to go. They’re skilled, well-trained and experienced.”

Cloonen says it would be impossible for her business to run without union labor. “During our busy time we may have 25 to 30 jobs that we’re involved in, so scheduling is crucial,” she says. A big advantage of being a union company is how fast I can get highly skilled workers. By 2:30 p.m. on a given work day, I know exactly how many workers I need tomorrow. One phone call to the union hall helps us get the needed workers to the job sites.”

Alternative to Finger-Pointing

If management gets to take credit for a company’s success, the reverse is equally true: The owner, and the owner alone, must take responsibility for the business’ shortcomings. A few years ago, Cloonen realized her business was in trouble – profits were down and the long-term outlook was poor. Instead of looking for others to blame, she tackled the situation head on. The first task was an in-depth analysis of every department, system and operating procedures at JK Steel. “It was like having cold water thrown on my face,” Cloonen recalls. “First, I was shown, on paper, why we couldn’t keep doing what we were doing and make a profit. Next, we set goals for the future, and put into place new systems that would increase our profitability.”

Here are some objectives Cloonen began working toward:

• Grow the company – To do that, JK Steel needed to do more business. That meant ramping up the recruitment and training of employees, especially the key foremen who run the jobs in the field.
• Expand the company’s geographic reach – In the past, JK Steel rarely ventured beyond 100 miles of Bonfield. Today, that competitive radius is 50 percent larger.
• Take on fewer jobs, but increase each one’s profit margin – This meant raising JK Steel’s bidding prices, a task that Cloonen says was the hardest of all.

The process of critical analysis, change and improvement must be continuous, Cloonen says. The rewards are worth the effort. Today, JK Steel is profitable, has a brighter future and has notched some noteworthy accomplishments. “We just finished a project for a customer who originally wanted a non-union contractor, thinking it would save money,” Cloonen says. “But because we’re able to work faster and better, we met or exceeded all the project requirements, beat the competing bidders and won the contract. That’s a nice feeling.”

Floundering to Flourishing

When a business is floundering, it’s natural to feel overwhelmed. Where should a business owner start? First, set some time aside to take a good look around. Managers of unprofitable companies generally share the same bad habits. Here are some of the top contenders:

• Lost productivity due to disorganization at the top – Most managers spend their time putting out fires instead of attending to the crucial tasks of scheduling work, overseeing work assignments and making sure crews have the materials and equipment they need.
• Leading by bad example – When business owners play loose and fast with the company rules and inventory, it communicates a powerful message to employees. Owners who expect employees to show up for work on time, respect company property and to keep job sites clean should first take a good look at their own behaviors.
• Inadequate systems in place to manage workflow and to capture and analyze crucial information – Most business owners don’t have accurate information regarding the number of jobs they’ve bid on, their success/profit rates, the proper time to allow per project and much more – all of it absolutely essential data for a profitable company.
• Poor communication with employees – Many bosses talk to their employees only when things are going wrong. It’s important to recognize workers for good work, too, and to share the fruits of a company’s successes with everyone. Being kept in the dark often leads to demoralizing on-the-job surprises.
• Playing the blame game – Any business owner who’s still reading this column has probably made a decision to quit that no-win activity and to try something new.

Running a profitable construction company – unionized or not – demands that business owners become better managers. An unsuccessful company can be turned around only when the genuine problems are identified, excuses are eliminated and positive steps are taken. For many, that requires a substantial change in outlook and attitude.