What does the CSO role look like at smaller companies, such as an engineering firm? It’s hard to put a number to the dedicated role of a CSO when it needs to be created, but perhaps we can start at a range of 25 to 75 employees for the consideration of creating the role. Perhaps around that range, the CSO role is added to an existing role (such as a department head or COO), but someone needs to be thinking about strategy development in addition to the CEO.
But why is this so critical for engineering firms? The answer is simple: Focused expertise. Let’s look at what others are noticing about engineering and construction (emphasis mine):
- “Deciding to concentrate on a market or a limited number of markets is principally where the issue of focus resides. Some firms are less driven by specific client-defined markets; their focus is on expertise through specialty services or skills that are marketed to a broader base of clients. But let's make no mistake about it: The days of selling basic architecture, engineering, environmental and planning skills at a premium are long gone. While certain client patronage relationships might sustain firms for a while longer, virtually all project types are falling into some category of someone's expertise. The questions that arise are these: What is expertise and how can the average firm make successful strides toward gaining recognition as an expert?” — Marketing Handbook;
- “The concern is that you’ll quickly be commoditizing yourself. Without a strong and purposeful decision to become recognized experts in your chosen market, neither you, your staff, nor your accountant will actually sense the demise until it’s too late.” — Marketing Handbook;
- “Expertise begins with experience at a firm-wide level. There’s instant clarity about the number of projects they have completed successfully for, let's say, assisted-living owners and developers. Likewise, if that number is fairly modest, perhaps three or four projects, they also recognize they’re not a heavy-hitter in the assisted-living market. Often, a firm’s résumé needs to be built up to eight or 10 projects before the firm is going to have what I’ll call expertise leverage. The next issue surrounding experience is whether the work you’ve completed is for a single client or a number of different clients. This variety may well reduce the total number of projects needed to be considered a player, but you’ll still need more than two or three, especially when you’re up against a larger firm with years of committed market focus. When a firm’s résumé covers a few markets, the firm can find itself in a quandary. Here it is with perhaps 25 good projects spread across five distinct markets, yet its leverage in any one of those markets is still limited when it goes up against a committed expert firm. There has been no deliberate effort to focus on two or three of those markets, and when you analyze how they won the work to begin with, there’s a significant amount of happenstance and basic networking going on.” — Marketing Handbook;
- “The positioning, recognition and attraction stages on the road to expertise aren’t necessarily any easier, effort-wise, but they are more satisfying. The decision to narrow a firm’s focus typically has an unforeseen payoff: Never having to second-guess or wonder where to invest your intellectual capital to gain a competitive advantage. With those questions answered, firms find that an entirely new series of doors become visible, and those doors are more easily opened. Previously, early project-cycle concerns may have been focused on design details and features to give a project the “wow” factor; now the teams are digging into new technologies and partnerships that wouldn’t have been considered previously. Internal efficiencies also increase tremendously, as the firm’s standards and procedures become greatly refined with the immersion that is occurring. Depth of understanding comes from the depth of commitment, and clients will forevermore make selections based on how well a firm understands them and is prepared to deliver leading-edge solutions that only an expert can provide.” — Marketing Handbook;
- “Curiously, many design firms are themselves not designed. They simply do their clients’ bidding and react to whatever is needed at the time. Some firms inadvertently build a business design that is dysfunctional, with lots of structural obstacles in the way of success. Perhaps you know a firm that wanted to build deep community relationships, but the leaders were introverted technical folks. Some firms want to build their project management expertise, but have a chronic fear of becoming “paper pushers.” Some want to master a specialty service, but feel they must be flexible.” —Marketing Handbook;
- “And the problem actually gets even worse. In many cases, the person specifying a new system won’t capture the upside from actually using it — they’ll be under a sort of reverse moral hazard, where the benefits accrue to the rest of the project team, but the risks will accrue only to them. This is often a factor on the design side, where the engineers and architects must do extra work to implement some new system (since it’ll require all new calculations, and all-new drawings and details), and must take the responsibility for the design of the system, but won’t capture any of the upside. Girder-Slab, for instance, requires the engineer to pay close attention to the construction sequence in a way atypical for steel buildings. But this extra work (and extra risk!) doesn’t come with any additional fee.” — “Why It's Hard to Innovate in Construction” by Brian Potter;
- “Under this model, the risk isn’t that some innovation is more expensive than expected; the risk is that the uncertainties inherent with a system you don’t have experience with, combined with the cascading effects of any possible failure, make worst-case outcomes much more likely.” — “Why It’s Hard to Innovate in Construction” by Brian Potter; and
- And one of my favorite quotes: “A knowledge-based economy (that is an economy that is directly based on production, distribution and use of knowledge and information) requires knowledge-based workers … and that knowledge work is effective if only it is highly specialized (e.g., what makes a brain surgeon effective is that he is highly specialized in brain surgery, but by the same token couldn’t repair a damaged knee and would probably be helpless if confronted with a tropical parasite in the blood). This is true for all knowledge work. Generalists … are of limited use in a knowledge economy. In fact, they are productive only if they themselves become specialists in managing knowledge and knowledge workers. The knowledge needed in any activity has become highly specialized. It is therefore increasingly expensive and difficult to maintain enough critical mass for every major task in an enterprise. And because knowledge rapidly deteriorates unless it is used constantly, maintaining within an organization an activity that is used only intermittently guarantees incompetence.” — Peter Drucker, On Management, 1974.
Do engineering firms need a CSO? I believe so. As the quotes from the Marketing Handbook indicated above, “[M]any design firms are themselves not designed.” As firms grow, many engineering firms lose track of their original advantage. In an effort to “stabilize” and become less “risky” they diversify their portfolio, services or markets. Below are some ways this becomes apparent.
- Go to the websites of any random number of top 100 MEP Giants. What are the differences between five to 10 of the websites you visit? If you have a hard time spotting the differences, the firm is likely not intentionally designed. Also, if you have a hard time spotting significant differences, then what do you think potential and existing clients see? A lack of differences is a flag that the firms are similarly diversified.
- How many change orders or insurance claims does your firm have to deal with on a yearly basis? A high number (or high-dollar figure) could be an indicator of a risky positioning due to working on projects in which the expertise does not exist. As Brian Potter so astutely notes, “the risk is that the uncertainties inherent with a system you don’t have experience with, combined with the cascading effects of any possible failure, make worst-case outcomes much more likely.”
- What is your project “win-miss” rate? Is your firm really differentiating itself from your competitors to the point that your clients pick you almost 100% of the time? Or are you only winning 10% of the possible work you are going after with a client? Why is that? Is it possible your client sees your work as a commodity? If so, how do you change that? Is it a good match between firm and client?
- How many of you or your co-workers feel that your days are frantic and you are jumping from task to task to task? If you feel you are not operating efficiently, perhaps you need to ask whether your employer is strategic enough. Via the Marketing Handbook quote above: “Internal efficiencies also increase tremendously, as the firm’s standards and procedures become greatly refined with the immersion that is occurring. Depth of understanding comes from depth of commitment …” Is it possible you are feeling frantic as a result of the firm being too diversified and not being able to build efficiencies and expertise?
- What is your firm’s turnover rate? Are employees coming and going above or below 10%? Could poor strategic alignment or a lack of firm design be the culprit? Are you too spread out on project types, are the projects not aligned, and causing unnecessary stress of employees?
So based on the above, what is the role of the CSO at the engineering firm (or architectural firm)? If I were to create a role description, here is what would likely be in it:
- Be adviser to CEO/president of the firm and make sure to coordinate all activities to CEO and boards’ vision;
- CSO is to be the “lead” designer for the design firm. They look for opportunities to build a better “ecosystem” for the organization. This includes looking into ways to align the main MEP operations with HR (e.g., recruiting, benefits), Marketing (e.g., opportunity pursuit), Finance (e.g., billing process), etc. Is everyone in the pulling in the same direction, or are there any mismatches;
- The CSO is also the CNO – Chief “No” Officer. There is an observation many engineers have, that many engineering firms have a hard time saying “no” to client requests and opportunities. Are the primary resources (i.e., engineers/designers) being focused or scattered? Drive immediate change – taking initiative to preemptively lead on strategic questions;
- The CSO should constantly look into ways to break down silo approaches and improve cross-department coordination, not just between disciplines (such as HVAC v. Elec) but also between functions (e.g., engineering v. finance);
- The CSO should hold regular (likely weekly to quarterly, depending on size and complexity of firm) strategy meetings to discuss emergent opportunities and develop emergent strategies;
- Evaluate the firm’s overall and detailed performance. Perform multiple studies (e.g., data analytics) to optimize processes using a systems approach; and
- Converse regularly with all employees or multiple levels to get high- and low-level views of the firm and proactively identify potential issues.
At a small firm, the CSO likely wears a designer hat (part-time role), while at larger firms the CSO may need a “Strategy Team” to help him/her complete the above tasks (e.g., Mayo’s new department description from last month’s column). Either way, somebody needs to be engaged/tasked with developing strategy regularly. This ongoing strategic development is necessary in order to think through holistic solutions that actually solve problems instead of putting Band-Aids over them. As George Marshall said, “Don’t fight the problem, decide it.”
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