Graham Group: A Level Shift

Speaker A As Mike's been talking, there's obviously a lot of similarities about what they're doing, although our situation is quite different. And I heard Mike talking about the meetings that he's recently had in this room, and he talked about the board meetings. Well, obviously, we're all in Q three reporting periods because we had our board meetings last Thursday, Friday. So we're all kind of running, obviously run the same kind of cycle. Certainly, I didn't have the admin pool mic to prime me, so. But I do have a table full of hecklers, executive level hecklers over here, so I'm probably in a worse situation. So I'm going to talk this morning about, really about a level shift that was within the organization. So this was not about a merger like Mike talked about, but this is. I'm going to talk about a story about organic growth in the Graham organization and sort of how we manage our way through that and really continue to manage our way through that. So I'm going to get started here, and I'm going to start by just giving a really brief history of our company and really what led us to what we call the level shift. So just a bit of background knowledge. Our company was started by the Graham family back in 1926 and remained a family owned company up until 1984, at which time it became an employee owned company, which it remains today. At that time, 1984, we were doing about $50 million a year. So if you think about that in a family setting, $50 million a year, and it continued to grow over the next 23 years until somewhere around 2007, when it actually started to reach annual volumes about exceeding a billion dollars a year. So that's a lot of growth in 23 years at that time. In 2007. At that stage, it became quite clear that, that we needed to make a level shift, and management recognized that, and management recognized that we needed to start to adjust ourselves from this sort of mid sized company into a large company. In short, we were, at that particular stage, we were too big to be small and too small to be big. So we realized that we had to continue on with a shift. And management recognized that they're going to need some help to get that, because this was all new to them. And so about that time, they engaged. In 2007, we engaged a number of consultants, including Julian Fairfield, who some of you don't know, but Don folk, who's sitting over here, that came on board and was probably on board a bit before, but really started to get involved in helping us make this shift from. From this small to a larger organization in order to do that, we realized that we would have to, that there's going to mean a lot of changes to the organization. The first thing that we probably would realize that we're going to be up against, that we're going to have to change from our whole way of thinking, from, from a culture aspect, from an opportunistic type approach to more of a strategic approach. So that was a major shift that we knew we were going to be going after. The other thing that we realized is that we're going to have to shift our whole style from a collegiate to more, as I've put there, a formal, because again, with a collegiate you can imagine if you're growing from a small company, a family owned company. Everybody was used to communicating, for instance, through the water cooler and everybody knew what everybody else was doing. So we realized that whole style of management was going to be a major change. The other thing is that we realized that we needed to strengthen our organization and from really a small, I'm going to say it was maybe a level four organization to a much bigger organization. Now there is a number of what we were really after is we also realized that we needed to change at that time in order to step out of that midsize firm into a large firm. We also need to change the type of projects that we're going after because we're going after what we call, what we now call level two and three projects. And I'll explain that a little bit differently later. And we realized that we need to make this jump up into level four projects. And there were a number of drivers that really necessitated this continued growth thing. So the first thing was that our employees and unitholders by that time had already had an expectation of continued growth. And they were continued growth for the organization and continued growth for all of them. Personally. We also recognized that there was a bunch of advantages that would come along with going after bigger and bigger projects also meant that bigger projects were longer projects. And we realized that going after bigger projects would also provide us another set of unique opportunities. Because obviously bigger projects would give us the opportunity to start doing longer term planning instead of these short stop and starts. It was going to allow us to start planning for better cash flow over a longer period of time, obviously better continuity of our human resources because we could plan those over a longer time. And we also run a fleet with a large fleet of equipment with roughly 4000 pieces of varying size. And we realized that that would also give us better usage of that equipment. So a number of synergies there we also realized that if we could make a big enough step into much larger projects, that would also give us an opportunity to start partnering with others. And really through that whole process of longer projects, it would actually start to recession proof us. It was a little ironic or a little fortunate. Lucky, whatever. Our CEO always had a good gut. And remember, I'm talking about 2007, and we talked about getting prepared for recession proofing so that we could bridge the gap of a downturn in the industry by having these longer projects that would reach out and cover that gap. And we talked about the advantages of being able to do that, because obviously, if you're going to buy projects in boom time and you can deliver them in downturn times, it's a huge profitability. So this is 2007, pre 2008, just coincidentally. So stroke of luck perhaps, but the good guys are also luckier. So that was one of the key drivers. So in that process, I'll talk a bit more about the ro on the next slide here. As I mentioned earlier, we started by, we used an Ro and level theory to start creating a bigger level six theory. So that was sort of the part of the transformation that dawn helped us through to do this. We started with a number of things. We started by evaluating our existing management capabilities, started talking about what level, what capability we had within our organization. The next big step, which is a little bit out of, is that we established a criteria for determining project levels, because we're trying to create, understand, this is the level of projects that we're doing, and this is the level of projects we wanted to go to. So we established project levels starting with level one to five, and so we can start to categorize the projects. For instance, they were categorized over. There's a number of criteria that we used to try to categorize the levels of the projects, and they were primarily dollars in time or it was resource demands or logistics. So obviously, a million dollars isn't a big job, but if you got to do a million dollars in one day, that becomes a big job. So we started to establish some criteria to try to figure out a balance of levels. At the end of the day, the projects that we're kind of going after is what we call level four. So, for instance, a level four project would be projects that would traditionally range in $100 to $500 million, or perhaps a partner on a billion dollar job. Or it could be people that are a project that had multiple resources, where you've got literally hundreds of self performed employees that you're managing through this, because that adds compliance, complexity, and I'll talk about some of the other logistical ones later on. We also realized that we needed to build a unique type of capability within the organization. So we set about building up a matrix organization that would basically house a number of specific experts that would be able to support the increased capability, would provide capability and support the increased complexity of the projects that we're going to go after. As a result, this ended up with 16 areas of expertise starting all the way from legal and HSE, and I could list them all out here, I won't bother. But it was 16 areas of expertise, and then there were suborganizations within those areas of expertise that would range with management capability sub levels, probably from level three to five. So after that preparation, and with that preparation, preparation in hand, we started our level shift. With that in hand, we started looking at where our core strengths were, and we recognized that our core strengths were probably in our industrials, in our civil infrastructure. So our civil infrastructure sort of made the first move into major projects. And so they were the first one to enter what we call level four projects. Shortly behind that, our industrial group started to move into power generation and in some projects up in the Edmonton region, and that came along at the same time that those two groups were starting to work on level four projects and starting to get the experience level of that. We were trying to get our building group or social infrastructure group tried basically increase their level of projects from what we call level two to level three projects. So they were busy moving along, trying to get their level up and trying to catch the train, so to speak, of the rest of the organizations. And then along came p three s in around 2008, and that was a shakeup to our whole world. What the p three s basically did to us is that it accelerated the entire program for us. So I'm going to talk a little bit about the p three s with the p three s coming along. I'm not sure if you're familiar with p three s, but p three s are private partner, private public partnerships. And when they came along, we were very fortunate to get some early wins. And with those early wins, it accelerated, it basically accelerated the whole program and accelerated a lot of our learnings. Infrastructure was fortunate enough to win a number of ring roads, so they won the Northeast Stony trail program here and the Northwest Anthony Hendy in Calgary. And that led on to a number of other major project wins and things like the West LRT and Calgary and North LRT. And more recently, they've used some of the learnings out of that to move into the transmission lines that they're doing up in Edmonton, Heartland area and through interior mainland of BC. Meanwhile, the building group sort of took a bit of a leap of faith, I'd have to say. And they were successful in winning the first big social infrastructure p three here in Calgary. They won the ASAP one school program, which then followed with winning the ASAP two program. However, coincidentally, about the same time that we won the ASAP one program, we also won a p three, a set of p three s in BC, a number of hospitals in Colon and Vernon. So all of a sudden, we won two large projects at the same time, which if it doesn't go outside of this room, we didn't want both of them. We did, but we didn't. We were prepared for one of them, but we weren't prepared for two of them. So therein starts to drive goals and ambitions, and so you talk about accelerating a program that really forces you dig down and start to look about how you're going to do this thing in a more refined way because we had more work on plan than we had expected. I'm going to back up about the ASAP program and just explain a little bit about use that maybe perhaps to explain what a level four project was, can actually be ASAP one program was very simple. It was 18 schools to build. So what we would call level two projects, but it was $600 million in value. So a level two school doesn't sound like that much. But the reality was that we had to design, build and construct 18 schools in 19 months. So when you take level two, and that's $600 million of concession value, and to go from start to finish in that period of time with all those things remembering at the same time, we also had the Kelowna Vernon hospitals, which again, were in the neighbor of $450 million, very complex projects as opposed to school. We had two of those to do in almost the same timeframe, 39 months. So therein lies the challenge and also the rewards. As I mentioned, the early wins in these $500 million sort of categories really gave us a whole bunch of quick learnings that some of those projects, we also had an opportunity to both partner with and compete against international firms, because at the time, and you'll see it around the market now in our business, that the international firms from Europe and all over the world were starting to converge on Canada, because Canada was sort of the sweet spot, the evolving location for p three s. So you've got these huge foreign internationals landing into your space. So we partnered with a number of those firms on some of the larger jobs, and that really helped to, when we saw the way they were operating, that really helped us learn how to raise our game, and we were able to cross, take some of that information and cross it over to some of our existing projects that we had. It also forced us to gain and develop a whole new understanding of a whole different level. It involved complex contracts that are probably some of the most complex in the world. It forced us to start understanding other elements that we were not familiar with, elements of financing, banking, security options, all of which talked in a language we'd never even heard about. They were talking about long stop dates it, and all these different finance solutions, which is really new to our world. So it helped us break into a different look at our business from a different aspect through some of the big learnings, through the hospital projects, which are very complex, and you're dealing with doctors. So the hospitals were the same situation. We had to design, permit and build two hospitals in 39 months. So that really forced us to look about, look at how we helped us to look at and learn how to manage really large, very complex stakeholders through some pretty defined programming, through design management, through helping them to understand the construction logistics that would go along with all of that. Because we had to do this while around and during, in the middle of a working hospital that could shut you down at any particular moment because they're into a brain surgery or an ambulance had to come through. So we had to work all that out. And we realized that we needed a lot more tools in order to do that. So that forced us to start to look outside into and started to look at what was available in the industry, not just in our current industry, because they hadn't experienced a lot of this before, but to start to look abroad, some of those things. And it forced us to gain a real proficiency in a number of new systems like BIM or building information management, which is a 3d tool to help you to work through that. Electronic document control systems that we've not been exposed to before, and really some advanced scheduling techniques that was new to us. We also realized that we had to develop conceptual, a whole different line of estimating in our world. We used to get a set of drawings that said, here's what you're supposed to build, and we could quantify that. But when you're in a design build, we're being asked to provide a firm price on a job that hasn't even been designed yet. So that forced us to start looking at other ways of estimating. So we had to develop conceptual estimating skills. For those of you that don't know about p three s, we also p three s, you win a job not by what you build, but by how well you can maintain and operate it over a 30 and finance it over a 30 year period. So that forced us to not only take our level of estimating from quantification to conceptual, but we also had to have an understanding of a band of what we call lifecycle management. So you have to be able to estimate lifecycle and all these other components over a period of time because you win it over, the total cost over a 30 year period brought back into today's dollar. So that drove a whole new level of learnings for our people and organization. Some of the other things that came out of it very quickly was that we soon realized that in order to do projects of that magnitude and in order for them to be truly successful, that we actually needed to have a complementary organization with all our partners, and that we needed to have a good integration and understanding and integration of their levels of organization with ours. So we had to find ways to determine what their level of organization is and try to find ways to match up our people across those stakeholders so that they could communicate at the right level, on the right kind of issues. So a little bit about p three complexities. So now I'm going to talk a little bit about lessons learned. We were certainly learning a lot of lessons as we were going. And now that I look back at sort of the level shift, which when I talk about the level shift, which certainly is not complete, we are well into it and continue to strive forward. There are some clear lessons that we now take into consideration on any of our future project pursuits. So I put a few of them on this slide here. A couple of quick lessons that we learned is that strategy always wins over hard work probably 90% of the time, and I'm going to guess the other 10% of the time that strategy does and win is probably luck. So hard work isn't the only answer. We also realize that level four projects actually require level four management, and you require level four organization. So probably what that indirectly says is that we were successful in properly aligning our level, our project levels, to match our organizational levels, because they seem to match, because the management levels of an ro organization actually match to what our requirements are in a project level. So now we can just almost talk level four project versus level four individual, and they're synonymous. They just fit together some of the learnings we got out of that is we realized that in our areas of expertise in the matrix organization that we talked about, that we realized that it became very clear that if you're running a level four project, we actually need level three expertise. We don't need the management level, so we need level three expertise. So that helped clarify a lot of things. We also learned that in order to develop a program, you actually need one level higher manager. So, for instance, if you're developing a level four organization, you need a level five manager to develop a level four organization, whereas a level four manager can maintain a level four organization. So that became very clear through that process. And we also learned very quickly that challenge certainly accelerates growth. And that was something that we still face today. Looking back, we realized that complexity, if successfully delivered, also creates a huge amount of competitive advantage. When I look at some of the things that we, the advantages that we got out of successfully delivering these projects, and by the way, we did deliver the ASAP school program on time. We were actually two months ahead of schedule, and the Kelowna Vernon project had a 39 month schedule, which industry said couldn't be done in 39 months. We introduced something that I learned through a program from Stephen Covey, introduced what we call the wildly important goal, which we actually got all the multiple organizations to buy into. And that project, they said couldn't be done in 39 months. We delivered nine months early. So a huge win. And if I have more time, maybe later on today, I'll talk about sort of what we did within that particular team to create that kind of atmosphere. No time this morning. But certainly looking back at what that did and the opportunities it provides, it provided huge personal growth for the people within that team because they were stressed and they were challenged through that whole period, through those number of years. And it also helped us realize the opportunities as a company that we thought we were moving up into level four projects. And we realized that that also gave us an opportunity to start becoming a much bigger solution, construction solution provider for owners, because we now sort of moved out of that pure construction box, and we now started to understand a lot more of the upstream things like finance and all those aspects, so we could start to relate and tie into that part of it. And it also helped us to understand the downstream side because we're talking about maintenance of facilities over 30 years and all those parts of it. So we were forced to learn that bigger scope of it. Well, now we have something that also gave us increased capacity and opportunities with other clients, so huge gain for us. We also realized that the duration of the project also impacts a number of things and it impacts the entire organization throughout. Impacts our procurement systems, business planning, all our expertise groups. We realized that we need to have more defined roles and it really challenged our whole financial core systems that we were operating on. So that sort of is a very quick summary of our story. What I'm going to talk about, just to close here, is sort of the what now and where we're moving to after five years. Because we started this in 2007, our annual volumes have jumped from billion dollar mark to 2.3 billion, 2.2 billion probably this year, which is a big internal jump for us, a big jump for us from where we were. It's also solidified our reputation because of being able to deliver these projects in a different way and really helped with our reputation both nationally and to some degree internationally, down into the US. And that has really changed to where internationals that we used to be chasing to partner with, they're now chasing us to partner with them. So it's a bit of a change. Our increasing success has also forced us to continually improve our human resource capability and also our corporate capability in systems because we've realized that we've started to outgrow some of those things. Our organizational structure continues to evolve, including recent changes. We changed to a market sector based organization in operational. And we're also now moving to a more integrated team to, to where we're starting to embed to a larger degree our matrix organization people embed them into the operations as much as we can without tearing apart the matrix organization to try to get a more integrated team to deliver these things. And things are continuing to grow. So we're now in the process looking forward. We're now adjusting our vision and tactics to really to take advantage of our new found capabilities and the new markets that we're finding ourselves in. Certainly at the same time, we've also realized through this huge amount of growth that you also, there's a lot of loose areas. You get in there, you can kind of get pretty fat. And we've got some non productive areas that we need to clean up or some just redundant areas that we don't need anymore because things have changed. So we're in the process right now of trying to clean up some of those, getting prepared for this next vision and this next strategic jump. And so we're right now planning a level seven organization or 6.5 to seven organization. And we're preparing over the next five years to double in size again to 5 billion a year. And preparing for level five projects. So that's sort of where we are right now and it's exciting and interesting time.

Speaker B Thank you very much, Grant. That was just a tremendous story. Just in the interest of time, before we break, I think what we'll do a little change up is let's just think of some questions that you've got and we can allow some time for people just to use the mics that are on the floor and just feel free to come up and ask a question of Grant.

Speaker C When this is over, I'll take it to break. I have an announcement to make.

Speaker B This.

Speaker D Yes, my name is Charlie Quarry. I had a question about the matrix organization. By that I think you mean projectized across functions either right, in the literature we talk about a strong matrix or a weak matrix or a balanced matrix. Can you describe that in terms of requisite organization theory and how the two, you see them coming together?

Speaker A Well, just to explain what we're talking about, what we did on our matrix organization, if you think about it as a grid, we had our operational units so our different market sectors that were led by level five and level six operations managers, that would be a vertical. And then we created 16 areas of expertise that went horizontal through that. So it would include everything, things like HSE, QAQC, perhaps legal, operational, accounting, communications, all those sorts of things. So these people could move. So we realized that QA QC guy could actually work within, outside of. They could cross over from group to group. So we would built, I would say we had level five management. It was probably more like level four matrix organization. And these level fours could then move across within the particular bands of our market sector so they would crisscross over, which was huge. So we had all that. That way we could just pull on the resources we needed in the particular group depending on where the demands were. But obviously it was huge because it then gave career paths for all those individuals within the matrix organization. And it also gave them continuity of work because they could now move from division to vision to division and continue their work and again move up within a suborganization in the matrix side. I don't know if that's explaining what you're after, but.

Speaker B Could we just. Sorry, we have to allow other people an opportunity question.

Speaker A Sorry.

Speaker B Thanks. Over here.

Speaker A Catch me later. I'll talk about the conflicts.

Speaker E Okay. Matt, my name is Eve Wallet. You made a comment that triggered my interest because we used to be an employee owned company. You made reference to that. Can you explain to me the structure and it may lead to my real question.

Speaker A So we're very simple. We're employee owned. Getting some feedback. We're an employee owned company and it's very simple structure. Our employees buy in at book value, which is probably half to a third of what it would be outside of on perhaps a public structure. They buy in at book value. They sell at book value. But obviously the returns are multiplied by potentially twice as much because you're buying at half the price. And it's very simple. One structure, all voting and all employee groups, right from our front receptionist to our CEO, all has voting shares calculated very simply by the book value of the company divided by the number of shares. Very simple.

Speaker E Is there an obligation for. Is there an obligation for employees to.

Speaker A No obligation, but it's actually the opposite because they are posturing and wanting more and more shares all the time. Because the returns are so significant. In fact, it becomes the biggest. The most significant part of their total compensation is in fact their LTIP or their long term share value.

Speaker E Thank you.

Speaker B Any other questions? Oh, another one.

Speaker C I feel quite safe in doing something here which is coming out. I'm an engineer.

Speaker A Grant.

Speaker C Thanks for that. It's interesting. It's also quite a bit of deja vu because I guess 20 years ago I was involved in the same thing in Australia. So I have some particular interests. I could range over a number of topics, but the one that interests me most today, given what you're doing, is this. Here's the question. What, if any, organizational and managerial or process arrangements have you put in place to manage the level four customer relationship and level four marketing? And by the way, I think some of your projects are level five.

Speaker A We're not quite sure what level five and four, but we do realize whatever it was, luck or whatever, they seem to match up to our ro organization because level four requires a level four manager. Kind of doesn't matter. So back to the question, what we're putting in place. Let me think about this a little bit. What we are doing right now is we are actually making changes within our organization to really address that issue. How can I explain this? Actually, I'm going to. I'm forgetting the question.

Speaker C It's about building and managing level four relationships. Level four. To get level four projects, when you're looking at the level two project world, you know, you're basically bidding. But when you're into the level four project world, it's a different piece of work.

Speaker A So I guess to answer that the best way is I touched on it briefly that I talked about how we had to have matching we realized that we needed to have matching organizational structures between. We had to identify the organizational structure of our partners and our key stakeholders. So once we could identify their structure and identify, then we can figure out who was who in their zoo. We could align our people to those particular people. So what we did is we made sure that we aligned all of our organizations crosswise between the various stakeholders, whether it's designers or owners. So we made sure that we got our level two people communicating with their level two and their level four is with fours. We made sure that we developed relationships in advance between our level five guys and their level five guys before there became problems. Because when there became problems, it was as simple as making a phone call from a level five to five and say, hey, I'm hearing some stories within my organization that this thing's going sideways. Is that true? And you could have an intelligent conversation and then drive back down into your organizations to make those things happen. And the key was making sure that you develop those relationships across the stakeholders before you had a problem, because otherwise you're already on the other side of the fence. So we learned some lessons out of that. So when we're looking at some of the things that we're looking at moving forward, when we're developing the next level seven organization, which is talking about taking advantage of the whole upstream and downstream side of our newfound business, were also talking about introducing a client stream that makes sure a particular group of individuals whose entire being is to make sure that we understand the client and able to move them across through this and can make sure that those proper connections are made with all of our groups so that we can maintain that through a very long period of time.