Barclays Capital reports that construction projects in China and India continue to grow. China is now home to the largest number of skyscrapers in the world and is building more than half of those currently under construction worldwide. Meanwhile, in the U.S., infrastructure projects remain stalled during a period of austerity in which few states are able to afford major projects. Construction unemployment in the building trade hovers above 20 percent.
Bucking this trend to a degree is Skanska USA, the $5 billion American arm of the $17 billion Swedish giant that is the sixth-largest global building company, with 50,000 employees worldwide. Skanska USA operates four business units in the U.S., including civil construction, commercial building, commercial development and infrastructure development, employing 7,000 people in 35 locations across the country.
New Yorkers and area visitors are likely familiar with the new MetLife Stadium, home to the New York Giants and New York Jets. This $1.1 billion open-air stadium that seats 82,000 was completed early and on budget. The World Trade Center Transportation Hub, which includes a new PATH station and the restoration of New York City’s No. 1 subway line, is expected to be completed by 2015. And for long-suffering East Siders, Skanska USA is boring 90,000 cubic meters of Manhattan rock to make way for the No. 7 Line subway extension. This $1.1 billion project can’t come too soon for many Manhattan commuters.
To extend its reach, the company bought $500 million ICI of Evansville, Indiana to expand its access to the power sector and opened a West Coast office to land two transit projects in California. It is also big on building bridges: the Desmond Bridge in Long Beach, California, several Ohio River bridges in Kentucky and Indiana, the Indian River Inlet Bridge in Delaware, the 11th Street bridge in Washington, D.C. and New York State’s political pinata—the Tappen Zee Bridge spanning the scenic Hudson— for which the firm is one of the four approved contractors—if Albany can ever figure out how to pay for the $4 billion it will cost to repair it.
Beginning his career as an offshore engineer in Cairo, Egypt, Michael McNally, 57, is one of nine members of Skanska AB’s senior executive team and heads the Swedish firm’s U.S. and Latin American businesses. With a BSCE from Notre Dame and an MBA from the University of Rhode Island, McNally served as VP of construction for Fluor Daniel’s Industrial Group before coming to Skanska in 1998.
Speaking at its U.S. headquarters on the 32nd floor of the Empire State Building, McNally reports that the company’s order backlog is up but that the industry is only now becoming stable in the wake of the recession. Healthcare and facilities for the pharmaceutical and information-technology industries are two areas of building growth—last year, hospitals represented $1 billion in building revenue. Investments in energy, a sector Skanska is eager to pursue, partly offset the decline in public-sector construction.
McNally says other business leaders should be concerned about the state of U.S. infrastructure and discusses a subject that faces all CEOs—how best to transfer knowledge from one part of a vast organization to other segments so that the firm itself can be more integrated and compete more effectively across many time zones and countries.
Why do you say business leaders need to be concerned about U.S. infrastructure?
Infrastructure is more than just roads. There are bridges that are past their shelf life and airports that are embarrassing for this country. I fly internationally all the time and the facilities are invariably good. When I fly domestically, forget it. The cancelation of the ARC tunnel project connecting New Jersey and Manhattan with rail systems (New Jersey Gov. Chris Christie said it would cost $2 billion to $5 billion over its $8.7 billion budget), means that, effectively, there is just one operating tunnel and it’s 100 years old. You don’t think it’s cheaper now than in the future? Isn’t Manhattan important to the growth of New Jersey? These investments pay for themselves.
The Interstate Highway System begun in the 1950s didn’t pay for itself on day one or even year five, but can you imagine our not having it? The very building in which we are talking [ESB] was barely occupied when it was completed, but that soon changed. The payback from energy-efficient buildings is almost immediate. For example, our space here uses 50 percent of the energy that we used when we were on Madison Avenue, and it cost nickels to do.
Wasn’t the $700 billion stimulus meant to give us a “shovel ready” infrastructure upgrade?
That $700 billion was a social-welfare package. [There’s] nothing wrong with that. I am not against it, but don’t call it stimulus. Of that amount, there was only $130 billion in construction and that was spread over four years. So it comes to about $30 billion a year in a $1 trillion industry. That didn’t stimulate anything. It’s like trying to bring back a heart attack victim with a nine volt battery.
What most keeps you up at night in your job?
Two things. We are always concerned about anyone doing something unethical. We have 50,000 [employees] worldwide and 7,000 in the U.S. If some project manager does something stupid, that could destroy the business. For example, something happened last year with the way we reported minority participation on a job for a client. It’s another reason why we don’t want to pay for play. We have a code of ethics and strictly enforce it. Another concern is safety. The metric we use is lost-time accidents, where an accident prevents work the next day or two days. Our record is about one-fifth of the industry’s lost time because we train vigorously to prevent accidents. In the U.S., about 1,000 people die each year in construction accidents, but there’s no reason today for anyone to get hurt. It doesn’t have to happen. I always say if everybody in the pool is a lifeguard, nobody gets hurt.
What about times when a project falls behind schedule and the pressure to finish on time builds?
We will never [compromise safety practices] to make money and have somebody die. It’s not worth it. Of course, nobody believes you when you say that. That’s part of the problem. That’s why we walk the talk.
Have you ever stopped a job owing to safety concerns?
Yes, and anyone can irrespective of the site. When you are walking a job and you see things that are not right, such as poor perimeter protection where someone could fall a couple of stories, or an opening in a floor that is not properly protected. That’s when you know you don’t have people’s attention. Time to shut it down.
You say prefabrication is a development trend in your business that will have far-reaching impact for customers.
There’s a fascinating YouTube video of a 15-story hotel built in Shanghai in six days using prefabricated materials. Six days and no one was injured. Last year we built a hospital in Ohio where we had the prefab modules in a warehouse and shipped them to a job, where everything was assembled. It’s pretty cool. The gain in productivity is enormous. It’s definitely a trend that’s coming fast.
Speaking of breakthroughs, how do you transfer knowledge across four different strategic business units with 50,000 people spread across the globe?
You can imagine the number of silos after 15 or so acquisitions. We spent years trying to break them down. And keep in mind [that] many don’t even speak the same language. Our first attempt was to put all the best practices on a web site. If someone wanted to know something about precast material, you would click on the site and find out, say, what they do in Finland. Not every subject was updated regularly and it wasn’t the ideal solution. Two years ago, we created a knowledge network, where we designated at least one expert on each topic—where we knew experts on the most important innovations in construction and design. These experts meet each quarter to share what’s going [on] that [is] new and different in each of their areas.
Today, if you have a question, the knowledge network doesn’t give you the answer, but it connects you with the right person to call. We designate knowledge managers. If that person doesn’t know, he at least knows the next person to call. So you are only two calls away from knowing everything current about any problem. It is pretty cool.
The care and nurturing of our people is also related to the larger productivity issue your questions raises. We don’t hold patents, say, on a semiconductor. All we have is people, and if they aren’t the best, you will not win the jobs you bid on. So we spend a great deal of time on leadership development. At the senior level, we bring in executives for what we call E2L—executive-to-leader instruction. We spend two weeks in instruction, where I pound our culture into them. When they graduate, we have another program called STEP—Skanska Top Executive Program—that’s conducted in Lausanne with IMD.
Finally, we have a program called Great Boss—a program for all—based on the idea that people who leave a company usually do [so] because of their boss. We can’t afford to lose good people because of a problem boss, so we survey people about who the great bosses are. Employees can vote their bosses off the island. We want our bosses to grow their people. When they are not so good, we try to help them develop their skills. When they develop the people under them, the bosses move up the ladder faster. It’s a wonderful motivator.