Chapter 56 - Kiewit: An Uncommon Company
Today’s Chapter is based on the book “Kiewit: An Uncommon Company” by Jeffrey L. Rodengen, which is based on the story of how Peter Kiewit built his company.
Warren Buffett once said, “If you set out to replicate the Kiewit company, you could put as much capital into the business as it has. You could move into corporate quarters that rival Kiewit’s. You could even buy all its equipment and replicate its organizational structure. But, you would not be able to build a culture like Kiewit’s.”
Here’s what I have learned:
Aim to be the Best
“Standing firm is more important than standing high.”
— Lui Che-woo
Peter Kiewit was known as a humble and hardworking entrepreneur. While he didn’t care if Kiewit becomes the biggest company, he made sure to build it into the best contractor company. As a matter of fact, similarly to Lui Che-woo, who, if given the choice, would rather be the best rather than the biggest, Kiewit was continuously seeking in building work at the lowest cost by continually improving the company’s operation.
Kiewit would often remind his employees that they shouldn’t worry about being big or little, and to be focused on striving to be the best:
“I want to repeat that it is our goal to be the best, but not necessarily the biggest, contracting organization on earth. The dinosaur that roamed this Great Plains area some 160 million years ago is the biggest land animal that ever lived. Dinosaurs were 90 feet long and weighed over 40 tons. But being the biggest animal didn't do much for the dinosaur. They became extinct long before their smaller and more efficient competitors.”
— Peter Kiewit
As we have often learned from previous entrepreneurs, employees need to be taught by example. In Peter Kiewit’s case, he was actively involved in the operations to make sure that the company was completing projects at a low cost and in an efficient manner. This was the path in building the best contractor company.
First, Kiewit created a cost-monitoring system that allowed him to evaluate the company’s weekly performance on each job. He would also require his foremen to submit a record of costs so that he could compare with its original estimates.
Second, Kiewit kept close eye in the progress of the company’s projects. While he was demanding to his employees, he was never afraid to roll up his sleeves and to help out personally. For example, he once spent two hours working with a young engineer trying every possible combination of laborers and equipment to see if the unloading of boxes could be done in a more efficient manner. At the end, they were able to find a way to perform the operation with 10 workers instead of 11.
For Kiewit, he was always looking for a way to improve the company’s operation no matter how small and minimal the impact was.
"If we do the 'big' job well, and at the same time keep our other work running efficiently, we will be one step nearer our goal, which is and always has been, to be the best contracting organization on earth.”
— Peter Kiewit
Kiewit’s story reminds me of Lui Che-woo’s. Known as the “King of Quarrying”, Lui Che-woo, concluded that his company, in order to become the best, only needed to focus on two things: “One was to lower costs and the other was to produce competitive products. Only producers who aim for low costs with good quality can survive. And a small company which is unable to control its costs will be walked all over. Thus they set their minds to push for the lowest costs among their competitors, and they worked very hard to achieve that.”
So how can one lower production costs? Lui’s solution was to focus on acquiring cutting-edge technology and machinery and to improve the effectiveness of production-to-sales processes. As a matter of fact, after years of experience in business, Lui realized that, in every industry, “one should not expect to succeed with a single constant formula. Business can only grow with new technology, new management and new business deals.”
In his book, Lui presents a great fictional character to remind himself of the need of constant improvement. He explains that he resents Mr Cha Buduo (”Mr. Close Enough”), who is easily complacent does things half-heartedly and that he prefers “Mr. Why” who is consistently asking questions such as “is there a better solution?”. By following the steps of Mr. Why, he would be able to find a better, unique answer to his problems.
Take Risks
"Impossible is just one stop on the road to success. I know we can do this if we give it everything we've got and stick with it to the end.”
— Kazuo Inamori
As we have learned previously, it is very easy for large corporations to become complacent, especially when faced with a long period of success. In the case of Peter Kiewit, in order to avoid getting fat, lazy and complacent, he made sure to always take calculated risks. As he once said, “There is no progress without risk. You can’t hope to develop your maximum potential without taking some risks.”
By consistently asking his employees to complete projects at the lowest cost possible, Kiewit was always pushing them to seek innovation and continual improvement in order to respect the projected budget. One of Kiewit’s famous aphorism in the company was that he was always “pleased, but not satisfied” which became a company’s motto.
“Just as a rock is not shaken by a strong or sudden gust of wind, neither should we be affected by praise or success. We must not be satisfied with our past accomplishments, and we should make every effort possible to improve and expand our operations-but only in an orderly and beneficial manner. I believe that a company cannot stand still for long—either it goes ahead or slides back.”
— Peter Kiewit
Even if encouraging taking risks may lead employees to commit more mistakes, this did not bother Kiewit as learning from mistakes can also be considered an improvement. As Scott Jr., an executive from Kiewit, once said, “As a company, we’re tolerant. We're quite tolerant of mistakes, and we're very tolerant of people who make mistakes. Just don't go out and make the same ones all the time.”
Furthermore, this necessity to take calculated risks is not only limited to a business setting. Peter Kiewit also commented on the success he experienced in life as a result of his risk taking ability. Rather than being comfortable, he prefers seeking challenges of life in order to become an uncommon man. He believes that “It is my heritage to stand erect, proud, and unafraid; to think and act for myself; to enjoy the benefit of my creations; and to face the world boldly and say, This... I have done.”
“As I see it, personal success is being the best you can be. Often, the key to realizing your full potential is the willingness, and the courage, to take a calculated risk. I don't mean a reckless, impulsive risk, but one in which the prize for success is high and the penalty for failure is not catastrophic. Even failure often contributes to your growth. Improvement is seldom made without reaching beyond your abilities and trying to do something you have never done before. Sometimes the effort fails, but it is the reaching, the striving, the divine discontent that generates greater strength and knowledge.”
— Peter Kiewit
This idea of continuously seeking to improve reminds me of the concept of “time is a form of capital provided equally to everyone” formulated by Chung Ju-Yung, the founder of Hyundai. Chung believes that to become successful, it is important for one to made good use of his or her time.
In fact, he mentions that “Even if life doesn't stop for a moment, everybody wants to enjoy life comfortably at a leisurely pace. However, I think there is nothing more foolish than living a life according to the mantra of "doing enough just to get by," not knowing how precious one's time is.”
Similarly, Chung mentions that it is extremely dangerous to stay complacent. In fact, he says that “Every day needs to be a journey towards growth. If we pause today, it is a step backward. We must move forward even if it means only one or two steps at a time. If we don't, we will be overtaken and soon find ourselves falling behind.”
More importantly, he explains that life without hard work is a life wasted. In fact, he reiterates that a life without daily self-improvement has no meaning.
“We live in order to make ourselves better. No one can control where they're born or what kind of family they're born into these conditions are naturally unique. But there is one thing we have in common. Our future will be determined by our effort. Thus, our future is our own responsibility. No matter how hard things seem today, with a positive attitude, we can all find joy in the midst of our troubles.”
— Chung Ju-Yung
Delegation
“Focus on what you are good at; delegate all else.”
— Steve Jobs
As we have previously learned from Paul Orfalea, “doing life alone is not second best, it’s impossible.” Since he had dyslexia, Orfalea had to compensate for his reading difficulties by learning from the world itself directly. To do so, he had to rely on his sense of observation and to rely on other people. This “disorder” of his turned out to be a gift.
In fact, when he founded Kinko, not only did he had to rely on his copy machines to operate his venture, he also had to rely on other people to manage the stores, to run the company’s real estate ventures and investment opportunities. Orfalea’s motto in life is "Anybody else can do it better."
Orfalea elaborates that many people, often those that succeed in school, make the mistake of thinking they need to do everything by themselves. This is especially false in business. He once said, “Every major success I've had in my life has come about because I knew that somebody, often anybody, whether it was my wife, friend, or business partner, could do something better than I could.”
Secondly, by relying on others, Orfalea had more time to focus on the big picture at Kinko’s which allowed him to be “on” his business rather than “in” it. He explains that “Being “on” your business and your life means having enough detachment every day that you are constantly reassessing your direction, thinking creatively about your overall strategy, and scrutinizing your competitors' tactics. It means relying on others to attend to most of the details of the day-to-day operations and employing a system of checks to verify that you are on the right track.”
Similarly, Peter Kiewit struggled with a life-threatening disease called phlebitis. As such, he came to realise that he could not do everything alone, and would need to delegate responsibilities to others. Kiewit explains that this was a game-changer: "If I had not had the illness, I might still be running a small, one-man show. What appeared at the time to be a misfortune actually caused me to depend on other people to carry on many phases of our work, and our present organization is the result.”
“A business dominated by one man, who makes all the decisions, who is reluctant to deputize responsibility lest his assistants make mistakes, lacks the elements of a permanent organization because it denies men the chance to grow and be ready for the larger responsibilities, which eventually someone must assume.”
— Peter Kiewit
Kiewit realised the benefit in having a management philosophy of decentralization. As a matter of fact, Kiewit developed a system of district offices where each managers had the complete authority in making decisions affecting their own operations. As such, district managers were responsible for bidding on projects, preparing estimates and to hire new employees. This allowed a major advantage considering that each local market opportunities are different and should be handled differently.
But more importantly, if one is to delegate, it is primordial to train employees in order for them to be ready for leadership roles. As such, Kiewit encouraged his employees to train and mentor a successor. He once said, “Before you can go on to a position of greater responsibility, someone must be trained to do your job, unless the job you are doing is not an essential one. If any of you fellows wants to admit that your job is not essential, you do not need to do anything about trying to see that anyone else is trained for your job.”
Furthermore, as Kiewit has always been a company that focused on their employees, Peter Kiewit mentioned that people and their talents are the company’s most valuable asset. As such, he preferred to promote from within rather than hiring from outside of the organisation.
“In some organizations, top jobs are reserved for relatives. I would like to say again that this is not the case in our company. It has always been our policy, and will continue to be our policy, to promote on the basis of their ability to perform. It has also been our policy to fill vacancies by advancing qualified [employees] whenever possible. I'm happy to say that the number of occasions when we have had to bring [people] in from the outside for a particular job is negligible, and this should occur even less frequently in the future because of the fact that we are making headway in developing more and better [employees].”
— Peter Kiewit
Incentives
“Never, ever, think about something else when you should be thinking about the power of incentives.”
— Charlie Munger
As we have learned previously from Paul Orfalea, a company needs a great incentive structure in place to thrive. In fact, Orfalea realized that the workers behind the counter at Kinko’s were the true heroes of the company. Considering the fact that he was in the retail copy centers business, Orfalea had plenty of competitors considering it is an industry with no barriers to entry.
As such, if he wanted to beat his competitors, he would have to make Kinko’s a great place to work; he would have to create an incredible corporate culture and make it a competitive advantage. This starts by setting the right incentives in place. In fact, Orfalea mentions that it is a lot easier to manage the work environment than the people in a store. He once said that “when people are properly motivated, they will essentially manage themselves.”
First, he started calling his employees as coworkers to remind himself that he didn’t want to “use” people, but to work with “empowered entrepreneurs”. To instill this sense of entrepreneurship among Kinko’s workers, the company gave a share of the profits of the store to everyone — partners, managers, and even workers behind the counter.
Orfalea mentions that initially, Kinko’s “gave each manager 25 percent of his or her store's profits. Later, we expanded the system of profit sharing when we started giving each manager 15 percent of the store's profits and earmarking the remaining 10 percent to be split among that store's coworkers.”
Second, Orfalea mentions that “people want to know they are contributing to society.” As such, other than monetary incentives, Kinko’s had to give a sense of mission to keep their workers both happy and motivated.
To do so, Orfalea set a flat organization at Kinko’s. Without having any hierarchy, every single member of the company were treated equally in the company and were part of the decision process. In fact, Orfalea mentions that the head office’s main purpose is to serve the stores. He implemented the “80/20” policy where managers were encouraged to spend 80 percent of their time on the floor of the stores with coworkers and only 20 percent of their time in their offices.
Similarly, Peter Kiewit once said, “One of the reasons our results are better than our competitors is that all of our stock is owned by employees people who are actively engaged in our business. Each one is, in fact, a part owner of our company and is, in a sense, working for himself. Certainly this should, and I believe it does, provide a definite incentive to our employees and a corresponding benefit to the company.”
As such, Kiewit made sure to offer stock to valuable employees so that they can also have a share in the company’s success. However, he made sure that the stocks would have to sold back to the company when they leave. Furthermore, the company made sure that each employee’s stock ownership reflected his or her level of responsibility and performance. This provided a meritocracy structure that promoted entrepreneurship thinking from all employees.
“There are two rules. First, my stock will be acquired by the company. Second, company stock will be owned by employees.”
— Peter Kiewit
Beyond the Book
Read "The Power of Incentives: The Hidden Forces That Shape Behavior" by Farnam Street