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Building the New Economy

The new world of business is under construction — and DPR Construction Inc. is building it. This company “Exists to Build Great Things.” That means building things faster, smarter, and better than the competition. Does DPR deliver? Just ask its clients.

Travel along the 43-mile stretch of U.S. Highway 101 from San Francisco to San Jose, and you can see the new economy taking shape. It’s here, in the cranes towering above San Francisco International Airport, which is adding a $2.4 billion international passenger terminal and light-rail complex to handle the growing army of engineers, programmers, and deal makers who are descending on Silicon Valley. It’s here, in the new 709-unit Toscana apartment complex in Sunnyvale, where rent for a one-bedroom starts at $1,475 and where every unit comes with a superfast Internet connection. It’s here, in the distinctive blue-and-white buildings of Intel’s Santa Clara campus, where a team of construction workers is racing to upgrade a 150,000-square-foot office facility.

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Business futurists like to describe the new economy in terms of bits and bytes, of megahertz and nanoseconds, of underground fiber optics and orbital communications satellites. But here, at ground zero, the action is in drywall and concrete, in plumbing and HVAC (heating, ventilation, and air-conditioning) systems. Even a virtual economy requires an actual environment.

Chris Smither builds the buildings that house the new economy. Six years ago, the blond, blue-eyed native of southern California was building a J.C. Penney store in a shopping mall outside of Los Angeles. One day, he recalls, “I looked at my future and said, I don’t want to build cinder-block buildings for the rest of my life.” Today Smither, 29, is project manager on a $100 million campus for Novell, the Provo, Utah-based software giant. The five-building campus, set on 45 acres just off the Brokaw exit in San Jose, will be home to about 1,000 programmers, engineers, salespeople, and executives. It will offer all the amenities that Silicon Valley’s knowledge workers have come to expect, including well-stocked weight rooms and a two-story dining atrium with its own cappuccino bar. “In this area, you have to do everything in your power to recruit the best,” Smither says. “It’s like building a new stadium for a football team: Everybody does it, because all the teams require it.”

Not everybody does it as fast as Smither’s team, however. Novell broke ground for the project in September 1997. Since then, Eric Schmidt, the company’s change-oriented CEO (who was recruited away from Sun Microsystems), has made lots of changes to the plans for the campus — going so far as to eliminate one floor from every building. What’s more, El Niño dumped two years’ worth of rain on the site in just five months. No matter: Smither’s project is still on schedule. Novell’s troops expect to occupy the facility on December 1, 1998 — just as the original contract stipulated. “Five years ago, this might have been a three-year project,” Smither says. “We’re doing it in 14 months.”

How can Smither finish such a complex project on time and on budget — when, these days, it seems impossible to renovate a kitchen without delays and cost overruns? Because he works for DPR Construction Inc., a general contractor and construction-management company that is applying the ideas, practices, and technologies of the new economy to a business as old as the pharaohs.

“Fast” is too mild a word to describe DPR’s rise. Based in Redwood City, California, the company was founded in 1990 by Doug Woods, Peter Nosler, and Ronald Davidowski (the D, P, and R of the company’s name). It has grown from 12 people to 2,000 people — and from annual revenues of less than $1 million to an expected $1.3 billion this year. To put that growth in perspective, consider Bechtel Group Inc., perhaps the world’s best-known construction company. Bechtel reported 1997 revenues of $11.3 billion — but Bechtel also just celebrated its 100th anniversary. DPR was founded eight years ago. Today it is one of the fastest-growing general contractors in the United States, with offices in 11 cities around the country.

DPR specializes in building for six industrial sectors: biotechnology, pharmaceuticals, microelectronics, entertainment, health care, and corporate-office development. Its client list reads like a “who’s who” of the new economy: Applied Materials, Charles Schwab, Sun Microsystems, Genentech, Pixar. The company has a simple statement of purpose: “DPR Exists to Build Great Things.” But delivering on that mission demands radical innovation. DPR has become a fast company in a slow industry by absorbing many of the ideas that drive its clients.

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“It’s incredible,” says Nosler, 58, who was a graduate student in physics before he decided to become a builder, thereby following in the footsteps of his father and grandfather. “Construction companies work with so many new businesses and encounter so many new ideas. But this industry remains so retrograde. DPR was born in Silicon Valley. We’ve been exposed to new ideas from the computer industry, from Stanford, from the gurus and consultants who migrate to this part of the world.”

And DPR, unlike many of its rivals, has embraced those ideas. “I used to look at Silicon Valley companies and ask, What makes them so different?” says Ronald Davidowski, 51, a Chicago native who first came to the Bay Area in 1969. “Eventually I came to understand that what made them different was empowerment and ownership. Employees genuinely believe that if they do well for the company, they will do well for themselves. That’s how HP, Intel, and Sun attracted great people and continued to grow.”

That’s also how DPR vowed that it would grow. The company’s ways of working are vastly different from the industry norm. Job candidates, for example, are put through 8 to 10 interviews, because DPR wants to make sure that they can handle its freewheeling culture. The main trait that DPR looks for isn’t technical proficiency or intellectual dexterity — although both of those qualities count for a lot. Rather, it’s the confidence to make high-stakes decisions on the spot. “We expect our people to understand our customers’ expectations and to exceed those expectations,” says Doug Woods, 47, a UCLA graduate whose career in construction began with summer jobs as a teenager. “We don’t expect them to wait for permission in order to do the right thing.”

Chris Smither certainly doesn’t wait. At the Novell construction site, he recounts how his team kept the project going through one of northern California’s worst winters in a century. Smither knew that El Niño was coming. He also knew that he had two options for dealing with it. The first was to push back the project’s completion date (one day for every day lost to rain) — a delay that Novell was contractually obliged to permit. The second was to outsmart Mother Nature.

“We took the second option,” Smither says. Subcontractors worked 10-hour shifts and on weekends to install the site’s utilities — underground sewers for storm water and waste product, communication conduits, electrical infrastructure — before the rains arrived. Then Smither secured access to the site by accelerating construction of the parking lot that surrounds the campus, including all of the lot’s curbs and gutters. Finally, Smither built a temporary road to provide cranes, bulldozers, and other heavy vehicles with access to the interior of the site during the storm. “The crane road cost a lot,” he says. “But it was a lot cheaper than shutting down the job for six months.”

The result of these and other on-the-fly innovations: While many of his competitors were literally stuck in mud, Smither’s crew worked through 125 days of rain, and Smither kept the project’s schedule from being extended. Not bad for the youngest project manager in DPR history — and, for a job of this size, probably the youngest project manager in the country. “At a traditional contractor, you don’t become a project manager until you’ve had 15 years of experience, no matter how good you are,” says Smither, a five-year veteran of DPR. “This company doesn’t base decisions on seniority. If you’ve proven yourself, if you can do the job, you’re going to get more and more responsibility.”

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To Build a Great Company, Build Great Teams

DPR’s founders didn’t set out to reinvent the construction industry. They just wanted to build a company that worked — in an industry where most companies don’t work very well. Early on, they hired Jim Collins, then a professor at the Stanford University Graduate School of Business, to help them think through what they were creating. He urged the three partners not to focus on revenues, profits, or contracts. Instead, he argued, they should wrestle with purpose, mission, and values.

“We had a business plan,” says Woods. “But things really began to take shape when we agreed that this company would exist to build great things. We decided to do something spectacular.”

The founders then agreed on a second principle: To build a company that was capable of building great things, they would build a new kind of relationship with customers. During the 1950s, a sort of golden age for the construction industry, builders and clients got along pretty well. Construction firms operated on margins of about 10%, and lawsuits were few and far between. But during the 1960s and 1970s, the competitive-bidding process, which had originated with public-works projects, spilled over into the private sector — and drove a wedge between builders and clients. Builders desperate for business fueled bidding wars; average margins shrunk to less than 3%. It wasn’t unheard-of for winning bidders to sign contracts that included no margin at all. They figured that they would earn their money through change orders — expansions or modifications that allowed builders to impose additional fees.

As a result, change orders became a way of life — as did delays, overruns, and lawsuits. Talk about cross-purposes! Imagine a world in which software companies earned all of their profits by fixing bugs and charging for that service. To this day, that’s the world of construction. So it’s no wonder that the two sides view each other with animosity — and sue each other at the drop of a blueprint.

DPR’s founders looked at this sorry state of affairs and decided to build a company from a different blueprint. Construction, they reasoned, is a team sport. If you want to build things fast, you’ve got to build teams first. So DPR uses in-house facilitators to align the interests of a project’s many constituencies — architects, contractors, subcontractors, clients — before it pours the first drop of concrete. At the outset of each project, it works with clients and designers to define their goals, to agree on a schedule, to establish metrics of success — even to write a mission statement. As the project moves forward, suppliers, vendors, and subcontractors join this team-building process. DPR is so serious about teamwork that one member of the firm’s seven-member management committee devotes himself nearly full-time to the issue.

“It strikes some people as touchy-feely,” Woods concedes. “You know — ‘This is construction! Let’s just get out and build the damn building.’ But we come out of the process with two very important things: a mission statement and a clear set of metrics. As long as the teams stay focused, we end up with a great project. We have to make the job just as successful for the architect as it is for the customer and for us. We have to let everybody win.”

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The DPR approach itself seems to be winning. And now that the company is in a position to choose which projects it works on, it rarely accepts jobs on which it can’t take part in the entire building process — from an owner’s initial statement of need to the final occupancy of a facility. DPR’s selectivity is about more than just building teams. It’s also about learning. A few years ago, when the company contracted to build lab facilities for Stanford, it was leery of allowing students to have input. But the experience of working with user groups went so well that DPR now tries to incorporate them into all of its projects — as early as possible. On some jobs, it has spent up to $1 million to build a mock-up of a facility, so that users could do a walk-through and make suggestions. “It helps educate clients on what their people want,” explains Woods. “The more you share that information, the better the project becomes.”

Of course, better projects lead to happier customers — and to more business. Today 75% to 80% of DPR’s work comes from repeat business. But the company’s real measure of success isn’t repeat contracts — it’s no-bid contracts. “We pay attention to how much work we get without having to compete for it,” says Woods. “That figure is running at 35% to 40% of our annual volume.”

Great Companies Compete on Brains, Not Brawn

A visitor to DPR headquarters in Redwood City can’t help but feel that he’s in the wrong place: Has he wandered into the offices of some well-adjusted software company? People are hunched over computer screens. Rooms are named after dead rock stars: the Janis Joplin and John Lennon conference rooms, the Elvis Presley digitizer room. (John Denver warrants only a phone booth.) There are no walls, no cubicles, no dividers. The open-plan concept has been taken to such an extreme that people don’t even sit near other members of their department or team. (Nor does anyone here have a permanent job title. DPR believes that titles create needless boundaries between people and between disciplines.)

“Everybody’s mixed together, because we need all the disciplines working together to be successful,” explains Doug Woods, whose immediate neighbors work in the departments of business development, marketing, accounting, and estimating. Adds Ronald Davidowski: “I believe — and we’ve seen ample proof of this — that any group of minds is better than any individual mind. Our job is to harness the brainpower we have.”

DPR’s founders are clear on this point: Winning companies don’t compete on brawn — they compete on brains. Which is why DPR offers, on average, 120 hours of training per employee per year. That training ranges from a 12-hour course on making presentations to a 4-day workshop on problem solving. Last year, DPR began sending high-potential employees to a leadership institute in the mountains above Colorado Springs. By the end of this year, it will have sent 70 people to the institute at a cost of $8,000 per person.

Internally, the company produces its own best-practices courses in fields such as billing, pricing, and project planning. Drawing from its 11 branch offices, DPR regularly convenes people who have similar jobs — estimators, project managers, superintendents — to discuss ways to improve performance in the seven “critical success factors” that it has identified as essential to its prosperity. Those factors include estimating accuracy (“The first estimate we present is a reliable forecast”), zero punch list (“When we say we’re done, we’re done”), and project closeout (“Crisply complete every project”). The company’s regional and national meetings become training workshops on how to excel in these areas.

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Of course, DPR’s real work — and most of its brainpower — is not at headquarters or in any branch office. It’s on-site, where its buildings are going up. If knowledge never gets to the job site, then it can’t be of much value. That’s why every new hire gets a state-of-the-art laptop, which the company outfits with some or all of its core applications: Lotus Notes, Microsoft Project, Timberline (for estimating), and Expedition and ProLog (for project management). The knowledge workers of DPR may not be quite as wired as their peers at Oracle or Netscape, but within the world of construction, they are on the bleeding edge of information technology.

“This industry has always focused on its tools,” says Woods. “But ‘tools’ usually means a crane or a laser screed for concrete work. When it comes to computers, the reaction is, ‘No way, we’re not going to spend money on those. We already have all the tools we need to do the job.’ “

But it is DPR’s information tools that have enabled the company to perform some of its more remarkable construction feats. One such feat involved completing, in a record 11 months, a $300 million wafer-fab and office complex in Richmond, Virginia for White Oak Semiconductor, a joint venture between Motorola and Siemens. The White Oak project required around-the-clock shifts and more than 1 million person-hours of labor. But the hardest part wasn’t doing the physical work; it was coordinating the schedules and tracking the oceans of information.

So in Richmond, as on most of its projects, DPR set up a communications trailer, complete with servers, routers, T1 lines, and cellular connections. Such a nerve center allows DPR’s on-site people to communicate with every member of their team — from subcontractors who use AOL accounts to architects who upload CAD designs. DPR also creates a Web site for almost every project, enabling everyone to stay on the same (Web) page and eliminating miscues that can result in days or weeks of delays. On the Novell project, DPR took connectivity one step further: At the site, it installed a digital camera atop a 100-foot pole; the camera snapped photos every three hours and downloaded them to the project’s Web page. That way, Novell employees in Provo were able to watch the new campus being built — almost in real time.

DPR uses knowledge-sharing technology internally as well as externally. A few months ago, Jim Webb, 55, a superintendent for a renovation project at the Summit Medical Center in Oakland, California, received an email from an engineer in DPR’s San Diego office. The engineer had a problem: Seawater was leaking into the foundations of a site. Webb, it turned out, had spent a lot of time on a previous job working with bridges and tunnels. He suggested, through email, that the engineer’s crew freeze the ground by injecting it with liquid nitrogen — a technique that he had seen used on projects in Milwaukee and Chicago. “These guys had been around building construction all of their lives, and they had never heard of that trick,” says Webb. “No one at this company has done everything. But a lot of us have specialties. So when you find a problem that’s beyond your expertise, you get on the computer and draw on other resources.”

If You’re Not Keeping Score, It’s Only Practice

Webb says he has been “shocked” at the level of knowledge sharing inside DPR, which he joined in January 1997. One reason: He sits at the center of that process. At the Summit Medical Center, he’s in charge of the project’s continuous-improvement program (CIP), which is perhaps the most basic form of knowledge sharing at DPR. CIP is ubiquitous — and deceptively simple. By submitting a form known as an OFI (“opportunity for improvement”), anyone on a job site — an architect, an outside tradesperson, a DPR manager — can suggest ways to do a specific task better, faster, more safely, or more efficiently. An elected committee of craftspeople and DPR employees decides which OFIs make sense — and then implements them.

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OFIs do more than enhance individual projects. Every OFI that gets implemented also gets logged into a Lotus Notes database. With a few keystrokes, DPR employees can search through every project that the company has ever done to discover where their colleagues found room for improvement. The entries are itemized and cross-referenced, and they can be searched by keyword, by cost, or by one of DPR’s seven critical success factors. “It’s just one hell of a resource,” says Webb.

DPR views CIP as a cornerstone of its business. Indeed, one member of its management committee is specifically charged with overseeing the program. “This is not a voluntary program,” says Nosler. “You’re either on a task force, working on ideas, or helping to implement things. One way or another, everyone is involved.”

On the Summit project, Webb’s responsibility is both to ensure implementation of approved CIP ideas and to measure their impact. One recent OFI suggested that the company install fax machines in Summit’s two pavilions, where tradespeople were working. Those machines seemed like a luxury — until Webb calculated how much time it took for people to walk down to the DPR site office, pick up a fax, and then walk back to the job. The total came to 880 labor hours over the life of the project. Webb installed the faxes, and he estimates that the investment will save DPR $42,000.

DPR is a company that takes measurement very seriously. “If you’re not keeping score,” people at DPR like to say, “it’s only practice.” The company has created metrics for performance in each of its seven critical success factors; it tracks that performance closely; and it shares the results widely. The “zero punch list” goal, for example, translates into finishing all outstanding items on a project by the time of its substantial completion. The company tracks how many days its projects are operating above or below that goal. One finding: DPR has gone from being an average of 25 days behind its original contract schedules, in the second quarter of 1995, to being fewer than 3 days behind today.

DPR doesn’t just measure results — it pays for them. Bonuses can reach 30% of base salary, and the criteria mostly relate to performance in the company’s seven success factors. DPR is even trying to expand its pay-for-performance approach to include subcontractors and union tradespeople — by giving bonuses in “DPR Dollars.” Workers not in DPR’s direct employ can use the currency to buy golf shirts, ice chests, and other construction-guy stuff.

Perhaps the only performance attribute that DPR doesn’t quantify is fun. But on the company’s list of four core values and beliefs, “enjoyment” is preceded only by “integrity.” “Enjoyment” doesn’t just mean great parties (although DPR, like its Silicon Valley neighbors, has Friday-afternoon bashes at a local wine bar). It means the satisfaction that comes from collaborating, sharing knowledge, and building great things. “When people’s goals are aligned,” says Nosler, “when everyone is working toward the same objective, people suddenly discover, ‘Hey, this is a blast.’ “

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It’s late in the day at the Novell job site. Weary craftsmen walk to their pickup trucks, tools jangling from their belts. Mike Glogovac, 41, project manager for a subcontractor, Frank Electrical Co., doesn’t look as if he’s having a blast. He looks beat. Yet when asked how he likes working with people at DPR, Glogovac breaks into a broad smile. “Their business philosophy is that everybody on a project has to be successful, or else the project won’t be successful,” he says. “It’s not just a nice thought — they actually mean it. When we hit a rough spot, they don’t say, ‘Too bad.’ It’s more like, ‘What can we do to make this work for you?’ And because of that attitude, when you have an opportunity to help DPR, you do it.”

Glogovac pauses. He’s been on some nightmare jobs, projects on which he felt like “one lone contractor fighting against the rest of the world.” But this job, his first with DPR, feels different. “You know,” he says, “it really does become win-win.”

Eric Ransdell (ransdell@well.com), a Fast Company contributing editor, is based in San Francisco. Visit DPR Construction Inc. on the Web (www.dprinc.com).

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