A Better Way to Build: A History of the Pankow Companies

Chapter 7: Adapting to Market Change, 1991–2004

291 Chapter 7 Adapting to Market Change, 1991–2004 Well before the construction industry began to recover from the deep recession of the early 1990s, it was unclear whether the business model that had sustained Charlie Pankow’s company for almost three decades would enable it to thrive when the economy rebounded, much less survive the next downturn.Thefounderhadnodoubtthatitcould.Recallthat,whenareporter asked him, in May 1988, to predict what work his firm would be doing in the future, Pankow replied: “Design-build in heavy commercial buildings for the private sector. That’s it.”1 Convinced that a recession “had no bearing whatsoever on our business,” Pankow explained the decline in contract volumes during recessions in terms of “not selling our approach adequately.” Never would he acknowledge that his business model might have lost its relevance.2 The success of George Hutton and Russ Osterman as developers had insulated Pankow’s business model since the mid-1970s. As Rik Kunnath explains , “They sold a lot of work [to] a very small number of highly prolific clients. . . . That work produced revenue and income at a level that, for the relatively small number of owners in the company, was more than adequate for the owners and more than adequate to sustain the organization.” Pankow had no reason to think that he might have to change his business to sustain its profitability. Kunnath elaborates: “Over time there was so much success that he [became] more and more convinced of the wisdom of [his] approach. And it was working, it had always worked, it was continuing to work, and so why tinker with something that is obviously successful?” As the primary CHAPTER 7 292 beneficiary of the financial and professional rewards of an approach that he had promoted for decades, Charlie Pankow was the last person who would have seen the need for change.3 Charlie Pankow’s way of doing business benefited commercial real estate developers, who placed a premium on realizing their projects as soon as possible . The Pankow firm accepted execution risk and handled project administration . Charlie Pankow’s design-build variant offered certainty of delivery, cost, schedule, and quality. The business model had remained constant, even as the market for commercial real estate changed. Its reliance on repeat business from a small number of customers made it even more susceptible to changes in market conditions. For, as Kunnath observes, “Clients retire and change [contractors] for [many] other reasons.”4 The commercial real estate market was becoming service oriented, requiring contractors to adapt to the needs of owners. For instance, hospitals typically employed professional staff to administer their capital building projects , so their executives were not interested in ceding project administration to the contractor. Speed to market was less crucial for hospital managers than for owners who needed to let office space or sell condominiums to repay their construction loans, since hospitals generally held ample cash reserves . Ironically, as design-build became more popular as a project delivery methodology, the company needed new ways of differentiating itself among contractors, too, but Charlie Pankow had no interest in modifying his “onesize -fits-all” solution. Kunnath and other second generation managers in the firm recognized what Charlie Pankow, as a first generation founder of the company, did not, namely, that the firm needed to adapt to the market if it were to survive, much less thrive.5 It was more important for Charlie Pankow to hold onto the philosophy and beliefs on which he had founded his company than contemplate the need for change, however. In fact, suggests Kunnath, he might have been willing to invest his capital in the company to keep it viable, were the business to falter , much like one might underwrite a hobby. Since Pankow exercised “unilateral , complete, iron-clad control” of the firm, those who were interested in change had to fly cautiously under his radar, so to speak, to avoid retribution.6 Thosewhoadvocatednewdirectionsinthecompany’sbusinesspositioned them as experiments, temporary ways of retaining people during recession, or adjuncts to the large building projects that historically filled the firm’s order book. Charlie Pankow might tolerate the new initiatives or look the other ADAPTING TO MARKET CHANGE, 1991–2004 293 way, but he never would acknowledge their value, even when they became profitable. And while he might come to respect the success of these ventures, he would take no personal pride or interest in anything other than so-called...