Monday, 8 December 2014

The Power of Procurement

I had a really interesting discussion with a client over the weekend around procurement. Many procurment departments rely on cost beings a good metric of value. Particularly when appointing a main contractor for works.

In the north of England in particular many clients and procurment department are still keen to use single stage tendering. In London, it seems there is now a greater use of a two stage approach. What is not known however, is whether two stage is preferred in London because the market is busier or that cleints believe it offers better value.

This particular client I was talking to had been forced into a single stage tender from his procurement department. The projects was hugely over budget largely because the constructors had priced the risk.

A two stage and open approach would allow the risk to be clearly visable to all and to be managed and costed appropriately. The easy and expensive way is to just pass the risk to the constructor. This can be expensive in a rising market.

The clients procurment team does not wish to move from a single stage approach and therefore has limited options. The reality is the contractors can look at some cost reductions but with most of the additional cost being in risk if he wants his building as designed he is going to have to find the additional money. Whilst the procurment department will believe this provides value in reality they are paying way over the true cost.

In a retracting market clients can win when risk is priced too tightly by the contractor. However over an extended period which includes boom and recession I would suspect it balances out.

It would be far better if our industry was built on trust and a long term open book arrangement. Over several years I would anticipate that everyone would come out winning. We would however have the added benefit that with a steady profit we could all invest in continuous improvement.

Wednesday, 15 October 2014

My top 10 Business Books

I am an avid reader of business books and in particular business biographies. I have been asked several times for my recommendations. Recently one of the team specifically asked for my top ten so I spent a little time going over my library to find the books which I had found most useful and had influenced me.

The following is my top ten.Not all of them are traditional business books however they tell stories which I have found useful.

We can learn from the past and all of these people have been exceptional in what they do. I have looked back over 100s of books I have read and after considerable deliberation these are the most influential. There are a few others on the fringe which didn't make the cut.

They are not necessarily ranked in order of preference but more in the order to read them.

I've mixed lighter books with heavier books and left some of the more challenging stuff to the end.

Just the best book on how business works. Backed up with facts:
Good to Great
Jim Collins

The sequel talking about how businesses can be sustainable:
Built to Last
Jim Collins

This book is more about the man than the company. Great integrity and values:
Who says elephants can't dance
Louis v gerstner

How to look at the world and its markets differently:
Purple Cow 
Seth Godin

How business was done:
Jack 
Jack Welsh

An amazing story of innovation, tenacity and culture:
Creativity Inc
ED catmull

A very practical book on business issues:
43 mistakes business's make and how to avoid them
Duncan bannatyne

How to build s culture from nothing:
Bill and Dave
How Hewlett and Packard built the Worls Greatest Company
Michael S Malone

This guy influenced so much you need to understand him:
My life and Work
Henry ford and Samuel Crowther

For me the ultimate business man. A genius. Unlikely to be repeated or replicated but we can learn some small things
Steve Jobs. The exclusive biography
Walter Isaacson 

When you have read this lot you will be sick of you life.To cheer you up stick your head into the two Danny Baker Auto Biograhies as well as any book by Peter Kay. They will have you laughing out loud without fail!

Sunday, 12 October 2014

10 Construction bosses leaving their roles in 2014 so far. Is this a crisis?

In 2012 the construction industry in the UK contributed £83.0 billion in economic output, 6% of the total. 2.15 million jobs or 6.5% of the UK total were in the construction industry in Q4 2013.

The top 30 contractors in the UK by revenue, turn over around £26 billion. During 2014 10 of these organisations have lost the senior leaders of their business. The majority have been sacked with some resigning or retiring. An industry which contributes 6% of the UK output which then loses such a large percentage of its leadership must be in crisis. 

During the banking crisis of 2008 the banking industry did not lose this many Chief Executives. Most of these directors have lost their jobs due to drastic financial loses. Like with the banking crisis now is the time to look at the reasons what we have found ourselves in this position and more importantly how can we stop it happening in the future.

These directors are not necessarily bad leaders but have found themselves at the top table at the wrong time and are therefore scapegoats. The issues are not with individuals but with the system.

Culture is the fundamental issue with our industry. We do not collaborate, we are not open and honest and we do not invest long term. 

The top 30 contractors by revenue are listed below. The 10 bosses who have moved on are identified.




Kier
Kier chief executive Paul Sheffield stepped down at the end of June after a career spanning more than 30 years with the contractor.

Balfour Beatty
Balfour Beatty chief executive Andrew McNaughton quit "with immediate effect" at the same time as the firm issued a profit warning for 2014.

Morgan Sindall

Mace

Carillion

BAM

Galliford Try
Galliford Try boss Greg Fitzgerald plans to retire after 33 years at the firm before the end of next year.

Interserve

Costain

Wates
Paul Drechsler the long term boss left Wates in January.

ISG 
ISG’s construction managing director Alan McCarthy-Wyper left the firm after just 18 months. McCarthy-Wyper was brought in from Balfour Beatty Rail by ISG chief executive David Lawther in May 2013.

Laing O Rouke

Willmott Dixon confirmed that divisional chief executive of its capital works division will step down at the end of this year.

John Frankiewicz has worked for the contractor for 30 years and will return as a non-executive director in 2016 after taking a year-out from the industry

Lend Lease

Brookfield Multiplex

Skanska

Booker Vessels

John Sisk

Bouygues

Bowmer & Kirkland

McClaren 

McLaughlin & Harvey

Keepmoat

Buckingham


Vinci
Vinci Construction UK revealed a new senior management team after a recent reorganisation.

The reshuffle followed the departure of chief executive John Stanion and his replacement by Bruno Dupety, former boss of Vinci group business Soletanche Freyssinet.Vinci Construction UK managing director Andrew Ridley-Barker and commercial director Paul Tuplin also exited.

Shepherd

Shepherd Construction managing director Phil Greer left the company earlier this year.Phil was a Shepherd veteran having occupied a string of senior positions since joining the company 35 years ago.

Robertson

Lagan

Sir Robert McAlpine

Vince Corrigan suddenly left the firm. Corrigan, 53, was a main board director and London and South East region boss.


JRL



10 directors is 10 months must be a crisis. All of these bosses could not have all become bad leaders overnight. The issue is not the individuals biput the system and culture which exists across constructiin.

It's time to rethink!
 

Wednesday, 8 October 2014

What have the the Red Arrows and Aston Martin got to do with construction?




The answer is absolutely nothing! Maybe that is the problem we have in construction.Both organisations are acknowledged for their excellence. 
 
I came across these organisations at the Kent Construction Expo today where I was speaking about digital construction.What made this event special was the fact that on the same site in the same day was the Kent manufacturing expo. 
 
There was a stark difference between the two. The manufacturing event was very digital and had machines doing all sorts of clever things on show. There was even a real car which was beautiful. The construction aspect was less impressive regretfully with mainly service business rather than products or technology. 
 
The talk from the red arrows pilot was fantastic. He talked about highly performing teams and how, through briefing and de briefing in every single flight, they strived for excellence. EverY flight is recorded on video from the ground and then reviewed. They do three runs every day and every one is de briefed before the next flight. They have an openness about performance and are objective about their own errors. 
 
Can you imagine this level of commitment  to excellence and performance in construction. 
 
I then listened to the purchasing director from Aston Martin. They have 140 supply chain partners. They are real partners and they support one another. They are looking for innovation all of the time but they measure performance of their supply chain constantly and and provide ongoing feedback. There is incredible openness and every quotation must be totally broken down and transparent. 
 
How different is this to the culture in construction. I'm sure we have all struggled to get even the simplest schedule of rates or a preliminaries breakdown in the past. 
 
The issues in construction are all cultural. Today another tier one boss lost his job for poor performance. T Clark posted a profit warning and Royal Dutch BAM made 650 people redundant. 
 
These issues are no one individuals responsibility but are down to all of us who have worked within this environment. We must challenge now for a better and different way of doing things. We can build an industry with a sustainably future. 

Sunday, 31 August 2014

the PLC Problem...

We have watched the public scrap between Balfour Beatty and Carillion over recent weeks. Both of these companies are listed on the stock exchange.
 

At the same time we have seen Tesco struggle the meet shareholder expectation and again this week has announced a further profit warning. Tesco is also also issued on the stock exchange. 
 

Balfour Beatty and Tesco are on completely different sectors the suffer similar challenges. The stick exchange demands revenue and profit growth at all costs. Ian Tyler and Terry Leahey were Chief Executive at this companies through a boom time when profits and market share increased for both companies. 
 

Both Chief Executives have been praised for their strategies at these companies which can be denied. They both jumped off at the middle of recession. They both were astute enough to realise that they were already three or four years late on establishing a new strategy for changing times. 
 

Both were fixated with profit growth demanded by the city and didn't start to sacrifice profit growth for investment in new strategies. Both Chief Executives were replaced by their deputies and both if these deputies have now lost their jobs. Neither of these men can take any blame. Their fate was already set when they took in the role. Balfours and Tesco should have committed to radical strategies three or four years earlier. 
 

A truly great chief executive is five years ahead of the business and is able to make bold decisions which may effect short term shareholder return. Both ian Tyler and Terry Leahey had one strategy which worked in a booming market. What they couldn't do was change business direction for long term growth. 
 

Long term sustainability is difficult in a PLC environment when shareholders want growth year on year. Balfour Beatty fell into this trap and bought revenue and profit from acquisitions such as Mansell. More importantly the cash generated from construction was used to fund investment in PFI.
 

When investment opportunities reduced and growth slowed it became clear Balfours had not integrated any of these businesses into a single group entity. The company was carrying unnecessary overhead and was not benefiting from scale.
 

Carillion have faired slightly better as they have integrated their acquisitions such as Moslem and Alfred McAlpine 
 
Additional evidence of long term thinking is the level of investment Teir 1 contractors have made over the years. 
 
A report published by the government identified that tier 1 contractors invested a meagre 0.1%. By contrast Google spend 14% and Microsoft  13%. I'm not suggesting that construction invests this level of capital but it does show the difference between sectors which are developing and those which are not. 
 

The point here is that long term sustainability in any sector needs a long term and evolving strategy. The strategy must change and adapt to it environment and the larger the company the longer it takes so the Chief Executive has to be way out in front. Strategies built on growth and profit such as those developed by Ian Tyler and Terry Leahey will ultimately fail. A business must be aligned to the market and the needs of it customers. 

 
I wonder if the fact that Ian Tyler was and accountant and Terry Leheay a marketeer rather than a builder or a retailer is relevant. 
 

Ian Tyler had an outstanding strategy for growing profit and revenue and that can not be questioned. But if the objective was for long term sustainability would someone with a passion for improving the construction service have been better long term. 
 

An interesting contrast would be Laing O Rouke. Ray O Rouke had been driven by changing construction. He has invested hugely in technology and even a manufacturing facility.He is driven by delivering a better value product and changing the perceptions of construction. 
 

They did not make the profit of Balfour Beatty through the boom, probably because much of it was invested. Today LOR continues to make profit and is well place to adapt  to the evolving sector. 
 
 
 

Tuesday, 19 August 2014

RIBA: An organisation for the Artisan or the Buisnessman.

The role of the Royal Institute of British Architects is one of my favourite subjects. Firstly I must declare I am a fully paid up RIBA member and have been for the past 20 years.

However I believe this institution has become increasingly elitist and out of step with the future direction of the wider construction industry. The institution itself can't be blamed as the institution is made up of its members and it is they who are steering the profession on its current direction.

Our profession continues to have an eroding influence and impact on the industry.

My main frustration is that architects are actually absolutely critical to the success of the construction industry as it is they who have the skills to design ,problem solve and communicate better than others in the industry. Construction is about to move into another period of growth and we find ourselfes faced with yet another skills shortage. This suggests to me we are training people with the wrong skills.

Architecture today has moved away from buisness or craft and has become an art form aligned more with painting and sculpture within Universities rather than the built environment. Obviously there is a place for this however construction needs pragmatic designers who can solve problems and work as part of the team.

Architectural practice has become a cottage industry and very artisan. The vast majority of architectural practices in the UK employ fewer than 5 people. These same practices complain that they do not get a share of the large projects being advertised by the public or private sector. This can be no surprise. Which organisation would take a multi million pound risk on a small under resourced buisness. To be able to invest in training, infrastructure and research and development architectural practices have to generate a reasonable level of turnover.

Only 3% of UK of architectural practices employ over 50 people. This means there are likely only 30 UK architectural businesses of a scale able to respond to the needs of the industry. It is therefore little wonder that the status of the architect in the design team is being eroded as project managers and BIM coordinators along with other professions look to fill the roles normally the domain of the architect.

The most successful architectural practice in the UK on any metric has to be Foster and Partners. This is a creative business with a global reach which is operated as a business. I have calculated that this one organisation is responsible for 8% of the total architectural revenue in the UK.

It seems to me that architects and the RIBA have given up on 21st century business and prefer to be associated with artists and sculptors.

This is not the profession I studied all of those year to be a part of. I want to make a difference to as many peoples lives as possible. I want to improve the industry and innovate so we can deliver more and better buildings.

I believe there is now an opportunity for a new profession for those who still want to make an impact and invest in the long term future of the profession and industry.

How about Robs Instutute of Business Architects?

Sunday, 10 August 2014

Holiday reading....Creativity, passion and change.

It's that time of the year again where I get the chance to read the books I've amassed over the previous months. My reading choice is pretty one dimensional and for a lot of people would be considered boring.Im fascinated by business stories and the people who make business happen.

Every business has a great story. On this holiday I have an excellent line up. For some reason there has been a wave of new business biographies, most of them with a digital theme.

I usually like to run the parallels between construction and the book I'm reading. In the past this has included everything from Henry Ford to Tesco.

The fist book I've finished is Creativity, inc by Ed Catmull.This is the story of Pxar. The book tells how the company went from being a division of Lucas film to in effect being the animation studio of Disney.

It works because of the balance of skills across the three founders. One leading technology, one leading creativity and the other being Steve jobs. Steve jobs is very much a side story in this book but I am absolutely convinced that this man was a genius. 

The book is one of the best I have read in relation to how to truly develop a creative culture.Pixar lives and breathes creativity. When contrasted with what the Disney studio had become it is clear the difference culture makes to the success of an organisation.

The other major take away was the similarities in the digitising of construction. Obviously no one at Disney believed in digital animation and believed it had no future. They therefore ignored it and did not innovate. Pixar spent 20 year investing in the technology and proved how dated an analogue approache is. When Toy Story was released it was the beginning of the end for the traditional animation studios.

This is similar to those businesses who are not adopting digital technology at present in construction. The reality is analogue design and construction businesses will become artisan type organisation. This may work for some but at Space Group we want more. We want to rethink our world and make it better. To achieve this we believe digital tools and data are essential as Pixar did.

In the end Disney ended up paying nearly $8 billion dollars for Pixar with the additional embarrassment of the Pixar CEO and VP taking over the leadership of both studios. Interestingly with fresh creative leadership Disney studios has recovered with recent box office hits such  as Tangled and Frozen.

Pixar has also continued to be a success. A great read for anyone interested in creativity and real change.

After reading the Pixar story I was compelled to read the Walt Disney story. Another great visionary and someone who had a burning passion for animation. He seemed to have little interest in business and was more interested in ideas. The business and money followed. Reading between the lines his brother Roy was the steadying influence in the business and gave his brother the space to be creative and to follow his dreams.

Two great stories about creativity, vision and passion.