UK construction appears to be in a downward spiral of underperformance and increasingly poor health.
Whether one looks at the well-documented, specific cases of business failures and eye-watering financial losses, or the wider failings to deliver shareholder value as set out in this week’s CN100, it absolutely need not be this way.
Main contractors talk about aspirations of heading towards 5 per cent operating margins. But if we are to deliver this, we must first focus on consistency of performance – enough of these legacy contracts, exceptional losses, restructuring costs, downsizing initiatives and management restructuring.
Against a backdrop of all-too-frequent financial underperformance and mismanagement, we need to ensure our industry delivers consistently for all stakeholders. We must bring to an end the destruction of shareholder value, the misery being caused to our supply chain, and personal career hardship for employees.
Stick to the basics
At the heart of the solution must be a solid corporate culture, combined with consistency: consistency of strategy, and of management structures and teams; consistency of financial performance, and of commercial rigour and discipline; and consistency of governance.
Just stick to the basics and get back to the foundations of good contracting. Simply put, it is about good people and good culture, married with solid processes and robust governance.
First and foremost, we need to focus on a healthy corporate culture. Research carried out by Harvard Business Review reflects that “culture accounts for up to 30 per cent of the differential in corporate performance, when compared with culturally unremarkable competitors”.
“Only when the interests of all stakeholders are balanced and aligned do we have the possibility of consistent business performance”
This means delayering traditional management structures, ensuring open communication across the business, and making sure everyone is focused on the same end goal. Only when the interests of all stakeholders are balanced and aligned do we have the possibility of consistent business performance.
It has certainly been a year when our industry has been under more scrutiny than ever before – with front page headlines plastered across the trade and national press.
The right foundations
Running a contracting business of any size requires a delicate balance of all the forces pulling in different directions – the competitive market forces, client demands, Brexit uncertainty, volume growth vs margin returns vs return on capital employed.
But all too often our industry fails to put in place the foundations that enable continued success. In addition to the essentials of robust corporate responsibility, great culture and effective systems, we too often observe failings in risk management, project selectivity and operational delivery at the coal face.
Once we have the basics in place, then we should seek to move our industry on to a more up-to-date, enlightened and innovative footing: one that accelerates our digital transformation and puts work-life balance and wellbeing higher up the agenda.
Thankfully, we are starting to see a shift in client thinking, after some public and private sector clients have had their fingers horribly burnt. Increasingly this year, clients are putting more focus on understanding the financial wellbeing of their main contractors, looking into supply chain payment practices, and emphasising the assessment of management behaviours.
There is a better way to achieve consistently improved business performance across our sector, and we all have a part to play in raising our industry to the next level.
Alan Robertson is CEO of VolkerWessels UK