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.

Saturday, 9 August 2014

Results from a bold Strategy

Laing O Rouke issued their company results last week.

What I love about LOR is their vision and their boldness in rethinking construction. They disregard everything which is established as a tier one constructor. They have looked to where they can add value and most importantly invested heavily.

Even the fact they their CEO is a woman is a great statement in itself in a narrow minded industry.

LOR see themselves as an Engineering Enterprise and look for clients who see the value in this approach. This may mean they have to travel the world to find them.

Their Design for Manufacturing Assembly is a bold strategy. They invested in their concrete plant just at the wrong time when the market dipped. They continued to hold firm to their strategy and funded the factory through recession. I have no doubt that this strategy will catapult them ahead of the field over the next decade.

They have a fantastic programme in investing in their people and teaching them new skills which is often talked about but not acted upon in construction.

In the notes to accompany the results Anna Stewart made some great comments which I feel sum up the vision of the business. If any Teir 1 contractor is going to achieve vision 2025 it is LOR.

The following is an extract from the CEOs notes which for me give a clear articulation of where they are going.

"We are confident that following our strategy for Design for Manufacturing and Assembly and transferring as many activities away from construction sites into controlled factory environments, will ensure we are less impacted by the skills shortage in traditional trades and will not be driven to engage a lower skilled inherently less safe workforce."

Music to my ears!

Saturday, 2 August 2014

Generation Z

Regular readers will be well aware of my interest in the differences between the generations from Baby Boomers, through to generation X and Y. 
The next generation I'd generation Z which due to their age there is little information.

"There is an increasing number of people starting to research this generations and set out some initial thoughts. This week there was and excellent article in the Times about this very subject. I have copied it here...

Get ready for Generation Z: a more driven, less vain, more puritanical cohort that is poised to make its mark on the world.

Precise parameters are disputed, but “Gen Z” is broadly said to include those born after 1995, a group that includes two billion people worldwide. Brought up in the shadow of 9/11 and amid a great recession, they were raised, say researchers, “in a socio-economic environment marked by chaos, uncertainty, volatility and complexity”.

The challenges seem to have moulded a new maturity: studies suggest this group is brimming with prudent, if rather puritanical, socially-aware, self-starting entrepreneurs. They have also been called the “first tribe of true digital natives”, or “screenagers”.

Gen Z members, it is said, are smarter than the baby boomers born in the wake of the Second World War. They also appear quite distinct from the slackers of Generation X — born roughly between 1960 and 1980 — characterised as “stuck in a terminal cynicism”.

A report by Sparks & Honey, a US advertising agency, highlights a number of defining Gen Z characteristics. It suggests they are more driven and less narcissistic than the millennial generation, or Generation Y, born between 1980 and 2000. Most say they would rather save money than spend. They drink less and smoke less cannabis than their elders, get into fewer fights at school and have less “risky sex”.

They plan to change the world for the better: 60 per cent of Gen Z “want to have an impact on the world” through their job, compared with 39 per cent of Millennials. A quarter of America’s Gen Z are already volunteering. More than 70 per cent would like to start their own business. A separate survey of 11,000 Gen Z children, cited inMaclean’s magazine, found 69 per cent would rather be smarter than better looking.

Sparks & Honey suggests that the 16-year-old activist and author Adora Svitak fits the Gen Z profile perfectly. Her writing ability made her a media star at the age of six, and she has campaigned to promote literacy and feminist values. A talk she gave, entitled, “What Adults Can Learn From Kids” has been viewed more than 3 million times online.

Other prominent members of Gen Z include Malala Yousafzai, the Pakistani 17-year-old who defied the Taliban to go to school and was shot by them – only to emerge as a globally recognised activist. Logan Laplante, 13, also fits the profile: while being homeschooled in California he designed his own progressive curriculum. A talk he gave on his “hackschooling” philosophy has been viewed more than 5 million times.

Meanwhile, researchers have suggested that The Hunger Games is the perfect Gen Z film. Depicting a dystopian future where teens get slaughtered, it reflected their bleak post 9/11 world – and the need for coping mechanisms to deal with it.

“Gen Z is already being branded as a welcome foil to the Millennials, who have been typecast as tolerant but also overconfident, narcissistic and entitled,” said Maclean’s magazine.

However, it also warns that their aptitude with technology means that “this is the first time in history kids know more than adults about something really important to society”.

The result, it suggests, “could well be the most profound generation gap ever” -- between parents at odds with the internet the their kids who driving a new type of digital society."