Operational Excellence demands you should never waste a good crisis
As the UK economy continues to lick its wounds and works hard to rebuild a more rosy future, it is a useful time for reflection and improvement. Whilst very few industries emerged unscathed, in the construction industry there is no disputing the level of chaos and damage caused by half a decade of economic quagmire. The construction industry may have dragged itself into the recovery position, but the scale of the impact remains an ongoing concern for many organisations, business leaders and policymakers across the sector.
During the downturn, the industry witnessed a dramatic catalogue of events which not only paralysed trade, but affected widespread confidence and morale. Now as the sector recovers, insolvency levels have risen and the order books are looking healthy again – the industry continues to be tested. Supply chain prices and building material costs inflate forcing some building firms to import goods from overseas. And all this at the same time as businesses try to work out their underbid contracts of the last few years. The challenges are profuse.
At the height of the recession, building firms laid off 20 per cent of their workforce. The Office for National Statistics (ONS) estimates that the loss of human capital across the UK workforce between 2008 and 2012 was £1.1 trillion. As a direct consequence, the skills shortage continues to cause a major headache for all.
School leavers and graduates were not actively encouraged to enter what was perceived to be a vulnerable and unpredictable industry. As a result, the UK is struggling to rebuild a skilled and sustainable workforce and as such, the traditional building trades are in demand with electricians, plumbers and bricklayers in stringent short supply.
Despite recent healthy growth in output, the house building sector remains volatile with the provision of new homes an increasingly important topic of national and political debate. Latest reports indicate the lack of skilled tradesmen across the sector will threaten the Government’s ambitious 100,000 new homes target.
Whilst some smaller house builders and construction firms have managed to ‘roar’ out of the recession, the larger main contractors have not been so lucky. At the height of the recession, many top-tier contractors were forced into making suicidal agreements which led to unsustainable fixed-price public contracts. As we see repeatedly in the media, after years of underbidding, some larger main contractors are still wearing their battle scars and working relentlessly to release the shackles.
It is no surprise that the imbalance of supply and demand has led to crippling margins, which has only served to compound and perpetuate adversarial cultures across the supply chain. The loss of skilled employees and capital investment has played a significant role in the trials and tribulations of the construction industry, not to mention the loss of goodwill. The industry’s already tarnished reputation, has taken a serious battering, which will no doubt take years to repair and decades to fully recover.
The answer to the problem of rising prices, lack of skills and continued margin pressure is not and cannot be for contractors to continuously put up prices. Businesses need to think about how they operate and deliver projects in the most cost effective and timely manner, whilst collaborating with both clients and the supply chain
Back to the Future
Needless to say, there have been numerous well documented attempts at major reform within the construction industry. In recent times, most notable are The Latham and Egan reports, which respectively set out to prescribe a code for how the construction industry should work and behave for the common good of the supply chain. Well before the events of the most recent economic downturn, it was Sir Michael Latham’s report ‘Constructing the Team’ in the early nineties, which urged the industry to eliminate adversarial culture, by putting an end to costly and lengthy arbitration processes – and called for collaborative working practices between the client, contractor, sub-contractor and consultant.
Latham’s influence on the construction supply chain was monumental and was echoed by Sir John Egan’s ‘Rethinking Construction’ (1998) and ‘Accelerating Change’ (2002) which cemented Latham’s thinking and strengthened objectives with renewed conviction. Egan was quick to demonstrate how the UK construction industry was under-achieving, by highlighting the significant losses in profitability and poor capital investment in the areas of research, development and training.
Latterly, we are reminded of Latham and Egan’s combined principles with Andrew Wolstenholme’s ‘Never Waste a Good Crisis’ report, which sets out to review Egan’s progress during the economic crisis. Wolstenhome’s conclusions are unanimous in every sense that the need for change is an industry wide imperative and an opportunity that should not be wasted.
The Pursuit of Operational Excellence
Without a doubt, the downturn of the economy has given way to a much more widespread and common acceptance of Lean thinking and an appetite for Operational Excellence. The uncertainty and unrest, has forced many organisations to rethink and ramp up their Lean Operational procedures, with many focusing heavily in the areas of rigorous cost control and cost avoidance.
However, it is high time for large blue-chip organisations to put an end to ‘trouble-shooting’ and ‘tactical fire fighting’ to reduce cost.
Adopting true Operational Excellence guiding principles involves more than simply rolling out a series of project recovery programmes. The sustainable answer requires longer term strategic thinking.
A survival mindset has carried many construction business leaders through the depths of recession, but looking beyond this to a much more robust future now requires a different kind of attitude. For an organisation to meet and exceed its potential, it needs to focus on developing a culture that listens to customers first, and then makes the necessary investments to exploit the immediate opportunities for growth.
The first principle is to create customer value in order to achieve a competitive advantage. Organisations that achieve a level of stability in the primary processes will generate far greater business benefits in terms of cost, profit and cash in the long run, through the development of wider business and end-to-end thinking.
In our view, post-recession Britain now provides a timely platform to propel the change agenda forward in the construction industry with renewed vigour and purpose, to a new stratosphere where the pursuit of Operational Excellence is business critical for survival.
In order to restore the necessary confidence and trust to boost the bottom line, significant change is critical. We believe the industry needs to take stock and move forward together; creating a unified culture where the pursuit of Operational Excellence is the norm and not the exception.
Make it Happen
We firmly believe the first principle of Lean is to create customer value in order to achieve a competitive advantage, but the real question is how an organisation achieves this – to really make it happen?
In order to introduce, embed and maximise the benefits from Lean and ultimately business excellence requires both the ability to scale up across the whole organisation (in all functions and along the value stream) and the ability to make the new ways of working stick and be sustainable.
To embed exceptional practices, however, it is more about changing mindset than tools, developing a culture which encourages enabling behaviours. Self discipline and ownership are key attributes for everyone, for it is this that maintains the processes’ sustainability.
The organisation’s leaders need to demonstrate commitment to the journey. Instilling a culture where deviation from the vision and process is not an option. A prerequisite for success is to have clarity around the commitment that people are expected to make, after all, it is about embedding a ‘way of working’ that involves everyone throughout the organisation. Everyone is required to play a part in making the change happen, throughout the organisation.
The overall programme must be made a strategic priority, with a clear framework to provide guidance on what needs to be done. People need to have the right tools to deliver the expected results. The tools and techniques, when used appropriately, will help them see more clearly, measure, focus, problem solve, collaborate and as a result be more effective.
There are many factors to consider along the way, but a fundamental tipping point is often the actions and behaviours of the leadership and management. Typically the most senior leaders understand the strategy and have the vision to see the value. The staff typically will go ahead with this approach as it often feels like common sense. However, middle managers can tend to play piggy in the middle lacking the longer term strategic vision and not fully understanding their pivotal role. It is critical for the process to be reinforced by the leaders in the business exhibiting the right ‘enabling’ behaviours.
Other fundamentals should include recognising success and communicating progress. Unless already normal practice it is best done in a structured way by integrating it into the change activity. Keep it simple and relevant to the audience.
Keep in mind that strategic change and programme management does not have to be complicated, although it does require an investment in people and time resources to work best. Building the right infrastructure from the beginning will pay dividends later when trying to keep the programme on track. Like any investment, thorough up front planning will reduce the level of rework later and ultimately accelerate the pace of change.
Programme governance (the process and tools what will be deployed to keep the programme on track) is another aspect of making it happen that doesn’t always get the focus it merits, until things go wrong! Regular steering groups should take place to review progress to plan, address blockages, champion the programme and confirm the next steps. In parallel, all results (savings and benefits), audit and assessment scores should be tracked, reported and communicated against targets to make progress transparent.
A truly Lean business will strive to understand and deliver value from the customer’s point of view, with the optimum level of resource (e.g. people, capital, knowledge, research, design, overheads).
It will continue to challenge not only the primary processes but all of the secondary processes needed to deliver the product or service (e.g. finance, HR, IT, legal).
In short, a truly Lean business will strive to achieve a unique competitive advantage through Operational Excellence and as such will push the boundaries of conventional business process and relentlessly challenge and eliminate all non-value-added activities.
By Richard Lyle
Richard Lyle, Director of Suiko’s Construction Practice casts a lean eye on the construction industry with the quest for Operational Excellence to restore confidence, boost the economy and achieve a competitive advantage. Learn more at Suiko.
For business enquiries, contact:
Ang Close at ang.close@suiko.co.uk
