An industry commentator shares his views on the underlying reasons behind Balfour Beatty’s shock announcements this week.
It’s a real shame to see the latest Balfour Beatty profit warning, with the consequent potential damage to the reputation of a great company leading to the departure of its chief executive, Andrew MacNaughton, and the announcement of the disposal of Parsons Brinkerhoff.
The CEO normally picks up the blame in these kinds of situations, but for the record let’s be clear: the sad tale that has been unravelling for a couple of years at Balfour Beatty is a fundamental failure of long-term strategy and governance, and both of these responsibilities sit squarely with the board as a whole – past and present.
Balfour Beatty is an excellent company with outstanding capabilities in engineering and project management which has enabled it to undertake extremely challenging projects. This great strength has been delivered through a culture of empowerment to sites and business units, making their management teams both independent-minded and able to respond vigorously to customer and project challenges.
Failure to recognise the critical importance of this independent minded culture of Balfour Beatty is what has led to its current crisis. This can be seen through how they have executed their strategy over the last decade, in at least two clear examples.
The acquisition of numerous regional construction businesses in the UK (Birse, Cowlin, Dean & Dyball, Mansell…) built a UK-wide network of contracting capability for small/medium projects, yet Balfour Beatty’s empowerment model did not lend itself to getting an early grip of all these acquisitions.
While the core Balfour Beatty businesses have generally managed their projects well, this key governance skill was not transferred adequately to the acquired contractors. The result has been patchy profit performance: a failure of governance and strategy.
The acquisition of Parsons Brinkerhoff comes from a similar failure to grasp the impact of Balfour Beatty’s core culture on the strategy of integrated solutions. Integrated solutions in project delivery are a great idea, but all that glitters is not gold. To make such a sophisticated model of project leadership, finance, design, construction and services work over a £10bn turnover organisation, you have to be excellent at collaboration. But this runs in the opposite direction of Balfour Beatty’s core strength of independent-minded thinking and empowerment. No wonder that the board has got fed up waiting for the benefit of these integrated solutions – it could never happen without a fundamental change in corporate culture.
The way forward must be to get back to focusing on the core capabilities of engineering-led project management.
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The commentator says “…you have to be excellent at collaboration. But this runs in the opposite direction of Balfour Beatty’s core strength of independent-minded thinking and empowerment”.
Nail on head. To run the whole project in the best interest of the client, I believe an integrated team that collaborates is crucial. This is key to the fabled “win-win”, where the client gets a brilliant and low-cost job and the supply-chain make money. This is not cloud-cuckoo, its possible. However, so long as there exists an industry (not just BB) belief that it is each player for themselves, and target contract managers with making a profit in whatever way they want, then we will continue to lag behind other industries in efficiency and productivity.
BB was one of the first companies in the world to use one of the most successful developments in project management in the last 50 years (CCPM). [Ed Critical Chain Project Management]. Despite great success its use petered out as contract managers decided to do things their way, and directors either didn’t understand the potential or were too scared to enforce its use more widely. The method has proven success in almost all sectors globally..other than ours.
Maybe the problems BB are suffering with a symptomatic of the industry, not just localised problems?
Too many office based personnel based on site not knowing what is going on on site
Having been a part of both the Mansell and Balfour Beatty companies during the last 7 or so years, I have had first hand experience of the good and bad of these two companies. In my view Mansell was streets ahead of Balfour’s in processes, procedures and management. With the recent governance of Balfour being imposed on them in the last few years, so Mansell has been dragged down into poor processes and the good management of Mansell has been replaced by the lesser Balfour management. No empowerment existed in my management role, but rather we were overly controlled from above being prevented from carrying out our jobs to the extent and capability that we considered was appropriate. It was do the job with at least one if not two hands tied behind your back.
The senior management do not have any experience of running building sites. There are no builders at senior levels. It is sad to see the demise of such a good company.