The industry’s quest for higher margins and a step change in productivity will only be met by adopting the customer focus of the High Street, Costain’s chief executive Andrew Wyllie told Talk Construction delegates yesterday.
Wyllie said that Costain’s recent success story was based on giving clients what they didn’t know they wanted – just as Apple has in consumer electronics – and offering repeat clients an “upgrade” every year.
He said: “Our industry has a massive opportunity to offer customers what they want to pay for, and adding new attributes to the product – that’s what customers buy [as retail consumers and construction clients].
“We don’t want to do what 10 other people can do, because that means we’ve only got a one in 10 chance of winning the project.”
Costain had also moved away from selling construction as a “commodity” – because that depresses prices and margins – and towards offering a premium product, said Wyllie. His analogy was TV sets sold by John Lewis, ranging from a £149 low-margin commodity product to a £1,700 fully internet-enabled set.
Andrew Wyllie: “Industry has a massive opportunity”
Wyllie said Costain was now an “engineering services provider” selling solutions to the utility and transport sectors. It only worked with 40-50 clients, compared to 200 in the recent past, allowing managers to develop relationships with them.
Costain’s order book rose by 25% in 2013, and last week its share price reached a four-year high, attracting more investment into the business.
Wyllie’s address responded to the underlying agenda at Talk Consruction: how to deliver a transformation in productivity and a step change in margins that also gives the industry a chance of meeting the objectives of the Industrial Strategy for Construction 2025. See our related story here.
Opening speaker Paul Drechsler, outgoing chief executive of Wates, set the scene by challenging the industry on its low margin levels.
“How does 1-2% net margins reflect the value contribution of an industry project manager? Ultimately, the profit margin of a business… is a measure of the value placed on your service by the market… That 1-2% average also means many projects have failed to perform and resulted in over-expenditure.”
"Common to all three reports is the need for more collaboration, culture and operation changes, and a focus on the customer. But few industries can have had so much written about them with so little progress to report."
Paul Drechsler
Drechsler reminded delegates of the small mountain of reports produced on the need for more collaboration and supply chain integration in the industry, recently including Andrew Wolstenholme’s Never Waste a Good Crisis, the Government Construction Strategy 2011 and the Industrial Strategy 2013.
“Common to all three is the need for more collaboration, culture and operation changes, and a focus on the customer. But few industries can have had so much written about them with so little progress to report.”
But Drechsler also emphasised that the objectives set by the Industrial Strategy – 33% reduction in capital and whole life costs compared to 2009/10, 50% faster delivery from project inception to completion and a 50% increase in exports – were not the responsibility of contractors alone.
“We talk about the construction industry as though it’s about contractors – but they’re not the totality of making inroads into 2025, we have to do quality collaboration to deliver great solutions. But there just isn’t an acceptance that it requires that level of change, and that the change required is right across the value chain.”
In response to a question from Reading University’s Professor Will Hughes, Drechsler noted: “We have become too comfortable with the established models, even if we’re dissatisfied with them.”
