A new sense of purpose: why clients must now reshape their operating models
As we pass the half-way point of 2020, client organisations across all sectors and global regions are urgently trying to predict the future to help them re-shape their business. Having seen a titanic effort to understand and manage the immediate crisis, the emphasis now is on the shape of the recovery and what the long-term impact of the pandemic will be to the different industry sectors.
Put another way, most organisations have a good handle on their plans to manage the ongoing disruption through 2020. But how are clients preparing to re-create long term sustainable businesses in a world that is changing, and what do they hope to achieve in the future?
These aspirations can go in one of a few directions. Some clients are purely just looking at how quickly they can get back to ‘normal’ and how the rolling long term impacts of the pandemic will affect that. For many of these businesses, their business model has seen a limited impact, but their ability to execute it has been impeded through social distancing or other similar restrictions.
Tackling this requires planning for a range of scenarios: depending on the prolongation of the COVID-19 crisis, we face the very real prospect of a sustained collapse in productivity, as industries grapple with social distancing, disrupted supply chains and consequential cost inflation.
As if this doesn’t sound challenging enough, others are eagerly discussing the opportunity to use the crisis to reset their business model and consequently their operating model, either borne out of necessity or as a means for being “fitter for the future”. For some in this last group, the future is almost arriving too fast: they are running out of time before some form of normal begins again. This means still undertaking the same scenario planning, while also accelerating an ambitious review of their future business and operating model.
The need to change
For asset-focused clients, this drive for reflection and change comes as little surprise. There is widespread recognition that performance across capital programmes in construction has not been as effective as other industries. Our research on the performance of major infrastructure in 2018 – Enhanced Performance – saw 76 percent of our respondents call out capital delivery models as no longer being fit for purpose. The same number felt that improving productivity and efficiency was the biggest obstacle for clients.
COVID-19 brings these inefficiencies into sharp focus not just for capital programmes in construction, but enterprises of all sectors, shapes and sizes. Organisational performance is coming under scrutiny like never before, for reasons including reduced capital spend, investment criteria changes, new operating models, the emerge of super roles and the never ending programme.
Reduced capital spend
In common with all recessionary environments, we are set to see reduced capital spend in most businesses. Organisations are identifying which investment programmes still have a sound business case and which could be put on hold. For those construction programmes still going ahead, we will see a much greater focus on return on investment.
However, many of the fundamental business models themselves have now been impacted by the crisis. So, this isn’t just about reducing the capital spend and weeding out the low return projects. Businesses are now recognising that their capital delivery needs to go much further otherwise many of their value-add schemes will be unaffordable for the future, ultimately creating a downward spiral for their business.
Their big question, therefore, is: “How can I enable rapid cost take-out from my business, without jeopardising its long term future and growth?”
Investment criteria changes
At the same time, the investment criteria are also changing to take into account more complex outcomes than just cost. Social capital – how we support our communities through and beyond the pandemic – and environmental concerns will continue to raise the agenda. An airport is a great example of leading this thinking, where it has moved away from just building a new runway – beholden to its shareholders’ benefit – to a construction programme focused around the country as a whole, that looks at what an expansion programme can mean for everyone, and how it can be best built with minimal impact and maximum benefit to the local community.
This, in turn, will contribute to a trend we discussed in 2018 – the importance of a whole life vision for investment. At a time when we have so little visibility over the shape of the next 12-14 months, long-term capital and asset performance shifts into much greater focus for what needs to be built, but also how it is then built.
Establishing a new operating model
As always, managing these challenges relies on the strength of the enterprise model within an organisation. The adaptability and quick decision-making required to navigate this environment only comes where organisations have their operational, asset and capital investment teams working seamlessly together to a defined, common outcome.
This brings us back to the question of a reset and understanding what kind of organisation clients now need to become. Are they operating businesses – principally focused on delivering a service? Or an asset business, where operations serve to maintain the value of an underlying piece of infrastructure? Or, finally, are they a capital investment business – making interventions and improvements to that infrastructure to drive longer-term competitive advantage and growth?
The answer comes down to an organisation’s purpose and how it seeks to create value.
In any client, all three of these functions are essential, but one will always outweigh the others and take dominance when it comes to future planning, financing and investment decisions. So, it is essential to be clear about what the client needs to be and build up the operating model around this purpose, balancing together with the service strategy, ways of working, people and supply chain.
A good example is a rail network – is the priority on operations to keep the trains running on time, or to increase long-term capacity? This creates a different focus for the client in terms of how it chooses to develop its short and long term asset strategy, but also how it focuses the priority of its capital build performance versus its impact to daily operations.
The emergence of super roles
COVID-19 is forcing businesses to take these long held back strategic decisions and in many cases redefine their business model and priorities. Making these shifts however fundamentally changes how the business operates both within functions but also between functions as the various business lifecycle models fundamentally change.
To enable this shift to be carried out successfully not only requires a systematic approach under a redefined operating model, but also relies on greater alignment between business functions, ensuring everyone understands the new model and the part they now play. In too many organisations, operations, asset and capital functions are not aligned through a single strategic plan and operating methodology, usually operating in a siloed approach – reporting upwards in three distinct business streams to a CEO.
The obvious problem becomes the huge gap between what happens in the second tiers of these hierarchies, compared with the top.
Therefore, we need to see the creation of super-roles – positions and mentalities that seek to constantly build integrated bridges between these functions to make sure that the purpose and strategy of an organisation are culturally ingrained at all levels of an organisation, not just in the boardroom. The reason why most businesses do not create these super-roles is because they think they need superheroes to operate them. But with well-formed operating models, this super-role can be performed by good business leaders already available in the market.
Quite quickly, bridging gaps across the operational, asset and capital functions can build much greater visibility and control over the short and long-term business performance and opportunities. This enables the more complex corporate goals around social and sustainable growth during changing markets to become more achievable. The reward is an enterprise that is more focused, more agile and more able to identify risks and opportunities created through an uncertain market.
The never-ending programme
This process and its benefits are not new and are well-known to those working in the business world: a culturally embedded focus on purpose and strategy; clear lines of accountability and controls spanning across executive functional areas; exceptional visibility on resource and the supply chain and an ability to benchmark, measure and evaluate performance.
The difference is to take these skills and apply them in the capital build environment, linking them into the broader operational and asset environment to create a single system of working.
The unprecedented disruption caused by COVID-19 brings this last point into sharp focus. Making predictions for 2021 is hugely challenging. What we do know, however, is that it will be much harder for those businesses who have not created a more resilient business and operating model – or who have not challenged how they need to operate and make themselves fitter for the future, regardless of what lays before them.
Please visit our COVID-19 response page for all of our resources relating to the impact of COVID-19 on the construction sector.