Realising the extraordinary: infrastructure leaders respond to uncertainty
Organisations globally are navigating a series of challenges and changes as they respond to the disruption of 2020. This is prompting a rethink in ways of investing, planning, developing and delivering infrastructure assets.
Through our work on major projects globally, we have engaged with senior leaders over the last ten months to understand how they are adapting their long-term strategies, changing their ways of working and getting closer to their people and the wider supply chain. It has enabled us to understand:
- Which areas of the industry are at the forefront of new ways of working?
- What changes organisations and project teams are considering that will have the biggest impact?
- How are organisations planning for change to stick in their business?
- How can new approaches overcome conventional barriers in the infrastructure sector?
Global infrastructure market trends
Our findings show that the need for modernisation has long been recognised by the industry, with change notably needed in these areas:
|Industry challenge||Understanding the challenge||Evidence|
|Offsite construction||Embracing modern methods of construction and enabling a culture of innovative challenge and thinking.||A seven percent net saving in project time could be achieved through greater use of prefabricated components, taking construction processes off site and into the factory.|
|Data||Gathering data to create an evidence base to inform more effective decision-making for project delivery and operation.||32 cities globally share data from their railway systems to inform industry-wide benchmarks.|
|Productivity||Driving and tracking greater productivity and automation.||Construction has only seen a one percent growth in labour productivity over past 20 years.|
|Digital||Embedding digital solutions and using big data to increase transparency, using real-time proactive decision making.||72 percent of construction firms worldwide consider digital transformation a key strategic priority.|
|Supply chain||Understanding and investing in the capability, resilience and alignment of the supply chain.||84 percent supplier criticality score for the construction sector, demonstrating very high dependence on suppliers.|
|Project outcomes||Looking beyond delivery to the full benefit over the asset’s life.||Typical asset management practices are estimated to save 15 to 30 percent in operational and capital expenditure.|
|Skills||Investing in the right skills, leadership and capacity needed to avoid a future ‘capability drain’.||Expected 20 to 25 percent decline in construction’s available labour force within a decade.|
|Sustainability||Supporting communities to enable social, economic and environmental value.||To meet the UN Sustainable Development Goals, global infrastructure investment needs to increase by $3.5 trillion by 2030.|
Changes are being realised in 2020 through four key areas:
1. Reacting to uncertainty
The disruption of the past ten months has enabled much-needed change. The need for modernisation at an industry-wide level translates to practical challenges daily for project teams. Like industry challenges – these have been prevalent for years.
In 2018, we asked industry leaders what the most significant barriers were to deliver successful projects. Their answers identified three key areas of concern, including meeting growing demand, adapting to change and increasing productivity and efficiency as per the chart below.
Our interviews in 2020 confirmed that these issues were still prevalent. They also demonstrated how organisations sought to respond and implement rapid change.
|Major projects and programmes||• Reviewing and restructuring works and teams: development of plans to optimise works and recover lost time. This was common in transport, power and defence sectors.
• Securing skills and capability for the long term: encouraging retired specialists to return to work in the rail and transport sectors.
|Asset owners and operators||• Rapid reprioritisation: adapting asset maintenance, working with suppliers to reprioritise works and reduce costs. Hibernating some projects in the aviation and rail sectors.
• Crisis teams and re-planning focus: creating dedicated COVID-19 teams to focus on cost and schedule impacts and re-planning critical path works to enable continued progress on critical projects.
|Investors and funders||• Resetting investment criteria: public and private investors adding greater rigour to business case requirements, with emphasis placed on sustainability, diversity and social value.
• Government stimulus packages: governments in the US, Australia, UK and other countries are stimulating long term economic growth by investing in infrastructure projects and pipelines.
|Supply chain||• Supporting suppliers: re-negotiation of payment terms and contract conditions, such as advance payments and more active payment cycles.
• Engaging regularly: direct discussions between clients and specialist contractors are helping to identify risks and safeguard staff.
2. Crisis management strategies
Our engagement also found that strategies evolved over the course of 2020. Effective crisis management strategies early in 2020 typically focused on:
- Supply chain support: infrastructure major projects that are heavily public sector funded were proactive in protecting their supply chain, recognising the importance of supporting and maintaining certainty. Organisations also sought to maintain a high level of pay and drive early payments to keep their supply chain liquid. Those with existing strong supply chain control were seen to take a commanding lead in proactively managing and communicating with suppliers.
- Scenario planning: key to prioritising and identifying where cost could be removed rapidly and understanding changes to project environments. Many organisations were able to achieve a mature level of scenario planning quickly, improving their ability to respond with an appropriate action plan.
- Site working and access: innovative thinking helped work to continue on site, maintaining productivity while maintaining social distancing. The flexible approach to skills and technologies that enabled work to carry on continues to be relevant to successful projects.
In planning for the medium to long-term, organisations and major projects teams are now focused on business-wide changes, people, processes and efficiencies:
- Revising the business operating model: major projects and portfolios have evolved in terms of both what their business case is, and how it needs to be delivered. Organisations are considering drastic changes to their operating model and organisational structure and are reviewing how work can flow more simply across their business in a more integrated way.
- Taking back control: it is important that the project requirement is clear and simple. This provides the foundation for a strong forecasting and control mechanism – with integrated cost and schedules – allowing a project to be better controlled through a changing environment.
- Driving a new contracting strategy: creating project contracting strategies that align with the business operating model. Recognition of the early input needed to secure supply chain buy-in for the strategy.
- Investing in digital and technological solutions: the pandemic has driven the adoption of digital solutions across working environments to integrate functions. On the construction site, smart technology is providing remote working solutions, helping to reduce on-site working without compromising productivity.
3. Sector approaches in 2021
The coronavirus pandemic has impacted infrastructure sectors differently. A key finding across our interviews was how rail, roads, utilities and defence are closely monitoring the aviation sector’s response.
|Aviation||• Operating model changes – business needs have fundamentally shifted; long term organisational design changes are being explored
• Development of new business models at an industry level in conjunction with airlines, investors and governments
• Integrated business functions stripped back to a base level, with the potential for greater outsourcing to manage peak workloads.
|Roads and rail||• Exploring efficiency and cost reduction measures as these organisations are predominantly publicly funded and government funding could be reduced in the future
• Investments and projects that support regulatory change and carbon net zero
• Preparing for new business case requirements and performance measures
• Faster project delivery with simpler governance.
|Defence||• Investing in technologies and capabilities
• Exploring efficiency, cost reduction measures and accelerating transformation as the defence sector pivots investment towards digital/cyber and space capabilities
• Partnering through commercial arrangements that incentivise an achievement of outcomes and objectives through the agreement of contingent fees.
|Utilities (including power and water)||• Building collaborative arrangements with supply chains to maintain security of materials, capability and supply to reduce ongoing disruption
• Investing in technologies and capabilities.
Business leaders have had to respond rapidly to global uncertainty, but their experiences have provided important lessons, helping them understand their new ‘optimal’ position for the future.
4. Building resilience in four ways
Our interviews identified four areas where leadership teams have adapted business approaches to be more flexible and resilient.
A. Ways of working
- Digitally enabled delivery with real-time integrated control is essential to help projects respond to future volatility
- When managing projects, processes are increasingly focusing on outcomes to enable flexibility and alignment to a common purpose
- Greater focus on staying ahead of the curve and pre-empting changes in markets
- Action-focussed scenario planning to support risks
- Organisations are integrating asset-related functions, seeking to remove siloed approaches and encouraging cross-function working and mindsets.
B. People trends
- A clear movement towards a stronger capability culture with a more ‘hands on’ client approach
- Reimagining how team structures can best operate to become more integrated, lighter and inclusive
- Better leadership which has the right depth and breadth, focused on creating a culture where everyone has clear responsibilities and a clear voice
- Energised and united teams who are now working in different locations, through a simple and accountable structure, linked to a clear operating model
C. Supply chain trends
- Greater recognition within projects on the lack of understanding of the wider supply chain, its fragility and the impact that disruption has on risk, cost and schedule
- Drive towards a much more integrated partnership approach with supply chain investment and outcome focused incentives
- Increased interaction between major and smaller contractors. Some organisations are considering carrying out the function of major tier one contractors themselves.
D. Strategy and performance trends
- Driving stronger integration between asset-related functions to allow a whole life perspective
- Audits of costs and primarily ‘conditions driven’ cost changes including re-financing, overhead reduction, reduced cost of build and re-planning of work
- Increased awareness of risks being taken on by organisations and as a result, business model changes and scenario planning to determine future strategies
- Greater focus on identifying or limiting supply chain risks, instead of focusing on smarter market engagement and proactive performance assurance.
To continue exploring the findings of our market engagement and research, look out for our upcoming insight papers:
- Fostering better ways of working in a project environment – December 2020
- Maximising the potential of people – January 2021
- Integrating with the supply chain – Q1 2021
- Creating strategies to achieve high performing projects – Q2 2021
- Connecting it all together, to realise the extraordinary – Q2 2021
We welcome your feedback, experiences and thoughts on how to ‘realise the extraordinary’. To contribute, please contact us: [email protected]