Laing Construction and Mowlem are just two of the industry’s big names that have swallowed their contracting pride and welcomed in a couple of the big five consultancy firms to kick-start their businesses.
Laing’s radical restructuring announced two weeks ago is the result of a four-month review of its business by KPMG. The consultants were brought in last May after the firm lost £31m on its Cardiff Millennium Stadium. And, in the next few weeks, Mowlem is expected to release the results of a strategic review managed by the blue-chip consultant McKinsey.
The headlines from Laing’s shake-up were 850 job losses and a new focus on higher-margin work. Mowlem, on the other hand, is gearing up for a big push into growing markets, such as the water industry. One conclusion reached by the review is that it will offer to outsource and manage water companies’ piping networks.
What is remarkable, says Ian Grice, managing director of Alfred McAlpine’s civil engineering division and an ex-Mowlem man, is that 10 years ago neither Laing nor Mowlem would have entertained using management consultants on a major review. Now it seems that everyone is at it. In July, contractor Birse appointed former management guru Peter Watson as chief executive in a bid to turn around the group’s fortunes. He is busy re-engineering the company and announcements are expected soon.
So, construction has got the consultants in. But why is it happening now? And what are the advantages and pitfalls of using them? Andrew Campbell, director of Ashridge Strategic Management Centre, says that radical changes over the past five years have put pressure on companies to refocus on their core businesses. He cites Tarmac, whose materials arm split from contracting this summer; and Wimpey, which became a pure housebuilder in 1996, as prime examples.
Pressure has also come from the Egan and Latham reports, both of which highlighted a need to improve supply-chain arrangements and overhaul adversarial cultures. Then there has been increasing pressure from the City for companies to win work that will give them a steady stream of profit. The likes of Balfour Beatty, Carillion, Jarvis and now Laing have turned to private finance initiative and/or maintenance-style work in a bid to avoid the vicissitudes of the traditional construction cycle.
But there is a difference between saying it and doing it. One former consultant who is still close to the construction industry says: “The macho, aggressive nature of many construction managers means that they think of PFI as just another contract rather than a culture shift. This is where they need help.”
He continues: “While they are financially competent, construction managers are pretty hopeless at spotting new opportunities and understanding customer focus.”
Consultants have a tendency to talk a lot of new-age American management hogwash
But perhaps the area in which the industry needs a helping hand most is in learning lessons from other industries – one of Sir John Egan’s hobby horses. One consultant says that construction has been hamstrung in this sense. “It is a very closed industry and not many people move in and out. The downside of this is a lack of skills and capability when it comes to change.”
Jim Armstrong, chair of Laing’s construction division, admits as much: “Many construction companies suffer from a lack of fresh ideas from other industries. And there are times when you need a fresh insight from someone outside the company who hasn’t grown up with it man and boy.”
What are the benefits? Well, consultants tend to be bright people who are prepared to work long hours, even by construction’s standards. Their lack of political interest in the company hierarchy allows them to be brutally honest where necessary. “You are less likely to tell a chief executive his strategy is hopeless if you are looking for a promotion,” says one consultant.
Another advantage is that they can talk to all parts of the business, from customers to suppliers, shop floor to managing director. Not many people have time for that in their daily jobs.
What is the downside? Unfortunately, all that time costs money. “They are bloody expensive,” complains McAlpine’s Grice, who used a small consultancy firm on his Genesis project, which aimed to build up the “people” skills of his staff. And with most contracting margins as low as they are, £100 000 to employ a marketing consultant could take quite a bite out of profit.
Then there is the language problem. “As well as being vastly overpaid, consultants have a tendency to talk a lot of new-age American management hogwash,” says one City analyst. This can lead to strife when consultants are let loose on a company. John Sharples, executive director of Carillion, says: “There are occasions where you can look at your guys being lectured to and you can see their eyes roll as they hear about yet another ‘paradigm shift’.”
Sharples’ solution is to employ consultants on small projects. He is currently using a firm to help draw up a staff reward strategy. He says: “Asking consultants to come in and re-engineer your procurement is too wide an issue. They spend a lot of time gathering data and engaging your people ad nauseam. You need to choose the right consultant for the right issue.”
Other observers are more sceptical. Mike Betts, analyst at JP Morgan, says: “They could be a lot of use – if the companies actually listened to what they said. You wonder whether the major contractors should send their own guys to business school.”
Why management consultants are successful
- They put a lot of effort into their bids For short-term projects, consultants are often appointed on an informal basis. But for major projects, they tend to be asked to join an expensive beauty parade. Andrew Campbell, director of Ashridge Strategic Management Centre, says: “If a firm bids for £1m of work, they would easily spend £120 000 pitching for the job and working out solutions to the client’s problem.” Bidding costs can be as high as 20% of the total project worth.
- They know how to charm As one consultant points out: “Every consultant worth his salt learns a few war stories about the client’s industry to wow them in the pub in the evening. You don’t need to know the industry well but you do need to talk the lingo.”
- They don’t take the credit –or the flak “Consultants want two things – they want the money, and they want to be able to go back to the chief executive in two years’ time and ask for a reference,” says one consultant. “Management has to take ownership of the strategy. The downside of this is that they are also responsible if the strategy fails. So the consultants get off the hook and the managers have angry shareholders to deal with.”