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The covid-19 crisis is highlighting the health hazards of the industry’s failed business model, says Hedley Smyth
Pictures of tube carriages packed with construction workers after the UK Prime Minister’s covid-19 lockdown announcement illustrate vividly the incredible precarity of staff in our industry – now at risk on the way to work as well as at work.
But these images also provide evidence of a failed business model. The contractor’s business model has been underpinned by low expenditure and minimal investment for decades. Rather than return on capital investment (ROI), firms have relied on return on capital employed (ROCE) using trade credit, delayed payments to suppliers and subcontractors, cash flow management and investing surplus working capital.
There’s admittedly less scope to use such tactics now: profit margins have fallen steadily since the 1960s, shored up by overseas earnings and selective acquisitions, among other reasons.
Yet the collapse of Carillion and now the pandemic of Covid-19 successively expose the raw edges of the contractor business model in new, ever more palpable ways.
The business model must change – urgently.
Clients, including government, frequently connive with the bad practices of the sector and it has to stop. Virtually all aspects of construction have been reformed apart from management, which largely remains unchanged since the modern contractor emerged in the Second World War.
Meanwhile, the industry’s intransigence to change has some wider social implications.
Health and safety
Fundamental action is needed in offices and on sites to address health and safety failings: long and demanding hours to meet deadlines are underpinned by long commutes or working away from home; intense site working for self-employed and agency staff put people at risk; responsibility is inexorably pushed along supply chains to the self-employed construction worker.
Witness the danger construction workers were put into as covid-19 worsened – compounding their already vulnerable employment status as low-paid workers, on insecure contracts, working long hours, under stress and physical fatigue.
Over recent years, safety statistics have plateaued in developed countries, the UK included, and yes, you guessed it – the main hindrance seems to be organisational behaviours associated with the main contractor business model. The headline failure here is the focus on compliance: health and safety is driven by legal compliance rather than care for the workforce. Contractors tend to implement detailed prescriptive measures top-down, and in a ‘one size fits all’ way – but this approach is now out-dated.
Outside construction, companies have strategic templates for international operations – they develop customised and contextualised health and safety plans, focusing on employee and workforce care, rather than compliance – and we should learn from them.
Drawing on black box thinking from aviation, current research, funded by UK Research and Innovation through the Transforming Construction Network Plus, is bringing technology, in particular digitisation, organisational systems and behaviour together to change the construction business model. The aim is to join up existing technologies, such as Fitbits, tablets, or even CCTV and drones, to triangulate real-time data.
Combining data-heavy but intuition-light safety management systems with highly-personal and rich knowledge management systems, could help share and integrate safety learning in construction, so improving safety and ultimately productivity.
Organisational behaviour change
Anyone who knows their UK construction history will recall successive government reports criticising performance. Of course, there are multiple reasons for failure, but the poor management of firms is often overlooked. Now is the time for the C-suite to shift from ROCE towards ROI. Investing in people, especially organisational systems, is key, and educating clients and investors should be a top priority.
Social or human capital appreciates with use. It is a “no brainer” for incremental investment, to integrate across silos, with better programme management within and between projects. Remember that insights tend to transfer from person to person, and not by firms rolling out fully-baked innovations onto subsequent projects. Making workers safer might even mean making industry more innovative perhaps?
In a post covid-19 economy, society needs a healthy and innovative construction sector. H&S is key to our industry’s recovery, so let’s reconsider the business model and put construction into intensive care. We might even achieve a reasonable rate of return along the way.
Hedley Smyth is professor of project enterprises at the Bartlett School of Construction and Project Management, UCL. Other contributors to the article were: Dr Meri Duryan. lecturer in enterprise management, Aeli Roberts, professorial teaching fellow, and Jean Xu, lecturer in enterprise management, also from the Bartlett School.
