What happens when a business consistently tells Wall Street it is going to construct a specific amount of capital improvements each year but consistently misses? And what happens when any type of owner organization must react quickly to changes in regulations by replacing a significant amount of its asset base but can’t?
Our firm, Continuum Advisory Group, recently conducted two owner studies—one in conjunction with the Construction Industry Institute (CII), and another with the Construction Users Roundtable (CURT)—that underscore the magnitude of what happens when an owner cannot effectively execute capital programs, especially in the face of ever-changing programmatic needs. These studies illustrate that corporate engineering and construction departments must evolve to become a vital participant in corporate strategy and planning and that outside engineering and construction companies must begin to view responding to owner scope changes as part of their ordinary services, instead of as disruptions and triggers of disputes.
For decades, corporations and government agencies viewed engineering and construction as a “necessary evil,” instead of integral to the core business. Engineering and construction departments flew under the radar, secure as long as nothing significantly bad happened, and were rarely held accountable for achieving leap-frog innovation.
That is no longer the case. One high-tech company has suggested that if it is unable to cut 30% of the cost and 50% of the time from capital construction, it will cease to exist. This will be achieved only if this company is successful in engaging design and construction partners in breakthrough innovation.
The CII study ranked 36 companies on a maturity scale that delineates the level of value and strategic thinking that engineering-construction-facilities departments provide to the internal business partners they serve. Many of the companies are clearly linking the successful execution of a capital program to key corporate metrics. One top manager, Ron May, executive vice president of DTE Energy, said his company “can link the execution of the capital program and its projects directly to return on investment and earnings, which correspondingly supports our growth plans. It is the way we ensure that our capital program is supporting the financial objectives of the enterprise.”
But many companies are not. The engineering and construction departments of these companies have not achieved a seat at the highest corporate strategic table and are not influencing capital asset decisions made at that highest level of the corporation. This is a problem.
And this is not just an “owner” problem: It is primarily an A/E/C problem. Who else will help an owner achieve breakthrough results related to schedule, cost, quality and safety? Who else will position these departments to be the heroes of their organizations, enabling speed to market, organizational nimbleness and corporate financial success related to share price and return on investment?
And it is not a problem that is going away. In the CURT study, over 78% of firms indicated that their operating environment has become more volatile over the past few years, and 86% believe it will become more volatile in the next few years. The CURT study identified that it is not enough to consistently deliver a given capital program. Agility in meeting the ever-changing needs of the corporation is a critical issue. Organizational agility involves the constant and strategic use of the prefix “re”: reviewing, redefining, reallocating, reassigning, redesigning, redeploying, renegotiating, revisioning.
How many times have you, a contractor or engineering firm, been frustrated by an owner’s changing needs? Have you lambasted them for changing the project scope? Perhaps you need to take the time to understand the business drivers of that change and how your firm can support the agility of the corporation. Perhaps you can place your company in the shoes of a corporation that is probably fighting to survive in a dog-eat-dog global economy, which requires nearly continuous changes in products, services, and technology. It might be worthwhile. Think of the value your company could add if it understood an owner’s business drivers.
Our industry must give serious thought to how we go beyond incremental improvement to push the boundaries of transformational change. This will happen only in the transparent, trusting atmosphere required to collaboratively build new solutions to the problems we face.