Report reveals 43% of construction firms prioritise immediate financial goals over organisational resilience

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In wake of the Carillion collapse, a report published by Constructing Excellence has revealed that almost half (43%) of construction firms prioritise immediate financial goals over organisational resilience

The organisational resilience of the UK construction industry: Are we built on a house of cards? report published by Constructing Excellence reveals the key obstacles to embrace organisational resilience, identified among the 100 senior business managers and executives within UK Construction Organisations surveyed:

  • Immediate financial goals are more urgent – 43%
  • Inadequate budget – 27%
  • Lack of skills or knowledge related to ensuring resilience/business continuity – 27%
  • Insufficient senior management focus on resilience – 19%
  • Opaque operations or practices, making the effects of organisational actions towards increased resilience unclear – 14%
  • 29% stated they didn’t see any obstacles.

The report’s purpose – to provide an overview of how resilient the industry is in relation to a range of internal and external factors – explores the role of organisational resilience in enabling construction companies to adapt to changing conditions. It addresses the evidence of failure, posits why they fail, considers the issues, areas of risk, and proposes how to build resilience and the benefits therein of doing so for the individual companies and the sector as a whole.

Don Ward, CEO of the report’s publishers, Constructing Excellence, said: “The collapse of Carillion has kick-started a wide-ranging debate about the causes, including how underlying business models need to change. The report asks whether the industry is built on a house of cards, which it surely is, and the call to action for companies to assess their ability to respond to incremental changes and sudden external disruptions and to act on these findings is therefore extremely timely.”

The report, written by Project Five Consulting, has identified the construction industry as a key enabling sector for the wider UK economy. However, it has a higher rate of failure than the average across all industry sectors. This fragility is underpinned by structural issues that characterise the weaknesses in the industry. These are borne out by the recent collapse into liquidation of the country’s second-largest construction company, Carillion.

There are also economic, political and market uncertainties facing the sector alongside the disruptive forces of technology and increased regulation. Based on the findings, the report has identified a range of priority actions to help the industry understand and embrace approaches to organisational resilience. These include strategic actions to address the structural issues and weaknesses identified: low levels of profitability; a fragmented supply chain; adversarial client/contractor/sub-contractor relationships; skills weaknesses; low digital maturity; low productivity.

The construction industry’s lack of resilience has been evidenced. The most recent figures from the Insolvency Service (which has taken over the collection of data from the Office for National Statistics) on the total new company insolvencies in England and Wales for the year ending Q3 2016, show that there were more insolvencies in construction than in any other sector. The total was nearly 2,500.

The construction industry’s failings matter because it is one of the largest sectors – with a turnover of £370bn, contributing £138bn in value added to the UK economy and employing 3.1 million people (9% of the total UK workforce).

The organisational resilience of the UK construction industry: Are we built on a house of cards? survey provided a snapshot of some of the key risks against which organisations need to build resilience:

  • Disruptive competitors in the market – 42%
  • Macroeconomic uncertainty/events – 32%
  • Political instability/civil unrest – 28%
  • Reputational risk (e.g. on-site accidents, non-compliance) – 27%
  • Threats to information security – 23%
  • Corruption/bribery – 19%
  • Environmental changes/natural disasters – 17%
  • Increased incidence of terrorist attacks and other crime – 11%.

The report’s priorities and recommendations include:

  • Further research into the resilience of the industry and the characteristics which appear to make it more vulnerable to shocks and the reasons why the failure rate is higher than other industries.
  • Learning the lessons that will emerge from the collapse of Carillion and the impacts on the industry as a whole.
  • Develop a more robust evidence base of the benefits to the industry of embracing approaches to organisational resilience to address concerns over the required investment.
  • Develop industry-specific approaches which enable construction companies to identify and understand the external influences that threaten the sector.
  • Develop approaches to support leaders in construction to up-skill them and enable them to provide the strategic leadership required to drive organisational resilience, including the abilities to identify the sudden shocks and incremental changes.
  • Develop industry-specific approaches to enable construction businesses to build resilience into their business plans and their business processes in line with the BSI’s model and BS 65000.
  • Identify the key knowledge gaps and the skills needed in relation to organisational resilience to develop a roadmap to address these shortfalls.
  • Leadership from government to continue to place the strategic priorities for industry improvement in the context of the resilience of the industry, including skills and training, digitisation, procurement approaches, pipeline visibility and approaches to collaborative working led by clients.

Tim Whitehill, Managing Director of the report’s authors, Project Five Consulting, concluded: “A resilient industry is good for clients, for the workforce, for communities and for the economy. Organisational resilience is a real opportunity to enable the industry to weather the storm, grasp opportunities as they arise and put itself onto a firm footing for the future.”

The report can be downloaded at: http://www.projectfiveconsulting.co.uk/organisational-resilience-notification/

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