Balfour Beatty made a loss of £150m in the first half of 2015 but here is what chief executive Leo Quinn and his team are doing about it, in an attempt to turn the business around.
Leo Quinn joined Balfour Beatty in January from defence research firm QinetiQ with a reputation as a turnaround specialist.
He launched his transformation programme, which he called Build to Last, in February. The strategy is to drive continuous measurable improvement against four goals: Lean, Expert, Trusted and Safe to address performance as it affects all stakeholders.
The first 24-month self-help phase is expected to restore Balfour Beatty to industry-standard performance and profitable growth.
Six months down the line, here is the progress that the company now reports against each of these goals.
Strengthening operational execution, raising productivity, leaning out the organisation and optimising the supply chain. The group metric is cash and EBIT – in the first phase, delivering £200m of cash in and £100m of cost out by end 2016.
Actions to achieve £100m of cost cutting by the end of 2016 are under way. Actions executed in the first half of 2015 are expected to deliver annualised savings of £25m, with the first full year of benefit being in 2016.
Stronger discipline around cash and working capital has led to an improvement in the cash position in the first half, with net cash at £260m. Enhanced financial processes, employee training and engagement on the issue and better contract discipline have all contributed to this outcome and emphasise the potential for the business to respond positively to the Build to Last programme. Many of the management and staff performance incentives have been aligned to the cash performance.
Progress has been made to streamline the back office. New management is in place for Finance, IT, Health and Safety, Legal, Communications and Investor Relations, Risk & Assurance and Procurement across the organisation. Costs have been reduced where services had previously been duplicated in more than one business unit.
A legacy of the rapid growth of Balfour Beatty by acquisitions over the last 10 years has been multiple IT platforms. These are now being rationalised. The hardware implementation is now 95% complete with the removal of the legacy email platforms to be completed by September. In the medium to long-term this should lead to a lower IT cost and better productivity.
There is a new approach to procurement across the group with disciplined use of preferred suppliers.
Balfour Beatty will attract, retain and develop key employees and subcontractors in an increasingly competitive environment, by investing in training and talent to enhance the engineering, design, project management and delivery capability. The group metric is the annual employee engagement survey and employee retention.
The board has a new chairman, group CEO and CFO as well as two new non-executive directors.
Executive management has been reformed and upgraded. Two-thirds of the executive leadership team are either new to the company or newly promoted to their post.
The organisational structure for the UK strategic business units has been simplified. The UK Regional and Engineering Services business has a new managing director who, along with the managing director of Major Projects, now reports directly to the CEO. The Support Services management layer has been disbanded and the managing directors are now reporting directly to the CEO.
A major training initiative, ‘Cash is our Compass’, was mandated early in the Build to Last programme. This programme is credited with contributing to the better than expected net cash position at the half year. It is also said to provide some evidence that the business is capable and willing to adapt to the changes that are necessary.
‘My Contribution’ was launched across Balfour Beatty in the UK and US in June as a ‘suggestion box’ type of initiative that encourages all employees to contribute to Build to Last. It enables and encourages employees to propose and track ideas beneficial to the business. In the first two months, 643 ideas were submitted, including ways to improve and digitise processes, smarter working, reducing waste and improving safety.
Business development teams are receiving specialist training to build a culture based on selling value rather than price and to improve negotiation skills. The introduction of a group-wide sales leadership forum has instilled short interval controls with consistent customer relationship management (CRM) sales pipeline weekly reviews, underpinned by Communities of Practice (Bids & Proposals, Key Account Management, Customer Satisfaction).
A UK-wide leadership forum has been established for project management, including introduction of the COMPASS competency and assessment tool to embed consistent delivery processes and practices. This is expected to drive greater project transparency, better planning and improved risk management.
A new CEO awards scheme has been introduced to align incentives of selected key staff who do not qualify for share-based bonuses.
Delivering on business promises through strengthening the successful execution of projects and services through disciplined stage-gated bidding, contracting and risk review processes underpinned by robust financial systems and processes. The group metric is customer satisfaction.
The stable order book indicates customer satisfaction with the fundamental strengths that underpin the business. More standardised customer satisfaction measures are to be introduced across the business during the second half of 2015.
In the first six months of the programme, progress has been made to refine, rebuild and implement changes to the business contracting, project control and financial reporting disciplines to maximise competitive advantage that Balfour Beatty can realise as a result of the specialist expertise in the business.
A business lifecycle process, comprising of eight stage gates, is being embedded across the UK, US, Middle East and Asian businesses to drive governance and control during both the sale and delivery lifecycle phases. Starting with an analysis of whether an opportunity is one which it is appropriate and potentially profitable for Balfour Beatty to pursue, the approach ensures rigour and control is applied at every stage to minimise the risks of further low-quality business.
All significant bids are formally reviewed by a panel of senior management for approval before a bid may be submitted. Lower value bids are also required to be subject to the formalised process and appropriate rigour based on the size and complexity of the project, providing enhanced oversight throughout the business.
New, uniform reporting dashboards have been introduced across the business to provide clear, regular reporting to senior management on a consistent basis allowing straightforward comparisons on key data points.
The finance organisation has been realigned to report directly through to the CFO. Standardised financial processes and reporting processes are being established to drive transparency, simplification and control. An important part of the investment in standardising processes has been an assessment of the UK Oracle R12 roll out. At the start of the year management decided to de-risk the programme by focusing resource on delivering the upgraded system into the UK Regional construction and Major Projects businesses where the most benefit would be gained. The system goes live in August and an assessment of further roll outs across the remaining businesses in the UK will be made post implementation.
Balfour Beatty now has a group commercial director, whose focus is to improve commercial processes and upgrade capability. New controls are being introduced, skills gaps identified and underperformers sacked.
Nothing is more important. If Balfour Beatty is not safe, it is not in business. Safety is a non-negotiable licence to operate – at all levels and for all employees, subcontractors, customers and communities. The group metric is Zero Harm.
A safety and sustainability committee has been established by the board and in the UK the health & safety function has been unified with a focus on delivering best and improving practice in all activities. Whilst the lost time injury rate (LTIR) metric is showing early signs of improvement, the board recognises that there is more to be done to achieve the objective of Zero Harm.