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Why, who, when and how?

Why, who, when and how?. An empirical view of the UK construction industry’s decision making process. Tony Williams Building Value Ltd the independent strategic advisor to the building materials, construction & support services sectors 11 June 2004.

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Why, who, when and how?

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  1. Why, who, when and how? An empirical view of the UK construction industry’s decision making process

  2. Tony WilliamsBuilding Value Ltdthe independent strategic advisor to the building materials, construction & support services sectors11 June 2004

  3. UK construction industry is the focus of the study • Number three market in Europe • Accounts for 8% of GDP (below average) • Largest single domestic industry • Some 1.5 million employees

  4. UK construction output 1955-2003(£billion at 2000 prices) Source: DTI

  5. UK construction - history • Sustained growth since 1994 • Relatively impervious to politics, aside from mid-1970s • Three major collapses in 1974-7; 1980-1; and 1991-3

  6. UK construct. output 1998 – 2006E Source: CFR, Spring 2004

  7. UK construction – the future • Average ‘3% plus’ real growth through 2006 • One of best major markets in Europe • Private Finance Initiative increasingly important • Repair, maintenance & improvement (RMI) averaging more than 48% of total

  8. Methodology • All UK publicly quoted companies on London Stock Exchange; the sector is world’s biggest 65 companies and £52 billion of value • 35 large privately owned businesses; many large • Wrote to the CEO with confidentiality assured • 46 multi-choice questions and one written answer with expected completion time of five minutes • Supplied SAE, promised to send results and donate £1 per questionnaire to industry charity (CITY)

  9. Excellent response to 100 questionnaires

  10. Those who volunteered identity, others guessed plus anonymous

  11. Questionnaire idiosyncrasies • 90% of respondents used ticks in the question boxes; with 5% each employing crosses or slashes • Two thirds used black pen, 30% blue and 3% red • The PA of one CEO called, emailed and wrote to say he didn’t have time to fill it in; another declined my invitation to the conference • 5% eschewed the SAE and one send it back empty • 40% of companies identified themselves

  12. Type of business

  13. Length of time in business

  14. Number of countries in which each company operates

  15. “Those who run international businesses do so because they like to travel. Very few construction companies make more from overseas operations than at home; so why do they stay there? UK contractor, 2004

  16. Distribution of employees % in each band

  17. Revenue share by number and value

  18. Are you a public company?

  19. Number of Executive Directors

  20. Number of Non Executive Directors

  21. Executive Chairman & Chair/CEO?

  22. Managing director & COO?

  23. Is your CFO an accountant?

  24. Human Resources Director? Is he/she on Main Board?

  25. Subsidiary or regional boards? & are these Directors on the Main Board?

  26. Frequency of Main Board; incidence of Executive Committees? (% replies)

  27. Who takes the majority of major decisions (% of replies)?

  28. “A poorly controlled area at large corporate level is strategic decision making that doesn’t hold firm for the medium term. This means subsidiary managers never get to understand how they can be part of group-wide goals......

  29. “…The lack of political will ‘to stick to one’s knitting’, even if market conditions change, means that a lot of second tier decision making is in vain”UK construction CEO, 2004

  30. Capital raising in last 12 months and acquisition or divestment?

  31. How long did acquisition take?Did you use an external advisor?

  32. What level of capital spend is agreed by Main Board (% of replies)?

  33. How many budget rounds are there?

  34. How is budget accuracy?

  35. Do you employ Zero Budgeting?

  36. Do you have a pricing policy? Is it adhered to?

  37. Price vs Cost and Cash vs Profit

  38. Most important financial variable

  39. Frequency of cash flow monitoring

  40. Key financial performance measure?

  41. Use of EBITDA and ROIC

  42. Use of EVA?; and do managers know their Cost of Capital?

  43. Incidence of Risk Management & Strategic Planning

  44. Focus on total Return to Shareholders

  45. “What surprises me about construction is that decisions are taken without a proper review of the facts, particularly the risks, which many refuse to quantify by arguing that such issues are subjective or even emotive…

  46. “…Not pricing for a known exposure at the bidding stage is very blinkered indeed – to say the very least”Development company CEO, 2004

  47. “Risk is not related to size. You could just as easily lose £1 million on a £5 million job as one that is worth £50 million”Construction CEO, 2004

  48. Measurement of incentive earnings against range of targets

  49. In-house communications and/or investor relations person

  50. “Construction is a long term business and trying to make decisions to satisfy shareholders on a quarterly basis can be inconsistent with the strategic plan.......

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