An industry commentator shares his views on the underlying reasons behind Balfour Beatty’s shock announcements this week.
It’s a real shame to see the latest Balfour Beatty profit warning, with the consequent potential damage to the reputation of a great company leading to the departure of its chief executive, Andrew MacNaughton, and the announcement of the disposal of Parsons Brinkerhoff.
The CEO normally picks up the blame in these kinds of situations, but for the record let’s be clear: the sad tale that has been unravelling for a couple of years at Balfour Beatty is a fundamental failure of long-term strategy and governance, and both of these responsibilities sit squarely with the board as a whole – past and present.
Balfour Beatty is an excellent company with outstanding capabilities in engineering and project management which has enabled it to undertake extremely challenging projects. This great strength has been delivered through a culture of empowerment to sites and business units, making their management teams both independent-minded and able to respond vigorously to customer and project challenges.
Failure to recognise the critical importance of this independent minded culture of Balfour Beatty is what has led to its current crisis. This can be seen through how they have executed their strategy over the last decade, in at least two clear examples.
The acquisition of numerous regional construction businesses in the UK (Birse, Cowlin, Dean & Dyball, Mansell…) built a UK-wide network of contracting capability for small/medium projects, yet Balfour Beatty’s empowerment model did not lend itself to getting an early grip of all these acquisitions.
While the core Balfour Beatty businesses have generally managed their projects well, this key governance skill was not transferred adequately to the acquired contractors. The result has been patchy profit performance: a failure of governance and strategy.
The acquisition of Parsons Brinkerhoff comes from a similar failure to grasp the impact of Balfour Beatty’s core culture on the strategy of integrated solutions. Integrated solutions in project delivery are a great idea, but all that glitters is not gold. To make such a sophisticated model of project leadership, finance, design, construction and services work over a £10bn turnover organisation, you have to be excellent at collaboration. But this runs in the opposite direction of Balfour Beatty’s core strength of independent-minded thinking and empowerment. No wonder that the board has got fed up waiting for the benefit of these integrated solutions – it could never happen without a fundamental change in corporate culture.
The way forward must be to get back to focusing on the core capabilities of engineering-led project management.
