An Open Letter To Leadership In The Capital Projects Industry
Last fall, as Fluor stock prices started on a precipitous decline, former Chairman and CEO David Seaton held a call with analysts. He said the company’s financial problems could be traced to two troubled projects, one in Florida, the other in Europe. The teams on those projects “did not follow the rules,” he said. He had tried to change out management on the flagging projects, but failed.
Seaton told the analysts he was frustrated and that the company “had done a lot of soul searching.” Then came his explanation, reported by only a handful of news outlets, buried deep in the middle of the story: With respect to the Florida project, Seaton said it was “taking us double the hours to do the work that it is taking us in Virginia to do the same thing.”
Double the hours.
This would be an astonishing admission from any businessperson, but it is especially startling coming from the leadership of the world’s largest, oldest and most powerful EPC companies. No business can operate sustainably when labor costs inexplicably double between or among projects, not even a Forbes 500 multinational with over $19 Billion in annual revenue. This throwaway sentence reveals something important: Predictability in project delivery cannot be ignored.
To be clear, I’m not picking on Fluor; I’m highlighting it here because the company’s story should be a warning to us all. Today, predictability simply isn’t on our collective agenda, and chaos in capital projects reigns. Most companies don’t view predictability as an absolute, but rather as a goal — a goal that they will try to meet if all the other criteria fall into place. For centuries, it seems that our industry has operated on the unspoken assumption that “in chaos lies profit.” It worked for a long time, when commodity prices were high and transparency minimal. This is no longer sustainable.
Today, investors demand more transparency than ever before. They fought for and won access to details of your environmental policies, and now they want more access to your execution information and how you are managing project risks. They want predictable forecasts rooted in solid data. They may want your work to be lump sum, because cost-reimbursable has become too expensive. As we move forward, predictability equals accountability.
Do you have projects on which labor costs have inexplicably doubled? Would you even know if you did?
Many of the organizations we work with have unwittingly encouraged chaos and complexity in their organizations while paying very little attention to coherent, principled and strategic thinking and execution. They use multiple contracting strategies and staffing methodologies, make business and project decisions in isolation or without relevant data, and buy new digital tools without understanding how (or if) they will work in their organizations. At any given time, they operate a constellation of improvement efforts, often without an overarching strategy or clear goal in mind.
This kind of chaos in capital projects may have worked in the past, but the future belongs to the predictable organizations that can deliver on-time and on-budget with fit-for-purpose initiatives. At some point in the near future, execution is going to be #1 in your risk profile, just as it is for Fluor.
What is the solution? As Albert Einstein said, we cannot solve our problems with the same thinking we used when we created them. At Concord®, we are focused on helping executives adopt Predictability Thinking™ and become more knowledgeable about the strategies that underpin project delivery, technology, management systems and change management.
For example, how will you select your next piece of technology? If you are like most industry leaders today, you did not grow up in a digital world, but you’re still charged with making decisions and allocating budgets. As a leader, you must work to develop a comprehensive understanding of emergent technologies and related variables — there’s no way around it.
Why? Because we’ve seen this very scene play out time and time again: The purchase is made, overhead goes up because of the multi-million dollar technology purchase, and indirect costs go up because the technology amplifies your inefficiencies instead of minimizing them. In a year or two years, you’ll be in crisis management mode.
Concord® doesn’t just come and sell you tools. Our Predictability Package™ helps you establish the guidelines and protocols that underpin a well-structured digital transformation, or lay the groundwork for the adoption of Advanced Work Packaging, or both. We help you position your company to intelligently navigate change. Only then will we discuss what tool is best for the job. We do something that nobody else does: We empower your teams to deliver predictable projects, from start to finish.
The takeaway here is that there is no substitute for executive leadership in this regard – you can’t fake your way into AWP, digital transformation and predictability. If you’re ready say goodbye to chaos in capital projects, get in touch and ask us about our executive coaching options.