Business Essays - Industry Construction Change

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Industry Construction Change

3.1 Introduction

The impact of Latham’s report on the construction industry was epic. Although the response was slow, all knew too well that Latham was right. Sir John Egan’s reports, ‘Rethinking Construction’ (1998) and ‘Accelerating Change’ (2002) both built on the Latham report, further strengthening Latham’s objectives and adding additional momentum to the drive of change within the construction industry. The following chapter examines Egan’s literature in the context of summarising the reports whilst focusing on strategic partnering and supply chain implementation.

3.2 Rethinking Construction

There is no doubt that the UK construction industry is one of the best with its ability to deliver difficult, complex and innovative projects. However Egan points out that as a whole the UK construction industry is under achieving with losses in profitability and very little investment in capital, research, development and training.

Egan strongly argues that where you have a unique industry like construction which produces an output of 10% of the national GDP (£58 billion in 1998) and employs around 1.4 million, it is far too important to allow the industry to stagnate.

Egan on behalf of the task force concludes that radical changes are required and introduces five key drivers of change which then become a set agenda for the construction industry at large. The five key drivers being;

  • Committed leadership
  • Focus on the customer
  • Integrated processes and teams
  • Quality driven agenda
  • Commitment to people

Along with these five key drivers Egan highlights the need to introduce ambitious targets along with effective measurements of performance which are essential for delivering improvement. The use of the collected performance data should be used to display the findings to the clients highlighting progress and success as well as addressing areas which do not comply with the suggested targets.

One of the keys targets Egan suggests is the annual reduction of 10% in construction costs and construction time along defects being reduced by 20% per annum.

Egan and the task force agree that in the current climate of the construction industry, achieving the set targets will be impossible. Radical changes to the processes in which projects are won and delivered need to take place. Egan suggests that the reformed processes should be explicit and transparent to the users in the industry and the client to create a trusting environment and places the reports focus on creating an integrated project process within the industry. The four key elements of this integrated project process are;

  • Project development
  • Project implementation
  • Partnering and the supply chain
  • Production of components

The report then focuses on vital changes in culture and structure that are required if the industry is to achieve its full potential the report suggests that the industry must provide decent and safe working conditions and improve management and supervisory skills at all levels, reducing accidents and near misses.

The idea behind these changes is not only to implement safe working practices in the construction industry but to bring it in line with the manufacturing industry where possible by encouraging designers to design projects for the ease of construction, maximising the use of standard components and processes.

Egan also recommends that the industry should replace competitive tendering with long term relationships where possible, at all levels. The base of these long term relationships should be by clear measurement of performance and sustained improvements in quality and efficiency. With long term relationships in place, suppliers and subcontractors would be able to tender lower as they would be guaranteed work throughout the duration of the project providing they perform to the standards required.

As performance is measured, subcontractors and suppliers are encouraged to work efficiently as possible to the highest standards providing the best quality and commitment.

3.3 Egan’s Observation on Partnering and Integration

Egan’s opening question on partnering and integration, ‘can construction learn from the success of manufacturing and service industry?’ is one that has been the source of many controversial debates. Numerous scholars, researchers and academics have argued that based on theoretical principles the similarities are blatant. More importantly there is a vast amount the construction industry can learn from the manufacturing industry.

The manufacturing industry has seen dramatic improvements in productivity and quality, while reducing cost and lead times. The construction industry has not seen such positive results. Improvement opportunities are in demand. However, both of these industries involve the management of complex operations and strive to deliver a quality product in the shortest feasible time possible.

Moreover, in each of these industries it is important to save money and stay competitive. Egan (1998) strongly urges the construction industry to re-engineer itself learning as much as possible from those who have done it elsewhere.

However there is a selection of contractors within the industry who strongly reject the idea and voice their concerns to stop the construction industry being compared to the manufacturing industry, especially the automotive industry as there are numerous references to companies such as Toyota and Nissan. (Egan, 1998)

Researchers like Womack and Jones (1990, 1996) draw strong comparisons between the automotive industry and the construction industry prior to Egan. Womack and Jones (1990, 1996) argue that if the automotive industry is looked at from a historical point of view, direct comparison can made with the construction industry.

Before the introduction of the robotic infrastructure which leads to mass production of vehicles, the automation industry required a large number of skilled and unskilled employees employed as a craft based work force producing bespoke products which were site specific. With regards to design and specifications of vehicles, these were merely guides, similar to performances briefs used in construction today.

Rowlinson and McDermott’s (1999) sum up this debate perfectly by stating that where mass production is concerned, there are elements of the automation industry that can be directly compared to with construction. For example house building, where repetitive processes take place as if a production line is in place. The smooth running of the process is down to the operational team onsite. If efficient enough, a production line track scenario can be created. For general construction, one off and bespoke projects the principles are still identical to the automotive industry.

However, rather then viewing this from a production line point of view, a more appropriate comparison is when a manufacturer designs a new vehicle and witnesses its journey from the designer’s paper to a complete unit for the production line ready to be mass produced. Rowlinson and McDermott’s (1999) state construction projects take the same journey where a project starts off as a sketch on an architects drawing, initiated by a client, all the necessary components are added to get the design to operational stage, the project is then constructed just as a prototype of the new vehicle would. If there was need to mass produce the same building, all the infrastructure would be in place to follow.

In his report Egan (1998) agrees with the research above. Following the Task Forces’ visit to Nissan UK, Egan highlights similar comparisons in his report. The report suggests that there are significant inefficiencies in the construction industry which can be resolved by implementing a more systematised and integrated project process in which waste in all its forms is significantly reduced and both quality and efficiency improved. Similar approaches were adopted in the manufacturing industries many decades ago by organisations like Toyota, Honda and Nissan.

Egan and Task force believe that by implementing an integrated project process, the construction team would be utilised to its full potential, bringing the skills of all participants to focus on delivering the value to the client. The key fundamental objective of this process is to be as transparent as possible so that all participants are constantly aware and reminded of the goals. This would then steer the industry away from the fragmented structure reducing the confrontational and contractual culture.

Egan (1998), believes that by taking on board the integrated project process, the construction industry can deliver the needs of the end user through the end product by focusing on the construction process. Taking Latham’s points on board Egan clearly points out that the integrated project process is not merely a case of bring the designer and contractor on board at an early stage but full utilisation of integrated project process which is subdivided into the 4 points below.

  • Product development
  • Project implementation
  • Partnering the supply chain
  • Production of components

These four points are defined by Egan as interlocking elements of the integrated project process that will increase efficiency and performance of the industry, providing a service to the level that is required. However, the core objective is for designers, constructors and suppliers to work together thought a series of projects, continuously developing the product and the supply chain. It is vital for all components and participants of the integrated project process to be familiar of each other, acknowledging one another’s strengths and weaknesses, to form one unit.

According to Egan, the supply chain and partnering is critical in driving innovation and to sustaining incremental and sustained improvements in performance. Partnering can be seen as the mortar between the four fundamental blocks of the integrated project process. Partnering itself although generates potential savings; Egan does acknowledge however partnering is far from being an easy option for contractors and suppliers to take. When the cultural differences between traditional methods and partnering are considered and the potential time required to establish relationships is taken on board Egan states that partnering can be more demanding the conventional tendering due to

  • Requiring recognition between interdependence between clients and contractors
  • Forming open relationships
  • Introducing effective measurements of performance
  • Maintaining on going commitment to improvement

Even though the above points can be perceived as reason why not to implement the integrated project process Egan places great emphasis on the creation of long term relationships and alliances throughout the supply chain in a bid to form mutual interests, trust, objectives and goals. Once the relationships have been formed, the integrated project process would improve procedures rapidly.

As many major and experienced clients have already adopted partnering to achieve the necessary levels of performance, partnering alliances in this context are as flamboyant forms of cooperation and continuity of work. The learning process is to apply the cooperation improvements experienced and distribute them throughout the strategic, tactical and operational levels of the team. Teams that do not focus on these improvements remain part of the problem within the industry rather then the solution.

There is no doubt that Egan’s influences are predominantly of eastern origin. After World War 2, the Japanese, determined to re-build their economy adopted a series of ‘lean’ processes that allowed them to compete on a huge international scale with global leaders such as the United States in consumer electronics and the automotive industry. It’s these ‘lean’ processes that have astonished researchers and academics like Egan and the Task Force which includes a top executive from Nissan to implement these practices in the UK. With the similarities clearly identified between the manufacturing industry and the construction industry, Egan, alongside other researchers is correct in suggesting that the implementation of these processes will benefit the UK construction industry.

3.4 Accelerating Change

Since Latham’s ‘Constructing the Team’ (1994) and Egan’s ‘Rethinking Construction’ (1998), partnering has made great strides in recent years. Due to its nature, the fastest growth has come from housing associations and social housing projects within local authorities along with other parts of the public sector. The response from private commercial clients has been less encouraging.

Some organisations have lead the way in best practice by adopting the principles and procedures highlighted in the reports and are reaping the benefits. Others have preferred traditional procurement routes, as many clients still do not understand that fiercely competitive tenders and accepting the lowest bid do not guarantee value for money in construction.

In consultation with the wider public and for the benefit of those who follow the latter, the Strategic Forum for Construction has produced the report 'Accelerating Change'.

Accelerating Change focuses on the three improvement agendas of client leadership, integrated supply teams and people issues to deliver widespread improvement to existing construction processes. Each one of these targets is strategically linked to the other and the therefore making it impossible for to be gained at the expense of the other.

Accelerating Change is the most important report to have come out of Rethinking Construction and the Strategic Forum for Construction since the publication of the Egan report in 1998. The aim of Accelerating Change is to present the construction industry and its clients with strategic targets to deliver the improvements described in Egan’s 1998 report “Rethinking Construction”.

  • By end of 2004 20% of construction projects by value should be undertaken by integrated teams and supply chains; and , 20% of client activity by value should embrace the principles of the clients’ charter – by the end of 2007, these figures should be 50%
  • Reverse the long term decline in the industry’s ability to attract and retain a quality workforce; to implement strategies which will enable the industry to recruit and retain 300,000 qualified people by the end of 2006
  • Means of measuring targets via survey – to include public and private sector clients, contractors, consultants, and suppliers

These strategic targets are underpinned by a series of more detailed actions and recommendations.

3.5 Client Leadership

The client should be identified as the main driver of the whole project, more like a pivotal cog that starts and controls the process. Many large clients have in-house teams and processes which ensure they enter the construction process with a clear understanding of their business needs along with their environmental and social responsibilities. However, as the report clearly identifies, one off or very occasional clients this is usually not the case.

The Strategic Forum suggest that clients, specifically small and occasional clients, should have access to relevant simple guidance on practical steps to take when considering involvement in a construction project. Data collected from experienced clients has been transformed into a step by step generic map to aid inexperienced clients achieve their goals.

Research indicates that although all steps are important, clients who do not focus on the first two steps in detail, very rarely reach their business solution. The forum also advises of achieving maximum integration of the team at the optimal time in order to male the best use of all available expertise which would then allow delivery if the best whole life performance and maximising the value from construction. Clients should require the use of integrated teams and long term supply chains to actively participate in their project from the earliest point possible.

Research carried out by the forum state that 40% of all construction orders come from public sector clients. With such a large share of the industry, the public sector can make a substantial difference to the widespread adoption of Egan’s report. It is imperative that best value and whole life performance is achieved by construction if it is to demonstrate spending the taxpayer’s money effectively and efficiently. The forum clearly sets out its criteria to aid the public sector monitor this with tools like

  • Financial and auditing regimes designed to support best practice
  • Implementing and displaying on long term cost savings
  • Avoid shirt term capital savings
  • Implementing sustainable construction

3.6 Integrated Supply Chain and Teams

The forum believe that there are a number of benefits for implementing the use of integrated supply teams, those being; increasing quality, increasing productivity, reducing project times, increasing cash flow, increasing efficiency and reducing risk. Supply chain and team integration can only provide best value to clients if implemented in the initial stages of the project and throughout project delivery.

With the integration of planning, design, construction installation, product and material selection, and facilities management, a substantial reduction is construction costs is achievable. The forum states that at present moment (2002), the number of projects delivered using integrated supply chains and teams is less then 10%. This is a far cry from the targets set by the Strategic Forum of 20% of projects implementing supply chains and teams the end of 2004.

The construction industry is prone to a considerable amount of waste as a result of poor planning and poor logistics. Supply chain management can be defined as the process by which one optimises the flow of goods and materials from supplier to the point of use and logistics is the process is the process used to manage the flow of goods and material, equipment, services and people through the supply chain.

Rowlinson and McDermott (1999) state that supply chain management is the strategic management of procurement and materials through an organisation to reduce costs and maximise profitability. This view is shared by many throughout the industry. A combined effort is required by designers, planners, constructors and suppliers to evaluate the supply chain logistics and how they can be used to facilitate the construction programme.

Supply chain management concentrates attention across all functions that are needed to facilitate a smooth flow of goods through the organisation whilst accumulating value with each functional to produce the end product. (Rowlinson and McDermott, 1999) The main point the forum is trying to make is that adding value is the main function of integration and supply chains to that common objectives, processes, cultures, values, rewards and risks can be shared.

For new members to become part of a well oiled supply chain system, they must posses established integrated supply chain to further support the team adding value my distributing their own expertise to offer further solutions for the client.

Bennett and Peace (2006) ties up strategic partnering with supply chain by stating that strategic partnering delivers improved performance by integrating activities traditionally kept separate. The integration phase aims to blur boundaries between the operations of partners as activities are integrated into efficient delivery systems.

Design, planning, construction and completion are treated as one system in a continuing drive to eliminate waste and inefficiency. Supply chains that feed into this system are designed to reduce the number of chains in the process making the process streamlined and more efficient. It is very important to the process as research highlights that the most significant improvements in performance come from working with firms that form a supply chain.

From another perspective construction academics feel that much of the published literature on supply chain management only seems relevant from a manufacturing point of view and less comfortable when related to a typical construction project coalition (Pryke and Pearson, 2007).

Researchers argue that certain aspect of construction trades can fit in the manufacturing category, for example, the installation of mechanical and electrical services, fenestration and some cladding components. However, site craft works which involves the delivery of raw materials to the site for processing by operatives prior to installation, like carpentry and other wet trades such a plastering can be summarised by the diagram below.

The diagram can also be used as a valuable tool in order to allow for lead in periods depending on the number of processes required for each category if given a time period. This information proves vital when procurement is taking place and can also demonstrate the effectiveness of the supply chain.

People Issues

In order to facilitate ideas like partnering, integrations, supply chains, logistics etc, the construction industry is in need of an immediate recruitment surge. The Strategic Forum set a target of recruiting and retaining 300,000 employees by 2006. In order to achieve this target, the industry must go through a phase of a strict marketing regime based on accurate facts and selling the future of the industry.

The forum acknowledges and accepts that the economic situation in the last decade has not been a positive aid as boom and bust cycles have denied the industry to train and provide long terms careers for its workforce. The fact remains that the industry employees an aging work force with very few trainees to replace them with.

The forum highlights a series of initiatives and structures to turn matters around and achieve the targets set by focusing on the following points;

  • Image of the industry
  • Respect for employees
  • Reviewing Health and Safety
  • Reviewing site conditions
  • Reviewing pay and conditions
  • Investing in people
  • Training
  • Education
  • Management and supervision
  • Identifying roles.

3.7 Lean construction – The Bridge between Construction and Manufacturing

The concept of lean thinking, as with most innovative initiatives originates from Japan. It was widely used in the Japanese automotive industry and marketed by Toyota on an international scale. It was bought to the attention of the construction industry by Egan in his ‘Rethinking Construction’ report in 1998.

In simplistic terms it involves stripping down every process and procedure down to its core elements that add value to the client, and regarding any others as waste that can be progressively eliminated. This procedure of stripping down is carried out through the whole value stream from all organisations involved including those in the supply chain, production and logistics.

To be totally effective and efficient it requires new relationships between supply chain members and new ways of working. This can prove to be a difficult process to begin with as the supply chain is designed to be efficient as possible, however by streamlining the already efficient supply chain can prove to be beneficial. Typically this involves CAD, standardised products, computer modelling of components as well as off site fabrication.

In the interest of this thesis it is necessary to comment on lean construction as it is a by product of supply chain, strategic partnering and integrating teams. It is recommended by Latham and Egan as well as the NAO in the document ‘Modernising Construction’. In 2003 the Department for Trade and Industry launched the Construction Lean Improvement Programme (CLIP) to implement lean construction on a national scale promoting the concept as well as running workshops for organisations demonstrating its benefits. (

I believe it is important to highlight in brief the introduction of lean construction in this thesis however to discuss this in depth is beyond my scope as this deviates from my objectives and would require research to be carried out from a different perspective.