From March issue NZ Manufacturer magazine            www.nzmanufacturer.co.nz

NZ Manufacturer March 25 by Media Hawkes Bay Limited – Issuu

 

Ian Walsh, Partner, Argon & Co NZ

I was reminded last week of the level of complexity and difficulty to solve our productivity crisis. It’s clear to me that we have a multi-speed economy, with certain sectors having made great progress over the last 10 years with others still on the starting blocks.

The dairy sector has been developing and implementing best practices, training leaders, building capability and employing appropriate technology for over 25 years.

Fonterra has lead the charge and most other dairy companies have followed this lead, by developing and employing solutions to improve productivity, reduce waste, improve yield and reduce costs.

It has led to fantastic outcomes, with the most recent payout reflecting both the great work on the farm and the much improved off-the-farm processing capability. It would be untenable to consider competing globally with the capability the sector had in 1999.

The payout would have been significantly lower and dare I say many processors would have been seriously impacted. This is, of course, not to say the job is finished, because it isn’t, but the direction of travel for the sector looks good.

In contrast, the global construction sector has seen little-to-no productivity growth over the last 50 years, and in New Zealand it’s no different. There is a unified view that productivity needs to improve, however little or no concerted action has been taken to adopt best practices.

The tales of late delivery, cost overruns and underperformance on completion are now so common that these outcomes are expected. Indeed 94% of construction projects don’t achieve cost, time or quality objectives.

When a job is costed at $2 billion, it’s no longer a surprise when it ends up costing $6 billion or more!

There are some examples of progress, but in a recent focus group of 20 construction companies, 4 were implementing some practices, 2 were performing well and 2 were just starting.

This is representative of my experience over the last 10 years with 10% or less making significant progress.

This is concerning when we consider that over the next 10 years there are many upcoming and ongoing projects of national significance to improve NZ’s infrastructure.

These projects are to enable our exporters better access to markets, and reduce costs associated with our congested or unreliable road networks. We’re also looking for foreign direct investment to help us fund this, but in order to execute these projects we will be relying on our most underperforming sector, in terms of productivity.

The underperformance we’ve become used to is not the expectation everywhere however.

For example, Highways England deployed Lean as a key strategy over 15 years ago, and now have billions of dollars of savings documented in their roading developments. They are measured on reducing their costs to deliver more, given the savings they generate.

The UK government drives this and the tier one suppliers now all have best practice programs to deliver the outcomes expected.

It was clear that the dairy sector in the 1990s was going through aggregation; the mega merger was on the horizon and the leaders were willing to embrace and lead change to drive competitive advantage and shareholder returns.

We have seen the same change in the technology sector, where competitive pressure has driven rapid adoption of best practice for over 40 years, and of course the automotive sector, with the Toyota journey being well documented since the 1960s.

The construction sector has not had the same pressure applied, with risk being passed through layers of bureaucracy, and traditional procurement practices building contingencies and passing risk resulting in higher costs.

This is as opposed to value-based pricing, and incentives to collaborate and share risk to reduce costs and improve outcomes.

There are great overseas examples of where this has been applied and with significantly improved outcomes.

The reality is only the government has enough buying power to drive a change in traditional practices. Given that this money is coming from the pockets of taxpayers, and the aforementioned potential foreign investment, we should surely be looking to achieve a significant improvement in our construction sector so that these stakeholders get the best returns.

We need to go into these construction projects with an approach that leaves us not just with the infrastructure, but also with minimised debt, and increased performance capabilities that we can take into future projects, so we can undertake future projects with confidence and certainty.

Surely, we should learn from our own local experience, the global learning and require our leading organisations (this includes government) to adopt these proven practices to drive better outcomes for all New Zealanders?