{"id":486585,"date":"2023-10-04T09:50:06","date_gmt":"2023-10-04T08:50:06","guid":{"rendered":"https:\/\/www.constructionnews.co.uk\/?p=486585"},"modified":"2024-08-29T19:26:56","modified_gmt":"2024-08-29T18:26:56","slug":"leaning-in-wates-chief-executive-reveals-productivity-plans","status":"publish","type":"post","link":"https:\/\/www.constructionnews.co.uk\/sections\/long-reads\/interviews\/leaning-in-wates-chief-executive-reveals-productivity-plans-04-10-2023\/","title":{"rendered":"Leaning in: Wates’ chief executive reveals productivity plans"},"content":{"rendered":"

Avoiding conflict with the supply chain over cladding remediation, decarbonisation and implementing lean management sit at the top of the priority list for Wates\u2019 chief executive<\/b><\/span><\/em><\/p>\n

In 1994, Eoghan O\u2019Lionaird was posted to work in the US by the firm he’d joined four years earlier as a graduate trainee. He\u2019d just finished learning his trade as an electrical and instrumentation engineer in Tokyo for metal producer Mitsui Kinzoku. \u201cBy the time I finished with that company in Japan and moved with them to the States to head up an engineering team, I was a reasonably competent engineer,\u201d says O\u2019Lionaird. \u201cCertainly the only reasonably competent engineer who spoke Japanese and was Irish working in Indiana. I mean, I can be absolutely confident of that.\u201d<\/p>\n

Almost 30 years on, O\u2019Lionaird can look back at a career spanning a variety of senior roles at leading electrical engineering firms around the globe. The Wates role he took on in February this year, however, is his first experience of working within the UK contracting market. \u201cIt is a learning curve, of course,\u201d he says. \u201cBut the company is replete with experts in their own specific areas. I wasn\u2019t hired because I know anything about construction, per se.\u201d<\/span><\/p>\n

\u201cThe company is replete with experts in their own specific areas. I wasn\u2019t hired because I know anything about construction, per se\u201d<\/span><\/p><\/blockquote>\n

Of course, O\u2019Lionaird is not the first chief executive to be in this position \u2013 Leo Quinn hasn\u2019t done too badly after joining Balfour Beatty with a CV that is for the large part even further removed from the sector than O\u2019Lionaird\u2019s. And the Wates boss is clear what he brings to the top table. \u201cI have a few miles on the road when it comes to general management,\u201d he says. \u201cI\u2019ve been doing that for well north of 20 years now. I know something about growing businesses based on strategic differentiators. I know something about assembling teams and then aiming to motivate them to achieve whatever the agreed target is and then doing a little bit better each year.\u201d<\/p>\n

O\u2019Lionaird goes on to list another string to his bow that he hopes can help drive margins higher at the 10th-ranked firm in the CN100. \u201cEver since I started out in Japan, I have been a student of \u2018lean\u2019 [management],\u201d he says. This might send a chill down the spine of anyone bearing the scars of previous attempts to introduce the approach to the UK construction industry. But this, perhaps, is where O\u2019Lionaird\u2019s underexposure to the sector\u2019s inertia on productivity could prove advantageous. \u201cPeople have told me some people have tried \u2018lean\u2019. Well, I\u2019ve been practising it for 30 years, admittedly in other domains. In Japan I think we did know how to make processes efficient in engineering and construction.\u201d<\/span><\/p>\n

It is a subject that O\u2019Lionaird clearly feels passionate about. Even small tweaks to core processes \u201cwill yield huge dividends\u201d in terms of productivity, he says. \u201cWe can take the processes \u2013 whether they are in tendering, or in preconstruction, or in the various phases of construction itself \u2013 and we can iron the kinks out of those processes. This is not beyond the wit of man or woman. From what I\u2019ve seen so far and the analysis we\u2019ve done since I arrived, I\u2019m convinced that there is real benefit in doing that.\u201d<\/p>\n

Initially at least, O\u2019Lionaird says \u2018lean\u2019 methodology can help reduce delays in the construction process (\u201cthe greatest single killer of productivity in construction today\u201d) without huge investments in technology. \u201cWe may need to invest in capabilities. But we\u2019re not talking about thousands [of people]. We\u2019re talking about handfuls of experts in an organization of 4,000 \u2013 it\u2019s not a very significant investment, but it is one that we\u2019re making already.\u201d<\/span><\/p>\n

Supporting safety<\/span><\/h3>\n

For Wates, the productivity challenge became even more acute following the release of its 2022 results in March. In common with most firms in this year\u2019s CN100<\/a>, turnover rose in comparison with the previous year \u2013 by 17.4 per cent in Wates\u2019 case. But the firm\u2019s pre-tax profit barely twitched, leading to a tightening of margin from 2.05 to 1.76 per cent.<\/p>\n

One figure in particular jumps out \u2013 a \u00a372m provision (more than double the firm\u2019s \u00a331m profit) described in the accounts as \u201cpredominantly in respect of remediation works on construction projects\u201d. In other words, removing and replacing unsafe cladding on its buildings. \u201cI wouldn\u2019t care to be drawn on whether \u00a372m was the correct number scientifically or not, but we think it\u2019s directionally in the right spot,\u201d says O\u2019Lionaird. \u201cWe\u2019ve scanned, as best as our records would allow, everything we\u2019ve done. And we think we have a very good line of sight on where the issues are.\u201d<\/span><\/p>\n

\u201c<\/span>I know something about growing businesses based on strategic differentiators. I know something about assembling teams and then aiming to motivate them to achieve whatever the agreed target is and then doing a little bit better each year\u201d<\/span><\/span><\/p><\/blockquote>\n

However, unlike other contractors with large exposure to the cladding bane, most notably Willmott Dixon, Wates is not looking to recover costs from its suppliers through the courts. \u201cWe\u2019re not taking a position that we will aggressively go after our supply chain,\u201d O\u2019Lionaird says. \u201cWe\u2019re all in this together in my view. And we have received very good support from our supply chain and from our customers in trying to, in a collaborative way, address the issues that have been brought to our attention.\u201d<\/p>\n

On top of these legacy liabilities, the sector faces future costs from other building-safety measures introduced after the Grenfell tragedy. But Wates has \u201cno complaints\u201d about the tighter safety regime. \u201cFor issues driven by the BSA [Building Safety Act] moving forward, we\u2019re all committed to designing to the regulations of the day,\u201d O\u2019Lionaird says. \u201cAnd if they cost more, which thereby impacts negatively on viability, that\u2019s just the reality of the day. Eventually the market will right itself.\u201d<\/p>\n

In May, Wates paused work on a high-rise site being developed through a joint venture with the London Borough of Havering, over what the firm described as \u201ccontinued regulatory uncertainty\u201d over a proposed requirement for all high-rise residential buildings to have two staircases (at that point pencilled in for blocks over 30 metres high).<\/p>\n

O\u2019Lionaird welcomes housing secretary Michael Gove\u2019s July announcement that the threshold will be lowered to 18 metres. \u201cIt\u2019s good that we got the clarification \u2013 we\u2019d been waiting a while for it,\u201d he says. However, he adds that the move to 18 metres will force a fundamental redesign of many residential projects to hit the \u201ceconomic sweet spot\u201d for room sizes and the number of floors and rooms in residential developments. \u201cSome schemes will be viable,\u201d he says. \u201cAnd some schemes ultimately may not be, because their available plot size is fixed.\u201d<\/p>\n

However, he argues that changes to the regulations are only part of the story \u2013 the issue is exacerbated by inflation. \u201cIf the dual-staircase issue had not been there, some schemes would have been stopped because of inflation in any event,\u201d he says. \u201cWhen you have inflation running in strong double digits, in fact, running at 20 per cent at one point, it is inevitable that some of these schemes will have been challenged.<\/p>\n

Light is at the end of the tunnel, though, O\u2019Lionaird believes. \u201cAs the very big price increases come down to a manageable level and in aggregate the overall cost of building gets to a point where it\u2019s affordable again for the customers, I\u2019d expect in the next 12-24 months schemes like Havering will become viable again, and we\u2019ll all get back to something approximating normal service.\u201d<\/span><\/p>\n

Carbon cutting<\/span><\/h3>\n

Wates might be worse hit than some contractors by legacy building-safety requirements due to its exposure to local authority housing projects \u2013 one of its mainstay sectors for decades. But the company\u2019s complementary work on affordable-housing maintenance could put it in a good position to benefit from the growth sector of retrofitting homes to become more energy efficient. \u201cCertainly we have very good relations with councils \u2013 we maintain half a million homes across the country each year,\u201d O\u2019Lionaird says. \u201cAnd we have a very strong franchise in retrofitting aside from that.\u201d<\/p>\n

Decarbonisation sits right at the top of O\u2019Lionaird\u2019s stated agenda. And he has strong words for central government over funding for retrofitting. \u201cI would be happy to go on the record and say it is grossly underfunded,\u201d he says. \u201cThe \u00a36bn allocated for the work over three years [2025-2028] is nowhere near enough to meet the challenge. One of our team recently calculated that the quantum that needs to be spent is \u00a3250bn up to 2050.\u201d<\/span><\/p>\n

In another challenge to current government policy, the Wates boss calls for a mixture of tax and borrowing to fund retrofitting costs. \u201cI recognise that the government has many demands on its expenditure. And it\u2019s difficult to know where the money should come from. I personally believe that taxes can go up. I will be happy to pay more in tax \u2013 I think people who earn enough should pay more. And that will help. I also think the government could safely borrow money to decarbonise. There will be returns from that, in better health.\u201d<\/p>\n

A diverse portfolio<\/span><\/h3>\n

Ultimately, O\u2019Lionaird believes Wates is protected from some of the worst impacts of the macroeconomic climate by its diversified portfolio. For example, in the private residential sector, currently dampened by rising interest rates impacting demand for mortgages, Wates\u2019 development division is building 15,000 homes.<\/p>\n

\u201cThe scale is very different to a large housebuilder,\u201d O\u2019Lionaird says. \u201cThey build hundreds of thousands of homes, so the
\nexposure we have is much smaller. If we have a scheme in, let\u2019s say, Cardiff, where we have 300 houses that we need to sell, we know the market very well, we\u2019re very close to what\u2019s happening on the ground, and to move 300 houses as opposed to 300,000, I think makes the problem very, very different.\u201d<\/span><\/p>\n

In other sectors, Wates is developing the UK\u2019s first gigafactory in the North East for Japanese developer and manufacturer of high-performance batteries for electric vehicles AESC. \u201cThis is where we bring together what is already quite an established capability in Wates \u2013 engineering \u2013 alongside what I\u2019d regard as probably fairly competitive construction capability,\u201d O\u2019Lionaird says. \u201cIt\u2019s an unusual combination, and it\u2019s a great place to use it.\u201d<\/p>\n

Looking to the future, O\u2019Lionaird expects a continued pipeline of work in schools \u2013 both new-build and remediating buildings hit by historic issues with reinforced autoclaved aerated concrete. Other jobs are expected to come through the government\u2019s prisons programme, on which it is already collaborating with competitors on a number of projects. \u201cThis is the way of the future, I would say,\u201d he says of the model. \u201cWe\u2019re very pleased and I believe our competitors\/collaborators are very pleased with the way the government has orchestrated that.\u201d<\/span><\/p>\n

Just three months after O\u2019Lionaird started in his role at Wates, chairmanship of the company passed from Sir James Wates to his cousin Tim Wates. Unsurprisingly, the new chief executive is positive about the relationship. \u201cIt\u2019s wonderful to have a chair who has been in the industry and in the company for 30-odd years, but also is new to the role and we\u2019re learning at our jobs together,\u201d he says.<\/p>\n

But isn\u2019t it odd to run a firm where half the board members are related to each other?<\/p>\n

\u201cNo,\u201d comes the emphatic answer. \u201cIt\u2019s different, certainly, when you have family shareholders on the board. It introduces a different dynamic, but the fact that they also own the company, they leave at the door. We work together as executives and non-executives without really anybody thinking, about the fact they are owners. This is a family-owned business, not a family-run business. And there\u2019s quite a distinction, I think.\u201d<\/span><\/p>\n

\n

Eioghan O’Lionaird CV<\/span><\/h3>\n
    \n
  • 1990:<\/strong> Graduates from the University of Cork with a BE in Electrical and Microelectronic Engineering<\/li>\n
  • 1994:<\/strong> Awarded an MEng in Control Engineering from the University of Limerick<\/li>\n
  • 1990:<\/strong> Joins Japanese metals supplier Mitsui Kinzoku as an electrical & instrumentation engineer, then works in management roles in the US
    \nand Thailand<\/li>\n
  • 1999:<\/strong> Gains an MBA in general management from the International Institute for Management Development<\/li>\n
  • 2000:<\/strong> Appointed general manager of imaging solutions at electronics giant Philips, going on to serve in a number of senior roles in Japan and the Netherlands<\/li>\n
  • 2011:<\/strong> Becomes president of the Leica Microsystems division of Danaher in Germany<\/li>\n
  • 2014:<\/strong> Joins instrumentation and software firm Spectris as business group director<\/li>\n
  • 2019:<\/strong> Leaves Spectris to take up the role of group chief executive at marine engineering firm James Fisher and Sons<\/li>\n
  • 2023:<\/strong> Replaces David Allen as chief executive of Wates Group<\/li>\n<\/ul>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

    Avoiding conflict with the supply chain over cladding remediation, decarbonisation and implementing lean management sit at the top of the priority list for Wates\u2019 chief executive In 1994, Eoghan O\u2019Lionaird was posted to work in the US by the firm he’d joined four years earlier as a graduate trainee. He\u2019d just finished learning his trade …<\/p>\n","protected":false},"author":129711,"featured_media":486601,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ep_exclude_from_search":false},"categories":[570,559],"tags":[],"yoast_head":"\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\t\n\t\n\t\n