Company restructures: Wake up and shake up

First Balfour Beatty, now, this week, ISG and Morgan Sindall. News of restructures at the UK’s biggest contractors is, after what seemed like a lull, now emerging with the fresh regularity of an Andy Murray victory.

The current round, however, is about more than the brutal cost cutting that has characterised the sector over the past three years. Of course, there is no doubt that the moves are driven by the continuing need to push down overheads in a tough market - all three firms have said they are aiming to create more “efficient” companies, and ISG in particular, which reported a 70% drop in profit this week, is feeling the brunt of the downturn.

The hit to staff numbers has differed wildly between these three firms, with Balfour Beatty expecting to lose 650 staff and Morgan Sindall a handful. But the key point is that the three companies are noticeably all making changes that significantly alter, rather than merely reduce, their operational structures. The kind of restructuring they are undergoing demonstrates that the drive for efficiency needs to go much further than cutting staff numbers from around the edges of existing business models. The hard reality hitting contractors is that, even though they account for a huge proportion of the 200,000 workers lost from construction in the past two years, their sector is still too big - not just for the work available, but for the new, modernised ways of working being increasingly demanded by clients.

The drive for efficiency needs to go much further than cutting staff numbers from around the edges of existing business models

The fact that Balfour Beatty, with a steady construction margin of around 2% and the sector’s biggest turnover, is among the first to restructure strongly suggests that the need to evolve is being driven by more than simply the pressure to stave off short-term financial strife. And it is likely that over the coming months, more of the sector’s biggest names will follow its approach, as companies start to look at how they can best position themselves for the quickest possible recovery when work does start picking up. And that means offering slicker, more efficient delivery, servicing clients faster and being able to turn a profit on the reduced sums these clients are prepared to pay.

Carrying out a fundamental restructure in a downturn is not, of course, an easy thing to do - ISG has spent £3m on the changes it detailed this week. But as more companies start to reposition themselves, the pressure on competitors to do so will only increase. And while that will present many firms with a headache they probably would not have chosen, for the contracting sector as a whole it should be a positive step forward.

For far too long, leading clients - and the government in particular - have been able to criticise large swathes of the contracting sector for not offering the solutions that they need, and in turn firms have been frustrated by major contracts going to the same select few companies. If the industry can shake itself up, clients will have no choice but to re-evaluate their own supply chains - creating fresh opportunity in the future for those who are willing to adapt now.

Sarah Richardson, editor