Hungry Gustav - Life Nonpareil

Construction - aberrant effervescence II.

OK, can anyone tell me what on earth is wrong with the UK house-building industry? 1 million empty homes and counting, a stockpile of 1.2 billion bricks, enough to build 133,000 three bedroom properties (according to Times Online), house prices in a free fall, thousands of cloned 2-bedroom apartments and huge social housing waiting lists. That is either a perfect storm or someone has simply missed the point in the business model.

It should be quite simple. You produce something if you can sell it, right? So why then would one build thousands of identical 2-bedroom flats? Because of a high demand? What demand? You mean people that were buying flats like doughnuts without even ever seeing them? Come on, we check due dates on packaging like crazy and keep throwing away food on the expiry day, and you’re talking about 99p bananas!

So excuse me but there is something terribly, terribly wrong with the house-building business model and it’s about time someone starts doing something with one or two empty homes and extra bricks.

Jim O'Neill backs socialism?

Now if that is not hilarious! I’m just reading the BBC Business Editor Robert Peston’s expose on the current economic turmoil. I simply cannot believe my eyes! Peston reports that Jim O’Neill, the Chief Global Economist of Goldman Sachs is on the road to socialism:

“You know the world has changed when Jim O'Neill, the chief global economist of Goldman Sachs - the investment bank that defined the culture of bonus-driven, globalised financial capitalism - grumps on the Today Programme that our government probably needs to create a state bank that will provide the vital credit that our commercial banks cannot provide.”

He then goes on with:

“So Goldman Sachs votes for socialist, state-directed lending. The symbolic power of this thought is mind-numbing, for those of us who immersed ourselves in the liberalised, winner-takes-all financial markets of the past 25 years.”

Ha, after decades of fierce battling between Yugoslav socialism and western capitalism (note my intentional shun from Soviet-style pretence) we’re back again! Music to my ears and I can tell you that because I lived in a country where state-directed lending was a norm and I can tell you it works. Why has Yugoslavia collapsed then, you might wonder? Don’t be fooled, not because of our supposedly false economic policy. As a small country it simply couldn’t win the battle against the greed spurred by the credit-driven giants in Europe, North America and elsewhere, that’s why. At the time I thought, that’s it, it’s over – for ever.

Was I wrong or what? I don’t know really, but if they’ve learned anything from the Yugoslav example and are planning to get us somewhere close to where we once in the golden times were then I can tell you we’re in for a much better life after this crisis. For instance, what’s wrong with a state-directed consumer lending on top of liberal commercial banking that serve the business? I think the idea is marvellous as it makes sure people do not get in debt too much because in a state-directed bank there is a limit on how much an individual can borrow. Wait a minute, is that not something we all once had, and not only in socialist Yugoslavia?

Winner-takes-all market? Winner-takes-all??? Come on Robert, if these people were winners they wouldn't end up so miserably, in masses. During those times everyone in the City was making money and those were far from winner-takes-all market conditions. Getting a bonus regardless whether you’re good or not is also not a winner-takes-all condition. You want to name winners? Sorry, cannot say anything yet but we’ll discuss this again after the crisis.

Construction, this frightening word

Our Thursday lunch time seminars are a bit of a devil. They cut your day in a half and they are always short of a good discussion but they serve the purpose. You want to know what is going on in the school, you need to be there. So I do attend most of the times and very often the ideas just pour from my head by just sitting and listening there for half an hour or so. So, yes, they are cool.

Last Thursday was particularly interesting. One of our PhD students was presenting ideas for his future work and managed to achieve something that doesn’t really happen very often. We ended up discussing the word construction. It wasn’t direct but it soon became clear that construction doesn’t hit the same button with everyone. So what is construction then? Is construction an industry or industrial sector? One can claim that construction comprises a number of morphologically different industries (e.g. housing, commercial, off-site, R&M, etc.). That’s fine by me though it seems we lack an appropriate classification beyond SIC codes.

You see, even after more or less 10 years since my arrival to Britain as a young PhD student I am still waiting for the answers to these seemingly silly questions. I wonder, is it because it is so clear to everyone or is it because nobody really knows?

Firms that survive the bust

It’s been two months now since I went to a drinks reception at exquisite premises of one of UK’s leading construction management consultants and the words from many attendees still resonate in my ears.  “Construction may be in dire straits here but the Middle East and many other booming places of the world are unlikely to be ever affected.” Yeah, right!

For a long time now I’ve been convinced the bust of the next 10 years will eventually reach every corner of our tiny planet, every industrial sector and basically change the way we do things in general. The latest report from Dubai published this week by the Building Magazine makes the point. Even the Middle East construction boom is brought to a halt now. By the end of 2009 all geographical regions in the world will be badly hit by the current crisis and no matter what governments do or say, one cannot get rid of the fact that the economy of the past few decades has been largely fuelled by easy credit. The inflated economic balloon made of thin air will have to be deflated, period.

But life goes on and a substantial part of the real economy will survive because we simply need them. The same applies to construction as it does to any other industry. The question is who will be the survivor, the winner? Well, it is pretty evident, really.  Executives who will need least time to realise that what worked in the past will not work in the future are most likely to be leading their companies through the turmoil with just a few bruises. Why? Because the coming years will not be about taking a higher or lower position on the league table but purely about survival. So what do these enlightened executives stand for then?

Instead of meddling with various financial models they will need to look closer at their own organisations and make them more efficient. Surviving firms will enable their employees to be more innovative, from the bottom to the top of their organisational hierarchy that is. And more than anything else I’m talking about organisational development and innovation here. I am talking about firms with ruthlessly efficient yet funky teams of highly motivated and ambitious individuals. Executives of such firms will breathe the awareness that the only way forward is to continuously improve every aspect of their organisations. They will also realise that the continuous improvement needs to come free willingly and from every individual. To achieve such high levels they will have to create a culture with innovation and not productivity as the key buzz word stretching deep down to the bottom of the supply chain.

I am a strong believer in a complete package construction. Firms that will be able to deliver most of the things themselves with short strongly bonded supply chains are in my opinion the firms of the future. The key to survival will thus be the ability to attract motivated top performing and highly skilled individuals and most profoundly, the survival will depend on the ability to keep such individuals. Now, this is far away from the current practice and the main reason for making the current economic turmoil so painful. To survive, firms will simply have to rethink everything they do. Who knows, perhaps in my lifetime construction professionals will even start reading scientific journals to find new and better solutions.

After all the history tells us that human mind learns much better from troubles than success. All this sounds notoriously old fashioned and incredibly utopic at the same time but no one can deny that we are currently witnessing epic shifts in our global economy so whether one believes me or not things are going to change, big time.