By Ian Glendinning (Contact)
(Back to K-Blog) (Back to
WorkinProgress)
Supervised by
Prof Sandra Dawson
(Currently Director of the Judge Institute,
Management School at Cambridge University)
A
dissertation submitted in partial fulfillment of requirements for the
Master
of Business Administration Degree, and the
Diploma
of Imperial College
IMPERIAL COLLEGE OF SCIENCE, TECHNOLOGY AND
MEDICINE
University of London
(Now known as the
Tanaka Management School,
where my course tutor Prof Dorothy Griffiths
is
Deputy Director of the school.)
Dec
1991 - Submitted and awarded highest grade for MBA Project Dissertations that
year.
Jun 1992 - Figures updated to capture all late survey results, no text changes.
Apr 1994
- Note and reference added to subsequent leadership analysis.
Feb 2002
- This on-line HTML version prepared – Text complete / Figures incomplete.
Feb 2006 - Updated with broken links fixed and scanned copies of questionnaires
linked.
INDEX
OF CONTENTS
CHAPTER 2 - THE COMPANY AND ITS BUSINESS
CHAPTER 3 - CHANGE AND FLEXIBILITY - A CURRENT FASHION?
CHAPTER 4 - ORGANISATIONAL LEARNING
CHAPTER 5 - PERFORMING A STAFF SURVEY
CHAPTER 6 - ANALYSIS OF THE OVERALL RESPONSE TO THE SURVEY
CHAPTER 7 - SURVEY ANALYSIS ACCORDING TO RESPONDENT SAMPLE
GROUPS
CHAPTER 8 - DISCUSSION AND CONCLUSIONS
CHAPTER 10 - CONCLUDING REMARKS
APPENDIX
B - COMPANY ORGANISATION AND STRUCTURE (Figure not included)
APPENDIX
C - PROCESS PLANTS DIVISION STAFF PROFILE (Figure not included)
APPENDIX
D - THE STAFF SURVEY QUESTIONN
APPENDIX
S - SURVEY SUMMARY AFTER 90 RESPONSES (Figure not included)
This dissertation
includes consideration of attitudes and cultural aspects relevant to the
management of change within an engineering contracting organisation. An outline
of the existing organisation is presented, and a perceived history of
difficulty in achieving change is noted. The dissertation includes discussion
of literature on the subject of organisational change, in particular, recent
literature emphasising the unpredictability of change in the 90's and beyond.
Also
reported are the conduct and findings of a staff survey concerned with their
perception of the organisation and the experience of change within it.
Analysis
of the survey response concludes that the organisation possesses strengths in
Total Quality Management and Project Management resources, but that there are
weaknesses in the culture and leadership of the organisation, which inhibit
change and flexibility.
Recommendations are presented which are intended to exploit the
strengths in overcoming the weaknesses in the areas of corporate identity,
wider measures of performance and the development of management style.
Firstly,
acknowledgements go to Foster Wheeler in general for their sponsorship of the
course; in particular to Jim Foley for his support of this project; to Kevin
Tremlett and Peter deCourcy for assistance from personnel department; and to my
long suffering managers, Peter Underwood, Doug Slawson and Dave Crease. Thanks
also to all those Foster Wheeler staff who took the trouble to respond to the
survey.
Special
thanks are due in particular to Sandra Dawson for her assistance with the
project in general and especially for the encouragement given when the going
got tough.
THIS
DISSERTATION CONTAINS MATERIAL THAT WAS CONSIDERED STRICTLY PRIVATE AND
CONFIDENTIAL FOR THREE YEARS FROM THE DATE OF PUBLICATION. PRIOR ACCESS WAS
RESTRICTED AND GRANTED WITH THE SOLE PERMISSION OF FOSTER WHEELER ENERGY
LIMITED.
Dedicated
to Sylvia, Tom and Robbie .....
THE
SUBJECT
The subject
of this dissertation is change and flexibility, specifically in connection with
my employer, Foster Wheeler, a process industries engineering and construction
contractor. The motivations behind looking at such a wide and complex issue
within the company are threefold: -
Firstly,
there is a perception within the company that there is a myriad of preserved
errors and/or missed opportunities for innovation. For example, looking at much
process plant hardware under construction, one would find many details
unchanged since pre-war days. Similarly, reports on engineering and
construction operations typically include recurring technical and interface
difficulties. Individually, many such instances may be trivial. Individually,
the existence of many may be rationally justifiable. Collectively, their number
and apparent endurance represent a cause for concern.
Secondly,
there is a perception that Information Technology, which pervades our operation
and our deliverables, far from increasing flexibility, creates new constraints.
There has been, and continues to be, major investment in IT and a shift from
centralised mainframe systems to distributed Personal Computer and workstation
based systems. Despite islands of success, and clear marketing benefits, there
is disappointment and frustration that tangible benefits from such innovation
are slow to materialise in the operation itself.
Thirdly,
change and flexibility, as strategic issues for any firm in any industry, have
become subjects for a mass of current press, learned texts and fashionable
"airport bookstall" literature (37).
The
questions prompted by these perceptions, and addressed in this dissertation,
concern whether the first two issues are as a result of underlying problems
with the management of change and flexibility, and whether the third offers an
appropriate strategy or general solution for them.
As the
opening paragraph suggests, this is a wide and complex subject. Many texts
whose titles include some permutation of Change, Strategy and Management, read
like general management texts, covering such subjects as : Planning,
implementation and control; Decision making; Power and authority; Structure,
systems, organisation and technology; People, attitudes and motivation; Rewards
and performance measurement; and so on.
Even
more so than Pettigrew and Whipp (50), authors of the latest UK research based
text on this subject, I must include in this dissertation, their "caveat
emptor”:
"There
is no single best practice in managing change. No quick fix is being
offered."
THE
OBJECTIVE
Having
noted that the subject is wide, and that the questions implied above are too
complex to expect exhaustive answers, I must declare a more limited objective.
I have
approached the subject with the belief that the underlying nature of the
perceived problems concerns people, attitudes and the culture of the
organisation. I have therefore chosen to focus on these issues. In essence my
objective is to answer the following question: -
"What
are Foster Wheeler's strengths and weaknesses in the areas of people, attitudes
and culture relevant to managing change? How might these be exploited or
mitigated in order to improve our future flexibility?"
THE
METHODOLOGY
The project
on which this dissertation is based had two principal phases.
Firstly,
there was a review of available literature on the subject of change management
generally and following up secondary references on issues arising, in order to
construct a model of change. Far from converging on key themes, this exercise
led to ever broadening avenues of investigation on the widest range of
management issues. One particular model of managed flexibility, the
"Organisational Learning" model was chosen as a framework on which to
hang a selection of relevant issues (5).
Secondly,
in order to focus on the issues in the context of Foster Wheeler, a survey was
conducted within the company. The survey was conducted using questionnaires
based on checklists suggested by Carnall (17).
THE
DISSERTATION
In
addition to describing the above activities, this dissertation includes
analysis of the survey responses, and discussion in the light of the
literature, leading to recommendations for action and further investigation.
However,
before describing the findings of these aspects of the project, I need to set
the context, as indeed I needed to do before embarking on the project itself.
With over thirteen years with the company, I was conscious that I had
preconceptions at the start of the project, which were likely to be subjective.
In order to establish a more objective picture of Foster Wheeler and its
business I performed an analysis of reports and accounts from Foster Wheeler
and a sample of competitors for the past decade. Much detail of this analysis
is not relevant to this dissertation, and in any event might be considered
commercially sensitive. The next chapter, however, draws on this analysis, as
well as my personal experience, to paint a background picture of Foster Wheeler,
its industry, its business performance and its organisation.
GENERAL
The
company under analysis is Foster Wheeler Energy Ltd (FWEL) and, if we are to
look at change and future flexibility, we need a base case; a snapshot of what
FWEL is now. This section provides such a description of the company, its
business and its recent performance.
FWEL is
a UK based Engineering and Construction (E&C) Contractor, which is wholly
owned by Foster Wheeler Corporation (FWC), via Foster Wheeler Ltd (FWL), a UK
holding company. FWC is a US Corporation listed on the New York Stock Exchange
and 1991 represented a centenary since the original Wheeler Condenser and
Engineering Company was formed. From the UK perspective, 1990 represented 70
years since its original formation in the Power Specialty Company Limited in
London.
Two
thirds of FWC's current operations are in E&C, serving energy and process
industries, and most of the remaining third is concerned with related energy equipment
and services. A significant and growing part of the business is in "own
and operate" projects for waste to energy and flexible high efficiency
power generation facilities. Foster Wheeler, including its UK based operations,
has a long history in power generation, involving design and manufacture of
fossil fired boilers for utility power stations and marine propulsion, and of
nuclear power plant components. Though still involved in design of fired
heaters for process plants, these power industry aspects no longer form a
significant part of the UK operation.
FWEL is
currently the largest of the five main subsidiaries within FWC's E&C group,
which operate in the US, the UK, France, Italy and Spain. In 1990 FWEL contributed
more than $250m to a corporation turnover of $1700m. Each of the five main
E&C contractors operates internationally, historically in its own local
region and typically in those areas where the home country had colonial
interests and a common language. In recent years however, by agreement within
the corporation, each tenders for contracts anywhere where its resources are
better able to serve the client's project.
FWEL,
based in Reading and Glasgow, therefore operates throughout the world. Recent
and current project locations include mainly the UK, Europe, south east Asia,
and Indonesia, as well as Scandinavia, and parts of Africa, the Indian
subcontinent, the Middle East, South America, the Caribbean and Australasia.
As
already noted, the E&C service is provided mainly in support of capital
investment in the process industries. These include onshore and offshore oil
and gas facilities, petroleum refineries, petrochemicals, general chemicals,
fine chemicals and pharmaceuticals. Not surprisingly therefore, important
clients include household names like BP, Exxon, Shell, ICI and Glaxo, and often
these operators have significant interests in some of the less well known
clients. Recent areas of diversification, serving a different client base, have
included combined heat and power generation, waste treatment, water supply,
factory automation, rail transport and even a cryogenic wind tunnel.
The
E&C service includes any or all of project management, specialist
engineering, purchasing, logistics, construction and commissioning, but can
also include project appraisal, conceptual engineering, project financing,
operator training and even plant operation. FWEL does not operate as a
manufacturer of plant equipment and in the past decade, in common with all UK
and most European competitors, has generally subcontracted construction
services. There are however, fabrication affiliates, and FWEL has started a
move back [since reversed] to direct labour construction, where a significant
proportion of value is added to a typical project.
Because
of the range of services involved and the range of industries served, it is
very difficult to talk in terms of the total world market and market share
vis-à-vis our competitors. Most of FWEL's competitors are also part of diversified
groups and corporations who operate in overlapping vertical and horizontal
segments of the market.
Horizontal
diversification includes for some; E&C services to oil and gas exploration
and production, mining and mineral extraction, metals processing, food
processing, civil infrastructure and industrial and general building
construction industries. Integration into vertical markets includes for some;
operation of exploration, production and processing facilities, and manufacture
or fabrication of plant or systems involved in any of the services or
industries mentioned.
The
extent of segment overlap amongst individual competitor operations is highly
varied, and in the extreme a few of the holding corporations are highly
diversified conglomerates. Domestically FWEL could consider some twenty E&C
competitors. Internationally up to two hundred E&C companies could be
identified competing in some or all of FWEL's markets.
THE
OPERATION
The
operation consists of a stream of concurrent and overlapping individual
projects.
These
are generally won by open competitive tendering, although in some cases
existing cooperative agreements with clients or rolling "term"
contracts reduce the competitive element in awarding some packages of work. On
the other hand, sales and marketing effort in the competitive phase may include
prequalification even before an invitation to bid is forthcoming. In any event,
there is a significant proposals operation involved in bidding for most
contracts.
As
already inferred, an individual contract may be a simple study, or a full
engineer, procure and construct project, or project management only, or any
other combination of the services mentioned previously. The contract terms can
also vary between lump sum and fully reimbursable, and more typically involve a
hybrid of both, such as reimbursable costs plus fixed fee. As with contract
management in other industries, the terms may be varied between phases of the
project; e.g. reimbursable during uncertain conceptual or pre-engineering
phases and lump sum during detailed phases after a definitive estimate. This
can be further complicated when there is competitive rebidding between
consecutive phases of a project, and there often is.
Typically
a project might last fifteen to eighteen months but could range from a month or
two for a conceptual or "front end" study to five years or more for a
major project management contract. The scale of a project may therefore vary
widely from a handful of people using a few hundred man-hours to produce a
report, to a peak of as many as five hundred people consuming two million
man-hours and procuring several hundred million [or a few billion] dollars
worth of materials and services.
Almost
invariably any project involving a significant number of people over a
significant period is organised as a task force, with specialist staff
physically relocated into designated task force areas or offices. Increasingly,
such task forces place great emphasis on team building, particularly as it is
also increasingly common for such teams to have client personnel integrated
into them.
Naturally,
where the contract scope includes construction and/or operating
responsibilities teams need to be set up at plant fabrication and construction
sites. During other phases it is not unusual for small teams to be established
at the offices of clients or other contractors. Sometimes it is necessary to
set up complete project teams local to clients’ offices or plants, and these
can involve some form of joint venture or partnering with clients or local
contractors.
So far,
we have looked at FW's history and operation in the briefest possible terms,
and later we will look at further aspects of the operation in describing the organisation.
Staying on the historical theme however, it is appropriate that we now look at
recent past performance of the operation as a starting point for future change.
In looking at performance in relation to competitors, we will also be able to
infer a number of features of the industry in competitive strategy terms
characterised by Porter (53).
PERFORMANCE
The
intent here is to look at performance from a recent historical perspective, in
order to infer some relevant features of the industry and FW's position within
it. For the management of change, we will see later that selection of measures
of performance and mechanisms for monitoring them are important issues. For the
limited intent here however, I need only concentrate on the bottom line. This supremely
objective [sic] measure also satisfies the requirement that this background
chapter be as objective as possible. [even accounts can be distorted for
political ends]
An
analysis was performed using a combination of published annual reports, statutory
public accounts and ICC data cards covering FWC, FWL, FWEL and a sample of
competitor operations over the past decade.
Although
a wider range of accounts was analysed, the comparative data is based on FWEL
and 18 other process industries E&C contractor operations in the UK,
ignoring the accounts of the more diversified company groups. The data used
covers the period 1983 to 1990. Detailed figures and graphs resulting from this
analysis are not included in this dissertation, however the following draws on
selected results.
As far
as longer-term performance is concerned FW's history is witness to its success
in satisfying customers and stockholders and in undergoing significant changes
in the industries and client base served. Clearly, part of that change has
involved acquisition, disposal and restructuring within FW and competitor
organisations. This feature in itself gave some difficulty in comparing
equivalent competitor operations at any given time, even during the past
decade.
Longer
term trends and fluctuation in the level of business for FW, and the E&C
industry as a whole, tend to have reflected cycles of recession and growth
affecting the energy industries and capital investment generally. Naturally,
higher profitability has been associated with such periods of higher capital
investment in these industries, where demand for E&C services has tended to
outstrip supply. This was generally not the case during the 80's.
In the
later 80's, since 1987, the figures for FWEC and FWEL show an encouraging 15%
per annum revenue growth trend for both companies, with FWEL certain to improve
on this for 1991. From the general picture however, it is apparent that, whilst
contributing a healthy share of the turnover, FWEL has returned relatively
small profits, but that these are generated from a very low asset base. In
order to draw more specific conclusions, we can examine the comparative ratio
analysis between FWEL and an E&C industry sample average.
FWEL
pre-tax profit margins are indeed low and show a downward trend, but this is
better than the industry average, which returns less than 1.4% in the long
term, compared to 1.9% for FWEL. The perspective from inside FWEL's operation,
comparing operating and pre-tax margins, is even more striking. The bulk of profits,
however small, have arisen largely from non-operating, investment and interest
income. The long term operating profit margin is just over 0.5%. An aggregate
statistic for the period 1983 to 1990 brings this point home. In that period
FWEL turned over $1 billion of contracts, earned pre-tax profits of œ20
million (2%), of which $15 million (75%
of the 2%) came from non-operating income. The picture is however entirely
typical of the industry, with a long-term average operating margin barely over
0.5%.
Typical
also of the industry is the low and erratic level of operating earnings per
employee, with long-term average of around œ400 per employee.
Though
still erratic, returns to capital employed (or net worth or net assets) look
healthier, reflecting the low capital intensity of the industry, with instances
reaching 10 and 20%, and a long term operating average around 4%. The after-tax
return to net worth is an important corporate target set for the FWEL operation
and is clearly aimed at satisfying stock investor's expectations, although it
is not translated into direct measures of operating performance.
A
measure of performance of interest to the operation, the investors and to
competitors is the forward workload, expressed internally in man-hours and externally
in turnover value. Published industry analyses typically include
"boxscores" of the value of contracts won in a given period and the
value of outstanding incomplete contracts at the start of the next period. Both
measures are concerned with success in winning business, and future security or
survival, but are not related to profitability directly. On such measures, FWEL
is currently performing extremely well, with record levels of pre-booked
contracts and forecast workload levels for 1991/2 reaching levels only
previously associated with the early 70's.
The
returns on net assets are again typical of the industry and are achieved
despite low profitability because of the low asset requirements of the E&C
service operation. The industry long term operating return on assets is just
over 3% compared with nearer 4% for FWEL. The low assets are also reflected in
the high asset turnovers achieved in the industry, with FWEL sweating its few
assets significantly more than the average.
The
preceding description of the performance of FWEL and the industry in general,
reflects both the possibilities for change and, paradoxically, one of the
difficulties in gaining advantage through change in this industry. These same
features of the industry point to generic strategies adopted within it.
GENERIC
STRATEGIES
An
obvious route to improved performance, for an operation with very low margins,
is to improve those margins through increased productivity or efficiency. Productivity
here includes producing higher value added for the same costs, as well as
producing the same value at reduced costs. Improving performance through
increased volume is resource limited, skilled human resource limited in this
case, and it is not a simple matter to rectify this by investment. On the other
hand the numbers make productivity improving changes hugely attractive. When
your operating margin is 0.5%, an improvement of 1% in productivity could
treble your operating profits in a perfectly competitive market; but therein
lies the rub.
Firstly,
the market is oligopolistic in the sense that contract prices are set in
competitive bidding and there can be only limited flexibility to relate prices
to our costs, our capacity and our desired margins. Secondly, whilst contract
pricing includes a reimbursable element, productivity improvements do not
accrue to the contractor directly, and may materialise only through incentive
bonus arrangements.
Related
to both of these is the client power in this market, not just in defining the
final product, whether plant or paper deliverable, but in defining the detailed
scope of the service during the course of the project. To a large extent the
content of the operation, and hence any change in it, is driven directly by
client requirements. Productivity improvements that add additional value during
a project may not result in additional earnings and as already noted those that
save costs may not benefit the contractor. Even those that save schedule may
not benefit the contractor directly.
This
particular feature of client power in setting contract terms can be over
emphasised, but it does mean that they tend to have a very detailed knowledge
of contractors' operations and costs, a feature that can only limit price
setting flexibility.
Another
feature of the industry that greatly limits the ability to sustain operational
competitive advantages is the high level of market intelligence. As already
noted clients have intimate knowledge of our operations, as they do of all
contractors they become involved with. The client organisations are therefore a
channel for exchange of project operational ideas from project to project, from
contractor to contractor. The industry also has a fairly cosmopolitan
workforce, with a turnover of staff between contractors and between contractors
and clients, and there is also a floating pool of agency and contract
personnel. In general FWEL has had a lower level of such temporary staff than
its competitors.
Another
channel for exchange of intelligence is the market for hardware, systems and
services sub-supplied to contractors on projects. In some particular segments,
like for example, the supply of Computer Aided Design ( CAD ) systems, these
suppliers can also have considerable monopoly power.
Despite
focussing on some very narrow measures of performance, and not having performed
a rigorous Porter analysis of industry structure, we are able to deduce that it
is by nature a low profits industry.
We have
high internal rivalry and high buyer power. Barriers to entry to the market as
a whole or to new sectors are mainly experience, a name and a reputation. Once
in, the barriers to providing new services or servicing new sectors are
generally low, the principal resource limitation being the human resource.
Despite this the operation itself does not benefit from economies of scale
except in certain areas of marketing.
For
reasons already noted strategies aimed at low costs and high productivity are
difficult to exploit and difficult to sustain. Also, although buyers have good
intelligence and high power, their incentive to drive down the costs of the
E&C service are not as great as might first appear. The cost of this
service may represent less than 10% of their capital investment in a project
and they may be more concerned that the quality of this 10% does not put the
other 90% at risk.
Conversely,
a strategy focussing on particular segments may have marketing merits, but this
focus must change as the market changes. There is little competitive advantage
in focussing the operations capabilities on too narrow a product range.
The
generic strategy adopted is one of differentiation on quality, but providing
the widest range of services to the widest range of industry sectors. In fact a
stated objective of FWEL is " To be in a position to command fees higher
than the competition ", whilst continuing to be a process industries
E&C contractor not limited to any particular sectors.
Before
looking at the issue of change and flexibility in general, we have analysed
very briefly the nature of the industry. Whilst we have drawn no conclusions
concerning any specific changes either necessary or possible, the objective has
been to make the following two points :
It is
an industry where a competitive advantage is very difficult to sustain once
achieved. This means that is is essential to introduce improvements
continuously just to keep half a step ahead of the competition, because they
too must be introducing change continuously in order not to fall more than half
a step behind. Everyone must run just to stand still.
If this
is a depressing prospect in a low profit industry, then there is another side
to the coin. Any change that creates significant additional added value or significantly
reduced costs could in principle be turned to competitive advantage. As we have
already noted, if such advantage could be exploited and sustained, the gains in
profitability could be disproportionately great because existing margins are so
low.
Even
from this simple historical analysis of performance and existing competition,
we can deduce that there is both necessity and attraction for change in our
industry, notwithstanding the perceived need for change described in the
introduction. But before we can talk about change at FW, we need to know a
little more about the organisation itself.
THE
ORGANISATION
In
order to characterise the organisation it is appropriate to have an
organisational model as a framework. Many writers have presented models of
organisations and clearly these vary depending on the writer’s original
objectives. In the most abstract sense all represent the organisation as an
"interactive open system". Interactive, in the sense that the
constituent elements of the organisation interact with one another; open, in
the sense that these elements also interact with the external environment; and
systems, in the sense that the elements and interactions cannot be treated in
isolation from one another.
The
simplest descriptions, after Leavitt (37), involve four elements: - OBJECTIVES,
PEOPLE, TECHNOLOGY, and STRUCTURE. As well as the external ENVIRONMENT, there
is the more intangible aspect of the internal environment that we might call
the CULTURE of the organisation, or what the Mckinsey model might call SHARED
VALUES and STYLE (48).
To move
from the abstract to the specific, it is necessary to describe some of these
features explicitly in relation to FW.
OBJECTIVES
OF THE FW ORGANISATION
In the
preceding sections I have already described in broad terms the purpose of an
E&C contractor and possible generic strategies for FW. We also noted a
number of business objectives in discussing recent performance above. I do not
intend to say anything more specific here, about FW's actual strategic
objectives.
STRUCTURE
OF THE FW ORGANISATION
Appendix
B includes outline organisation charts for FW Corporation, the Engineering and
Construction Group and FW Energy Limited. A management organisation chart is
included for Process Plants Division, the process plants E&C contracting
operation of FWEL. Also included is a typical project organisation chart.
With
operations organised as projects the organisation structure is quite naturally
a matrix form. Most individuals in the organisation find themselves reporting
to a hierarchy of project management as well as line management. In fact the
apparent hierarchy facing the individual can seem very complex. Within the
project there may be Discipline Leaders, Area Engineers, Project Engineers,
Project Engineering Manager, Project Manager and Project Director, as well as
other functional coordinators. The line management hierarchy includes levels of
seniority and status as well as Discipline Principals, Section Supervisors,
Discipline Chiefs, Group Managers and Divisional Directors.
Delegation
of recruitment, appraisal and technical management functions by line management
can further confuse this picture, but in practice the real hierarchy (33), with
hire, fire, reward and spending authority is rarely more than three levels.
In
recent years there was an attempt to flatten the engineering line management
hierarchy by removing a further level. This was however reversed due to
problems with issues of status and career development paths, which had not been
adequately addressed in the attempt.
The
structure is in fact an extreme form of matrix, largely consisting as it does,
of task forces, but where line management retains technical management and back-up
responsibilities for staff on projects. The organisation therefore also
experiences the normal matrix conflicts with competing claims for resources
between one project and another and between projects and corporate aims. Other
inconsistencies are apparent between project and corporate responsibility and
authority. For example, as an authorised signatory on a project an individual
may be authorising specifications and recommendations representing millions of
dollars worth of work, whilst that individual's line manager may have
negligible corporate spending authority.
PEOPLE
IN THE FW ORGANISATION
FW's
business is a "knowledge business" (26). It may be easy rhetoric to
say so, but clearly the main assets of an E&C contractor are its personnel,
their expertise, the systems and procedures they operate and the electronic and
paper "deliverables" they are able to generate.
Appendix
C contains a summary profile of the 1300 staff of FWEL Process Plants, the
operating division of FWEL. An additional significant proportion of employees,
typically around 30%, comprises temporary agency staff, particulary employed in
"production" departments delivering designs and drawings.
The
majority of staff in most departments have specific technical and professional
qualifications or the equivalent in terms of experience. The majority
therefore, whether formally affiliated to professional institutions or not,
behave as professionals with much that that entails. Positive examples would
include peer group influence on health and safety responsibilities or on
contractual codes of ethics, but there can also be negative aspects concerning
demarcations of responsibility, verging on restrictive practices.
TECHNOLOGY
IN THE FW ORGANISATION
The
technological resources of FWEL's operation fall into three broad areas.
-
Process Technologies.
- Plant
Design and Construction Technologies
-
Project Management Technologies
PROCESS
TECHNOLOGIES
This
area of technology involves expertise in the chemical engineering and physics
of the processes involved in the plants themselves. It is applied plant
functional definition, to the original specification of energy and mass
balances, pressures, temperatures, volumes and compositions of the processes,
to their control philosophies and to the ultimate commissioning and operating
procedures.
In
certain sectors of the core business, eg specific oil refinery process units,
such in house technology generates original process designs from basic concept.
In other areas the expertise is needed to extract and interpret process designs
from client/operators, process licensors and process package suppliers.
The
products of this technology within the operation are information deliverables,
paper or electronic, and in the commissioning phase can include direct
supervision and hands-on services.
DESIGN
AND CONSTRUCTION TECHNOLOGIES
These
are the technologies associated with the methods and processes of design,
engineering, construction and testing of process plant hardware and systems. This
ranges from basic civil engineering works, through a whole spectrum of
mechanical and electrical disciplines to control systems software engineering.
Most of the physical and systems design employs Computer Aided Design and
drafting technologies, and increasingly relies on three-dimensional (3D CAD)
modelling techniques.
Again
the bulk of the direct product of this technology within the operation is
information, whether delivered in electronic or paper form.
A large
part of the operation is concerned with coordination and interpretation of
technical data exchanged between different engineering and design disciplines
and between the project and specialist suppliers of equipment and systems.
The
same range of technologies and expertise are also brought to bear on the
surveillance, technical supervision, and inspection of manufacture,
construction and testing of plant at suppliers works and construction sites.
PROJECT
MANAGEMENT TECHNOLOGIES
As a
contractor, as opposed to a manufacturer or operator of process plants, the key
area of FWEL's technology is in project management. As in any other field of
project management, this expertise is concerned with the planning,
implementation and control of activities and resources with defined objectives
of cost, time and quality.
This
expertise is not confined to Project Managers, Project Engineers or others with
specific project control functions, but is inextricably part of the technical
coordination activities described above, and is bound up in other purchasing,
sub-contracting and logistical functions.
As well
as the aggregate experience and knowledge of individuals, such proprietary
expertise and systems are captured in a significant body of "Contract
Execution Procedures".
CULTURE
OF THE FW ORGANISATION
Of the
component parts of the organisation, its culture is one of the least tangible
and most difficult to describe objectively. Culture is a measure of the style
and personality of the organisation, which affect the natural patterns of
behaviour within it, but in ways that are taken for granted.
Handy
(30) categorises culture according to the predominant patterns of organisation
in the operation; Power, Role, Task and Person cultures. On these axes, FWEL is
predominantly a role culture, as witnessed by the range of functional titles in
appendix C. Whilst, no doubt, few individuals refer to their job descriptions,
there are few who do not recognise demarcations around their job function and
many who would react defensively if others transgressed. I believe even new
employees quickly sense such demarcations long before they appreciate their
subtle details.
Such a
role culture is moderated only on the smaller, more close knit, project task
forces or proposal teams, who can develop a task culture, with all hands on
deck to achieve specific milestones. A strong role culture is typical of large
bureaucratic organisations and is ideal only in the most stable of
environments.
Deal
and Kennedy (22) characterise cultures according to the nature and potency of heroes,
rituals and anecdotes that exemplify the culture and underpin its beliefs and
values. In order for such informal symbolic features to represent an asset, it
is argued that they need to be common across the organisation and consistent
with formally stated aims.
Employees’
perceptions of the company are also indicators of the strength and direction of
its culture. Some aspects of this are revealed by the staff survey analysed
later in chapter 4, but an earlier survey of corporate image by Paul Peters
(45) indicated some important themes. For example:
The
dominant perceptions of the company's personality, according to its staff were
successful, good quality, reliable and traditional, but with low ratings of
dynamism, innovation and flexibility. When asked openly to identify FW's good
points, technical quality and reliability recur.
The
great majority of staff also perceived that neither themselves nor the company
as a whole had sufficient vision of its goals and direction. When invited to
identify bad points, inflexibility, bureaucracy and lack of innovation recur,
but so also do perceived internal problems with listening and communication.
Again when invited to identify areas for improvement, most of the previous good
and bad points recur, but so do issues of commitment, involvement, belonging
and motivation.
Another
later survey (65) of 80 staff members of one particular large department, was
concerned with their perceptions of team leaders and managers within that
department and with those leaders views of their own styles. Whilst there was
clearly a large range of perceptions of individuals, the average ratings
reflect the inherent leadership style or culture in the organisation. This
yielded extremely low ratings concerning the extent to which management inspire
any vision for the future or the extent to which they tend to question or
effectively challenge the established practices and processes. The ratings were
so low as to place them in the bottom 15 to 20% of any management population
sampled.
In
summary, there is a strong quality image, but with a traditional, reliable,
bureaucratic theme running through FW's culture. The fact that there is no
strong vision of direction and goals means that we must assume that any
informal heroes, rituals and anecdotes are unlikely to be common and consistent
across the organisation, or consistent with any formal goals. Whilst the
traditional quality culture is strong and could be considered positive in the
appropriate circumstances, it is unlikely to be seen as positive when we
consider future change and flexibility.
THE
FASHION
As well
as an interest in the specific needs and opportunities for change within FW,
the introduction also noted that there has been a recent fashionable focus on
the issues of change and flexibility. The purpose of this section is to look at
some of the issues in the headlines and to identify their relevance to FW, and
also to identify the extent to which such issues are already established
management themes.
The
fashion for change and flexibility is apparent not only in the popular
management literature, but also in a wide range of management texts, current
business press and trade press. Several of the references in the bibliography,
not listed here explicitly, serve to demonstrate this. The fashionable aspects
have been linked particularly to an overriding perception that factors
affecting business internally and environmentally are changing:
a. increasingly rapidly
b. in increasingly large steps
c. in disjointed and less
predictable ways
The
general implication is that such change will be a constant part of business
life and that in order to handle it, organisations themselves must also change.
One
only has to sample the language of the titles, subtitles and headings being
used by recent popular management authors to get a flavour of current thinking:
"World
turned upside-down" "Chaos" "Change is the only
constant" to quote Peters (46).
"The
age of unreason" "Change is not what it used to be"
"Catastrophe theory" "Discontinuous upside-down thinking"
to quote Handy (29).
"Riding
the Whirlwind" to quote Benton (9).
"Cacophony"
"Revolution" "Discord" "Creative destruction" to
quote Kanter (35) quoting Marx and Schumpeter (60).
"Waves
of change" "Turbulent world" "Fracture lines"
"Outside-in management" to quote Morgan (42).
The
language may seem out of place in business organisations, but can these, and a
dozen other gurus, all be wrong? There is no suggestion that they are wrong,
but the point is what is actually new ? It is after all, only a small mental
leap;
from -
Chaos, Discord, and Unreason,
to - Uncertainty, Paradox, and Irrationality.
In the
context of business management and management in general, these are not new
fashions, but established themes featured in a wealth of literature.
UNCERTAINTY
Uncertainty,
is the reason why managers, or anyone else for that matter, need to make
decisions. Without it, decisions would make themselves. Without uncertainty,
much of the science of operations management and quantitative analysis is
redundant.
PARADOX
Paradox,
the fact that possible outcomes may not only be competing, but may also be
mutually exclusive, is one reason why management decision making is much more
than an analytical science. Many paradoxes arise in decisions which may have
both long and short term outcomes, but there are many other classic examples:
Centralisation vs De-centralisation
Specialisation vs Integration
Control vs Discretion and Empowerment
The
"competing values model" of organisational effectiveness presented by
Quinn and Rohrbaugh (57) summarises a number of paradoxical issues which need
to be balanced by Management. See figure 3.1.
Figure
3.1 -
The Competing Values Model (57)
IRRATIONALITY
Irrationality,
as an issue for management consideration, is one manifestation of paradox.
Brunsson's
work on decision making (11)(12) links "Decision rationality" with
"Action irrationality", the point being that decisions made by the
most rational analysis of all available data are unlikely to be those executed
most effectively. Which is not to say that human decision-making behaviour
defies logic, more that individual actions depend on individually perceived
logic.
The
decision making process is an important determinant of how effectively a
decision will be implemented. Furthermore, implementing a decision is by
definition, making a change; the action taken changes the situation that would
exist in the absence of the action. The issues of rationality, decision-making
and the management of change are closely linked.
CONSTANT
CHANGE
Another
implication of the fashionable focus on change has been the fact that it will
be ever present, but this constancy of change is not a new theme either. As
interactive open systems, "business organisations are never static,
something about them is always changing" (21). At any time, changes are
occurring in the people, the technologies, the structure, the objectives and so
on. Changes in culture perhaps occur most slowly, and changes in environment
least predictably, but changes in any of these elements interact with one another
and, in any event, include both planned and unexpected aspects.
To note
that change is constant is not to suggest that it is continuous or uniform.
Ever since Schumpeter (60) in 1911 and Kondratiev (36) in 1925, observed trends
of recession and boom in macro-economic activity, the pace and direction of
change has been seen to be cyclical. Schumpeter and others linked such cycles
to underlying technology changes, and even now economists agree (7) that the
growth phase of the business cycle is driven predominantly by advances in
technology. Most recently, Freeman and Perez (27) have characterised these
macro-cycles, or Kondratiev waves, as paradigm shifts from one
"Techno-Economic Paradigm", or TEP, to another.
Whilst
at this macro-economic level these cycles may appear long and gradual, it is
quite reasonable to predict sudden transformations for individual industries
and businesses. A firm may be experiencing incremental changes in some aspect
of its operation which are part of the emergent TEP. When a critical mass of
changes has occurred in the industry, the existing status quo and
decision-making norms can be undermined to a point where the industry finds
itself at a cusp in its development. Subsequent change can be particularly
disruptive and unpredictable, as the whole structure of the industry is
transformed into the new TEP. This ongoing cycle of change allows current gurus
to predict the unpredictable, and draw on the language of catastrophe theory
and the science of chaos.
The
upswing of K5, the fifth Kondratiev wave, into the information and
communications TEP, might in itself be enough to predict a period of uncertain
change. However, as much of the current change literature reminds us, we are at
the same time also experiencing several other unconnected, and potentially
far-reaching, changes in our environment. For example, shifts in population
demographics; globalisation of competition; economic union in the EC; social
and political shifts in the disintegration of eastern bloc countries; a third
world debt crisis; social and political pressures increasing the importance of
ecological issues and alternative technologies. Unpredictable or not, a number
of these factors are
worth
discussing in relation to FW.
GLOBAL
COMPETITION
Like many
of our multinational clients, we operate and face competition globally.
Currently FWEL are very active in Southeast Asia and Indonesia, but the
possibility of counter competition is real. Already, for some years, the
Japanese are the main competition in these local markets and in other markets
such as the Middle East and Africa. How long will it be before the Japanese
compete seriously in markets nearer to home? What significance should we attach
to the Japanese contractor managing a construction site half a mile from Foster
Wheeler House, our main office? How long before we must take seriously threats
from players in Korea, Malaysia, India and other recently developed countries?
Will these nations have the same human resource limitations (54)? Are our traditional
clients not also facing similar competition in their own markets?
Like
many industries before, the existing Far East competition has acquired a
cut-price and ruthless image contractually. If we pursue the strategy of
targetting higher price, higher added value, niches in the market, might we one
day look back on an irretrievable sector retreat?
INFORMATION
TECHNOLOGY
We have
already noted that the human resource is the key resource and an important
growth limiting resource for an E&C contractor. We have also noted that the
business is information intensive, a "knowledge business" (26).
Clearly information technology, in all its guises, has already made major
inroads into our operation and those of our clients. The theoretical technical
possibilities for IT to further increase efficiencies and add value are
virtually boundless. Unfortunately, or perhaps fortunately, the limitations
remain human, but solving them may keep us ahead of those players with less
limited human resources.
For
example, some of the possibilities could have a major integrative effect on the
businesses of clients, contractor and suppliers. It is possible to envisage, if
not yet realise, major changes in the structure of the industry and the nature
of our business operation. As information and communications technologies are
central to the emergent TEP we might also expect IT changes quite unrelated to
our existing value chain to impinge on our operating environment. Again it is
not relevant to speculate on the detail of such possibilities here, merely to
note them and their significant potential consequences.
GREEN
ENVIRONMENTAL PRESSURES
In
contrast to the march of hi-technologies, there is the march of alternative
technologies to consider, not that they are mutually exclusive. There are
fairly obvious opportunities for a process industries E&C contractor
created by legislative and other pressures to reduce pollution or emissions and
to recycle waste generally. We have benefitted already from such process
requirements as the demand for unleaded gasoline, low sulphur fuels generally
and the demand to make use of low-grade waste heat, or the demand to have
environmental impact assessments performed and so on.
The
other side of the story is the threat to various sectors of our clients'
businesses from green pressures and alternative technologies. The alternatives
may not be process industries.
CHANGE
AND FLEXIBILITY AS A STRATEGY
Apart
from having spawned new metaphors, clearly one new message in the rash of new
literature on this subject is in the degree of unpredictability in the speed,
magnitude and direction of changes in the 90's and beyond. It’s not difficult
to see that if the future is unpredictable, then flexibility is a good
strategy. The novelty is in the implied urgency.
Flexibility
has passive connotations, the straw bending with the wind. Whilst going with
the prevailing flow is a perfectly valid tactic in many an operational
situation, it is definitely not the basis of a business strategy. Not much
advantage being flexible, if the next gust of wind blows your field off the
map. Here we are concerned with proactive flexibility, adaptability and
learning. Morgan (42) talks of needing "proactive mindsets".
On the
other hand, if the future is so unpredictable, why bother to prepare for it?
Don't panic, it might never happen. Plus ca change, plus c'est la meme chose.
Peters (46) describes this hurdle as "facing up to the need for a
revolution". Handy's boiling frog metaphor (29) is already hard-boiled. As
Handy himself says, the more accurate metaphor concerns Spanish invaders as
seen by South American Indians. It is not a matter of not noticing the change
arriving, more a matter of not recognising the potential in its arrival, whilst
you still have time to take appropriate action. The boiled frog simply fails to
notice a very gradual change that is taking place.
The
potential in an externally triggered change can be either negative or positive;
threat or opportunity. If the future of change is so unpredictable and
disjointed as to be chaotic, hinging on catastrophes and fracture lines, then
being in a position to handle it is not simply a defensive posture against the
potential threat. It is being in a position to exploit the opportunities
arising. "Thriving on chaos" as Peters put it (46).
Taken
to its logical extreme, if you can thrive on chaos, you may be able to create
further advantage by creating a little chaos in the first place. Others (47)
have cited examples of chaos created in stock markets by the introduction of
"junk bonds". Another high risk example which comes to mind is
Malcolm MaClaren, new wave music impresario who operated under the slogan
"Cash from chaos" during 1977.
Both
examples might appear equally irrelevant to a process industries engineering
contractor. No self-respecting major existing player in a mature industry with
powerful buyers and risk-averse stockholders could contemplate anything so
radical as even admitting the existence of chaos, let alone a strategy to
deliberately engineer it. The significance of health and safety issues in this
industry further reinforces this risk-aversion.
But it
brings me, however, to a final point in this section on the need for, and
opportunities inherent in, preparing for future change.
Even if
future change turns out not to be as chaotic as the pundits would have us
believe, we must be open to unexpected and unconventional possibilities for
changing the shape of the industry; daring to be different. Like many writers
before me on the subject of the management of change, it seems fitting to quote
some words from George Bernard Shaw:
The reasonable man adapts himself to
the world.
The unreasonable man persists in
trying to adapt the world to himself.
Therefore, all progress depends on
the unreasonable man.
A MODEL
FOR CHANGE
The
previous chapter included the simple message that flexibility and innovation must
be an important part of FWEL's strategy for the future in a changing world,
whether strategic objectives are primarily growth, profitability or survival,
and whether the generic strategy is one of quality differentiation, cost
leadership or segment focus.
What we
would like to address now are those organisational attributes that confer the
appropriate form and degree of flexibility. The management of change and
flexibility however, involves all the elements and linkages of our model of the
organisation, and we could draw up lists of apparently desirable features
against each of them. In fact many of the authors I have so far referred to,
include their own prescriptions of such features.
I cho