Building IT advantage

Building IT advantage

Construction projects have become so complex and time sensitive that investing in cutting-edge IT is vital to getting the job done.

After more than 30 years running information systems in areas as diverse as retail and pharmacy, Peter Hatten decided it was time for a new challenge. And boy, did he pick a doozie. When he took on the role of chief information officer at building and construction company Abigroup, he was determined to transform the company's information technology infrastructure into a single, streamlined service. However, other challenges soon became apparent.

Unlike other industries, where work is steady and easy to estimate, in contruction individual contracts and projects are large; managing them is in effect like launching a mid-size business every few weeks. And each project requires input from thousands of people through dozens of contractors and specialist agencies - and catering to these diverse requirements while maintaining an overall strategic vision is a continuing challenge.

"Most industries require continuous service provision," Hatten says. "So long as you can figure out the ebb and flow of the business, you have a fairly constant level of demand on your time and services. In construction, however, you're running a series of very large projects simultaneously.

"It's like you have two fronts going; you have to keep a handle on the strategic direction, as with all companies, but you also have to respond to a rapidly changing operational environment."

He says the size and scope of many of Abigroup's projects requires the infrastructure of a mid-sized business to be configured and operational within weeks - and preferably days - of a project's launch. Moreover, allies in one project were just as likely to be competitors in the next, adding an extra layer of complexity to requirements placed on the IT systems.

"Transparency is an essential element of the alliances we need to create to deliver most projects," Hatten says. "But at the same time you may be competing with your allies on other fronts, so data security is also paramount. And it's not just friendly competition; it's extremely competitive, so you need systems that can be rapidly deployed that allow all parties access to the information they need, while ensuring they can only access information relevant to their own project."

And if the internal contradictions of the building and construction sector are not already enough to contend with, the economic climate is throwing up even more challenges. The industry is booming in some states and sectors, but is in serious decline in others.

The Australian Bureau of Statistics reports that construction work in NSW, South Australia and Tasmania has fallen for at least the past three quarters. In the Northern Territory, the sector is in serious decline, having fallen for the past 10 quarters. The ACT is experiencing a slight turn in fortunes, rising slightly after three consecutive falls. Victoria, however, has managed to grow over the past three quarters, and Queensland and Western Australia have shown healthy growth for more than 15 consecutive quarters.

And the states are not the only areas throwing up contradictions. At a national level, residential construction has been sluggish for the past few years and although non-residential construction appears to have flattened out in 2007, this followed a 24.8 per cent jump in the value of newly started projects in 2006.

So what's going up is also going down - all at the same time.

New operating models

Having combined a background in economics with a natural proclivity for all things IT, Sean Kaye, general manager of information systems at Australia's largest construction company, Leighton Holdings, is using IT to keep a close watch on these numbers and to conduct rolling reappraisals of the company's position.

"The construction sector hasn't been traditionally associated with sophisticated implementations of IT," Kaye says. "But there's been a dramatic change over the past five years; jobs are getting bigger, increasingly complex and increasingly time sensitive. And without a significant and strategic investment in information technology, there's just no way to get the work done."

Over the past decade, a number of new operating models have emerged in the building sector. Kaye says this has increased pressure on the sector to deliver greater levels of transparency over, and insight into, players' financial positions.

On the one hand, the rapid growth in public-private partnerships has pressured the building sector to improve and streamline reporting mechanisms. On the other hand, so-called build-own-operate-transfer projects - where a developer builds and then runs an infrastructure asset for a given period before transferring ownership to the government - have forced Leighton to ramp up its business intelligence and predictive capabilities.

"These kinds of contracting models, coupled with a greater reliance on corporate alliances to deliver projects, have lead to a substantial increase in the amount of documentation required for each individual project," Kaye says.

"You just can't live in this world and not see IT as fundamental to your ongoing success. The jobs are getting bigger, and the old ways just don't work any more."

And it is not just at the big end of the building and construction sector that information technology has become a strategic tool.

Since coming into the IT-management role at Adelaide-based Bianco Construction Supplies in 2003, Enzo Centofanti has helped expand the company from a localised supplier to small and mid-sized projects, to the point where it is bidding for major mining and construction projects with the likes of BHP Billiton.

"Using our business name as the base, we've changed direction and we're looking to capture the growth markets in areas like mining," he says. "Over the next three years, we expect to have doubled in size, so our strategy now is to create a flexible infrastructure which allows for growth."

There could not be a starker contrast between Bianco's professional and highly trained IT team - which is in the process of adopting service-oriented architecture - and the two-person operation of 2003, when IT was seen as an expensive administrative tool, reactively implemented largely for accounting and administrative purposes.

When Centofanti came into the IT management role, the company's IT department consisted of a bricklayer and a joiner, and their office was in a corridor connecting the other offices with the bathroom. A failed enterprise resource planning upgrade in 1999 had left the company's management seriously jaded and wary of investing in IT systems.

"Most smaller construction firms still see IT as a necessary evil rather than a strategic investment, and we were no different," Centofanti says.

The opportunity to restructure the culture and reorganise the company's information systems so they played a proactive and strategic role came when Centofanti convinced management to make another attempt at carrying out an ERP upgrade. This time, the project included staff training, strategic planning and extensive testing - and was a resounding success.

"We're probably three to five years away from a fully automated administrative back end, based around servicing our staff and freeing up their time so they can focus on other areas which actually grow the company rather than just keep it operating," Centofanti says.

However, planned strategic investment in IT systems remains the exception rather than the rule in construction. Some of Australia's largest privately held companies restrict investment in information systems to some of the more basic administrative functions, and the problem worsens as you progress down the food chain to smaller contractors and suppliers.

"The construction sector is possibly one of the last to take up IT in a serious and strategic manner, because so many of the companies are still holding onto traditional operational principles," says Justin Williams, group operations manager for mid-tier building and construction company Probuild Constructions.

"Most smaller construction companies are still operating with a pen-and-paper mentality, and just haven't kept up with the commercial reality that projects simply don't get delivered on time or on budget unless you have the right systems in place."

In many instances, the fatal cycle of distrust, underinvestment and poor project management has taken hold while times are good. Industry pundits predict a small downturn will have wide-ranging consequences for construction companies that have failed to use good times to renew their information systems.

"Generally, you find a lot of these companies are surviving despite a minimal investment in IT, and they can survive because there's still a lot of work about," Williams says. "When the market tightens up and project profitability drops, they'll find they're suddenly running out of work or getting to the end of a project and making a loss because they haven't been able to factor in price shifts as they went along."

Like Bianco's Centofanti, Williams' initial success was based on an 18-month project to streamline Probuild's administrative functions through implementing a Timberline ERP system. He travelled from office to office for three months, figuring out what data needed to be captured, where repetitive manual processes could be replaced with continuous work flow patterns and which processes were core to the company's operation.

Keeping projects on track

"The ERP system provides real-time reporting, and the ability to track project position and profitability reports as factor prices change, allowing us to regulate the enormous growth we're experiencing," Williams says.

"We now have more than $1 billion on our work books, and we've just gone through the biggest growth phase in our history."

Williams says the ERP system gives management a clear understanding of Probuild's position at all times, allowing the company to take on larger, more complex contracts - and take advantage of growth in the market.

"Information systems need to be geared up not just for taking the steps we're taking, but also for the future," Williams says. "We're looking at global markets and dealing with steel suppliers from around the world, as well as local subcontractors and suppliers. So we need to be increasingly sophisticated in terms of the way we respond to these challenges."

In a similar vein, Hatten is aware of the importance of using the boom times to invest in systems that will ensure the company's survival when the market turns. "One of the key things Abigroup has [realised is that] we need to be thinking of the future to make sure we use the information we have today to prepare for tomorrow," he says. "Whatever goes up must come down, and investing in innovation today means we won't fall hard with the rest of the market."

As it turns out, Hatten's concerns may soon be entirely justified. Although the full year's figures have yet to be published, early indications suggest the non-residential construction sector may have slowed throughout last year, albeit after a boom year in 2006. In the three months to December 31, total construction work completed in Australia fell 1 per cent, seasonally adjusted. The seasonally adjusted value of building work done in the quarter fell 2.2 per cent, pulled down by a 5.1 per cent fall in the non-residential building sector.

Whether it is facing a temporary flattening or the start of a downturn, construction companies that have invested in IT to streamline management are best placed to survive the changing fortunes.

As Leighton's Kaye points out, survival in construction relies as heavily on a company's capacity to understand economic shifts as it does on its ability to create an apartment block or design a roadway - and this capacity to respond to such economic shifts is determined largely by the sophistication of its information systems.

"Without the information systems in place, most companies won't know they're in trouble until it's too late to turn things around," Kaye says. "And those are the companies that will face real difficulties in a downturn."

Fairfax Business Media

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