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New models for our new world order

Our recent Brexit experience in the UK and Trump experience in the US reminds us that unexpected changes in political and economic models are set to have a huge impact on our lives.

The same is true of unexpected change or innovation in business models.

All around us are examples of business model innovations that impact our life. There are older examples such as the Microsoft 1980’s model to deliver a PC in every home, to more recent examples such as AirBnB, which has at one stroke removed the barriers for anyone to become a hotelier.

Other industries have turned products into services. The often-quoted example is Rolls Royce, who now sell flying hours, a service, as opposed to engines, a product. These types of changes can alter industries overnight and have other unexpected consequences both good and bad. Looking at the Rolls Royce model, their business is expected to be cash negative for the next three years as they grow their engine base, before generating cash in 2019 from the sale of services. Changes to accounting standards, where future expected profits cannot be booked against current losses, on engines sales, means a downward restating of last year’s profit by circa £750m. This has led to a difference of opinion and debate between investors and analysts as to the value of the Rolls Royce business.

UK construction is often regarded as an innovative sector, every project delivered by the sector is a masterclass in innovation, solving a myriad of bespoke problems. If this is so, then why do we see little innovation in the business models applied to delivering real estate and infrastructure assets?

New construction forms and models appear once every decade or so. Over the last three decades we’ve seen Construction Management, partnering combined with open book and PFI/PPP emerge with their relative importance linked to economic cycles and political fashion. However, we’ve seen very few example of changes in the traditional supply chain roles of client, tier one contractor, specialist etc. Industry structure and business models have stayed relatively constant over a long period.

So, where are the opportunities to create value by innovating in construction business models, the acquisition and use of real estate?

This is the question we addressed at yesterday’s CE asset management workshop at Kings College London (intro and WLP+ update slides).

Madoc Batcup, Partner at Synaps Partners LLP spoke about the opportunity to create value and opportunity by working more collaboratively to assign and manage risk, in turn unlocking sources of financing. Madoc cited the example of Legal and General investing to create the capacity and supply chain to bring to market 3,000 off site manufactured homes to access the long term rental income. L&G have integrated the role of client and supply chain to unlock value.

Paul Burnett of Asset-Plus explained several disruptive business models which are emerging to allocate energy efficiency investment in the UK’s building stock.

The presentations and notes from the meeting are available on the CE website.

Our next meeting planned for 1.30pm Thursday 25th January 2017, in central London, will look at “How process can improve operational performance”. We will examine process improvement at each stage of the built asset life cycle; pre-construction, construction and in use operation. As usual we will have three provocative presentations by leading industry practitioners to stimulate debate, learning and sharing of experience.

If you would like to join us for this workshop, then please contact me at john@lcmb.co.uk. And finally, if you are interested in looking in detail at your existing business model and the art of the possible, you could start by using a tool such as the business model canvas with your team, partners, supply chain and clients, you may be surprised what it throw up!

John O’Brien is chair of the asset management group and the founder and MD of LCMB a building performance specialist which helps clients improve the performance and productivity of their buildings. The programme for the asset management group for the next year is detailed below. Please contact John at e: john@lcmb.co.uk or t: 01295 722823 if you would like to attend, host or speak at one of our workshops.

1.30pm 25th January 2017 How process can improve operational performance Examining the use of BIM, soft landings etc. to improve the operational performance of built assets
1.30pm 26th April 2017 The use of big data to improve built asset performance Unlocking and using big data to improve built asset performance
1.30pm 12th July 2017 Integrating data systems How to improve the performance of built assets by joining up data systems
1.30pm 20th September 2017 Making existing built asset work How to improve the performance of existing built assets
1.30pm 24th January 2018 Asset management summit Joining up guidance and insights for CE members to help differentiate their services