Skip to content

Strategy Execution Derailment

Yesterday, Carrillion plc went into liquidation with debts of at least £1.5 billion ($2 billion). The 43,000-person construction and support services company operates in the UK, Middle East, Caribbean and Canada and provides a wide range of services grouped under three key areas of capability:

Support services

  • facilities management
  • facilities services
  • energy services
  • rail services
  • utilities services
  • remote site accommodation services
  • road maintenance
  • consultancy businesses

Project finance

  • Investments in Public Private Partnerships


  • building
  • civil engineering
  • development

Although not a household name, the company is involved in the lives of millions, whether through cleaning hospitals, financing prisons, laying rail tracks or building bridges. Many will recognise the names of companies that formed Carillion or were acquired by it: Tarmac Construction, Wimpey Construction, Mowlem and McAlpine to name a few.

The company pursued “sustainable, profitable growth” through a three-pronged strategy, proudly stated on its website:

  • Winning high-quality contracts in our chosen markets
  • Delivering contracts safely, sustainably and to best-in-class standards
  • Developing and attracting excellent people and capabilities

Delivery of our services and strategic objectives continues to be driven by our customer-focused culture, integrated business model and centralised operating platform, which enable us to combine all our skills and resources so that we can compete successfully to win and deliver high-quality contracts.

This strategy is no less robust than those articulated by most similarly large and complex organisations. In spite of profits warnings over the last six months – and without the benefit of today’s hindsight – many stakeholders (including numerous shareholders and government customers) seemingly saw the company as a having a reasonable chance of recovery. The 2016 results reported steady dividend growth, earnings per share rising, profits increasing, revenues up 14 percent, £16 billion of orders and probable orders, and a pipeline of opportunities worth over £41 billion. Other leading indicators were divulged which similarly did not spell disaster: a +22 percent Net Promoter Score and a 73 percent employee engagement score.

However, it all went wrong very quickly and Carrillion has provided another stark case of strategy execution failure. Suggestions are already being made as to the high-level reasons for the demise. The company operated in a highly competitive environment, with government contracts in particular often bring awarded to lowest cost bidders, other considerations being weighted lightly. There is little room for pricing or contractual mistakes. Carillion has also been highly acquisitive since its creation and has reportedly struggled with the integration of its newly owned businesses. This should not come as a surprise: the evidence is that such struggles are extremely common and a fairly small minority of acquisitions go on to create additional value. The company’s cash flow problems were reportedly intensified by slow payments from some customers; payments on contracts that were some of the business’s most profitable (on paper). There is also the likelihood of bad luck or bad management affecting cash flow through the phasing of income; Carrillion’s is a lumpy business.

It will be most interesting to see what further underlying strategy execution problems the company faced, as the dust settles and investigations inevitably commence. A  strategic review of the company, summarised in an investor presentation a few months ago, provides some clues:

  • Short term focus
  • Too much complexity
  • Insufficient transparency
  • Too much data and a lack of meaningful information
  • Large Group overhead

The company recognised the need for transformation and had recently tried to refocus on “core strengths and markets” – although of course, in a business like this one, such refocusing takes time: it’s a ‘tanker’ not a ‘panther’. The business indicated a three- to five-year horizon for its transformation. A different leadership team, new operating model and de-layered structure had been introduced alongside various cost-cutting measures. The business also wanted to improve “line of sight accountability” and transparency.

It’s worth reflecting on the list of services above. For any business to offer such a broad range of services through so many routes to market and to customers in multiple industries and regions, there needs to be an extremely strong resource-side logic that binds critical activities together, focuses resource allocation efforts and uniquely positions the company to outperform others. I’m not certain what that logic was; it certainly isn’t pinpointed in the strategy statement above. “Large Group overhead” may be a reference to the difficulties and costs of trying to manage effectively such a sprawling empire and create economies of scale. It reflects a belief I have held for some years now: that by modern standards, companies really don’t have to become that big and complex, to become highly risky from a strategy execution perspective.

It will also be intriguing to learn more about the problem of short-term focus. With revenues increasing much more than profit and failing to generate sufficient free cash, our suspicions should be that performance measures, targets and/or contingent reward may have been misaligned and driven myopic self-interested decisions and actions. Again, research clearly shows how easily this can happen, and it will be a real shame if so many people’s lives have been affected by what is essentially an avoidable problem. The aforementioned investor update references construction contracts being agreed despite highly uncertain assumptions and their success depending on the performance of parties outside Carrillion’s control. It will be unsurprising if the interests of the firm’s ‘hunters’ and ‘farmers’ were deeply misaligned. I leave you with ‘The Banker’s Mantra’:

Revenue is vanity.
Profit is sanity.
Cash is king.

Executive Dilemmas

Organisation leaders have endured a rough ride recently.  Barely a day passes when business chiefs are not accused of greed – the banking crisis seemingly leaving all private sector executives exposed to vilification.  Senior public servants are not immune either; attacked for allegedly irresponsible spending or precipitating one crisis or another.  How long before charity bosses are also metaphorically hung, drawn and quartered?

Of course, this aggression was triggered by genuine examples of incompetence and corruption.  Much of it relates to pay, which is usually sufficiently high that public abuse seems a small price for leaders to pay.  But setting reward aside for a moment, are the expectations placed on leaders fair?

I’m not sure they are.  Senior leaders face a far more complex and challenging environment than they did a few decades ago.  But more than that, today’s leaders face a tide of seemingly irreconcilable demands.  Consider a few of these cruel dilemmas:-

  • Modern leaders must build strong teams for their organisations to succeed – but also hold individuals clearly accountable and gallantly recognise where the buck stops.
  • All organisations should be learning organisations, eager to change given experience – but execute flawlessly or face stakeholder wrath.
  • Great leaders engage their people and build motivated teams – but are expected to markedly differentiate followers’ performance at appraisals, and manage out the ‘C-players’.
  • Performance must be reported diligently and risks declared faithfully – but even a hint of a potential problem in an informal email might become ammunition for future adversaries in unforeseeable confrontations.
  • CEOs are expected to post spectacular results within months of arriving – but simultaneously build sustainably high-performing organisations in the long-term.
  • Senior teams must judiciously predict long-term future trends and position their organisations to exploit them – but remain opportunistically nimble at the same time.

Perhaps the labour market is operating as it should; taking on this mêlée is surely worth a pretty price.  But can we rely on the market and its sparkling reward packages to deliver the best leaders?

CEO turnover has risen steadily in recent decades.  Whether they jump or are pushed, many leaders are relieved to leave behind the muddled demands from shareholders, customers, regulators, governments, staff, advisors, auditors, suppliers, analysts, the media, pressure groups and others who watch their every move and fiercely tug them in opposing directions.  Lifestyle choice increasingly drives career decisions.  Some promising leaders are eschewing conventional ambition and leaving the gruelling top jobs to others.  It is a tragic irony that such talent is diverted elsewhere when we need fine leaders now more than ever.

I’m not advocating that the Royal Society for the Prevention of Cruelty to Executives be set up.  But we should care about whether leaders can be successful.  We all want our pension funds to grow and our hospitals to save lives.

It’s tempting to seek external solutions: government intervention, less-greedy financiers or better management research.  But such hopes are surely long-term ones, and unrealistic if they depend on changing market realities.  Perhaps the answer lies with leaders themselves.  They can say, loudly and clearly, what to expect from their organisations: the time horizon over which they aim to maximise performance, the risks they will take, and the trade-offs that will favour one stakeholder group over another.  In short, they must say what will be sacrificed in order to excel.  Choice kills dilemmas.

Back To Top