Lindum Group

Source: Construction Digital

Date :20/03/2007 00:00:00

Lindum Group: Managing the Margins

Fresh from their tenth consecutive year of improved results, James Hurley discovers how construction firm Lindum Group has simultaneously built a reputation for innovative commercial thinking and excellent employee relations in a low-margin business.

Written by James Hurley & Produced by Sean Quantrill

When John Chambers, a civil engineer, founded a tiny family construction firm on Waterside North in Lincoln in 1956, he can scarcely have imagined that by 2007 his son David would be heading a company with 500 employees, a turnover of £85 million and offices in London, Peterborough, Grimsby, Lincoln and Spalding. In the process, Lindum Group has developed a business that demonstrates an innovative commercial ethos in an industry not traditionally associated with forward thinking.

Warren Glover, Business Development Manager at Lindum, attributes the consistency of the company’s success story in recent years to the flexibility of relying on forecasts instead of strict targets. “2006 was another record year for the company. We’ve shown a year-on-year improvement for ten years, and each year we’ve said we don’t expect to exceed last year’s performance,” explains Warren. “We don’t have targets. It’s more than just semantics to say that we don’t operate on targets, but a series of forecasts.”

While a financial search on Lindum Group will show that the ‘group’ is in fact a single company, it incorporates 13 individual trading divisions. “Since we don’t have the insulation of little limited companies protecting each other, the feeling is that we’re all in it together,” says Warren.

Instead of receiving challenging targets from on high, the head of each trading division is responsible for submitting an annual financial forecast. Warren is keen to stress the flexibility of the forecasting approach at Lindum.

“In virtually every case, the annual forecast is either accepted, or accepted at a slightly lower level,” he says. “The company doesn’t take the traditional approach where you’re told to do whatever you did last year plus ten percent. For example, when the housing division had very good results two years ago, they actually declared that they’d be doing half of that the following year and that was accepted. “The reason for having forecasts is that it widens the divisional heads’ responsibilities. By making it a genuine forecast and not a target which may or may not be attainable we can then plan our budget, finance and cash flow more accurately.”

An Egalitarian Approach

Like most construction firms, Lindum was hit hard by the last recession. When the firm emerged from the downturn, the board felt that a fundamental change in the structure of the company was necessary to ensure a successful future. It was at this point that Lindum began to forge its reputation as a superb employer. “When we came out of the last recession, survival was a real result,” says Warren. “The board realised that if they were to pick the company up from the fairly low position it was in, they weren’t going to do it on their own.

“It was going to be the people who lay the bricks, the people working on site, the people who dig the foundations, the buyers. These people were going to make the company a success, not the management team. For this to happen, these people needed to have some kind of invested ownership in the company.”

Offering a quarter of the company as shares for the employees, Lindum Group ingeniously ensured that it simultaneously maintained and modernised its identity as a family business. “If you’d been here since the free shares were issued and hadn’t bought any others, you’d have received a dividend over the years of £4,000 and currently have a share holding in excess of £12,000,” says Warren. “In a traditional construction business, where direct employees traditionally don’t focus on long term financial planning this share scheme is a major benefit.”

Lindum extends this egalitarian approach to a Profit Related Pay (PRP) scheme, whereby ten percent of the annual group profit generated by the trading divisions is divided equally amongst all of the company’s employees. Warren believes the scheme is an extremely powerful management tool. “In any business, people get paid at different levels. The guys digging the holes might look at the bosses and think ‘if only I could earn what they’re earning, and here I am slogging it out in the pouring rain.’ The fact that the bonus I get is the same as the one they receive is very useful. If I’m moaning to the workers about waste, I can explain that it’s their bonus on the line just as much as mine. For example, if I want them to pick up nails out of a car park so our Lorries and vans don’t get punctures, they’ve got to feel that they are going to benefit from it.

“We have to work together to get the same bonus, and psychologically that has a much more powerful effect than me berating them if they know I’m going to get a bigger bonus. Last year the scheme paid out over £1,200 before tax. That’s a significant sum of money, and it becomes more significant towards the lower earners.” Lindum’s approach to its employees has been consistently recognised by one of the most well known barometers of industry-employee relations, the annual Sunday Times ‘Best Companies To Work For’ list, with consistently improved performances in the top 100 culminating in an impressive sixth-place last year.

Improving Efficiency

Warren has been putting much of his energy into the waste transfer division of the group for the last four years. Coming from an engineering background, he was determined to buck a trend for inefficiency that he sees as ingrained in the construction industry. “Construction is traditionally a wasteful business. We worked out how much we were spending in waste and wanted to change that, but there were no simple solutions. We looked at doing on-site segregation and that didn’t work. There are too many parties involved in the process with too many other priorities. We developed a hybrid solution where we do a broad-brush segregation on site, and then take it back to our dedicated waste transfer station where we do a more detailed final segregation.”

“The initial segregation means we can cost things differently so people can get the benefit of reduced waste tipping charges. It’s an easy on-site solution that results in reduced costs, while the more detailed, sophisticated segregation can be done in the dedicated environment. In 2002, when we did the business case for building the station, we worked out how much waste removal was costing us. We are currently spending in pound note terms, £15 per tonne less to remove waste. There’s no inflation factor in that, so in spite of fuel and land fill costs going up year on year, we’re still making this massive real terms saving. It’s ecologically sustainable because it’s economically sustainable. That’s the only way to make companies committed to environmentally sound schemes.”

Lindum now has a highly impressive 92 percent recycling rate, and Warren says that they’re looking to technology to help them work on the last eight percent. “We have new initiatives on glass and UPVC that’s going to get us even closer. I think our figures next year will be quite remarkable.”

The Low Margin Challenge

As ever, producing a sustainable profit in the construction business is a challenging prospect. As Warren explains, Lindum are in a low margin business. “Making a consistent profit in construction really is an art. It doesn’t take much of a mistake to drag you below the line. One of our secrets is that we’ve got a lot tighter in terms of delivering what we’d estimated we’d deliver on time. Our cost controls and programme controls have tightened up significantly and that enables us to compete. But that’s just a ticket for the game.

“Five or six years ago that would have given us a significant marketing advantage. But things keep on getting tighter and tighter. This means we have to constantly develop our innovations and cost-control schemes to keep developments on time and keep costs down.”

In such a competitive industry, Warren sees the way in which construction manages one of its perennial problems as key to its long-term prosperity. “Construction is still suffering the adverse effects of the skills shortage. When we talk about the shortage we’re not just talking about numbers of people, we’re talking about levels of skill that these people possess. People are covering the same job again and again.

“It means that firms are often running at only 80 percent efficiency. That costs an enormous amount in a low margin industry and it’s sitting there as an untapped resource. To me this is to do with units of measure and expectations of delivery. In construction we often work in a standard unit of one week, that’s too wide a margin of error. I feel there’s a problem with expectation levels, the low expectations have become self perpetuating. We can’t rely on improving technology alone to bring the industry forward; unless the human interface improves it will be wasted.”

If Lindum Group’s record on improving efficiency and motivating their workforce is anything to go by, don’t bet against the company taking the lead in addressing these issues.