Learning from a pioneer?
A 35 per cent increase in revenue to £2.2 billion in the year to November 2020 and a share price of the order of 1000% above float - sounds like the land of dreams for most construction sector businesses. So too does the huge level of investment in and paradigm shift created by a highly digital platform and a part robotised solution.
So what is 'not to like'? Why would not a construction sector business want to closely mimic the transformation that Ocado Solutions has brought to the world of grocery?
Indeed at the level of vision and creating a transformative digital model Ocado Solutions has it exactly right, bravely right perhaps; but there are two key lessons for construction and development that should not go unnoticed:
- Shareholders - the constant need to keep shareholders re-assured that growth in price will be maintained and that one day, perhaps even one day soon, a dividend will be paid; perhaps does not give the best nurturing environment for cross sector change - Ocado Group have managed this through constant attention to investor relations; and
- Interoperability - or rather the lack of it. Ocado Solutions have manifestly done this from a standing start with bespoke technology; indeed that is their business model; they are in essence a vendor of logistics tech and for that to work commercially, to have any chance of meeting shareholder aspirations, there needs to be huge value generated in the IP.
So how does construction both take inspiration from the path that Ocado has followed, but also reach beyond some of the restrictions that Ocado has found in its path?
A paradigm shift in an an approach to delivery needs to be supported by stable long term, but exacting, sources of funding. Here, government in the widest sense plays a very key role. From the Cabinet Office we see the Construction Playbook overtly encouraging a focus on outcomes and MMC in Government procurement and from Homes England - a long term study with Atkins on a range of MMC solutions sending the message to potential strategic partners that they must commit to increasing the use of modern methods of construction (MMC).
The imperative of a journey to Net Zero carbon, for which digitally enabled delivery can bring key reassurance, also unlocks longer term investment funding possibilities. In the real estate investment funding arena funds like Legal & General Investment Management (LGIM) Real Assets which has set out a strategy to achieve net zero carbon emissions across its UK real estate portfolio by 2050 and Nuveen Real Estate, one of the largest real estate investment managers in the world, which has committed to making its £96.4bn global property portfolio operationally net zero carbon by 2040.
For the right solution, construction and development funding and support is increasingly available. Ed Dixon head of environmental, social and governance (ESG) for real assets at Aviva Investors says, “It means only buying assets where you have full confidence they can be decarbonised in time, and refurbishing, redeveloping or disposing of everything else in your portfolio that isn’t being managed in line with your pathway to net zero.”
This type of funding recognises the need for a long term view and does not come with some of the tensions we see in organisations exposed to changing shareholder sentiment.
The ability to use MMC as a tool to track embodied and lifecycle carbon can be further developed. The use of Platform P-DfMA systems - sets of components that can be assembled in different ways to create different building configurations at initial construction or over a building's lifetime, can hugely improve building's sustainability credentials and maximise re-use.
We will only attain the real scalability and efficiencies of MMC when there can be interoperability of key connections and performance requirements - think worldwide adoption; as with shipping container connections and load rating. A client and funder will have the added assurance that components can be swapped in and out over a structure's lifetime so that the success of a project does not depend upon the financial stability of a single MMC supplier.
Whether volumetric or panellised, similar principles need to be adopted. Success should not be driven from each MMC business protecting a unique system in a way that ultimately limits market scale and pushed up cost to the consumer. Better to agree a protocol that is shared with each business then released to concentrate effort upon creating a stand out product rather than protecting aspects that arguably work against the scalability of the business.
So it is with Ocado, just about every aspect of the Ocado Solutions offer is bespoke and protected. Whist this is a standard approach, does it ultimately create an Achilles heel?
The fundamental problem Ocado faces is that the high-growth tech business that investors backed will take a long time to start making a return.