Carillion Collapse How Did It Go Wrong

What can SME’s learn from Carillion?

If you’ve been listening to the news at all this week you will know that construction giant Carillion has gone into liquidation. With only £90 million in the bank and owing a whopping £1.5 billion it was inevitable when the banks said ‘no’ to more cash.

So, what did go wrong?

In a nutshell, they forgot the basics. It doesn’t matter how large (or small) you are if you don’t look after your cash flow – look ahead to the future with the help of the present – you will fail.

Ok so we don’t all have a £600m pension deficit to worry about but we all have our own challenges and worries that could overwhelm us in the same way if we let them.

Carillion, for all in purposes, looked like a successful company with a large order book of business lined up, ‘safe’ Government contracts in the bag such as HS2 and a £5.2 billion turnover. However, looks can be deceiving.

Carillion failed in three key areas which led to their ultimate downfall;

  1. Overambitious

An accident waiting to happen – according to Professor Karl Williams at Manchester University’s Alliance Business School. “With outsourcing, you have to continually bid for new contracts, and the stock market expects to see continuous growth,” he told newspaper The Guardian on Saturday. “But sooner or later you take on a contract that makes huge losses and the operation can’t sustain those losses.

“There are problems when you move past being a specialist outsourcer. Many conglomerates just churn through contracts and move into areas they don’t understand, until their luck runs out. This was an accident waiting to happen.”

  1. Lack of effective performance management

Large contracts that looked good from the outside but were not profitable – contrary to what many think Government contracts are not a licence to print money, but typically provide only wafer-thin profit margins for the contractors involved. So, when anything doesn’t go to plan, such as finding asbestos on a site where you are going to build a new hospitable, costs overrun and profits disappear.

  1. Lack of effective governance

Pricing contracts to ‘get’ the work – this was a company that did not have a handle on the costs, was over-optimistic about the work it had taken on and had over-reached itself in terms of the projects it took on.

Take a good hard look in the mirror, I am sure that not one of us can ‘hand on heart’ can state that we aren’t guilty of one of these at least once, probably more times than we would like to remember.

Plan_do_check_act

A lesson to all, big and small, is that you if you want to succeed you HAVE TO remember the basics – PLAN – DO – CHECK – ACT and

  1. Manage your growth

  • plan, plan and plan again
  • what structure do you have now how will that need to change?
  • do you have the right expertise in place, how will you get it?
  • can you maintain your service level to your existing customers?
  1. Keep on top of your performance

  • where are you now?
  • are you going in the right direction, monitor your key performance indicators to track your performance
  • use forecasting tools to understand where you will be/could be
  • use project management tools such as SimPro to understand profitability per job/per client/per product line
  1. Ensure you have effective governance in place

  • is your tender/quote process robust enough, does it provide you with enough contingency for when things don’t go to plan?
  • if it’s not going to make you any money think long and hard before you say yes

It’s that simple!