UK construction company Balfour Beatty’s strategy of growth through acquisition means it now has 15 operating companies. As a result, it inherited lots of independent legacy IT operations.
Such diversity and the associated management costs presented a significant challenge to the operational efficiency of the business. It was also having a negative effect on margins in what was an already challenging global economic environment.
The breadth of its operations also meant Balfour Beatty could not afford the required level of innovation needed to develop its business. So with the primary motivation for action being necessity, the company transformed its IT and, as a result, its business.
The economic case was clear, but the big challenge was always going to be execution.
CIO Danny Reeves faced some stark choices – invest heavily “at scale” in IT; get IT off the books by outsourcing the lot in a long-term traditional contract; or find a way to consolidate the number of locations, modernise the IT infrastructure and rationalise the number of applications while exploiting market opportunities in cloud-based services.
Reeves was originally IT director at one of Balfour Beatty’s operating companies. Now he works as its divisional CIO, where his role requires him to examine the estate in all of its diversity, remove complexity and deliver shared services.
On day one, Reeves was staring at an entire spectrum of IT equipment – from eight-year-old laptops to engineers working on-site using their own tablets. A back end ranged from VAX and AS400 hardware to multiple generations of Wintel. “A broad church,” says Reeves.
“I was faced with 1,500 servers in 10 datacentres, ranging from cupboards to dedicated buildings, and running 5,500 applications. The target has been to rationalise the number of applications to 1,500 in the first quarter of 2014 and eventually down to the low hundreds.”
About Balfour Beatty
Balfour Beatty is a UK-based global construction company operating in 80 countries, with around £11bn in revenues and 50,000 staff.
The company builds economic infrastructure – roads, railways, smart buildings, airports and sometimes even datacentres. It is helping to build the National Security Agency’s datacentre in Utah.
Its construction services range from investment to delivery. It also has a facilities management business and maintains a lot of assets. The company has rationalised to four divisions: Investment, Professional Services, Construction and Workplace.
Although the company has been in business for more than 80 years, much of its more recent growth has come through acquisition. It now has 15 operating companies in the UK, Europe, the US and China. As a consequence, it inherited many different IT systems, housed in everything from cupboards to dedicated buildings.
Reeves says he wants to halve his server estate. This currently consists of 60% physical boxes and 40% virtualised. The target number is 750, with an 80/20 virtual-to-physical split.
Reeves knows about business transformation through outsourcing. Balfour Beatty operates Worksmart and Workplace. Worksmart sells payroll, employee services, accounting and finance, supply chain management and IT shared services. Workplace is a facilities management arm selling services to UK corporate, government and utilities sectors.
So it came as no surprise that part of his overhaul included a five-year, £40m flexible outsourcing contract with IT service provider Fujitsu.
“I wanted to look at infrastructure and at the opportunities for pay-for-use. Part of the brief was to realise benefits quickly, identify and deliver early savings in infrastructure, people and buildings, with early delivery to ramp up the benefits,” says Reeves.
As part of the deal, 68 people moved from Balfour Beatty to Fujitsu. “This meant a complete assessment of the application base. We don’t develop a lot of applications, and the number we had was a product of the legacy of diversity,” he says.
The business-critical applications – enterprise resource planning (ERP), for example – are retained in-house. They stay under complete control of Balfour Beatty while being located in Fujitsu datacentres.
Hosting servers in Fujitsu’s North London datacentre and a secondary facility allows Reeves to spin up services on the fly. He says a strategic focus, however, has to be maintained through the application services team.
“Where the apps are supported, we’re looking to take them as a service. One example is email. We’re looking at Microsoft Office 365, though obviously there’s a lot more to that than an email platform. We could take it as a service from Fujitsu. This could be very cost-effective for us. As a CIO, I am partly losing control, but also losing the headache of things such as patch control, version management and compliance,” says Reeves.
The business-minded CIO
It is not the first time we have heard the story of the CIO’s role in the business changing to become more of an internal service provider and an external service provider manager. Why, then, own and operate infrastructure?
As a CIO, I am partly losing control, but also losing the headache of things such as patch control, version management and compliance
Danny Reeves, Balfour Beatty
Reeves says the role of the CIO is to look to the horizon, find cost efficiencies and leverage scale and quality. The focus should be on growing the business. Once the relatively easy wins of cost-cutting and rationalisation are complete, the biggest challenge will be to show delivery to the bottom line. The question, then, for any supplier of IT-based services is what strategic value you bring to the bottom line.
The traditional role of the CIO was to understand back-end technology. Today a CIO needs to work on behalf of the business to leverage technology and partners in pursuit of delivering greater customer value. It is also about identifying opportunities for how the business can be better served by its partners by “making oneself an intelligent client”, he says.
In the recent past, says Reeves, the CIO was a technologist. As a result, very few CIOs few could speak the language of business. Now the board expects a CIO to communicate in a way the business can understand.
“In the 1980s, the mantra was ‘technology, technology, technology’. Once all of that was adopted, it shifted to ‘cost, cost, cost’ and the management thereof. We are not quite in the value era of IT where we can say ‘IT is not a cost of business’, but we are responding with greater agility and effectiveness,” he says.
The business is also changing the way it views IT. It is now recognising that having the correct technology infrastructure and IT platforms is what makes the business efficient and that is what increases the value to the customer.
So is Balfour Beatty a technology-led company? Using an analogy, Reeves points out that in 2013 it is very difficult to buy a bad car, whereas in the 1980s and 1990s it was very easy to buy a bad car. He says change came about because all car makers applied data and analytics to every aspect of their business – from design to the component supply chain, from manufacturing to after-sales service. The leveraging of data and analytics by all car makers raised product quality, productivity and customer experience.
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He offers another example of an industry that adopted technology and turned data into knowledge – retail. It started with loyalty cards and now uses data to open up new services and markets.
“In construction and engineering, which is a very mature and low-margin industry, we’re at a very early stage of technology adoption for business value. By leveraging the technology and using the available data to re-engineer operations, we can create value for the company,” says Reeves.
Building information modelling (BIM) is the hottest topic in construction right now, according to Reeves. “We can design, build and operate in the virtual space. We can schedule build programmes, ensure clash-detection alerts – picture 100 cement trucks turning up to a site at the same time – manage supply chains and manage contractors. The ability to properly plan a large-scale construction project through the use of technology will reduce project overruns, cut costs and improve margins,” he says.
Balfour Beatty is about to start an £87m project in London’s West End for the Crown Estate, which will be modelled using its 4D BIM technology capability, which allows it to create a virtual environment.
The deal with Fujitsu is scheduled to run for five years. Fujitsu won the contract on a robust competitive tender. Balfour Beatty received tenders from niche, best-of-breed and large end-to-end suppliers. Fujitsu won in part because it displayed similar values to the building firm – and this meant running the outsourcing portion of the strategy as a partnership.
“I was looking for a partner company. Fujitsu works in similar markets to Balfour Beatty, so there was the opportunity to learn from each other,” says Reeves.
The metrics for success are financial – there is an in-scope spend improvement expectation of 20%.
“There are projects to develop a roadmap around how we use technology. We meet on a monthly basis and everything is measured. The question is, by how much can Fujitsu help us improve our margins?”
This article was originally published in DatacenterDynamics Focus.