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CONSTRUCTION OF NEW EUROPEAN CAR PLANT AT SWINDON FOR HONDA OF THE

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CONSTRUCTION OF NEW EUROPEAN CAR PLANT AT SWINDON FOR HONDA OF THE

Centre of Construction Law, Kings College London, Annual Conference September 2003

    INSIGHTS FROM

    BEYOND CONSTRUCTION

    COLLABORATION THE HONDA EXPERIENCE

    CASE STUDY - CONSTRUCTION OF NEW EUROPEAN CAR

    PLANT AT SWINDON FOR HONDA OF THE UK

    (MANUFACTURING) LTD

Joint Authors

Richard Bayfield FICE FCIArb - Bayfield Associates

http://www.richardbayfield.com

Paul Roberts FICE FCIOB - Honda of the UK Manufacturing

http://www.honda-eu.com

CONTENTS

    1 Synopsis ..................................................................................................................................... 3

    1.1 Background..................................................................................................................... 3

    1.2 Project Performance ....................................................................................................... 3

    1.3 Honda’s understanding of the Construction Client Role ................................................... 4

    1.4 Hypothesis ...................................................................................................................... 4

    1.5 Honda Philosophy ........................................................................................................... 4 2 Lessons from Automotive Business ............................................................................................. 5

    2.1 Total Quality Management (TQM) ................................................................................... 5

    2.2 Continuous Improvement ................................................................................................ 5

    2.3 Planning and Gap Analysis ............................................................................................. 5

    2.4 Communication, Culture and Conflict............................................................................... 5 3 Recommendations ....................................................................................................................... 6

    3.1 Potential “Quick Wins” ..................................................................................................... 6

    3.2 Parallels with Egan Report .............................................................................................. 6 4 Conclusion .................................................................................................................................. 7

    4.1 Client Influence ............................................................................................................... 7

    4.2 Central Question. ............................................................................................................ 7

    4.3 Postscript ........................................................................................................................ 7

     Richard Bayfield and Paul Roberts Page 1 of 7

Centre of Construction Law, Kings College London, Annual Conference September 2003

Richard Bayfield and Paul Roberts Page 2 of 7

Centre of Construction Law, Kings College London, Annual Conference September 2003

1 Synopsis

1.1 Background

1.1.1 Honda is one of a growing number of Client organisations, which successfully uses so called

    “sophisticated” project management tools and techniques. The end result is a number of

    projects, which have beaten tight financial constraints; and have been delivered on time to the

    required quality. Indeed Honda’s internal benchmarking has shown that construction costs on

    many projects are comparable with those in the competitive USA market.

1.1.2 In October 2002 the New European Plant at Honda was awarded the British Construction

    Industry Award for a Building Project.

1.1.3 The judges for the British Construction Industry Award Honda commented:

    1.1.3.1 The “one team one goal” culture of openness and transparency at Honda’s New European

    Plant, and the company’s refusal to accept the status quo, has been rewarded with a 1building cost of only ?701/sqm - a 40% improvement on the cost of the original plant at

    Swindon completed nine years earlier.

1.1.3.2 Outside the plant is an anonymous shed, which would not be in contention for any

    architectural beauty award.

1.1.3.3 Inside it is an incredible three dimensional jigsaw of services dedicated to the rapid and

    economical assembly of high quality cars.

    1.1.4 In 2002 the DTI part funded a project report to capture the “learning” from this project; these

    notes form a brief summary of the longer DTI report.

    1.1.5 This aim of the DTI funded report was essentially to answer the question, “There are many

    good tools out there but most people don't use them why?”

1.2 Project Performance

1.2.1 In September 2001 Honda completed a ?130M investment at Swindon. This was for a second

    50,000 M2 Car Plant adjacent to the existing Car Plant at Swindon. The construction

    performance was impressive. Building costs including design came in at just over ?35M,

    equivalent to ?701 per M2. Moreover, initial cost estimates in 1998 from many leading UK and

    Japanese companies came in a range of ?800 - ?1,000 per M2.

1.2.2 As Honda builds similar buildings around the World it is able to benchmark its construction

    costs in the same way as it does its car production costs. Currently the UK operation is

    achieving construction costs comparable with those in the USA. This is particularly important

    because the USA construction market has long been held up as one of the most efficient in

    the World.

1.2.3 In summary, Honda has achieved a 40% improvement in its UK construction performance

    over 11 years (as measured by building cost for buildings of equivalent functionality). This

    improvement is well above the 30% improvement suggested by Sir Michael Latham in 1994 2within his landmark report on the underperformance of the UK construction industry. The

    30% improvement suggested by Sir Michael was widely criticised at the time as being

    impossible and indeed there are many who still doubt that such an improvement is possible.

1.2.4 What is more important is that this improvement has not been at the cost of cutting building

     1 ?837 per M2 in 1990 adjusted to ?1173M2 for equivalent price in 2001 2 Constructing the Team (1994) Sir Michael Latham

     Richard Bayfield and Paul Roberts Page 3 of 7

Centre of Construction Law, Kings College London, Annual Conference September 2003

    functionality, nor has it been at the cost of Contractor (Supplier) margins. Honda recognises

    that the only way it can survive long term is through its Suppliers being profitable.

    1.2.5 In Honda’s case the improvement has largely been achieved by using the best available

    management tools and techniques coupled with a company philosophy, which actively

    encourages change and challenges the status quo.

1.2.6 This meant that the recently completed car plant 2 was achieved under a different

    procurement route and with a different contractual regime from the original plant (1). Moreover

    Honda’s own role as Client changed between the two comparable projects, in particular on car

    plant 2 it saw itself as central player within a “One Team One Goal” philosophy

1.2.7 This significant improvement in out turn cost between the two projects certainly provides

    justification for Honda’s decision to use the many good management tools now available,

    some of which emanate from the automotive industry.

1.3 Honda’s understanding of the Construction Client Role

1.3.1 Honda recognises that the Client’s role is central to the success of the Project.

1.3.2 Honda through its automotive business recognises that it is important within any business

    operation, to get close to the supply chain.

1.3.3 Honda understands that in all areas of its business there are risks. Its strategy is therefore

    about risk management not risk avoidance. Moreover any project is liable to external risks 3including Political, Environmental, Economic, Social and Technical risks (the “PEST” factors).

    Furthermore risks faced by clients such as Honda are far wider than those normally

    associated with purely construction risks.

1.4 Hypothesis

1.4.1 Honda has clear business objectives, which in turn translate into business strategy. The

    business objectives comprise being a global brand synonymous with quality.

1.4.2 However, part of the business strategy necessary to achieve these objectives is to create a

    culture, which encourages “thinking the unthinkable and challenging the status quo”. The

    achievement of Honda is that it manages the paradox created by risk. On the one hand it

    creates a culture in which risk taking is encouraged, on the other it recognises that risk taking

    should not be reckless, but rather it should be managed.

    1.4.3 The Authors take the view that in many organisations there is considerable “inertia” which acts

    as an “obstacle” to change – no matter how attractive the alternatives might be.

1.4.4 The thesis of the DTI report was that long-term success in construction projects is no different

    to long-term success in business as a whole. However the key is a culture which allows,

    indeed even requires, risk taking and change, but in a structured rather than reckless or

    foolhardy manner.

1.5 Honda Philosophy

    1.5.1 It is the Authors’ view that the Honda philosophy is the key to the construction project success.

    The philosophy creates a culture in which it is appropriate to challenge the status quo; indeed

    the company encourages “creative dissatisfaction”. This means that every assumption or

    application within the automotive sector of the business is challenged regularly. It is the drivers

    (philosophy and culture) of the business, which are the key.

     3 “Control of Risk” - CIRIA 1996

     Richard Bayfield and Paul Roberts Page 4 of 7

Centre of Construction Law, Kings College London, Annual Conference September 2003

2 Lessons from Automotive Business

2.1 Total Quality Management (TQM)

2.1.1 The main feature of a total quality management culture is a Customer focus and the

    recognition that there are many Customers involved with any process whether it is building a

    car or building a car factory. The Customer is not just the end user but also the next person on

    the production line or the next Contractor in the chain (e.g. the Brick Contractor who has to

    build a wall on foundations built by the Groundwork Contractor).

2.1.2 The concept that “claims represent inefficiency” wherever they occur in the supply chain is

    founded within the principles of TQM. The management style which is appropriate to a TQM

    culture places a premium on setting a clear vision, and operating in a way that encourages

    openness, trust, teamwork, a pro-active culture, a challenging culture, but also enables

    performance to be measured and improved.

2.2 Continuous Improvement

2.2.1 Continuous improvement is very much part of a TQM philosophy. The objective is to find ways

    of improving performance throughout the supply chain. No one should ever feel they have to

    accept the status quo without challenge.

2.2.2 Use of techniques such as the “5 Why” technique enables continuous improvement. Thus by

    asking the question “why” up to 5 times it is normally possible to “interrogate” a problem in

    depth and identify the “root” cause of a problem. One key feature of a continuous

    improvement process is that everybody is involved.

2.3 Planning and Gap Analysis

    2.3.1 There is an emphasis on planning and updating of plans at all stages of a project (i.e. “real

    time” programming). The approach to programme management is similar to that 4recommended within the SCL Delay and Disruption Protocol.

    2.3.2 There is also a regular measurement of the “gap” between what was planned and what

    actually occurred. The measurement can be in quality, money, time or some other variable.

    The purpose is to measure the difference and then understand why it occurred.

2.4 Communication, Culture and Conflict

2.4.1 It was understood from the outset that enhanced communications would improve overall

    project delivery. Honda sees its role as being central to the communications process. The use

    of a computer linked whiteboard as an aid to facilitate meetings is probably the most radical

    and yet also the simplest of methods. Whiteboards and similar tools have been successfully

    adopted in other environments including education.

2.4.2 A culture, which actively encouraged questioning and challenged existing practices resulted in,

    a saving on Paint shop construction costs alone of over ?1million through the Value

    Engineering process.

2.4.3 Honda accepts that in any team conflict cannot be avoided. It therefore needs to be managed

    so that potential problems are brought out into the open at an early stage. In practice this

    means improving communications at all levels. It also means that considerable time is spent

    “pre-empting” problems before they arise and that all within the project team must subscribe to

    the early warning philosophy.

     4 For more information on the Society of Construction Law’s Delay and Disruption Protocol visit

    http://www.eotprotocol.com/

     Richard Bayfield and Paul Roberts Page 5 of 7

Centre of Construction Law, Kings College London, Annual Conference September 2003

    3 Recommendations

3.1 Potential “Quick Wins”

3.1.1 The output from the DTI report included a list of tangible methods of managing projects, which

    having been successfully applied within the car industry and have been used equally

    successfully within construction.

3.1.2 Whilst it would be good to simply list out the key findings and say the key to success is to

    adopt them, the truth is that before any change can be implemented within an organisation

    there has to be a champion to first instigate the necessary cultural change. However with that

    rider in mind we would re-commend the following “quick wins”:

3.1.2.1 Challenge the status quo.

3.1.2.2 Learn about risk and then how to manage risk.

3.1.2.3 Recognise the importance of planning.

3.1.2.4 Recognise the importance of effective communications.

3.1.2.5 Adoption of smartboard methodology or similar for improving the effectiveness of meetings

    and reducing management time writing up minutes.

3.1.2.6 Create integrated project teams and actively promote teamwork.

3.1.2.7 Accept that conflict (like risk) cannot be avoided and needs to be managed, use methods,

    such as “early warnings” to ensure potential problems are brought out into the open at an

    early stage.

3.1.2.8 Consider using experienced seconded staff as part of the Client team.

3.1.2.9 Recognise that Construction Management (despite criticism in certain quarters) can often

    offer the Client extremely good value for money.

3.1.2.10 Adopt Customer focussed Total Quality Management (TQM) methods.

3.1.3 If our “champion” can only adopt one recommendation then we would suggest the adoption

    of smartboard methodology for improving the effectiveness of meetings and

    communication, whilst achieving an overall saving in management time.

3.2 Parallels with Egan Report

     53.2.1 It is noted the implementation toolkit for the Egan Report makes certain key

    recommendations which are very similar to those above:

3.2.1.1 Move from a risk averse culture.

3.2.1.2 Challenge the status quo.

3.2.1.3 Form integrated teams.

    3.2.1.4 Appoint a “Champion” to make it happen.

     5 Rethinking Construction Toolkit (2001) implementing Egan’s Report

     Richard Bayfield and Paul Roberts Page 6 of 7

Centre of Construction Law, Kings College London, Annual Conference September 2003

    4 Conclusion

4.1 Client Influence

4.1.1 Honda needed to be able to influence the project at all times. This is because Honda needed

    the flexibility to respond to changes in the business needs. Construction Management

    provided the vehicle for implementing this pre-defined strategy of being close to the

    Construction team.

4.2 Central Question.

4.2.1 This aim of the DTI report was essentially to answer the question “there are many good tools

    out there but most people don't use them why?” It is clear that Honda’s own core values and

    culture demand that the status quo is forever under threat. Therefore Honda is forever

    considering new methods and tools. The new methods and tools are fully evaluated and

    sometimes adopted.

4.2.2 Why is that not the case for other organisations? A clear theme emerged during interviews

    that neither Honda staff nor their advisors feel under threat of making a mistake. For example

    Paul Watchman of Freshfields stated:

4.2.2.1 What sets Honda apart is their culture of testing the existing procedure or orthodoxy. They

    do not accept the status quo. On occasions they will test to the limit in the way that a car

    component might be tested. However their approach is not confrontational and they are

    willing to treat advisors and suppliers as part of a team. Their culture is pro-active and pre-

    emptive rather than negative, sometimes there is “creative tension” within meetings reflecting

    a deep will to succeed. However there is not the fear of making mistakes that is found in

    some organisations.

4.2.3 At Honda there are high expectations placed on all, but if a problem arises the pervading

    culture is to discuss the problem and share in its early resolution. This is an important

    distinction between Honda and many other organisations where a risk averse, backside

    covering culture pervades. The Authors believe that many Client organisations don’t fully

    appreciate all the risks, which their projects and organisations face (i.e. if they do not fully

    understand the problem then how can they possibly develop a strategy to manage it?).

4.2.4 Whilst there are probably several different answers to the answer to the question “there are

    many good tools out there but most people don't use them why?” The primary answer

    must be because of the “cultural barriers” in many organisations, which act as

    obstacles to change.

4.3 Postscript

4.3.1 Finally on receipt of the British Construction Industry Award Honda commented:

4.3.1.1 “Honda sought to establish an integrated team approach at all stages of the project. Indeed

    Honda was aware that the only way the project would be successful is if everyone bought

    into the “one team one goal” philosophy. The management of the project was structured to

    provide both flexibility to the Client and a “non-adversarial” climate. There were innovative

    and proactive methods used to achieve this “team culture” which ranged from the use of fair

    contracts with “early warning” procedures to the use of smart boards at meetings to ensure

    high visibility and no hidden agendas.”

     Richard Bayfield and Paul Roberts Page 7 of 7

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