Changing culture: How to break infrastructure’s vicious circle

October 2018

To thrive in changing industries, capital projects and infrastructure owners, contractors, and operators must acknowledge the importance of culture, build forward-looking leadership teams, and embrace diversity and inclusion.

At the heart of many pressing challenges in capital projects and infrastructure—improving productivity, attracting and retaining talent, building more diverse and agile leadership teams—are problems with culture.

The forces affecting infrastructure’s culture are both external and internal. Externally, contracting tends to be adversarial, putting the risk on the contractor and creating a zero-sum game of winners and losers. This dynamic trickles down through organizations, affecting individual mindsets and organizational cultures (which in turn reinforces the combative contract process). Internally, infrastructure companies are struggling to evolve; leaders tend to be risk averse, which has slowed adoption of new technologies such as robotics, augmented reality, advanced analytics, and automation.

Across the industry, the imperative is clear: Sophisticated use of technology is becoming a differentiating force. And increasingly complex and competitive projects involve more stakeholders and place more emphasis on collaboration and collective outcomes. In addition, the high rate of M&A activity in the industry means that organizations must figure out how to integrate very different workforces and get them to work together effectively. Organizational culture is at the center of all of this.

In our conversations with senior leaders across infrastructure, we have found that leading companies are prioritizing culture more than ever. They are hiring leaders who can champion and catalyze culture change, and increasing inclusion and diversity within their talent and leadership pools. Some companies are even rethinking their working relationships with external partners and contractors to embrace contracting based on alliance rather than opposition—a cultural shift that will only be possible if company leaders and employees are ready to work within a new, forward-thinking paradigm.

The importance of shaping culture

Too often in infrastructure, the role of culture in business performance is overlooked apart from occasional lip service. As such, a key step in evolving culture is to acknowledge its importance and prioritize it. Our research finds that when properly aligned with personal values, drives and needs, culture can unleash tremendous amounts of energy toward a shared purpose and foster an organization’s capacity to thrive. On the other hand, an unhealthy or misaligned culture can impede strategic outcomes, erode business performance, diminish customer satisfaction and loyalty, and discourage employee engagement.

An approach to culture change at infrastructure companies

As has been asserted time and again in other industries, culture change must start at the top. The leadership team needs to embrace management discipline around culture just as it does for other key performance levers, such as strategy and financial operations. Ideally, conversations about culture are integrated into the natural flow of the business—during regular management team meetings, the annual strategy session, and other follow-up strategy discussions. And while a one-day workshop alone cannot evolve the culture, retreats and seminars focusing on culture can convince teams at all levels of the need for a culture shift.

“We have these partnering sessions, which are basically retreats where you go somewhere and you get to know the people on the team, and you come out of there on good terms after having learned a new process or two,” an airport CEO told us. “I’m convinced people who have been with us forever roll their eyes, but personally, I think it’s a good start.”

It’s also important to select forward-looking leaders for key roles. Cultures that foster learning, agility, and innovation require leaders who are comfortable with ambiguity and encourage creativity. Organizations may also have to change their processes; one leader we interviewed suggested that organizations hold twice as many meetings about opportunity than about risk to foster a culture that prioritizes flexibility and experimentation over safety and order.

When building both the leadership team and the next-generation workforce that will usher the company into its next stage of development, infrastructure and capital project leaders must prioritize diversity and inclusion. Diversity is important for many reasons: Experts agree that a wide breadth of perspectives helps a company anticipate trends and adapt more nimbly to challenges.1 According to McKinsey research, companies in the top quartile for gender diversity are 15 percent more likely to post financial returns above their respective national industry medians. Increasingly, infrastructure companies are bringing in leaders from other industries—such as telecommunications and banking—who can contribute a diversity of thought to infrastructure initiatives. As organizations become more diverse across all these dimensions, there is less implicit understanding about how to work together and be successful in the organization, so companies need to define and manage their culture in alignment with business needs.

As one global resources company executive explained, “Diversity is a key for us—both gender and cultural diversity have been an ambition from day one. We need to make sure that those voices are heard throughout the organization, and that our structure isn’t solely top down.”

Embracing alliance-based contracting

Another significant obstacle to growth for capital projects and infrastructure is traditional contract arrangements. Indeed, adversarial contracting can make it difficult and costly for players to take risks such as implementing new technology. The urgent need for progress is thus driving the industry toward a new contract process: Some companies in Asia and the United Kingdom, for example, have adopted the Institution of Civil Engineers’ New Engineering Contract system, which establishes a “family” of contracts that define the legal relationships and respective responsibilities of all parties involved. In this arrangement, members of the alliance have equal voices and share in the performance of the collective—across the sector—as a whole.

Ventures that have successfully used this arrangement include the Anglian Water @one Alliance, a water project that achieved annual savings of up to 3 percent and reduced operational carbon output by 41 percent (a benchmark for the entire sector). Also using this contract is the city of Hamilton, New Zealand, which recently began a large-scale, 10-year infrastructure project that could eventually create nearly 4,000 new houses and save millions through increased efficiency. In these scenarios, contractors and the wider supply chain are linked through framework agreements. The groups are thus aligned through a common set of objectives and performance incentives, so they are incentivized to collaborate and share knowledge.2

Conclusion: Challenging the status quo

As the infrastructure industry faces increasing challenges, the most successful organizations will embrace a management discipline around culture. They will select and develop leaders who align with the target culture, reinforce the culture through organizational design and processes, and prioritize diversity and inclusion. Companies that adopt these changes and move toward a more open culture will be prepared to ride the waves of change rather than being overwhelmed and left behind.

As one UK-based construction leader said, “In infrastructure, there is still this belief that change is optional and people can do it on their own. We need to accept that this is a new world and a group of voices is better than just one. Making this change will require a cultural shift, but it will move the industry forward.”

Voices highlights a range of perspectives by infrastructure and capital project leaders from across geographies and value chains. McKinsey & Company does not endorse the organizations who contribute to Voices or their views.


  1. Arnaud Despierre, Greg Stanmore, and Hugh Thorneycroft, “The three important infrastructure investments you might not be making,” June 15, 2017, spencerstuart.com.
  2. Full-on alliance contracting might not be feasible for every organization, but most can work with partners more collaboratively. For more, see Lukasz Abramowicz, Jim Banaszak, TG Jayanth, and Homayoun Zarrinkoub, “Collaborative contracting: Making it happen,” July 2018, on McKinsey.com.

 

Article

In the effort to tackle the backlog of infrastructure maintenance in the United States, five steps can help prioritize projects to not only meet the greatest needs but also build resilience.

Kristina Swallow, American Society of Civil Engineers

Article

The country’s long-term vision, use of innovative technologies, and stakeholder engagement efforts have been critical to its success.

Khoo Teng Chye, Centre for Liveable Cities

Article

As the costs of energy-storage systems continue to fall, engineering and construction companies will need to improve their operations to stay competitive.

David Frankel, Sean Kane, and Christer Tryggestad, McKinsey & Company

Insights and events on the world’s most pressing infrastructure challenges, delivered straight to your inbox. Join the GII community:

GII follows McKinsey & Company’s Privacy Policy