Six Keys to Big Construction Firm Prosperity: Consultant

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Friday, September 5th, 2014
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Focusing on excellence, choosing the right sectors in which to operate and building resilience to withstand increasing competition are among half a dozen strategies necessary to maximise chances of business success, according to an analysis of 60 of the world’s largest building and design firms.

In its Value Creation in ECS 2013: Growing and Thriving in Challenging Times, the Boston Consulting Group analysed 60 of the world’s top engineering, construction and services (ECS) companies by value creation.

It says that while the past five years have been a time of declining sales, increasing competition and falling margins, prospects for the next half decade appear to be brighter, especially in mature markets which copped strong headwinds during the GFC and European financial crisis.

The companies which benefit most, however, will be those who manage costs and capital effectively, implement effective processes and chose the right portfolio of projects to pursue.

“In the coming years, companies will have to focus on execution excellence and bottom-line margins,” BCG partner and report co-author Jeff Hill said. “The ECS leaders will be strategic about procurement, highly effective in their operations, and extremely productive, streamlining and right-sizing their organizations to achieve maximum effectiveness with minimal waste.”

The six imperatives referred to in the report are as follows:

  • Improving execution excellence and bottom line margins through effective bidding and pricing strategies and right-sizing their organisations to deliver maximum effectiveness with minimum waste.
  • Building resilience to withstand competition by focusing on developing effective cost structures and capitalising on their best areas of expertise.
  • Achieving the scale necessary to take on increasingly large and complex projects, but not by sacrificing profit margins in the process.
  • Focusing on high-growth regions and sectors, which the report says may start to include developed markets again over the next five years.
  • Being prepared to gain scale and talent though mergers and acquisitions; and
  • Managing dividends and capital reinvestment to maintain a strong balance sheet with modest debt levels and a solid credit rating, which will help protect against unforseen shocks in a volatile sector.

Boston says these factors can have a material impact upon the ability of large companies to deliver greater shareholder returns.

In mergers and acquisitions, for example, serial acquirers such as Bilfinger, Furgo and Vincci each came within the top or second top quartile with regard to shareholder performance, while Netherlands based C&I’s $US3 billon The Shaw Group last year earned it kudos from analysts in terms of integration and positioning the company to take advantage of the North American energy boom.

On the topic of balance sheets, meanwhile, BC’s report showed that those with the highest debt/equity ratios generally featured in the lowest quartile in terms of shareholder performance.

The latest report comes amid general expectations of improving activity in global construction markets over the long term.

Last year, for example, a Global Construction Perspectives and Oxford Economics report suggested world markets for building and construction would grow by 70 per cent and reach $US15 trillion by 2025.

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