Succeeding In Today's Construction & Engineering Industry

Construction and engineering companies continue to face enormous challenges that threaten their ability to succeed in the global market—from soaring raw material costs and worker shortages to a North American residential market weakened by the economy. There is a bright spot, however.

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According to new Accenture research, four companies have achieved high performance despite such difficulties and serve as an example to help organizations overcome industry challenges. The leading companies, measured in terms of longevity, profitability, growth, consistency and future value over a seven-year period, have done so by focusing on three fundamental building blocks of high performance, which are:

•   Market focus and position
•   Distinctive capabilities
•   Performance anatomy.

They have recognized that growth in their industry requires diversification into profitable new markets to lessen the impact of the business cycle on core activities, and expansion into those rapidly emerging markets, where demand is growing the most.  For example, diversification into the energy sector generated more than 30 percent of one leading company’s earnings before interest, taxes, depreciation and amortization (EBITDA) in 2007. Meanwhile, nearly 90 percent of another high performer’s EBITDA now comes from the services and infrastructure management businesses that complement its construction core.

Moreover, these high-performance businesses have positioned themselves to take full advantage of growth opportunities in emerging markets, where construction spending is predicted to grow twice as fast as in the developed world between now and 2010.

Without the support of distinctive capabilities though, market focus and position is difficult to sustain. Distinctive capabilities power a high-performance business, and in construction and engineering, these capabilities include portfolio, project risk and cash management. All three, moreover, are supported by exceptional financial risk management skills, particularly in the case of portfolio management, which can help companies develop post-merger capabilities that are cost-effective and drive entrepreneurship.

In a market that can have rapidly expanding revenues, the high performers have been able to sustain operational excellence, in large part, due to effective project risk management. They have reshaped their operating models, centralizing selected operations, including human resources, accountancy and procurement, to boost performance and rationalize costs.

Generate cash flow

The high performers’ cash-management capabilities have helped them to both expand and sustain their diversification and expansion. For instance, the one company’s successful diversification into the energy sector also has generated significant free cash flow.

The third building block focuses on the winning mindset that nourishes continuous renewal. In the construction and engineering segment, a winning mindset is enhanced in different ways. In the interest of supporting its single, global brand identity, one high performer empowers leaders at the local level, encouraging them to develop strong, entrepreneurial spirit. Another leading company likewise gives each individual business manager responsibility for managing his or her balance sheet. And yet another high performer has established a strong reputation for talent management, including leadership development and succession planning, to develop the right leaders for their future business.

The high performers are well positioned to overcome current industry challenges and capitalize on future opportunities. Construction and engineering companies that can adopt the three building blocks of high performance will be in a stronger position to succeed now and in the future.

James Robbins, james.a.robbins@accenture.com, is a senior executive for Accenture, a global management consulting, technology services and outsourcing company.

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