E&Y research notes crunch time for construction

Posted On Thursday, 21 July 2011 02:00 Published by Commercial Property News
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Construction firms would need to focus on customer reach, cost competitiveness, operational agility and stakeholder confidence to succeed in a changed global economy, new research out on Wednesday revealed

Ebrahim Dhorat Ernst & YoungA paper titled 'Competing for Growth' by assurance, tax, transaction and advisory services firm Ernst & Young found that these were the four areas identified as critical to achieve success in an economy fundamentally changed following the recession days.

The group said that changing diversity and economic growth was driving construction demand for sustainable energy generation and power supply; water supply and sanitation; transport and infrastructure; telecommunications; and housing.

"Each of these are growth sectors where construction companies should focus their efforts. If the road to success is sizeable infrastructure projects, there is more room for the global players who can handle large-scale infrastructure projects, including their program management. Size and diversification do matter," said Ebrahim Dhorat, lead director: construction at Ernst & Young.

E&Y said that the dangers facing the construction sector were drawn into sharp focus by the fact that the sector faced significant challenges even in normal times. Current collusion allegations, lower reported earnings, highly cyclical nature of the industry illustrated by dwindling order books, overcapacity and impairments highlighted the need for an innovative response by management to effectively deal with current challenges, it said.

Over 1,400 senior executives from global companies across a wide range of industries were surveyed to understand what steps they were taking to succeed.

According to Dhorat, customer reach determined a company's ability to meet the demands of a particular market and maximising its growth potential. 45% of high performers compared reported that one of their top priorities was to focus on their most profitable customer and product segments, while 35% of low performers took this view.

To increase sales, the research noted that high performers were more likely to introduce new products or services than low performers were, with an increasing focus on marketing and looking to execute innovative market-entry strategies. "On the construction front, it is understood that PPP's (Public Private Partnerships) are needed, but it will take time for the market to understand them and receive them favourably," E&Y said.

Cost competitiveness determined whether a company could meet the demand for its products and services profitably. High performers were distinguished from low performers by their greater focus on increasing staff productivity. "Current overcapacity and pressure on margins in the construction industry necessitate a drive towards efficiencies and importance of flawless project management," Dhorat said.

Stakeholder confidence was also key to a company's ability to attract and retain the talent it needed, to sell its products and to raise capital.

When it came to risk management, high performers emphasised mitigating risks associated with changing business structures and processes, anticipating regulatory changes, using bonus schemes that balanced performance and risk, and considering reputational and fraud risk in global operations.

Publisher: I-Net Bridge
Source: I-Net Bridge

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