Accenture - in association with the Construction Industry Development Council (CIDC) - has launched a research paper on the infrastructure and construction sectors in India. The study aims to identify high performing construction and infrastructure companies to gain insight into the key priorities areas, critical roadblocks and interventions expected from the government in the construction industry.
The research suggests that companies need to be able to work simultaneously on three building blocks:
• Being agile in responding to changes in the market and secure revenues
• Ensure operational excellence for current projects, and
• Continue to focus on performance enablers such as talent, organization and technology
Key Findings:
• Overall, C-suite executives identified four top priorities areas for business performance: building the order pipeline (45 percent), achieving operational excellence in existing projects (35 percent), ensuring capital efficiency (15 percent) and focusing on key enablers (5 percent)
• Building the order pipeline with forays into new markets and sectors is the topmost priority for the construction industry. While the industry saw order books grow by 15- 20 percent in terms of value in fiscal year 2011, it has slowed in the first half of fiscal 2011.
o Despite the slowdown, respondents were optimistic about their prospects – nearly 70 percent of respondents expect revenues to increase by more than fifteen percent
• To achieve this growth, organizations are banking on new markets. Nearly 60 percent of respondents felt the need to look beyond Indian shores to new markets such as the Middle East, Africa and Turkey
o 63 percent of respondents indicated that the preferred entry strategy for these overseas forays was joint ventures
• 37 percent of respondents noted that diversifying into new sectors like ports, roads, power, plant construction and airports is the best way to ensure better margins and growth.
• At the same time, few respondents felt that they should only diversify in areas where they have the requisite expertise—as excessive diversification can increase the risk of failure
• While globally, companies look at forward or backward integration to reduce revenue volatility, however, Indian respondents are not as keen on this option with only 16 percent of ranking this as important
• Achieving operational excellence is another top priority. Respondents felt that by combining the right operating model with superior execution, they could not only ride out slowdowns more successfully, but also emerge from them more quickly.
• In the survey, Accenture asked respondents to name the top three factors contributing to operational excellence. Those were:
o Project management excellence was identified as the most important factor- cited by 88 percent of respondents
o Efficient procurement (38 percent) of raw materials and equipment was the other factor that respondents saw as critical to operational excellence
o 31 percent felt that superior engineering and design leveraging concepts such as standardization and 3D modeling were identified as critical enablers
• In past years, secondary market volatility forced companies to turn to high-cost debt to fund their projects. With interest rates showing no signs of falling soon, highly leveraged organizations are now worried about servicing their debt. This scenario has impacted project execution with a number of projects suffering from schedule and cost overruns due to delayed payment and working capital issues.
o Because of this 15 percent of the respondents ranked capital efficiency as a priority area after building an order pipeline and achieving operational excellence
• Talent knowledge management and technology emerged as the key enablers
• Nearly 75 percent of respondents rated talent as the most critical enabler. Commonly used measures to attract and retain the best talent are leadership programs, differentiated pay and stock options. At junior levels, stock options seem to have lost favour with a number of people due to the vagaries of the stock market
• 58 percent of respondents felt that to improve their capabilities, organisations need to adopt industry best practices.
o High-performance businesses are also using information technology (IT) to launch in-house e-learning platforms
• 53 percent of the respondents agreed to the growing importance of technology as a key enabler
o Technology can help businesses create a virtual environment for collaboration in which all partnering entities can be integrated on one platform. This can result in improved overall project delivery, efficiency, asset operability and cost control through enhanced data and information transparency.
On roadblocks:
• 55 percent of respondents cited lack of equitable and standardized bidding norms as an important challenge
• 50 percent of the respondents felt that the unavailability of managerial and supervisory staff is a significant impediment to growth and a major concern for the industry
• 45 percent of respondents felt that projects were delayed due to numerous reasons such as lack of project management capabilities, lack of engineering and design capabilities and issues related to environment
• The survey revealed that 30 percent of respondents felt that delay in acquiring land is a primary obstacle to completion of large projects. The delay could be on account of land undervaluation, dependence on state governments for actual land allotment and an ambiguous definition of the term “unencumbered land.”
On initiatives and reforms the government needs to implement to help remove the major roadblocks faced by the sector:
• A majority (68 percent) of respondents said delays in the resolution of issues related to land acquisition resulted in substantial delays in the completion of projects. More than half (58 percent) flagged bidding process reforms and 42 percent highlighted establishing monitoring groups as other important areas requiring the government’s intervention. The respondents listed some steps that the government could initiate:
• Land acquisition reforms: The government should modify existing land acquisition and rehabilitation legislation, which balances the needs of various stakeholders without compromising on the quality and velocity of projects.
• Bidding process reforms: Putting in place stringent qualification criteria at the time of tendering as well as for bidding.
• Contracting philosophy: There is a need to draft model contracts aligned to global and local best practices, with the underlying principle of being equitable.
• Approvals and clearances: The government should review and reengineer the approval process to minimize delays.
• Effective monitoring: The government should establish more monitoring cells on the lines of the investment tracking system planned by the finance ministry for all major projects in the private sector, as well as for public-private projects with investments larger than a reasonable threshold. The government should look at rigorous implementation of guidelines from the Ministry of Statistics and Programme Implementation.
• Dispute resolution: A robust mechanism for fast and efficient dispute resolution should be put in place. This should be aligned with international best practices and institutional arbitration system.
• Financing: Financing of large infrastructure projects with long gestation periods remains a significant challenge. Industry leaders believe that the government needs to focus on two key interventions—creating an environment to attract investments and structural reforms to enable long-term financing. Institutional lending should be ramped up from the current 1.5 percent to at least five percent share of total lending.
• Talent: The government needs to play a more active role to address the shortage of talent by setting up sector-specific skill councils and skill development institutions.
Methodology:
• Our study involved detailed and insightful interviews with representatives from leading infrastructure and construction and financing companies
• The survey was conducted between April and June 2012. Accenture fielded the survey of over thirty business executives from medium to large organizations across
Comparisons of Global leaders with India Construction companies:
The global construction industry is changing fast. More growth opportunities in emerging markets, new funding mechanisms, and evolving customer demands are driving the industry’s players to diversify, both geographically and in terms of their offerings. Today’s high performers have diversified more than most, developing more efficient and customer-focused operating models to help them.
To compete, companies will need to maintain new approaches to risk management and capital allocation, operational efficiency, and supply chain management. And they will need to develop novel ways of attracting, retaining and deploying a mobile and multilingual workforce with relevant skills. As the industry continues to evolve from B2B to B2B2C—these strengths will become even more critical differentiators for the high performers of tomorrow.
While the global companies are evolved in their adoption of risk management practices and achieving efficiency through automation, India companies still need to achieve excellence in program management and enabling knowledge management through IT.
Sourced From: Genesis Burson-Maresteller
The research suggests that companies need to be able to work simultaneously on three building blocks:
• Being agile in responding to changes in the market and secure revenues
• Ensure operational excellence for current projects, and
• Continue to focus on performance enablers such as talent, organization and technology
Key Findings:
• Overall, C-suite executives identified four top priorities areas for business performance: building the order pipeline (45 percent), achieving operational excellence in existing projects (35 percent), ensuring capital efficiency (15 percent) and focusing on key enablers (5 percent)
• Building the order pipeline with forays into new markets and sectors is the topmost priority for the construction industry. While the industry saw order books grow by 15- 20 percent in terms of value in fiscal year 2011, it has slowed in the first half of fiscal 2011.
o Despite the slowdown, respondents were optimistic about their prospects – nearly 70 percent of respondents expect revenues to increase by more than fifteen percent
• To achieve this growth, organizations are banking on new markets. Nearly 60 percent of respondents felt the need to look beyond Indian shores to new markets such as the Middle East, Africa and Turkey
o 63 percent of respondents indicated that the preferred entry strategy for these overseas forays was joint ventures
• 37 percent of respondents noted that diversifying into new sectors like ports, roads, power, plant construction and airports is the best way to ensure better margins and growth.
• At the same time, few respondents felt that they should only diversify in areas where they have the requisite expertise—as excessive diversification can increase the risk of failure
• While globally, companies look at forward or backward integration to reduce revenue volatility, however, Indian respondents are not as keen on this option with only 16 percent of ranking this as important
• Achieving operational excellence is another top priority. Respondents felt that by combining the right operating model with superior execution, they could not only ride out slowdowns more successfully, but also emerge from them more quickly.
• In the survey, Accenture asked respondents to name the top three factors contributing to operational excellence. Those were:
o Project management excellence was identified as the most important factor- cited by 88 percent of respondents
o Efficient procurement (38 percent) of raw materials and equipment was the other factor that respondents saw as critical to operational excellence
o 31 percent felt that superior engineering and design leveraging concepts such as standardization and 3D modeling were identified as critical enablers
• In past years, secondary market volatility forced companies to turn to high-cost debt to fund their projects. With interest rates showing no signs of falling soon, highly leveraged organizations are now worried about servicing their debt. This scenario has impacted project execution with a number of projects suffering from schedule and cost overruns due to delayed payment and working capital issues.
o Because of this 15 percent of the respondents ranked capital efficiency as a priority area after building an order pipeline and achieving operational excellence
• Talent knowledge management and technology emerged as the key enablers
• Nearly 75 percent of respondents rated talent as the most critical enabler. Commonly used measures to attract and retain the best talent are leadership programs, differentiated pay and stock options. At junior levels, stock options seem to have lost favour with a number of people due to the vagaries of the stock market
• 58 percent of respondents felt that to improve their capabilities, organisations need to adopt industry best practices.
o High-performance businesses are also using information technology (IT) to launch in-house e-learning platforms
• 53 percent of the respondents agreed to the growing importance of technology as a key enabler
o Technology can help businesses create a virtual environment for collaboration in which all partnering entities can be integrated on one platform. This can result in improved overall project delivery, efficiency, asset operability and cost control through enhanced data and information transparency.
On roadblocks:
• 55 percent of respondents cited lack of equitable and standardized bidding norms as an important challenge
• 50 percent of the respondents felt that the unavailability of managerial and supervisory staff is a significant impediment to growth and a major concern for the industry
• 45 percent of respondents felt that projects were delayed due to numerous reasons such as lack of project management capabilities, lack of engineering and design capabilities and issues related to environment
• The survey revealed that 30 percent of respondents felt that delay in acquiring land is a primary obstacle to completion of large projects. The delay could be on account of land undervaluation, dependence on state governments for actual land allotment and an ambiguous definition of the term “unencumbered land.”
On initiatives and reforms the government needs to implement to help remove the major roadblocks faced by the sector:
• A majority (68 percent) of respondents said delays in the resolution of issues related to land acquisition resulted in substantial delays in the completion of projects. More than half (58 percent) flagged bidding process reforms and 42 percent highlighted establishing monitoring groups as other important areas requiring the government’s intervention. The respondents listed some steps that the government could initiate:
• Land acquisition reforms: The government should modify existing land acquisition and rehabilitation legislation, which balances the needs of various stakeholders without compromising on the quality and velocity of projects.
• Bidding process reforms: Putting in place stringent qualification criteria at the time of tendering as well as for bidding.
• Contracting philosophy: There is a need to draft model contracts aligned to global and local best practices, with the underlying principle of being equitable.
• Approvals and clearances: The government should review and reengineer the approval process to minimize delays.
• Effective monitoring: The government should establish more monitoring cells on the lines of the investment tracking system planned by the finance ministry for all major projects in the private sector, as well as for public-private projects with investments larger than a reasonable threshold. The government should look at rigorous implementation of guidelines from the Ministry of Statistics and Programme Implementation.
• Dispute resolution: A robust mechanism for fast and efficient dispute resolution should be put in place. This should be aligned with international best practices and institutional arbitration system.
• Financing: Financing of large infrastructure projects with long gestation periods remains a significant challenge. Industry leaders believe that the government needs to focus on two key interventions—creating an environment to attract investments and structural reforms to enable long-term financing. Institutional lending should be ramped up from the current 1.5 percent to at least five percent share of total lending.
• Talent: The government needs to play a more active role to address the shortage of talent by setting up sector-specific skill councils and skill development institutions.
Methodology:
• Our study involved detailed and insightful interviews with representatives from leading infrastructure and construction and financing companies
• The survey was conducted between April and June 2012. Accenture fielded the survey of over thirty business executives from medium to large organizations across
Comparisons of Global leaders with India Construction companies:
The global construction industry is changing fast. More growth opportunities in emerging markets, new funding mechanisms, and evolving customer demands are driving the industry’s players to diversify, both geographically and in terms of their offerings. Today’s high performers have diversified more than most, developing more efficient and customer-focused operating models to help them.
To compete, companies will need to maintain new approaches to risk management and capital allocation, operational efficiency, and supply chain management. And they will need to develop novel ways of attracting, retaining and deploying a mobile and multilingual workforce with relevant skills. As the industry continues to evolve from B2B to B2B2C—these strengths will become even more critical differentiators for the high performers of tomorrow.
While the global companies are evolved in their adoption of risk management practices and achieving efficiency through automation, India companies still need to achieve excellence in program management and enabling knowledge management through IT.
Sourced From: Genesis Burson-Maresteller
