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The Construction Industry's 2014 Challenge: To Reignite Growth

After Five Bleak Years, Prospects for the Global Engineering, Construction, and Services Industry Are Brightening; Focusing on Margins, Efficiency, Cost Control, and Synergies Will Be Critical, Says a New Report From BCG

LOS ANGELES, CA -- (Marketwired) -- 08/21/14 -- Six years after financial crisis rocked the global economy, the engineering, construction, and services (ECS) industry is operating in a world of tightening margins, intensifying competition, and continuing pressure from the capital markets to create value. The next five years, however, look brighter, according to a new report by The Boston Consulting Group (BCG). The report, Value Creation in ECS 2013: Growing and Thriving in Challenging Times, is being released today.

According to BCG's analysis of value creation by 60 global ECS companies, the industry can expect to see growth in the coming years, especially in mature markets that have encountered strong headwinds since 2008. The companies that benefit the most from reaccelerating growth -- and those most rewarded by shareholders -- will be those that can maintain healthy profit margins, especially in the developing world. To succeed, companies will require careful management of costs and capital, superior processes, and balanced portfolios that enable them to apply the right management focus, investments, and discipline to the businesses in which they can truly win.

"In the coming years, companies will have to focus on execution excellence and bottom-line margins," said Jeff Hill, a BCG partner and a coauthor of the report. "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 of Top Performance

The new report identifies six imperatives ECS companies must follow if they aspire to deliver outstanding returns to shareholders.


  • Focus on execution excellence and bottom-line margins. Healthy profits aren't simply a matter of being in the right place at the right time. For leading ECS companies, excellence in bidding and pricing is a high priority. These companies are highly productive, streamlining and right-sizing their organizations to achieve maximum effectiveness with minimal waste.

  • Build resilience to withstand increasing global competition. Facing rising competition from the developing world, established companies in mature markets need to develop the requisite capabilities and cost structures. They need to focus on accentuating their more extensive and polished skill sets, talent rosters, intellectual property, and superior processes. Similarly, companies from developing markets will have to develop cost structures and delivery models that will enable them to hold their own in competitive markets.

  • Achieve scale -- but not at any price. In mature markets, at least, size still matters. Big projects continue to get bigger, and only large-scale companies are credible bidders for such ambitious undertakings. Companies shouldn't sacrifice margins for scale, however.

  • Focus on high-growth regions and sectors. After a prolonged stretch of negative growth, growth rates in mature markets will likely accelerate to the low single digits during the next five years. ECS companies that in the past five years prioritized investment in developing markets should regard this shift as a spur to refocus on mature markets.

  • Be prepared to win through M&A. M&A enables ECS companies to gain scale, which, in turn, helps them compete for the largest contracts. M&A is also an important lever for acquiring talent -- especially in high-growth regions such as North America -- and controlling costs.

  • Maintain a disciplined approach to dividends and the balance sheet. Fortunes in the ECS industry can reverse virtually overnight. The best protection against unforeseen market shocks is a solid balance sheet with modest debt levels and a strong credit rating. High debt ratios and weak balance sheets are the mark of the lowest-performing and most vulnerable ECS companies.

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or [email protected].

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries. For more information, please visit bcg.com.

About bcgperspectives.com
Bcgperspectives.com features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management's agenda. It also provides unprecedented access to BCG's extensive archive of thought leadership stretching back 50 years to the days of Bruce Henderson, the firm's founder and one of the architects of modern management consulting. All of our content -- including videos, podcasts, commentaries, and reports -- can be accessed by PC, mobile, iPad, Facebook, Twitter and LinkedIn.

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