Accenture High Performance in Infrastructure and Construction Opt

7/27/2019 Accenture High Performance in Infrastructure and Construction Opt

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High Performance in

Infrastructure and Construction

India Perspectives 2012


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Los Cabos, June 20, 2012: Indian Prime

Minister Dr. Manmohan Singh said, The

Los Cabos Declaration fully reflects our

initiative that investment on infrastructure

in developing countries can play a majorrole in strengthening development and in

stimulating global recovery. Investment

in infrastructure is necessary as a means

of stimulating global growth. It lays the

foundation for rapid growth in the longer

term, while providing an immediate

stimulus for their economies and also forthe global economy by providing robust

sources of demand.

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Foreword 3

Introduction 4

Findings of the survey 5

Roadblocks to growth 10

Removing roadblocks 12

Conclusion 14

Contents

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Foreword

Established by the Planning Commission

and the construction industry, theConstruction Industry DevelopmentCouncil (CIDC) has been aiding thedevelopment of the sector througha variety of initiatives such as skilldevelopment and training; developingproductivity; grading, green rating andbenchmarking risk mitigation methods;developing tools for effective disputeresolution; quality assurance; creatingdatabases; conducting research andstudies; creating and facilitatingproducts; and providing forums for

the industry to interact and arriveat solutions to common problems.

Infrastructure, especially construction,is vital for the growth of the Indianeconomy. The government alsorecognizes its importance. According tothe Twelfth Five Year Plan, infrastructureis slated to attract investments tothe tune of US$1 trilliondouble theUS$0.5 trillion in the Eleventh Five

Year Plan. Infrastructure growth willhave a positive impact on the overallIndian economy and also help increating significant job opportunities .

The key challenges for the sectorremain availability of the right skills,raw materials and finance. WhileIndia produces numerous engineeringgraduates every year, there is a needfor skill-based training to ensurealignment with industry requirements.At the same time, we as a nation needto plan for availability of resourceand raw material to ensure that ourinfrastructure goals are realized. As India

has experienced execution challengesin the past, the government proposes toset up a committee to monitor projectsregularly and support project execution.

This study and conference, conductedin association with Accenture, is anattempt to learn from the best ofglobal research on this sector andadapt it to the Indian context. Throughthis initiative, we aim to provide animpetus to the industry to start thinkingabout what can be done by individual

companies and the government toensure high performance in theinfrastructure and construction sectors.

While this is a beginning, we realize

that the road ahead will require alot of work. We are committed towork with all stakeholders for theholistic development of the industryand hope to be an enabler of positivechange and growth of the nation.

Dr. P.R. SwarupDirector General, Construction

Industry Development Council

This year marks Accentures twenty-fifthyear in India and we remain steadfastlycommitted to the India growth story.

Accenture conducts a globalresearch every other year to identifyhigh-performing construction andinfrastructure companies. The insightsfrom this years global research pointto three building blocks for achievinghigh performance in construction and

infrastructure As the Indian context isvery different from the global scenario,we collaborated with CIDC to launchan India-focused study. The objectivewas to identify the key priority areas,critical roadblocks and interventionsexpected from the governmentin the construction industry.

Our study involved detailed andthought-provoking interviewswith representatives from leadinginfrastructure and constructionand financing companies.

Our analysis suggests that companiesneed to be able to work simultaneouslyon three building blocks: Being Agilein responding to changes in the marketand secure revenues; ensure OperationalExcellence for current projects; andcontinue to focus on PerformanceEnablers such as talent, organizationand technology. The research alsocaptures the expectations from thegovernment in terms of policy andother interventions that would help

the sector achieve high performance.

It is Accentures belief that growth in

construction and infrastructure willbe critical for the Indian economyin the next decade. We are pleasedto note that a number of companieshave already begun laying a strongfoundation for future growth basedon these three building blocks. Weare confident that if the best ofglobal experiences are customizedfor the Indian context and scaled up,construction and infrastructure willcontinue to drive Indias growth story.

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Sanjay DawarManaging Director, Management

Consulting, Accenture in India


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Introduction

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The construction industry plays an

important role in the development ofa countrys infrastructure, which is akey engine of economic growth. Itssignificance to the Indian economycan be gauged by its growingcontribution to gross domesticproduct (GDP)from 5.1 percent in200102 to 7.9 percent in 2010111.Additionally, the construction industrycreates an annual asset base of US$80billion and generates employmentfor more than 40 million people.

Over the next decade, India willcontinue to be among the fastest-growing countries in terms ofconstruction output. While globally theconstruction market is expected to growat 5.1 percent and 4.7 percent during201015 and 20152020, respectively,in India it is expected to grow at 9.9percent and 7.6 percent during thesame periods (Figure 1). By 2020, Indiais expected to emerge as the worldsthird-largest construction market. Largeinfrastructure investments and growing

urbanization will fuel this growth.

Increased infrastructure spending:

Under Indias Twelfth Five Year Plan(201217), investments of more thanUS$1 trillion are expected to flowinto infrastructure. The constructionindustry, which will account for asubstantial portion of the proposedinvestments in infrastructure, stands togain the most.

Increased urbanization:Underinvestment in housing andurban infrastructure has resulted ina substantial pent-up demand. This,

coupled with growing urbanization,is expected to drive growth in theconstruction industry.

While the long-term outlook for theconstruction industry appears verypositive, concerns have been raisedabout its immediate future. Risinginterest costs, stagnating orders, aslowdown in new government projectsand an increasing number of stalledprojects are just some of the challengesthe industry is facing today.

Figure 1: Average growth rate in the construction industry in India

1 Source: Reserve Bank of India. Figures are estimates


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Findings of the survey


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Figure 3: New markets and diversification for growth

Against the backdrop of Indiaseconomic slowdown and theimpediments to growth mentionedabove, Accenture surveyed seniorexecutives at leading engineering,procurement and construction (EPC)companies, finance companies anddevelopers. The objective was to identifythe key priority areas, critical roadblocks

and interventions expected from thegovernment in the construction industry.

Overall, the C-suite executivesidentified four top priorities: buildingorder pipeline, achieving operationalexcellence in existing projects, ensuringcapital efficiency and focusing on keyenablers. In the following pages, weexplore in detail these focus areas andtheir implications (Figure 2).

Priority 1: Buildingorder pipeline

Building the order pipeline withforays into new markets andsectors is the topmost priorityfor the construction industry.

While the industry saw order booksgrow by 1520 percent in terms ofvalue in fiscal year 2011, it has slowedin the first half of fiscal 2012. Despite

this, respondents were optimistic abouttheir prospectsnearly 70 percent ofthem expected revenues to increase bymore than 15 percent. To achieve thisgrowth, organizations are banking onnew markets as well as diversificationinto new sectors (Figure 3).

New markets: Nearly 60 percentof respondents felt the need to lookbeyond Indian shores to new marketssuch as the Middle East, Africa andTurkey. The preferred entry strategy for

these overseas forays was joint ventures,said 63 percent of respondents. Theyfelt that partnerships with localincumbents help mitigate risk in ahitherto untapped market. For example,recently, a well-diversified Indianconstruction company has seen higherorder inflows from the Middle Eastmarket as compared to the domesticmarket. Indian companies are facingincreasing competition as internationalplayers enter the market. A numberof European and Japanese companies

are seriously thinking of enteringniche segments in the Indian market.

Figure 2: Top priority areas for business performance


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Diversification: 37 percent felt thatdiversifying into new sectors is the bestway to ensure growth. Companies arelooking to expand their constructionand development activities acrosssectors for better margins and growth.Further, given the cyclical nature of theconstruction business, diversificationhelps in mitigating risks to sustainable

growth.

At the same time, few respondentsfelt that they should only diversify inareas where they have the requisiteexpertiseas excessive diversificationcan increase the risk of failure.

Forward or backward integration:While globally, companies look atforward or backward integrationto reduce revenue volatility, Indianplayers are not as keen on this option.

Only 16 percent of respondentsranked this as important.

Priority 2: Operationalexcellence

Achieving operational excellence isanother top priority, the study showed.In a highly competitive market wheremargins are constantly under pressure,greater efficiency is key to achieving

profitability. Respondents felt that bycombining the right operating modelwith superior execution, they couldnot only ride out slowdowns moresuccessfully, but also emerge from themmore quickly.

Through operational excellence,organizations benefit from lower costs,increased efficiencies, fewer costoverruns and sustainable returns onoperating assets. Collectively, this allowsthem to bid aggressively for projects

without compromising on quality.

In the survey, Accenture askedrespondents to name the top threefactors contributing to operationalexcellence (Figure 4). Projectmanagement excellence was identifiedas the most important factor, cited by88 percent of respondents. They felta need for greater focus on internalcollaboration across the EPC functions,subcontractor management, riskmanagement across the various stages

of a project life cycle and efficientutilization of resources such as material,manpower and equipment. Leadingorganizations are leveraging innovative

and modern construction techniquesand at the same time maintaining highstandards of quality to optimize costand schedule. Leadership qualities andthe ability to navigate through thecomplexities, conflicts and challengesassociated with a typical project wereconsistently highlighted as key factorsfor success in project management.

Figure 4: Top three factors for operational excellence

It is difficult for aprojects company tosurvive without strongproject management.Good project managerscan turnaround a badproject and vice versa.

Project leader of a major EPCcompany

Excessive diversificationstretches managementbandwidth and

increases risk of projectfailure.

Director of a leading infrastructurefinancing company


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Superior engineering and designleveraging concepts such asstandardization and 3D modeling wereidentified as critical enablers. This isbecause 5060 percent of the costsare committed at the end of the designphase for any project. Engineeringsuperiority should not only be reflectedby design standards but also by ease

and simplicity of operations.

Efficient procurement of raw materialsand equipment was the other factorthat respondents saw as critical tooperational excellence.

Priority 3: Ensuringcapital efficiency

In past years, secondary market

volatility forced companies to turn tohigh-cost debt to fund their projects.With interest rates showing no signsof falling soon, highly leveragedorganizations are now worried aboutservicing their debt. This scenariohas impacted project execution,with a number of projects sufferingfrom schedule and cost overruns dueto delayed payment and workingcapital issues. Little wonder then thatrespondents ranked capital efficiency asthe third priority area (15 percent).

Priority 4: Focusingon key enablers

Talent, knowledge management andtechnology emerged as the top enablers(Figure 5).

Talent: Nearly 75 percent ofrespondents rated talent as the mostcritical enabler. There is an acuteshortage of experienced projectmanagers, design engineers, plannersand skilled construction workers. Giventhis shortage companies are findingit hard to attract and retain talent.Commonly used measures to attractand retain the best talent are leadership

programs, differentiated pay and stockoptions (Figure 5.1). At junior levels,stock options seem to have lost favorwith a number of people whom weinterviewed due to the vagaries of thestock market.

It is commonly felt in the constructionindustry that the education systemneeds an overhaul to be able toproduce the talent the industry needs.Companies today are increasinglyfocusing on the productivity of theirworkers. Some leading constructioncompanies are partnering withorganizations such as CIDC todevelop the skills of their workers.

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Figure 5: Key enablers Figure 5.1: Key initiatives for

managerial staff

Where are the people

with the right skillsto execute largeinfrastructure projects?

Managing director of a largeinfrastructure company

We are facing a war fortalent

Chairman of a large infrastructurecompany

We have a situationwhere we are not ableto pay our vendors andsubcontractors dueto delayed payments

from our clients. Thishas led to vendors notdelivering as per theagreed schedule leadingto overall project delay.

Project execution lead for multipleprojects at an EPC company


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Creating a road map for effectivecareer progression is essential forinfrastructure companies. Thisparticularly applies to companies thatare project owners. When a project iscompleted, the personnel involved inthe project are often at a loss, as thecompany may be unable to provideopportunities for actively engaging

these people. Such experienced talenteither move to other companies in theprocess of setting up new projects orare compelled to move to an alternativeline of business.

Knowledge management: Nearly 60percent of respondents felt that toimprove their capabilities, organizationsneed to adopt industry best practices(Figure 5.2). High-performancebusinesses are also using informationtechnology (IT) to launch in-house

e-learning platforms. To sustain itsgrowth momentum, a large Indiandeveloper launched an internalknowledge management system. Theobjective of this system is to provide afull-fledged learning experience to itsemployees by utilizing an IT interfaceto fully or partially deliver trainings.Documenting and sharing failuresand near misses provide invaluablelessons for project teams across variousverticals. If the decision-making processhas to be made ef ficient and inclusive,

it is essential to disseminate informationamong a wide range of stakeholders indifferent locations.

Technology: Respondents agreed to thegrowing importance of technology as akey enabler. It is increasingly becomingthe fulcrum that enables companies toachieve their goalsmore competitivelyand effectively.

Technology can help businesses createa virtual environment for collaborationin which all partnering entities canbe integrated on one platform. Thiscan result in improved overall projectdelivery, efficiency, asset operabilityand cost control through enhanceddata and information transparency.Better integration and integrity ofengineering and project systemscan also be achieved. To overcomethe inefficiencies of the traditionalenterprise resource planning (ERP)

system, one of the largest EPCoperators in India has implementedan in-house, portal-based enterprisesystem providing a solid backbone toproject execution. Complete job detailsfrom concept to implementation andcompletion are automatically uploadedonto the system and are availableacross all teams linked to projects. This

has helped bring together differentphases of construction cyclesdesign,development, tendering and bidding,budgets, and planning and scheduling.

We need to learn fromour past mistakes, asrepeating mistakes can

be very costly.Project execution lead of a leadingEPC company

Figure 5.2: Developing and implementing best practices

Technology is a keyenabler for processefficiency andstandardization.

Program lead of a leading EPCcompany


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Roadblocks to growth

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The construction industry has ahuge potential for growth. However,it is saddled with some perennialproblems such as a shortage of projectmanagement staff and constructionworkers, lack of equitable biddingnorms, ambiguous and widely differingland acquisition laws, and delaysin project execution (Figure 6).

Lack of equitable and win-win

bidding norms

Conditions as well as clauses of thebidding and contract documents

strongly influence bid evaluation andthe subsequent performance. Fifty-fivepercent of respondents cited the lackof equitable and standardized biddingnorms as an important challenge.

Bidding procedures for governmenttenders, for example, fail to weedout low-quality, unrealistic quotes,thus compounding the problem ofprojects being stalled due to the lack ofcompetency or funding at a later stage.

Shortage of manpower

Half the respondents felt that the

unavailability of managerial andsupervisory staff is a significantimpediment to growth and a majorconcern for the industry. The growthof employable manpower in Indiasconstruction sector has not kept pace

with the growth in infrastructureprojects. While the shortage ofproject management staff can beattributed to the lack of playersproviding vocational training, scarcityof construction manpower is partlycaused by reduced migration fromrural India in the wake of job guaranteeschemes offered by the government.

The private sector has, meanwhile,set up a number of initiatives tomeet the skill gaps. While some ofthese initiatives are in-house (skillupgradation) or through privatethird party training providers thereis a significant amount of workbeing done in collaboration withgovernment supported bodies suchas CIDC. An innovative step in thisarea is the Simplex-CIDC-BhartiyaVidya Mandir (BVM) initiative to

raise the productivity, quality andsafety benchmarks of the supervisorlevel workforce, through on-the-jobtraining. However, there is a need toscale up these initiatives to meet thegrowing demands of the industry.Land acquisition issues

Our survey revealed that more thanhalf of respondents felt that delay inacquiring land is a primary obstacleto completion of large projects. Thedelay could be on account of landundervaluation, dependence on stategovernments for actual land allotmentand an ambiguous definition of theterm unencumbered land. It isinteresting to note that while globally,land acquisition is usually completedbefore a project is tendered, in India,projects are generally awarded withonly a part of the land having beenacquired. Steps to overcome thisproblem have been discussed later.

Figure 6: Challenges faced by the industry

Indian constructionsector is capableof executing largecomplex projectsasthere are companieswith the requiredexpertise in the market.The key to growth is anenabling environment.

Project manager of a leading EPCcompany

There is a need to move

away from a pure L1(lowest bidder) norm.There are numerousinstances whereprojects have beenawarded to the lowestbidder but the project

was finally executed ata much higher cost tothe government due todelays and claims.

Chief executive officer of a largeIndian EPC company


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Removing roadblocks

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To accelerate the pace of growthin the construction sector, theindustry needs to persuade thegovernment to implement reformsand help remove the major roadblocksfaced by the sector (Figure 7).

A majority (68 percent) of respondentssaid delays in the resolution of issuesrelated to land acquisition resulted insubstantial delays in the completionof projects. More than half (58percent) flagged bidding processreforms and 42 percent highlightedestablishing monitoring groups asother important areas requiringthe governments intervention. Therespondents listed some steps thatthe government could initiate:

Land acquisition reforms: Thegovernment should modify existing landacquisition and rehabilitation legislation,which balances the needs of variousstakeholders without compromising onthe quality and velocity of projects.

Bidding process reforms: Puttingin place stringent qualification criteria

at the time of tendering as well asfor bidding.

Contracting philosophy: There is aneed to draft model contracts aligned toglobal and local best practices, with theunderlying principle of being equitable.

Approvals and clearances: Thegovernment should review andreengineer the approval process tominimize delays.

Effective monitoring: Thegovernment should establish moremonitoring cells on the lines of theinvestment tracking system plannedby the finance ministry for all majorprojects in the private sector, as wellas for public-private projects withinvestments larger than a reasonablethreshold. The government shouldlook at rigorous implementation ofguidelines from the Ministry of Statisticsand Programme Implementation.

Dispute resolution: A robustmechanism for fast and ef ficientdispute resolution should be put inplace. This should be aligned withinternational best practices andinstitutional arbitration system.

Financing: Financing of largeinfrastructure projects with longgestation periods remains a significantchallenge. Industry leaders believethat the government needs to focuson two key interventionscreating anenvironment to attract investmentsand structural reforms to enablelong-term financing. Institutional

lending should be ramped up fromthe current 1.5 percent to at least5 percent share of total lending.

Talent: The government needs to play amore active role to address the shortageof talent by setting up sector-specificskill councils and skill developmentinstitutions. We can draw inspirationfrom China, where the Ministry ofConstruction (MOC) is playing a leadingrole in promoting project management.Through multiple programs to improve

skill availability, MOC has helped incertification of project managers andtraining programs in collaboration withnumerous universities. In India, CIDChas donned this role well by rolling outtraining programs at multiple skill levelsfor the industry players. Additionally,a national-level skill assessmentprogram can be created for workersto train and apply for certifications.

On an overall industry level, recognizingand honoring skilled workers, projects

and organizations for their contributionto the industry should be explored asa way to strengthen the talent pool.

Figure 7: Critical government interventions needed

Although there is a

potential to grow at ahigher rate, governmentpolicies are requiredto encourage quickdecision making.

Director of a major infrastructurelending company

Footnote: The numbers are percentages of respondents


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Conclusion

Volatility in todays business

environment is making it necessaryfor construction companies to rethinktheir business models. Building arobust order pipeline with forays intonew markets and sectors is the toppriority to achieve growth. At thesame time, companies will need tocontinuously focus on operationalefficiencies to maintain margins. Projectmanagement, superior engineering anddesign, efficient procurement ofresources and risk management will bethe essential levers for operational

excellence. Adoption of best practicesacross areas, including green

construction technology; health, safety

and environment; and adherence to

stringent quality norms aligned with

global standards is critical for Indian

companies as they keep up with their

global peers.

Accenture believes that in the currentbusiness environment there are threemain building blocks of success: marketfocus (requiring agile positioning

to capture revenue), excellence indelivery (to improve profitability) andperformance enablers (centered on aculture and mindset that will sustainsuccess, with a focus on enablers suchas talent, organization and technology).Companies that achieve all three willsuccessfully differentiate themselvesfrom competitors.

Given its pivotal role in the creation

of infrastructure, as a regulator anda facilitator, the government mustplay a proactive role in fostering anenabling environment for growth. Whileit has already initiated several policymeasures, three critical areas requireimmediate attention: land acquisitionreform, bidding process reformand setting up monitoring groups.Additionally, involvement of citizensas a stakeholder and incorporatingconcepts of sustainability will becomeincreasingly relevant for infrastructure

development in the coming years.

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Copyright 2012 Accenture

All rights reserved.

Accenture, its logo, andHigh Performance Deliveredare trademarks of Accenture 12 2146

Contacts

Accenture

Sanjay [email protected]

Manish [email protected]

Vishvesh [email protected]

Contributors

Krishna Bandaru, Rajesh Kamat, GiriSubramanyam, Vivek Srivastava, ArunMunjal, Pranav Singh, Anuj Rikhye,Soujanya Vishwanath, Manuj Ohri,Vivek Kuttappan, Kuljyoti Sehgal, RahulShukla, Sashi Kiran, Sanjeev Sharma,Srinath Rajaraman, Vineet Khanna, RyanCoffey, Raghav Narsalay

CIDC

Dr. P.R. [email protected]

Ashutosh [email protected]

Jyothi Girish, Shrutidhara Kaushik, TuhinaTripathi, Farha, Saikumar, B.N.Rao

About AccentureAccenture is a global managementconsulting, technology services andoutsourcing company, with more than249,000 people serving clients inmore than 120 countries. Combiningunparalleled experience, comprehensivecapabilities across all industries and

business functions, and extensive researchon the worlds most successful companies,Accenture collaborates with clients tohelp them become high-performancebusinesses and governments. The companygenerated net revenues of US$25.5 billionfor the fiscal year ended Aug. 31, 2011.Its home page is www.accenture.com.

About Construction IndustryDevelopment Council (CIDC)The Planning Commission, Government of

India, jointly with the Indian constructionindustry, had set up CIDC to take upinitiatives for the development of theconstruction industry. The Council, forthe first time in the country, provides theimpetus and organizational infrastructureto raise quality levels across the industry.This helps to secure wider appreciationof the interests of construction businessby the government, industry and peergroups in society. CIDC is a changeagent to accelerate a process of self-reform that should enable the industryto answer the challenges of the future.Clarity of purpose and intent forms CIDCsmandate. Since its inception in 1996,the Council has taken several initiativesfor the development of the industry.Visit the home page www.cidc.in

DisclaimerThis report has been published forinformation and illustrative purposesonly and is not intended to serve asadvice of any nature whatsoever. Theinformation contained and the referencesmade in this report is in good faith,neither Accenture nor any its directors,

agents or employees give any warranty ofaccuracy (whether expressed or implied),nor accepts any liability as a result ofreliance upon the content including(but not limited) information, advice,statement or opinion contained in thisreport. This report also contains certaininformation available in public domain,created and maintained by private andpublic organizations. Accenture doesnot control or guarantee the accuracy,relevance, timelines or completeness ofsuch information. This report constitutes

a view as on the date of publicationand is subject to change. Accenturedoes not warrant or solicit any kind ofact or omission based on this report.

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