NCC, a Nordic leader in construction and civil engineering, saw its revenues climb steadily over the past two decades, but industry margins had been under considerable pressure. With the rise of smart cities and urbanization, prospects to partner with customers and ecosystem actors to develop solutions for complex projects emerge. Working with IMD, NCC embarked on a journey to renew its business model for increased profitability and growth.
Construction is the largest undisrupted market in the world, representing over 10 percent of global GDP (USD 10 trillion). Among the challenges the industry faces are sustained cost pressures, shortage of skilled workers, and trends toward fixed-bid projects that threaten profits. Players also struggle with productivity; costs doubled in 20 years and the industry trails digital adoption with 1.5 percent of revenue invested in technology against a 3.3 percent average across other markets.
With 15,500 employees operating across the construction value chain from property development to complex building and infrastructure projects, coupled with an industrial arm producing asphalt and stone materials, NCC focuses on sustainable and technology solutions, recording SEK 58.2 billion (EUR 5.2 billion) revenue in 2019. Despite a successful track record, the group had to surmount important hurdles. These included tendering projects with restricted margin potential, deviated resources and focus from growth segments, and siloed project teams with limited leverage of expertise. In addition, business units were not systematically tapping into the group’s scale and scope to win complex mandates. How could NCC realign its business for profitability and growth?
IMD’s journey began with a comprehensive diagnostic to listen to the organization across business units and markets, to jointly uncover areas of more and less strength, enablers and roadblocks as well as opportunities and challenges going forward.
This process led to the joint creation of a strategy framework that focused on first, strengthening the foundation; second, on tackling the fundamental enablers for higher performance; and third, on laying the building blocks critical to create value in the future and profit from market trends.
This phase was paramount to the journey. It engaged the organization in a strategic reflection, enabled a common view on market trends and NCC’s areas of strength, and triggered a wake-up call on the need for change.
Building on these emerging insights, the senior leadership team launched six workstreams, with the mandate to explore and develop options to address:
- A focused portfolio with the goal to develop a portfolio strategy that leverages areas of specialization and capability strength, while positioning the group to capitalize on market opportunities and areas of future growth.
- Winning profitable projects by focusing on the key competencies, customer relationships, value proposition and core processes to capitalize on the group’s combined strength to generate innovative solutions.
- Delivering profitable projects, which explored the processes, capabilities and resources required to successfully drive projects for higher profitability, productivity and customer satisfaction.
- Efficient supply chain management, including a procurement transformation to ensure stronger capabilities to better work with customers from the design and planning phase through project delivery.
- Scalable businesses, which worked on identifying pockets of excellence and building common platforms to leverage and scale up knowledge, business and capabilities.
- People and culture, which explored the behaviors required to support and enable outstanding performance, relentless customer focus and the highest standards in project execution
Supported by IMD, client teams ventured on a four-stage discovery process:
- Conduct an inside-out analysis to understand enablers and barriers, set the baseline and gaps.
- Perform an outside-in exploration to learn from leading companies, define and assess implications.
- Set a stretch ambition and scenarios, to shape areas of choice.
- Develop options for decisions and actions owned by the leadership team.
Teams were sponsored by senior leadership, who provided direction and insight. IMD faculty and experts provided input, challenge and guidance throughout the process. Each team also contributed to challenging and shaping outcomes for other workstreams in an iterative process.
Reflecting on the journey, CEO Tomas Carlsson stated, “Engaging a large group of leaders early in the strategy process has been time-consuming but still highly efficient. We have a shared view on what needs to change and this will facilitate the transformation once we have set our strategic direction and operational model. IMD has guided us through this process and provided valuable insights from other industries, inspiration and structure.”
With “Foundation for the Future”, NCC engaged over 500 executives from across businesses and markets to create their common strategic agenda.
Further to creating workstream teams, sessions with the top 150 in two leadership Conferences raised the level of reflection and pushed for bolder and bigger ideas. A dedicated communication effort was fundamental to engaging and aligning the organization. As a result, the process has contributed to rising levels of ownership and organizational impact as the Group refines options and prepares to make choices on the path forward.