Strategy, agility, leadership development help construction company beat industry growth and margins.
Challenge
A major Asian construction company with 15 operating companies and more than 70 business units had enjoyed rapid growth and outperformed its global peers. But as construction activities slowed in its main markets, the company's leadership recognized it would be a challenge to sustain growth and profitability, particularly in an industry characterized by low margins.
The company asked McKinsey to support it in revising its five-year strategy to focus on three main thrusts: identifying strategic imperatives that would keep it ahead of the competition, diversifying risk by nurturing and growing new businesses internationally, and restructuring the organization for greater agility.
The company asked us to help reshape and strengthen its leadership development, to ensure it could deliver on the new strategy. This was a critical issue, given that most of its top 200 leaders were due to retire within five years. Our brief was to design and help deliver a leadership-development program focused on 30 senior leaders and 200 functional leaders. It would need to build executives' capacity to take initiative, drive action, and constantly hone their leadership style.
Discovery
We began by conducting a "strategy challenge" exercise across more than 50 business units, to encourage out-of-the-box thinking. This exercise included targeted challenges to current thinking, new ideas that could be scaled up, and organizational mechanisms to ensure that all plans were actually executed. As a result, business units identified around 150 new strategic initiatives to sustain the company's leadership position in its industry, along with detailed plans and milestones for each initiative.
Next, we helped identify geographies for expansion and created a road map for international growth—a critical element of the new strategy. Working with the client's senior managers, McKinsey undertook a detailed study to identify priority geographies and sectors, pinpoint specific projects where those priorities intersected, and map out plans to pursue them.
The new strategy required a fundamentally different organization—one that would empower leaders to take greater ownership. Based on a detailed study of different options, we recommended a new company structure. The most mature businesses and those with limited commonality with the rest of the company would be listed separately. Among the remaining subsidiaries, similar businesses would be combined into units that had a market peer. Each listed and residual internal unit would have its own board and be given the freedom to drive entrepreneurial activity and growth.
Finally, we helped the company shape a leadership-development program focused on three outcomes. First, it cultivated personal awareness, including through extensive first-of-a-kind developmental-feedback processes. Second, it helped leaders align personal growth objectives with business needs and map out their future career development. Third, it drove action by asking each participant to craft an individual development plan and deliver a breakthrough project to practice learned skills.
Impact
The new strategy, organization, and leadership-development approach helped the company achieve rapid growth. In the four years after the change, its revenues grew at a compound annual growth rate exceeding 15 percent while margins remained at double the industry average.
Several interventions during the strategic review played an important role in driving this growth. For example, the company incubated new businesses in fast-growing areas, such as energy and the Middle East region, which started contributing significant revenues. The company embraced new construction methods at scale, such as automatic formwork and prefabrication of steel cages. Moreover, the entrepreneurial freedom helped each organizational unit make strategic moves quickly. For example, one of the businesses shifted its headquarters to a city where market demand was booming.
The internationalization strategy also had significant impact, most importantly that it served as a valuable offset to a temporary slump in domestic demand.
From the leadership-development program, the company saw measurable improvement in leadership behaviors and on-the-job performance. An internal pipeline was created to fill important roles at all levels (including business leaders, functional leaders, project directors, and business builders). Finally, the participant-driven breakthrough projects added more than $250 million a year to revenues.