A Cost Leadership Program Paves the Way for a Construction Company’s Sustained Growth
ConstructionCo bounced back from a pandemic-induced slump by centralizing and automating, reaping a long list of benefits.
ConstructionCo, an industry cost leader, saw its projects come to an abrupt halt during the Covid-19 pandemic. To remain competitive and meet its growth targets as the world began to reopen, it needed to reduce costs quickly. We collaborated with ConstructionCo on a cost leadership program to decrease overhead, streamline its operational model, and increase transparency to help it remain at the top of its field.
Our engagement with ConstructionCo began by searching for tactical-level cost reductions for short-term, immediate impact. Analyzing the general and administrative cost baselines, we pinpointed 20 initiatives to minimize expenses, including pooling personnel, revising travel policies, and renegotiating contracts with vendors. We also codeveloped a plan to maintain stricter cost discipline.
The focus then shifted to the company’s operational model. ConstructionCo drastically decreased the number of layers between leadership and frontline teams, as well as each supervisor’s number of direct reports, to create a leaner organization. This streamlined operating model enabled shorter decision-making and response times, reduced redundant supervisory roles to free up talent, and empowered employees by increasing ownership and accountability. With fewer layers to negotiate, the organization became more scalable and efficient at integrating new acquisitions.
Centralization also played a critical role in reducing costs. We worked with the company to increase data visibility on indirect expenses and found ways to lower external costs across the company’s global operations. Policies for travel and living expenses, car rentals, and accommodations were reexamined and aligned across the organization. Business travel, auditing, and legal services were each centralized under the company’s corporate umbrella instead of being handled separately by each branch. Additionally, ConstructionCo established a central procurement system to manage processes such as canteen services, outsourcing, and the rental of office space and other facilities.
We continued to centralize at the project level, supporting ConstructionCo as it reexamined each project’s organizational structure, beginning with staffing. Historically, each project hired dedicated teams divided into two categories: technical functions (engineers, construction workers, etc.) and staffing and executive functions (such as human resources and IT). When the project ended, so did each team’s employment. By centralizing and consolidating staffing activities into shared service centers, the company was able to provide more defined career paths, better balance workloads, and enhance productivity, all of which led to improved employee retention. It then automated some transactional processes, saving labor costs and improving process efficacy. Centralizing these services also ensured that ConstructionCo had end-to-end control of its industrial projects.
Tactical and structural initiatives, a refined operating model, and the consolidation of staffing into shared service centers was pivotal to ConstructionCo’s success. It identified $100 million in cost savings from 2021 to 2023. This equaled an increase of 1 to 2 percentage points in profitability, a major success in an industry that typically operates at about a 5% profitability rate. Process automation is on track to contribute an additional $20 million in potential savings. Looking ahead, ConstructionCo hopes to uncover additional cost reduction opportunities thanks to the superior data visibility provided by its new project organization model.