Is big better? - FIDICfidic.org/sites/default/files/FIDIC_WS_4_Klaus_Ostenfeldt.pdf · 2 23-Sep-04...

123-Sep-04 FIDIC WS4: Is big bettes? Sep 2004

# COWI PowerPoint design manual

Is big better?

FIDIC annual conference

Copenhagen 12-16 september 2004

Workshop 4

Presentation by

Klaus Ostenfeld, President, CEO,

COWI, Denmark


#

Is big better?Introduction

� Is big better? A question of intrigue complexity. What do we mean by big ? Is big a matter of turnover, number of employees, geographical markets or diversity of business areas ?

� Is big necessary? For big companies new market possibilities arises. Big complex projects requires big and robust consultancies.

� Is big enough? Investigations suggests that big is to no good unless growth is followed by synergy in the market and integration of business system between business units across borders. How important is this precondition?

� What drives the growth? Growth drivers are many and may often be correlated. What are the important drivers ?


#

Is big better ?Agenda: Issues on size

� History on size and profit

� What are the growth drivers?

� On profitability


#

Increase in total output of economy (EU-12) and FIDIC (EU-12) turnover

from 1991 to 2001

99%

77%

0%

20%

40%

60%

80%

100%

120%

Total output from economiesin EU-12 countries

Total turnover in FIDICin EU-12 countries

Incr

ease

in %

History on size and profit:I: Consulting business vs. European economy


#

History on size and profit:II: Company cases: SizeHistory on size and profit:II: Company cases: Size

Sourc

es:

6 c

ompan

ies,

AM

AD

EU

S d

atab

ase

(en)

+ G

reen

(da)

+ a

nnualr

eport

s, 1

993-2

004

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Year

Num

ber

of e

mplo

yees

WS Atkins plc

Mott MacDonald Group

ARUP Group

WSP Group plc

Rambøll Group

COWI Group

ScanRail & BowardComputer Service

BenhamCompanies+ deal withTelekomSouth Africa

McCarthy & Partners, Lambert Smith Hampton, Richard LongAssociates & Yeoman & Edwards

Goes public. Faithful & Gould + subsidiary Atmos + British Rail assests

The KilliamGroup + HatchMottMacDonaldInc, HatchMottMacDonaldLimited & DalalMottMacDonaldPrivate Limited

Jacobson and Widmark

Graham Consulting Group + HJT, WEVS, MBS + Cantor Seinuk, Flack & Kurtz, Mitchell, McFarlane, Brentnall and Partners

Kampsax, ETC & Interconsult

Scandiaconsult


#

History on size and profit:II: Company cases: ProfitHistory on size and profit:II: Company cases: Profit

-8%-6%-4%-2%0%2%4%6%8%

10%12%

1993

1995

1997

1999

2001

2003

Year

EB

IT-r

ate

WS Atkins plc

Mott MacDonald Group

ARUP Group

WSP Group plc

Rambøll Group

COWI Group


#

History on size and profit:III: EBIT-rate vs. size

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

0 2000 4000 6000 8000 10000 12000 14000 16000 18000

No. Employees

EB

IT-r

ate

Sources: 6 companies, AMADEUS database (en) + Green (da) + annual reports, 1993-2004

Conclusion:

No significant relationship between EBIT-rate and size in the 6 companies

Hypothesis:

Either increased EBIT is eaten by new investments (e.g. acquisitions) or companies do not harvest economy of size


#

History on size and profit:IV: EBIT-rate for the consulting industry; example: Denmark

Source: F.R.I, 2004

EB

IT-r

ate

Interpretation:Mature industry with high level of competition on standardised services.


#

Growth drivers:I: Stages of evolution

Strategicchoice

&Point of no

return

Possiblefailure!

No. employees

Time

50-100

200-300

Founderscompany

Business system necessary

Waiting for takeover?

Partnerscompany

Hypothesis:

Choose between

1. big and multi-disciplinary

2. Small and specialised


#

Growth drivers:II: Growth strategiesGrowth drivers:II: Growth strategies

Controlled growth => min. risc

Robust company culture

New markets difficult

Expensive to buildbusiness systems from scratch

Organic growth

Quick access to new markets & technologies

‘Cheap’ takeover of strong brands

Heavy investments

Integration difficult

Variety of brands

Still waiting for synergy?

Mergers &acquisitions

OpportunitiesChallenges


#

Growth drivers:III: It’s all about knowledge

1. Desire to diversify

– Total consultancy, ability to solve big multi-disciplinary projects, easier quality control & interface check, single point of responsibilities, differentiation against competitors, sharing of brand etc

2. Critical mass in professional disciplines

– Ensure professional development, attractive workplaces, ability to acquire professional cutting edge tools

3. New geographical markets

– Access to new markets, robustness

4. Reduce competition through dominance

– Minimizing price competition, easier sale of related/additionel services, volume as dominator, snowball effect

5. Cost cutting through economies of scale

– Sharing business system, sharing expensive technology, professional management, use of technological development in society


#

Growth drivers:IV: Big/global vs. small/local

� Advantages for different company sizes

– Small companies: Often have local advantages

– Big companies: In position to have global activities and manage big projects

� Big vs. Small externally, e.g. COWI strategy:

– RML services: Multi disciplinary, close to market

– ISL services: Top specialities, global

� Big vs. Small internally, e.g. COWI organisation

– Decentralized autonomy through shared values

– Centralized management on key issues, e.g. strategy, business system, brand etc

� Think global, act local: all projects are local by nature


#

Growth drivers:V: Economies of scale – A management challenge

“There appears to be no clear evidence that traditional economies of scale exist in professional service firms where the primary strategic resource is the competence of the individual professionals.”

“Strategic management of professional service firms”, Bente Løwendahl, 1997

Cost

/u

nit

Size

Production + Sale + administration

Coordination

Total


#

On profitability::I: Profit through global integration

1. Global integration necessary for profitability; meaning cross border transfer of operational resources within the company; e.g. staff, project components or project solutions

2. Multinational expansion as basis for global integration should primarily occur through organic growthrather than acquisitions.

3. Global integration is particularly beneficial when it is driven by the desire to leverage specialised skills.

4. Usually better profit on home market projects than projects abroad

5. 1+4 => Globally integrated business with local roots are optimal

Source for bullet 1-3 and figure: Study of the relationship between global integration and performance in multinational professional engineering companies, Research report, University of Western Australia, 2003.Source for bullet 4: Effektiv planlægning og projektering, Internal analysis, COWI, 1998

Multi nationality

Global

integration

Organic

Growth rate

Profitability

0,39

0,46

0,32

0,02

Numbers: Correlation strength


#

On profitability:II: The knowledge proposition

� Consultancy is about putting knowledge into action

� Present challenges

– Strategy integrating knowledge management into business

– Innovation and knowledge creation

– Sharing knowledge: best practices, who’s who and who knows what

– Interaction between people and business system


#

On profitability:III: The organisational challenge

� Transition from (A) mother + daughters to (B) corporate network

� Both way benefits when integrating new companies (C)

� Keeping the organisation coordinated at reasonable cost

� Focus while still diversified

� Geographical and cultural differences; e.g. language

� Economy of scales require investments

A

B

C


#

On profitability:IV: Profits vs. size, COWI projects

0,00

0,10

0,20

0,30

0,40

0,50

(10,000-1mio)

(1-3 mio) (3-5 mio) (5-10 mio) (>10 mio)

Project fee size (DKK)

(Co

ntr

ibu

tio

n m

arg

in)/

fee

1994/95

1995/96

1996/97

1997/98

Source: Effektiv planlægning og projektering, Internal analysis, COWI, 1998

The project: A business in the business:


#

On profitability:V: Some remarks on profit from projects

1 2 3

Project turnover

Profitability

OK

Difficult/Risky

OK

Profit

AdvancedVery high> 253

CriticalHigh5-252

Simple/noLow1-51

Tools/planningComplexityNo. peopleProject size


#

On profitability:IV: Economies of scale – only if you..

� Develop unique tools or products: methods, software, databases models …

� Share investments in

– Business system

– Technology

– Brand and marketing

� Ease networking and informal team building

� Fine tune the sales process and business intelligence

� Share management resources and ensure quick decision making


#

Is big better?Key question: Will the growth continue?

1. Why is it attractive to be a big consulting company? Please set priorities for – prestige, – profitability, – professional quality, – attractiveness for new employees, – capabilities, – customer relations

2. Investigations suggests that it is expensive to run a diversified big company. How do we maintain profitability when expanding?

3. Will the competition encourage outsourcing of services to low cost countries? If so, how will the company be influenced in terms of – quality, – company culture – customer relations?

4. Will integrated company structures prevail, or will the big firms be subdivided into independent, even sometimes competing, profit centres? What are the critical indicators for subdividing the big firm?


#

Is big better?Workshop discussion

� 25 min. Is big better? / Presentation by Klaus H. Ostenfeld

� 10 min. Recap on questions.

� 15 min. Discussions in trios - each concentrating on one question.

� 40 min. Plenary discussion of each question.

Is big better? - FIDICfidic.org/sites/default/files/FIDIC_WS_4_Klaus_Ostenfeldt.pdf · 2 23-Sep-04...

Documents

Transcript of Is big better? - FIDICfidic.org/sites/default/files/FIDIC_WS_4_Klaus_Ostenfeldt.pdf · 2 23-Sep-04...