TTE Strategy named HIDDEN CHAMPION 2024 /25 in Strategy

Navigating Profit Pressures: Strategic Transformation for a Construction Industry Supplier


Philippe Bourbon
17.06.2024
Philippe Bourbon
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Few industries have been hit by globally disrupted supply chains, higher producer prices, higher interest rates and the Russian war of aggression against Ukraine than the construction industry. Especially suppliers are confronted with challenges that pressure operating profits. Our recent project involved partnering with a construction industry supplier confronted with a uniquely challenging situation. Our mission was to identify and implement strategic options that would not only stabilize but also enhance their operating profit.

Disrupted Supply Chains: Global supply chain disruptions had led to delays and increased costs, affecting the timely delivery of materials and overall project schedules.

Rising Producer Prices: Inflation and increased costs of raw materials were squeezing profit margins, making it difficult to maintain competitive pricing.

Market Volatility: Lower construction activity caused by higher interest rates lead to fluctuations in demand that further complicated the financial situation of the supplier.

To achieve the objective in challenging circumstances, we embarked on a comprehensive consultation process that began with in-depth discussions with key stakeholders following our TTE fair process imperative. Through a series of one-on-one interviews and a collaborative management workshop, we developed strategic options tailored to the company's unique situation:

Our strategic options were meticulously crafted to explore various pathways for improving operating profit. Each option was defined and quantified with specific improvement measures for the coming years, and business cases were calculated and compared to a base case scenario.

  1. Maximizing Growth in a Saturated Market: This strategy focused on leveraging superior quality and competitive pricing to capture market share. Additionally, we explored the potential introduction of complementary products to meet the evolving needs of the client's customers. By differentiating through quality and expanding the product line, the company could attract a broader customer base and drive revenue growth.
  2. Optimizing product portfolio and costs: A critical analysis of the "make or buy" decision was conducted to determine the most cost-effective production methods. By outsourcing certain production processes and optimizing the product offering, the company could reduce operational costs and improve efficiency. This strategy aimed at streamlining production while maintaining product quality and reliability.
  3. Transition to a Sales Company: When it comes to strategically change an organization, there must be no limitation of thought. In the proposed downsizing the client was to become a pure trading organization, focusing solely on sales and distribution. This involved closing production facilities and reducing indirect functions. While this option entailed significant restructuring, it offered a pathway to lower operational costs and a leaner, more agile business model.

A critical component of our TTE-approach was the thorough analysis of the impact of each strategic option at the product level. We examined changes in sales, costs, and profits, ensuring that each strategy was viable and sustainable. Collaborating closely with the client’s experts and managers, we jointly defined measures that were realistic and actionable.

While not only looking at the construction industry, key success factors for any SME can be derived:

  1. Importance of Clear Strategic Direction: A clear strategic direction is essential for navigating uncertainty.
  2. Comprehensive Strategic Planning: Develop multiple strategic options and quantify their potential impact.
  3. Proactive Stakeholder Engagement: Engaging key stakeholders early and consistently is crucial, following our TTE fair edge approach.
  4. Navigating emotions: Developing a strategy needs to be free of constraints in developing and evaluating strategic options – navigating the manifold emotions is key.

Through TTE’s detailed and methodical approach, the client now has a well-defined strategic plan that addresses current challenges and positions the company for future success. In an industry marked by uncertainty, having a clear strategic direction is essential. It empowers companies to navigate complexities, capitalize on opportunities, and achieve sustainable growth. This project underscores the value of strategic thinking and collaborative execution in driving organizational transformation and enhancing operating profit.

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