COMPANY PROFILE -Skanska
Business Sector :Construction
Operating Geography :Sweden, Europe
About Skanska :Skanska AB is a Swedish multinational project development and construction company founded in 1887. The company has been managing projects and contracts outside Sweden since 1897. Skanska is the first company in the construction industry to obtain the ISO 14000 environmental certification. The company handles projects in infrastructure, residential property, commercial property and through public-private partnership. Skanska is headquartered in Stockholm, Sweden. It has around 41000 employees and is in operation in more than 11 countries in North America, Nordic region and Europe as of 2016.
Skanska Revenue :SEK 151 billion – FY ending Dec 2016
Competitive Analysis of Skanska
|1. Effective synergies amongst business units and internally amongst divisions|
2. Supplier Code for taking ethical decision
3. Strong order book
4. Reputed globally for Green construction
5. R&D Focus and good information systems
6. Employees ownership programme (SEOP)
|1. Failure to establish itself in developing markets
2. Struggling to improve its operating margin
|1. Growth in construction industry in USA and UK|
2. Increasing urbanization and favorable demographics
|1. Uncertainty in UK market due to Brexit and in USA due to Donald Trump
2. Intense competition in USA market
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Detailed SWOT Analysis of Skanska
1. Effective Synergies amongst business units and internally amongst divisions: Skanska has a unique business model wherein group companies across geographies and divisions have been highly integrated resulting in high operational synergies. This has been possible because the all group companies follow common group values and code of conduct. SEK 30 billion worth of total order backlog were contracts which involved more than one business unit in 2016. The company leverages its project development division to generate internal contracts for the construction division. The company has earned revenue of SEK 17.6 billion from internal project development contracts. The investments in project development are many times financed through cash flows from construction business and group profits. The group has developed organisation like Global Healthcare Centre of Excellence which provides quality solution relating to healthcare to various business units across geographies. Experts from other business division or from a different geography often help each other in projects in they have prior experience. This allows for innovation besides reduces cost thereby strengthening the competitive advantage and providing for a comprehensive customer focused products and services.
2. Supplier Code for taking ethical decision: Skanska believes in doing business with a high degree of transparency and integrity. Skanska has articulated its first Supplier Code in 2016 which will serve as an ethical guide for employees and company in dealing with its customers. It clearly states the expected behaviour from its supply chain. The company wants to work with customers which do not compromise the group’s high ethical standards. “Act ethically and transparently is one of the Skanska’s core values.
3. Strong order book: The Company has increased its order booking by 40 per cent to SEK 170.2 billion vis-à-vis SEK 122.1 billion in previous year 2015. The order booking were particularly strong in the US market. The order Backlog increased by 20 per cent from SEK 158.2 billion in previous year 2015 to SEK 196.3 billion in 2016 which is highest ever order backlog for the company. Company’s order backlog is equivalent of 17 months of production. Unilever has invested in evolving and diversifying is portfolio of products. This is mainly due to strong performance in Sweden, Finland and USA markets. The rising order book will drive the sales growth for the company.
4. Reputed globally for Green construction: Skanska is the pioneer in the field of green construction. It was first company globally to obtain an ISO 14000 environmental certification in 2000. The company is in process of transitioning to the new ISO 14001:2015 environmental management standards. Skanska UK became the first ISO 14001:2015 certified company worldwide in 2016. “Care for life is one of its core values where it considers acknowledges its accountability to future generations through safe and environmentally responsible actions. The expectancy to receive more than 60 % of the projects requiring green certification will double from 18% currently to almost doblu by 2018. Environment regulations and clients demand will continue to trigger growth for the Green construction industry. The demand is expected to be particularly high in developed countries in which the group operates. Skanska has the requisite expertise and experience to deliver infrastructure, residential and commercial projects in green building.
5. R&D Focus and good information systems: Boklok-prefabricated houses developed by Skanska in collaboration with IKEA continue to provide great returns and company has sold more than 9000 units of such homes during the last 2 decades. The Research and Innovation function at the corporate hub provides solution to various Skanska business units. Skanska has patented Deep Green Cooling Technology which allows cooling building with almost zero impact on environment. It has developed an application named “Insite Monitor” using which the project teams can remotely monitor the noise, dust, vibration etc. at the project site providing it a competitive advantage in Hospital expansion and renovation projects. Skanska is also developing 3D printing, drones, virtual and augmented reality, automation and robotics. Skanska has developed a Building Information modelling (BIM) system which provides everyone working on project with latest and accurate data enhancing communication and efficiency. It helps project teams in analysis, evaluating cost and other project parameters and integrating operation and international collaboration.
6. Employees ownership programme (SEOP): Skanska employees through Skanska Employee Ownership Programme (SEOP) are the third largest shareholder in the company. The Group aspires to the most attractive employer in the industry. SEOP has helped foster the pride of ownership amongst the employees increasing their commitment towards the common goal of the organisation. SEOP has roughly 10,500 participants with a total investment of SEK 300 million in 2016.
1. Failure to establish itself in developing markets: Skanska has been unable to establish itself in developing markets like South America and Asia. Skanska completely exited the South American market in 2016 after booking huge losses due to write-downs due to corruption scandals. Skanska has earlier sold its Indian subsidiary Cementation India in 2004 losing opportunities in what is now one of the fastest growing markets in construction and real estate industry globally.
2. Struggling to improve its operating margin: Skanska was unable to meet its operating margin targets set in business plan for in construction. The operating margin remained at 2.6% against the targeted 3.5%. The low operating margins were due to below because of low operating margin in Skanska USA Civil and negative operating margins in Skanska Poland. The Skanska UK civil is also struggling to keep its operating margins and its weak performance is also dragging the operating margin.
1. Growth in construction industry in USA: The global construction is expected to grow to $8 trillion by 2030 with a lion’s share of growth coming in from China, India and USA. USA is expected to grow faster than the Chinese markets till 2030. The public-private market partnership market in the USA is expected to remain strong. The infrastructure in USA will require huge investments. The US housing market also has bright prospects.
2. Increasing urbanization and favourable demographics: The global trends in terms of demographics and urbanization are expected to favor the construction industry. The world is currently experiencing the high growth rate in urbanization. Now more than half of world lives in cities. This will lead to an increase in demand in infrastructure, housing, education and healthcare sector. Low cost housing solutions like Boklok will be key in success of Skanska in the future.
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Skanska SWOT and PESTLE analysis has been conducted by Saurabh Jain and reviewed by senior analysts from Barakaat Consulting.