A Visit to a Project Development Contractor

I had the pleasure of visiting the brand new offices of SRV, a Finnish construction group. The President and CEO Jukka Hienonen hosted a dinner with 20 guests and gave an interesting presentation on the company’s recent history and its future.

Background

SRV was founded by five people in 1987. The company has grown mainly through acquisitions. Today they have around 1,000 employees and revenues of 672 million euros (about 880 million dollars). SRV operates in Finland, the Baltic region, and Russia. At the moment around 88 percent of its revenues are from Finnish residential and commercial construction. The company wants to increase the percentage of international business to 20 percent by 2016.

The company’s shares have been traded on the Helsinki Stock Exchange since 2007. The family of the founder and board member, Ilpo Kokkila, owns over 50% of the company. “Our owners have a face,” as Jukka Hienonen put it. Mr. Kokkila is known for his business acumen, and his willingness to take risks. The same “Jack Russell terrier” spirit can still be felt at SRV, a company that seems to venture into projects that exceed its size. So far, it has been quite successful.

Managing a pool of subcontractors

SRV is a project management company and does not employ construction workers. Instead, it has 2,500 subcontractors who carry out the design and construction work. According to Jukka Hienonen this does not pose a quality problem. SRV offers a 10-year warranty or correction period according to Finnish standards, and their post-occupancy repair costs have been very low. The subcontractors value their continuing partnerships with SRV, and therefore do not have a tendency to do substandard work.

SRV is committed to fighting the black economy. It maintains an extensive database of all of its subcontractors and the legality of their operations. CEO Hienonen mentioned that a delegation of tax authorities from 13 EU member states visited the company to learn more about the way SRV ensures subcontractors’ compliance with rules and regulations.

Sharing risk with the client

How does SRV differ from the average contractor? It uses a project development process called the SRV Approach. A project starts with the identification of customer needs and megatrends. Project development, design and engineering, and construction all partially overlap. A coordinated and cost-aware process usually leads to shorter lead times. SRV shares the risks and rewards with the client.

Jukka Hienonen presented a few famous projects in SRV’s history, as well as a number of ongoing and future projects. The imposing Russian projects and future high-rise residential projects in the Helsinki metropolitan area were especially interesting.

The Helsinki Music Centre (see photo), completed in 2011, originally had problems with financing due to the high costs.  The client struggled to find a contractor, and only SRV submitted a bid. SRV was able to cut 38 million euros out of the original cost estimate. It did so mainly by suggesting design changes (e.g. reducing the 200 different window sizes down to 10) and material changes (e.g. from special oak to stained birch). All this was done through a good rapport with the architect. The project was also completed ahead of schedule.

Growth strategy

SRV’s strategic goal is to grow faster than the industry average. By growth it means increasing revenues and it is aiming to exceed 1 billion euros by 2016. It will put more emphasis on project development and developer-contracting projects. This way it can create and capture more value than from projects coming through bidding.

Finding the right clients and partners is, according to CEO Hienonen, a critical part of risk and project portfolio management. He also pointed out that once they have built a good relationship with the right clients more projects are likely to follow.

An important part of project development is competitive financing. SRV has, among other arrangements, established Russia Invest – a property investment company – together with a group of Finnish institutions.

Innovation

SRV is an early adopter of solutions and technologies, but it does not itself invest heavily in technological development. It emphasizes that innovation happens in projects.

The Kamppi retail center in the heart of Helsinki demonstrates SRV’s innovative approach. The central bus terminal was to be built alongside the commercial complex in Kamppi. During the planning phase, Executive Vice President Timo Nieminen came up with the idea that the terminal could be placed underground, below the commercial complex. It was built this way and now travelers don’t have to stand in the snow and the rain – instead they can shop on the way to the bus. The buses are behind a glass wall so that travelers are separated from noise and exhaust gases while waiting. There is also an internal passageway to the nearby metro station.

Another example of project innovation is SRV’s headquarters. It is one of the most energy-efficient office buildings in Europe. It uses geothermal heating and has many other features that entitle it to be “almost LEED platinum” level, as CEO Hienonen put it.

Photo: © Aarni Heiskanen