Strategic Management In Construction

Assignment D39BB Business Management for Built Environment Professionals

By:

Mufseer Mansoor

TABLE OF CONTENTS

Description

Page

a. Introduction

3

b. Strategy concept

3

c. Strategic Approaches

3

d. Organization’s Vision and Mission

5

e. Strategic Management Process

6

f. Strategic Process in Construction

7

f. Conclusion

9

References

10

a. Introduction Present construction as an economic action is becoming exposed to a more and more competitive set of environmental circumstances. In order to meet the competitiveness and dynamic change in the industry, there is an increasing need for construction organization to plan strategically and implement effective strategic management practice to secure their healthy growth as effectiveness of strategic Page 2 of 10

management can critically impact organization’s viability. Therefore, strategic management practice is now becoming more popular within the construction sector than it was which is evidenced by the volume of literature dedicated to the subject. This paper critically analyses contemporary thinking and theories on strategy in which examine academic thinking and strategic practice and the process of strategic development and explain how strategist within an organization competing in the industry, could draw upon such theories and thinking in shaping the practice of strategic development. b. Strategy concept Literature on strategic management is awash with definition but one of the early definition of strategy was according to Chandler (1962) is determination of the long term objectives and goals of an organization and the implementation of course of action and the allocation of required resources for executing those goals (Chandler, 1962). Johnson & Scholes (1997) argued that as strategy is about the long-term direction of a firm, it is typically consideration of key decision about the future. According to Pettigrew (1997) strategy is “the pattern of decision in a company that determines and reveals its objectives, purpose or goals, produce the principal policies and plan for achieving those goals, and defines the range of business the company pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers and communities” (Pettigrew, 1997, p.52).Cole (1997) argued that strategic management is setting the key aim of an organization and selecting the most suitable goals for such aim and fulfilling both over the time. But according to Mintzberg, Ahlstrand and Lampel, (1998) Strategy has no easy simple definition instead they argued that it requires number of definitions (Mintzberg, Ahlstrand and Lampel, 1998). Whittington (2001) identifies four perspectives on strategic approaches where every perspective has its own view on strategic process, although Mintzberg, (1998) distinguish ten schools of thoughts in strategic approaches. Thus it is obvious that difference of perspective on the creation of strategy implies a wide variation of the definitions. Although these all definitions have there are some general areas of agreement about the character and aim of strategy which is to maximize the performance of organization in a competitive business environment. c. Strategic approaches Different strategic theories have emerged with varied view on how strategy process should be developed and formulated. Whittington (2001) identified four generic approaches to strategy and all these approaches fundamentally differ alone dimensions, the outcome of strategy and the process which is it made. These theories are important and it contains the basic assumptions about key relationships in the organization’s business life and it tells what to expect, what organization’s first steps should be and what to look out for as a result of strategist’s action. The classical planning approach according to Whittington (2001) profitability is the highest aim of business and rational planning is the way to attain it. This approach is the oldest and the most influential which is based on the military tradition in which the world is a rigid hierarchy and it place great confidence in the readiness and ability of manager to adopt profit maximizing strategy through rational long-term planning. This approach can be used to predict outcome based on interactive models. Although many professional in the current industry argued that this approach no more applicable and it does not suit to the dynamic business environment as it has no mechanism for strategy creation. This theory can be applied only for analyzing future market conditions, preparing business negotiations, evaluating the viability of a business and strategic decision making. This approach is best suiting for organizations that competing in the same segment or for those organizations that the strategies are similar. Unlike classical planning theory evolutionary theory do not rely on top management’s skills to plan and act; instead it believes the market will determined the profit maximization and no matter what methods the managers adopt, ultimate best performance will be the one that survive. Whittington (2001) argued that this approach is less relying on manager’s capability to plan and act rationally instead they expect market to secure profit maximization which eventually downgrade managerial strategy and give emphasis to environmental fit (Whittington, 2001). According to this theory, best Page 3 of 10

performing strategies only emerge as the process of selection delivers its judgment. Cuizon (2009) argued that competition cannot be overcome by detached calculation and analysis instead it overcome by constant struggle for survival (Cuizon, 2009) which is contradict with the Cyert & March (1963) argument in which they argued that the top management team of a firm is the ‘dominant coalition’ of individuals who are responsible for setting firm’s direction (Cyert & March,1963). According to Richard Cyert, James March and Herbert Simon, rational economic man is not possible as they cannot overlook factors at the same time. Processual approach do not subscribe to rational strategy making forwarded by classical process. They do not either agree with evolution approach of leaving the profit-maximizing outcomes to the market. But Processual believes that it is in compromise and adjustment; both external and internal are the important factors and not the environment and the calculated rationally. It considers that long-term planning is largely futile but less pessimistic about the fate of business which does not optimize environmental fit. As per this approach, organization and market are formed with mess and confusion (Cuizon, 2009); the best Processual approach is not to strive for the ideal but to work with that the reality offer. Whittington (2001) argued that this approach downgrades the importance of rational analysis and it limit and reduce the search for strategic flexibility and expectation of success (Whittington, 2001). Theorists from systemic approach believe that the organization is capable of planning and acting effectively. And also they believe economic activity cannot be separated from social such as family, religion or state and these factors are controlled the means and ends of the systemic approach. In this approach they consider organization is made-up of social group with interest and not of individuals. Therefore organizations from different countries will differ in their characteristic approach to the strategy and transfer of strategic thinking and techniques from different country or even industries is not easy. This approach takes into consideration of the social environment that the organization is revolving in and ends and means of the organization depends mainly on what is prevailing social system. Whittington (2001) argued that in this approach the norms that direct the strategy derive from the cultural rule of the society. He further stated that “The internal contests of organizations involve not just the micro-politics of individuals and department but the social groups, interests and resources of the surrounding context” (Whittington, 2001, p27) Contrary to Whittington’s (2001) four different approaches to strategy, Mintzberg (1998) has identified ten schools of thoughts that provide a framework which can be used to categorize the strategic approaches. These approaches have varied relationship with each other. The Design School sees strategy as process of conception although the Planning School sees it as a formal process that undertakes careful set of steps to execute the strategy. The Position School considered strategy as analytical process but the Entrepreneurial School perceives strategy as a visionary process which takes place within the mind of the leader of an organization. In contrast to the said four schools the Power School introduced process of negotiation between key holders within or between companies and its outside stakeholders to the strategic process. According to the Cognitive School strategist are mainly self-taught; they develop their thinking process and knowledge structure largely through experience. Thus they considered strategy as a mental process and it analyze how people process information and perceive patterns. However Learning School sees strategy as an emergent process in which the management implements the lessons that learned over time into their overall plan of action. In the Cultural School various group within the organization involved in the strategic process therefore they sees this as a collective process which is contrast to the theory of the Environmental School in which they sees strategy as a response to the challenges imposed by the outside environment and not the internal groups of the organization. But the Configuration School sees strategic formation as a process of transformation (Mintzberg, 1998). Under all the above strategic approaches, organization needs to establish a strategic framework for their success that consists of analysis, choice, implementation and feedback. However in the first place organization must have a clear vision and mission statement. d. Organization’s Vision and Mission A vision is a public statement about what firm wants to become. Vision of a firm should resonate all in the firm and help them feel excited and proud. It should stretch the firm’s image and capabilities of itself and provide shape and direction to the firm’s future. Length of the vision statement range from a couple Page 4 of 10

of words to several paragraph but shorter vision statement is better as people will tend to remember it (Gregory, 2009).According to Johnson & Scholes (1997) vision is desired future state of the firm (Johnson & Scholes,1997).Cole (1997) argued that the vision is intended to motivate managers and stakeholders and to be sufficiently focused in its message (Cole, 1997). The mission is a precise description of what a firm does and it describes the business the firm is in (Gregory, 2009).According to Cole (1997) mission statement sets out its reason for being in term of the customer needs and how it aims to satisfy and the manner in which the organization will meet them. Johnson & Scholes (1997) defined mission as to overriding purpose of the firm that in line with the expectation and value of key stakeholders (Johnson & Scholes, 1997). The definition of Peter (1987) for the vision is to be the more suitable one for the construction industry in which he argued that the leaders in the organization should develop a specific, challenging, inspiring and empowering vision for their business success (Fellows et al.,2002). Formulation of vision statement leads to the statement of mission. In the objective statement the firm announces how they convert the mission into performance. Following vision and mission statements of M/s Arabtec provides what is and what will be the business and it establishes long-term direction of the organization. Vision “To be the leading provider of quality construction and engineering services in the Middle East, North Africa and across the globe”. Mission “To form long-term relationships of value with our clients and partners by using quality construction and engineering solutions and employing the best resources and latest techniques” Objectives “To provide the highest possible standard of quality and service in the construction industry, giving Clients the best satisfaction the Company can offer”. (Source; Arabtec Construction LLC’s web site, http://www.arabtecuae.com) In the Vision and mission statements M/s Arabtec Construction LLC, is announcing to the public that their main intentions and aspiration and the reasons why the firm exists. Their powerful strategic intend expressed the logic of the strategic direction of the organization which motivate the employees and managers alike throughout the firm. According to the organization’s vision and mission statements, the strategist works on strategic management process.

e. Strategic Management Process Strategic management is concerned with making a decision on strategy and planning how the decided strategy is to be put in to effect. Developing a successful strategy requires capability of a firm, creativity and through understanding of the resources and comprehensive analysis of the competitive market. Thus clear strategic process is a need for organizations to have stability and avoid crises brought about by surprises. During strategic management process firstly strategist seeks to understand the strategic position of the business by analyzing and scanning the external and internal environment. Then in the strategic choice/formation stage, strategist formulates of possible courses of action and evaluates and chooses between them. The final element is strategic implementation in which strategist concern with planning how the choice of strategy can be put in to effect. These three elements are not sequential but they overlap and interact.

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Strategic management process is takes place in a dynamic and complex business environment. Therefore it is crucial to understand the external business environment and any assessment of an organization’s internal environment for the process of strategic management. External influence such as social, economic, political and technological on the project can be analyzed using PEST analysis. The dominant groups in the external business environment who influence the organization are usually the organization’s shareholders, customers, competitors, the representative of the community at large and suppliers. In addition technological advancement, nature of the labour market, government and the law of the country and state of the industry are the most important other factors which influence the external business environment (Cole, 1997). Other important element in assessing firm’s overall position is identification of the strength and weakness of the organization’s internal environment in which strategist can analyze the nature of internal condition and internal performance. These can be analyzed from number of different perspective such as financial, cultural, organizational, marketing, production, research and development and resourcing perspective (Cole, 1997). Verification of organization’s existing resources is also a main course of work during the strategic analysis stage and it will provide the base for the further course of action. Pettigrew, Thomas and Whittington (2001) argued that organization that unable to fit with dynamic situation and changes, will not succeed and incur substantial loess. Therefore it needs to keep an eye on their business environment for internal vulnerabilities as well as external threats and focus and exploit new ways faster than their competitors. Thus, organization can use SWOT analysis as a strategic development tool to match their internal strength and weakness with external threats and opportunity which helps organization to balance idealism and pragmatism. And it also helps to develop an effective strategy by obtaining a balance perspective of the organization’s internal strength and weakness and external threats and opportunities (Pettigrew, Thomas and Whittington, 2001). Once strategic analysis is completed, the strategic choice will be made. According to the Johnson & Scholes (1997) strategic choice is the central part of strategic management. There are many strategic options are available to an organization and these can be evaluated and selected using deferent type of techniques. According to Johnson & Scholes (1997) there are three type of evaluation criteria that can be used for selecting a strategy namely suitability, acceptability and feasibility (Johnson & Scholes, 1997). They further argued that the strategic choice is concerned with decision about firm’s future and the way in which the organization needs to respond to the influences and pressure identified in strategic analysis. And also organization’s continuous adjustment to their business environment is a vital part and firm does not tend to remain bound by their pattern and resistant to change. Thus strategic choice stage firm must have variety of strategic option open to the organization (Johnson & Scholes, 1997). Due to dynamic and complex nature of the current construction industry their argument on continuous adjustment and variety of strategic choice more fit with the industry. During the strategic choice stage strategist must choose the strategy, which meets organization’s targets, efficiently utilize its impressive strength and the one that correct all its major weakness of the organization. And also it must reduce the impact of threats and make use of all potential opportunities (Fellows et al., 2002). Most important stage of the process is implementation phase in which organization’s aim and objective will be communicate to all its members and demonstrate the application of system to achieve organizational objectives. Implementation of strategy is carried out within the frame work of actions plan. Most challenging part of this stage is to planning the implementation, finding the type of change required and finding the effective methods of managing the strategic change (Johnson & Scholes, 1997). Changes will be initiated by the management and detail working system will be developed by the team leaders that in line with the organizations aim. Implementation phase strategists also look for possibility of outsource non core activities or to executing by in-house team which will depend on organization’s existing resources and capability. In case of a change it is preferable to focus on revising the existing strategy in a suitable way without generating a new strategy from scratch. Johnson & Scholes,(2001) identified organization’s tendency towards ‘momentum of strategy’ (during the strategic implementation stage) in which organizations do not fundamentally changing their direction rather develop from and within the strategy which they have already adopted ( Johnson & Scholes,2001). In the feedback and control stage, the strategists continuously monitor performance of the strategy which is in place against the set objective. If it does not meet objectives corrective action and decision are made. In order to measure the strategic performance, strategist must carry out the strategic audit in which it Page 6 of 10

evaluate all facets of the process or focus on single part of the process. Feedback and control stage is carried out at the three levels of the organization; corporate level, business level and operational level. f. Strategic process in construction The requirement for strategic management to the Construction Industry is becoming more and more important as rapidly changing market condition requires greater corporate awareness of changes and its implications. Although, due to dynamic, complex and unpredictable market condition, strategic management in the current business environment becomes extremely difficult and strategist today is aware of the chaos they have to navigate. Thus, strategists in the industry must have skills and tools to formulate and implement the strategies that enhance performance of the organization. Having a clear strategy, enhance the corporate harmony of the business and it provide the employees clear indication where the organization is going. Thus Strategists who are in the sector should constantly review their market where they operate, keep sharp eye on the most current trend and what competitors are up to and evaluate strengths and weakness of the organization. However some successful leading organizations in the construction industry are adapting their strategy development methods to match the market competitive reality but many firms in the industry are failed to practice effective strategy process which is evidence from Mintzberg (1994) findings that ‘there is very little evidence of implementation of strategic management process effectively’ (Mintzberg,1994). Most of Strategic plans are failing because strategist fails to: •

Think creatively about the probable affect of plans and predict market reaction

•

Plan and Execute the strategy appropriately

•

Make right decisions

•

Co-ordinate and control resources and poor management awareness

•

Obtain external and internal participation

•

Follow the plan

•

Ignore the cultural and organizational requirements

• Take advantage of new opportunities offered by the business environment which are not part of the original strategy •

Identify the strategic alternative.

During strategic planning process they need to consider the complex, embedded and dynamic nature of the construction industry and also need to identify the resources and capabilities of the organization in order to develop to maximize competitive advantage and measure the value created by the strategy and identifies attractive market and understands how it can be influenced to improve industry profitability. The timing of the strategic management is also vital to its success, if the organization’s activities are systematic with realistic forecast; the consistent financial performance is likely. The Strategists must also focus on return on capital of a business and if the return in the long-term is not satisfactory the deficiency should be corrected or the activity abandoned by the Strategist. During the planning stage, in order to develop a proper response accordingly, strategist must anticipate changes much earlier as in the event of crises the complex and large organizations in the industry are more difficult to change quickly. Many innovative changes to the construction industry must be adapted to the industry such as strategic alliances, partnering and supply chain management as the organization which adopt ossified and bureaucratic process rather than insightful and those focused on extrapolating historical trends rather than capturing future competitive advantage are not yield the best result of the strategic management process.

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Study and research shows that mostly strategic plan fail during the execution stage and because strategies are exported without being created from organization’s culture and the heart of the dynamic environment. Due to these and variety of reasons organization in the industry do not realize the anticipated strategy. Mintzberg has realized this and has proposed an alternative model of strategy development as intended strategy of an organization rarely survives in its original form. Gregory, Lumpkin, & Taylor, (2005) argued that unanticipated resource constrains, changes in the managerial preferences and unforeseen environment development may result in at least some element of the anticipated strategy remaining unrealized. In the same time good strategist in the industry need to take advantage of new opportunities offered by the business environment even though it was not part of original intentions (Gregory, Lumpkin, & Taylor,2005). Hamann (2006) argued that strategy process are interconnected thus optimal strategic analysis leads to better formulation and best formulation to better planning. Strategy implementation and execution is the final but crucial stage as unsuccessful execution of strategy will fall short of its potential (Hamann, 2006). This argument reinforced by a research which conducted by consulting company Marakon (2002) in which they have surveyed 197 senior executive from large companies worldwide and they found that companies that they surveyed deliver only 63% (average) of the promised financial performance in their strategies due to breakdown in planning and execution. In 1999 Fortune Magazine reported 70% of fail strategies are due to bad execution and not the high-concept boners to the CEOs. Alexander (1990) identified some of reason for lack of focus on strategy implementations. • Only few strategic implementation conceptual modules are available. • Researchers are not certain where and how strategy execution starts and stop • Most in the organization believe that anyone can execute once the strategy has been formulated • Many professional in the industry believe that every organization is able of implementing strategy therefore they focus more on formulation. Bonoma (1984) suggested that lack of focus on implementation stem from the fact that the persons those who are implementing are not trained in strategy execution as the syllabus at most business schools is basically focus on strategic formulation and analysis (Bonoma,1984). In order to avoid implication problems Noble (1999) developed a practical framework for strategic implementation in which he developed a model of the key stages in strategy implementation.

g. Conclusion Different strategic schools provide varied view on how strategy process should be developed and formulated but the implementation of the stagey is an area where many organization experience problem although it is the vital part of the organization success. All researches and literatures suggest that strategy implementation is important to organization success therefore strategist in the industry must identify how implementation is important and how and which factors affect that process. However strategy implication is a not easy process but complex, in order to overcome implementation problem strategist need a successful frame work for implementing strategies. Therefore the strategist in the current instruction industry must focus not only on strategic formulation and analysis but also strategy implementation as strategy alone cannot make the organization success but effective implementation is the key for success.

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References Acur, N and Bititci, U (2004) A balanced approach to strategy process .International journal of operations and production management, 24(4) 388-408 Arabtec Construction LLC, [online] http://www.arabtecuae.com, accessed 6/08/2009. Brown, P (2005) The evolving role of strategic management development .Journal of management development, 24(3) 209-222 Bonoma, T. V. (1984) Making Good Strategy Work. Harvard Business Review, 62 (2): 69-77. Checkland, P.B. (1981), Systems Thinking, Systems Practice, Wiley, Chichester. Cole, G.A.(1997) Strategic Management, 2nd edition, Thompson Learning, London. Grant, R.M. (2002), Contemporary Strategy Analysis, 4th Edition, Blackwell, Oxford. Gregory G., Lumpkin, G.T., & Taylor, M.L.(2005), Strategic Management, 2nd edition, McGrawHill Irwin, New York. Gregory, A. J. (2009). A Systems Approach to Strategic Management. Available: http://journals.isss.org/index.php/proceedings51st/article/viewFile/840/207. Last accessed 30/07/2009. Page 9 of 10

Gregory, A. J. (2009). Strategic development in higher education: a critical systems perspective. Available: http://journals.isss.org/index.php/proceedings51st/article/viewFile/840/207. Last accessed 30 July 2009. Hamann,P. (2006). Strategy implementations create business results. Available: www.cbs.dk/content/download/42143/620386/file. Last accessed 12 August 2009. Johnson, G & Scholes, K (1997), Exploring Corporate Strategy: Text and Cases, 4th Ed. Prentice Hall, Europe. Mintzberg, H., Ahlstrand, B., Lampel, J. (1998) Strategy Safari: The Complete Guide Through The Wilds Of Strategic Management, FT Prentice Hall, London. Pettigrew, A., Thomas, H. & Whittington, R. (2001), Strategic Management: The strength and limitation of a field, Sage, Elster. Pettigrew, A. Thomas, H. and Whittington, R. (2002), Handbook of Strategy and Management, Sage, London Porter, M.E. (1985), Competitive Advantage, The Free Press, New York. Wang, G and Yang, J (n.d.) Business development strategy and Australian construction industry [online]

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