Rapid strategies

STRATEGIC PLANNING IN CONSTRUCTION COMPANIES
By Abraham Warszawskl1
, Fellow, ASCE
ABSTRACT: Strategic planning is an essential function of senior management in any business firm. Planning
involves the firm’s behavior in a competitive market and adaptation of the company’s resources towards the
selected market strategy. This paper presents a methodological procedure for strategic planning in a construction
company. This procedure consists of the following stages. First, examine the company’s mission. The mission
reflects the owners’ views with regard to the company’s scope of activities and objectives. Second, survey the
company’s business environment. The environment includes both general economic factors that affect all types
of business activity and additional factors, specific to the construction sector. This survey should reveal the
specific “packages” of prospective project opportunities and highlight potential threats to a company’s orderly
activity. Third, analyze the company’s main resources. The main resources in this respect include the construction
capacity, the procurement system, the marketing system, the organization, personnel, finances, and knowledge.
The relative strengths and weaknesses of each resource, in light of market needs, are identified. Fourth, develop
a strategy. The development of a strategy is based on “mapping” of the relative attractiveness of the various
possible activity areas. This strategy can follow one of several generic types that must be adapted to particular
conditions of the market and company. It affects the subsequent choice of a strategy for development of the
company’s own resources. The choice of the optimal strategy, from several available alternatives, should follow
a careful analysis of the costs and benefits inherent in the implementation of each.
INTRODUCTION
The purpose of this paper is to present an orderly process
for the development of a competitive strategy in a construction
company. Strategies are long-range plans, methods, and approaches that a company adopts in order to reach its goals in
a competitive environment. Some important features of strategic decisions are that they are taken at the highest level of
the firm (or its pertinent unit) and involve long-range organizational commitment and investment of resources. These strategies may direct a company’s behavior in the market with
regard to its potential clients and competitors. They also direct
the long-range development of a company’s resources.
While strategic decisions on various levels may deal with a
large number of variables within the organizational systems of
the firm, some “grand strategies” or “generic strategies,”
which involve the general orientation of the firm, can be identified and typified. Pierce (1991) identifies 12 grand strategies
that a company can follow. Four of them are concerned with
the extension or modification of the existing production base:
(1) Concentrated growth-focusing on a specific product-andmarket combination; (2) market development-adding markets for development of the present product or group of
products; (3) product development-modification and
improvement of existing products in existing markets; and (4)
innovation-offering new substitutes for existing products.
The five following strategies involve extension of the present base by acquisition of other businesses: (1) Horizontal
integration-acquisition of enterprises with the same product
content; (2) vertical integration-acquisition of enterprises
that produce the firm’s inputs or market its outputs; (3) opening of joint ventures; (4) concentric diversification-acquisition of businesses with synergistic possibilities of employing
complementary strengths or of overcoming existing weaknesses; and (5) conglomerate diversification-acquisition of
unrelated enterprises.
IProf., Fac. of Civ. Engrg., Technion, I. I. T., and Nat. Build. Res.
Inst., Haifa 32000, Israel.
Note. Discussion open until November 1. 1996. To extend the closing
date one month, a written request must be filed with the ASCE Manager
of Journals. The manuscript for this paper was submitted for review and
possible publication on August 14, 1995. This paper is part of the Journal
of Con8tT’uctum EngtMerlng and MtJlUlge”umt, Vol. 122, No.2, June,
1996. CASCE, ISSN 0733-9364/96/0002-0133-01401$4.00 + $.50 per
page. Paper No. 11401.
And three of the following strategies are concerned with
defensive behavior in view of unfavorable market conditions:
(1) Retrenchment-improvement of the firm’s declining position by reducing assets or scale of activities; (2) divestitureclosing or selling parts of the enterprise; and (3) liquidationorderly closure of the business.
Vesper (1979) identifies four major types of strategies: multiplication (expansion of present products), monopolization
(protection of present markets), specialization (in products or
services), and liquidation.
Segev (1990) reviews nine strategies that combine the various approaches (described before) in different ways.
Perhaps the simplest and most widely used classification of
strategies has been suggested by Porter (1980). It distinguishes
three major generic groups, as follows: (1) Cost leadershipemphasizing cost reduction of its products and services; (2)
differentiation-offering the customer a special value by
stressing quality, performance, or service; and (3) focus-targeting on a selected segment of the market in terms of location, product, or group of customers. A focus can be oriented
towards cost or differentiation.
Mintzberg (1985, 1994) places emphasis on the manner in
which the strategies are developed. He distinguishes between
“deliberate” strategies-those planned and executed by the
management-and “emergent” strategies-the result of internal or external pressures. He accordingly classifies them
into eight types, differing by the extent of managerial input:
“planned,” “entrepreneurial,” “ideological,” “umbrella,”
“process,” “unconnected,” “consensus,” and “imposed.”
Various types of strategies, “emerging” under different business environment conditions, are reviewed in Miller (1978).
The selection of an appropriate strategy through an orderly
process is assisted by an analysis of a company’s strengths
and weaknesses compared with its competitors. Such systematic analysis of various aspects of the company’s activities
have been proposed by Vesper (1979), Porter (1985), and Segev (1990).
The following sections are concerned with the description
of a formal process of strategic planning in a construction
company. This process was developed in the light of a survey
of strategic attitudes in 13 large construction companies in 4
countries-Japan, United States, United Kingdom, and Finland. This survey and its findings are described by Warszawski
(1994).
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METHODOLOGY OF STRATEGIC PLANNING
The methodology of strategic planning outlined here employs a planning procedure based on the system analysis approach (Churchman 1969). This analysis proceeds as follows:
I. The problem is defined. The system that harbors the
problem is examined; its inputs, outputs, and decision
variables are defined.
2. The parameters of the system and constraints on the solution are defined.
3. The objective function is formulated. It defines the efficiency with which inputs are converted into outputs and
dependence ofthat efficiency on the value of the decision
variables.
4. The optimal solution is obtained by manipulating the values of the decision variables.
In the case of the particular problem of strategic planning
examined here, the system consists of a construction company
and its business environment as shown in Fig. I. The business
environment includes the immediate construction market and
the general region or national economy.
The parameters of the system are attributes of the company
and its environment, which can affect the outcome of the company’s operations and should therefore be taken into account
with the planning. The state of some of the parameters, the
decision variables, can be determined by management as part
of the strategic planning process. Not all decision variables are
necessarily of a quantitative nature; some involve choices,
preferences, or procedures, which can be determined, adopted,
or modified by the planners.
Decision variables have to be determined within the constraints imposed by the owners and by the business environment. Every state of the decision variables defines a strategic
alternative. The state of the variables should be determined in
such a manner that the outcome of the company’s operations
will be most successful. The measure or criterion for success
is conformance with the company’s objectives as perceived by
its owners. The best alternative-the one that best satisfies the
company’s objectives-then can be selected and implemented.
The procedure for strategic planning employed consists of
the following stages:
3. Survey the company. The survey examines the various
internal parameters of its activity-parameters that define the production process and related activities-and
the decision variables-parameters under the control of
management-are identified and enumerated.
4. Develop alternative strategies. The number of alternative
strategies can be infinite; the process adopted here offers
certain guidelines for identification of preferred strategies.
5. Select the preferred strategy.
COMPANY MISSION
The mission of a company, as defined here, involves the
scope of its business activities, objectives, and special codes
of behavior.
Scope of Activities
The scope of activities defines the framework for strategic
planning. It concerns itself with the following subjects. It addresses the types of projects that a company wants to engage
in. It can encompass one or more of the main sectors of
construction-buildings, roads, water supply works, or others.
It is often limited to a particular type of project such as dwellings, industrial buildings, or bridges. It also regards the geographical location of the activity-whether in a particular location, in a certain region or regions, in the whole country, or
also abroad. Finally, it refers to preferred customers-small,
large, private, public, a particular customer, and so forth.
The scope of a company’s activities may be determined by
the preference of the owners, by their perception of the market,
tradition, or other considerations, and it forms a constraint on
strategic planning. The questions of involvement in particular
markets may also be determined as a result of orderly planning. In such a case, they will be part of a company’s strategy
rather than its mission.
Company Objectives
Objectives of a company determine the criteria for assessing
a company’s success. In general, the main long-range goal of
a commercial company is to increase the wealth of its owners
or, at least, to maintain it at its original size. To attain this
goal, more specific economic objectives must be defined such
as
FIG. 1. Conatructlon Company Aa Syatem
1. Examine the company’s mission-the scope of its activities and objectives (i.e., the measures of its success).
2. Survey the environment of the company. The survey determines the exterior parameters-the general market attributes, characteristics of competition, and others; constraints set by the environment on the company’s
activities are also identified.
c _
Objectives,
criteria
The General Economy
• Profitability-measured by return on equity or return on
assets
• Growth-measured in terms of assets, turnover, or a
share of the market
• Survival of a company (or limiting the risk the company
is taking on in its ventures)
A construction company may also have other objectives, of
a less economic nature, such as technological leadership, service to the community, service to the environment, and welfare
of the employees. It is not always clear whether these objectives are either pursued for their own merit or because, in the
long run, they contribute to the economic welfare of the company. Examination of a company’s mission, viewed .by the
owners, has two aims. First, it determines the constramts on
the strategic courses of action of a company. Second, it defines
the criteria for success under which these courses of action
will be judged.
BUSINESS ENVIRONMENT
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ploit and threats from which it should beware. It should be
conducted in the light of a company’s planning horizonusually 3-5 yr and should therefore address the following topics: (1) general indicators of economic activity within the planning horizon that may influence construction activity: national
and regional (depending on the scope and location of a company’s activities) economic growth, availability offunding, the
mortgage market, inflation; (2) national and local government
investment programs in housing and infrastructure, national
building laws and regulations, and land markets; (3) general
demand, private and public, for building works-residential
buildings, nonresidential buildings, transportation, and other
civil engineering works, and distribution of the demand over
various regions; (4) specific potential clients-builders, housing societies, government agencies, local government, retail
chains, etc.; (5) potential competitors-their capacity and
competitive stance; (6) main production factors-labor supply, materials supply, and the subcontractors market; and (7)
special local issues-local limitations, incentives, and special
laws or regulations that may affect construction.
This analysis should also highlight potential •’market packages” that consist of a particular type of project in a specific
location. Business opportunities and threats involved with each
package should be determined in the light of the various market attributes examined.
ANALYSIS OF COMPANY’S RESOURCES
A company should be examined with respect to its resources. The resources, defined here, are the various elements
of the company that contribute to its ability to compete successfully in the market. The main resources of a company,
when viewed in this sense, include construction capacity, procurement system, marketing system, organizational infrastructure, technical and managerial personnel, finances, and knowledge. Resources can be divided into direct ones-construction, marketing, and procurement-that are parts of a company’s production chain and others that form the supporting
infrastructure for direct activities.
The method of analyzing each of these resources now will
be outlined.
Construction
Construction, as viewed here, refers to the capability of a
company to perform a variety of direct activities for the physical realization of construction projects, i.e., construction planning, coordination, monitoring, directing, and control. Within
the analysis of this resource the following questions must be
addressed:
• What main projects does the company undertake?
• What are the preferred construction methods? Do these
methods enable a company to compete successfully with
others in terms of cost, productivity, speed of construction, flexibility, and quality? In what type of projects are
they particularly advantageous?
• Does the company have some special equipment, facilities, or proficiency that lends it competitive edge?
• Does the company employ its own labor-foremen and
workers? What is their value in terms of age, experience,
productivity, quality of work, and loyalty? Is it possible
and advisable to replace them by subcontracted services?
• Does the company employ subcontractors? Is the company associated with them on a permanent basis, or are
they selected anew for each project? To what extent is the
company involved in directing and planning of the subcontractor’s work?
• What is the quality of the company’s output? Is it better
or worse than that of its competitors?
• Does the company employ a quality control system in
construction that allows it to specifically define the required quality of each work and control the attainment of
that quality?
• Does the company prepare a schedule and bUdget for each
project? How does it perform with conformity to its budgets and schedules?
• What other advantages or limitations compared with its
competitors can be identified as far as construction capability is concerned?
This part of the survey should reveal the relative strengths
and limitations of the company with respect to various types
of projects and construction methods. It should also indicate
the directions the company should follow to improve its construction capability.
Procurement
Construction inputs that have to be procured include materials (production of some materials or components within the
company will be also examined in this context), subcontractors’ work, equipment (rental or acquisition), and various services. The measure of a company’s success in terms of procurement, is its capacity to acquire inputs at the best price,
quality, and reliability. Questions to be answered in this respect
are
• What inputs does the company purchase, and what inputs
(if any) does it produce?
• What is the quality and reliability of the materials suppliers?
• How are the suppliers selected?
• Does the company purchase its materials from permanent
suppliers? If so, how are they selected, and what are the
terms of agreement with them?
• Does the company itself produce certain materials or components? Is production motivated by economic or by strategic reasons? Is all production directed to the company’s
own use?
• Does the company maintain partial ownership of or strategic alliances with external suppliers?
• Does the company keep inventories of materials? Does it
have a formal policy and procedures, in this respect?
• What is the general quality of the company’s subcontractors, and how reliable are they?
• How are they selected?
• Does the company engage in permanent liaisons with
some specialist contractors?
• If so, then on what basis, and what were the criteria for
their selection?
• Does the company own or rent its construction equipment? Were the two options examined? How are the renters or the suppliers selected?
General conclusions drawn from this part should reveal the
strengths and weaknesses of a company’s procurement system
and indicate possible subjects for improvement.
Marketing
Marketing in a construction company identifies potential clients, keeps them informed about a company’s capability, and
induces them to order their work from a company. An important element of the marketing effort is the service that a company renders to its clients. It may consist in assistance, first,
in the formulation of a preliminary design, and later, in the
selection of the most appropriate construction alternative for
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various building components. In a more general sense, the contractor may assist the client in value analysis, in detailed deJign (design-build services), and in the maintenance or in operation of the finished project.
The questions that have to be asked in the survey, in this
regard, are
• How does the company manage in a competitive market?
Is the ratio of its wins higher or lower than that of its
competitors?
• What type of projects are the most attractive from the
marketing viewpoint?
• Does the company succeed to identify all or most of the
prospective projects in the area of its operations, conception, or design stages?
• Does the company employ specifically qualified personnel
for this purpose?
• How does the company determine the profit margin? Is
profit-planning flexible and decentralized?
• Can the company assist the client in his or her design and
procurement planning?
• Are the clients interested in design-build contracts?
• Is the company able to undertake such ventures?
• Are the clients willing to employ the company on the
basis of construction management contract? Is the company ready and willing to enter into this type of contracting arrangement?
• Is the company ready to enter into partnering agreements
with developers? Who are the prospective candidates for
such agreements?
The findings for this part of the survey reveal the marketing
stance of the company compared with its competitors and possibilities of its improvement.
Organizational Infrastructure
Organizational infrastructure serves the direct activities of a
company-the construction, procurement, and marketing. It
comprises the organizational setup, its procedures for planning
and control, and its information system. The measure of performance, in this respect, is a company’s ability to plan its
operations and to conform to the plan in terms of quality, cost,
and schedule. It is also a company’s ability to adapt itself to
changes and new tasks. Questions that have to be asked in this
respect are
• What is the organizational setup of the company-its
subdivision, authority, and responsibility channels?
• Is the authority and responsibility of all officers in the
company well defined? Does it truly reflect reality in this
connection?
• Does the official setup of authority (the formal organization) reflect the actual division of authority (the informal
organization)?
• Does the company have a formal procedure for the planning and execution of its activities? Does it implement
these procedures? Are they periodically reviewed and updated?
• Does the organization enable the company to prepare
quickly and efficiently for entrance into new projects?
• Can the company adapt to fast completion of projects?
• Can the company adapt efficiently to frequent design
changes requested by a client?
• Does the company prepare a detailed budget for each project, and does it control expenses in light of the budget?
• Does the company prepare a detailed schedule based on
an analysis of the constituent works?
• Does the company employ an overall quality management
system?
• Does the company employ a computerized information
system that includes budgeting and budget control, scheduling and schedule control, quality control, accounting,
billing, payments, and control of changes?
• Is the system integrated? Does it employ common data
sources?
• Does the company employ an efficient system for recording inputs and expenses in different types of projects and
for statistical analysis? Is this data disseminated and used
subsequently for budgeting and scheduling of new projects?
Findings in this part of the survey indicate the strengths and
weaknesses of the organizational infrastructure with respect to
various sizes and types of projects and how its organizational
performance can be improved.
Personnel
A company’s personnel is probably the most important resource in a competitive environment and the key to its success.
A construction company performs two different types of managerial tasks: (1) Tasks with a technological content: project
planning management, selection of construction method, estimating, budgeting, and control. All of these tasks require a
solid engineering background. (2) Tasks with a business content: financial management, marketing, accounting, procurement of products, and services. These tasks require a solid
business background.
The distinction is not always clear-cut. Tasks of marketing
or procurement may sometimes require a good understanding
of engineering, and project management, on the other hand,
may require proficiency in business methods.
The measure of performance is the proven ability of all
managers on all levels to deal efficiently with their tasks.
Questions that must be addressed in this connection are
• What are the managerial tasks in the company and what
is their defined content? (This information is obtained
from analysis of the organization.)
• What is the criteria for recruiting new personnel? Is it as
a result of long-range planning or in order to satisfy pressing current needs?
• What is the formal education of the employees?
• What is their practical experience?
• How long have they been employed in the company?
What is the average turnover of managers?
• Do they participate in formal training programs, and ifso,
how often?
• To what extent are they loyal to the company and consider
its success their own?
• To what extent do they participate in long-range planning
of the company?
Findings in this part of the survey should indicate if, in
general, company’s personnel is better or worse than that of
its competitors, what are its main assets and limitations in
different types of activity, and what can be done to improve
its capability and performance.
Finances
Realization of strategic plans requires investment-in facilities, knowledge, personnel, and so on. The stronger the
company’s financial position, the better its capacity to carry
out far-reaching, ingenious strategic plans. It can also take
higher risks with prospects of higher returns. It enjoys a higher
credibility and reputation among its clients and suppliers. For
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all these reasons, the financial situation of a company is a very
important strategic asset.
The measure of financial performance is the general capacity of a company to finance its long-range and short-range
ventures. Questions that have to be answered in this respect
are
• What is the profitability of the company as measured by
its return on equity or by its average profit margin?
• What is the general financial strength of the company?
This is measured by the ratio between the assets of the
company and its liabilities, or between the liabilities and
equity.
• What is the liquidity of the company-the ability to cover
its short-term liabilities?
• Does the company have long-range investment procedures, plans, and policies?
• What are the credit sources of the company? How much
cash can it secure, if necessary?
• What is the company’s autonomy in the use of its financial assets and credit sources?
• Does the company employ its financial assets to gain indirect advantages from suppliers, subcontractors, and clients?
Findings in this part of the survey should lead to conclusions as to how the company fares financially compared with
its competitors, whether it correctly employs its financial resources and how its financial performance can be improved.
Knowledge
Knowledge involves two important facets in the operation
of construction companies. One of them has to do with the
technological aspects of construction methods, construction
equipment, construction details, norms, and standards. The
second concerns managerial aspects: information systems, procedures, decision tools, and so on.
The measure for company performance, in this respect, is
its capability to cope with more advanced projects in terms of
their complexity, size, and technological sophistication. Questions that have to be addressed in this respect are
• What is the experience of the company? What prominent
projects did it execute?
• To what extent is the company versed in advanced construction methods with special value to clients such as
construction speed, high quality, reliability under various
constraints, and so on?
• To what extent has the acquired knowledge been retained
(in the form of records, documents, details) so that it
could be used in the future?
• Is the knowledge of the company continuously augmented
through documentation of own experience, participation
in training programs, research, and follow-up of publications in professional journals and seminars?
• Is the acquired knowledge effectively disseminated
among the technical and managerial personnel?
• Is this knowledge implemented in the regular work done
by the company?
• Can the staff utilize the company’s knowledge in assisting
the client’s designers to produce more efficient and more
economic designs?
• Can the company employ its knowledge by actively engaging in design, feasibility studies, risk analysis, and so
on?
Findings for this subject reveal how knowledge of a company can cope with its envisioned tasks, to what extent it can
be used as a competitive asset, and what can be done, if necessary, to improve its position, in this respect.
DEVELOPMENT OF COMPETITIVE STRATEGY
With the external and internal analyses completed, a company can proceed to develop its competitive strategy. The formal procedure for development of a strategy includes the following steps: (1) Drawing conclusions from the analysis of a
company and its business environment; (2) choosing an “exterior strategy” for competition with other firms in the construction market; and (3) choosing a strategy for the development of a company’s resources in accordance with the
“exterior” strategy selected.
Conclusions to be Drawn
Overall conclusions from the analysis in the preceding sections have to address the following subjects: (1) “Favorable”
areas of potential activity which, for objective, market-driven
reasons, point to potential gains, mainly due to existing or
expected, private or public demand, special incentives provided by authorities, or other reasons. (2) “Unfavorable” areas which are associated with distinctive difficulties, e.g., excessive competition, adverse ambient economic or political
conditions, special risks, and so on. (3) “Strengths” of a
company-its resources such as knowledge, organization, etc.,
thanks to which a company enjoys an advantage (in all or
some projects) over its competitors. (4) “Weaknesses” of a
company-resources where a company is at a disadvantage
as against its competitors.
The preceding factors, shown in Fig. 2, lead to the following
conclusions.
The most promising areas of activity are those which combine external opportunities with a particular strength of a company. For example, if there is an urgent demand for housing
in a region where a company has a strong organizational base
or can employ a particular method that gives it an advantage
over its competitors.
Promising areas of activity are those where there are either
special opportunities or where a company enjoys a distinctive
advantage over its competitors.
Neutral areas of activity are areas where operations are not
particularly attractive (but also not expressly threatening), and
a company does not enjoy any special advantage over its competitors. Other neutral areas arise in circumstances where
threatening external conditions are mitigated to a certain extent
by a company’s special competence to cope with them, or
when a company, despite some internal disadvantage, can still
cope due to favorable business conditions.
Unpromising areas of activity are where either the objective
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i I Promlolng –
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– FIG. 2. Payoff Table of Varloue Courua of Action
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situation is unfavorable for all competitors or where general
business conditions are normal, compared with competitors. A
company will usually prefer not to do business in such areas
unless forced to by lack of alternatives or by other special
reasons.
Highly unpromising areas of activity, both threatening externally, and unfavorable in terms of internal capability. A
company will never, under normal circumstances, choose to
engage in such activities.
On the basis of these general conclusions, the company can
select a strategy for market competition and an appropriate
strategy for the development of its own resources.
Choice of Strategy
General options for the choice of a competitive strategy
were discussed earlier. Here, we will limit our discussion to
the choice of competitive strategy, following the classification
suggested by Porter (1985) from the following options: cost
leadership, differentiation, and focus.
Strategy of Cost Leadership
The essence of this strategy is to be less expensive than
competitors in the whole range of a company’s activities. A
company will usually choose this strategy when the environment is particularly competitive and the projects are fairly uniform. Everything is well-defined, and there is little scope for
offering competitive value other than cost reduction. A company may also choose this strategy if it feels that it may develop a competitive edge in some resources, e.g., a special
construction method that will allow it to offer a more efficient
and less expensive performance.
The cost of leadership in construction companies can usually be obtained by a combination of the following factors.
Standardization ofProducts
If a company limits itself to a certain type of well-defined
product, it can improve the efficiency of design and construction, save costs, and reduce prices. For example, a company
can specialize in construction of certain types of industrial
buildings. For each type, it can develop the most efficient design, select the most advantageous supplier of materials, adopt
the most efficient construction procedures, and consequently
save costs.
Training ofPersonnel
Superior training of personnel in working procedures oriented towards maximum saving of time and elimination·of
waste will conceivably result in reduced costs.
Tight Control
This demands the setting of strict standards and the implementation of a very tight control of labor and material inputs
so that any deviation from the required absolute minimum can
immediately be identified and acted upon.
Careful Selection of Suppliers
A major share of the cost of construction projects is traced
to materials and services supplied from outside. Continuous
monitoring of the suppliers and utilization of any type of advantage (in quality purchased, payment terms) granted to a
supplier to obtain a price discount usually guarantees a significant cost reduction.
Technological Advance
Utilization of advanced technologies leads to savings both
in labor and in materials. For example, the employment of
prefabricated components, large forms, high-strength concretes, etc., can, under proper market circumstances, lead to
considerable cost savings and price reduction.
Incentive Programs
Workers’ initiatives contribute to cost savings either through
a direct increase in productivity (in response to material incentive schemes) or through various ideas for resource savings
obtained in quality circles or other participation programs.
Differentiation
This competitive strategy renders the company’s product
more attractive by making it different and more valuable than
the competitor’s product. The extra value of the product justifies higher prices or increases the scope of sales, or both.
There are many possibilities of differentiation in a construction
company.
Higher Standard ofProduct
A higher standard in building usually means higher quality
finished works, more effective amenities, greater flexibility to
changes, better aesthetic appearance, and so on. All of these
aspects give more value to the user. This method of differentiation is open to a contracting company if it is allowed, within
a contractual agreement. to influence the design process. It can
happen in the following cases:
• When the contract is of a design-build type and considerable parts of the design are done by the contractor
• When the contractor performs construction manager services and the coordination of design is also part of his or
her duties
• When the contractor is willing (or obliged), within the
scope of his or her regular contracting services, to perform
a value analysis for the client
In all of these cases, a contractor can actually improve the
value of the product of a client as a result of his or her contracting services.
Higher Quality of Product
Ifthe standard of the product is well-defined, the contractor
can still increase its value by offering a better quality-stricter
conformance to specifications, tighter tolerances, and fewer
faults and blemishes, and consequently higher client satisfaction, fewer repairs, and lower future maintenance costs.
Faster Project Completion
Faster project completion is of a definite value to the user.
In terms of returns, his or her investment in the project is
practically idle until it is completed; a faster completion can
therefore reduce unproductive time and produce the expected
returns earlier.
More Extensive Service to Clients
The normal contracting service to a client is the completion
of the project as required in the drawings and specifications.
However, a contractor can extend his or her services by advising the client in an early feasibility analysis, at various
stages of design (especially in the use of less conventional
building technologies), in assistance with securing funding for
the project, and in planning the operation and the maintenance
of the project.
138/ JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / JUNE 1996
J. Constr. Eng. Manage., 1996, 122(2): 133-140
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Focus
The “focus” strategy-more appropriate for smaller
companies-is based on applying cost leadership or differentiation to a very narrow segment of the market. A construction company can focus on a certain type of project and
develop designs, materials, procedures, and construction techniques best applied to this particular type of project. A good
example is a company that develops an industrialized method
for a particular and repetitive type of building (parking garages, gas stations, warehouses, etc.) and is able to deliver the
selected type for a lower price or at a higher value than its
competitors.
The focus strategy also can be applied to geographical areas
that enable the company to obtain intimate relationships with
clients, suppliers, and authorities in a particular region, and
offer a better service.
Finally, a contractor can restrict his or her activities to only
certain types of clients, obtaining a better knowledge of their
particular needs and preferences, and consequently gaining advantages in terms of cost or value. The focus strategy usually
suits smaller companies. Focusing on a narrow market segment by a larger company involves some risks associated with
the availability and stability of demand.
Growth Strategies
The competitive strategies enumerated before-cost leadership, differentiation, and focus-do not consider growth explicitly. Successful implementation of the first two strategies
may lead to growth by increasing a company’s market share
in steady or expanding markets. However, if growth is considered to be a distinctive objective, or if it appears from a
market study (in a survey of the business environment) that
growth can contribute to profits without unduly increasing
risks, then special strategies can be adopted in order to specifically foster the growth of a company’s turnover.
Several strategies directed towards growth were mentioned
earlier and are briefly repeated as follows:
• Entry into new locations or regions where a company has
not been active before (additional demand in these markets justifies growth of resources and activity)
• Development of international activity-independent or in
conjunction with local factors
• Entry into new types of construction projects-buildings,
highways, tunnels, conservation, etc.
• Creating or expanding productive capacity of construction
materials
• Engaging in new types of activities-development of real
estate, design, operation, maintenance, and others
• Acquisition of companies with the same or complementary types of activities (horizontal or vertical integration)
Adoption of any of the aforementioned growth strategies will
have deep implications with regard to the development of internal resources (explained next).
INTERNAL STRATEGIES
To implement the “external” competitive strategies previously described, or possibly for the realization of other objectives, a company will also devise “internal strategies” for the
development of resources. Internal strategies are usually derived from the preferred external strategy. The resources of the
company will be developed in view of the strategic goals.
Strategies in the development of the construction capacity
involve development/adoption/modification of construction
methods (e.g., in building: conventional, industrialized, and
prefabricated), policies regarding labor to be employed on construction sites, the implementation of incentive schemes, the
implementation of quality control procedures, advancement of
labor training programs, and so on.
Marketing strategies may involve the organization of the
marketing force, incentives offered to marketing personnel, the
scope of services offered to clients, entry into innovative contracting arrangements, and risk taking schemes.
Procurement strategies may involve decisions on whether to
produce internal materials and building components on procedures for the selection of suppliers, on the possibilities of
import from other countries, on procedures for inventory management, on strategic alliances with suppliers, and so on.
Personnel strategies involve the consideration of alternative
concepts and plans for the recruitment, training, and development of personnel.
Organizational strategies affect the nature of the information
system (collection and dissemination of information, computerization, integration of data sources, and communications),
quality management, formality of operational prOCedures, centralization versus decentralization of decisions, and organizational structure.
Knowledge strategies determine the sources for obtaining
new knowledge, the management of the available knowledge,
and its dissemination and implementation.
EVALUATION OF STRATEGIC ALTERNATIVES
It is evident from the preceding discussion that a company
will usually have several feasible options for a competitive
strategy. It is therefore important to select from these options
the one which is the most promising for the company. The
implementation of each alternative, if selected, will require
certain organizational changes and actions, and will necessarily result in additional investments and operating costs. This
explicit cost of implementation can and should be carefully
examined.
It is often difficult to assess precisely, in economic terms,
all the benefits of the implementation of a strategic alternative.
The benefits are evaluated in the light of the company’s stated
objectives. Therefore, the benefits that correspond to tangible
objectives such as increase in profits or growth can be directly
estimated with due attention to the uncertainty factor. Benefits
resulting from attainment of intangible objectives are more
difficult for assessment such as service to community, environment, and technological leadership.
Two approaches to the selection of a preferred strategy, from
several available alternatives, should be considered: (1) An
orderly enumeration of the relative advantages and disadvantages of the alternatives and a “consensus” decision on the
preferable alternative by the management of the company; and
(2) a formal cost/benefit analysis of the alternatives. Intangible
benefits will be given a subjective weighting, reflecting the
relative importance to owners of the various types of objectives.
CONCLUSIONS
Strategic planning is an essential function of top management in a construction company. This strategy is devised with
a problem-solving approach of system analysis in the following stages.
Examination of the company’s mission reflects the owners’
views with regard to the company’s scope of activities and
objectives.
JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / JUNE 1996/139
J. Constr. Eng. Manage., 1996, 122(2): 133-140
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A survey of the company’s business environment includes
general economic factors that affect all types of business activity and additional factors, specific to the construction sector.
This survey should reveal the specific “packages” of prospective project opportunities and also highlight potential
threats to a company’s orderly activity.
Analysis of the company’s resources include the construction capacity, the procurement system, the marketing system,
the organization, personnel, finances, and knowledge. The relative strengths and weaknesses of each resource, in light of
market needs, are identified.
Development of a strategy is based on “mapping” of the
relative attractiveness of the various possible activity areas.
This strategy can follow one ofseveral generic types that must
be adapted to the particular conditions of the market and company. It affects the subsequent choice of a strategy for development of the company’s own resources.
The choice of optimal strategy, from several available alternatives, should follow a careful analysis of the costs and
benefits inherent in the implementation of each.
ACKNOWLEDGMENTS
This study was supported by the Israeli Ministry of Construction and
assisted by the Construction Industry Institute (CII), Austin, Texas.
APPEND~. REFERENCES
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Miller, D., and Friesen, P. H. (1978). “Archetypes of strategy formulation.” Mgmt. Sci.. 24(9), 921-933.
Mintzberg, H., and Waters, 1. A. (1985). “Of strategies, deliberate and
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Mintzberg, H. (1989). Mintzherg on management: inside our strange
world of organizations. The Free Press, New York, N.Y.
Mintzberg, H. (1994). The rise and fall of strategic planning. PrenticeHall, Inc., Englewood Cliffs, N.l.
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140/ JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT / JUNE 1996
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