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org Implementing Strategic Management in Construction Posted By Samer Hisham Skaik On July 19, 2009 @ 9:08 pm In Cmguide Articles,General Management | 1 Comment By Samer H Skaik Introduction Strategic thinking has engaged the brains of business leaders for centuries. Many books and researches have been developed to cover the strategy subject because of its importance. Organizations always seek to adopt dynamic and effective strategic management to secure proper growth and remain competitive. Strategic management is necessary to any organisation particularly those working in construction where there is a rapidly changing environment with adverse competition and surprises which may act as serious threats to organisation stability.

This essay will critically examine the strategic management contemporary thinking and theories and describe how strategists within an organisation competing in construction industry, could draw upon such thinking and theories in shaping the practice of strategy development.
Strategy concept

Despite the vast literature on strategic management, there is no single or unique definition. According to Ansoff (1985), strategic management is a systematic approach to position and relate the firm to its environment in a way which will ensure its continued success and make it secured from surprises (Ansoff, 1985). Cole (1997) argued that strategic management is basically concerned with setting the organization headlines aims, choosing the most suitable goals for such aims and achieving both over time (Cole, 1997). Strategy is then understood to be acting as a guiding map for the organisation to achieve its clear intention for development and growth.

There are many other different definitions generated from the nature of strategy approach; but they all have one thing in common, which is the aim to maximize the organization performance by enhancing its capability of competition with other organizations functioning in the same competitive environment. Although, strategic management as a concept can be defined, it seems to have a lot of ambiguities and complications when it is approached or developed. Hamel (1998) supported this argument by stating that Anyone who claims to be a strategist should be intensely embarrassed by the fact that the strategy industry doesnt have a theory of strategy creation (Hamel, 1998, p. 10).

Strategy approaches

There are different approaches to strategy. Strategists of today must deeply understand the widely used approaches at least, to be efficient in thinking strategically. Whittington (2001) categorized strategy in four basic generic approaches: Classical, Evolutionary, Processual and Systematic which have different perspectives about strategy. In classical approach, the strategy is a rational process of deliberate calculation and analysis designed to maximize long term advantage (Whittington, 2001). Many scholars argued that classical approach is not applicable any more, since classical theory has no mechanism for strategy creation and doesnt suit the dynamic environments. French (2009) concluded that a radical change to open systems thinking, especially complex self-adapting systems, is required (French, 2009). In evolutionary approach, the situation is different. Competition is not overcome by detached calculation and analysis but by constant struggle for survival (Cuizon, 2009). Evolutionary approach calls that successful strategies only emerge as the process of the natural selection delivers its judgment. According to Whittington (2001), this means it is the market not managers which makes the important choices (Whittington, 2001). The approach considers markets too tough and unpredictable to plan for long term strategies but agrees with the classical approach objective of profit maximizing. This creates an argument that the approach basic emphasis is on survival which obviously contradicts the objective of profit maximizing.

Processual approach is similar to evolutionary approach in the sense that it doubts the value of rational long term planning but it does not agree of leaving the profit-maximizing outcomes to the market since market is full of mess and confusion (Cuizon, 2009). Processual approach states that strategy is an emergent process of learning and adaptation (Whittington, 2001). It adopts a pragmatic view aiming to make the sophisticated processes simple in light of the fact that the environment is not ideal or perfect.

Systematic approach has a relativist position. It believes that organisation is able to plan and act effectively. It is much less pessimistic than Processual approach about peoples capacity to carry out rational plans of action and much more optimistic than evolutional approach about its ability to define strategy regardless of market forces (Whittington, 2001). The approach argues that strategies must be sociologically efficient to understand the firms environment. This means that there should be no separation between economic activities and social factors to ensure success.

In contrast to Whittingtons four approaches, Mintzberg elaborated and categorized strategy into ten schools of thought. The schools are categorized in either prescriptive and practitionerfocused or descriptive and research-focused. Prescriptive school tends to deal with strategy process by analysis. It is interested in how strategies should be formulated (Minzberg, 1990). While descriptive school is more about how strategy arises and emerges (Mintzberg, Ahlstrand and Lampel. 1998). The schools were very different in language and concepts they use, that is why Segal-Horn (1998) argued that they may be genuinely distinctive and incomplete approaches (Segal-horn, 1998).

However, all strategic approaches offer an insight into the motivation behind the companys vision and what strategies they most likely implement. Strategists agree on a common point that strategic management process includes analysis, choice, implementation and feedback. Prior to start with strategic management process for any firm, the strategist should ensure that the firm already has a well defined and clear mission and vision statements.

Firms mission and vision

The mission is a public statement in which a firm sets out its vision about how to satisfy customer needs in light of the market conditions and the manner of meeting such vision. Success of any firm is usually judged by comparing its achievements with the set mission, goals and objectives. Strategic goals are often described as the core business since they are critical to success. Organisations intend to make such goals and objectives explicit to employees to

motivate them to achieve the targets as well as to shape the standards of the desired performance.

According to Peter (1987), the leaders should develop a specific, inspiring, challenging and empowering vision (Fellows et al., 2002). However, Kay (1996) asserts that vision and mission are indicative of a wish-driven strategy which fails to recognise the limits to what might be possible given finite organisational resources (Cited in Boddy and Paton, 1998, P 326). Peter argument tends to be more applicable for construction firms whereas they are often driven by the vision of a dynamic leader, particularly during the early years of the firm establishment and in the period of rapid growth or change. Mission and vision of Emaar are good examples for Peter argument:

Our mission is to transform Emaar into a one-stop, global solution provider for lifestyle, including homes, work, play, leisure, retail, health, education, finance, industry and more.

Our vision for Emaar is its transformation into one of the most valuable lifestyle developers in the world beyond real estate development.

(Emaar website, March 2009)

In light of the firms vision and mission, the strategist works on strategic management process by firstly analysing and scanning the internal and external environment to become better aware of the firms position to forecast the future actions accordingly.

Strategic management process

Porter (1980) analysed the structure of an industry environment in terms of five basic forces which are buyers, suppliers, potential competitors, substitutes and competitive advantage (Porter, 1980). Competitive advantage is the most important force which shapes the market environment. It is a combination of factors that makes an organization more successful than others. The

sources of competitive advantage include: organization resources and capabilities, excellence in strategy implementation, quality, time, innovation and creativity (Feurer and Chaharbaghi, 1997). However, many scholars argued that the best source of sustainable competitive advantage is the organisation ability to learn.

In parallel, the key external influences on the organisation should be deeply understood and compared with the organisation strengths and weaknesses. This is a crucial exercise for the strategist which enables them to make the strategic decision. SWOT analysis technique is usually used for this purpose. SWOT stands for Strength, Weakness, Opportunities and Threats. SWOT analysis is a future forecast technique which aims to find a match between organisation capabilities and opportunities in the competitive environment. According to Argenti, this stage is probably the most important one for most organisations (Argenti, 1990). That would make sense whereas the strategist is fully dependant on SWOT analysis or similar techniques which is the basis to generate strategic choices.

Ansoff and Porter have developed different models of strategy choices which can be used to develop possible strategies. Ansoff (1965) laid out systematic series of analysis that would allow organisation to determine what its strategy would be and how to take the further important steps (Cole, 1997). Ansoff presented a matrix that focused on the organisation existing and potential products and market. For example, a construction developer may suffer from his dying product of developing luxury villas while there is a good opportunity in the local market to develop low cost villas. If the developer in terms of marketing is strong, he can obviously go for the choice of developing the low cost villas.

Porter (1980) came up with different model. He argued that a firms strengths ultimately fall into one of two headings: cost advantage and differentiation (Porter, 1980). Three generic strategies are generated when applying the strengths with a broad or narrow scope which are: cost leadership, differentiation, and focus. The model guides organisations to make a choice between the said strategies. For example, to choose whether to keep prices lower than competitors or differentiate the offering to provide higher value when compared with offerings of others.

However, the strategist needs to evaluate the options and make the strategy selection based on some conditions. Firstly, the strategy must give the organisation an excellent chance of meeting its targets and protect it from risks that might drag its performance below target levels. Secondly, the strategy must make use of all the organisations most impressive strengths and correct all major weaknesses. Finally, it must reduce the impact of threats and exploit all high potential opportunities (Fellows et al., 2002). Argenti (1990) argued that there will be one permutation of strategies that will come closer than any other to meet the above conditions (Argenti, 1990). This

argument looks true as the evaluation of strategy options is governed with a lot of parameters. The evaluation report of strategy options should be prepared considering parameters such as market conditions, resources, calculation of projected turnover and profit, and optimistic and pessimistic assumptions.

Once the strategic choice is made, implementation is conducted within the framework of action plans. Strategists prefer to focus on revising an existing strategy in an innovative way rather than generating a new one from scratch. They need to consider all the factors of McKinsey 7S model for implementation which are all interdependent. Many scholars recommend using McKinsey model as a reference even in presence of the rapidly changing environment. That is because the factors will not change in the same extent the environment does. Subsequently, action plans are set to draw up detailed plans and budgets. Restructuring management is the hardest job for strategists where co-ordination of the organisations operations is the main key.

Feedback and control will be the final stage of strategic management process. This stage involves a continuous monitoring of the strategies and action plans. Its purpose is to give the organisation the opportunity periodically to both control the progress and to review the whole strategic direction that has been selected. This final stage is conducted at three levels of the organisation: operational level, business unit and corporate level. Corrective actions and decision are made in case the performance doesnt meet the set objectives. The strategy process loop is activated to either adjust the performance to meet the strategies or form new strategies for implementation.

Strategy practice in construction

If strategy process theoretically has clear and smooth route as elaborated above, then the question is why do some organisations in construction industry fail in practising it effectively? According to Mintzberg (1994), there is very little evidence of strategic management implementation and effectiveness (Mintzberg, 1994). The reasons may be referred to poor management awareness, lack of clarity about decision making, inadequate communication and collaboration and low levels of accountability. Most of strategic plans fail because they are just exported without being generated from the heart of the local dynamic environment and the firms culture.

Construction industry has a unique blend of characteristics that requires a typical treatment compared to other industries. For example, the production activities are mostly conducted on site and the learning curve is compromised due to the uniqueness of projects. Accordingly, strategic approaches and thoughts should be flexible enough to have variations to suit this industry. There is a little literature tackling the strategy approaches and thoughts in construction. This may be referred to the fact that construction is portrayed as a low growth and low tech industry, where the industry has a broad range of sub-sectors and variability in demand.

Fellows et al. (2002) argues that strategic management may be possible only in some organisations, where they are large enough to afford expensive analysis, have clear goals and operate in stable environment (Fellows et al., 2002). This argument is challenged in the sense that the door is always open to innovative strategies that can be implemented to overcome the difficulties associated with strategies in dynamic environments like construction. Cheah and Chew (2005) gave a hint for the need of such innovation stating that dynamic interactions among issues such as project delivery methods and human aspects refute a short listing of generic strategies that might be more feasible for other industries (Cheah and Chew, 2005).

Latham and Egan reports noticed such need before and urged the construction industry to perform better to meet the challenges. Accordingly, many innovative changes to industry started taking place including partnership, strategic alliances, supply chain management and lean construction (Langford and Male, 2001). Top managers have taken further measures by deciding to expand in new markets, adopting new technology or come up with different products or attractive prices to remain competitive. However, they still need to think of further innovative strategies such as enhancing client leadership and building up organisation resources (Blayse and Manley, 2004). They also need to impose effective and precise implementation processes to be able to adopt innovation successfully.

However, Fellows et al. (2002) made a point about the high cost involved with strategy process, since the practice is found to be too sophisticated and subtle to manage with local resources. Many scholars embraced the idea about the practice stating that strategy process is often disconnected from the outcomes because of its complexity (Pettigrew, Thomas and Whittington, 2002). However, the argument here is that the expensive cost associated with developing appropriate strategies for construction projectised firms can not be compared with potential drastic losses due to high risks threatening their business.

On the other hand, having various approaches to strategy indicates the need to a unifying theory that can connect such thoughts to suit the unique construction environment. Also, the understanding of strategy process needs a focus on patterns of decisions and actions rather not on

a discrete decision to accumulate into strategies over time. Strategic decisions making in projectised organisations is usually highly centralized and bureaucratic which deprives the organisation from the creative employees ideas and thoughts. Organisational culture needs to change to motivate the head office staff to execute the intended strategy without reservation. This should be applicable to projects personnel as well who should be invited to contribute to the whole organisation strategy. Accordingly, they can draw upon such strategy effectively and build their own project strategy to achieve the overall goals.

Furthermore, it is essential for the projectised organisation to understand its business management model and position of projects which is considered part of the future strategies of organisation (Marja, Pivi and Heikki, 2007). Project management ability to align resources and activities with strategic objectives can ensure the survival in the business. Decision making and authority arrangement for project managers must be considered by the organisations top management to ensure smooth operations to achieve the target goals. This mainly depends on the organisational structure which should be revised if the project vision will be affected due to the absence of power. However, it is argued that concentrating on giving the power to project managers may not be essential. Brightman et al. (1999) stated that strategic decision making by the project managers looks reactive not proactive because of the sophisticated strategy processes and the short life cycle of projects (Brightman et al., 1999). Nevertheless, projects to be successful, the firms overall vision must be understood by the project manager and site personnel, then the project vision can be developed in light of the firms vision. The project vision should be motivational, credible and challenging.

Case study of Guangsha group

Success story of Guangsha group, the leading Chinese construction enterprise in implementing its strategy demonstrates how the firm has considered the unique characteristics of construction environment it relates to and has drawn upon the strategy thinking to reach its leading position in the global market. Since the inception of Guangsha group in 1992, the founder envisioned that the group will grow into a multinational construction giant by 2010. The founder focused on building the human asset of the organization. His management culture is people-centered, with imperatives to empower his managers and granting independence to the various strategic business units. These units are organized interdependently, reinforcing and supporting each other to attain overall competitive advantage.

Within Guangsha Construction, the firm has grown rapidly through many acquisitions which have strengthened its human resource capability and technology and expanded its market reach. Using its financial prowess, it built up its research and development expertise, quality management system and created a brand name for itself in project performance. By integrating its construction expertise with the Property and Investment business units, it provided a total service package to its domestic clients, a competency which gave it a competitive advantage in the industry. Through partnering and strategic alliances, the international strategic business units had successfully penetrated into ten regional and international markets, offering industrial park and infrastructure services to international clients. Guangshas success clearly shows some of its strength factors. Firstly, the importance of human assets was represented by the founder vision in expanding the firm and the emphasis put on the development of the human assets. Secondly, its independent structure was shaped to use the firms acquisitions strategy and to react to the dynamic capital market. Lastly, the firms success has resulted in many awards that strengthened its reputation further.

Conclusion

In presence of various schools and approaches to strategy, there is a demanding need to a unifying approach to simplify the understanding of strategic practice and make it more feasible and effective for construction firms. Strategists should deeply understand their dynamic business environment and exploit their strengths effectively to remain competitive. In the absence of a unifying theory, strategists should implement innovative measures in adopting a mix of the most appropriate approaches to suit the unique characteristics of construction. To sum up, it is not the strategy which will determine the organisation success but the firms effectiveness in using its capabilities and human resources to implement the strategy.

References

Cole G A, (1997), strategic management, (second edition, Letts Educational, London

Fellows, R., Langford, D., Newcombe, R., Urry, S. (2002), Construction Management in Practice, second edition, Blackwell, Oxford

Whittington, R. (2001) What is Strategy and does it matter?, Second edition, Thomson Learning, London.

Marja, N., Pivi, H., and Heikki, L. (2007), Strategic management tools in construction projects, Interbational Journal of Project Management, Vol. 25, pp 659-665 Boddy, D. and Paton, R. (1998), Management: An introduction, Prentice Hall, New York Emaar.ae. (2009) Mission, Vision, Strategy , Values, Emaar website, retrieved on 10 Mar 2009, from the world wide web:

http://www.emaar.ae/index.aspx?page=about-mission

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Langford, D., Male, S. (2001) Strategic management in construction, Second edition, Blackwells, Oxford Mintzberg, H., Ahlstrand, B. and Lampel, J. (1998), Strategy Safari: A Guided Tour through the Wilds of Strategic Management, Prentice-Hall, New York, NY.

Mintzberg, H. (1990), Strategy formation: schools of thought, Harper Business, New York

Ansoff, H. (1984), Implanting Strategic Management, Englewood Cliffs, Englewood Cliffs, New Jersey Cuizon, G. (Feb. 2009), Theories of Action in Business Strategy: Classical, Evolutionary, Processual and Systemic Approaches. Retrieved on March 22, 2009 from the world wide web:

http://strategic-business planning.suite101.com/article.cfm/theories_of_action_in_business_strategy

Segal-Horn, Sl. (1998), The strategy reader, Wiley-Blackwell Argenti, J. (1990), Practical Corporate Planning, Allen & Unwin, London Blayse, A. and Manley, K. (2004) Key Influences on Construction Innovation, Construction Innovation, Vol 4, No 3, pp 1-12 Porter, M. (1980), Competitive Strategy, The Free Press, New York. Wang, S. (2005), Chinese management: (Electronic resource) reflections, trends and opportunities, Emerald Group Publishing. Available from URL:

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