1 THE SUSTAINABLE STRATEGY OF CONSTRUCTION FIRM Aleš Tomek, MSc. PhD Faculty of Civil Engineering CTU Praha 2013

Introduction – Regional Development and Construction Firms´ Strategies Construction industry have ever been the one of the most determining factors influencing the development of every region. The highly stratified structure of the construction industry (large and medium firms and multitude of small businesses) create the production basis for region development. The prosperity of these companies and the ways how to achieve it are part of the resulting prosperity of regions and their sustainability. 2

Strategic Management Concepts and Traditional Project Oriented Tradition A concept of starting to launch strategic management and the sustainability into the construction industry is based upon the idea that most of the construction companies are struggling with the need to move from a project-based business that emphasizes the success of projects as the key to long-term success to a strategic business that emphasizes the customer and the enterprise as the key 3

THE TRADITIONAL PROJECT MANAGEMENT APPROACH reasons explaining why the traditional project- management approach has been traditionally exercised by the industry professionals and seen by most of the construction community as the cornerstone of construction industry can be summarized by the following statements: construction business is extremely cyclical; project success is a key to company success; building trends are difficult to predict; construction project and the whole industry are seen as a unique and one-off in its nature. 4

Where do we want our company to be in 5 years?, Do we know how to get there? To clarify what kind of issues and areas need to be tackled in order to derive these answers, construction companies must: Manage organizational change and embrace company- level management Understand new employee issues and organization’s core competencies Forecast emerging social, technological and economic trends Predict business impact of emerging technologies 5 Scope and Contents of Strategic Activities

Strategic Concept of the Construction Industry So far strategy has been predominantly seen as a management concept helping companies to determine their market position - so called competitive positioning. Porter’s notion on sustainable competitive advantage (SCA), firstly introduced in 1980´s, its five forces model of interrelation (Threat of new entrants, Power of suppliers, Power of buyers, Threat of substitutes, Jockeying for position) interprets how an organization’s strategy is directly interconnected with its competitive position. SCA refers to competitive position that could be maintained by an organization for long enough for it to make substantial gains. 6

Application of SCA concept construction industry Large parts of the construction industry, esp. at the lower end of the procurement and technological level, do have large numbers of similarly sized competitors with undifferentiated products and services. Fixed costs tend to be somewhat low, This with low exit barriers, causes a high entry and attrition rate amongst construction enterprises - despite this, the jockeying for position of existing members is a strong competitive force within construction. It is clear that each of these five forces is directly relevant to construction. 7

Possible Strategic Solutions Judging on the experience of leaders and studying the cases of construction companies we can see three main approaches to strategy formulation – product differentiation, business diversification, market segmentation. As a result of the analysis we can define the following six strategies evidently followed by some of the largest world construction firms: A trans-national approach New business development 8

Possible Strategic Solutions(2) Application of the concept of an integrated engineering constructor, Adoption of the idea of contractors exploiting opportunities for total project development, Technology development, Exploiting new financial strategies ( including the Project Finance incl. PPP approach) These directions and methods are cornerstone of their corporate strategies and enabled them to maintain their international markets leadership. 9

4.Conclusion – Viability of Sustainable Strategy Concept Factors of utilization of sustainable competitive advantage(SCA) must be accompanied with strategically formulated answers to the basic paradigm – Is the company´s competitive advantage sustainable? Are there any barriers that make imitation of company´s strategy difficult? Current market leaders such as Skanska and Hochtief have realized the urgency to change its traditional working practices – reinvention of approaches and strategies 10

Our industry is facing the same kind of situation as manufacturing did 20 years ago: –therefore regard movements toward better quality and higher productivity driven by customers, – focus on leaner production, –collaborative supply chains, –usage of sophisticated IT tools in a traditionally craft-based and labour intensive field –offering capability of operating within different upstream and downstream phases of project life-cycle, as pretty revolutionary forces reshaping today’s construction industry. 11

12 Conceptual model of strategic management in construction firm

STRATEGIC MANAGEMENT PROCESS IN CONSTRUCTION FIRM - LEVELS OF RECOGNITION 13 Environmental Scanning Strategy Formulation Strategy ImplementationEvaluation and Control EXTERNAL Societal Environment (General forces) TASK ENV. Industry analysis INTERNAL Structure Chain of command Culture Beliefs, values and expectations Resources Assets, skills, competencies, Knowledge Mission Objectives Strategies Policies Programs Budgets Procedures Performance Reasons for existence What results accomplish by when Plan, mission & objectives Broad decision guidelines Activities needed to achieve plan Cost of the programs Sequence of steps needed Performance process, corrective action

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