Environmental Scan for Reed Group of Companies - Case Study Example

Client’s Name] [Instructor’s Name] [Course] April 3, 2009 Environmental Scan for Reed Group of Companies Introduction Knowledge of the information pertaining to the industry, the competition, the socio-economic trends, and the behavior of the market where the company is strategically placed are important in the decision making processes of businesses. The internal and external environments where businesses operate are increasingly become more complicated and shift in various directions in very short periods. Because of this, businesses are constantly under the pressure to have knowledge and act appropriately on the internal and external trends that may affect its stability. This is particularly true for businesses in the construction industry. The construction industry plays very important roles in large and emerging markets and economies. In Europe alone, the construction industry is considered as the largest industrial employer which accounts for 7% of Europe’s total employment figures and about 28% of the industrial employment in EU-15 (EC, 2009). In United States, construction industry is among the largest industries with over 7.7 million wage and salary jobs and about 1.9 million self-employed and family workers in 2006 alone (BLS, 2007). Like many industries, construction industry is affected by business cycles as economic conditions alter business decisions that may significantly affect the construction business. This paper will analyze how internal and external factors affect the Australian-based Downer EDI by discussing the company’s Pacific Rim Focus. Downer EDI Downer EDI traces its roots to Downer & Co, a New Zealand engineering contractors established in 1930’s by Arnold Downer and George McLean. Downer & Co who later became Downer Constructions (and was renamed to Downer EDI) specialized in engineering and infrastructure management services to various industries including mining, rails, telecommunication, mineral processing, and roads. The principal activities of Downer EDI are distributed on its three main segments which are mining (international mining consultancy and contractor), works (includes construction and maintenance of roads and highways), and railway and engineering. Its major working divisions include Downer Edi Engineering, Downer Edi Consulting, Downer Edi Mining, Downer Edi Works Limited, and Downer Edi Rail. Scope and Limitations The expanse of operation of the company is too broad for the purpose of this study. In order to simplify the analysis involved in this paper, the paper treats different working divisions of the company as one and collectively refers these as Downer Project Management and Construction. Of all the internal and external factors that can be considered n the environmental scan for Downer EDI, this paper chooses the following factors because of their relatedness to the topic and their perceived importance in establishing the current situation of the company against its immediate environments. The factors considered are organizational culture, (for the task environment) consumer and clients, competitors, labor supply, suppliers, economic elements, (for the mega environment) legal and political elements, and technological elements. All researches, discussion, and analysis will revolve around the Downer’s Pacific Rim focus shown below. Downer’s Pacific Rim Focus Organizational Culture It is very difficult to determine precisely the kind of organizational culture being employed in Downer EDI from the outside looking in because one has to be inside the organization and experience how things operate in order to determine what kind of culture is being employed in the company(Hatch, 1993). However, it is easy to identify that Downers EDI employ a more organic type of organizational structure common to engineering firms in Australia and abroad. This means to say that communication is relatively easy between and among employees and perceived job functions do not interfere in communicating ideas and issues. This is confirmed by the company’s sustainability policy which emphasizes the importance of its employees, the communities with which they operate with, and the protection of the environment where they operate as it promises to safeguard its stakeholders while doing its duties (Downer EDI, 2009). In a way, it can be said that Downer EDI is a good company not only because of its good financial performance but also because of its commitments to protect and pursue the interests of its stakeholders. Task Environment Competitors Construction companies in Australia have different roots and origins. Some companies started as railway companies who evolved to include construction on its services while others like Downers EDI are coagulates of engineering firms working on different types of engineering and construction works. This means to say that it is difficult to gauge the competitors of Downers EDI in the Australian market alone since their goals are not similar and do not overlap with each other. On top of that, the construction industry is composed of wide array of activities ranging from building dwelling houses, government infrastructures, commercial buildings, mining and waterworks, and consulting among others. In other words, classifying the competitors of Downer EDI under one category is difficult. Nonetheless, the major competitors of Downer EDI are Leighton, United Group, Transfield Services, and Clough (InvestSMART, 2009). The main advantage of Downer EDI from its major competitors is that it is the second largest domestic construction and engineering company next to Leighton Holdings. On top of that, it has earned most of the contracts on locomotive, rolling stock manufacture, and maintenance sectors in Australia and New Zealand. It has also established a strong market position in telecommunications and road maintenance in both countries and is pushing to expand in the Asia Pacific region (InvestSMART, 2009). Simply put, Downer EDI has a good standing in the market competition because of the reputation it has built over the years and because of its continuous commitment to achieve more. Customer and Clients The kind of customers a company has and the number of clients and customers the company can acquire defines it success and its potential for growth. It also determines its ability to strategically position itself in the market and increase its earning potential. The better the performance a company gives, the greater the chance the company will get projects and contracts. As of 2002, there were 138,000 businesses in the industry (Wang & Yang, 2002). This means that the competition in the industry is fierce and each construction firm has to outdo the performance of other construction firms in order to gain a positive edge against its competitors. This edge is something Downer EDI has as its clientele come from various industries and asking for different types of services Downer offers. Some of the list of the clientele and customers that availed of the services of Downer is made up of Telstra, Optus, Telecom NZ, Alcatel-Lucent, the government of Hong Kong, the government of New Zealand, and road authorities, developers and utility providers of Australia for Engineering services (InvestSMART, 2009). The clients for mining services include AngloGold, Ashton, Delta Gold, Goldfields, and Normandy. Clients for Infrastructures include Transit NZ, Main Roads (WA), and Auckland City Council. Downer’s Resource services are provided to Santos and Newcrest (InvestSMART, 2009). In other words, Downer EDI has a strong market position based on its existing and past clienteles alone. Labor Supply Recruitment in Downer varies according to each division although the methods for hiring and scouting for talents basically follow the norms. Downer has its own Human Resource group that is responsible for human resource functions in the company such as hiring fresh graduates through university campaigns, interfacing an applications database in the Downer website so that interested parties can apply online, collaborating with third party head hunters for highly technical job requirements, and employing internal hiring for Downer employees that qualify the vacant positions. As of this writing, there are no current threats for labor supply for the company since the company has expanded its reach to include New Zealand and some parts of Asia and China. This provides Downer a strategic position since they can expand their search for professionals and trained applicants to work for the company. Suppliers Given the number of construction firms that needs to be supplied with whatever material needs they require for projects in Australia alone, Downer has not experienced significant issues in meeting its needs for supplies. Downer has long been established in the Australia-New Zealand region that it has acquired a huge network over the years. This network is composed of the small and big firms that supply the material needs of Downer for its five divisions. On top of that, Downer is considered as among the most-preferred business partner for suppliers and contractors as well which is apparent by its strong position in the Australian market. Summary for Task Environment The importance of understanding the task environment of the company lies in the manner with which knowledge and information about the environment would play significant roles in the decision-making process and strategic management planning of the organization. This means to say that the results of the analysis on the internal environment of the firm tell something about its ability to recompose itself whenever business-related issues confront the firm. From the data and information discussed above, it is easy to conclude that the internal or task environment of Downer is relatively stable compared to smaller construction firms in the industry mainly because of the excellent reputation the company has had acquired over the years, which translates to the ability of Downer EDI to significantly control and easily manage issues within its task environment. Given the result of the discussion for the task environment and the discussion for the organizational culture practiced by Downer, it is very easy to conclude that Downer EDI can easily quell issues related to its immediate tasks that threaten its stability. MEGA ENVIRONMENT The external environment presents more serious threats to Downer EDI compared to the issues it received on its task environment. Three of the most pressing issues for the mega environment that may threaten the stability of the firm are economic, technological, and legal and political issues. Economic Element There is no question about the huge negative impacts brought about by the global economic crisis on the construction industry. According to Chartered Institute of Building (CIOB) (2009), the global construction industry will see massive lay-offs and lowering of salaries. Over 400, 000 jobs related to the industry are being cut in England alone. Countries such as UAE will also feel the negative impact of the global economic crisis with a predicted slowdown from 20% to 25%. United Nations also expect to have a decrease of up to 0.4% in the global economic output of the industry (CIOB, 2009). This external factor is beyond the capability of Downer to control and maneuver especially since it affects the number of contracts that it acquires in a year. Some of the long-term effects of the global economic crisis include lowering of contract bids, cost-cutting and job lay-offs, lowering of wages which eventually leads to insufficient workforce, and loss of confidence of investors which could also mean the end of the business. Legal and Political Element Some of the legal and political elements that are of concern to Downer overlap that of the economic elements previously mentioned. This is because Downer operates in various political domains which mean that in the event of global crisis, political governments would rather award available contracts to their own home-grown contractors. This means that there is a huge possibility that the stability of Downers EDI in other countries will be shaken and may find it hard to recover from any significant financial losses. Legal elements of concern pertain to contracts that are breached which require legal course of actions which so far has not happened with Downers. Technological Element The concern for technology in the construction industry never stops as research and development from other industries affect the construction industry one way or another. New devices and equipments need to be purchased as new materials and processes have been discovered or modified. Technology often overhauls in five to ten years which means that the technology presently used by Downer will need to be replaced in the near future. This goes with the processes and systems employed by the company as well. Such industry-wide changes require huge funding in order to efficiently implement in the future. While there is no real threat for technological element in the current condition of the firm, any changes in the technological is worthy of preparation in the future. SWOT ANALYSIS Strength The strength of Downer EDI lies in its reputation and long experience in the construction industry in Australia and New Zealand. It has established its clientele and suppliers in this region and it has been among the most preferred employers of university graduates. This means to say that it would not worry about the issues that might come up in its task environment since it has everything within its power controlled and efficiently managed. These factors add up to the strong market position held by the company for many years which makes the company formidable as these factors open up opportunities for growth and further development. Weakness Generally speaking, it is very difficult to find a weakness on Downer EDI particularly when considering the task environment. As what was mentioned, the company has everything covered as preparations of various degrees are implemented by various teams of the organization. A potential weakness for the organization comes from the external environment particularly the global economic crisis and its effects. With the sensitive and fairly unstable global market conditions, even companies as solid and as strong as Downer will eventually succumb to the negative effects of such economic phenomenon. Opportunities There are a lot of opportunities for Downer EDI especially in the event that the present economic condition will swing back towards the positive side. A large and reputable construction firm that has been tested by many companies from various industries becomes the most preferred name when the market begins to go up. In other words, there is a lot of possibility that Downer EDI will get major contracts when the market swings upward because of its ability to withstand the economic crisis and continuous effort to meet the expectations of its clientele. On top of that, its strategic position in the construction industry, which is quite strong next to Leighton Holdings, will open possible developments for the organization. Threats The only threat for the organization at this moment is the economic crisis on the global scale. Given that the economic condition will continue for the next decade, Downer EDI will find itself in a difficult situation. Conclusion Downer EDI is an excellent and formidable company. Its reputation and its strong market position have opened opportunities for the company to grow in the present and in the future. All of these things stem from the environmental analysis done on the firm in this paper. This signifies how powerful a tool environmental analysis is when it comes to projecting and predicting the performance of any firm given historical record and the current market conditions analyzed. References Bureau of Labor Statistics, U.S. Department of Labor, Career Guide to Industries, 2008-09 Edition,Construction, on the Internet at http://www.bls.gov/oco/cg/cgs003.htm Downer Edi. Sustainability Policy. 2009. Accessed on April 3, 2009 from http://www.downeredi.com/Default.aspx?aCateId=10758 European Commission. Construction: Overview. Enterprise and Industry. March 24, 2009. Accessed on April 3, 2009 from http://ec.europa.eu/enterprise/construction/index_en.htm Hatch, Mary Jo. The Dynamics of Organizational Culture. Academy of Management. Vol 18. No. 4. Oct. 1993. pp. 657-693. InvestSMART. Downer EDI Limited. 2009. Accessed on April 3, 2009 from http://www.investsmart.com.au/company_profile/summary/default.asp?SecurityID=DOW&ExchangeID=ASX The Chartered Institute of Building. The Impact of the Global Financial Crisis on the Construction Industry. January 2009 Policy Brief. Accessed on April 4, 2009 from http://www.ciob.org/filegrab/JAN009_POLICY_credit-crunch-brief_v6.pdf?ref=1134 Wang, G. & J. Yang. Business Development Strategy in Australian Construction Industry. International Journal for Construction Marketing. Volume 2, Issue 1. 2002. Read More