Knowledge Management In Construction Companies In The UK - Research Paper Example

Knowledge Management In Construction Companies In The UK Table of Contents I. Introduction II. Credit Crunch III. UK Construction Industry IV. Changes desired during Credit Crunch V. Change Management in Construction Industry VI. Conclusion VII. Reference I. Introduction The developed economy of UK has construction industry as one of the major employing sector. This industry contributes to more than ten percent of the total employment. The credit crunch has affected the housing and infrastructural demands. The projects have been paused or stopped due to the raised price of required materials and declining demands. The credit crunch has impacted the population and businesses. This paper deals with the change management process in the construction industry and various factors related to the same. II. Credit Crunch The literal meaning of the credit crunch is that it is difficult and expensive to borrow in the credit crunch scenario. The booming economy and easy availability of loans and funds allowed thousands of people in UK buying the houses of their choice. However the faulty loans and the poor quality loans came into the picture very soon. The poor methods adopted to access the backgrounds of the applicant and inability of the applicants to repay the loan led the banks and financial institution into difficult situation. This resulted in the situation where the number of banks and financial institutions providing loans reduced and the institutions which could provide loans applied a tough procedure to verify applicants. The overall result was the credit crunch. III. UK Construction Industry The construction industry has been regarded as backbone of the infrastructure and economy by Metri (2005). The industry is highly fragmented industry. There are various factors that affect the stability of the industry. The low productivity, poor quality and lack of standards are some of the problems affecting the stakeholders directly. The issue of quality in the final product is the most prevalent problem of the industry. The performance of the construction company is directed related to the quality products it constructs. The construction industry gets affected by various factors like social, political, economical, technological and legal factors. The economic factors are one of the most important aspects of the construction industry. The source of economic factor can be the internal factors as well as external factors. At the macroeconomic level, the economic factors includes the income levels, Consumer Price Index, Inflation, employment, availability of financial and other resources. The overall economic conditions of the local and international markets have significant impact on the construction industry. The regulatory environment for the construction industry has significant impact on the construction industry and their operations. In the time of economic growth, there was tremendous growth in the prices of goods and services and the buying capacity of the individuals. In the present scenario even when the individuals are having sufficient funds they are uncertain about their future and want to keep the funds as security to them. The housing industry experienced pricing boom during 1990s, the housing demands have increased and the funds were easily available in the form of easy loans and financing. This led to rise in the market price of the houses and making tougher for the first time buyers to buy their dream houses. The low income groups segments were neglected by the builders and housing services providers for many years. The maturity of the market and explosion of the bubble in the real estate industry resulted in finding new segments and housing companies tried to diversify their product ranges. The maintenance and renovation works provided other area of opportunity for the construction companies. This was the golden period for the people seeking employment in this particular sector. Demands of the Construction Services and Products There are various determinants of the demands of the UK house market. People look for the housing options with their taste, choices and fashion. The demand of the house is prominently determined by the purchasing capacity of the individual buyer. The high cost of the houses makes it high involvement product. The other reason is that this purchase is very often one time purchase for many of the buyers. This makes the buying process more special for them. The substitute of the own-house is the rented housing options. The buyers feel it wiser to pay the instalment of the loan than paying rent if given the choice. The rental taxes and tax structure have impact on the buying process. The other reason is that the prices of the house are uncertain and more likely to increase. This increases their concerns of the increased price of the future. The potential buyers feel if they would lack the affordability in the future. Therefore they would like to buy the house whenever they have option available within their buying capacity. Income is the other important aspect of the buying process. The repayment capacity of the buyer will depend on his buying capacity of the present. The repayment capacity is estimated on the basis of the present earning capacity. In the case of the increasing demands of goods and services, the prices would also increase and the income of individual would also go up. However in the other scenario of credit crunch and economic recession the economy faces a condition of stagnancy. The increasing population and growth of the demand of housing products have increased the prices of the houses. The population to the urban areas has been increasing due to better opportunities and facilities. Supply of the Construction Services and Products There are various aspects of the UK house market that determine the supply of the housing and infrastructure in the UK construction industry. The cost of production depends on the labour cost, cost of raw material, technology cost and availability, raw material and favourable governmental policies. In the case of growing economy the availability of suppliers and construction material is considerably easier than the period of economic downturn. The supporting industry suppliers with lack of capital and resources to support their businesses may end their business resulting in decrease numbers of suppliers. The factors like natural disaster, economic slowdown, credit crunch, changes in government policies and industrial disputes are beyond the control of the construction companies. These affect the practices of the construction companies. The prices of the property and the estimation of the prices of the property also impact the strategic decisions taken by the construction companies. The profitability in the present scenario has declined. The prices of the houses are declining. It is evident that there are various factors that have impact on the demand and supply of the housing solutions in the UK market. The social factors like the demographics, distribution, age, level of education and income and others have impact on the purchasing behaviour and strategies of the marketers. Esmi and Ennals (2009) have highlighted the diversity of the workforce and the challenges of the management to handle this diverse workforce. As cited by Esmi and Ennals (2009) “The construction industry employs a diverse workforce, in occupational background and culture. ‘‘People are their greatest asset’’ (Carillo et al. 2004), in this low-tech, labour-intensive industry, but they are difficult to manage (Pathirage et al. 2007). ‘‘Most large construction companies have undergone a period of significant organizational change over the last 20 years, becoming managers of the construction process rather than direct labour employers’’ (Langford et al. 1995).” (Esmi and Ennals, 2009) IV. Changes desired during Credit Crunch The credit crunch has various impacts on the construction industry. These have impacted the buyers, investors, employees and various associated businesses of the construction industry. This has impacted by the reduction of income and raise of the premium (Nicolson, 2009). There are various changes desired from the internal and external business environment to deal with the credit crisis. The banks and financial institutions are facing the problems of assessment of property due to declining the prices of house and properties. This is decreasing their profit margins. The increasing unemployment rates due to the cost cutting practices of the companies have affected the repayment ability of the individual payee. The non performing loans have increased. The commercial prices of the property have gone down significantly. The consumer credit practices have changed from the past. Government is adopting various policies to deal with these problems. According to Esmi and Ennals (2009), “In the UK construction and engineering industry, excluding home building, overall output has remained steady, helped by a rise in repairs. Construction has flourished since the successful Olympic bid, with renovation for old buildings, constructing new buildings, and transport.” The Olympic bid has bought hope to the various sectors of the UK economy. The business of tourist industry, construction and infrastructure industry and others related to the same are expected to improve through this bid. However, the construction companies in the present business environment need to be more focused towards the completion of the projects and maintain quality. The continuous improvement is required in this sector. The companies need to adopt the change management process in order to identify the cost areas and apply the concepts of continuous improvement in the construction business. There are various ways costs can be controlled in the construction industry. The credit crisis was not a radical change in the construction industry. This is a gradual change that started in the mid of 2007 and grew rapidly after that like a radical change. These have resulted in anticipated and emergent both types of changes in the construction projects. It was very evident that the situation of credit crunch would result in the future but no one knew about the magnitude of this phenomenon. This has impacted changes in the designs, change of the operations and practices adopted. The men, material and resource handling is crucial to make the project a successful venture. These have various direct and indirect impacts on the construction companies and their projects. This may led to changes in the specifications of the projects in order to reduce the cost and identify the works that can be added or deleted in order to minimize the cost. The reorganisation of the work and schedule to mange man and resources efficiently is a challenging effect resulted due to the same. The communication needs to be clear and transparent. The members of the project need to be communicated about the changes clearly. The coordination should be managed in such a way that the risk is minimised and losses due to failures and errors is reduced. The impact of credit crunch and change management in the construction industry has been seen in various ways by the critics and scholars. Esmi and Ennals (2009) have argued that credit crunch have no impact on the construction firms due to the Government spending on the infrastructure and lead times available to them. During the credit crunch companies focus on improving their profit margins by cutting the cost and managing the operations efficiently and effectively. The goals of the change management process are limited to maximising the profits in the current state of the economy. The circulation of funds during the credit crunch gets reduced; therefore companies try to circulate funds by removing inventories, reducing cost and other strategies. V. Change Management in Construction Industry The most important aspect of the credit crunch is that everyone knows about the same. Therefore the changes resulted from the credit crunch are evident to all the people of the construction industry. The employees expect the changes as this is happening in all the industries. This is an opportunity for the construction industry to identify and focus more on the critical success factors of the projects. In this present scenario the role of the knowledge management and experience has very important role. Knowledge is the important tool to carry with the tough situations like this and turning the same to an opportunity. According to Esmi and Ennals (2009), “Economic crisis presents particular problems, and recent trends in work organization have far-reaching implications. The industry depends on human knowledge, with limited systems support. A shared concern for health and safety provides the surest guarantee of sustainability of both knowledge and the company.” The change management in the construction industry is a challenging task. This is challenging as the work force of the construction industry is highly diversified. The workforce consist of skilled, unskilled or semi skilled individuals. Some of these may have good experiences. There are various kinds of tasks and challenges of the construction industry. The routine and specialised tasks require specific knowledge about the processes. The areas where changes are desirable in the case of the construction industry are as follows: Areas requiring change Change in the budget The change in budget is usually referred as the reduction of the overall budget of the project. The change in the budget will always impact the resource planning and overall operations. Cost is one of the key performance indicators of the project management in the construction industry. Change in the schedule The change in the schedule will help in handling the ‘time’ factor of the project management. Time is a very important and irreversible resource for any project. In most of the cases, one major challenge of the construction industry is to complete the project on time. There are various factors on which the construction project depends like the raw material, service providers and regulatory factors. All the external and internal business environmental factors may lead to delay of the project. Therefore construction companies need to ensure the delay is not caused by the internal factors and in the case of external factors the customers and shareholders are well informed regarding the obstacle and progress of the project. Reduction of errors/ achieving Zero Defects This is the most challenging aspect for the project managers to reduce the errors. The construction projects are usually of the high magnitude. The chances of errors are numerous and it can be technical error, human error, error resulted due to lack of proper information and training and many others. The identification of all the areas where error can take place and rectifying the same is tedious and challenging task. Continuous Improvement Continuous improvement process is an effort that involves everyone of the organisation to improve the quality of the project and result in the quality product. The continuous improvement is an ongoing process in the organisation. Plan for effecting change The plan for the change in the construction organisation is as follows: Identifying the potential areas for change Analyse the change implications and situations Set the objectives of the change management process Planning stage of change management Implement the change Control and review the change process Close the change process Identifying the potential areas for change This is an important pre-planning stage where all the operations and activities are analysed in the construction organisation. This will help in identifying the areas where changes are required or change can be implemented in order to achieve the objectives and goals of the organisation. Analyse the change implications and situations This will help in identifying the change implications and situations. This is a risk assessment step. There will be different kinds of resistance to the change process. This step will allow identifying these risks, developing counter strategy for the same and minimise the impact of risk and resistance. Set the objectives of the change management process This is the third step of the change management process in the construction organisation during the credit crunch scenario. This is important as the objectives of the change management process will be set on the basis of the organisational goals and project objectives. Planning stage of change management In this stage of the change management process the communication channels, transmission of the skills and utilisation of resources is decided. The role of leadership, empowerment and delegation are important aspects of the planning phase. At this stage the roles of individuals are defined, responsibilities are clarified, the data flow, resource flow is planned. Key performance indicators are defined and benchmarks are set in this stage. Implement the change The implementation of the change management process is the actual phase of the change where the actual change takes place. This implementation process is carefully observed by the team responsible for the change management in the organisation. The flow of communication is very important as it helps in sharing experiences and the progress on the development of the change management process. Various statistical and non statistical measures are used in the implementation stage to access the progress of the project on the basis of KPIs and the benchmarks. Monitoring, Control and review the change process This starts with the start of implementation phase. The monitoring helps keeping the change management process within the set goals and desired objectives. It helps in directing resources to the right direction. VI. Conclusion Credit crunch is a serious situation for the construction industry in the UK. The reason is that this has limited the availability of the potential buyer. Getting loans is not only tough but also costly affair. The repayment capacity of individuals has gone down due to the adverse conditions of the job markets. The jobs are not secured, rate of unemployment is increasing, the salary cut offs, pink slips and various other factors have raised a question mark over the repaying capacity of the individual. Due to the unavailability of funds among the potential buyers, the number of projects which has been initiated to meet growing demands has impacted the overall business of the housing sectors. The change management has become desirable in this scenario. The aims of the change management processes in the construction sector will be aimed at cost reduction and completion of project within the specified time frame so that the cost is reduced and profit margins are increased. VII. Reference Arquva Credit Crunch Press Release retrieved on 11 December 2009 from http://www.newnettechnologies.com/Arqiva_Credit_Crunch_Press_Release.pdf Avey, J B, Patera, J L and B. J. West (2006) The Implications of Positive Psychological Capital on Employee Absenteeism, Journal of Leadership & Organizational Studies, Baker College System - Center for Graduate Studies, 13 (2), 42-65 Brief, A P. and H. M. Weiss (2002) Organizational behavior: affect in the workplace, Annual Review of Psychology, Annual Reviews Inc., 279-300 Elliot L (2008) Credit crisis - how it all began retrieved on 11 December 2009 from http://www.guardian.co.uk/business/2008/aug/05/northernrock.banking Esmi R and Ennals R (2009) Knowledge management in construction companies in the UK, Received: 28 November 2008 / Accepted: 23 February 2009 / Published online: 19 March 2009, Springer-Verlag London Limited 2009 http://www.springerlink.com/content/w766gg0465642664/fulltext.pdf?page=1 Griffith, Alan & Paul Watson, Construction Management, Principles & Practice, 2004, Palgrave Macmillan, New York. 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