Strategic Management in Construction - Term Paper Example

Introduction 2 About Company 3 Mission and Objectives 3 Industry Analysis 5 PESTLE Analysis 6 Political 6 Economic 6 Social Factors 7 Legal 7 Technological 8 Ecological 8 Michael Porters Five Forces Analysis 9 Buyer/Customer Power 9 Suppliers Power 9 Rivalry among Competitors 10 Threat of New Entrants 10 Threat of Substitutes 10 SWOT Analysis 11 Strengths 11 Weaknesses 11 Opportunities 11 Threats 12 Phelan Business Projects 13 Current Projects 13 Tracking the Performance of Project 13 Strategy Analysis 14 Implementation and Control of Strategies 15 Strategic Management in Construction Introduction Strategic management is very important for every firm and it is an essential function of senior management. Strategic planning is an essential part of strategic planning and it involves the behaviour of the company in a competitive and macroenvironment. In this report, the strategic analysis of a construction company has been done. The analysis starts from the mission statement of the company, which highlights the scope and objectives of company. To understand the business environment, internal and external analysis has been done. This report also reveals the current opportunities and threats to construction industry. It also analyses the main resources of a construction company such as marketing, procurement, personnel and investments etc. Finally, it evaluates the current strategy of the company, thereby providing sufficient information regarding how company is seeking to avail opportunities and reduce threats. About Company Phelan Construction Limited started its operations in 1987 and its growth has been exponential throughout its operations. The company has been expanding very rapidly targeting from local customer to blue-chip companies in the UK. Company is offering services in areas including construction, refurbishments and interior design. The company has been really successful in its commercial operations. It is also evident from strong financial base of company, which has led Phelan to undertake large contracts. Moreover, Phelan has also achieved enough growth over time. Mission and Objectives The mission statement of Phelan Construction Company is as follows: “It’s all about its customers (Phelan)” Evaluation of Mission Statement I would evaluate the mission statement of Phelan, based on nine essential components of mission statement introduced by David. Table I: Evaluation Matrix of Mission Statement ESSENTIAL COMPONENTS Explicitly mentioned Implicitly Mentioned Mentioned Customers Yes Products/Services No Markets No Technology No Concerns for Survival, Growth/Profitability No Philosophy No Self-Concept No Concerns for Public Image No Concerns for Employees No The mission statement of company does not describe any of the above mentioned components except ‘customers’. Although a detailed mission of the company has been explained on its website (Appendix – Figure I) however, many of these components should be the part of company’s mission statement. The main operations of the company have not been mentioned in this statement. Industry Analysis The UK economy is really getting huge benefits from UK Construction industry, for example, “the total return to the UK economy of new educational buildings can be calculated at between £3.87 and £5.04 for each £1 invested (L.K.E, 2009).” Moreover, construction industry is offering great employment opportunities. Since, the UK construction industry has strong bonding with other sectors such as regional development, education and employment development, therefore, it is being considered as one of the major industries in the UK. BIS reported that the UK construction industry contributed 9.2 percent of Gross Value Added in the year 2007. The total number of people employed by the UK industry is 2.1 million and the number of construction firms is more than 250,000. PESTLE Analysis Political Various political factors such as government policies, rules and regulations and political conditions directly influence the operations of Phelan. Since construction industry offers great benefits to the UK economy, therefore, government has introduced friendly policies for construction industry. For example, a report on Construction in the UK economy revealed that every £1 spent on construction contributes to GDP growth of £2.84 (L.K.E, 2009). However, sometimes when government capital spending is low then it directly influences the construction companies including Phelan. Very recently, the UK government announced low capital spending in the UK and most of the construction industries were not anticipating this decision of government. The Chairman of UKCG, James Wates argues that this is the first that the whole industry is uniting and compelling the government to support investment in infrastructure (L.K.E, 2009). The reason is that construction companies are also directly influenced by infrastructure development in an economy. Furthermore, government taxes such as Climate Change Levy, Landfill taxes and Aggregates also affect the operations of Phelan. Economic The current economic and financial recession had a great impact on the UK construction company. In fact, like various other countries, the UK construction industry faced the toughest challenges during this period. Only in England, 400,000 job cuts happened, which resulted in over-employment, thereby, causing concerns for construction companies and other industries. Apprenticeships in the UK house building industry were also affected because of the credit crisis and the companies like Phelan are directly undergoing the impact (CIOB, 2009). The demand of commercial and residential property also influences Phelan decisions and the demand is further affected by economy and interest rates. As the value of property in the UK and all over the world has declined, therefore, companies are taking more interest in while life costs of the building and to understand how the better design can reduce the operating and maintenance costs of company. The economic trends in the UK are changing very rapidly and the birth/divorce rates are increasing the residential demand in state. Moreover, as people are asking for buildings with car parks therefore, such requirements may create problems for construction companies. Social Factors Social factors such as living style of people, cultural factors etc. also affect Phelan construction ltd Operations. A report highlights that construction skills crisis is having a very detrimental affect on future development of the UK construction industry. There are two main factors, which are inserting extreme pressure on the UK labour market capacity including the continued growth in the output of its construction industry and the unpopularity of this industry as a career choice (Dainty, Ison & Briscoe, 2005). Therefore, companies are operating in very tight labour market conditions because they have to put in great efforts to find the best people. Legal The construction companies in the UK are not under high control of the UK government. However, currently, the government of UK is considering its construction industry as highly fragmented; therefore, efforts are being made to increase legislation. The aim of increasing legislation in the UK construction industry is to enhance the performance of the companies in terms of their safety and economic contribution. For example, Kyoto Agreement related to production of carbon dioxide from burning fossil fuels and landfill from waste directly affects Phelan operations. If legal procedures get stricter then, Phelan construction will also undergo various changes. Moreover, such changes can be either in the favour or against the company. Technological Sometimes construction companies face difficulties because of government policies, such as in 1997; the government announced disappointing policy related to construction R&D in the UK. The government policy was showing its disengagement as well as intervention in construction’s research and development. Therefore, policy of government raised serous concerns for the UK construction industries in 1997 (Cooper, 1997). The idea is that companies are strongly affected challenges created by technological advancements. As environmental problems are increasing, therefore, introducing new technologies to reduce environmental concerns has become a challenge for construction companies. Phelan construction is also facing such challenges and a lot of investment is also required. For example, new construction technologies in the UK are affecting work practices and more building material components are being manufactured in factors instead of building sites. Such changes are obviously affecting working practices which also influence the internal operations of Phelan. Ecological The worth of the UK construction industry is more than £100bn per year, therefore, the regulators and the customers are pressurising the construction companies to adapt the business strategies that may promote friendly buildings (Technology Strategy Board, 2010). If Phelan construction does not give considerable attention towards environmental friendly construction, then in that case, company may end up with poor image. Analysis The external environmental analysis of Phelan construction ltd shows that the major factor, which enhances the impact of environmental factors on the UK construction companies is the contribution of Construction industry in the economy. The recent global financial crisis, really had a very significant impact on the operations of construction companies. As long as future of construction industry in the UK is concerned, positive expectations appear because economy is recovering and value of property is improving. Phelan construction is also responding very efficiently to the changes in macroenvironment. For example, Phelan construction is giving great consideration towards technological changes and it appears in the top ten placement of Google. The major reason is the well developed website of the company, which is highly optimised and as reported by the company, from January to December 2009, 150 percent increase in the traffic of customers have been noticed (Phelan, 2010). The company believes that it is because of Phelan technology that enhances efficiencies by streamlining the processes and planning. Michael Porters Five Forces Analysis Porter’s Five Forces Analysis is very important to analyse the industry attractiveness. Following is the Porter’s five forces analysis of Phelan construction. Buyer/Customer Power The buyers bargaining power in the UK construction industry is low and the major reason is that consumers have low access to information. The consumers are large in number, which enhances the target market for the construction companies, thereby, reducing their bargaining power. Moreover, switching cost is high, which also reduces the bargaining power of buyers. Suppliers Power The supplier power in the UK construction industry is high because the constructions companies are dependent upon the suppliers for getting huge bulks of quality raw material at reasonable prices. The strong muscle of European Steel Industry is another reason, which enhances the suppliers’ power. In addition, the number of construction companies in the UK is far larger than the major suppliers of construction material, which is also contributing to higher bargaining power of suppliers. Rivalry among Competitors The market structure of the UK construction industry is very competitive. It is also evident from the fact that more than 250,000 construction companies are operating in the UK. The nature of competition in the UK construction industry is high price competition, which lowers the profit margin of companies. Threat of New Entrants Threat of new entrants in the UK construction Industry is not high because of two major reasons. First, the shortage of skilled labour makes it difficult for the companies to recruit and retain people. Second, although there are no barriers to entry in terms of rules and regulations however, huge investments are required to start the company. Threat of Substitutes Threat of substitutes is very high in the UK construction industry, primarily because of the competition in the industry. Secondly, the timber frames and prefab buildings also appear as the substitutes of concrete buildings. Therefore, based on Porter’s Five Forces analysis, it can be argued that the UK construction industry is not much attractive for the new investors unless, they come up with innovative and creative ideas. Moreover, the companies which have developed strong position are at advantage because they are generating huge profits from commercial and residential sectors. SWOT Analysis Strengths The major strength of Phelan is its historical performance such as exponential growth of company during the last 21 years. Secondly, Phelan is primarily targeting blue chip companies in the UK and it has maintained a strong position. Thirdly, Phelan has a very strong financial base and even the recent global financial crisis could not harm the company. Fourth, company is undertaking different types of construction projects and has a diverse target market. Phelan Company has diversified its risk through related diversifications. The company does not face short term labour issues because it directly employs labour. Weaknesses The major weakness of Phelan ltd is its presence in a saturated market where the competition is very high. Secondly, since the access to skilled labour is less in the UK industry, therefore, the bargaining power of employees within the organisation is high. Third, the company is very much dependent on its suppliers, which directly influence the quality and supply chain of Phelan. Opportunities Phelan Construction Company finds various opportunities in the UK construction industry and the major opportunity is the investment in timber frames and prefab buildings. Secondly, Phelan is currently doing business in UK market and it can increase its operations to China, India, Japan, USA, EU member states and Gulf region. In a recent report, it has been highlighted that Brazilian market appears to be a very attractive market for the UK construction companies because more than 80 projects are going to set up Brazil to host the World Cup in 2014 as well as 2016 Olympic and Paralympic Games in Rio (UK Trade and Investment, 2010). Threats Phelan Construction Company like various other construction companies is facing many threats. First, the continuity of global financial crisis appears to be major threat for Phelan. If it persists, the demand of property will remain down, thereby, harming construction companies. Second, the UK construction company faces unparalleled challenges to training. Third, the high unemployment rates in the UK are threatening to UK construction industry. According to Richard Diment, Director-General of the FMB, "During the last recession the construction industry lost half a million skilled workers and it is vital that action is taken to ensure that this is not repeated in 2010 (Beverely Guardian, 2009).” Phelan Business Projects Current Projects Phelan undertakes different kinds of construction projects such as nightclubs (e.g. China White London, Liquid nightclub Winsor), resturant & bars (e.g. Chcago Rock Café – Maidenhead, Las Iguanas Oxford), hotels (like Travelodge Clacton on sea), Leisure facilities (like Hilife Basignstoke), Casinos (e.g. Aspers Casino Northampton), commercial buildings (e.g. SCS Cambridge) and private & public sector (e.g. University of Essex). These different construction projects of the company show that it is catering to a diverse construction business. Finances Phelan Construction ltd is a private limited company and the ownership of the company is in few hands. Therefore, investments are made by the shareholders and through retained equity of the company. Since financial statements of the company are not published therefore, financial information of the company could not be accessed. Tracking the Performance of Project Phelan has built long term relations with the contractors. The company directly employs the labour, which has been working with company for years. On the website of company, in a statement, Ian Glyn, the managing director of the company argues that we have built a strong relation with the people to whom we deal through shared trust and reward. Even if the company takes large projects, throughout the project, costs are evaluated to match actual and budgeted costs. Moreover, there are few contractors which serve the company and to evaluate their performance, different project management teams are created. Each team is responsible to keep a track of each project in process. Value Chain Phelan Construction Company is renowned in the UK construction company also because of the quality of its work. The major reason, which may help a company to achieve quality targets, is the proper management of value chain process of the company. Once a project is approved, the sub-contractors and suppliers of Phelan are informed about the completion dates. The involved parties are also aware of the agreed budget restrictions, so that costs could be controlled. The subcontractors and the in-house teams for each project are established, which are very experienced, knowledgeable and committed. The primary activity of Phelan is construction whereas, the secondary activities involve refurbishment, designing and providing leisure facilities. Since the environment is changing very rapidly as the consumers’ behaviour is changing therefore, Phelan is at advantage because it is already offering leisure facilities, appealing designs etc. to its customers. However, as the shortage of skilled labour is one of the major threats in the UK construction industry therefore, it directly influences the contractors and skilled force of the company, thereby, in future; it may create a hassle for Phelan. However, since Phelan has strong presence in the UK market and it also has a strong financial base, therefore, even of it finds any problem in future, it may plan to expand and go international. Strategy Analysis Strategic alternatives have been always important for a company because the strategic objectives may develop the future of the company. In consideration to the different opportunities available to the company, I believe expansion is one of the major alternatives for the company. The Ansoff Matrix is showing different strategies which Phelan may consider. Ansoff Matrix Existing Products New Products Existing Markets Market Penetration Product Development New Markets Market Development Diversification I believe that Phelan should not go for marketing penetration strategy because the UK market is already saturated and it will not be beneficial for the company. Market development strategy is good for Phelan because if it offers its services to new markets by going international, it can increase its target markets and so the profits. Product development is another good option for the company because latest construction techniques are being promoted all over the world. Moreover, re-engineering of construction processes is under consideration, which opens new horizons for the company. Unrelated diversification is not recommended to the company because Phelan is not even offering its services outside the UK, and as it already has good position in its core business, therefore, it should think more about expanding its core business. Therefore, based on the strategy analysis, Market Penetration and Product Development are two recommended strategies to Phelan construction. Implementation and Control of Strategies Phelan Construction Company directly employs the people and the company also has good and long term relations with contractors, therefore, encouraging its people to avail the proposed strategy for the company will not be an issue for management team of Phelan. As the company is already offering its services to blue chip companies in the UK, therefore, it has strong relations with the customers which are really beneficial for the company. The major change will come in the organisational structure of the company and management style. For this, Phelan can arrange training workshops, surveys and discussion sessions, in which the employees will be covered the prospects for the company after implementing the proposed strategy. Moreover, the process of change should be very gradual and the employees should be given full job security so that, the unemployment issues in the UK may not affect the company. Throughout the change process, employees should be encouraged to participate and give their feedback to make the change process and overall success. Resources will not be an issue for the company because company has strong financial base and highly skilled people. However, to keep a control, regular performance appraisals, budget evaluations and other measurement tools should be widely used. References Beverley Guardian. (2009) UK Unemployment Levels Are Serious Threat to Construction, warns Federation of Master Builders. [Online] Available from: http://www.beverleyguardian.co.uk/jobstodaylocalnews/UK-Unemployment-Levels-Are-Serious.5736088.jp [Accessed 3rd March 2010]. CIOB. (2009) Impact of Global Financial Crisis on the Construction Industry. [Online] Available from: http://74.125.153.132/search?q=cache:HLQ34p-nA8IJ:www.ciob.org.uk/filegrab/JAN009_POLICY_credit-crunch-brief_v6.pdf%3Fref%3D1134+impact+of+crisis+on+UK+construction&cd=1&hl=en&ct=clnk&gl=pk [Accessed 3rd March 2010]. Cooper, I. (1997) The UKs changing research base for construction: the impact of recent government policy. Building Research and Information, 25 (5), 292 – 300. Dainty, R. J. A. & Ison, G. S. and Briscoe, H. G. (2005) The construction labour market skills crisis: the perspective of small-medium-sized firms. Construction Management and Economics, 23 (4), 387 – 398. David, F., Strategic Management Concepts (12th ed.). Pearson-Prentice Hall: Upper Saddle River, N.J. L.E.K. (2009) Construction investment provides significant benefit to the UK economy, reveals new report. [Online] Available from: http://www.lek.com/About/construction_survey.cfm [Accessed 3rd March 2010]. Phelan Construction Company. (n.d.) Our Mission. [Online] Available from: http://www.phelans.co.uk/about-phelans/phelans-policies/mission-statement.html [Accessed 3rd March 2010]. Technology Strategy Board. (2010) Low Impact Buildings. [Online] Available from: http://www.innovateuk.org/ourstrategy/innovationplatforms/lowimpactbuilding.ashx [Accessed 3rd March 2010]. UK Trade and Investment. (2010) Construction. [Online] Available from: https://www.uktradeinvest.gov.uk/ukti/appmanager/ukti/sectors?_nfls=false&_nfpb=true&_pageLabel=SectorType1&navigationPageId=/construction [Accessed 5 March 2010]. Appendix Figure I: Mission of Phelan Our Mission: - to provide the highest levels of customer service possible within the Construction Industry every working day. Our Core Values will build strong working relationships, ensuring that our customers’ experience is one of complete satisfaction. Customers: We value our customers and their professional teams. We treat them with respect, providing friendly, courteous, knowledgeable and prompt service at all times. We seek and are driven by our customers feedback. Professionalism: We act with diligence and professionalism at all times. We promote fair dealing within our supply chain and expect honesty and commitment from our partners. Performance: We continually raise our performance to exceed customer and stakeholder expectations. We strive to be the best at what we do. Teamwork: We partner with one another - respecting new viewpoints, building trust, enhancing communications, and sharing best practices to deliver our services. People: We value our team members and treat them with respect, providing an environment where diverse individuals can develop and are expected to perform to their full potential. Environment, Health and Safety: We work safely in a manner that protects and promotes the health and well-being of the individual and the environment. We are committed to the future well-being of our stakeholders. Excellence: We relentlessly pursue excellence in everything we do, getting things right first time, every time. Profitability: We earn sustainable financial results that enable profitable growth and increased value. Accountability: We are accountable, individually and in teams, for our behaviours, actions and results. Our culture rewards ownership and responsibility. Phelan Construction Ltd occupies a unique market niche undertaking Construction, Refurbishment and Fit Out Projects throughout London and the UK Source: Phelan Website Read More