Strategic Management in Construction & Property Enterprises - Example

Strategic Management in Construction & Property Enterprises Student’s Name: Instructor’s Name: Course Code: Date of Submission: Report Discussion statement Marketplaces are always volatile, none more so than the global or domestic construction marketplace in UK! SWOT and STEP analyses allow organisations to analyse and better understand what is happening in their marketplace. Table of Contents Table of Contents 3 Executive summary 4 1.0 Introduction 5 2.0 Literature review 6 2.1 Marketplace volatility 6 2.2 Strategic management in construction and property enterprises 8 2.3 Strategy formulation 9 2.3.1 SWOT analysis 10 2.3.2 STEP analysis 11 3.0 Approach to methodology 12 4.0 Results and discussion 13 5.0 Conclusion and recommendation 16 References 17 Executive summary This report was purposed to investigate into the statement that ‘Marketplaces are always volatile, none more so than the global or domestic construction marketplace in UK’ and how strategic management which provides various tools such as SWOT and STEP analysis models has come to help the enterprises that operate in the industry overcome the prevailing challenges not only at home but globally. This report has managed establish that indeed volatility in the construction and property market is a reality and it is there both at global and domestic markets. Even, though competition and political interference have been cited as sources of some of the forces that affect the stability of the market, global recession and persistent financial crises is the major cause of the witnessed volatility. Further, the report has also found out that STEP and SWOT analysis have been very critical in analyzing the market by the enterprises in order to take various measures to counter any anticipated uncertainties. Finally, it has been found out that even though strategic is being used in this sector, there are some forces that are beyond organizational or industrial strategy and good example is the political interference. For this reason therefore, it’s recommended that stakeholders partner to petition various government to enact legislations that prohibit interference by various politicians and governments. 1.0 Introduction Despite the continuous growth of the construction and property enterprise markets globally, stability of the market has been a major challenge for many of these businesses. Research has shown that a number of factors have played a major role in determining the direction and the survival of investors in this sector of the economy. Irrespective of the economic status of a country, the development and expansion of construction and property enterprises has been of great significance. This is has been attributed to the role they play in terms of supporting and developing the process to avail and acquire property (Chea and Chew 2005). This sector is especially characterized by its dealings in developing and managing different constructions both from public and private sector view. The sector in more understandable terms is known to be a key player in infrastructure development of any given country. Perhaps this is the reason as to why many governments have paid much attention to this industry. However, with globalization of the global market, it has absolutely very difficult to have stable markets. With globalization factors such as competition, global recession and political instability, have led to a situation where the market for these enterprises has become very volatile not in the United Kingdom but globally (Skaik 2009). It’s with this concern that strategic management in construction and property enterprises sector is becoming of great significance. This is because strategic managed is believed to bear the solution to this market volatility. Strategic management is used to enable the enterprises operating in this sector to build their capacity in dealing with eventualities in the global market (Acar and Yazici 2006). This report is concerned with taking a critical view on the role of strategic management in dealing with market volatility in the construction and property market. This will allow for exploration on the various techniques that strategic management provides in dealing with market volatilities. Important to note, this report make use the case of the United Kingdom to reflect on what is happening in the global market. 2.0 Literature review 2.1 Marketplace volatility It is very true that Marketplaces are always volatile, none more so than the global or domestic construction marketplace. Volatility can be described as a situation where the market is not stable and that its trends can easily be determined. More than ever before and like other sectors of the economy, construction and property enterprise markets are also subject to various forces that are influence their stability (Chea and Chew 2005). The forces that have been identified to be major sources of volatility in the construction and property management industry include competition which has come as a result of globalization and liberalization of the world market, increased political instability, global financial crises both in Europe and America. The effect of these forces has not only been felt in the domestic markets but also to a larger extent the global market. This is to mean that much of the turbulence that is being experienced in United Kingdom domestic market is as a result of what is happening in the global markets (Pearce and Robinson 2003). For example, in the united kingdom, its estimated that currently about 50% of the domestic market for construction and property enterprises is composed of foreign investors whereby Chinese enterprises are the leading foreign investors with over 21% followed by the united states at 17% and Japan at 6% while the remaining 6% goes to other investors from the rest of the world. With this revelation it’s emerging that the market is about to be dominated and controlled with globally established companies and that have the capacity to make good returns and venture into any market (LaSalle 2011). This has posed a great challenge to the sector especially for those small enterprises that are yet to grow fully and compete internationally. The other factor that has been cited to be a major source of volatility in this sector is the current global financial crises and global recession as currently witnessed in parts of Europe and commonly referred the “Euro Zone Financial Crises.” This has led to high cost of doing business as witnessed by many of the great borrowers of finances from financial institutions (Dess et al 2010). On the other hand, political interference in this sector has continued to grow over years. Even after liberalization and end socialism in many parts of the world, still some countries are seeing it very necessary to impose more taxes on foreign investors in order to regulate the operations in the sector. This has not been so well with those companies that have invested in foreign countries since they have to pay huge taxes to remain in operation (Skaik 2009). This to a greater has acted a discouraging factor for many of the businesses. In addition to this, in countries like the U.S and U.K, many of the politicians who are seen as conservatives have been witnessed to be supporting the move to have the tenants become the home and property owners. This for sure has not gone well with the investors in this sector since they fear losing their investment as a result of uncertainties in the industry as argued by Acar and Yazici (2006). 2.2 Strategic management in construction and property enterprises Given the emerging issues in the construction and the property enterprises market and that are very inherent; it has become very clear that more than ever before, strategic management is very important in blending it with various ways to ensure sustainability and continuous growth of this sector. Pearce and Robinson (2003), highlights that strategic management is especially important in the contemporary society of management when competition, rivalry, political interference and global financial crises are hitting very hard on the industry not only in the united kingdom but also the global market. In the construction and property management market, strategic management is used by the participating stakeholders to formulate on specific goals and objectives (Hill and Jones 2008). This is the onset of strategy formulation. It’s believed that deeper analysis and scanning of the market is key strategy formulation that will keep the business on the run despite the prevailing challenges. The preference of strategic management in the construction and property management market is because of its ability to provide very vital tools which are important in analyzing the market and then align the business with the situation in the market. Strategic management for instance provides such tools as SWOT and STEP analysis to determine the business’ internal and external forces. Barry and Sebone (2009), in his book ‘strategic management for the future,’ uphold that the SWOT and STEP analysis are very critical in the current market which has been affected high level of volatility. For example, analyzing the environment and understanding the risks that are associated with certain moves, is important in helping the enterprises to put in place the contingency plans to deal with them. However, before any strategy is formulated, environmental analysis both externally and internally is expected to take place first. This is important in avoiding strategy failures or surprises and therefore ensuring long-term health growth of the business (LaSalle 2011). 2.3 Strategy formulation The process of formulating a business strategy, starts with the defining what the business mission is in order to provide a clear framework on how specific strategies will be drafted and implemented. According to LaSalle (2011), stating out clearly the mission statement, it’s important for making known the purpose of the business and at the same time help set out the strategy objectives and the decision making process. However important to note is that mission statement has to be well communicated and made clear as much as possible for both the external and internal stakeholders to comprehend. It has been established that mission statement are used to help create sense for the stakeholders in order to avoid those situations where confusion about what the company’s purpose is exist (Chea and Chew 2005). The second step in formulating a business strategy is to specify those objectives that are achievable and that can be realized at a given timeframe. In any sector and more especially at organizational level is used to provide a guideline on what the business wants to fulfill and the way to go about. The third and most important stage of strategy formulation and that can be very important in the Construction and Property Enterprises is the one that involves analyzing the internal and external forces using both SWOT and STEP analysis models. These two models in this sector are preferred by many of the investors as they will be able to analyze the available threats and opportunities in the market and the overall impact to the business (Analoui and Karami 2003). 2.3.1 SWOT analysis According to Hill and Jones (2008), SWOT is an acronym for strength, weakness, opportunity and threats that are used to describe the business’s status both internally and externally. SWOT analysis in the construction and property enterprise is done with the purpose of identifying the specific strategies that a company apply to exploit the exploit the opportunities at its disposal, manage the counter threats and at the same evaluate on company’s capacity to live up to its tasks and more important in eliminating the likely threats. Just to mention, in the sector of construction and property management, the existing strengths can be defined in terms of resources both financial and human (Barry and Sebone 2009). Information is also a very important resource and strength to the business. The weaknesses in the sector are also determined in terms of location of the market, poor quality properties and services, undifferentiated products and lack of expertise to do good marketing. Further, in the industry the opportunities that exist include increased global demand for good and quality housing especially following rural-urban migration, expansion of the international market and opportunities to enter into partnerships and alliances with other investors. The threats exist in this sector include increased competition from new firms entering the industry and increased global recession as well as political interference. However, SWOT analysis alone has limitation and therefore has not been accepted as a complete tool for strategic management. It is only to have the process start (Pearce and Robinson 2003). 2.3.2 STEP analysis Unlike the SWOT analysis, the STEP analysis is used by businesses to analyze the social, technological, economical and political factors that affect that can have an influence on the business. The social factors that influence business include the attitudes, the interests and opinions that are held by family members and the society, colleagues and neighbors as well as the media (Barry and Sebone 2009). All these forces influence the social life of individuals and how they perceive different products and services. Demographic movement has also been cited as key force to business operations. This is because they form the greater company market. The technological development is determined by the existing infrastructure, systems and hardware that support the business. For instance technology has been seen to promote communication between the customer and company by use of the internet. Economical factors forms the third element of STEP analysis model and in the business context is characterized by the trends both in at national and global level which affect the purchasing power of the customers (Arditi et al 2008). Finally, political element is the last in the STEP analysis and is used to determine the prevailing political forces that are likely to have an influence on the direction of business and they include legislation which regulate on minimum wages and other discriminatory laws, market regulations, tax levies, trade agreements and government regimes in terms of democratic, communist and dictatorship (Cameron 2007). 3.0 Approach to methodology In writing this report, United Kingdom was used as a case study to find out the extent of volatility in the construction and property markets in the country and perhaps reflect on what is happening globally. This approach was preferred because it’s specific in studying the problem at hand and how strategic management has been applied in the sector to help build the capacity of various enterprises in the industry to deal with any eventualities (Cameron 2007). Further, this approach is also preferable in terms of time and cost saving. Like any other country in the world, the United Kingdom domestic markets are very volatile and much of the current situation is attributed to the global financial crisis and therefore, any recommendations developed in this report for use in the domestic market, can be applied elsewhere in the world to help strategize business enterprises. However, this approach has got its own limitation since it does not employ scientific methods to collect data using primary sources to inform its arguments. The report is built on available literature and therefore could be very accurate to its findings. Finally, this report is a reflection of what is happening in the construction and property enterprise markets and therefore could not be used in other sectors (Barry and Sebone 2009). 4.0 Results and discussion The construction and property has continued to grow over centuries as demand to own property by the citizens continued to exist. This has seen many interested investors coming both from locally and internationally to put in their resources for the anticipated good returns from the growing market. In the United Kingdom over 60% of the enterprises operating in the market are either owned by individuals or medium-sized investors (Hill and Jones 2008). What this means to the industry and the economy as a whole is that many people in one way or the other depend on this industry for the survival. According to, the construction and property market contributes an average of 4.5% to the country’s GDP. This sector employs thousands of people and the enterprises in this sector are estimated to have an average of 150 employees each. Further, the enterprises in the sector have the capacity to secure and complete projects worthy of millions both from locally and internationally (Acar and Yazici 2006). However, following the world economic trends, the market has been subjected into very serious challenges. Revealed in the sector is the existence of conservative laws that are being pushed by the politicians and state leaders to have the tenants own homes. The implication of this to the sector is that business will reduce in the future as much of the market share will have been done away with. This is part of political interference to the market. However, what has affected this sector most is the current global crises characterized by economic recession and Euro crisis (Arditi et al 2008). This has caused increase in the cost of doing business as a result of high inflation. Many people cannot afford some of the properties and as a result many of the enterprises have fall short of their income and can no longer afford to pay for their debts. The end result has been closing of business or switching into different sectors (Barry and Sebone 2009). Following these challenges, it has been established that strategy management is expected to play a major role in helping the enterprises survive amid great market turbulence. This report has established several strategies including corporate and business ones, have been used by the businesses operating in this market. Top on the list is cost management. It clear that cost element is of essence not only for businesses operating domestically but also globally. The other strategies that have been used in the market include use of joint ventures, mergers, acquisitions and subcontracting as well as diversification (Analoui and Karami 2003). The use of these strategies is seen as a measure by many enterprises in the country to deal with escalating cost of doing business and at the same sharing the risk involved in carrying out various projects. Further, use of the strategies is aimed in increasing the process of acquiring and sharing any available information with regard to the market trends so as to avoid any speculations and anxieties that have continued to hit the market. This follows the realization that individuality and secrecy to information has not been as constructive as many enterprises have been engaging in speculations and unfair dealings in tendering and delivering projects a trend that has very negative effect on the performance of the business (Hill and Jones 2008). In delivering on the company goals and objectives, it has also been established that market and resource analysis is becoming of age in many companies as an approach to dealing with uncertainties in the market. This has forced many enterprises to make use of both the SWOT and STEP analysis models to analyse the state of business both internally and externally (Cameron 2007). These two models have provided very important tools for analyzing companies’ market in by identifying the available strengths, weaknesses, opportunities and threats as well as change in social, technological, economical and political environment. The reason for using these specific elements to analyse the external and internal environment is to make that the business have contingency plans to deal instability in the market in the new future for longer-term sustainability and development (Analoui and Karami 2003). 5.0 Conclusion and recommendation It is very true that the construction and property market is experiencing great volatility not only at domestic level but also at international level. A number of factors have been attributed to this funny scenario which has challenged the sustainability of many enterprises operating in this industry and they include global economic recession characterized by financial crisis both in Europe and America. Among other sectors of the economy, the construction and property sector is one of the key contributors of economic growth globally. In order to attain growth and sustained development of many of the property enterprises, strategic management has come to play a major role in defining the destiny of the majority of these businesses. Strategic management is used to define measures that can be taken by businesses in case of any uncertainties. The two major tools that are being used strategy formulation include SWOT and STEP analysis models. However, given the participation of different stakeholders in the sector including the property owners and developers, various governments and investors, it is emerging that the strategic management is only organizational based and that do not focus on ways various legislations can be enacted to allow for stability in the market. Therefore, it’s recommendable that these enterprises work together in petitioning various governments to enact laws that curb speculation and unfair trading in the industry. This will facilitate easier protection of individual interests in the sector. References Acar E and Yazici EO 2006, Competitive micro environment of small residential: Built Environment and Information Technologies, Middle East Technical University, Ankara, pp. 433-447. Analoui F and Karami A 2003, Strategic management in small and medium enterprises. London: Thomson Learning. Arditi D Makinde S and Polat G 2008, Marketing practices of U.S. contractors. Journal of Management in Engineering, 24(4), pp. 255-264. Barry ML and Sebone MF 2009, Towards determining critical success factors for SME electrical contractors in the construction industry in South Africa. South African Journal of Industrial Engineering, 20(1), pp. 185-195. Cameron L 2007, Too few contractors moving up the grades. Engineering News [online]. Available from: [Accessed: 23 May 2010]. Chea CY and Chew DA 2005, Dynamics of strategic management in the Chinese construction industry. Management Decision, 43(4), pp. 551-567. Dess GG, Lumpkin GT and Eisner AB 2010, Strategic management: Creating competitive advantages. 5th ed. New York: McGraw-Hill Irwin. Hill CW and Jones G 2008, Essentials of strategic management. 2nd ed. Mason, Ohio: Cengage Learning. LaSalle JL 2011, Pulse: Real value in changing world, 5th June 2011, http://www.joneslanglasalle.com/MediaResources/EU/Marketing/UnitedKingdom/ JLL_UK_PropertyPulse_June_2011_FINAL.pdf Pearce JA and Robinson RB 2003, Strategic management: Formulation, implementation and control. 8th ed. New York: McGraw Hill Irwin. Skaik SH 2009, Implementing strategic management in construction [Online]. Available from: [Accessed: 10 October 2010]. Read More