Project Management in Construction Market - Essay Example

Project Management in Construction Market Report 14 March 2007 Contents Project Management in Construction Market Report 14 March 2007 Contents 2 Objective Of Report 3 Nature Of Construction Industry 3 Nature Of Construction Market 4 Analysis Of The Global Market 5 Market Segmentation 5 Global Market Competition 6 PESTLE Analysis 7 Political 7 Economic 8 Socio-Cultural 8 Technological 9 Legal 10 Environmental 10 Change Management 12 Assumptions 13 Resistance 13 Continuous Improvement 14 Bibliography 17 Objective Of Report The objective of this market report is a succinct description of the marketing environment in which the construction manager must operate. The description is subjective to interpretation based on qualitative literature related to the global construction industry, market, and management operations. The overall objective is to develop a framework for implementing project and change management strategies to improve the ability of an organization to effectively market in the global construction industry. This is done through a general analysis of the nature of the construction industry and construction markets, which relate to the overall environment construction organizations and managers, must function within. The report will also examine the global market relative to marketing situation, including an industry-scoped PESTLE analysis. The report will follow with a recommended framework for change management and continuous improvement. The goal of this report is to serve as an informative analysis that can be utilized from its general structure to develop more specific strategies within the management of the construction industry market. Nature Of Construction Industry According to the Department for Trade and Industry's (DTI 2007) annual report on the construction industry, there are over 250,000 individual firms operating in the UK construction sector which primarily operate within the residential, non-residential and civil engineering sectors. The construction industry employs two million persons. The focus of the construction industry is the acquisition of construction materials, management of suppliers and manufacturers, building design, service, and installation. This includes private contractors, sub-contractors and advisors in design, building, operation and refurbishing of buildings (DTI 2007). It is important to note that the construction industry is the second largest industry in the EU and contributes to slightly over eight percent of the national gross value (DTI 2007). Nature Of Construction Market The nature of the construction industry market is that it is based on the national, and sometimes global, economy. The construction industry exists because the individuals within a community desire the building of certain constructs based on factors such as income, interest rates, value of money (in or EU), and thus the construction industry is at once a good indicator of economic health and subjected to the slowing or increasing of a nation's economic health. The construction market can exist on a local or global scale, increasingly the construction company must be able to function on multiple market levels. In 2005, there were approximately 15,000 million new housing orders in both public and private sectors (DTI 2007), not including refurbishment or maintenance of old houses. In the same year, 25,000 million was requisitioned for contracted infrastructure in private, industrial, and public buildings. According to Market & Business Development (MBD 2007) the construction market is expected to reach its peak in development and sales in 2006 with a growth rate of 4 %. Further market analysis by MBD (2007) shows that the construction industry output has an overall growth rate of 35% between 2002 and 2005, yet the construction market is foreshadowed by the upcoming industry pressure due to earnings growth continues to pick up and energy costs increase, combined with a slowing of public sector contracts. Analysis Of The Global Market The EU construction sector is a strong force for the EU economy, representing nearly ten percent of the gross domestic product and seven percent of employment (ngel Garca 2005). Globally, however, the EU has only a third of the global construction market, which has a current market value of 4,000 billion and is expected to reach a value of 4.12 trillion by 2009 (Datamonitor 2006). The market demand according to economical cycles, and the financial support have been the main forces that have driven the activity of the construction industry on a global market scale (ngel Garca 2005). According to Charlie Bean, chief economist at the Bank of England, inflation is likely to run at a faster pace in the coming years than it has been in the past, which may have a negative impact on the viability of the construction industry in the global market (Hensman 2006). The new landscape ahead, of a global economy and a society based on technology and knowledge creation and valuation, force the construction sector to be more active and structured in global market activity (ngel Garca 2005). Market Segmentation The global market is segmented by nationality rather than company or industry (on the local level). Datamonitor (2005) reports that the market is segmented as Asia-Pacific 34.90%; Europe 33.30%; US 26.10%; Rest of the World 5.30%; South Africa 0.40%. The global market is further segmented into Civil Engineering at 52.20% and Non-Residential at 47.80% (Datamonitor 2005). The growth in the Asia-Pacific market segmentation can be attributed to the victory bid of China for Beijing to host the 2008 Olympics, where China and other Asian investors contracted nearly 5 billion towards construction of multiple building and tourism destinations. Datamonitor (2005) reports that the global construction industry is worth nearly 4,000 billion, so the Olympic construction in Asia represents 1% globally, or nearly 3% of Asia construction. Furthermore, "The construction and engineering industry in Japan is the second largest single market behind the US" (Datamonitor p 8 2005). The EU construction industry nearly matches Asia construction, which is attributed to the "strong construction and engineering growth in Eastern Europe and Russia" (Datamonitor p 8 2005). Global Market Competition Market competition is fierce, where the top five construction companies barely control 5% of the global market and the other 95% is divided amongst various smaller companies (Datamonitor 2005). No single construction company holds more than two percent of the global market, in fact " VINCI is the largest company in the global construction and engineering industry, with a 1.2% share, and Bouygues is the second largest with a industry share of 1%" (Datamonitor p 12 2005). The global market is slightly different when it comes to material segmentation. Datamonitor (2006) shows that the global construction materials industry is valued at nearly 800 billion, with competition divided as "The top three players collectively hold a 10.6% share of the market" where "Lafarge is the leading company, with a 4.1% share of the market" (Datamonitor p 12 2005). VINCI is the world's largest construction company, based in France (Datamonitor p 12 2005). Comptetive operations for VINCIT include building, civil engineering, electrical engineering, information technology, roadworks, and concessions, however the diversified market portfolio is complicated by low emergin market potential and a heavy debt ratio (Datamonitor p 12 2005). Lafarge Corporation is another France based company with operations in 75 countries (Datamonitor p 14 2006). Lafarge specializes in the manufacture of a variety of products for the construction industry and is the largest manufacturer of cement in the World with sales reaching nearly 40,000 million in 2005 (Datamonitor p 14 2006). However, Lafarge has also faced a 7% increase in operating income from 2004, reaching just under 6,000 million. PESTLE Analysis The following PESTLE analysis will evaluate the external factors that affect Global Translations. These factors include: Political; Economic; Sociological; Technological; Legal; Environmental. PESTLE Analysis is normally used to help organisations identify and understand the external environment in which they operate and how it will operate in the future, however it can be applied to the entire industry on a global basis. The factors in each category are identified according to the impact on the global construction industry over time and significance. This allows for a general framework to be developed in regards to global marketing. Political Political pressure is especially important when an industry or company operates in a global context, possibly even more so than when operating solely on a local context. Take, for example, the company Bouygues, which has built its global competition power on construction contracts in the Middle East, primarily due to the conflicts existing in those nations (Datamonitor 2005). The company, while being US based, must be able to negotiate government funds from political powers outside of its traditional imminent domain. When a company operating in a foreign country cannot recognize the political stakes and benefits, it is highly likely that the company will be ill-received and, because the company may be a considered representative of its home nation, may reflect negatively on the home nation. Furthermore, the global political landscape has increased the global economy, largely because liberalization of nations in the Asian, Eastern European, and South African markets have focused on pulling down the entrenched protectionist regulations and restrictions, which governments around the world have traditionally used to impede or hinder foreign participation in local markets (Ojeniy 2003). Therefore, political influences on the global market and construction industry can have both a positive and negative impact, which is highly based on the construction organization's ability to navigate and respond to the political environment of the host country and home country it operates between. Economic Economic trends and forecasting show that while there may be local downward slopes in the construction industry; the global market is increasing at a high growth rate (Datamonitor 2006). This is highly due to the trends in traditional third world countries such as China and South Africa which have increasing market power and needs for foreign construction and materials that are not available from its national base in the historical view. The construction industry growth on a global scale is largely due to the advent of liberalization, free trade, and globalization into the world's business environment is having a tremendous impact on the global economy (Ojeniy 2003). The construction industry is an integral part of the world's economy and it is also responding to the effects of liberalization, free trade, and globalization (Ojeniy 2003). Socio-Cultural The impact of the socio-cultural environment to the entire construction industry is a well-ignored concept in market research. However, since it can be recognized that each local division has a succinct regional identity which is often shown in its construction and architecture, it cannot be ignored that the culture of a region has an impact on the social identity, and thus on the choices made in construction. This idea is show by Jane English (2002) who explored that the construction industry is a microcosm of a country's socio-economic development, where the construction industry faces a broad sweep of cultures. The challenge in the socio-cultural environment is to shift perceptions and attitudes that result in misunderstanding and loss of efficiency (English 2002). Thus, the construction industry must be able to operate on a global level that accepts and understands the multiple dimensions of regional culture and social identities. Technological Technology and innovation are key drivers of competitive advantage for the sector and of society's need for an efficient and sustainable sector (DTI 2007). The construction industry must continually answer, develop and implement a shared vision and strategy for innovation, help promulgate this message through the sector and promote its innovation needs to Government and internationally (DTI 2007). Globally, rapid developments in the fields of computing and information technology drive the accelerated globalization process in both industry and academia, which places competition forces on the construction industry (Palaneeswaran and Kumaraswamy p 196-204 2003). The impact is on the manufacturing supply chain and construction value chain, where the formulation of a "high-velocity" knowledge mining framework and a set of guidelines facilitate and enhance such innovative construction management research in the technology based research environment (Palaneeswaran and Kumaraswamy p 196-204 2003). Furthermore, construction research and innovation must address the critical success factors, key performance indicators, and construction strategies for controlling both vivid and tacit knowledge sources, especially through creative and efficient construction management research (Palaneeswaran and Kumaraswamy p 196-204 2003). Legal On a national level, the UK construction industry is subjected to multiple laws regarding a broad range of legal standards, such as the ISO 9001, ISO 14001, Occupational Health and Safety and so forth. While these standards exist in a legal context to ensure that the construction industry maintains a level of environmental, occupational, and building safety, a company that does not recognize the legal implications in each country it operates in can face fines, penalties, and in some cases have its rights to construction in that country removed. It is also recognized that globally, particularly in European and Asian nations, there is a legal concern to develop towards a 'green' environment, which increases legal pressure to manufacture, produce and construct according with local laws in regards to sustaining an ecologically sound environment (Huecker p 30 2007). It is therefore of high importance that a company operating on a global level be informed and adhere to the legal concerns in each operating nation. Environmental The environmental concerns for the construction industry include understanding the ecological issues that have become global in scope in 2007 (Huecker 2007). This strongly pertains to sustainable architecture that enables the construction industry to address various local concerns pertaining to environment-friendly building design (Huecker p 30 2007). Europe has emerged as a global leader in sustainable architecture, setting the standard for various building designs that save on energy and combat pollution (Huecker p 31 2007). Green building designs have also emerged in Asia, with Japan exerting a major cultural influence on green building in the region (Huecker 2007). Due to the increasing legal regulations prompted by environmental concerns, there is a strong need for changes in the approach to design and construction process in order to reduce carbon emissions to a level that no longer drives climate change in Great Britain by 2050 (Thompson p 31 2006). This includes the innovation and technology research that promotes a green environment integrated design as one of the factors to be considered in creating a resource-efficient built environment (Thompson p 31 2006). Suppliers and manufacturers can help in achieving the goal if they would provide information on the performance of their products to their customers. The construction industry must be increasingly aware of the environment as a market force, particularly when the largest consumer of construction materials and services, as the Asian market, is placing increased political and legal pressure on developing environmentally friendly buildings. Recommendations The PESTLE analysis above recognizes that there is increasing global market due to the liberalization of traditional closed economies, which have allowed for an upward slope in the global economy. The socio-cultural impact is in recognizing the regional identities and cultural impact on the acquisition of construction contracts. Furthermore, it recognizes that technology and innovation are a strong driver of the construction market, particularly in regards to developing sustainable buildings that are environmentally sound. In the legal area, increased pressure from various nations, Great Britain, Japan, China, USA, and so forth, is leaning towards an environmentally conscientious construction and manufacturing industry. Therefore, it can be recognized that the particular market opportunity which requires the application of project management across a broad scope is the environment. The ability to respond to political and legal pressure, as well as implement innovative technology, recognize the social aspects and economic needs in regards to creating an ecologically sound and environmentally conscious marketing strategy can develop stronger sustainability and consumer influence in the construction industry market. Change Management Traditionally, construction contracts have been decided based on the acquisition of cost, material, and production contracts. The research above, however, shows that the construction industry must begin to respond to sustainable environment changes in the context of innovation, creation, and building of construction contracts. There is a need in the global market to recognize and develop away from the tradition cost-process and towards the ideals of sustainable-environmental. That is not to say that the construction industry has been ignorant of the environment, but that, traditionally, environmental production of green buildings has been more expensive, requires increased knowledge and material management, and thus has been placed towards the back of the construction industry management process. The idea of change management is to establish new through processes that introduce and train construction management into recognizing and marketing towards innovations in environmentally sound technology. Assumptions Change management is not without its assumptions. Organizational change management strategies that rely on the theories may not fully examine their own nature and culture. Most management theories assume that change management is a process and not a continuous improvement event (McKelvey and Holmen 2006). Viewing change management as a single layered process rather than the circular concept of continuous improvement can lead again to a stagnant culture and organizational behavior. Another assumption in change management is that individuals must change before the organization can change (McKelvey and Holmen 2006). This assumption may not have any direct effects; however, it can be noted that for change management to be a continuous and organic event, the organization must set the environment and culture to consistently encourage individual change. Change management also assumes that change is a gradual growth process that encompasses skills, culture and emotions (McKelvey and Holmen 2006). Another important theoretical assumption is that the organization's members are of the same social system, and that they will react similarly to a change event. Encouraging change management means that the leadership must also know the social systems they are changing within the organization, where it cannot be assumed that each team member has the exact same reaction to a change. This is a main contributor to change resistance. Resistance These components must be understood by employees and management with the goal to motivate employees to reach (1) personal qualities or values; (2) anticipation of the future and recognition of opportunities as key attributes; and (3) importance of technical and non-technical managerial skills in improving the success of an entrepreneur (Kouzner and Posner 2002). Very often, however, the participation and strategy of change is vague, authority is fuzzy, budgets are nonexistent, and strategy is clear, which creates resistance (Maletz and Nohria 2001). Transparent leadership style has been used to focus employees on meeting challenges and motivation towards a group goal with the reaction being employee commitment; inculcated core values overcome change resistance in the organization (Whalen, Khin-Maung-Gyi and Smithwick 2004). This includes utilizing coaching and continuous improvement by examining the goals and customer service metrics to provide a culture of energetic commitment advantage, while keeping open and circular communication with employees (Whalen, Khin-Maung-Gyi and Smithwick 2004). Overcoming resistance includes exhibiting a commitment to the employees and utilizing short-term goals to endorse discourse and training through the development of new role models for employees and structural management alternatives (Buchen 2005). "Like an extended family, a clan culture is an open and friendly place to work, where leaders are considered mentors or parental figures. A dynamic, entrepreneurial and creative place to work, the adhocracy culture's commitment to experimentation and thinking differently are what unify the organization" (ed. C. Valade p B-3 2006). Continuous Improvement Continuous improvement has a primary goal to increase the knowledge base of employees through the comprehension of the values and principles. Continuous improvement effectively seeks to measure and drive performance with set goals as a key institution of innovation, construction and perception of trust towards the organization. Robert Johnston (2001) considers the relationship between organisations and continuous improvement. His (Johnston 2001) study focused on the process of target setting and the reward structures between the propositions that organisations base performance targets on past performance and benchmarking in financial and non-financial reward, finding that "In continuous improvement the lack of participation in target setting could be undermining the team-based empowerment philosophy of the strategy" (Johnston p 1387 2001). Bibliography ngel Garca, Miguel (2005) CHALLENGES OF THE CONSTRUCTION SECTOR IN THE GLOBAL ECONOMY AND THE KNOWLEDGE SOCIETY. International Journal of Strategic Property Management; Jun2005, Vol. 9 Issue 2, p65-77, 13p Datamonitor (2005) GLOBAL CONSTRUCTION & ENGINEERING. Construction & Engineering Industry Profile: Global; May 2005, p1, 18p Datamonitor (2006) CONSTRUCTION MATERIALS INDUSTRY PROFILE: GLOBAL. 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