Strategic Management Practices in Construction - Essay Example

Strategic Management Practices Table of Contents Introduction 3 Strategy 4 The Strategy Process 8 Strategy Process in Construction Industry 10 Conclusion 13 References 14 Bibliography 16 Introduction It is rightly observed by the experts of the industry that the word ‘change’ is the only constant thing in the present world of today. The huge developments in the arenas of information technology and the communication process have facilitated change in the terms and the tricks of the trade. The influential factor of globalization has made the world a smaller place to live in. The international geographical borders have almost ceased to exist in the domain of trade and finance of today. The end customers have become too powerful and with information technology at its best, products and services can be purchased even without visiting the market place, through internet. The changing business scenario calls for change in ways of doing business. Strategic management is one of the most vital aspects of a business firm. In order to ensure sustainable growth and development of the business firm, the transformation of the inculcated strategies have become indispensable. The spectrum of the subject of strategic management is too broad and the research scholars have often debated over the definitions and the implications of the discipline. This essay encapsulates the various schools of thoughts in the domain of strategic management and tries to integrate the literature with the real estate industry of Dubai to find out the implications. Strategy The success of any business largely depends upon the effective formulation and implementation of strategy. In the ancient times, the word ‘strategy’ was used in the battles. According to the renowned management scholar Henry Mintzberg, the complex process of strategy could be broadly classified into ten schools of thoughts. The different approaches to strategy are as follows: The Designing School – The designing school of strategy is one of the oldest schools of thought in the domain of strategy formulation and implementation. It basically takes into consideration the internal factors and the external environments of the business. SWOT analysis is one of the widely used strategy tool according to this school of thought. The basic model commences with the external and the internal appraisals and then focuses upon the strengths and the weaknesses of the organization along with the opportunities and threats of the environment. The strengths and the weaknesses yield to distinctive competitiveness while the key success factors can be arrived from the opportunities and the threats. The key success factors and the distinctive competitiveness along with managerial values and social responsibility results in to the creation of strategy (Andrews, 1987). The Planning School – The planning school of thought or more popularly, the strategic planning evolved during the same period of that of the designing school. The planning school always lacked empirical studies, literature and most importantly the effectiveness in the strategy. The planning school of thought also predominantly focused on SWOT analysis. The Positional School – The positional school of strategy flourished in the 1980s. The school of thought had many similarities with the two earlier schools of thought in the strategy formulation but it also emphasized more upon few key strategies and not endless strategies as per the designing school or the planning school. The positional approach believed that strategy is like a market place and not all strategies can be efficiently safeguarded (Gilligan & Et. Al, 2009). The Entrepreneurial School – The three previous schools of strategy discussed above are categorized under the head ‘prescription’ while that of the entrepreneurial school of strategy is more of a ‘description’. This school of strategy for the first time focused on the general attributes like that of wisdom and intuition. It lays great emphasis on seeing and understanding and is often associated with the visionary approaches. The Cognitive School – The cognitive school of strategy deals with the mental process of the strategists. This school of thought is rich in literature and research work. Prior to the cognitive approach, more emphasis was laid on the requirements of strategic thinking while cognitive approach emphasized upon the strategic thought itself. Herbert Simon had considerable contributions in this field of study (Mintzberg& Et. Al, 2005). The Learning School – The learning school of strategy focuses on the strategy formulation rather then implementation. This school of thought in strategic management believes that the strategist should learn overtime to get hold of the ideal combination. It calls for less clever but more effective strategies. The learning school perceives that the strategic formulation is the most crucial part and it might be any employee or manager who contributes to it as it is not limited by the organizational position or hierarchy. The learning school also focuses upon the organizational power and politics. The Power School – The power school of strategy had evolved in the 1970s. The literature in this school of thought is not widely found. The power school basically takes into consideration the internal power as well as the external power of the organization. It says strategy formulation is affected by the internal politics of the organization. Also, it depends upon the external power that the organization enjoys over the business partners and the overall environment. The Cultural School – The cultural school of strategy is the opposite school of thought from that of power school. The culture school talks about integration within the organization for the purpose of formulation of strategy. There is huge academic source on this school. The scholars of this school claim that that organizational culture shapes the strategy of the organization in a major way. The Environmental School – According to the environmental school of thought, it is the external factors that are most crucial for the formulation of strategy for any organization. The important observation regarding this point of view is that though the other schools of strategies also considers the external environmental factors while deciding strategy, but the environmental school thinks it is the most important. The Configuration School – The configuration school of strategy do not possess rich literature. The two important aspects of the configuration school of strategy have been the configuration and the transformation. The configuration describes the organization and the surrounding aspects while the transformation is all about the strategy making process. From the above analysis, it can be said without much doubt that the formulation of strategy is a complex process for a firm. The concept that erupted in the military; has been the buzz word of the modern day business (Gray, n.d.). The different scholars have contributed and included different important aspects in the strategic management thinking rich in literature. In simple words, the six factors of PESTLE (Political, Economical, Social, Technological, Legal and Environmental) provide the broad spectrum of strategic planning for an organization. Strategy can be defined as the way that the business firm initiates to attain its objectives, mission and vision. In the changing environment of today, strategy should be flexible enough so that it can get aligned with the ever – changing environment both internal as well as external. The Strategy Process As discussed earlier, the process of strategy is basically concentrated within the periphery of the external factors of PESTLE. Within the broad periphery of the PESTLE, the two important considerations for the process of strategy are that of formulation and the implementation. The sub – head of formulation includes the following: Mission Determination – The mission of the organization should be set at the first place. Environment Assessment – The analysis of the external environment is crucial for the success of the organization. Objective Setting – The business organization should be clear and precise about the objectives. Strategy Determination – The determination of the strategy is the other pre-requisite for the strategy process. The other sub – head i.e. the implementation has the following: Strategic Activities – The activities that are initiated should be directed towards the strategic process. Strategic Evaluation – There should be evaluation in every step and if it is found that it is not yielding expected benefits, proper action should be initiated. Strategic Control – The deviations that are observed in the strategic evaluation should be controlled and brought back in track to align with the initial objectives. In simpler words, it can be said that every business organization works with the broad spectrum of external environment. Among the external environment, the three inputs namely the man, material and the machine comes together to form the output which can be either in the form of goods or services. The process of transformation of inputs into outputs is known as the managerial processes. This managerial process is guided by the process of strategy. The renowned management thinker Michael E. Porter had suggested various strategic management tools that help one to undergo the process of strategy. Among the lot, Porter’s Five Competitive Forces Model and the Porter’s Value Chain are most popular and widely used. The Five Competitive Forces model comprises of the five important factors namely the threat of new entrants, the threat of the substitute products, the bargaining power of buyers, the bargaining power of suppliers and the internal rivalry among the competing firms (Purdue University, n.d.). Michael Porter also prescribed the Value Chain. According to this model, the activities of a business firm can be divided into the primary activities and the supportive activities. The primary activities include the inbound logistics, the outbound logistics, the operations, the marketing and sales and the service while the supportive activities comprise of firm’s infrastructure, human resource management, technological development and procurement. According to Michael Porter, all these factors contribute towards the accumulation of margin and thereby forms the integral part of the strategy process (McLean, n.d.). Among the other tools that contribute towards effective strategy process includes that of Profit GAP Analysis, Corporate Strategy as discussed by H. I. Ansoff, the BCG Matrix or the GE Screen, PIMS Study and the 7 – S framework of McKinsey. Strategy Process in Construction Industry Dubai has been one of the leading cities in terms of development in the recent past. Situated in the Persian Gulf, Dubai has astonished all the concerned quarters with the massive scale of developments that it has undergone compared to its competitors or neighbors. Much of the credit of such development is attributed to vision of the present ruler of Dubai and his predecessors. As Dubai has much lesser oil reserves compared to the neighboring states like that of Abu Dhabi, it was identified early that it has to focus on economic development quite fast as oil reserves were expected to wear out by the first decade of the twentieth century (DeNicola, 2005). Real estate construction has played a crucial role in the development of Dubai. The contribution of real estate towards the GDP of the country has been quite high. The processes involved in the formulation of strategy in the construction industry of Dubai can be discussed with the help of PESTLE analysis as discussed below: Political – Though Dubai falls within the Arab states, yet the political condition of this state of United Arab Emirates is investment friendly. The royal family and the government of Dubai are very strict regarding the safety of the foreign workers which facilitate various brands to launch its office in Dubai and thereby promote the construction industry. Economic – The real boom for the construction industry in Dubai is because of the various free trade zones that are promoted by the government. Not only there are tax breaks and freedom of ownerships, also the investor has to undergo minimum documentation (Matly & Dilon, 2007). Social – The social factor of the construction industry in Dubai has been the presence of professional from all over the world and their different cultures. The real estate construction predominantly rests upon a global culture which has a strong western influence. Technological – Technology has been always important for the construction industry. It has been perceived that the increased emphasis upon speed has rendered lesser stable technology in the construction of Dubai. But it has not been really the case as the buildings like that of Burj Al Arab have depicted the advanced use of technology. Legal – The legalities in Dubai is much easier compared to other neighboring cities and it has definitely contributed towards the growth of the state as the major industry hub and construction den. Environmental – Environmental factors also hold key in the construction industry as it is highly dependent on natural scheme of things. The real estate construction companies of Dubai are putting increased emphasis on environment. The above facts clearly depicts that the process of formulating of strategy in the construction industry of Dubai stresses upon the traditional ways of strategic management. In addition to it, the complex external environment has made the strategic process all the more challenging. Conclusion With the increasing dynamism in the business environment, the process of strategy has also become too versatile. With reference to the various schools of thought in the domain of strategic management, it can be said without any hesitation that much of the strategy today, depends upon the business environment. Despite having ten different schools of thought, the effective strategy includes amalgamation of all the schools that helps the strategic team or the strategist to achieve the organizational goal and mission. The process of strategy is indeed a broad term and the ever-changing business dynamics call for greater flexibility and adaptability in order to device the befitting strategy for any organization. References Andrews, K. R. The Concept of Corporate Strategy. McGraw-Hill, 1987. DeNicola, 2005. DUBAIS POLITICAL AND ECONOMIC DEVELOPMENT: AN OASIS TN THE DESERT? Williams College. [Online] Available at: http://library.williams.edu/theses/pdf.php?id=48 [Accessed March 29, 2010]. Gilligan, C. & Et. Al, 2009. Strategic Marketing Planning. Butterworth-Heinemann, 2009. Gray, A., No Date. What is Strategy? Purdue University. [Online] Available at: http://74.125.153.132/search?q=cache:C2II0-NmXQ0J:www.agecon.purdue.edu/staff/gray/ [Accessed March 29, 2010]. Matly, M. & Dilon, L., 2007. Dubai Strategy: Past, Present and Future. Harvard Business School. [Online] Available at: http://belfercenter.ksg.harvard.edu/files/matly_paper1.pdf [Accessed March 29, 2010]. Mintzberg, H. & Et. Al. Strategy Safari: A Guided Tour through the Wilds of Strategic Management. Free Press, 2005. McLean, No Date. Michael Porter’s Frameworks. Georgia State University. [Online] Available at: http://74.125.153.132/search?q=cache:K0N0wXHoOQ4J:www.cis.gsu.edu/~emclean/Porter%27s%2520Frameworks.ppt+porter%27s+VALUE+CHAIN+site:edu&cd=3&hl=en&ct=clnk&gl=in&client=firefox-a [Accessed March 29, 2010]. Purdue University, No Date. Industry Analysis: The Five Forces. AICC. [Online] Available at: http://www.ces.purdue.edu/extmedia/ec/ec-722.pdf [Accessed March 29, 2010]. 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