Business management in the built sector
Before a firm can hold itself on strong economic or social footing, it is essential that a firm has a vision. Without direction, a firm’s cause and goals will always be in disarray. Therefore, firms always develop mission statements and visions to clearly remind them where they are heading and where they should be. Mission statements and visions are interrelated. Missions being short term whereas visions define the broader aim of the firm in the long term. Either way, both require a procedure to reach goals and ambitions. The way a firm goes about achieving their goals and targets is called its strategy.
Strategies are developed and based upon the works of various economists and managerial planners who have observed the changing global environment and business world. Though one strategy can never be universal, firms do take guidance and direction from contemporary theories already in existence (Langford 2001). The point is not to refute any theory but to create a mix between them for every individual firm. That is one of the ways the built sector develops their strategic management aspect.
The paper will flow through a series of steps. First, it will examine the contemporary theories present today and how it
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The second part of the paper will go on to explain and relate one particular theory to the built sector. Various problems facing the sector and solutions to it will be examined and analyzed in this paper.
Shaping strategic management:
Before strategic management is implemented or examined it is essential to realize how the process of strategic management actually takes place. In such circumstances, various authors have published their views and the most generalized and applicable view is that of the “strategic development process” (Eisner 2007).
The theory is shaped around three main factors that develop into a comprehensive model.
- Learning by experience
Planning is the first step of strategic development. It entails the firm to approach situations hoping for standardized results and controlled through processes. This is further developed into forming comprehensive strategic plans.
The second stage, discusses a very strong aspect of strategic development. Without vision, a firm is lost in the business environment. Therefore, it is essential to develop a vision to have clear direction of what the firm wants and how they plan to get it. Furthermore, the stress in this factor is on innovation and insightful development which is unique and different from the present business status (Langford 2001).
Finally, the learning by experience stage preaches the evolutionary and ever growing status of any firm in the industry. The built environment industry could never have evolved or developed had it not learnt from its mistakes and corrected them. The basis of this factor is to grow with time and experience. As discussed earlier, there are no standardized strategies in any business environment, especially the built environment which has a very evolutionary market.
Contemporary theories of strategic management:
Any firm, whether they are in the built sector or any other industry follows one standardized way of formulating strategies. As mentioned earlier in the paper, no strategy is unique. This part of the paper will explain why.
The first step entails strategic planning. Any organization with a mission and vision needs a plan to reach the pinnacle of their existence. Thus, in order to formulate a strategy they must first determine their strengths, weaknesses, opportunities and threats. A firm may end up focusing on their internal factors that might aid their strategic development program. These include the strengths and weaknesses. The other factors that influence firms are external factors. These are the threats and opportunities that a firm may face during its lifetime (Langford 2001).
The next step entails firms deciding on which theory to use. In such circumstances, firms generally follow time tested theories that various competitors or role models have used and are helping. However, since the process requires the firm to look at its organizational requirements, this stage generally ends up being as unique as the strategy that comes out eventually.
BCG-Matrix and the McKinsey/GE matrices:
The BCG matrix consists of two variables. These two variables are comparison based and are of relative market share on the x axis and market growth rate on the y axis.
The focus of this approach is to determine what strategy to use for a firms product or perhaps even the firm itself. In reflection to the built sector, if a firm wants to implore some specific type of production or service it is providing, the question of which strategy to follow is given by this matrix. There are four different strategies depending upon the type of circumstance of the market at that particular time, which a company can employ. The Dog strategy, the Star strategy, the Question mark, or the Cash cow strategy (Thomas 1990).
The McKinsey/GE matrices discuss a different point. It takes into account the investment aspect of strategy planning and deployment. The two variables held in this matrix are “strategic position” and “market attractiveness”. Though a generalized theory, this is applicable on the basis of individuality of each firm. Because a firm will have different strategic positions and the market attractiveness will vary from industry to industry, each firm will be unique decisions.
In reference to the built sector, if a firm feels it has a strategic position ranging in the higher range and the market attractiveness is also high it should employ a protectionist strategy. As such, based on relativity of the two variables on the x and y axis, a firm can take guidance from this theory in formulation of their strategic management decision (Powell 2008).
The ADL life cycle matrix:
It is widely accepted that a products death in one geographical area can mean the beginning of the product in another.
The ADL life cycle matrix portrays a picture of the life of a product, service or perhaps even a firm.
When we look at the X-axis we find different competitive positions that firms may occupy. For instance, the embryonic stage, growth stage, maturity stage and the ageing stage. With time a product develops and changes stance in the market. Floppy disks have even passed the ageing space and are almost dead. Compact discs are in the ageing phase as USB drives take over.
When we talk about the built sector, we must accept that technology influences the firms in the industry enormously. Obviously, with time their services and products mature and eventually loose significance to new trends and measures. On the y-axis we see competitive position ratings. A firm can either be dominant in a service, strong, favorable or weak (Saloner 2005).
Based on these factors, the firm should understand and follow a particular type of policy. For instance in the case of an ageing service, the built sector would do better to invest elsewhere rather than in the ageing service.
Michael Porters model:
According to Michael Porter, firms can choose from a basis of two main strategy approaches. They can either go focus on their cost leadership or differentiation techniques (Porter 2009).
Cost leadership implies that a firm makes sure that it is the cheapest provider of goods in a market or that it has achieved a point of economies of scale that it can influence the price of the market directly.
Differentiation implies the use of different unique products that only the firm provides in a given market. The unique will serve as the USP of the firm in question.
However, these two basic foundations are further segregated into cost focus and differentiation focus. Focus generally means targeting a particular segment or part of the industry ((Porter 2009).
The model shows the possible positions and relative strategies a firm can employ during business. In a broad area of competition, firms wanting lower costs should focus on cost leadership. Such strategies are particularly helpful to firms trying to maintain their strategic planning to global and competitive standards (Schermerhorn 2002).
This theory was further detailed by Porter in the frame of competitive advantage, which this paper will hold as the key to analyzing applications of strategic theories specifically on the built sector.
According to Porter, there are certain competitive forces in a market that influence the nature, attractiveness and competitive edge of any firm in a given market.
- barriers to entry
- threat from substitutable products
- Buyer bargaining power
- Supplier bargaining power
- Rivalry amongst existing competitors.
By concentrating on the effects of the above factors, any given firm, especially in the built sector can drastically change its level of competition and the way it does business in the given market.
Strategic management in the built sector (Porter 1998).
To analyze the development process of strategies in a built sector, we must recognize that the industry provides both services and products. Products can include machinery while services include construction. It is imperative for firms to distinguish these factors so they can have a focused strategy developed.
Furthermore, the current issues of the built sector are essential to relate the industry with a specific strategic management model. Therefore, the next part of the paper will discuss some of the recent trends and issues facing the built sector (Hrebiniak 2005).
Trends and issues of the built sector market:
With the fast pace of globalizations, the built sector has taken a hard hit from the factors arising. Stiff competition from foreign companies has led to the demise of many established firms. With cheaper labor abundantly available, smaller companies from smaller nations are taking the greater chunk of the pie by providing lower costs services. The influx of foreign trained labor has also stunted local growth in developed nations (Porter 1998).Contractors from various countries from the developing world have now taken a huge portion of the market in the developed world.
However, with the influx of new technology spreading globally, the built sector has seen a drastic increase in effectiveness and efficiency. Firms are faced with the opportunity of developing their construction formats to a newer level. Firms are constantly upgrading their facilities, production techniques and supply chain and logistic methods.
The subsidization provided by governments to the built sector has been enormous in recent years. If we hold the European market as a standard, then we see that many firms have been supported tremendously from the government. This has drastically boosted the firm’s employment ratio, developmental aspects and given firms a soft cushion.
Environmental awareness programs have further strengthened the performance ability of firms by moving the entire sector towards a reform. Now, the focus is shifting from rebuilding to renovation. This has saved costs for firms greatly and reduced risk industry wide.
The construction industry bases its revenues on clientele. Once customers are made they normally stick for long periods of time. Plus, the recent trend of firms working together on various projects has seen an encouragement from the government. Governments generally favor firms to merge and combine forces in this particular sector (Langford 2001).
Though people generally conceive the built sector as ever growing due to the ever growing need of houses, the industry has suffered due to the global financial crunch. Demand has declined enormously and has affected the entire industry to say.
Michael Porter and the built environment:
In relation to Porters competitive model, the built sector can drastically change its strategy in light of the factors mentioned by Porter. The various strengths, weaknesses, threats and opportunities are mentioned below (Fleisher 2007).
The bargaining power of suppliers is related to the ability they have in forming clientele. With increased interaction and cooperation between various firms, this clientele has actually increased. Plus the added cooperation gives rise to collusion status which has strategically increased the bargaining power of suppliers. Thus, strategies that a firm employs in the built sector should be based on this valuable information (Dranove 2005).
With various firms already sprinkled with high end technology, they have managed to reduce their costs to a very low level. With improved supply chain and logistics, firms are more adaptable and flexible than they were a few years ago. This has had an effect on new entrants who cannot compete with the very low price due to their high capital expenditure. The barriers to entry are quite high and the strategy firms should apply in this sector is that of protecting their current standing.
A firm’s weakness leads to a direct increase in the buyers bargaining power. With the abundance of human capital and firms from lesser developed countries offering cheaper labor, buyers now have more variety to choose from (Fleisher 2007). Because of this very fact, an established firm cannot charge a higher price for its brand because it will be over taken by one that has cheaper labor and the ability to provide the same service at a lower cost. Buyers will obviously tilt towards those suppliers who offer cheap services. Thus firms should understand that their objective should either be on focused differentiation or cost reduction.
Globalization has increased the threat of substitutability of products the built sector is offering. More and more firms from across borders have entered saturated markets increasing the availability of the same form of service or product. Firms should be focusing on differentiation because of this factor.
The above analysis gives an example of how Porters model can be applied to the built sector. The analysis describes how unique the strategy becomes once it has been focused on a particular firm in the sector. The goal of strategy making, thus, should not be copying models but rather devising new strategies with reference to existing models. These models do not necessarily have to be on but rather can be a mix from various text books.
Based on the above arguments, it is clear how the built sector can improve upon their lacking and create opportunities out of their weaknesses. The basic outline that describes strategic management in the built sector or any other sector is the analysis of the strengths, weaknesses, opportunities and threats a company faces.
Based upon these 4 features, the companies can only then choose one particular strategy to implement in the company. That strategy can never be comprehensively based on the model. Because each company has varying needs and different ambitions, each strategy will be unique to the firms standing in the industry. Therefore, firms should not fret over copying models or implementing what is in text books. They should understand that they will devise their own strategies based on the theories mentioned in the paper.
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