Free Essays | Management Essay - Built Environment Organisation
Critically examine contemporary thinking and theories on strategy and describe how strategists within an organisation competing in the built environment sector, or a specific part of the sector could draw upon such thinking and theories in shaping the practice or process of strategy development.
Langford (2001) comments that management theorists agree that strategy deals with the means an organisation users to meet ends. It can be viewed as a set of rules to guide decision makers about organisational behaviour and is concerned with long term objectives. Cole (1997) describes strategic management as being much about vision and direction as about mechanisms and structures.
Langford & Male (2001) point out that strategic management of construction organisations has to take place within the context of the fortunes of the construction industry, and an enduring characteristic of that industry is its variability of demand. It is a fragmented industry where no company has a significant market share and is therefore able to influence considerable outcomes within the industry. Langford & Male (2001) conclude that it is frequently difficult for firms to shape their organisations to meet the changing composition of the construction markets.
Theoretical approaches to strategy exist and while there are many different definitions of strategies so to are there many different views on the ‘schools of thought’ amongst different authors all of which overlap to a certain degree. Whittington (1993) in his book ‘what is strategy and does it matter?’ attempts to build on four generic approaches to strategy, looking at the Classical, the evolutionary, the Processualist and Systematic approaches, Fellows and Langford (1998) suggest that strategic management has evolved through six schools of thought over the last three decades, while in Mintzberg’s book ‘Strategy Safari : A Guided Tour Through the Wilds of Strategic Management’ Identifies 10 schools of strategic thought.
Processes of strategy draw upon a number of these schools of thought simultaneously and it is necessary to be aware of both their contribution and also there distinct assumptions. Clegg, Kornberger & Pitsis (2005) sets to explain central approaches and main contemporary theories to strategic developments through 8 broad schools of thought: Strategic Differentiation, The Chandler School, The Strategic Planning School, The Design School, The Positioning School, scenario Planning, the Resource Based View and The Emergence School, for which I will look at four of these schools which in my opinion are the most influential and attempt to critically examine contemporary thinking and theories on strategy and further describe how strategists within an organisation competing in the built environment sector could draw upon such thinking and theories in shaping the practice or process of strategy development.
The Strategic Planning School
Within Chandlers model, strategy is said to be the result of smart decisions that achieve a fit between strategy and structure. Computer technology allowed planners the ability to analyse historic data to determine future predictions which would allow for the planning of the future. Igor Ansoff identified three different levels of action, Strategic, Administrative and operational. Ansoff (1965) describes operating decisions as ‘usually absorbing the bulk of the firm’s energy and attention’ this level is task orientated and routines can be used for repetitive jobs. A typical example from the construction industry at this level could be the site agent or draftsman level in an architectural practice. Langford & Male (2001) describe this level as being very much concerned with the present and getting the job done.
At administrative level, decisions are ‘concerned with structuring the firm’s resources in a way which creates a maximum performance potential’. The focus of managers at this level would be the integration of lateral and vertical relationships in the firm, while there would be less emphasis on technical ability there would be an emphases on political and organisational skills such as the organisational systems, procedures and controls. A typical example from the construction industry would be the contracts manager in a contracting company or a team leader within a design consultancy.
Strategic decisions are primarily concerned with ‘external, rather than internal problems of the firm and specifically with selection of the product-mix which the firm will produce and the markets to which to sell’. At this level managers are concerned with long term outlooks with a typical example from the construction industry being a director or partner. In essence top management is concerned with ‘strategic planning, defining the ‘big picture’ while middle management is concerned with the implementation of what they have been told. Ansoff’s influence is very much echoed in today’s modern thinking.
A criticism of such a pyramidal system such as this is that the senior management that make key decisions at the Strategic level of the model are often far too remote from the operational level and are therefore not always in the best position to make such decisions. Cole (1997) looks at the relationship between strategic and operational planning within an organisation and comments on the importance of the overlapping between the two dimensions of strategic management at the top and organisational at the bottom. It is this overlapping that acts as a ‘bridging stage’ between key strategic decisions and their actual implementation and enables senior management to discuss and plan priorities with middle management whilst clarifying issues and eventually gaining approval for operational plans to be put into effect.
The Design School – Swot analysis
The Design school emerged simultaneously with the planning school and attempted to analyse organisations by way of strength, weaknesses opportunities and threats, often referred to as SWOT. Mintzberg (1994) prefers to call the swot model the ‘design school model’ as it is built on the belief that strategy formation is a process of conception, the use of a few basic ideas to design strategy. Perhaps the most important of these is that of a fit between external and internal factors.
Johnson & Scholes (1995) describe the SWOT analysis as a useful way to summarise the relationship between key environmental influences, the strategic capability of the organisation and therefore the agenda for developing new strategies. Mintzberg, Ahlstrand & Lampel (1998) point out the models shortcomings by suggesting that the premises of the swot model deny certain important aspects of strategy formulation, including incremental development and emergent strategy, the influence of existing structure on strategy, and the full participation of ‘actors’ other than top management such as the chief executive.
The design school is clear in that an organisation knows its strengths and weaknesses by consideration, assessment, judgement supported by analysis for example by conscious thought that is expressed verbally and on paper. However Mintzberg, Ahlstrand & Lampel (1998) argue that as every strategic change presents a new experience and risk, no organisation can really be sure if an established competence will prove to be a strength or a weakness. Feurer & Chaharbagi (1995) comment that the main limitations of the design school connect relate to its inability to adjust to fast-changing conditions, however they do accept that this concept is widely used and forms an important milestone in the area of strategy.
The Positioning School - Porters five forces model, competitive advantage, value chain
Mintzberg (1998) comments that while one book can hardly make a school, Michael Porters book, Competitive Strategy published in 1980, acted as a stimulant to draw together a good deal of the disenchantment with the design and planning schools as well as in Mintzberg’s opinion, ‘the need for substance’. Followed by another book in 1985 called Competitive Advantage, Porter developed analytical tools to understand more differentiated environments and provided a more refined way of understanding and managing strategy. He offered us a set of concepts, most prominent being his model of competitive analysis, his set of generic strategies and also his notion of the value chain.
Porter (1998), comments that the essence of formulating competitive strategy is relating a company to its environment. Porter developed his Five Forces Model of competitive analysis which identifies five forces in an organisations environment that influence competition: Threat of new entrants, Bargaining power of firms suppliers, bargaining power of firms customers, treat of substitute products, Intensity of rivalry among competing firms.
Porter (1985) believes that it is the collective strength of these forces which determine the ultimate profit potential in the industry ‘because they influence the prices, costs, and required investment of firms in an industry-the elements of return on investment’. Through each of these forces we may begin to understand why a firm will adopt a particular strategy, for example a firm may wish to pursue a strategy of backwards vertical integration to supply its self, if the bargaining power of suppliers was high.
Mintzberg (1998) suggests that we could expect a large range of possible strategies given the range of possible external forces, however Porter takes the opposite position by saying that only a few generic strategies survive competition in the long run.
Porter (1985) argued that there are two basic types of competitive advantage that a firm can have, that being Low cost or differentiation. Combined with the scope of the particular business, lead to three generic strategies for achieving above average performance in an industry : cost leadership, differentiation, and focus.
Cost Leadership strategy aims at being the low-cost producer in an industry. A practice often utilised by supermarkets in which comparable ‘own brand’ products are offered at a cheaper price. Cost Leadership is realised through gaining experience, investments in large scale production facilities, using economies of scale and by monitoring operating costs.
Differentiation strategy essentially seeks to provide products or services that are unique or different from those of its competitors, in so far as what is valued in the eyes of the client. Johnson and Scholes (1999) reinforce this fact by saying that while uniqueness may be real in technical terms, it us of no real value unless the user perceives this to be a greater value than other products and services. Johnson & Scholes (1999) comment that the understanding of customers needs is crucial to the strategy of differentiation as to is its ability to build appropriate product and services features.
Porter (1985) describes Focus Strategy is being different from the other two strategies in that it rests on the choice of a narrow competitive scope within in the industry. It seeks to ‘focus’ on particular customer groups, products or geographical markets. Langford & Male (2001) comment that since ‘focus strategy’ also employs cost leadership or differentiation it can be argued that there are only two major strategies, cost or differentiation.
Lanford and Male (2001) argue that the product in construction is either a service-product or an end- product such as a new build or refurbishment. Differentiation within construction could be with regards to reputation and expertise in the case of pre-qualification mechanisms that are used within procurement and tendering strategies.
In Porter’s 1985 book ‘Competitive Advantage’ he introduced another framework for which he called the ‘value Chain’ in which he analysis the processes of production or delivery or services. The construction industry is characterised by the process of transforming resources and raw materials in to a final building, however the concept of the industry value chain is the analysis the steps in this process that actually add value to the final building or project. Clegg, Kornberger & Pitsis (2005) describe added value as the difference between cost of production and the revenues realised in the market place.
It is proposed by Porter that competitive advantage can be sustained by being clear about the competitive advantage within a possible hierarchy of sources. For example low order sources of advantage would include competing on low labour and material costs, which are replicable by competitors in construction. Langford and Male (2001) describe an example of high order sources of advantage could include propriety process technology which has a particular relevance when competing in engineering process and plant construction and product differentiation stemming from unique products or services.
Innovation is also a key issue in sustained competitive advantage. Architects and designers which can be categorised as know ledged base can bring potential innovation to the construction industry through design drawings and specifications. Contracting company’s can gain from know ledged based competitive advantage by using alternative ways of organising resources or creating new service. Much of the innovation within the construction industry takes pace with the workforces and tradesman. Contractors that relie heavily on sub contractors can only gain from any incremental innovation by building up long term relationships with the sub contractors, other wise this can be potentially lost as it is available to other competitors.
Yisa, S & Edwards, D, (2002) point out that often strategies employed are determined by the company’s reaction to events that are beyond its control. Within Yisa, S & Edwards, D, (2002) study into strategies of construction engineering consultancy’s in the UK, they investigate how today’s small and medium sized consulting firms are coping in the present marketplace. In determining strategies likely to be adopted in a changing market place, expansive growth posture was observed to be the most likely strategic posture to be adopted and therefore marketing planning is essential for each firm. Yisa, S & Edwards, D, (2002) conclude that marketing plans, sound financial practice, active human resource development programmes, and innovations will provide a considerable advantage over rivals and will be far more likely to win potential clients.
The Scenario Planning school challenges the premise of rational planners and those that hold the view their logic will present successful strategies. Scenario planners essentially provide a framework for formulating strategy under conditions of uncertainty. Porter (1985) comments that when combined with ‘substantive conceptual tools for understanding industry structure, competitive behaviour, and competitive advantage, the scenario tool can be an important part of the strategists arsenal’.
The most important difference between rational approaches to strategic planning and scenario planning is that the past is not always representative of the future as continuity cannot be assumed. By challenging assumptions and questioning things that we sometimes take for granted, the construction industry can be provided with the flexibility it needs to cope with uncertain times ahead.
Integrated View on the process of strategy
By building on a number of schools of thought we can begin to develop an integrated approach to strategy. Clegg, Kornberger & Pitsis (2005) have developed a seven step model that serves as a bases for strategy analysis by integrating the most important developments in the field previously discussed.
With the model, Clegg, Kornberger & Pitsis (2005) highlight that Visions and Missions should be defined at the beginning of the strategy making process. A mission statement not only provides motivation but also acts as a function of guidance for decisions that are taken at all level. From the design school we can draw upon the SWOT analysis when trying to produce an audit for an organisations internal strengths and weakness as well as external opportunities and threats. For external analysis, we can draw upon Porters Five Forces Model (1980) to determine the ultimate profit potential within in the industry. From the Scenario Planning school, planning responses to ‘what if’ scenarios can be an effective learning tool, which will develop a range of possible future outcomes which challenge assumptions.
Clegg, Kornberger & Pitsis (2005) point out that in most approaches it is taken for granted that formulated strategies will be implemented. Therefore implementation is an important stage within the model as to is evaluation. Evaluation ensures that accurate implementation of designed strategies is taking place.
Cole (1997) also offers us an integrated approach to strategy with his model of strategic management being based on theory and practice to set out the basic principles on which strategic thinking takes place. Cole (1997) discusses his model of strategic management through six headings.
- The Bedrock of strategic management (missions, strategic aims)
- The Environmental Review (internal and external)
- Strategic Choices (markets, products, resourcing priorities)
- Operational Aims and Objectives (market share, personnel requirements)
- Implementing Plans (timescales, budgets, manpower plans)
- Strategic Review (monthly, quarterly, annually)
Fellows, Langford, Newcombe & Urry (2002) highlight that the context within which the strategists work is dynamic, unpredictable and unknowable and is not predetermined as the strategic planning process assumes. They argue that rather then being deliberately enacted, strategies actually emerge informally. It is further suggested that strategy formation is a process of strategic learning which relies heavily on the recognition of ‘unexpected patterns of evolving events’. Therefore the basis for strategic learning for the strategist within the built environment sector is a deep understanding of the industry and its context, that industry and context being a knowledge and information based industry where its structure derives from location specific, project based delivery requirement rather then those derived from volume based customer orientated product delivery.
Cheah, C & Chew, D (2005) point out that the real world is far more complex than which can be analysed through a static reliance on a single field of theory. In their paper entitled, ‘Dynamics of Strategic management in the Chinese Construction Industry’ Cheah, C & Chew, D (2005) attempted to provide a structured and integrated framework of corporate strategy to help practitioners identify critical issues related to the Chinese construction industry. They highlighted that although theories vary in terms of their applicability in a Chinese context, by making necessary adjustments to strategy theory are likely to lead to positive developments in the understanding on the Chinese organisations. Therefore whether we look at Whittington’s (1993) four generic approaches to strategy, or Mintzberg’s (1998) 10 schools of strategic thought, we should view these theoretical frameworks as complementary rather than mutually exclusive.
Porter, ME (1980) Competitive Strategy: Techniques for analysing industries and competitors. Free Press, New York
Mintzberg, H (1998) The Rise and Fall of Strategic Planning, Prentice Hall
Mintzberg, H, Ahlstrand, B, Lampel, J (1998) A guided Tour Through the Wilds of Strategic Management, Prentice Hall
Johnson, G, Scholes, K (1999) Exploring Corporate Strategy-fifth edition, Prentice Hall Europe
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Fellows, R, Langford, D, Newcombe, R Newcombe, U, (2002) Construction Management in Practice – Second Edition, Blackwell Science
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Clegg, S, Kornberger, M Pitsis, T (2005) Managing and organizations-An introduction to theory and Practice, Sage Publications
Langford, D, Male, S (2001) Strategic Management in Construction – second Edition, Blackwell Science
Porter, M, (1998) Competitive Strategy-Techniques for analyzing industries and competitors, The Free Press
Porter, M (1985) Competitive Advantage- Creating and sustaining superior performance, The Free Press
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Cheah, C & Chew, D (2005) Dynamics of Strategic management in the Chinese construction industry. (Article from Management Decision, Vol. 43 No. 4, pg 551-567)
Yisa, S & Edwards, D, (2002) Evaluation of the business strategies in the UK construction engineering consultancy.(Article from Measuring Business Excellence 6.1 2002 pg 23-31)