The School of the Built Environment

SUBMISSION OF COURSEWORK
COVER SHEET
Session 2010/11

This sheet should be TYPEWRITTEN or completed it in BLOCK CAPITALS and submitted with
each module assignment.

PLEASE TICK
UG PG X
Surname BLACKBURNE
Forename STEPHEN DAVID ANDREW
Registration No 101662561
Programme D3KW MASTER OF SCIENCE IN
CONSTRUCTION PROJECT
MANAGEMENT
Year of study 2010 / 2011
Course code D31BM BUSINESS MANAGEMENT FOR
(available on timetable)
BUILT ENVIRONMENT
PROFESSIONALS
Lecturer MR. SCOTT FERNIE
(available on timetable)

Coursework title STRATEGY AND STRATEGIC

MANAGEMENT

Coursework hand-in deadline FRIDAY 1st APRIL , 2011

(date specified by module leader for hand in)

All students are advised to keep a duplicate copy of all work submitted for reference.

DECLARATION
I certify that this assignment is my original work expressed in my own words. Any reference
made to the work of other authors in any form (eg ideas, figures, text, tables) are acknowledged
at their point of use.

Signature/s of student: Stephen D. Blackburne Date of submission: 01-Apr-11

Below this line for office use only

…………………………………………………………………………………………………………………………………………

School of the Built Environment Date Stamp

Heriot-Watt University
Edinburgh EH14 4AS
Scotland UK
Tel: 0131 449 5111 Fax: 0131 451 3161
D31BM BUSINESS MANAGEMENT FOR BUILT ENVIRONMENT PROFESSIONALS 101662561

STRATEGY AND STRATEGIC MANAGEMENT

Abstract

Although numerous books, journals and articles containing the secrets of strategic management
and planning, are easily accessible at an affordable price, many organisations have failed to
develop successful strategies. In this essay, we reviewed literature over the last 30 years that will
enable us to determine if something is wrong with the material or the concept of strategy itself.
We will find crucial factors necessary for strategic process implementation and how can strategy
and the strategy process be drawn upon and used by contemporary built environment
organisations within the current climate.

The Literature

This essay endeavors to critically examine the literature around some fundamental issues in
strategy and strategy development. In doing so, works of many scholars and practitioners have
been drawn from and reflected upon to finally try bringing convergence and coherence using the
limited means available.

In “The Five Competitive Forces that Shape Strategy”1, Michael E. Porter discusses factors that
determine the nature of competition. Among them: rivals, the economics of particular industries,
new entrants, the bargaining power of customers and suppliers, and the threat of substitute
services or products. A strategic plan of action based on such factors might include: positioning
the company so that its capabilities provide the best defense against competitive forces,
influencing the balance of forces through strategic moves, and anticipating shifts in the factors
underlying the competitive forces. Strategic positioning requires looking both, within the
company and at external factors when making these decisions; in some cases, it means choosing
what not to do.

In ―What is Strategy”2, Porter analyses the five competitive forces necessary to uncover
opportunities to position a company strategically; that is, to gain a sustainable advantage over
rivals by preserving what‘s distinctive about your company. The company‘s strategic position
hinges on performing different activities from competitors or performing similar activities, but in

1
Porter, M. E. The Five Competitive Forces That Shape Strategy, Harvard Business Review, Jan/Feb 2008, 79-93.

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different ways. It emerges from three sources: 1) serving the few needs of many customers (for
example, Jiffy Lube provides only auto lubricants), 2) serving the broad needs of few customers
(Bessemer Trust targets only very high-wealth clients), or 3) serving the broad needs of many
customers in a narrow market (Carmike Cinemas operates only in cities with a population under
200,000).

In “Crafting Strategy”3, Henry Mintzberg states formal planning alone is not the best way for
managers to develop strategy. Facts, figures, and forecasts are necessary; but managers also need
an intuitive understanding of the organization, a feel for the business not unlike a potter's feel for
the clay. Strategy is not just a plan for the future but also a pattern out of the past. Strategies are
not always deliberate--they also emerge over time as organizations innovate and respond to their
markets. By seeing patterns take shape in their environments, the best strategists find strategies
as well as create them.

In “Stress-Test Your Strategy: The 7 Questions to Ask”4, Robert Simons proposes a stress test—
an assessment of how a system functions under severe or unexpected pressure. This can help you
home in on the most important issues to address, whatever the economic climate. By asking
tough questions about your business, you can identify confusion, inefficiency, and weaknesses in
your strategy and its implementation.

In ―From Competitive Advantage to Corporate Strategy”5, Porter states that despite some
startling success stories, diversification- whether through acquisition, joint venture, or start-up -
has not typically brought the competitive advantages or the profitability sought by executives.
Successful diversification strategies rely on transferring skills and sharing activities to capture
the benefits of existing relationships among business units. Therefore, corporate leaders must
examine closely any acquisition candidate‘s ―fit‖ with the parent company‘s existing businesses.

2
Porter, M. E. What is strategy?, Harvard Business Review, Nov/Dec1996, 61-78.
3
Mintzberg, H. Crafting Strategy. Harvard Business Review, Jul/Aug 1987, 66-75.
4
Simons, R. Stress-Test Your Strategy – The 7 Questions to Ask, Harvard Business Review, Nov/Dec 2010, 43-59.
5
Porter, M. E. From Competitive Advantage to Corporate Strategy, Harvard Business Review, May/June1987, 43-
59.

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In “Managing Change: The Art of Balancing”6, Jeanie Daniel Duck maintains that people issues
are at the heart of realizing a vision. Managing change is like balancing a mobile. You have to
keep two conversations in balance: the one between the people leading the change effort and the
one between those who are expected to implement the new strategies. You also have to manage
emotional connections— even though they have traditionally been banned from the workplace,
they are essential for a successful transformation. By encouraging this activity, management
communicates its understanding that transformation is difficult for everyone involved, and that
people issues are at the heart of change

In ―What Leaders Really Do”7, John P. Kotter sets the work of vision building within the larger
context of leadership. Effective management and leadership are both necessary in order for a
company to prosper - but they involve different tasks. Management copes with complexity;
leadership deals with change. The leader‘s job is to set the direction of change by communicating
a vibrant vision of the company‘s future—and the strategies to achieve it—in ways that will
inspire and energize employees.

In ―Market Busting: Strategies for Exceptional Business Growth”8, Rita Gunther McGrath and
Ian C. MacMillan provide suggestions for creating blue oceans within your existing business.

1) Redefine your unit of business—what you bill customers for—to reflect what customers
value. For example, Mexican cement company Cemex shifted its unit of business from cubic
yards of cement to delivery window: the right amount of concrete delivered when needed.

2) Boost your performance on key metrics. Cemex reoriented its information systems, logistics,
and delivery infrastructure to improve truck utilization—a key metric for delivery businesses.

3) Improve customers‘ performance. UPS handles shipping and repair for laptop makers—
freeing these customers from employing expensive maintenance staff, and getting laptops back
in owners‘ hands quickly. The service enhances laptop makers‘ productivity and lowers their
costs.

6
Duck, J. D. Managing Change: The Art of Balancing. Harvard Business Review Nov/Dec 1993, 109-118.
7
Kotter, J. P. What Leaders Really Do.? Harvard Business Review May/June 1990, 103-111.
8
Mc Grath, R.G. and MacMillan I. C. Market Busting: Strategies for Exceptional Business Growth, Harvard Business
Review, Mar/April 2005, 124-132.

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In “Mastering the Management System” 9, Robert S. Kaplan and David P. Norton state that it‘s
hard to balance pressing operational concerns with long-term strategic priorities. But balance is
critical: World-class processes won‘t produce success without the right strategic direction, and
the best strategy won‘t get anywhere without strong operations to execute it. To manage both
strategy and operations, companies must take five steps: 1) Develop strategy, based on the
company‘s mission and values and its strengths, weaknesses, and competitive environment. 2)
Translate the strategy into objectives and initiatives linked to performance metrics. 3) Create an
operational plan to accomplish the objectives and initiatives. 4) Put the plan into action,
monitoring its effectiveness. 5) Test the strategy by analyzing cost, profitability, and correlations
between strategy and performance. Update as necessary.

In “Why Good Companies Go Bad”10, Donald N. Sull identifies another important cause of
strategic underperformance: active inertia. Through active inertia, executives cling to strategic
formulas that brought success in the past—even though emerging business realities call for new
formulas. The strategic frames of the past become blinders; processes harden into routines;
relationships become shackles; and values turn into dogmas. Sull offers additional advice for
avoiding active inertia. Rather than asking, ―What should we do?‖ ask, ―What‘s hindering us?‖
There is a need to focus the leaders‘ attention on the strategic frames, processes, relationships,
and values that must change if the company hopes to define a new direction.

9
Kaplan, S. R. and Norton. P. N. Mastering the Management System, Harvard Business Review, Jan/Feb 2008, 86-
94.
10
Sull, N. Why Good Companies Go Bad. Harvard Business Review Jul/Aug 1999, 42-52.

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Strategy

Strategy theory is a diverse multi-disciplinary academic field with competing schools of thought
based on partly incommensurable basic assumptions, including disagreement about what strategy
theory should seek to explain. This is underscored by the considerable effort during the last two
decades within the field to identify ‗paradigms‘ and search for new approaches. The field of
strategy is so diverse that it is probably correct to say that it cannot be treated as a research
program, with a lot of commonly accepted basic assumptions. Mintzberg has identified ten
schools of strategy theory, of which three schools are prescriptive and together constitute the
‗classical approach‘ to business strategy theory whilst the other seven are descriptive.

Currently in today‘s management environment, there is a striking lack of agreement of an

operational definition of what makes a strategy become a strategy. The concept of strategy is not
a straightforward one. There are many different theories about what it is and how it works. The
concept has a long history in the military, and is rooted in the ancient Greek word strategos,
literally meaning ‗what the general do‘. It is however not so that this meaning is directly
transferred to the field of business strategy. This lack of common agreement leads to different
authors to consider it necessary to define their own meaning of the word. A small bundle of
definitions from leading scholars within the field will demonstrate the discrepancies:

Henry Mintzberg11 suggests that strategy can have a number of meanings, namely:

―1. Strategy is a plan, a "how," a means of getting from here to there.

2. Strategy is a pattern in actions over time; for example, a company that regularly markets very
expensive products is using a "high end" strategy.

3. Strategy is position; that is, it reflects decisions to offer particular products or services in
particular markets.

4. Strategy is perspective, that is, vision and direction.‖

After analysis of academic journals, it can be concluded that strategy is a multi-headed monster
and there are many different dimensions of strategy:

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D31BM BUSINESS MANAGEMENT FOR BUILT ENVIRONMENT PROFESSIONALS 101662561

Strategy12

1. determines and reveals the organizational purpose in terms of long-term objectives, action
plans and resource allocation;
2. selects the businesses the organization is in or is to be in;
3. attempts to achieve the a long term, sustainable advantage in each of its business by
responding appropriately to the opportunities and threat’s in the firm’s environment, and the
strengths and weaknesses of the organization;
4. identifies the distinct managerial tasks at the corporate, business and functional levels;
5. is a coherent, unifying and integrative pattern of decisions;
6. defines the nature of the economic and non-economic contributions it intends to make to its
stakeholders;
7. is an expression of the strategic intent of the organization;
8. is aimed at developing and nurturing the core competencies of the firm;
9. is a means for investing selectively in tangible and intangible resources to develop the
capabilities that assures a sustainable competitive advantage

The term ‗strategy‘ is used so widely for different purposes that it has lost any clearly defined
meaning. Strategy can be concluded as a set of objectives, policies and plans that help defines the
scope of the enterprise and its approach to survival and success in this complex competitive
environment.

Corporate Strategy planning represents a systematic attempt to influence the medium and long
term future of the enterprise by defining company objectives, by appraising these factors within
the company and in the environment which will affect the achievement of these objectives; and
by establishing comprehensive but flexible plans which will help ensure the objectives are in fact
achieved

The corporate planning process as a whole may be regarded as processing the following major
elements:

1. Setting of corporate/strategic objectives

11
Mintzberg, H. Crafting Strategy. Harvard Business Review, Jul/Aug 1987, 66-75.
12
Porter, M. E. What is strategy?, Harvard Business Review, Nov/Dec1996, 61-78.

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2. Establishment of corporate performance required, (i.e. setting up targets)

3. Internal appraisal i.e. assessment of the organization‘s current state in resources and
performance terms.
4. External appraisal i.e., surveying and analyzing the organization‘s environment
5. Forecasting future performance based in the first place on the results of 3 and 4, i.e., as
purely passive extrapolations, but subsequently using the various strategies developed in
7, i.e., dynamically, and finally, using the results of 8 to provide firm figures for 7.
6. Analysis of the gap between the results of 2 and 5.
7. Identification and evaluation of strategies to reduce the performance gap or, in other
words, to meet the strategic objectives.
8. Choice of strategies, and
9. Preparation of the final corporate plan.

The process is shown diagrammatically in the Figure 1 below. The process might well involve
some modification of the original strategic modification of the original strategic objectives and
required corporate performance.

Objective setting is a major subject when it comes to the strategic process. Although authors
differ in their view as to the relative importance of different objectives, there is a general
consensus that some degree of profitability is a prime objective of a business organization
objectives may be qualitative or quantitative or semi-quantitative. The pursuit of technological
excellence can be viewed as qualitative whereas an increase in market share can be viewed as
quantitative, whilst to be in the top three in the IT sector next year is semi quantitative. 13

Establishment of corporate can be viewed as a subset of objectives (or targets) that must be
specified such that their achievement guarantees the accomplishment of the strategic objectives.
This division is often blurred in practice. The organization may state long-term values as
strategic objectives, but corporate performance may be expressed in terms of outline balance
sheets and profit and loss accounts.

The internal appraisal is essentially a survey of the state, the resources it possesses, and its
performance. The appraisal may cover every functional area of the business. Strengths and

13
Collins, J. C. and Porras J. I. Building Your Company’s Vision. Harvard Business Review, Sep/Nov 1996, 41-56.

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weaknesses are listed. Performance of functional areas is compared against the standards that
might be expected or set (ratios). The aim is to provide a relatively more objective measure of
current performance

Internal Appraisal External Appraisal

Setting Strategic objectives: (Situation Audit) (Environmental Analysis
Economic, technological,
Social, etc

Forecasts of
future performance

Establishing Required
Corporate Performance:
Market Share, Profits, etc.

Identification and
Performance
Evaluation of
Gap Analysis
Strategies

Choice
of Strategies

Preparation of final
Corporate Plan

Figure 1 – Corporate Strategy Planning Process

External appraisal or environmental analysis consists of a systematic survey of relevant areas and
factors of the environment. They include the structure, demand, technological characteristics of
industry, government influences, and social pressures. The appraisal reveals threats and
opportunities for the organization. Information needs to be gathered on competitors and markets

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D31BM BUSINESS MANAGEMENT FOR BUILT ENVIRONMENT PROFESSIONALS 101662561

from sources such as company reports, research and development and so on. Outside assistance
is valuable such consultants or commissioned surveys.

Using information from internal and external appraisals, organizations prepare forecasts of future
performance based on forward projection over planning time. It gives a set of corporate
performance measures (e.g. returns on capital, market share, productivity etc.) which can be
directly compared with the strategic objectives. Usually there is a difference between the two
sets of figures which is known as the performance gap.

If the performance gap exceeds a threshold level, strategies are needed to reduce the gap to
acceptable proportions. Gap analysis is a stimulus to strategy identification. In certain cases
strategic objectives may require modification. There is a direct comparison with the required
corporate performances expressed in the same terms. The pattern of the gap indicates both
magnitude and timing of task.

Most likely after the above process, there may be some suggested possible strategies.
Identification and evaluation of possible strategies or ―situation audit‖ is a method of generating
ideas for strategies. There are techniques that help strategic decision possible strategies. Some
techniques used in this method include

a. SWOT analysis which identifies existing organisational Strengths, organisational

Weaknesses, market Opportunities which the organisation to exploit and where threats to
the future success might come from
b. PEST analysis which identifies how local, national and international Political
developments will they affect the organisation and in what way/s, what are the main
Economic issues – both nationally and internationally – that might affect the
organisation, what are the developing Social trends that may impact on how the
organisation operates and what will they mean for future planning and the changing
Technology which can impact on competitive advantage very quickly.
c. Porter’s Five Forces14 which were developed by Michael Porter identifies forces that
shape and influence the industry or market the organisation operates in. These are
Strength of Barriers to Entry - how easy is it for new rivals to enter the industry,

14
Porter, M. E. The Five Competitive Forces That Shape Strategy, Harvard Business Review, Jan/Feb 2008, 79-93.

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Extent of rivalry between firms – how competitive is the existing market, Supplier
power – the greater the power, the less control the organisation has on the supply of its
inputs, Buyer power – how much power do customers in the industry have, and Threat
from substitutes – what alternative products and services are there and what is the extent
of the threat they pose.
After several strategies have been evaluated, top management must choose between them before
the final corporate plan is drafted. Further evaluation of possible strategies enhances reliability of
the decisions made. This evaluation involves more rigorous financial analysis. It is greatly
facilitated by the use of computer-based models (corporate or investment appraisal).

The ultimate chosen strategy or set of strategies determine the final corporate plan. It is a
statement on how the organization will meet its strategic objectives in both qualitative and
quantitative terms. As such the corporate plan will comprise:
a. A general strategy/policy statement for the organization
b. Individual plans for major functional areas and control service functions
c. Financial statements of profitability, cash flow, balance sheets incorporating capital
expenditure plan figures

Within the Construction Industry there is a debate consisting the necessity of strategy within the
field. Complex issues from a wide spectrum of disciplines are combined to produce physical
buildings with permanent impact. From the business point of view, it is imperative to continue
providing a service to a client or the public where a profit is made and future business prospects
are confirmed.

Many contractors argue that their business is about ―getting, doing and getting paid‖. Some see
no need for strategic planning where few facts are readily available.

There are two aspects of management in the built environment, project management and strategic
management. The second lies at headquarters, and involves the strategic thinking necessary to
achieve a better sense of direction, thereby increasing long-term financial returns for the total
company.

The concepts of business strategy have been developed primarily for manufacture the
manufacturing industry. In the construction industry, the client (customer) initiates the project
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(product). The contractor (producer) has limited control over the contract (formulation – design).
The price is agreed before the project (product) is started.

There are several aspects of business strategy that have little relevance to the contracting
industry, although some do have limited applicability.

Two clearly discernible trends in the industry are becoming more evident. First, the industry is
becoming increasingly concentrated (although far less than the manufacturing industry) as a
result of acquisitions and mergers. Some of these acquisitions have seen extraordinary growth for
contracting businesses based on a well-conceived strategy. Secondly, many large-scale
contractors are diversifying away from their original base. In this process, such companies are
effectively changing the scope of their business by redefining their competitive position within
the industry, and are looking for effective segments or niches within the total market 15. Much of
this diversification is closely associated with contracting (for example, introducing building
contracting for a civil engineering contractor, or introducing refurbishment contracts to a new
building contractor) or is developed from a contracting base (for example, from building houses
to speculative housing development). Others have spread their business outside their market
locations, effectively a form of geographic segmentation, capitalizing on their experience. Here it
is important to determine who the competitors are.

Most of the larger contracting firms in Trinidad and Tobago are not simply just building and civil
engineering contractors. It is important, therefore, for the contractor to identify clearly that
business he/she is in, the position he/she occupies in that business, and who are the present and
potential competitors - these are all elements of business strategy. In this process of self-
definition, the construction company will find that the company is in several different businesses
or that strict contracting is really part of a broader portfolio. Even in the contracting part of the
business (construction division), the contractor has a portfolio of type of construction and
location operating through subsidiaries or established offices.

Strategic management is therefore essential to direct the portfolio in terms of both the group
level and the construction division level. The severe cyclic nature of the construction market and

15
Ansoff, I. Strategies for Diversification. Harvard Business Review, Sep/Oct 1957, 113-124.

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the sensitivity of contractors to environmental changes enhance further the importance of

strategic management.

In order to work toward maximizing profits, organizations need a framework to work by and to
move forward in achieving goals that will lead to the maximum profit margin. Of course,
strategies will differ from industry to industry and from firm to firm. However, the concepts
remain the same and companies customize their strategies to fit their corporate culture, business
products as well as functions in the market.

The corporate strategy depicts the corporate culture's perception of progress and growth. It
comprises a directional strategy through a corporate vision and a mission statement. The
corporate strategy is an important strategy to observe to depict the best image of the company
toward its clientele. If the corporation wants to be perceived as a leading clothes manufacturer,
its corporate strategies have to incorporate growth in the retail line that will allow them to keep
up with the latest trends in fashion and clothes.

Lastly, it is important to know that strategies have to be outlined in a flexible manner in order to
keep in pace with the different changes that take place in the external environment

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