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National institute of construction management and research Corporate planning and strategy in construction By, Corporate planning and strategy in construction Page 1

Corporate Planning and Strategy in Construction Dar Gir, Arun, Viv)

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Page 1: Corporate Planning and Strategy in Construction Dar Gir, Arun, Viv)

National institute of construction management and research

Corporate planning and strategy in construction

By,

Darshan M S 221092

Vivek chandar M 221099

Girish N 221106

Arunkumar N M 221107

Corporate planning and strategy in construction Page 1

Page 2: Corporate Planning and Strategy in Construction Dar Gir, Arun, Viv)

National institute of construction management and research

INDEX

1. Introduction 03 2. Levels of Strategy 05 3. Factors affecting the strategy 06 4. Characteristics of strategic decisions 08 5. Strategic management and corporate planning 09 6. Failure of corporate planning 09 7. Why corporate planning and strategic management? 10 8. Examples and cases 11 9. References 12

Corporate planning and strategy in construction Page 2

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National institute of construction management and research

1. INTRODUCTION

Construction activity is the integral part of the country’s infrastructure and industrial development.

A construction industry provides substantial employment growth to other sectors through backward and forward linkages. It is essential that, this vital activity is nurtured for the healthy growth of economy.

Awareness of both the general and task environment changes is the critical starting point for companies to gain or keep competitive advantages. A thorough knowledge of these changes can help managers identify & understand the opportunities and threats facing origin, and then determine suitable strategies in terms of the strength and weakness of their companies.

In short, construction industry is beginning to play an important role in India’s development. If the government focus on improving infrastructure stays, then this industry’s importance is likely to increase in future. For this increasing complexity and bright future of the construction industry, it requires a pre defined strategy and planning at every stage of expansion of growth of the construction business with in the highly intensified competitive govt.

1.1 CORPORATE PLANNING

It is the continuous process of making present risk taking decisions systematically and with the greatest knowledge of their futurity; organizing systematically the efforts needed to carry out these decisions and measuring the results of these decisions against the expectations through organized system feedback – Peter drucker

Corporate planning is the process of managing the future of organization.

1.2 What is strategy?

Strategy is a subject that has exercised the minds of political, military and business leaders for centuries. The earliest recorded attempts to define strategy emanate from Roman military commanders who sought to document the strategic options available on the battlefield. The acceptance of the need for strategic behaviour in business is evidenced by the volume of literature dedicated to the subject. Much of the knowledge base has been developed by researchers and theorists; practitioners have had to apply critical judgments on how such theories can be applied to their own industry. This is particularly so in the construction industry where little material in the strategic management field has been available despite the efforts of authors such as Newcombe, Channon and Grinyer who have done much to bring strategic management theories to the attention of construction management practitioners.

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1.3 What is strategic management?

Strategic management is a systematic approach to major and increasingly important responsibility of general management to position and relate the firm to its environment in a way which will ensure its continued success and make it secure from surprises.Strategic management is concerned with deciding on strategy, and planning how that strategy is to be put into effect. It can be thought of as having three main elements within it. There is strategic analysis, in which the strategist seeks to understand the strategic position of the organization. There is strategic choice which is to do with the formulation of possible courses of action, their evaluation and choice between them. Finally there is strategic implementation which is concerned with planning how the choice of strategy can be put into effect. The three elements of the strategic management are often seen as sequential in traditional texts, but actually they overlap and interact so that partial implementation may modify strategic choices for example.

The concept of strategy and the nature of strategic decisions

There are common themes in the definition of strategy. Strategy is concerned with the means to meet ends, that is it is concerned with achieving objectives. A strategy is also a set of rules for guiding decisions about organizational behaviour. Strategies may be explicit or implicit., kept within the senior management team or pervading the organization to produce a sense of common direction

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2. Levels of Strategy

The corporate level: Which businesses or markets the company should be in

The business level: How to compete in a particular market

The operational level: Decisions by heads of functional departments - estimating, buying, plant, etc, and decisions by managers of construction projects often impact on the whole business since individual projects represent a large proportion of a building contractor's turnover and therefore profit.

Two views have emerged on the nature of strategy:

The first perspective views strategy as planning mod. A strategy is worked out in advance, is explicit and managers develop a systematic and structured plan to meet objectives.

The second perspective sees strategy as an evolutionary mode. From this viewpoint strategy evolves over time, is not thought out and planned but is a stream of significant decisions.

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Corporate strategy

Business strategy

Functional strategy

Figure A- HIERARCHY OF STRATEGY

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3. FACTORS AFFECTING STRATEGY OF A FIRM

3.1 EXTERNAL FACTORS:

3.1.1 Political-legal forces

Political-legal forces include such factors as the outcomes of elections, legislation, and judicial court decisions, as well as the decisions rendered by various commissions and agencies at every level government.

3.1.2 Economic forces

Economic forces significantly influence business operations, including growth or decline in gross domestic product and increases or decreases in inflation, interest rates, and exchange rates. These changes can present both opportunities and threats to strategic managers, depending on the industry.

a. Gross domestic productGDP refers to the value of a nation`s annual total production of goods and services. A rapidly growing GDP is not necessarily beneficial. Likewise, a high degree of economic volatility and unpredictability can stymie strategic decision making.

b. Inflation ratesHigh inflation rates have a negative effect on most, but not all businesses. One needs to consider the composite impact that an economic factor may have on an industry, not only the single effect that may be most intuitive.

c. Interest rates

At corporate level, interest rates also influence strategic decisions rrelated to financing. High rates tend to dampen the business plans to raise funds to expand or to replace aging facilities. Lower rates however are more likely to spawn capital expenditure on expansion and development.

d. Exchange ratesCurrency rates can be influenced by international agreements, the coordinated economic policies of the government and international economic conditions.

3.1.3 Social Forces

Social forces in business sense translate into an emphasis on entrepreneurship and the belief that one`s success is limited only by one`s ambition.

Technological factors

Technological forces include scientific improvements and innovations that create opportunities or threats for business. The rate of technological change varies considerably

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from one industry to another and can affect a firm`s operation as well as its product and services.

3.2 INTERNAL FACTORS

3.2.1 Organization’s mission, goals, and objectives

The mission is the reason for the firm`s existence. The organization`s goals represent the desired general ends towards which the efforts are directed. Objectives are specific, and often quantified, versions of goals.

3.2.2 Global influences on mission

Organisational mission and international involvement are also connected through the economic concept of comparative advantage, the idea that certain products may be produced more cheaply or at a higher quality in particular countries due to advantages in labour cost and technology.

3.2.3 Goals and stake holders

Various stake holders often have different goals for the firm. Each stake holder group, members of board of directors, managers, and employees, suppliers, Creditors and customers view the company from different perspective.

3.2.4 Influence on goals

Balancing the various goals of an organization`s stakeholders can be challenging task. Firms create value for various parties including employees through wages and salary, shareholders through profits, Customers through value derived and governments through taxes

3.2.5 Agency problems

It is situation in which firm`s top managers-the agents of the owners do not act in the best interests of stakeholders. There are two types: management serves its own interests, and management, stockholders share same interests.

3.2.6 Takeovers

The purchase of controlling quantity of shares in a firm by an individual, a group of investors or another organization. Takeovers may be friendly or unfriendly.

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4. Characteristics of strategic decisions

They are concerned with the scope of the organization's activities and the interface with the environment.

They seek to match the strengths and weaknesses of the firm to the opportunities and threats in the market place

They seek to match the firm's activities to the capabilities of of the organization and its resources.

They commit the organization to changes in the use of its existing resources or to obtaining additional resources

They affect operational and administrative decisions

They are complex because there is always a high degree of uncertainty about environmental forces and outcomes.

They affect the long term direction of the firm.

4.1 Why is strategic management necessary?

A rapidly changing environment requires greater corporate awareness of changes and their implications for the organization.

There is need for companies to have stability as far as possible and avoid the crises brought about by strategic surprises.

The systematic appraisal of the strengths and weaknesses of the organization and matching these to the opportunities and threats in the environment is crucial for survival in a competitive market.

the larger the organization the more difficult is to change quickly - hence the need to anticipate change that much earlier in order to develop an appropriate response.

Corporate harmony is enhanced if the organization is seen to have a clear strategy. People then know where the organization is going and can tailor their contribution accordingly.

Consistent financial performance is likely if the organization's activities are systematically thought through with realistic forecasting of the results.

The strategic management role can be filled by an internal individual or team or an external consultant or executive director. A combination of both internal and external modes is sometimes used.

The timing of the strategic management is crucial to its success. Finding time time to do it is also vital.

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There is no "best" strategy which is applicable in all circumstances. A contingency approach to strategic management is essential, based on the objectives of strategic managers.

5. Strategic management and corporate planning

It may be desirable to draw a difference between long range planning and corporate planning. Long range planning in most cases assumes that the current environment in relation to the organisation will continue as in the past. In other words, it is simply a forward projection of existing operations.

Strategy begins by asking, “what activities should the company be in?’ “what will be the long term goals of the organisation on the basis of present and future environmental factors likely to be available to the organisation?” strategic management as has been discussed in is implied in the corporate plan. However the time span is relatively shorter, usually 3 years as compared to five years for a corporate plan. Due to its popularity of strategic management terminology, corporate planning in many organisations has been rechristened as strategic planning.

6. Failure of corporate planning:

Strategic plan usually introduced by CEO who might have had exposure to it in a management development programme (MDP).He hands over the task to a planner and does not get involved

some companies prepare a strategic plan and circulate it among senior managers and externals consultants for their comments. This approach fails since most of the time senior managers neither have time nor the skills to look at the future. Most of the time, they are found to be good at budgeting but are unable to make an assessment of external environment.

Many organisations emphasise on hard data. In a strategic planning exercise, it is difficult to provide hard data in every situation. This results in doubts being raised by senior management in the organisation.

Failure to accept and balance interrelationships among intuition, judgement, managerial values and planning system.

Failure to encourage managers to do effective strategic planning by basing performance appraisal and rewards solely on the short range performance measures

Failure to tailor and design the strategic planning system to unique characteristics of the company and its management.

Top management becomes so engrossed in current problems that it does not spend enough time on strategic planning process and the process gets discredited among the other managers and staff.

Failure to modify the strategic planning system as conditions within the company change.

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Failure to create an appropriate climate for the success of strategic planning.

Chief executive may spend too little time on planning.

Corporate planner tries to do all planning by himself or he may be of a low calibre

Company tries to move into an advanced management area before it is ready

7. Why corporate planning and strategic management required in construction industry?

Strategic planning is an essential function of senior management in any business firm. Planning involves the firm's behaviour in a competitive market and adaptation of the company's resources towards the selected market strategy. This procedure consists of the

following stages. First, examine the company's mission. The mission reflects the owners' views with regard to the company's scope of activities and objectives. Second, survey the company's business environment. The environment includes both general economic factors that affect all types of business activity and additional factors, specific to the construction

sector. This survey should reveal the specific "packages" of prospective project opportunities and highlight potential threats to a company's orderly activity. Third, analyze the company's main resources. The main resources in this respect include the construction capacity, the procurement system, the marketing system, the organization, personnel, finances, and knowledge. The relative strengths and weaknesses of each resource, in light of market needs, are identified. Fourth, develop a strategy. The development of a strategy is based on "mapping" of the relative attractiveness of the various possible activity areas. This strategy can follow one of several generic types that must be adapted to particular conditions of the market and company. It affects the subsequent choice of a strategy for development of the

company's own resources. The choice of the optimal strategy, from several available alternatives, should follow a careful analysis of the costs and benefits inherent in the implementation of each.

The traditional philosophy of management in construction, both in academia and in industry, places great emphasis on the ability to plan and execute projects. In contrast, a similar emphasis on strategic management has received less attention in the construction industry. Although the pressures of project performance can often obscure the broader social, economic, and professional context in which strategic management is undertaken, it is these broad contextual areas that make strategic management an essential issue for construction organizations. Rapidly changing social and technological issues are creating a professional environment that will look very different in the coming decades from that experienced in today's organizations.

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8. Few examples of corporate planning and strategy in construction industry

Rise in interest rates hits realty sector

The uncertainty in property market is giving jitters to property funds.

Property funds have increased their IRR expectations from (20-22)% to (27-30)%

EU and US investors were happy with (5-6)% yields, now they want (8-9)%

DLF,Unitech announce US $4 billion fund rising through PE in this FY

Parsvnath to venture into retail, plans to open 10 stores in this FY ,21 commercial projects of area 4.77 million sq ft, appoints new director and concessional pacts with DMRC to develop properties

Unitech to open 15 malls in the coming years with Rs 20,000 crore of investment

Purvankara to setup fully owned subsidiary Provident housing and infrastructure Ltd,for affordable housing segment with investment of about Rs 8,000 crore,also to invest Rs 1,000 crore for hospitality.

Puvankara arm goes PE route to raise Rs 750 Crore to acquire land for its affordable housing project

GMR acquired 50% in the Netherlands based Intergen

GMR energy has earmarked Rs 13 K Crore for generating 3300 MW of power, plans to raise Rs 2.6 K Crores from private placement of the equity

Ansal API to raise Rs 2,500 crore through PE investors to develop SEZ and IT parks.

Raheja plans Rs 4,500 crore SEZ

World`s largest cement maker Lafarge have brought L&T`s RMC business as a part of its expansion plans

JK Lakshmi cement to put in Rs 1,000 Crore for 5 RMC plants through internal accruals

PremjiInvest,PE fund to pick up the stake in construction companies

‘Swiss challenge’ ruled out in airport PPP projects

Property firms fast-track projects to beat slowdown (30% in last six months)

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9. References:

Newcomb, R, Langford D and fellows, R Construction Management, volume I

Fellows R etal, Construction management in practice

Harold kerzner, Second edition, Project management- A system approach, CBS Publishers

R Srinivasan, Second edition, Strategic management-The Indian context, Princeton hall

Ramaswamy and Namakumari, Strategic planning formation of corporate strategy,Texts and cases, Indian context, Macmillan.

John parell, Strategic management, Theory and Practice, Biztantra

Thomas & David, Ninth edition, Strategic management and business policy, Pearson education

http://ascelibrary.aip.org/journals/doc/ASCERL-home/proc/

http://www.misronet.com

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