By Michael Tobias
Strategic management in construction is a relatively recent discipline, but it is one that has the potential to greatly improve project performance. Strategic management doesn’t operate in isolation to traditional management in construction. However, while the planning and execution of projects are paramount in traditional project management, strategic management addresses the challenges of operating construction organizations rather than just focusing on the planning and control of resources within individual projects.
There is absolutely no doubt that the construction industry is a driving force in the global economy, even though there is speculation (and some evidence) of a downturn since 2017.
Figures released on November 1 by the U.S. Census Bureau for construction spending during August and September 2019 tipped $1,287.1 and $1,293.6 billion respectively, with the latter figure dropping by $26.1 billion from September 2018. Residential construction has been relatively consistent, increasing from $509,632 billion in May 2019 to $517,977 billion in September. Non-residential construction figures decreased a little from $787,831 in May to $775,637 billion.
More than a million firms of varying sizes operate in the construction industry, offering different services from design to the provision of quality air inside buildings and the installation of suitable energy-efficient appliances. Unlike manufacturing companies that produce items like computers, air-conditioners, or automobiles, the construction industry produces a vast array of unique end products. Traditionally project management has been utilized to do this successfully.
Understanding Strategic Management
A strategy is an overall plan or approach based on an idea or ideas that respond to multiple external and internal influences. Because strategies aren’t based on material science, physics, or mathematics, they don’t contain universal truths than can be documented or proved using theorems. However, strategic management is formalized by logistics, operations, and finance. Human resource management also plays a major role. Additionally, diverse organizations have varied needs and demands that are technical, professional, and strategic.
Furthermore, there are different people in organizations that might take on the role of a strategic manager including trained professionals offering construction, plumbing, mechanical, and electric engineering services in Chicago, New York, Toronto, or any of the world’s big cities.
What makes successful strategic management difficult in the construction industry is that there are companies and people, many of whom have competing interests, all working towards a common goal. Although all highly trained professionals, architects, engineers, and construction specialists, have partially incompatible vocabularies and ways of working. They all work from their own definitional bases, which have similarities but aren’t the same.
As a civil and environmental engineer, Paul Chinowsky states in an article on Strategic Management in Construction published in the Journal of Construction Engineering and Management in 2000, there is a need for “foundational concepts” that include strategy and well as strategic plans and planning, in addition to strategic management. This still applies today.
While individual projects require execution and control plans, management strategies are developed in essentially the same way rulers and military leaders have developed their strategies during war and colonization. A strategy:
- responds to a situation, and
- predicts future needs, or
- presents a method for achieving a specific goal
Development of Strategies
Strategic concepts don’t just happen, not even in the environment of a professional company, a Chicago engineering firm or a New York architectural design company for instance. Rather, it requires strategic thinking and focus.
In the construction industry, there are seven focal areas that require strategic management:
- A vision, mission, and goals that indicate what needs to be achieved throughout the organization. For instance, who the customers you are going to target are.
- Core competencies that establish what the business does best. For instance, New York Engineers offers innovative engineering solutions for the construction of sustainable structures that are highly energy-efficient and will respond to environmental challenges.
- Knowledge resources that enable the completion of projects on every level. They include both technological and human resources.
- Education that focuses on both the formal and informal need for constant lifelong learning together with a thorough understanding of ever-evolving business conditions.
- Finance as it affects the budget and schedule control of the whole organization and not just one project.
- Markets as they affect the organization and its business opportunities as identified in the core competencies.
- Competition which will always be existing, future, and/or emerging in existing business segments and any potentially untapped market. A successful strategist will understand and analyze this.
There is also a need to build a strategic planning team that will come up with solutions themselves rather than simply carry out the team leader’s wishes. The team will also set strategic planning objectives, as well as develop an implementation plan. The team, with guidance from the team leader, will synthesize ideas and execute the plan, later evaluating its success before a new planning timeframe comes into play.
Putting Strategic Management into Place
Ultimately, when planning a successful strategic management program, there are three areas that should be analyzed:
- Strategic areas of market awareness and technology, including the use of virtual office environments.
- Additional strategic areas that need much greater emphasis, specifically in terms of education (see 4 above) and competitive positioning (see 7). Competition is healthy and education is essential, right the way through the organization.
- The impact of size on strategic management practices, bearing in mind that a huge number of small and medium enterprises are active in the construction industry.
It is also important to realize that when it comes to strategic management, it is vital to focus on building a long-term strategy on a good foundation, rather than simply focusing on dollars. By establishing a good roadmap for the future, strategic management leaders have the opportunity to set a direction for their organizations and with aggressive leadership, independence, and a clear vision for the future, which can help to ensure their businesses succeed by responding to the needs of a challenging global marketplace.
Michael Tobias is the founder and principal of New York Engineers, an Inc 5000 Fastest Growing Company in America. He leads a team of more than 30 mechanical, electrical, plumbing, and fire protection engineers from the company headquarters in New York City, and has led numerous projects in New York, New Jersey, Chicago, Pennsylvania, Connecticut, Florida, Maryland, and California, as well as Singapore and Malaysia. He specializes in sustainable building technology and is a member of the U.S. Green Building Council.