Business Strategies For Success In Construction Management

Factors Affecting Success in Construction Companies

Discuss about the Business in Construction Management.

As the world’ population continues to grow and its demand for products, services, and basic needs, the demand for construction of shelter and infrastructure also continue to expand. However, the construction industry is faced with several challenges, which make it difficult for construction companies to focus on growing their business. The success of these construction companies has been very seriously limited by these challenges (Hutchiings & Christofferson, 2011). For this reason, many construction firms have to consider vital business strategies to achieve success in their business, despite the challenges facing the industry. Success in such an industry can only be achieved through a company analyzing several business factors, predict the future and then make necessary changes to ensure that the company achieves increase profits and better strategies to achieve effective cost management and even reduced risks. Due to the risky nature of the construction business, construction firms ought to be considerate of the factors that could prevent it from achieving success and make necessary steps to avoid those factors or limit their effect in the company. At the same time, these strategies could also be important for improving the business and making it easier for the company to grow amid these factors.

This study is analyzes the case of two construction companies, one from Sri Lanka and another from the Middle East, and presents their situation to explain how different factors affect the success of construction companies in different parts of the world. It also presents the business issues that affect the construction companies and suggests a number of strategies that the construction companies in the study and other in the same situation can use to achieve success in their businesses (Koota, 2013). It also analyzes the different risks that the construction industry is faced with, and how these risks affect the success rates of these companies. In so doing, its readers will be highlighted of the different factors affecting the success of construction companies as well as the risks that companies in this industry are faced with. Companies in the construction industry continue to face great challenges and risks in the business world, and this limits the ability of these companies to grow and achieve success. This can mainly be attributed to the increasing population and demand for basic needs, products, and services. This is because, the growth in the demand of needs of industries like the construction industry has brought with it complexities in the process to begin and complete projects as well as other challenges like constantly changing construction regulations and the fragmentation of the procedures involved in this industry (Abraham, 2013). This thus makes the possibilities of having successful construction companies very slim, although the few that manage to identify the right strategies and implement them to the letter become outstandingly successful. It is therefore important for the companies aiming at success in this industry to invest in identifying and staying abreast with their competition in their respective regions

Risk Analysis in the Construction Industry

Due to the nature of the major factors of cost and time in this industry, the best companies always have to be the ones who deliver in the shortest time and also maintain a cost that is relatively less than that of the competition. The risks in this industry are also aggravated by the failure to utilize a lean and effective model of management (Hughes, Tippett, & Thomas, 2014). Construction companies are thus advised to consider utilizing a management strategy to attain a business level where the risks have been completely avoided or mitigated, so the company continues to grow and achieve even greater heights. An effective management strategy for the business would also aid the companies to achieve lean operations with minimal wastage of resources so that the business is beneficial and the risks can be mitigated better. Management and risk planning in this industry also assure companies better rates of success, through enabling the companies to achieve their business goals and to meet the objectives and the needs of all their projects. Effective management also enables construction companies to stay on track of their resources, to ensure they deliver the expected results within the budgets and the timelines that are set by the by the developers and thus meet the specifications of the project (Gerstel, 2009).

Due to the increase in population and demand of basic needs in Sri Lanka, the construction industry in that country has gradually continued to shift from the construction of infrastructure like airports, roads, or even harbors, and is since focusing on residential and commercial spaces. This can be attributed to an increase in the demand for services and basic needs for the increasing population (Allmon, Haas, Borcherding , & Goodrum , 2007). The construction in this industry is mainly involved in the construction of sky scrapers in Colombo, the Sri Lankan capital. There is also a constraining factor of land, which is being sold at extremely high prices, prompting the entire industry to focus on crating large sky scrapers with immense capacities. The demand for residential and commercial spaces in the Sri Lankan market have continued to increase while the land to meet this demand continues to diminish have left the construction industry having to settle on the construction of sky scrapers in that capital and also into the suburban parts of the city.

The construction industry in Sri Lanka is projected to remain in the sky scraper construction bubble within and around the capital city of Colombo for the next five years. This is due to the growth the tourism industry of the country has in the recent past began to grow immensely, and thus the construction of more skyscrapers as hotels for the tourists is expected to continue this bubble. The increase of tourists will also prompt the construction of shopping malls and supplementary establishments. The country is also experiencing a shortage of commercial spaces like offices, and this might also prompt a need for the entire industry to be focused on skyscraper construction. After the skyscraper bubble, the market is expected to shift to the Western Region Mega polis project which the government is expected to inject about $ 40 billion.

Effective Management Strategies in Construction Management

While this is a very promising aspect about the construction industry of the country, it is also expected to pose great challenges that make it very difficult for the companies to achieve success. For instance the Sri Lankan expected developments have attracted the need for new strategies and requirements which arise from different factors. The first of these is that science and development continues to develop new building technologies and construction styles. For instance, technologies have emerged so much that most of the buildings that have been constructed in the recent past have been put together using precast segmental blocks that are simply assembled and secured in the construction process to save on time. The costs are also minimized when these precast blocks are used. Another factor prompting changes in the strategies and requirements of the Sri Lankan market is the supply chain, which is unfamiliar with the current skyscraper construction technologies.  Recent developments have seen the development of different more energy saving materials which have not yet penetrated the market well. In addition, environmental awareness and technologies have also began advising construction companies to ensure less carbon emissions in the houses whose construction consumed a lot of energy in extracting the materials,  so as to achieve a sustainable construction. For the Sri Lankan industry, many contractors in the supply chain do not yet have these advancements, and this contributes to the difficulty of achieving success.

In addition, technology has also introduced to the industry other tools like the Building Information Modelling tools which have made work in the construction industry much easier and more accurate. This is because these tools utilize a computer based 3D modelling system that makes work for engineers, architects and even the subcontracted construction experts easier,  through efficient designing and planning stages before the actual construction works begin as well as the management and construction process much more effective manage. The construction of even unchartered grounds like the skyscrapers in the case of Sri Lanka has thus been made better, easier and more accurate as the result of utilizing these Building Information Modelling tools. Further, as the number of construction projects being commenced due to the  high demand for construction projects increases, the demand for huge capital flows in the industry has led to the reliance of borrowed capital to finance these projects. These high lending rates of construction capital also limit the growth and prosperity of different companies in the industry as they are coupled with inflation rates and high interests rates that negatively affect the turnover rates in this industry. For this reason, construction companies are mainly advised to take control of their cash flow to keep it healthy, to ensure the impact of the high interest rates and inflation rates in Sri Lanka do not continue to cripple the entire industry.

The promising future for the Sri Lanka construction industry especially for tall skyscrapers has also attracted the attention of construction industry players on the international scale, who are more equipped for the construction of such high risk projects. This means that the construction industry in Sri Lanka has continued to demonstrate an immense level of rivalry from competition between the local companies and the international ones for the most profitable construction projects. Since the Sri Lanka construction industry is subdivided into ranks that have been allocated certain responsibilities to participate in certain levels of construction, the international players mostly win the tenders for the most profitable projects. The smaller lower ranking companies are thus restricted from bidding in projects that would give them a great boost in them of their business growth and the achievement of prosperity.

The Middle Eastern construction industry has also been going through some difficult times in the recent past, as a result of the impact of low oil prices on liquidity, which has continued to decrease. The impact of this state of the industry continues to mount immense pressure on the bottom line players in the Middle East construction industry prompting the government and its entities to understand the situation and look into options to help these players save costs and increase the operational efficiencies for such companies. The effect of this would be a significant reduction on the costs that are incurred especially on projects that are relatively less critical than others, and thus increasing the chances of industry players to overcome most of their challenges to achieve success and prosperity in business. While the intentions of the government and its entities are good, the cost savings in the industry have had a direct negative impact on the industry, as many projects have been cancelled, including the large scale and high profile construction companies such as the GCC Rail Network.

The non-critical construction projects are however expected to continue on a downward spiral, as a result of the consequences of the global oil prices. However, the future for the Middle Eastern construction industry appears promising as a result of the stabilization of the world’s oil market price at $50. In addition, the region is expecting the commencement of some serious and critical projects such as the constructions that are closely linked to events such as the Dubai Expo 2020 and the 2022 World Cup that will be held in this part of the globe. Players in the industry will be greatly favored by the constructions of different projects affiliated to such events as the time and budgetary resources will continue to become increasingly constrained, for the benefit of the contractors. In addition, the intervention of the government in cost savings for the industry will also benefit contractors as they will have to incur great risks of the government suspending their construction operations or even terminating projects. This has in turn contributed to a need for the industry to change strategies as a result of several factors in the industry/

The factors that have contributed to changes in strategies for these Middle Eastern construction companies include first and foremost the tendency to downsize and rephrase projects whose budgetary allocations are not sufficient to complete the industry. About a decade ago, such projects had to be abandoned leading to the property crash witnessed in Dubai, between 2008 and 2009.  Changes in the market as well as the intervention of the government of the government and its entities have encouraged a better way of managing such risks, and thus making the industry a more conducive place for the achievement of success. As the Middle Eastern region continues to expand, the work permits in the area continue to reduce, with the availability of these work documents continuing to diminish. The effect of this is a reduction on the number of international competitors for construction projects due to the changing regulations on visa and entry requirements to the region. This means that workers and professionals in the industry have been affected and the impact is also being reflected on the construction industry in this region.

Another factor that affects the success rate of the Middle Eastern industry is because the skillset fails to adjust with the technologies in demand. For instance, as the cautiousness for sustainability continues to increase, the industry is forced to take a preference for renew able sources of energy and minimal carbon emissions, specifically the use of solar energy in a region that is as hot as Dubai. However, since most of the contractors in the industry have not yet upgraded to such technologies, their businesses end up having plenty of difficulties in achieving success in business. Even when the contractors might have invested in these new technologies, construction workers are not yet equipped with the knowledge and skill required to implement these technologies. This then becomes a hindrance to the success and prosperity of many construction industry players in the Middle Eastern region.

Also, as the competition for the few construction projects that have not yet been abandoned continues to increase, many players in this industry are forced to introduce risky and binding commercial options so as to land a project. They are also forced to indulge in the use of cheap methods to meet the requirements of their clients and also to attract more clients and remain competitive in the delivery the expected solutions. The use of Building Information Modelling tools have also helped to make everyone in the industry equally good in deliverying the expected solution as it makes the design, planning, construction and management processes equally as effective for all experts implementing the tool. The interventions of the government to coat saving has led to the introduction of PPP laws in the Middle Eastern region, in trying to offer the public good infrastructure. This has gone ahead to limit the profitability of the companies that get involved ion such deals, making it harder for a company to become successful. The government and its entities also encourage developers to downsize and rephrase the construction project when faced with any difficulty. This also negatively impacts the opportunities for business prosperity in the industry as it makes the contractors to have to factor in as they revise the schedules and designs of any projects. The profitability of the business is badly affected in this manner and this hurts the chances of such companies achieving true business success through growth, stability, and profitability. These factors cause the construction businesses to settle for cheap prices for projects, and high risks of not completing the expected work, and this negative affects their chances of increasing profitability, growing and expanding, as well as achieving a stable level of business.

As earlier explained, the construction industry continues to face many challenges and concerns that affect the ability of the company to achieve success in the growth, profitability and stability of their businesses. Considering the case study examples and their challenges, companies require given working strategies and methodologies that allow the companies to stay ahead of the challenges and risks so as to continue reaping the benefits of the implemented strategies to achieve different levels of success (Green, Larsen, & Kao, 2008). The market share price of construction companies has been greatly impacted by the different economic factors which then force the industry share price to continue to decrease, and thus companies cannot develop. In Sri Lanka, the impact of the force competition from international companies as well as the regulations of ranking fails to allow any construction companies to attract investors that would give the business enough cash flow to remain ahead of the challenges that prevent companies from achieving business management and profitable growth into success. In the Middle East, the go slow on the industry as well as the intervention of the government have also driven away investors into the industry, preventing the achievement of success (Grönroos, 2004).

In addition, due to the effect of a low share price, many companies lack the capital to invest in the different opportunities pf projects due to the fact that the businesses don’t have enough capital to commence the works (Artto & Dietrich, 2014). In addition, because of the risky nature of the business, many clients prefer to pay their contractors in small installments which might make the company have issues in the development and eventual success of a company. This leads to the companies having to settle for borrowed capital, which when considering the high interest rates and the high inflation due to economic reasons does not make the project any profitable to the contractor’s business. The turnover rates of the two case studies in the two regions have also been seriously affected by the economic impacts affecting the regions where the companies are originally from (Anderson & Narus, 2008). For instance, the turnover rate in the case of the firm from Sri Lanka is greatly affected by the level of competition that the local players are getting from their international counterparts, who have higher ranks, more capital, and technical know how to build skyscrapers in Colombo. The local industry is also faced with an availability of land, meaning that the turnover rates for this industry are very low. Considering the Middle Eastern firm, the turnover rates have been greatly affected by the construction go slow in the region, as a result of the intervention of the government and its entities to cost savings in construction projects. The situation is further worsened by high competition within the industry for the few ongoing projects. The future is rather promising for the Middle Eastern industry, although the many regulations implemented by the authorities also affect the turnover (Johnson, Christensen , & Kagermann, 2008).

Due to the low turnover, the profit margins for both industries continue to be very slim, and thus the companies are not able to sustain their profitability to achieve financial success. The gearing of the industries has thus started leaning towards more debt than its equity capital due to the lack of capitals, the dependence on borrowed capital, and also the low turnover rates. However, with the right business strategies, construction companies can manage to reach their goals and overcome these economic challenges to achieve success (Teece, 2010). 

To increase the market share of the companies in their individual regions, these companies ought to greatly invest in embracing technology and work to strengthen the aspects of their company that make developers choose other companies. The construction industry, in both regions, has a problem improving the market share in the industry, and thus encounters a great problem in improving their profitability and growing in the industry to achieve business success (Baden-Fuller & Haefliger , 2013). There is also a chance that the competition within the industry has contributed to the small market share that most companies in the industry have to work with, because of the hindrance of the lack of the technical knowhow and methodologies that guarantee success of the company (Chesbrough & Rosenbloom , 2012). For instance, in the Sri Lankan market, the issue of competition has hindered the business success of the local companies, while the international companies continue to get these projects and succeed from them. Local companies in this market are greatly hindered by the inability of the companies to compete with their international counterparts, in terms of the skill and knowledge required for the construction of skyscraper projects. This is mostly because the local market is equipped with employees who are more conversant with the construction of smaller projects than the industry demands. In the Middle Eastern market, the government and related agencies have contributed to the addition of regulations and technologies to save costs and subsidize different activities in the market (Barney, 2011). Thus, the market basically needs to incorporate the use of technology and also improve the weak areas of each of the companies for the sake of improving the competitive advantage, and thus the number of projects and the market share of the industry.

With regard to increasing the capital and maintaining the company’s healthy cash flow, the construction companies ought to be considerate of the future of the industry considering the specific situations of the company in question (Casadesus-Masanell & Ricart , 2010). For instance, the case of the Sri Lankan company predicts a future where the Sri Lankan capital, Colombo, will experience an upsurge in the construction of skyscrapers due to the improvement of the tourism industry. The Sri Lankan company can thus benefit from anticipating the situation of the future, and thus adjusting itself to benefit of the most from upsurge while at the same tie implementing an effective management system. In the Middle Eastern case, the future holds a negative prediction for most of the contractors although there is light at the end of the tunnel, since projects affiliated to the Dubai Expo 2020 and the 2022 World Cup. The government has made tremendous efforts in levelling the playing field for all the contractors regardless of whether they are international or not.  Thus the companies have to do everything in their power to ensure that the capital and cash flow health is well set for the challenges or benefits coming in the future (Davies & Brady , 2010).

An effective supply chain in this industry is important because it successfully integrates different parts of the supply chain of the construction industry. The supply chain can be developed and maintained to achieve effectiveness which in turn prevents risks and through the adoption of a lean management system that prevent the profitability of the company (Dubois & Gadde, 2010). Ensuring that the time constraints of the projects are always achieved also could improve the effectiveness of the supply chain because there will be no wastages of time which hinder the profitability and growth of these companies. Achieving the expected goals within the time and budgetary restrictions of the developer of the project will enable the companies to achieve a lean management system, where the supply chain management is effective and profitable. The Sri Lankan company for instance could achieve better timelines and costs for the growing market through an effective supply chain management system.

For both cases that have been analyzed in this paper, the societal influence has had a big impact on the outlook of the industry as well as the success of different firms within the construction industry. The Sri Lankan industry, for instance has been affected by the societal factors of population and the lack or unavailability of land, leading to an upsurge in the development of skyscrapers for residential and commercial purposes. The theory of risk in Sri Lankan construction Company is facilitated by the societal pressures from the increase in population which has demanded for the increase in commercial and residential spaces. Considering the Middle Eastern case study, the societal factors that affect the market are concerned with the recent drop in the prices of oil globally, while this oil is the major source of economic gain in these societies. Thus the theory of risk is greatly associated with the global oil prices which in turn affect the economic and social tendencies of this community (Gann & Salter, 2010).

Conclusion

Success in business in the construction industry has been difficult to come by for many players in tis industry, due to the impact of external factors on the construction industry. The ever changing technologies and skills, competition, and other external factors, have constantly hit the construction industry in many parts of the world, affecting company’s abilities to achieve business success. However, identifying the current state of a company’s performance in the industry with regard to the projections of the area where the company is situated helps companies identify what exactly is hindering them from success. This also allows companies to identify the appropriate strategies that can be implemented in these companies to increase their competitive advantage and thus their ability to achieve success. The study looked into the cases of two companies from Sri Lanka and the Middle East respectively, and analyzes the current situations to propose strategies that would help them become more successful through business management. The theories of risk have also been analyzed in the case of the two companies as well. The strategies proposed will make the company more aware of the situation with regard to the industry, and how  they can improve their competitive advantage to increase profits, grow, and achieve stability even for future days.

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