Planning a Strategy for Success - Case Study Example

Planning a Strategy for Success: Emaar Properties, Dubai 2008 Executive Summary 1. Introduction In the competitive world of today, a company needs to continuously evolve new strategies and execute them. A winning strategy is one that not only differentiates the company’s products and services but also one that has a differentiated organization structure. Strategies are successful only when the management has a clear idea of the competitive scenario and the industry peculiarities. Corporate governance is perhaps the most crucial ethical issue in businesses of today. In an increasingly complex world of globalized business activities, CEOs and other executives, under the pressures of achieving winning strategies, are exposed to ethical dilemmas related to finances, products and other business practices. In order to develop a strategic plan for Emaar Properties, it is essential to study both the external and internal environment in which the organization functions. Emaar Properties is undertaking the construction of the tallest building in the world, Burj Dubai, as well as a host of other residential and commercial buildings in Dubai. It has employed a huge number of expatriate construction workers, mostly from India. This report will chalk out a strategic plan for the company and the labor department, in which I work, to ensure that the growth of the company is sustained and the reputation of the company in labor management is not tarnished. 2. Research methodology The paper will first elaborate in detail the background of the company in terms of its activities, the market, the customers, its mission and vision. Defining the terms strategy and strategic management, it will then define the company’s strategic goals. The next stage of the analysis will be to study the external and internal parameters of the organization to generate strategic options for the future. The last stage of the exercise would be to analyze the role of the department and its strategic management options. The strategy is developed on the basis of an analysis of the Dubai real estate market, the growth chart of Emaar Properties on the basis of information gathered from newspapers and web articles and relating these to various strategy theories. 3. Organizational background Industry background The United Arab Emirates (UAE) has seen unprecedented high rate of growth since the discovery of oil reserves in the region. However, the demographic of UAE is curious, since only 29% of the population was UAE nationals, according to the latest census in 1993. UAE thus has one of the highest number of expatriates in the world. Further, the population is relatively young, with a median age of 30 years for the male population and 20 years for female. Most of the immigrants are from Asia and a large number lives in collective accommodation. The income level, expenditure patterns and lifestyles vary widely across sections of the population. Although the state of Abu Dhabi is the major center of economic and political activities, Dubai is the center of finance, commerce, transportation and tourism. Despite the large number of expatriates, 51% of commercial and industrial establishments are owned by UAE nationals (Heritage, 2006). Dubai, in particular, is undergoing a frenzy of construction work. The tallest building and the largest shopping mall of the world are under construction as are a number of sophisticated theme parks, replicas of pyramids and Babylon. Company background Emaar Properties was the first expatriate-owned real estate company in Dubai, that attracted many such investors since the 1990s. The company was established in 1997 and reported a rise in net income by 1.3 percent in the fourth quarter ending on 31 December 2007, to $473.7 million, making it the largest Arab real estate company in terms of market value (Cordahi, 2008). Key projects The major projects that Emaar has completed so far are the Greens, and Emirates Living, which includes The Meadows, The Springs, Emirates Hills and The Lakes. The first Emaar project, Dubai Marina, has attracted other developers like Nakheel Damac (dubairealestate1). The massive Burj Development project, which includes the construction of the tallest building in the world, is nearing completion. Its other ongoing projects include residential high-rises, The Old Town and The Residences, and the luxury villa, the Arab Ranches. The company also has international operations, including those in India, Saudi Arabia, Egypt, Lebanon, Morocco as well as in the United States. However, the international operations have taken a beating since soon after the company entered these markets, the housing boom in the United States crashed. Hence, the future of the company lies in the domestic market and the strategic choices have to be oriented in the middle east. Customer segments Luxury residential projects Shopping malls Office space Mission “to transform Emaar into a one-stop, global solution provider for lifestyle, including homes, work, play, leisure, retail, health, education, finance, industry and more” (as on Emaar web site) Vision “transformation into one of the most valuable lifestyle developers in the world beyond real estate development” (as on Emaar web site) This assignment is focused on the Labor Welfare department. As a labor manager, my role is to integrate the strategy of the department to the overall strategic goals of the company. Mission of the Labor Welfare Department: To provide employee development and positive work atmosphere to enable trust, integrity and fairness among the employer and employees and to ensure social responsibility. 4. Strategy and strategic management In order to create a strategy successfully, a company needs to study the industry and the competition. It also has to secure commitment to the strategy down the line of executives so that it can be successfully executed. It is often more difficult to execute a strategy than creating it since it may come up with resistance from some quarters. A wide array of managerial skills need to be garnered to make a strategy winning. It is most important to integrate different types of skills across different management levels in a coordinated manner. According to Thompson, Stickland and Gambler (2007), a winning strategy may be executed by uniting the entire organization towards the strategy, generate commitment and enthusiasm and fit the organization towards the strategy. While the top managers take the lead role in designing and executing the winning strategy, all managers and workers need to take up roles in the process. Strategic goals of the company Balanced growth – Increase market share by 30% in 2008; capture residential real estate markets through aggressive brand promotion; attract office real estate and shopping mall customers. Strategic plan of the company Operational efficiency – Improve project deployment schedules; eliminate waste and pollution in projects, reduce costs, improve labor affairs in order to control bad media Customer focus - Form differentiated project SBUs People’s issues - Attract new talent and institute labor development teams, Build labor facilities. Linking of departments to strategic plan Strategy Objectives Department responsible Balanced Growth Increase market share from current levels by 30%. Business Development & Sales Operational Excellence Improve project quality Eliminate 30% waste in production line. Improve project implementation schedule Quality Operations Operations Cost leadership Utilize planned budget by 2008. Streamline project costs and supply chain All departments Finance People Program Attract new talent pool Human Resource Labor issues Improve quality of work and housing facilities for migrant labor Labor Welfare 5. External and Internal Environment Analysis External Environment Analysis L’ PEST analysis, that is studying the political/legal, economic, social and technological environment, is concerned with analysing the business environment that a company faces (tutor2). This is the macro environment analysis that the company operates under. Linking PESTLE to Emaar Properties The political/ legal framework for the real estate sector in Dubai is favourable as the government encourages expatriate investors into the business. The economic and technological environment, too, is favourable since the oil price spiral has resulted in fast growth of the economy and high investment rates have enabled the acquisition of advanced technology for construction. The only negative environmental factor is the social repercussions of the use of the high number of expatriate construction workers and the plight of their living conditions that has attracted global attention and also inciting protests. Porter’s Five – Forces Theory Source: Porter (1980) According to Porter’s (1980) theory, a company has to decide on its winning strategies on the basis of competition in the industry as defined by the five forces: 1) the threat of entry of new competitors (new entrants), 2) the threat of substitutes, 3) the bargaining power of buyers, 4) the bargaining power of suppliers and 5) the degree of rivalry between existing competitors. The business environment depends on the level of industry competition and the intensity of rivalry, which in turn depend on the threat of new entrants into the business and that of substitutes as well as how well the company can manage its buyers and suppliers. The intensity of rivalry between players also depends on the number and size of players, cost structure of the industry, level of product differentiation, customer-switching costs, level of aggression exhibited by players and exit barriers. The threat of new entrants raises the level of competition in the industry. The intensity of competition to a large extent depends on the threat of substitutes. The number of buyers for the product increases the opportunities for the company while its competitiveness vis-à-vis the suppliers of products determine the margins. This is the micro environment that the company operates under. Linking Five-Forces theory to Emaar Emaar has a competitive edge in this business environment where, by initiating large scale construction early, has raised entry barriers for new players. Hence, there is little threat from substitutes for the luxury real estate segment. Rather, other developers like Nakheel follow locations where Emaar has projects. Contractors and labor suppliers have limited bargaining power since Emaar is the largest real estate developer and the government has restricted union activities. Buyers of property, too, have little bargaining power, since the appreciation of prices of houses has meant that few want to miss out on the opportunity. Critical success factors Critical success factors (CSF) are defined as “those characteristics, conditions, or variables that, when properly sustained, maintained, or managed, can have significant impact on the success of a firm competing in particular industry” (Bruno & Liedecker, 1984). Linking CSF to Emaar Emaar’s success factor is building high quality luxurious residential and commercial real estate of which there is a high demand in the Dubai market. Boston Consulting Group matrix Source: Hamel & Prahlad At the star stage, the company is a leader in the business, generate large amounts of cash and are able to invest. At the cash cow stage, the company has sufficient cash but should not invest since growth is low. At the dog stage, the company should plan liquidation. And, at the problem child stage, the company needs to chalk a serious turnaround strategy, perhaps by liquidating some segments (valuebasedmanagement). Linking BCG Matrix to Emaar Emaar is now in the Star stage, where its market growth is high but it has not yet achieved very high market share since its projects are not yet very old. Hence, the strategic option for the company is to attract more customers to its projects through attractive schemes. Internal Environment analysis Resource Audit The resource audit is aimed at identifying the resources that are available to the company and make the best use of these resources. Linking resource audit to Emaar Emaar Properties’ main resource is its designing capabilities, high brand value, project implementation procedures and sufficient cash flow. Porter’s Value chain analysis Primary Activities Source: Porter (1985) Linking Value Chain Analysis to Emaar Although the value chain analysis is primarily developed for manufacturing firms, it can also be applied for a building company. The primary activity of Emaar Properties is building high quality residential and commercial property. Inbound logistics consist of material supply, final assembly that of project construction and outbound logistics delivery of property to customers. In this highly labor-intensive business, the support system, particularly that of human resource management and training, is crucial. Seven S model According to Tom Peter’s Seven S model, the seven success factors for a company are Strategy Structure Staff Skills Style Systems Shared values (freebizplan.com) Linking Seven S model to Emaar Emaar Properties has a specific strategy of serving the demand of luxury property in the cash-rich Dubai. The structure of the company is well-defined though its labor relations are not sound. The style of functioning is high pitch and aggressive. It has definite systems of project implementation. However, the development of shared values remains some ground to be forged. Summary of External and Internal Environment Analysis On the whole, the external and internal environment analysis shows that Emaar Properties has a favorable business atmosphere both in the macro and micro sense. 6. Generation of options Stakeholder analysis A stakeholder of a company is anyone within or outside the company who is a decision maker, adviser, implementer, or anyone else who may be affected either positively or negatively by a change in the strategy. Through stakeholder analysis, it is possible to identify the intrinsic motivations of each stakeholder, forecast the composition of the stakeholder grid, devise plans and reduce company problems (freebiz.com). Linking stakeholder analysis to Emaar Stakeholders in Emaar are the investors, including Dubai government which holds shares in the company, management, executives, migrant labor, customers, civic organizations, citizens of Dubai. The company has a commitment to its shareholders, both in terms of dividend payouts as well as to increase shareholder value. There is a significant controversy, however, whether the shareholders prefer to earn high dividends or plough it back in order to raise shareholders value. While some theorists postulate that a firm’s dividend outflows decrease or increase the shareholder value, others find dividend policies irrelevant for the firm’s value (cited in Holder, et al 1998). In the real world, shareholders expect higher dividends. In most cases, announcements of dividends are usually followed by favorable sentiments in the share market indicating that shareholders’ are positively affected by higher dividend payouts, irrespective of Modigliani-Miller’s dividend irrelevance theory. This is perhaps because of the simplifying assumptions of the theory that is typically not adhered to. For example, investors do not usually have perfect information about the firm’s intrinsic values. The asymmetry of information exists between the firm’s managers and investors and the release of certain information immediately affects the firm’s share value. Emaar’s market value is fast rising and it should share the increased value with shareholders through higher dividend payouts. TOWS (or SWOT) Matrix Threat: The global financial meltdown following the US sub prime crisis might have an impact on Emaar’s future margins and profitability. Opportunity: The spiraling oil prices has provided high disposable income to the population in Dubai, thus increasing demand for luxury residential property. Weakness: Labor relations of Emaar are weak, attracting a lot of adverse media reports. Strength: Emaar has very strong design capabilities and good project implementation schedule records. Porter’s Generic strategies Linking Generic Strategies to Emaar Emaar is one of the lowest cost builders in Dubai. It has cost focus that is reflected on its project schedules. It has differentiated products through niche projects like the Burj Dubai project, which is the tallest tower in the world. Ansoff’s Matrix Risks are lowest when market penetration is attempted by present or existing players. Market development by a new player and product development by the existing player lies at the next levels of risks while diversification has the highest risks involved. Typically existing construction companies diversify into commercial projects as the product development strategies. New players attempt to enter into the market through this avenue by either tying up with an existing player or capitalizing on synergic products since it is a moderately risky business. Linking Ansoff Matrix to Emaar Emaar Properties has already developed a brand for providing luxury residential property in Dubai. It has now diversified in commercial complexes. Summary of generation of options Emaar has high competitive strength in the real estate market. In order to maintain market share and generate more cash, the company has to make an all-out effort gearing the entire organization towards it. However, an excessively aggressive attitude towards the strategic decisions may lead to conflicts with other corporate goals like maintaining ethics – in terms of integrity, honesty and worker benefits – or commitment towards the shareholders with regard to dividend payouts or shareholder value. 7. Role of the department The role of the labor department is crucial for a construction company like Emaar Properties. In particular, the pitiable living and working conditions of the workers have attracted global attention. The huge construction activities, to some extent on the back of the oil price spiral since 2003, are almost entirely dependent on migrant workers from South Asia, who comprise nearly 95 percent of the workforce in Dubai (Davis, 2006). There are nearly 2,738,000 migrant workers in Dubai. The laborers are usually bonded to a single employer as they are brought over in bunches through agents on labor contracts. Collective bargaining and trade unions are banned in the United Arab Emirates. Hence, the laborers, who are indeed ‘forced labor’, as the Human Rights Watch noted in 2003 since the agents most often confiscate their passports and visas on their arrival at the airports so that they can control them. The Independent wrote ‘the labour market closely resembles the old indentured labour system brought to Dubai by its former colonial master, the British” (quoted in Davis, 2006). They live in crowded accomodation of six to twelve persons to a room, usually with no toilet or air conditioning, in camps in remote areas far removed from the glitzy skycrapers and malls of Dubai. Working conditions are no better with numerous cases of construction workers falling to their death has been reported in the recent past. In 2004, itself, Human Rights Watch reported that as many as 880 workers were killed during work. And when laborers protest over low (at about $100 to 150 a month) or unpaid wages, poor living conditions and unsafe work atmosphere, they are promptly arrested (Davis, 2006). Contractors do not provide potable water or sanitation facilities in the remote desert camps while the subcontractors often function in a tyrannical manner to control the debt-ridden workers, spying over them and keeping them bonded to slavery. The government, too, has nearly turned a blind eye from fly-by-night subcontractors and has failed to arrest or prosecute those who disappear or do not pay the due wages. Workers’ protests are increasingly becoming common in Dubai despite the draconian laws that ban collective actions. In 2006, the Human Rights Watch reported on low wages of construction workers and poor working and living conditions that are meted out to them. As a follow up, work of construction of the tallest building Burj Dubai was disturbed when workers went on a rampage. Workers at the construction site of the new International Airport, too, joined the strike in sympathy. The Human Rights Watch reported that the conditions led to the suicide of 80 Indian workers committing suicide in 2005, up from 67 in 2004 (Jones, 2006). Current strengths and weakness The department at present has limited powers to implement changes in labor facilities although it has taken some initiatives in providing better living and working conditions for the migrant labor. However, it still has to depend largely on the labor contractors. Identification and selection of options for the department Building of temporary labor housing facilities near the project sites Providing adequate sanitary and other civic facilities to the labor Fixing work schedules to a maximum of 8 hours a day Enter into an aggressive advertising campaign regarding labor relations 8. Strategic management of department The strategic management of the labor department should be directed towards improving the living and working conditions of the migrant workers. The government does not take enough initiative in monitoring the living conditions of the construction workers. According to municipality laws, it is illegal to house more than 5 people in one room in residential buildings. Yet, most construction workers in Dubai find themselves sharing rooms with over seven people. This means that contractors are flouting laws and the government is doing nothing about it (Stratford, 2006). The government is also drafting a new law that would legalize trade unions and collective bargaining in Dubai. However, there will be one union, encompassing the construction, fishing and other industrial workers. The government will specify the ways that the unions can organize their protests (Jones, 2006). In the meantime, the Permanent Committee of Labor Affairs hears the abuse cases. In this scenario, it is essential for the labor department of Emaar Properties to build permanent facilities for workers, which would include proper sewerage and electricity. Work timings and schedules should also be made comfortable. 9. Conclusion Thus, Emaar Properties, the largest Arab real estate company, is on the way to change the skyline of Dubai. The construction of its most prestigious project, Burj Dubai, the tallest building in the world, is nearing completion. Besides, since 1997, it has built a number of luxurious residential and commercial complexes. Although Emaar Properties has also ventured into international markets, it should concentrate on the domestic market since the Dubai real estate sector has the most prospects because of its favorable business environment. The strategic options that are recommended for the company is to increase market share through more attractive projects. At the same time, the strategic goals of the labor department of Emaar Properties should be to improve the living and working conditions of the immigrant workers since the adverse negative media reports are hurting the company’s image. Works Cited Heritage Foundation (2006). Index of Economic Freedom, United Arab Emirates http://www.heritage.org/research/features/index/country.cfm?id=UnitedArabEmirates Thompson, A., Strickland, A., Gamble, J (2007) Crafting and executing strategy: text and readings 15th ed. New York, NY: McGraw-Hill Irwin Ansoff, I. (1989), Corporate Strategy, rev. edn, Penguin, Harmondsworth. Archibald, R D (2006). The Purpose and Method of Practical Project Categorization. PM World Today. Vol VIII Issue 10 Hamel, Gary & C. K. Prahalad (1989). Strategic Intent, Harvard Business Review, May-June http://www.tutor2u.net/business/strategy/PEST_analysis.htm Porter, M.F. (1980) "Competitive Strategy", The Free Press, New York Holder, Mark E., et al. 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