Strategic Management - Construction Industry in Europe - Assignment Example

Strategic Management - (Construction) Construction Industry in Europe – An Introduction Contributing around 11% of European Union’s GDP, the construction industry is the continent’s biggest employer and a global leader in export markets. But what slacks the industry according to even its closest well wishers is innovation and the fact that it is not environment friendly. From the emerging trends it is absolutely clear that the industry has to uplift its innovative capacity and be more environment friendly augmenting it further going forward. Today the way buildings are built have undergone a massive transformation due to changes in building design, architectural fashions, the pressure of environment on the use of the right raw materials and over and above all, our own lifestyle and the way we work today. The desire for modernization and preservation has thrust a high demand on the construction industry. The necessity of protecting the environment is a central issue today. The quick paced advancements in ergonomics and social psychology have led us to being more aware and knowledgeable about the effect of how we build on how we relate to each other. This in turn would likely be construed or rather misconstrued as a natural driver for a right approach to innovation but in fact it is not happening that way. According to Scott Steedman, the President of European Construction Council for Research, Development and Innovation (ECCREDI), “a culture of innovation has been totally lacking in Europe for many decades”. Mr Steedman describes the level of investment by Europe in R&D is ridiculously low and the general interest in R&D and the resulting translation of its successful findings to innovative capabilities is limited to very few companies and institutions. Though marred by blames the industry does have its fair share of excuses for the way it has shaped up over the period. The business itself is a low-profit one and the products have a long period of life. The average life of a building is 50 years with the annual building replacement rate of 2%. So naturally with such kind of timeframes the prospective client is on the lookout for the most conservative option available. Moreover the highly fragmented nature of the industry (92% of them employing less than 10 people) precludes any major investment in R&D or the sharing of information and knowledge. It was under these pressing circumstances that the ECCRDI was evolved by a group of architects, designers, researchers and entrepreneurs to overcome the problem faced by the industry. It acts as a hub for around 14 associations networked amongst themselves to address all levels of the industry such as material manufacturers, architects and civil engineers. Within two years of its existence the ECCRDI was asked by the European commission to organize a targeted research action, TRA, on technologies adapted by construction companies to preserve the environment. Today the TRA comprises of 600 specialists drawn from companies, university laboratories and research centers working on a wide range of EC funded research projects all oriented towards work on environmental preservation. With more than 75 projects accomplished in the first year, about 120 of them are being carried out today. The aim of the TRAs conducted by ECCRDI are: (a) provide an European forum where people can share their knowledge and experience and develop new ideas and research, (b) share and exploit results of research much more quickly, (c) improve the overall coordination of research being conducted by European commission programmes and (d) inform R&D programme planner on the research needs and impending priorities of the future. All such meetings are worskshop-based and emphasis is on realizing practical results. Plans are afoot to extend the scheme in vogue to a Strategic Thematic Network after the expiry of the current contract. Plans are also afoot to gradually move the scheme to central and Eastern Europe. The entire project comprises of twelve thematic groups or clusters which range from research into the technology, performance and durability of construction materials such as concrete, wood and steel to manage the different life-stages of buildings and recycling in construction. Some of the current projects include (1) improving engineering maintenance, (2) managing construction waste and (3) creating high quality housing. Let us look at each one of them more closely. Improving Engineering Maintenance: Significant environmental benefits result from increasing the lifetime of buildings and reducing their maintenance requirements. Also when decay of large structures occurs, the only means of monitoring the process is visual inspection and using instrumentation exploiting discrete strain sensors. The 3 year old mega project of improved maintenance in large constructions is all set to harness the information technology for online strain measurement that allows precise control of 100 years destined buildings and civil engineering structures. This mega project should throw light, information and data on issues involved with structures such as bridges, tunnels and offshore-dams that are subject to unusual stress conditions by the environment effects due to floods, earthquakes, high winds and ice. Even though devices such as resistive gauges are being used today, they are highly time-consuming to insert, involve lot of electrical interconnections, have short working lives and are very difficult to implant during the construction process. However the new technology is based on optical fiber distributed sensing, much more sensitive and easier to integrate within structures. If this technology develops successfully then maintenance schedules could be made more cost effective and safety standards greatly improved. The entire project team is drawn from five EU states and is coordinated at the City University based in London by the Department of Civil Engineering. Managing Construction Waste: Passing by a building under construction one cannot help but notice the enormous amount of building waste that is strewn around. The objective of waste management in construction is to avoid cleaning up the waster after the construction is over and instead look for ways of reducing the construction waste in the first place. A project was floated under the aegis of TRA scheme categorized as recycling construction, comprising of 40 dwellings in each of the five building in France, UK, Belgium, Italy and Norway. The project was effectively coordinated by Malou Origer, from OSL, Luxembourg, including partners from 8 EU member states. Adequate information on all aspects was given to the builder and architect for selecting the safest and most eco-friendly building materials and all wastes were being logged as accurately as permitted. The whole process though painstaking would prove beneficial at the end of the project, helping devise models of calculation for future construction projects to be handled by builders and contractors alike. Creating High Quality Housing: Another project, namely the Future Home Project, coming under the TRA category, “construction process and management of different life stages of construction”, helps the EU member states to meet their important social need of building an affordable housing. The project is coordinated by Dr.Robert Wing operating from the civil engineering department in UK’s Imperial College of Science, Technology and Medicine. The idea behind the project is to gather a pool of data on building pre-fabricated housing that can be used by every member state but simultaneously also considers the national and regional styles, materials and designs as also the personal preferences of the occupiers and owners. The Future Home project will see the evolution of software design tools and also automation in configuration, production and assembly while promoting the use of prefabricated parts and assemblies in a sustained and adaptable concept of building practice. The software tools will be used for both onsite production and assembly processes and for offsite prefabrication plants. The persistent focus throughout would be on improved productivity, value for money, ease of maintenance and sustainability. Benefits would include (a) 30% reduction in construction costs (b) 35% reduction in construction time (c) 60% reduction in defects on completion. The final aim is to keep the industry more efficient and competitive while making the environment cleaner and safer. Performance of European Construction Industry The European construction industry according to informed sources is underperforming currently with productivity growth lagging behind the rest of the economy at a desperate 0.9% than the 2.3% for all other industries. This is further costing the taxpayer up to 80 billion Euros a year. Innovative and globally competitive industries in the US, Australia and Singapore are threatening the European industry in a reported finding of the European commission, as early as 1997, identifying a series of failings. Ten foremost factors contributing to this downward trend are quality, market factors, equitable operation of markets, the construction process, environmental concerns, human resources, technology, the structure of the sector and illegal practices. Though for long Europe enjoyed innovation in the Construction industry, with the migration of process industries to areas where the cost of feed stocks, energy and labor are cheaper and there is a booming demand. Public sector finances being cash-strapped, made the emergence of Public-Private partnership as a powerful alternative. However making them work is not so easy since it has many powerful opponents and critics in the United Kingdom. To strengthen further the European construction industry, Sir Michael Latham, a leading figure in International construction industry and the Chairman of the British Construction Industry Training Board, while delivering his keynote address in March 2005, emphasized on the following aspects namely (a) R&D investment, (b) Freedom for employers to pursue their own ideas and develop creativity, (c) Employment from a range of backgrounds and experience, (d) Development of strong customer ties, (e) Willingness to draw on knowledge and expertise from outside the company and (f) Networking with innovative companies. Sir Michael reiterated the fact that performance has to be boosted through innovation for prosperity and reform. He stressed on the impending need of innovative construction companies in Europe comprising customers, contractors and suppliers as well. Each member in the European construction supply chain must take responsibility for enhancing performance through networking and sharing good practices. It is the industry which cannot afford anymore trudging along alone and making costly mistakes in the process. The construction sector in Europe is further described as a sector of unstructured activity with a wide range of interactions in the value chain. Further the RTD activity in the sector is quite unstructured and while a lot of knowledge is produced it is not being recorded. In fact instead of more than being a response to planned activity and innovative policy they merely focus on solving day to day problems. Major innovations however have been made in the fields of material and machinery, and most of could be considered as a technology transfer from other sectors. Key Drivers of Decision Making in Construction Industry As per the cycle of economy, market demand and financial support are the two major drivers of the activities in the construction sector. From attempted initiatives and the corresponding outcomes in this regard some challenges have been identified in the European Union construction sector under the broader frame of the global economy and the development of so called knowledge based society. The terms innovation, knowledge valuation and competitiveness are strongly interlinked. With these considerations let us look at the key drivers of the future of the EU construction sector in terms of the barriers, opportunities and challenges which lay ahead. At 0.5% of the turnover, the level of investments in the RTD activities in the construction sector is very less. Most innovations in this sector are increasingly based on incremental innovations on existing technologies rather than stemming from any basic research activity. The inherent characteristics which stress the RTD activity in the sector are (a) being heterogeneous and fragmented, (b) driven by market, (c) most of the projects with each different building in different places as prototypes, (d) cycle of economy as the dependency factor, (e) value chain discontinuity, (f) intensive mobile work force who are non-qualified and (g) strenuous work environment. Moreover about 54% of the construction enterprises are self-employed and comprise of less than 10 employees and together constitute 93% of all construction enterprises accounting for 50% of construction activity and 34% of turnover as against 81%, 15% and 7% respectively in the manufacturing industry. Under the circumstances it is very difficult to structure innovation. Also contributing to this lacuna is a perceived lack of awareness of the regional institutions while promoting better innovation, knowledge or technology transfer strategies and benchmarking best practices for SMEs. This, despite significant impact of the sector on the economy of EU as a whole, i.e. up to 10% of GDP employing 7% of the workforce. Adding to this is the focus of SMEs to solve day to day problems rather than promoting collaborative activities proactively at the EU or regional levels. Certain studies have clearly demonstrated that the EU construction sector is unstructured and not successful in adopting new technologies and possible changes to its processes when compared to other developed or ripe sectors. Once again identifying and looking at the characteristics of real estate and construction cluster: (a) The fragmented nature of the sector results in innovation being a spread over interaction among several actors and hence the process of innovation is neither manageable nor systematic, (b) The fluctuation in market demands which does not seem to go parallel with the cycles of the remaining economy, (c) Being project based the impact and results of innovation on business is highly difficult to verify under ever changing conditions, (d) Cycles involving process or product improvements are extremely slow with the industry refusing to adapt to quick changes is production technologies, (e) the ability of the industry is not at the same level as that generally found in other industries in managing the innovation process, (f) Limitations exist in risk taking while developing new solutions or products, (g) Lack of educated personnel in the companies of the sector, (h) the culture within the sector is conservative and not even end user oriented in a few countries, (i) A significant strong role of the Government influences innovation greatly in this sector than any other. Under such a backdrop the innovation process in the construction industry is neither systematic nor linear. Some of the guidelines for bringing order to the process of innovation are as follows: (a) Development and Incorporation of advanced materials (concrete with high behavior, composite materials, lighter materials…), (b) Incorporation including technology transfer of ICT technologies from other sectors, (c) progressive incorporation of pre-manufactured structural parts and products, (d) Organization models introduced with a view to integrate the value chain in the construction hyper-sector, (e) Reducing labor and time expenses by incorporating innovative machinery, (f) Organization of operations and logistics thru the application of industrial models, (g) Developing legislation affecting environment and safety conditions, (h) product quality control, (i) Improvement of workers professional qualifications. Thus it is undeniable that the new organizational model with synergies and integration of value chain will act as the key factor in shaping up a more efficient and innovative construction sector. To promote the market oriented nature of the construction cluster which involves the SMEs and the associated organizations, both governmental and non-governmental such as tech. & science institutions, a set of services to support activities and relationships of the involved entities are called for. Some of these services are: (a) Business Intelligence Services, (b) Technology and Innovation transfer support, (c) Marketing and Business support, (d) Prospective studies and Market analysis, (e) Bidding negotiation of contracts both private and public, intermediary support for relationships with public and private institutions. The resulting benefits accrued to the cluster from the above services are (a) larger negotiation capabilities with providers and customers, (b) effective knowledge sharing and transfer of the same, (c) acceleration of the innovation cycle and quality level of it, (d) Contracting or reducing the cycle period for knowledge valuation from RTD activities to the market, (e) Nurturing RTD capabilities and results of associated companies, (f) creation of a frame of confidence and collaboration between companies, sometimes regarded as competitors. Being complex in nature construction process, today calls for a construction innovation network, involving a widely spread group of participants whose RTD needs are as diverse as they are, ultimately developing high quality buildings and constructions. It is a well known fact that firms, suppliers and services surface to meet each other only in the event of a project occurrence. Higher specialization and technological competence are playing a key role in strengthening the pressure to create richness and added value spurring the evolution of global economy with new ways for establishing business relationships. A demand for higher capability to compete at a global scale has arisen as the conditioning factors of the economy. Business and competition capabilities are fostered, with a better exploitation of existing resources and promotion of synergies, with the concept of network acting as an integrating solution under the framework. An SME can be regarded as an extension of another SMA and even of the whole network in this fashion. However this integration concept has direct impact and relevance over the rationalization of expenses and degree of specialization, particularly those with respect to inter-organizational business transactions. This allows each SME to get specialized products and service from the network while focusing on their core business. Conclusions and Recommendations From researched findings in to the business operations of the construction industry certain defined characteristics have been identified and conclusions drawn that the market demand, one of the key drivers of decision making in the business operations of the industry, is centered around a range of products which typically are characterized by the following influences: There exists no possibility of a serial production All the production systems have to be moved to the consumer location as permitted by the geographical spread of locations with virtually no scope for storage and distribution of the final products. The continuous evolvement towards more and more specialized and complex requirements found in the modern society. Influence of restrictions imposed by energy and environment on related activities. From the offer side of the business environment too there are certain organizational and technological influences on the demanded product characteristics as outlined below: Spreading of resources together with their activity geographically. Low level of capital investment coupled with an intensive utilization of the workforce. Low productivity of labor force, as low as 50% of the manufacturer industry. Low interest of the sector in the labor market. Predominance of SMEs (90% of the enterprises have 10 employees or less). The characteristics of the business environment or the market that arises from the above environmental factors are outlined below. A neat disclosure during design and production phases that shifts the builder away from the interests of the end user. The high diversity of participating players. Resulting of a deficient definition of the initial contractual objective and limitations imposed on their subsequent improvement progressively with successive projects and works consequent to the high business risk. Additionally the limitation of improving the contract conditions due to the impracticality or impossibility to predict all upcoming contingencies of their activities. Domination of biddings. Being the second sector from the value-add point of view (the first one being metal production, machinery and equipment) (OECD), representing a great dimension of their activity. It has been verified in European Union countries like Germany, United Kingdom, France and Spain that the construction industry companies have a very limiting role on the RTD activity of the whole country as proven by certain studies (Eurostat, 2004; Cotec Foundation, 2000; European Commission, 1997; Encord, 1994). Before concluding it is recommended that establishing wider dimension in regional, technology, legal and social viewpoints and considerations are the only few ways to face the challenges of the construction sector at EU level today. Read More