A strategic approach to industrial construction
firms in Belgium
CHANTAL
SCOUBEAU
Faculty
Warocqué - University of Mons-Hainaut - Mons - Belgium
Chantal.Scoubeau@umh.ac.be
Keywords : Construction - Projects -
Business Intelligence System - Relational positioning - Technological
positioning - Empirical approach
For various reasons the Belgian construction
market is becoming more and more competitive. The reduction of public
investment (to comply with European Union and single currency criteria) and the
appearance of intermediaries aiming to take over part of the role the general
contractor usually plays (the management and coordination of the various parts
of the project) are forcing the various actors involved to implement more
efficient strategies.
The goal of this study is, first, to analyse
the theoretical recommendations made by researchers from various countries,
secondly, to study the possibility of applying them in Belgium and to identify
the main aspects of Belgian behaviour and finally to classify construction
firms and to pinpoint the differences between the categories.
THEORETICAL BACKGROUND
Literature about project marketing is
relatively recent. In fact, project marketing has been developed over the last
two decades. A project can be viewed as
a complex transaction concerning a group of services, engineering and products
carrying out a specific asset for a buyer (COVA B., 1990) over a defined period
of time. It can also be considered as a
"whole", ready to function (HOLSTIUS K., in Tikkanen 1998). The construction industry is thus an
important sector in this field.
A project can be approached from different
angles. The first approach is to study the various stages of its advancement
from the supplier's and the client's points of view. Research projects have
been carried out by B. Cova and K. Holstius (COVA B. and HOLSTIUS K., 1993)
which describe the various stages in the development of a project and pinpoint
the importance of dialogue and exchange between the two main actors.
Another approach
concerns the various partners in the project : client, industry, financial
actors, insurance, experts, civil actors, etc.
The relational aspect seems to be very important in order to develop a
harmonious project able to take place in its environment. Different models have
been developed concerning the behaviour of industrial actors (Webster &
Wind, 1972 - Ozanne et Churchill, 1971 - Sheth, 1973 - Choffray & Lillien,
1978 - Moller, 1983 - Woodside & Vyas, 1987 - Bonoma Zaltman &
Johnston, 1977 - IMP, 1982-1989 - etc) but they are generally not really
relevant to projects - which are specific and unique. From the actors' point of view, project
marketing can also be envisaged as the management of relations between actors
in order to carry out a current project or to promote a future one (OWUSU,
1997).
In fact, the characteristics of a project -
uniqueness, complexity and discontinuity (COVA & SALLE, 1999) - would
suggest that a strategic approach would
be the most adapted to the situation. Uniqueness because each project is
different from the others in terms of size type of client, type of financial
package, type of intermediaries and other actors, risk, etc. Complexity because
a large quantity of facets exist such as, for example, technology, financial
means or the social aspect (including political actors and actors of the social
environment of the project). And,
finally, discontinuity because a client rarely carries out two projects one straight
after the other. There is thus a period
of "sleeping relationship" between two exchanges of resources.
We can recap these different points of view in
diagram 1.
Diagram 1 : Development of a project
We can analyse this diagram as follows :
First, we have a
client looking for a solution to a problem, sending out signals to his
environment (contact with potential suppliers, contact with authorities, etc.)
which are detected by the business intelligence system (BIS) of a potential
supplier. This business intelligence system also enables the supplier to obtain
information concerning the technological environment (substitution
technologies, evolution of the technologies of the firm, new technologies,
etc.), competitors (strengths and weaknesses, number and characteristics, new
competitors, etc.) and the general environment (political, social, legal
aspects, etc.). With all this
information, the supplier has to make a decision. If the project holds no
interest for him, he will abandon it. If he learns about the project at the
beginning of its development by the client, he can try to make a creative offer
(which is the best way to avoid competition) by putting together the different
parts of the project with the client (the influence of the supplier is then at
its maximum). If he finds out about the
project later on, he can try to influence the specifications through his
relational network. And finally if it is
too late to influence the project, the last solution is to meet the
specifications established by the client (and unfortunately, often, by the
client and a competitor !). In each case, the supplier needs to build a
financial and industrial package with the help of engineers, experts, insurance
institutions, financial actors and industrial partners. All this leads to
negotiations and sometimes to a contract. Once the contract is signed, the
supplier has to carry out the project.
During this period he can also gain interesting information for a future
contract. This is the same during the period of
the "sleeping relationship" when the supplier will try to
maintain contact with his client by means of after sales services, training,
etc. These contacts will lead to obtaining information which will bring us back
to the beginning of the diagram (signals detected by the Business Intelligence System).
EMPIRICAL APPROACH
The first step in our study was to meet the
managers of 8 construction firms to compare the reality of industry with the
theory summed up in our diagram. We
separated our approach into different phases :
The Business Intelligence
System :
The theoretical approach indicates that
managers first have to determine the nature of the information they need to
avoid having to manage a too important quantity of inessential information.
Unfortunately, in the construction industry, this preparation stage seems to be
absent except when a company wants to develop creative offers. Otherwise, the
information needed is determined intuitively.
As for the technological aspect of the business
intelligence system, the actors responsible are the research and development
departments (also called engineering departments or study departments). They
usually use information coming from the general and specialised press, from
suppliers, from current contracts, from exhibitions, etc. In fact firms seem to wait for technological
information and rarely go looking for it.
At the competitive level, managers estimate
that they know their main competitors and therefore avoid allocating money to
their analysis. They also think that a new competitor will always be detected
before becoming dangerous. Nevertheless, they do use some sources of
information such as contacts with suppliers, exhibitions, local agents, etc.
The environmental business intelligence system
is mainly analysed by firms working at an international level. The others estimate that they know their
environment well enough. The main
aspects studied are the legal, political and
financial ones (from the point of view of stability). Data banks (of the
European Bank of Reconstruction and Development or of the International
Monetary Fund for example) and local agents are often used.
The most developed aspect of the business
intelligence system is the commercial one. This is particularly due to the hard
competitive nature of the construction market (reduction in public investment,
emergence of new actors who want to act as project coordinators, lack of real
differenciation at the technological level, etc.). The main means used is the
relational network (of all the members of the company). Local agents (in
Belgium, local means from the French- and Flemish-speaking parts of the
country), the general and specialised press, cooperation with other firms and
data banks are also used.
The business intelligence system is thus
developed according to the pressure of the competitive environment and the
resources of the company. These are mainly allocated to the identification of
potential clients. Belgium is judged to be stable and the main actors
(competitors and others) are well known by the managers. The technologies involved are not
particularly complicated and are therefore studied less by the companies. The system actually developed by firms seems,
therefore, to be different from that recommended in theory.
Project screening :
The selection of potentially interesting
projects is often made by the managers of a company, using their past
experience. Some lists of criteria
exist but are used mainly when the managers in charge of the decision do not
share the same opinion of the project.
An exception to this phenomenon appears when a company exports a
project. At this level, the risk is
higher (technical risk, political risk, financial risk,…) and the managers are
more aware of the importance of studying the specifications of the project and
of its environment.
In fact, few companies have a
formal way of selecting projects. One of the
firms we studied, for instance, works with "red and green
signals" which enables it to decide whether it should stop or continue a
project.
Another problem in this area is how to compare
the various projects. The theoretical approach suggests that it would be more
interesting to study a sort of portfolio of projects but the companies we
questioned study one project at a time. As a result, resources are not always
allocated to the best project.
The influence that can
be brought to bear on a project :
The influence on a project depends on the
position of the supplier in the industrial package being put together.
Not all companies are able to develop creative offers. This is only possible for the main
contractors which are often bigger companies with a higher financial support
and which have their own engineering or R&D departments. In other cases companies try to develop part of
a project which will eventually participate in an offer made by another firm
managing the whole project. For legal reasons, this type of influence is of
course officially more frequent in the private sector.
The industrial and
financial package :
The financial
and industrial packages are, of course, developed by the main contractor in
order to present an attractive offer or to respond to an invitation to tender.
The capacity a company has to build such packages is an important point of
comparison between companies used by clients to judge the degree of risk. This is why some new intermediaries -
competitors of the traditional actors - appear to develop this function and
take the place of the main contractor.
The planning of the packages generally interests the same actors which
then become well known and can be compared.
Problems arise when a supplier wants to develop a contract outside his
country. He is sometimes obliged to work
with local partners who are unknown to him and not necessarily so good as his
regular ones. The risk for the supplier
is thus higher because he has to respect all the contract specifications in
terms of deadline, quality, etc. with nearly unknown partners. In this situation, the BIS is really
important.
This first approach of industrial reality
helped us to understand the behaviour of construction companies but, of course,
could not be generalized to all the firms in this important sector. Nevertheless, it permitted us to identify
some gaps between theory and practice (concerning the Business Intelligence
System, the portfolio of projects, etc) and allowed us to select items which we
then studied in greater detail in a quantitative analysis, carried out on the
basis of a questionnaire mailed to 455 construction firms, providing a response
rate of 33.4 % (152 companies).
The questionnaire covered different aspects of
the problem : the types of firm involved and the types of project they carry
out, the business intelligence systems used, screening, how and when a firm
joins a project and general information concerning the firms which were
contacted.
The firms involved :
The majority of the companies in this sector
are independent (78.15 % compared to 8.61 % of Belgian groups and 13.24 % of
international groups). They mainly work on projects carried out in less than
one year (78.26 %) and which represent a medium part of the turnover often
lower than 10 % (7.86 % lower than 1 %, 28.35 % between 1 and 5 % and 33.07 %
between 5 and 10 %). Only 24 % of the
firms questioned export their projects.
This is often due to their size (compared, for example, to big French
construction companies) and the fact that they are independent firms.
The Business
Intelligence Systems in use :
54.97 % of the
companies do have a technological business intelligence system but the
technologies used are still being developed (66.02 % versus 21.61 % in growth).
As for competition from other firms, 86.67 % of
the firms consider the number of competitors as particularly high. Competitors
are generally in Belgium (75.84 % versus 20.13 % from Europe and 4.03 % from
other parts of the world).
Only 58.28 % of the firms develop their
environmental business intelligence system.
On the commercial level, business intelligence
systems are used to assess potential suppliers and to identify potential
clients. 63.70 % of the firms prefer to
assess their suppliers themselves and do not consider "official"
assessments (made by independent organizations or provided by the public
sector) as efficient. As for the
identification of clients, the commercial department is the unique responsible
actor in 50 % of the cases.
Generally, only 31 % of the firms use data
banks, feedback on information exists in 81.56 % cases and the size of the
company seems to be a problem for the circulation of information in only 14.39
% of the cases.
Screening :
The projects are chosen by the top management
of the firms in 70 % of the cases (in 2.01 % the commercial department does the
choosing and various other services in the other cases). The criteria used are the profitability of
the project, the planning and the
importance of the project for future contracts.
For one signed contract, 46.81 % of the firms
have had to detect less than 10
projects and the relation between tenders and detected projects is 0.55.
How and when projects
are joined :
Construction firms prefer to be the main
contractors on Belgian contracts (if possible in the private sector). The main
advantages they develop are adaptation ability/rapidity of execution/respect of
the delay - ability to carry out the entire project and awareness/ brand image
in the industrial sectors.
General information :
Managers assess their firm’s position as
regards various criteria as follows (Table 1) :
|
Criteria |
Position* |
|
Internal communication External communication Adaptation capacity Recruitment and training Information system Client-supplier relationship Awareness/ brand image Anticipation of the market Needs Mastering of technology Innovation capacity |
Good (53.9 %) Intermediary (48.2 %) Good (72.14 %) Intermediary (49.33 %) Intermediary (56.2 %) Good (75.18 %) Good (71.22 %) Intermediary (56.53 %) Good (48.55 %) Intermediary (52.55 %) |
*It is obvious that managers often avoid
assessing the position of their firm as
"bad".
Table 1 : Assessment
of the firms’ positions for various criteria
From this first
analysis, we can specify that the main means used to obtain information depends
on the aspects of the project to be studied and shows the implication of the
firm and its interest for the information looked for. For example, it seems
that firms wait for information from the press, suppliers, etc concerning
technological aspects, whereas commercial and competitive aspects rely on a
firm’s relational network. Unfortunately, the Business Intelligence Systems in
use are not really centralised.
Nevertheless, feedbacks are present and this helps to motivate the
people working for a company.
Firms can be classified as regards the BIS they
have using the typology of Pere Escorsa (1999) :
Diagram 2 : Evolution
of the BIS
Belgian firms can
be situated between the second and third levels. Some aspects of level three
are present (knowledge of the actors, circulation of information), but other
aspects correspond to the second level (not a lot of data banks, no real
formalization of the actions, no meetings,….).
The people in charge of the intelligence activity are also actors at
other levels and are not really specialists in that area. However, Belgian firms are seemingly becoming
aware of the potential advantages of the concept. They are beginning to implement new behaviour
but, of course, a change in working methods can take a long time to become
effective. This interest in the search for information is also due to the
restrictions in public investment which plays an important part in the
development of the construction industry (as contracts become more and more
difficult to obtain).
Generally, the information coming from the BIS
is also used to adapt a company’s bid.
For instance, we can note that
39.7 % of companies develop a segmentation strategy. At this level, the knowledge of the client
supplied by the BIS can give an important edge because the main reason for this
strategy is to adapt the bid according to the specifications required by the
client.
Only 34.43 % of the firms are able to develop creative
offers. The reasons are the better
knowledge by the client of the sector than in other industries working on
projects (it is easier to imagine a project for a whole building than for a
specific part of a plane), the size of the companies and the needed resources
for such a program. Neverthess, when creative
offers are made, the BIS seems to be very useful.
To study the problem in depth, we carried out a
multidimensional analysis (homogeneity analysis) to pinpoint the main factors
in the description of this research field.
For this, we used the SPAD 3.5 program.
After a preliminary analysis on 28 variables, we finally took into
account 16 variables : type of company, length of a contract, financial
dimension of the contract, part in the turnover, existence of a general BIS, of
a technological BIS, of a competitive BIS, of an environmental BIS, of
differentiating technologies, sensibility to technological competition from
outside the country, internal communication, external communication,
client-supplier relationships, awareness/brand image, mastering of technology
and origin of competitors.
We obtained 5 factors with a total restituted variance of 52.85 % but the
essential explanation can be obtained from three main axes. The first is relative to the technological
aspect of the problem and to the consequences in BIS development (existence of
a study of the competitors, existence of a technological BIS, sensibility to
the technological competition from outside the country, type of company,
existence of differentiating technology, existence of an environmental
BIS). It represents a variance of 16.56
%. The second axis is linked to the
relational aspects (awareness/brand image, internal communication, external
communication and client-supplier relationships). It represents 10.98 % of the variance. The third one is relative to the type of
contract (length of the project, financial dimension of the project, type of
company) and represents 9.55 %.
F2
F1
Diagram 3 : factorial plan F1/F2
The results of
this analysis allow us to validate the theoretical background which pinpoints
the importance of two main dimensions in the development of a project strategy
: technology (first axis) and relationships (second axis). Technology appears,
in fact, as the only common element to all of the firms. This is why it is so important to keep up to
date with technology and to be aware of the evolution of competitors’ knowledge
and of possible substitution techniques.
It is also evident that the caracteristics of a project a company is
able to manage (third axis) particularly determine the way it acts (in fact a
company chooses projects according to
its abilities and not the contrary).
A more precise approach to the differences in
this particular sector seems to be how the classification takes into account
the data from the analysis. Three
different categories were identified using this method :
The first (82 companies) is made up of firms
owned generally by a non Belgian group and which are developing a technological
and competitive BIS facilitated by the presence of feedback and of data
banks.They export more than the others and are affected by technological
competition outside Belgium. They also have a good
technological knowhow and are developing differentiating technologies. In addition, good client-supplier relations
exist which encourage the set up of creative
offers.
The second (13 companies) comprises firms owned
by Belgian groups which are developing a complete BIS and which are interested
in the technological competition coming from outside the country.
The last one (57 companies) is made up of
independent firms without a BIS and without data banks. They only work inside Belgium and generally
on small projects. They are not affected
by technological competition from outside the country and do not develop
differentiating technologies. They do
not master their technologies very well.
We can position these three groups on the
factorial plan (technology/relations) as follows :
F2 F1
Diagram 4 : Position of the groups on the factorial plan F1/F2
The differentiation between the various firms
allows us to determine different strategies used by the construction industry
and the potential factors of influence linked to them. It seems that the degree
of autonomy and the nature of the activities (exportation or not) determine the
ability and the willingness of a firm to elaborate specific strategies. In
fact, the more competitive the environment (in a general way), the more
formalized the action that the firm takes. For instance, firms working on an
international level and therefore in highly competitive markets (at all levels)
develop a more formalized BIS and are concerned with the development of
differentiating technologies. Obviously,
these firms (owned by groups) benefit from more important financial and human
resources than independent companies.
They are able to work on bigger contracts (certainly with a better
position in the industrial package).
Independent companies seem to develop more slowly compared to the
others. The reasons may be their smaller
financial and human resources, their perspective centred on national markets and on national actors, their
knowledge of their environment (and thus the absence of any wish to develop a
complete BIS).
This means it is possible to modify the
position of firms in Pere Escorsa's classification. The first and second group identified are
better situated at the third level of development and the last one should be
situated at the second level.
As a general
conclusion we can again validate the theoretical approach concerning the double
positioning of a firm in the technological and relational fields, which is more
often the case of more developed firms.
Nevertheless, the qualitative part of this study has shown that
formalization is relatively new and we can only hope that it will be
generalized in the future for smaller firms. The European Union has developed a
program with this intention called "REVEIL" which is trying to
implement the BIS concept. Moreover,
more and more publications and reports (from various organizations) are coming
out in this field, which will certainly help the development of these
relatively new strategies.
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