An Examination of Business Development Activities
and Implications for Marketing in the AEC Industry
Constantine J. Katsanis and Lea Prevel Katsani
Abstract
In the current competitive business environment,
AEC firms cannot afford to ignore business development activities.
Yet the project-centric nature of business has driven both resources
and focus towards the project at hand to the detriment of systematic,
focused and on-going business development activities. Lack of
existing research has hindered the adoption and deployment of
efforts on an industry-wide scale. The need for marketing is
acknowledged by industry participants. This study examines the
current state of business development practices in a series
of case studies of AEC firms in North America. The findings
suggest that most firms are attuned to the importance of business
development for their practices. A latent infrastructure exists
in AEC firms and this infrastructure is to some extent used
by the leading AEC firms examined. The results suggest that
that the relationship marketing paradigm is already serving
as a platform for the deployment of business development in
the industry.
Keywords: Architecture; Engineering; Construction;
Business Development; Marketing.
"A few years back we had to face the reality
that business is not coming in the way it used to. So I set
up a marketing committee to involve a larger number of players,
so that we sell the services of our company in a way that it
is not the responsibility of one person but of several. Also,
this way the committee has the opportunity to assess who of
the people were better equipped to do so [it is also in] this
way we selected our current VP Business Development ".
CEO -- Major Consulting Engineering Firm
Introduction
The AEC industry is dominated by three key actor-organizations:
Architecture, Engineering and General Contractors. The first
two fall in the professional services category and the latter
in the commercial services category. Professional organizations
have shied away from traditional marketing practices and have
been slow in adopting appropriate marketing programs to address
business issues that arise from an increasingly competitive
where innovative business practices take away advantages previously
entrenched in practices sheltered by professional traditions.
As for the commercial services organizations, viz. the contractors,
they are not immune from theses issues because is the nature
of the AEC industry, which unlike consumer and manufacturing
industries has its own distinct "personality" that
arises from the enormous complexity of the design and construction
processes and has not received much attention as far as of marketing
studies are concerned. Additionally, lack of attention to the
industry's marketing needs combined with the emphasis on professional
(technical rather than business) education of senior industry
executives hinder the efficient deployment of marketing practices
in AEC organizations. These views are supported in previous
research (Harris, 2000; and Arditi and Davis, 1988)
Market exchange relationships exist when two transacting
parties transact primarily on price considerations, use multiple
sources and tend to switch suppliers frequently as a means of
maintaining competitive market conditions. Relational exchange
relationships prevail when two transacting parties enter in
a relationship with a long-term outlook. Such relations are
driven more by long-term strategic benefits rather than price
driven considerations (Halinen, 1997). A shift away from market
transactions is gradually gaining ground in the AEC industry
as it is seen in increasingly popular partnering arrangements,
Design-Build procurement methods, and network organizations,
(Smyth, 2000; Katsanis and Davison, 1995; 1998 and 2001). This
paper examines the current business development practices in
the AEC industry and the implications the findings have for
future research directions.
Literature Review
For many years scholarly research in the area
of business development and marketing in the AEC industry has
been sparse. Arditi and Davis (1988) identified a disparity
in the volume of research available for business and that for
construction. This disparity led some scholars to posit that
the lack of adequate exposure to business and marketing education
for architects and engineers, combined with the misguided disdain
shared by many professionals for marketing, has hindered effective
adoption of business development practices in the industry,
(Arditi and Davis, 1988; Fisher, 1991); while others have pointed
the finger to the 'service' nature of the industry (Peter and
Donnelly, 1985). More recently, research activity in the area
of marketing in design and construction has gained pace albeit
in a fragmented fashion (Preece and Male, 1997; Mochtar and
Arditi, 2001; Gladden and Olitt, 1996). However, most studies
are limited to one segment of the industry at a time, i.e.,
they examine either professional services (design) or commercial
services (construction) (Ahmad, 1990; Ahmad and Minkarah, 1988;
Morgan and Morgan, 1991). Such approaches often fail to exploit
the positive aspects of the idiosyncratic nature of the industry
(Groák 1994), and explore potential synergies that exist
in the collaborative setting that emerges as the principal firms
(AEC) engage in a project and effectively form a network (Davidson,
1988; Katsanis and Davidson, 2001). A reversal of this trend
is gradually becoming visible, as recent studies of business
practices in the industry have examined collaborative structures
and relationship marketing in construction. Smyth, (2000) argues
that understanding and deploying relationship marketing is imperative
for the industry's economic sustainability, and conceptualizes
the theoretical underpinnings of partnering as a requisite for
relationship marketing. Winter and Preece, (2000) examine the
marketing relationships between subcontractors and general contractors
in the UK and Germany and while they confirm that "marketing
has not truly taken hold in the construction industry beyond
the very largest of players, they point out to the benefits
of marketing in an integrated environment of multiple player.
Along with the industry specific research on marketing sited
above, a solid foundation of research links the attributes and
structural form of network organizations prevalent in the AEC
industry, to the emerging paradigm in relationships marketing
as a potent tool for business development in both the service
and professional service sectors (Gummesson 1994a, 1994b; Gronroos,
1994). These authors postulate that traditional views of marketing
may not be appropriate for professional and service organizations.
They have in turn developed a conceptual framework that recognizes
the dynamics of complex inter-organizational relationships that
exist in open organizational structure of network organizations
that operate in project environment. It is against this backdrop
that this study looks at the business development activities
in the AEC industry and assesses its potential and future directions.
Study Objectives
The objective of this study is to examine the
current business development practices of the principal AEC
firms, namely the firms of architects, engineers and general
contractors. This was undertaken in view of the absence of a
consistent model that integrates the needs and provides a framework
so that an in-depth understanding of their patterns of business
development and the ensuing strategies and their impact on performance
can be developed. While research to date has examined marketing
in individual firms or industry segments, this study adopts
an integrating perspective consistent with the view of the industry
as a network organization, (Katsanis and Davidson, 2001), whereby
firms are required to enter in collaborative mode of operations
in order to carry out their mission under the same client-owner.
It aims to develop a framework for strategy and performance
and relate these to elements of relationship marketing.
Research Questions
As an exploratory study it is important to address
business development issues in order to develop an appropriate
framework for future research. This study set out to address
questions pertaining to organizational structures and business
activities carried out by the three principal firm classes in
the AEC industry. Specifically, the questions relate to the
structure of activities, the ensuing strategies and performance
dimensions. The research questions are as follows:
Q1: What is the structure of the business development
functions undertaken by the firm?
Q2: What business strategy do firms adopt?
Q3: Are there any performance dimensions that
measure business development effort?
Methodology
The research design is considered an exploratory
multiple case study research (Yin, 1989). It seeks to explore
issues pertaining to 'who', "what', 'why', and 'how' business
development takes place in the principal AEC firms. In this
research, the unit of analysis is the firm. The chosen informants
were individuals intimately involved in the operation of the
specific firms; in most cases the principal, principals, or
senior associates. This choice ensured that elements of task
interdependence across sector boundaries were included in the
responses.
The method of sampling used was a combination
of snowball and convenience sampling. An initial list of "potential"
sample firms was compiled with the assistance of two expert
informants familiar with the industry in the metropolitan area
where the interviews took place. These two informants were not
affiliated with any of the participating firms. This procedure
accounted for the convenience aspect of sampling. This resulted
in a sample of firms considered to be "representative firms",
where representative firms are ones with longevity in the marketplace
e.g., for over 15 years, and "name firms" (well-known
to all in the industry). The snowball sampling was ascertained
through a list of firms identified by the participants.
The types of firms included in this study are
professional organizations in the domain of architecture and
engineering, as well as commercial organizations licensed to
carry out general contracting work in the area of building and
civil engineering. The individuals interviewed were either the
principals of the firm, firm associates, or other senior personnel.
Eight firms were included (3 engineering, 3 architecture, and
2 general contractor) with 20 completed interviews. Table 1
summarizes key characteristics of the firms.
Table 1. Characteristics of Sample Firms
Firm A1
Firm A2
Firm A3
Firm E1
Firm E2
Firm E3
Firm GC1§
Firm GC2§
Type of Service
Full Service
Architecture*
Full Service
Architecture
Full Service
Architecture
M&E Engineering
M&E Engineering
Civil, Structural Engineering
General Contracting
General Contracting
Years in Business
20+
50+
35+
40+
40+
30+
45+
35+
Number of
Employees
20
35
15
90
70
20
25
40
§ Both GC firms fall in the upper 30th percentile
of the firms listed as industry leaders in a trade publication
in the metropolitan area where the study was conducted. The
volume of annual contracts for firms in this percentile ranges
from $46M to $330M. Industry ranking and sales volume not available
for other firms.
* Full Service Architecture refers to a firm's capacity to provide
a range of services from programming to concept to construction
documents to supervision of the works.
It should be noted that interviews were difficult
to obtain due to the general unwillingness of companies to participate;
one reason for this is the intense competition in the industry,
and the "smallness " of the industry with only a few
major competitors - leading to fears about revealing key indicators.
The firms' life-span: endurance and success ranged from 15 to
over 50 years. The longevity of the organizations was used as
a measure of the ability of the firm to successfully weather
the adverse effects of the economic cycles.
All interviews were conducted in the same geographic
area in and about a major North American city. The city is not
mentioned for reasons of confidentiality since participants
did not want their location to be revealed. However several
of the participating firms have operations in other cities in
North America.
With respect to the actual observations, those firms uncovered
in the research can be said to be representative, given standings
of the individuals interviewed and the documentary and judgmental
material before undertaking the case studies.
Data was collected by interviewing key informants
in selected firms, and through the use of documentary evidence,
where applicable and where it could be accessed for consultation.
This multiple data use ensured triangulation of the data (Miles
and Huberman, 1984). A strict research protocol was followed.
With respect to confidentiality, no reference to a firm, individual,
or city is made.
Findings of the Study
The data obtained exhibit very high levels of
consistency with regard to intrafirm information obtained from
different informants and available documentation, and also with
regard to cross case information within the same industry sector.
Table 2. Business Development Activities by Project Phase for
Cases Studied
Phase: Pre-project Project Post-project
Objective: · Rainmaking · Day-to-day client interaction
· Relationship maintenance
· Troubleshooting
Modes of
Interaction: · Proactive
· Reactive ·Active (level may vary) · Proactive
· Reactive
Responsibility: · Principal
· Vice President
· Senior Associate
· Architect
· Project Engineer
· Project Manager · Architect
· Project Engineer
· Project Manager · Principal
· Vice President
· Senior Associate
· Architect
· Project Engineer
· Project Manager
Tasks: · Identify leads
· Establish contacts
· Establish scope/estimates
· Project proposal
· Relationship building · Ensure appropriate service
delivery
· Prompt attention to client needs
· Relationship building · Avoidance of cognitive
dissonance
· Troubleshooting
· Relationship Building
Business Development Activity
The data suggest the following patterns of business development
activities for the sample firms. The phases of activity, pre-project,
during project and post-project. The objectives for each phase
are rainmaking - generating revenue producing commissions for
the firm, day-to-day interactions with client, and, relationship
maintenance and troubleshooting respectively. The findings also
uncovered that the business development activities in the pre-
and post-project phase can be characterized either as proactive
or reactive.
It is significant to note that the term 'business
development' preferred by professional firms is now used in
the industry as a synonym for marketing activities across sectors.
Table 2 above, provides an overview of the findings detailed
in the sections that follow.
The Engineering Firms
In the engineering firms, a very well defined structure for
BD activity was observed, where the division of labor and the
coordination of tasks are clearly delineated. In the words of
one informant, the question that defines the purpose of the
BD component is:
"What can we do to bring the project in and
make sure that we have sufficient work? This is the role of
everyone in the business development team". BD teams are
usually lead by technical people i.e. engineers and the key
participants are also engineers.
The business development team (BDT) consists of
engineers, because they are able to deal with technical issues
in their encounters with the clients. In one firm, (E1), the
BDT distributed a list of prospective clients weekly to the
22 employee-shareholders who were then asked to participate
in the current business development activities, based on contacts
and other relevant business development intelligence.
Certain conditions are necessary for the existence
of the business development component. The foremost requirement
is that there must be a certain organizational critical mass
to justify and support such a component. The nature of the activities
encompassed by this component require multiple participants
and the volume of activities generated by the interaction with
the environment must necessitate the presence of support staff
with expertise beyond these found in the core business component.
In the words of an informant representing firm E3:
"… In contrast to larger firms - which
are multidisciplinary - we only have a niche and therefore we
do not have the critical mass to undertake systematic business
development".
Thus it is observed that the dynamics of structure
in the particular environment call for business development
strategies, which will produce the desirable end results (in
this case: additional new work) with more efficient means. These
business strategies obviously necessitate changes in the firms'
structure, and these changes come in the form of adding development
mechanisms to the core business. Indeed, according to the informants,
these additions are fairly new, having accrued in the last few
years.
The firm president is an important source of external
resources and provides leads to lobbyists, consultants, and
market researcher agencies. He lobbies on a regular basis on
behalf of the company, and meets with company executives on
a weekly basis to develop 'strategy,' and to 'go along' and
meet with 'major players in the business.' This individual will
also bring contacts to the company. One informant reported that
in their firm "he also sits on the boards of many companies
and that naturally helps."
The project engineer (PE) usually participates
- along with the President of the organization - in the introductory
meetings with the client and subsequently serves as the ongoing
liaison, i.e., the conduit and the node for the dissemination
for the technical mission input. It is the mandate of the PE
- who upon award of the contract becomes the person responsible
- to see that the mandate is carried out successfully. In addition
"he has the mandate and the responsibility for developing
and maintaining close relationships with the client. In this
sense the PE participates in business development (BD) and brings
in new business."
PEs often double as BD coordinators because of
their knowledge and experience. In one case, prior to establishing
the position of the Business Development Coordinator, PEs were
required to look after business development - along with senior
personnel - at the proposal level. The PE is also the liaison
with other consultants, architects or contractors at the project
level, and he is responsible for all project-related communications.
As a result of these structural changes, according to an informant,
the company (E1) endeavored to:
" ... Prioritize some sectors of activities
and make that sector of activity the responsibility of one person
in order to better sell the services of the company by people
who are more knowledgeable in that [sector]."
As well, the same informant volunteered that:
"In the first place the consulting engineering
environment is in the midst of complete transformation. The
consulting engineering that we used to practice 5 or 10 years
ago is no longer the same as that we practice today, and particularly
that which we will be practicing in the year 2000.
Yet another example of the broad impact that environmental
change has on individual organizations as well as on the structure
of the industry is captured in the next statement.
"We are going through a change in traditions.
There is an evolution towards turn-key, BOT - a multitude of
new 'orientations' that require that one gets on with [setting
up] alliances, etc. We are [currently] in the process of setting
up [such an alliance]. We can no longer limit ourselves to the
strictly traditional functions of the profession."
This statement further demonstrates the reinforcing
influence of the business environment on structural re-orientations
within the building industry and how these tendencies affect
the structure and strategy of the individual companies.
The Architecture Firms
The structure of business development in the architecture firms
seems to be less well defined, as the scope of architectural
projects is far more complex and have longer life cycle than
that of engineers. Architects tend to work on fewer projects
than engineers at any one time, simply because architectural
projects required much longer involvement on the part of the
architect than they do on the part of the engineer. This situation,
while it reduces the frequency with which new projects must
come into the office, does not alleviate the long-term need
for new business to be obtained. Traditional architectural practices
have relied on firm reputation and prestige for bringing the
projects in. In the current business environment, it has become
necessary for the architects to rethink their role in the marketplace
and their approach to business development.
The competing demands of architectural design
project and business development activities faced by principals
is captured in the information provided by an informant in firm
A3. The senior partner devotes his time almost exclusively to
business development. The other partners devote approximately
25% of their time to business development and the balance for
projects. In the words of one partner:
"Unfortunately, doing a project takes precedence
over business development activities [...] another reason is
also the fact that architects prefer to do projects [...] We
get involved in the rhythm of doing a project with tight schedules
and limited resources and we don't look for new projects. When
the current project finishes we scramble to get more work. This
is the problem with small offices where we can't afford the
resources for systematic business development".
Business development for architecture firms includes
both paying attention to existing clients and consultants, as
well as the need to attract new clients. One informant, (firm
A2), commented on his firm's relationship with the consultants:
"In our firm [there] tends to be long standing
relationships; in [one of our offices] the same team has worked
together over the last five years [for the same client on repeat
business]. Naturally, some of the intrinsic advantages in long
term relationships are that one knows a priori the level of
performance that one can expect, and there is always a certain
comfort with regard to negotiating fees and, as the need arises,
requesting additional effort if the scope of the work goes beyond
the originally anticipated one i.e., 'sharing pain.'
The issues of professionals having to market their
services and the divide that exists between traditional practices
and the need to actively market professional services in the
current competitive environment are captured in the next statement
by the senior partner in firm A3. Also, in the same paragraph
the importance of the firm size and organizational structured
is revealed as a key factors in the business development.
"My interests are in the initial design aspects
of the project, I tend to take a back seat approach as far as
production goes. My role in business development is geared towards
a certain type of marketing, because of certain knowledge and
background [that I possess]. On the other hand I find it increasingly
difficult to relate to the new generation. Marketing is done
in a non-organizational way. Each partner looks for possibilities
of new projects. If a partner lands a project, he sets about
to do it; from design to production to supervision he sees that
it is done. We do not have a second and third tier of staff.
What we do have is a pool of people with different talents,
some stronger than others, that we turn to for more or less
complex projects. We do not have Project Managers or Project
Designers, primarily because projects today aren't big enough
to warrant such [an] organization. Work assignments are done
in such a way that it addresses the interpersonal communication
requirements for 'getting along with the client group.'"
In addition to project responsibilities, the duties
of the associate include all aspects of BD. With respect to
BD, through formal or informal meetings, the associates participate
in the decision to pursue a lead for a prospective project,
respond to a RFP (request for proposal), make 'cold calls' and
follow up leads in various ways. In some instances, regularly
scheduled meetings provide an opportunity for discussing the
week's current BD activities and for coordinating action. In
one firm, (A3), a regular weekly meeting amongst the partners
enables them to coordinate staff assignments and business development.
However, regularly scheduled meetings - unless they pertain
to a project - are not a preferred mode of coordination and
communication in the architectural office.
"We used to have BD meetings every week but
we don't do that anymore. It was taking too long".
The General Contractor Firms
The role of the general contracting organizations differs from
that of the professional organizations in that the general contractor
is not called upon to provide a solution to a problem but instead,
is required to provide the process to produce the solution that
others have already found. In some instances, the general contractors
act as a broker, putting together sets of third parties (subcontractors)
who are suitably qualified to implement the solution at hand.
The business development function in firm GC1
is more of a collective function carried out by various individuals
rather than by a specific department. BD coordination is part
of the firm's weekly meetings. One respondent, (firm GC1), stated
that:
"[...] the President coordinates the business
development, but all three of us work towards that end. If we
hear of projects or potential clients or A/Es that we should
be contacting, we discuss that on a weekly basis and one of
the three of us will make the contact."
Each partner keeps in touch with his segment of
the 'client base' for the purpose of generating repeat business.
The employees, particularly the PMs are also sources of information
regarding potential projects. In addition to advertised calls
for tender, work is obtained through personal contacts and "by
invitation on the account of the company image and reputation".
One partner, (firm GC1), reported:
"If I have a lead, I will contact the person
[and] try to set up a meeting; a lot of it [amounts to] cold
calls, sending a brochure and company information to a potential
developer [or] client and then trying to follow up; there is
always a follow up that is required."
In another instance, (firm GC2), where the position
of Director-BD exists, the director reports directly to the
president; while BD issues would be discussed by the partners
(the shareholders) at weekly meetings, the director would only
be present at these meetings on an 'as needed' basis. According
to the same informant:
"The tasks of the Director-BD include carrying
out directives from the partners, "keeping the pulse of
the industry", and providing pertinent intelligence to
the partners.
With regard to new business development, the Director-BD
receives instructions from the partners as to what direction
the company is to follow. The Director-BD, (firm GC2), carries
out research as to
"who is investing and who is not, what are
the various government budgets, what industries show future
potential [growth] and in general keeps the pulse of the industry"
While marketing activities are somewhat ad-hoc,
one informant, (GC2), reported that:
"coordination of promotion activity takes
place in the form of weekly meetings. We discuss where potential
projects are and who is going to deal with them, who knows the
contacts".
In all cases (as has been mentioned above) the
estimating department -- through the preparation of bids --
plays an important role for BD. One senior level respondent,
(firm GC1), stated that:
"I am involved in estimating as well; depending
on the type of project I will estimate it myself or I will give
it to our estimating department. However I will get involved
in the closing of all estimates."
This is an indication of how important estimating
is considered for the business development activity of the GC
firm.
.
Prominent among the business development activities are the
"Turn Key Activities" (TK). In fact the Business Development
department is referred to as "Turn-Key", and the company
has been successful in the execution of several major projects
under this mode of procurement. This "TK department"
is headed by one of the partners and is in charge of preparing
proposals for TK projects. According to one source in firm GC2:
"With the recognition that the traditional
mode of procurement is declining and the current business focus
on TK in a variety of forms - EPC (Engineering, Procuring, Constructing),
Consortia, DB/BOT(Design-Build/Build, Operate, Transfer ), the
question that preoccupies us is: which one will prevail over
the next five years? [...] So we look at our client base and
ask: what do they prefer? Are they open-minded to other approaches?
[...] In a competitive market, an approach such as BOT - which
offers early involvement for our company - gives us a competitive
advantage".
Business Development Strategies
Table 3 shows the classification of firms by the type of strategy
they pursued and by the level of business development activity.
The four business strategies that emerged in this study are
discussed in detail below.
Table 3. Classification of Firms Studied by Dominant Type of
Strategy and Level of Business Development Activity
Weak Business Development Activity
Strong Business Development Activity
Prestige Selective
Architect 1
Engineer 3 Engineer 1
Engineer 2
Architect 2
Sustenance Profit driven
Architect 3
General contractor 1
General contractor 2
Prestige Strategy
Firms pursuing a prestige strategy adopt a set of actions that
result in high profile projects (based on technological complexity
and/or high esthetic potential) yielding awards and publications
which, by virtue of the ensuing "notoriety," increases
the number of commissions a firm receives and improves its position
with respect to professional fees. Firms in this category have
a high profile and aim to be the preeminent design or engineering
firms in the market.
Two of the professional firms, A1 and E3 fall
into this strategy group. Both of these firms exhibited limited
BD activity perhaps due to limited resources and project focus
orientation. They both rely on "brand name" recognition
arising from the caliber of their "product" as a business
development asset.
Selective Strategy - Specialization
A selective strategy is characterized by the conscious effort
a firm makes in nurturing and developing expertise in a specific
area. This area may be in the domain of the technical expertise
the firm develops to tackle a perceived market demand, or it
may be a market segment or a client profile it wishes to serve
or even a geographic area to expand into. Two engineering firms,
E1 and E2 and one architecture firm, A2 fall in this category.
Both E1 and E2 have established an organizational structure
that allows them to pursue very focused BD activities. Firm
A2 possessed a relationship-oriented philosophy espoused by
management and senior staff that enabled them to pursue very
effective BD. The following statement is indicative of this
philosophy:
"A lot of attention and effort goes into
maintaining good relations with the contractors. Some of the
contractors are used as sources for contacts and direct work,
and naturally this is a reciprocal relationship. In some instances,
the relationships with the contractors go back as far as 25
or 30 years."
Selective strategies are being pursued by firms
in response to the diminishing number of viable projects available
in the market and the need to allocate BD resources and effort
efficiently. This type of strategy promotes high technological
efficiency as it helps to produce a larger number of projects
with minimum down time. On the other hand, it requires a high
degree of vigilance in maintaining a match between the specialization
and the prevailing demand for that particular specialization.
Successful implementation of the selective strategy
requires that the firms be on the look out for identifying and
pursuing the latest trends in their practice as well as in pursuing
the most active and profitable market segments.
Sustenance Strategy - "Bread & Butter"
The sustenance strategy is characterized by the lack of a coherent
strategy. Actions are generic and dictated by long established
industry norms or "traditions" followed by most firms
in their corresponding sector. Firms in this category are likely
to pursue projects from an undifferentiated broad category as
they come up in the market and are more likely accept any job
as they comes in, or will rely on one big client to keep the
practice or firm busy.
General contracting firm, GC2 and architecture
firm, A3 fall in this category. Both firms appeared to have
a rather weak BD structure compounded by a level of resources
below that of the required critical mass. One informant in firm
A3 captured the dynamics of relationships between work volume,
firm size and organizational structure in the following statement:
"[...] There is so little work at the present
time that it requires very little organization in my view. We
meet constantly; because of the size of the office there is
a free and easy discussion that takes place on any of the issues
that might arise. Organizational problems are pathetically simple:
there is so little work that it requires very little organization..."
What is usually perceived as business development
activity in these firms is limited to tactics that emanate from
industry traditions. This would be classified as reactive behavior.
The set of tactics followed are primarily generic and consists
of responding to RFPs, or pursuing leads generated by single
or networks of professional contacts, or even in sending out,
'cold,' letters and expressions of interests and brochures.
Commissions generated by such a strategy often result in a very
diverse portfolio of work and may diminish the strength of core
competence that could be derived from the development of focused
expertise.
Profit Driven Strategy - "Quick Harvester"
The profit driven strategy comprises a set of connected actions
based on prevailing conditions and trends; changes are undertaken
by the concerned entity for the purpose of maximizing the return
on their investment based on early entrance into a market segment,
i.e., the "quick harvesting of opportunities."
Firm GC2 was identified as pursuing this particular
strategy. Its rationale is that the building industry is a quick-paced
industry and if one really wants to do well, one has to "follow
the buck." The firm had a BD team headed by a BD-Director.
The mission of the team appeared to be 'explore and pursue"
in order to remain abreast of market developments. One of the
informants provided the following example to illustrate the
quick and unpredictable nature of the construction industry:
"The government may decide that they need
to revitalize a particular industry, let's say the energy industry.
Therefore, they proceed to enact legislation to give tax breaks
to that particular industry. This will most likely have an effect
on the activity and the spending that the industry will undertake
in the forthcoming months or years. Now if one is a contractor
and wishes to capitalize fully on this situation, one must be
in a position to respond quickly. If one [were, for example,
to have] specialized in transportation, one will find himself
out of this particular short-term growth opportunity. Therefore,
the rationale of this company is not to specialize, but rather
to structure itself in such a way that it can respond quickly
to any opportunity as it arises".
Performance Dimensions
The performance dimension measures the output of the firms and
allows their executives to develop strategies and, if necessary,
to modify their structures. According to the interviewed participants,
for the professional organizations, performance was assessed
in terms of business orientations, practice considerations and
project concerns, and for the contracting organizations in terms
of business orientations, industry reputation and project concerns.
More specifically, engineers emphasized the importance of broad
and expanding client bases; for architects, the utmost performance
criterion was quality of project; as to the general contractors,
they stressed company growth together with the development of
strategies that afford them early involvement in alternative
procurement methods such as turn-key, design-build or build-operate-transfer,
etc.
The breakdown of these dimensions of performance evaluation
is shown in Table 4 (one must remember that these results are
based on a small number of cases although each was the subject
of in-depth study).
Table 4. Dominant dimensions of performance grouped by category
(as stated in the interviews).
Applies to:
Business Related
· Financial performance
· Business volume growth
· Client base growth
· Staff growth
· Continuity/future stability
· Reputation/image · E/A/GC
· GC
· A
· GC
· A/GC
· GC
Practice related
· Reputation
· Project quality - prestige
· Employee/self satisfaction
· Process of architecture
· Inventiveness
· Timeless quality of projects · E/A
· E/A
· E/A
· A
· A
· A
Project related
· Client satisfaction
· Project quality
· Project time
· Project cost
· Project - technical aspects
· Project -aesthetic aspects
· Quality of work
· Zero defects
· On-time delivery
· On budget delivery · A/GC
· A/E
· A/E
· A/E
· A/E
· A
· GC
· GC
· GC
· GC
A - Architecture Firm; E - Engineering Firm; GC - General Contracting
Firm.
Performance findings were quite consistent with what might be
expected. Both the professional engineering firms and the commercial
contracting companies expressed the notion that the measure
of success was profit or the "bottom line." Also,
as might be expected, architects who traditionally regard their
operations as a calling rather than a business, and while they
recognize that profits are essential, actually measure their
success by other yard sticks.
These performance dimensions suggest that the
firms in this study have a commitment to business development,
as they are typical marketing objectives: brand image, product
quality, sales growth and customer satisfaction.
Implications
When comparing the situations between engineering
cases E1 and E2 (the fairly large firms) to case E3 (a relatively
small firm), the importance of having a critical mass for engaging
in business development activity emerges. This is because there
is only a certain level of overall activity at which an organization,
which is project focused, may be able to add elements such as
business development teams to its structure as permanent and
dedicated structural elements necessary for its operation.
There appears to be a self-reinforcing cycle resulting
from the fact that (i) as specific strategies of selection and
specialization are adopted, (ii) the field of expertise becomes
correspondingly more narrowly focused, and therefore, (iii)
the work sought is more specialized, which (iv) must be pursued
using specific means that (v) must be added to the expertise
of the firm and its structure. In other words, the whole question
of specialization and the relatively large number of projects
that engineering firms must now handle in order to remain competitive,
has led these firms to develop substantial systems for monitoring
and measuring the progress and the effort of work that goes
to any given project.
It is significant to note that while the building
industry as a whole operates through a series of network organizations,
the individual firms, in their pursuit for business, act very
much as individual organizations (Katsanis et al., 1997; Katsanis
and Davidson, 1999). It appears that it is the force of the
building owner (i.e., the client of the enterprises) that brings
the organizations together into a short-term network; while
they have the talent and the expertise to collaborate in a team-like
fashion as far as the project requirements are concerned, there
is supposedly little inter-firm cooperation when it comes to
pursuing business development. An exception to this is the recent
tendency observed among the professional firms towards alliances
or joint ventures, but even these tendencies seem to be devised
in response to the environmental constraints stemming from the
demands of the various projects on the marketplace. Significantly,
when a specialized project comes onto the market, requiring
specific skills to be brought together into one "team",
the time allotted by the owner for the enterprises to reach
creatively is fairly short. In response to this kind of situation,
some professional firms are beginning to find that it is to
their advantage to form a priori networks, alliances or consortia,
and thus to be ready for this kind of eventuality (Katsanis
and Davidson, 2001).
In the last decade, the concept of relationship
marketing has been receiving significant attention as an appropriate
marketing paradigm, particularly for professional services and
for construction services (Gummesson, 1994a, 1994b; Gronroos,
1994; Smyth, 2000).
The premise of relationship marketing is the creation
and distribution of value through mutual co-operation and interdependence
(Sheth, 1994). The operational model of the AEC industry as
a temporary organization, that encompasses the client along
with organizational entities in the design, construction and
supply sectors, along with the ensuing interdependences lends
itself to relationship marketing considerations.
Table 5. Fit between Performance Dimensions Uncovered and Relationship
Marketing Elements
Relationship Marketing Elements§ Performance Dimensions
Applies to:
Business Related
· High customer service emphasis
· Focus on customer retention
· Long time-scale
· High customer commitment · Business volume growth
· Client base growth
· Continuity/future stability
· Reputation/image · GC
· A
· A/GC
· GC
Practice related
· Long time-scale
· Long time-scale
· Long time-scale · Reputation
· Project quality - prestige
· Timeless quality of projects · E/A
· E/A
· A
Project related
· High customer commitment & contact
· High customer commitment
· Orientation on project benefits
· Orientation on project benefits
· Orientation on project benefits · Client satisfaction
· Project quality
· On-time delivery
· On-budget delivery
· Zero Defects · A/GC
· A/E
· GC
· GC
· GC
A - Architecture Firm; E - Engineering Firm; GC - General Contracting
Firm
§ Relationship marketing elements per Christopher et al.
(1991)
In view of the relevance of the network organization research
to the building industry, it becomes imperative that building
industry researchers further develop a framework that integrates
the finding of this research to the concepts of the network
organization.
The findings of this study suggest that the relationship
marketing paradigm is a useful one for the AEC industry. Christopher
and co-workers (1991) developed a list of relationship marketing
efforts. When this list is compared to the list of performance
dimensions found in this study, (Table 5), it is clear that
the AEC industry is already using a relationship marketing paradigm
(even if it is not aware of this). The emphasis on long-term
relationships, firm stability, product quality, and high customer
commitment reflect this orientation.
Conclusions and Future Research Directions
In conclusion, it appears the need for all firms
recognize marketing as an essential function for the firm's
continued existence. However, few firms have established a systematic
marketing program (the professional firms refer to it as business
development), in spite of the fact that all firms of a certain
size have the infrastructure to support business development
activities in the context of relationship marketing as defined
by Christopher et al. (1991). The fast paced nature of the project
environment, and the fragmented nature of the work appear to
act as an impediment to the deployment of full scope business
development activities in a fashion that it is recognizable
as marketing activities. When closely examining the core activities
of key AEC firm personnel associated with procuring and delivering
projects, it becomes apparent that both the resources and infrastructure
for relationship marketing are in place. What is absent in the
majority of firms is a strategic marketing direction and the
lack of awareness that the dimensions against which they strive
to measure their performance resemble correlate very closely
with key elements of relationship marketing.
With regard to future research directions, the
findings of this research appear to hold tremendous potential
for significant contributions in the areas of strategy, structure
and performance of the building industry organizations. One
necessary study would be a large-scale survey of AEC firms to
examine the specific dimensions of relationship marketing. Another
important study would be that of a project case study, which
would examine the interrelationships between the client and
the AEC firms in the network.
Based on the findings of this study, relationship
marketing appears to already have had an impact on business
development activities in the AEC industry based on the findings
of this study. However, with researchers' continued attention
to this important subject, the future for increased understanding
is optimistic.
Acknowledgements
I would like to thank the individual who participated
in this study for the generous contribution of their time and
knowledge of the AEC industry. Their concealed identity, as
required by the protocol of this study, does not in any way
diminish the significance of their contribution in advancing
the state of the industry. Also thanks are due to the anonymous
industry experts for their insight in suggesting and assessing
potential firm for this study and for assisting with the evaluation
of the protocol. CJK.
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