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International
Journal for Construction Marketing |
A.B. Ngowi*, D.S. Iwisi**, P.D. Rwelamila***
*Department of Civil Engineering, University of Botswana, **Department of Management, University of Botswana, *** Department of Construction Economics and Management, University of Cape Town, South Africa
Keywords
strategic positioning,
construction activity, competitive intelligence, market segments
Contents
Abstract
Introduction
Strategic Positioning
Competetive Intelligence
Components of competetive Intelligence
Sources of Intelligence
A Study in Botswana
Conclusion
References
ABSTRACT
As the construction industry becomes more global and national boundaries less relevant, the survival of a construction firm is determined by its ability to create and sustain a strategic market position. This paper discusses the information that is required to create and sustain a strategic market position and explains how competitive intelligence could be used to acquire this information. The paper further discusses how competitive intelligence might be employed to perceive threats and get the information the firm requires to protect its interests once the threat is somehow perceived. Using Botswana as a case study, the paper reports on a study of how one hundred firms position themselves in the construction industry. It concludes by emphasising that strategic positioning in the construction industry involves careful selection of activities that a firm can perform differently than its rivals.
INTRODUCTION
Traditionally, the construction industry takes a reactive business approach, and contractors often bid for jobs on open tenders, which are, in most cases, their only means of getting jobs. This reactive approach is compounded by the contractors’ conservative nature in taking exceptional risks, compared to other industries where high risk ventures and risk taking in general are normal business. Furthermore, most contractors see national boundaries as the limits of their geographical spread, regardless of the fact that their services might be valuable beyond these borders.
In the unfolding global scenario construction firms need to take a more proactive business approach in order to survive and grow. Activities should take place in the global context, rather than within national boundaries. However, to be able to operate successfully in the global context, construction firms need to create strategic positions and develop focussed differentiation from their rivals. To enable creation of strategic positions and operate globally, the firms need a tool that will be able to collect and analyse information on world financial developments, major ongoing international projects, country risks and profiles of current and anticipated competitors. Competitive intelligence is one of the tools that can meet these requirements.
The paper proceeds to highlight the importance of strategic positioning, followed by a definition of competitive intelligence as a tool for strategic positioning. Finally, a study carried out in Botswana to determine the extent to which contractors view global operations and strategic positioning is presented, followed by conclusions and recommendation for further work.
STRATEGIC POSITIONING
According to Porter (1996) cost is generated by performing activities, and cost advantage arises from performing particular activities more efficiently than competitors. Similarly, differentiation arises from both the choice of activities and how they are performed. Competitive advantage is attained within some scope, and the choice of scope is a central one in strategy, because there are logical inconsistencies in pursuing several types of advantages or different scopes simultaneously (Porter, 1991).
Thus, activities being the basic units of competitive advantage and overall advantage or disadvantage resulting from all a company’s activities, strategic positioning means performing different activities from rivals or performing similar activities in different ways (Porter, 1996). Positioning, however, is not only about carving out a niche. It requires a tailored set of activities because it is always a function of differences on the supply side that is of differences in activities.
The construction industry has often been classified broadly into building and civil engineering projects. However, each category has a large number of sub-sectors. The building category, for instance, includes among others; housing, office blocks, warehouses, hospitals, schools and recreational facilities such as hotels. Similarly, the civil engineering category includes as many sub-sectors; such as highways, tunnels, rail lines, bridges, dams and power stations. There are generic activities in each category, but involvement in a particular sub-sector only, consolidates the competence of the firm in handling projects in that sub-sector. Moreover, positioning choices determine not only which activities a firm will perform and how it will configure individual activities, but also how activities relate to one another. In other words, a firm needs to develop a fit among its activities and this will eventually lead to profitability because of the way other activities are performed. Similarly, the value of an activity to customers can be enhanced other activities in the firm (Porter, 1996).
For firms that have confined themselves within national borders, there is a temptation to operate in all sub-sectors in a particular category, especially, in the building category because the trade-offs that are necessary in positioning may appear to the firms as giving up opportunities. Positioning trade-offs are essential because they avoid inconsistencies in among others, machinery, equipment, skills and management systems. To choose a position, therefore, a firm should see the global market as the context of operations where highly developed competence in a particular sub-sector will enable it to pursue opportunities and create some others wherever conditions allow. Good examples of firms that have successfully created strategic positions in the global arena include Bechtel which has built approximately 50% of the world’s nuclear reactors, M.W. Kellogg which is responsible for innovative construction methods that produce half of the world’s ammonia and Lummus Crest whose technology is responsible for half of the world’s production of ethylene (Murphy, 1983).
To create a strategic position, a firm has to allocate adequate resources to the effort and ensure that everyone in the firm, particularly the top management is fully committed to the position created. For instance, in order to access innovative methods that might assist in creating or sustaining a strategic position, Shimizu provided funds to Harvard University and the London School of Economics (Hasagawa and Shimizu Group FS, 1988). Similarly, Kumagai Gumi and Kajima invested in real estate in Australia and USA respectively, with the aim of acquainting themselves with potential local clients. To take this further, in the 1980s large USA firms such as Bechtel, Brown and Root and Foster Wheeler, apart from offering financial assistance in tandem with their construction management skills, concurrently provided optional services such as site selection, feasibility study, design engineering, procurement of materials and equipment, commissioning, staff training and post-construction maintenance in order to create market positions (Soubra, 1989; OECE, 1992). Once a strategic position is created, the firm needs to continuously innovate valuable new service features before competitors (Teece et al, 1997; Ngowi, 1997). A valuable position will attract imitation by incumbents, who are likely to copy it by repositioning themselves or by straddling, that is seeking to match the benefits of another position while maintaining its existing position.
Based on the preceding information, it is clear that, to create and sustain a strategic position, a firm needs global information about the intended or created position and the inherent competition. The next section defines competitive intelligence as the tool that can provide this information.
COMPETITIVE INTELLIGENCE
The survival and growth of an organization often depend upon ensuring that it has accurate, current information about its competitors and a plan for using that information to its advantage (McGronagle & Vella, 1990). This objective can be achieved by using competitive intelligence, which Prescott and Gibbon’s (1993) define as "a formalized, yet continuously evolving process by which the management team assesses the evolution of its industry and the capabilities and the behaviour of its current and potential competitors to assist in maintaining or developing competitive advantage". Gilad and Gilad (1988) add another dimension to this definition by defining competitive intelligence as "the activity of monitoring the environment external to the firm for information that is relevant for the decision-making process in the firm". Fuld (1985) likewise, views intelligence gathering as sorting out numerous bits of data and assembling them into a cogent and useable form of information or intelligence.
The main functions of competitive intelligence are summarized as: to prevent surprises that could hurt a business:
To enable these functions, different types of tools and techniques have been developed for different requirements of competitive intelligence. Contacting government agencies and searching online databases, for instance, are some of the common techniques used.
COMPONENTS OF COMPETITIVE INTELLIGENCE
Gilad and Gilad (1988) identify five components crucial to the development and execution of effective business intelligence:
Business executives require different intelligence in support of assorted decisions. These are divided into operational decisions which refer to those which affect the short term goals as opposed to strategic decisions which influence the long term mission of the firm. Operational decisions include opportunities and market threats while strategic decisions include strategic planning, new ventures, research and development decisions, mergers and acquisitions, and capacity expansion (Gilad and Gilad, 1988).
Operational decisions result from the acquisition of information such as customer, competitor promotional and pricing data which is used by organization managers to effect decisions on a daily basis. Strategic decisions, on the other hand, are those, which executive management uses to help the organization achieve the desired goals, objectives and mission. The framework for strategic decisions relates to:
The external environment is comprised of the economic environment, the competitive environment, the regulatory and political environment, and the social and international environments (Naylor et al, 1983).
When the economic environment is followed and analysed, the key factors to review include growth, inflation and interest rates. The study of the competitive environment yields information on the behaviour of competitors, such as their psyche, which is an indication of how they act and react. The monitoring of regulatory and political environment is accomplished through the review of industry specific government regulations, all subsequent changes, and proposed or pending legislation. The technological environment is studied to ensure that the firm is using the most advanced and efficient technology possible to starve off cost increases and improve quality. It is essential for a firm to maintain currency in the technology of its particular industry. The social and international environments are important for a global firm to consider when positioning itself in the global market. These include issues such as national cultures of different nations, country financial controls, political unrest.
The proceeding section strongly suggests that a firm needs to have a competitive intelligence unit to continuously monitor these environments so as to allow senior management to plan and execute realistic corporate strategy. The next section discusses sources of intelligence.
SOURCES OF INTELLIGENCE
The two broad categories for sources of information are published sources and field sources. Both categories are divided into what Gilad and Gilad (1988) call "what others say about the competitors" and "what competitors say about themselves". The quality and quantity of information from these sources differ from country to country, and below is a summary of these sources. It is important to note that, given the global approach in many industries, looking for information in local sources only will not be sufficient for sound decision making.
Under the published category, "what others say about competitors" can be found in books, business periodicals, local and trade press, company and industry research, and technical journals. Books may provide insight into the psyche of the corporation as well as the thought process of key decision-makers and the route that they follow to effect certain courses of action or corporate direction. Business periodicals are magazines that report on specific industries or broad business topics and tend to concentrate on existing corporate problems and issues facing firms. Trade press of respective industries offers information on the backgrounds of the people in the industry as well as changes in personnel, industry innovations, new technology and new uses of old technology and process. The local press, particularly newspapers generally provide reports on the more noteworthy events, such as disasters or major changes or advances. Company and industry research represents that area of intelligence that is garnered from experts outside of corporate intelligence units, such as the research capabilities of market analysts and consultants. Technical journals are used to monitor the research and development activities ongoing within an industry.
"What competitors say about themselves" under the published sources category is indicative of information sources to be found in government filings, company-sponsored books, articles, speeches, announcements, advertising, internal literature and increasingly on the website of the firm. Fuld (1985) observes that, it is the compliance with laws and regulations, essentially stipulated by various nations that provides an incredible amount of public information. In Botswana, for instance, one has to file applications with the Bank of Botswana, Ministry of Commerce and Industries, and the Ministry of Finance before he or she can import a heavy construction plant such as ready-mix concrete plant. These applications provide a very good source of information for competitors about the plans of the firm in question, because they can easily be obtained from the respective ministries. Books and articles can be very good sources of intelligence if the authors use anecdotes to describe the firm situations and conditions. Speeches and announcements provide one with information concerning management directions, advancement, problems and solutions to problems. Advertising may include present and future needs whereby the former represents efforts of the firm to target market groups through radio, television and print media, while the latter implies the evaluation of firm wants ads in newspapers, periodicals and association journals. Internal literature comes in the form of company newsletter, magazine announcements, and promotional materials. They are designed primarily for company employees and are used to inform them of activities, achievements, company projects and successes as well as certain changes that may not warrant the issuance of formal memorandum.
Under the field sources category, "what others say about competitors’ is sub-divided into among others; customers, suppliers, dealers, agents, and subcontractors (Gilad and Gilad, 1988). Suppliers are a good source of competitor information. Their motivation is based on their desire to sell their products and services. Therefore, a supplier may divulge a list of clients in an attempt to impress the proposed buyer using the persons or organisations serviced, which may enable a competitor to learn of the specific equipment provided. Dealers, agents and distributors of such items as lifting and earth moving plant in the construction industry may be able to provide information regarding competitors, competition, pricing policy and promotions. Consultants may share certain information regarding their clients or on an industry in general. Sub-contractors, who are a common feature in the construction industry, may perform similar work to competitors and valuable information can be gained from them. Journalists provide a very good source of intelligence and are willing to share information with those whom request it, provided that the exchange is of mutual benefit.
"What competitors say about themselves" under the category of field sources is divided into seven components: plant tours, annual meeting, court appearances, technical conferences, trade shows and conventions, speeches, job candidates and new employees (Gilad and Gilad, 1988). Tours to plants such as quarries and ready-mix concrete may provide one with information relating to types and numbers of equipment in a particular plant, approximate capacity and the number of employees. Annual meetings are a good way to find out what a firm is planning, what they did well and how they intend to make good what they did not do well. Court appearances may provide insight into one’s business or industry by analyzing the problems and mistakes of others. In the construction industry, disputes often arise due to the large number of parties involved in projects. If disputing firms fail to reach agreements out of court, their appearances in court may expose important information to competitors. Technical conferences, trade shows and conventions provide one with information relating to the new service offerings of competitors, insight to R & D and abundance of take home literature, as well as the availability of experienced and trained representatives there to answer questions. Speeches made by company executives to various groups may lead to disclosure of valuable information to competitors, particularly if they answer pointed questions. Job candidates can provide some very useful and valuable data and information about one’s competitor, especially if the candidate happens to be a former employee of the competitor.
The preceding part of this section gave a detailed review on the sources of information so as to make it clear that whatever transaction a firm conducts, it leaves behind a trail of information that is easily available to competitors. Therefore, it is as important to form a competitive intelligence unit to gather information about competitors, as is to use it to protect the firm’s information from reaching competitors. Very likely, the competitors may have their own competitive intelligence units targeted at the firm. They might, therefore, intentionally generate dis-information to mislead the organization’s intelligence efforts. According to McGonagle and Vella (1990) the firm’s competitive intelligence activities may find data which the competitor has planted to keep the firm preoccupied and off-balance.
When the firm has some knowledge about the environment, its competitors and its own competitive intelligence needs, it proceeds to the stage of gathering competitive intelligence data through the sources mentioned above. Raw data is evaluated and analyzed for accuracy and reliability. Every attempt is made to eliminate false confirmations or dis-information that may be planted by competitors, and to check for omissions and anomalies. Omission, which is the seeming lack of cause for a business decision, raises a question to be answered by a plausible response. Anomalies ask for a reassessment of working assumptions (McGonagle & Vella, 1990). While the conclusions one draws from the data must be based on that data, one should never be reluctant to test, modify, and even reject one’s basic working hypothesis. The failure to test and reject what others regard as an established truth can be a major source of error (Vella & McGonagle, 1987).
A STUDY IN BOTSWANA
A study that was divided into two parts was carried out in Botswana to determine the geographical spread of the operations of randomly selected construction firms and the methods they employ to create and sustain their positions.
In the first part of the study, 100 firms covering the whole construction industry in Botswana were randomly selected from the six classes of contractors as defined by the Central Tender Board (CTB, 1992). To ensure randomness, all firms registered in each class were numbered consecutively. The total number in each class was divided by the sample size and all the firms whose numbers were multiples of the rounded off quotient were selected. Table 1 shows the details of the classification and the number of contractors selected from each class.
Class of "O" which is an opportunity class was left out because it includes firms that are only starting up and are not necessarily construction firms. Some of the firms listed in this class have yet to execute a project or are involved in activities other than construction.
The chief executives of the selected firms were interviewed by means of telephone on five general questions. The firms whose chief executives could not be contacted after two attempts were replaced with other firms, also randomly selected within the respective classes. However, this rule did not apply to class E because there are only 10 firms registered in the class and therefore it became necessary to make repeated attempts until the contacts were made. As a result of this approach there was a 100% response. The questions asked and the responses elicited are described below.
The responses to this question established that 77% of the firms have operated in Botswana for more than five years. Apparently, there was a turndown in the growth of the industry between 1992 and 1995 and so these firms are survivors of this period of low activity.
The responses to this question showed that the lower the value of projects a firm is allowed to execute (classes A, B and C), the more likely it is for the firm to engage in building projects rather than civil engineering projects. The main reason given for this is that there are normally fewer projects in the civil engineering category than in the building category and these projects tend to be large and require heavy plant and specialized skills.
The responses to this question established that, the firms that operate in the building category do not distinguish sub-sectors based on the use of the building. They consider the building as being either short (single storey) or tall (multi-storey), simple or complex, and the project being small or large. The latter issue is dealt with by the restriction imposed on the various classes not to bid for projects exceeding their upper limits. It was also established that firms in classes A and B avoid projects in which tall buildings (including double storeys) are involved. Although firms in classes D and E can execute projects ranging from Pula 4 million upwards, it was established that some of them avoid tall buildings as well. Five of the firms registered in classes D and E have either not constructed any tall building or do not have the plant that is required for construction of such buildings.
The responses to this question revealed that the firms registered in the lower classes (A, B and C) concentrate their operations in Gaborone, the capital city and its environs as well as in cetain regions. The reason given here is that it is difficult to spread out too widely when a firm is small given the logistic problems of moving personnel, equipment and materials to the various parts of the country. Moreover, most of the projects, including private ones are in Gaborone and its environs. Firms registered in classes D and E operate all over the country, and eleven of them operate outside Botswana either in the regional market which includes Lesotho Swaziland, Namibia, South Africa and Zimbabwe, or in the global market, particularly in Middle East, Europe and China. The firms that operate in the global market do so either as an overseas division or in partnership with local firms.
The responses to this question established that, transport in general and lack of building materials in some parts of the country are some of the factors that restrict the small firms from spreading their operations widely. This concurs with the responses to question 4. These two problems do not seem to concern the larger firms due to the fact that they normally have large fleets of freight vehicles and often own warehouses into which they can mobilize and store materials for projects that are located in distant places. However, the factors that influence the large firms to operate in their current geographical areas are the degree of competition and the fact that they would like to retain some presence in their home bases.
Part two of the study was based on the findings of part one. Detailed face to face interviews were held with the chief executives of all the eleven firms that operate in the regional or global markets. All these firms have foreign origins. Either their principal directors are non-Botswana citizens or the firms are registered as divisions of foreign firms. Each interview took half an hour in the respondents’ offices. The questions asked were aimed at the following:
The responses to the question on the reasons, which led to the choice of the current positions, established that six of these companies have divisions that specialize in the different sub-sectors of civil engineering projects, such as water supply and highway construction. They accumulated experiences over several years, which enable them to bid for regional tenders where these projects are involved. Two of the firms have similar divisional arrangements as described above, but operate at a global level. The remaining three firms are involved in building projects only. This concurs with the results of part 1 of the study, which showed larger entries in these categories. Their specialization in building projects and their accumulated experience has enabled them to get involved in any type of building project, be it tall buildings, large or complex as described earlier. All the firms had studied the market and established that their target sectors had very few players, if at all. The firms also established that the skills and equipment and machinery used in their target sectors were not readily available in the local market. Based on their comparatively easy access to the latest technology, appropriate equipment and machinery and skilled personnel in their target sectors, these firms chose their current positions and pursue the corresponding projects all over the region. The possession of current technologies and resources have enabled them to carry out activities better than their competitors and have secured them competitive advantages.
On the kind and source of information that was used by the firms to choose their positions, it was established that all the firms were first registered in their home bases where they grew to the level of exporting their expertise beyond their local markets. At this stage, each of them started to keep profiles of the markets of interest. These profiles included such issues as the performance of the economies of the target countries, their political stability, their culture and labour situations. It was revealed that most of this information was obtained by traveling regularly to the target countries or from their missions in these countries. It was also revealed that, information to enter the regional market originate from two sources: International bodies such as the World Bank, European Union and donor agencies such as Norwegian Agency for Development (NORAD). These agencies advertise the projects that they sponsor in the international media or to specific countries. All the firms that operate in the regional or global market said that they subscribe to these sources of information. The other source of information is the local media in Botswana, such as the Government Gazette and the daily news which publish information about forthcoming projects and advertisement for pre-qualification on such projects. This information is obtained by reading these papers. It was also established that consultants provide valuable information regarding forthcoming projects, and this information can be obtained by keeping close contacts with them.
The question on how a market position is created established two different methods: financing of projects was established to be the main method of creating a position. This commences with the knowledge of the target country’s requirement of funds to finance some major projects. Then there are two choices for the firm:
Forming an alliance with a firm from the donor country will then enable the interested firm to secure the contract. This method was said to be complicated and takes a long time. Another method of creating a market position was said to be bidding in the regional or international market, taking advantage of the firms expertise and long experience in such projects to bid as low as possible. Although the firm will end up with low profits, if at all, this approach will enable it to enter the market.
It was established that, one way of sustaining a position once created, is to forge a close relationship with the main parties operating in the market where the position has been created. These include clients, client representatives, consultants, donor agencies and financial institutions. All firms indicated that they have a person or a division within their firms that pursues this issue by obtaining relevant information about the environment and the competition. The most important method of accessing this information was said to be personal contacts which are established through memberships of local clubs, particularly the golf club and Lion Rotary, club in Gaborone. Another method of sustaining a position, once created, was said to be maintaining currency on the technology relevant to the position created. Up to date technology was said to be a proof to the prospective clients that they will get value for their money if they employ the firm that possesses it. An example of the use of geotextile as a reinforcing material in reinforced earth embankment instead of the traditional massive reinforced concrete retaining wall in a road project was given. The client, that was the Roads Department in this example, saw this approach as being environmentally friendly and selected the firm that proposed the method on this basis.
CONCLUSIONS
To be able to create a strategic position, a firm needs to differentiate its activities by either performing different activities from the rivals’ or performing similar activities, but in different ways.
Activities in the construction industry are often predetermined by the nature of the projects. Therefore, to create a strategic position, it is necessary to perform those activities differently than rivals perform them.
A lot of information is required to create and sustain a strategic position. This information includes among others; the environment, competitors, and financing of the projects. Several sources of information, including public and field sources are available. However, what is most important is to be able to analyse the information in the context of the environment and derive the intelligence that may enable the management of the firm to make strategic decisions.
The study in Botswana showed that the construction industry is broadly divided into building and civil engineering, in line with the general trend, and that small firms enter the market with no intention of creating specific positions. The small firms operate mainly in the building sector, which does not require heavy plant or special skills. They also confine their operations around Gaborone and its environs, or in some specific regions. The large firms, on the other hand, create positions and try as much as possible to sustain them. The large firms are more widely spread out geographically in the quest to pursue projects in their specialized activities. This entails them to see the national borders as just artificial demarcations and no barrier to their efforts to pursue projects beyond them.
The large firms create their positions by nurturing them in their home markets and then, export them after achieving high competence. The firms enter the target markets either as a condition of some financial package in bilateral agreements or by assisting to organize project financing. Another method used to enter the target market is to bid strategically.
It was established that, although there may not be formal competitive intelligence units in these firms, there are individuals or divisions that are entrusted with the task of collecting information about the environment and competitors. This information is informally analysed before it is passed on to the management. This shows that, competitive intelligence in one form or another is an important tool in creating and sustaining strategic positions.
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