Construction Industry of UK Strategic Analysis

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Introduction

In the present day, competition is the key driver to shape the business environment in any particular industry throughout the world; and so, different companies in different industries are taking distinctive strategic movements from every possible sphere of business operation. An organization must undertake some strategies not only to make a profit but also to differentiate its products, services, packaging, offering, and marketing from its competitors and to communicate with the targeted and potential customers. Thus, strategic management has taken the place of traditional management theories and practices, constructing a business world by considering every movement of a business in a planned way. As a result, all industries have some specific options to get a strategy and to push their profit margin higher, but many industries are also struggling to select their best strategy, as a strategy, which will be effective for a particular industry, may not be effective for another industry. In this essay, the construction industry of the UK will be assessed based on the strategic management theories and it will try to find out whether these theories are working well in this industry or not.

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Overview of UK construction Industry

Like any other country in the world, the construction industry of the UK is one of the most progressive industries, which possess an extraordinary growth rate and expects to become matured within a few years. This industry has an annual turnover of more than 100 billion pounds, which makes the industry one of the most attractive ones to invest in. This industry contributes about 10% of the country’s total GDP and this amount is expected to grow at an even faster rate. There are more than 250,000 different types of companies here, along with some supplier and distributor companies, which are also dependent upon this industry. This statistic represents that how big this industry is; it is almost five times bigger than the aerospace industry in size and at least three times bigger than the automotive industry. Altogether, these companies are employing about two million people.

Therefore, this industry is contributing in a large number not only to the economy of the UK but also to the social development of the country. As other businesses are highly influenced by technological advancements, like improvements in the transportation system, the construction industry of the UK is also having these sorts of benefits, which are triggering its rapid growth. Modern efficient building manufacturing equipment and newly developed design facilities are also lifting the productivity of this industry. This industry with its maximum success rate is improving the social housing, schools, hospitals, and government structures along with ensuring better quality public transport.

The marketing of the construction industry is the most impressive one in the UK comparing to other industries. Thus, the attitudes of the professionals and trade groups in this industry are quite different from others. However, all these companies are following the ISO 9000 as an international standard. Jones, Comfort & Hillier (2006) pointed out that an extensive effort is given to pay the highest attention to corporate social responsibility in all issues like supply chain management, health and safety, HR, consumers, communities, supremacy and ethics, etc.

The commitment of this industry can fall into six criteria. These areas are vital for the delivery of the projects efficiently, timely, safely, and in contrast to the budget. These six key areas are:

Six key areas
Figure 1: Six key areas

This industry has a long-term target of achieving some goals within 2012 in these key areas. Besides, this industry has some short-term goals and some targets already set for 2010 as well.

Strategy

There are so many things, which are related to the term strategy. A company along with all of its resources and abilities designs its strategies in a manner, which will be highly profitable for it. Hence, here, the aspects of cost and benefit analysis are important (Giles 1997). Literally, a strategy is the plan of action a firm takes to manage the firm’s operation, and the management will use it to stake out a strong position in the market through conducting its operation, attracting and pleasing consumers, successful competition, and all these issues will help to achieve the organizational objectives (Glass & Baiche 2001). The most important aspects related to strategy are choosing the paths, taking decisions on where to move, selecting the target markets and customers, planning about competition, allocating appropriate strategies and resources to attain those goals, relying on these strategies, and working hard to make it a success (Hardy & Davies 1983). Therefore, strategy is a tool, which the management uses to set a certain target, select appropriate ways to attain those targets and implement these strategies in a way, which can be assessed and measured easily. Altogether, the basic concept of strategy entitles the combination of competitive moves and business advances, which the managers take to make the customers satisfied, compete with the competitors accordingly and attain the goals of the firm (Jones et al. 2006).

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Strategy Process

Strategy Process means the flow of information and other related materials according to some interrelated steps of evaluation, which will lead the organization to its goals. Strategic management is also a process, which indicates the flow of information including historic, current, and forecasted data within the operational environment of the organization. As a part of the process, the managers first assume the need to acquire some data, select appropriate resources to gain those data, pick proper ways to attain those data and finally to get some findings from those data. The aim of this process is to formulate and implement the strategies that will work best to achieve the long-term and short-term objectives of the organization. This concept of strategic management is considered to have some key importance. A change in any components of the environment may influence the functioning of any steps in the operation. Thus, strategic management is a process where all steps have some backups; and the lacking of one step can be erased by the strengthening of the next step.

The formulation and implementation of strategy are important in the sense that all the steps are related to each other, and so all the strategy formulation and implementation in each step are interrelated. All these efforts are confining the accurate impression of the strategy process. In the case of a firm, the rigidity of the process is also a key issue. The strategic posture of a firm should be evaluated in response to any other changes in the internal or external environment of the firm. However, not every component of the process has equal importance, and every component must be given weight according to its necessity and scarcity in the steps of the process. Strategic management is considered as a process, the feedback of this process will also become easy to get and evaluate. (Pearce & Robinson, 2006; p.18)

The combined effect of strategy and process

When the strategy and the strategic process are combined together, its effect on a business will let the proper functioning appear. There are five important tasks, which will be the combined effect of strategy and strategic process. These are:

  1. Developing a strategic vision and business mission
  2. Setting objectives
  3. Creating a strategy to achieve the objectives
  4. Implementing and executing the strategy
  5. Evaluating performance, monitoring new development, and initiating corrective actions (Thompson and Strickland, 2003, p-7)

These steps will lead the firm to the end of a path, where it can easily decide about what type of strategies it should use. A firm in its current climate can demonstrate the proper strategy and strategy process. There can be two types of strategies. These are:

Proactive: In this strategy, the firm will dictate its environmental changes rather efficiently. The firm will also initiate such a change in its internal or external environment, which will be beneficial for it.

Reactive: This is a strategy where the firm will take necessary actions to cope up with some changes in its environment. Here the firm is being dictated by the environment for only taking defensive actions (Thompson and Strickland, 2003, p-28).

Strategic Management

Hitt, Ireland & Hoskisson (2001) argued that strategic management is the strategic orientation of the traditional management functions. Traditional management functions like planning, organizing, leading, and controlling are different from the strategic perspective. These functions are quite different in all three levels of management, the top, the middle, and the bottom. Strategic consideration is not only ensuring the effectiveness of the function but also ensuring the effectiveness side by side. All the technical, human, or financial resources have different meanings and implications in strategic management. The dimension of SM is creating the differences. The dimensions are:

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  • These strategic decisions require the involvement of top-level management. As the strategic decisions are related to almost all of the firm’s operations, only top-level management will be able to take decisions in all of these since only the top-level management has the right power to authorize it.
  • A large number of the firm’s resources are needed to implement the strategic issues. Thus if the strategic decisions are wrong, the firm will have to lose a high amount of resources. These strategic decisions require larger involvement of human, financial, and technical resources, so discredit of any of the decisions may lead to the misuse of these valuable resources.
  • The firm’s long-term prosperity is affected heavily by strategic issues. These issues are related to the strategic decisions and are for a long-term purpose, a minimum of five years. Therefore, if the strategic decision fails, the firm will get the immediate result, which will continue in long run.
  • The most alarming dimension of strategic issues is the future orientation of these decisions. Nothing can be said about what is going to happen in the future. The environment-related with the firm may not behave in the same manner as now it is behaving.
  • The strategic issues have multifunctional or multi-business consequences. In many areas of the firm, strategic decisions have complex implications. The organization, which has different businesses in different product lines, can use the strategic decision properly.
  • The strategic decision is taken by a firm to consider its external environment. Maximum business organizations enjoy an open system and so these organizations affect and will be affected by the external factors which are out of the control of these firms. For this reason, the strategic managers must look beyond its operation and will try to cope up with the competitors, customers, suppliers, creditors, government and labor strategically.

There are many benefits of Strategic management. Through this, all the managers at almost every level interact between each other while planning and implementing. So, the behavioral changes according to the participative style of management are also enjoyed in this part. The benefits earned by SM are:

  • The power of a firm to prevent problems is increased by strategic formulation.
  • The best possible alternatives are easily attainable as group-based strategic decision-making occurs.
  • The productivity-reward relationship to the employees became transparent as they are participating directly.
  • It helps to reduce the gap and overlaps in activities among individuals and groups.
  • It increases the profitability of the plan of action.

Strategic Management in UK construction Industry

When focused in terms of different industries or business sectors, Strategic management would be differentiated more clearly (Pearce II & Robinson, 2006). The UK construction industry can be differentiated with the help of different models of strategic management, which is discussed further:

Environmental Analysis

If the environmental analysis were considered to discuss the UK construction industry, first there are mainly three types of environmental analysis and for each analysis, different models would be used. (Pearce II & Robinson, 2006)

Environmental Analysis
Figure: Environmental Analysis

PEST Analysis

General environment or macro-environment is analyzing all organizations’ operations, considering some major factors, which are (PEST Analysis example):

Political Factors

  • Government stability towards construction industry;
  • Political values and beliefs in shaping industrial policies;
  • Regulations towards trade and global business of constructions,
  • Suitable taxation policies (Rampure, 2009)
PEST Analysis of UK Construction Industry
Figure: PEST Analysis of UK Construction Industry

Economic Factors

  • Seriously affected by economic recession;
  • High possibilities of money supply;
  • Long-term business cycles of the construction business.
  • Higher charges of interest rates;
  • Maintain employment of UK

Socio-Cultural Factors

  • Supported by demographic conditions;
  • Helping as an income source to multiple income families,
  • Not considered as health and fitness awareness to UK population (Rampure, 2009);
  • Create negative attitudes for people as the working environment (CIOB, 2006).

Technological Factors

  • To keep ahead than other industries;
  • Faster data transmission system;
  • Modified process innovation in construction sectors.
  • Technological efforts by UK government and other parties;
  • Revolution in transfer in a digital way (Yisa et al, 1996).

Industrial Environment- Porter’s Five Forces Model

Porter’s Five Forces Model of UK Construction Industry
Figure: Porter’s Five Forces Model of UK Construction Industry

Porter’s five forces model deals with the industrial environment, which is helpful for construction business of the UK to understand the dynamics of its industries and markets to compete effectively. There are five forces in this model acting on a specific business, which are as follows:

The Degree of Rivalry:

  • High intensity of rivalry among construction industries and
  • Higher industrial attractiveness between competitors (Anon, 2010)

The Threat of Entry:

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  • Higher potentiality of existing and new competitors in this industry;
  • Higher economics of scale, which presents lower entry barriers,
  • Access to distribution is available to competitors;
  • Less differentiation;
  • Ease of government legislation.

The Threat of Substitutes:

  • Types of products are almost the same and
  • Costs of substitutes are not differentiated.

Buyer Power:

  • Relatively low, because of having various options in this industry;
  • Availability of a large number of undifferentiated businesses and
  • The rate of risk to failure is low for buyers.

Supplier Power:

  • Low switching costs of business;
  • The power of brand loyalty is relatively low;
  • Customers’ fragmentation is low in the construction industry.

Business Environment- SWOT Analysis

To consider the internal and external environment of the construction industry, it should analyze mainly four factors, which are:

 SWOT Analysis of UK Construction Industry
Figure: SWOT Analysis of UK Construction Industry (Self-generated)

Strengths:

  • Creates employment and training opportunities in this industry;
  • Having multi-building projects on feasible locations;
  • Having national structure networking in boom construction industries.
  • Availability of low-cost laborers from the Asian market;
  • Availability of raw materials (Scribd, 2009).

Weaknesses:

  • Natural disadvantages;
  • Having differences in construction projects and efficiency of business;
  • Having skill gap with changing environment,
  • Difficulties in external allocation and lack of process management.

Opportunities:

  • Creating more construction opportunities;
  • Enlarging opportunities in public and private sectors;
  • Developing supply chain networking,
  • Developing skills and capacities in new markets;
  • Availability of flexible training system;
  • Support from financial sources.

Threats:

  • Instability and uncertainty in the long-term market;
  • Henkes & Mourer (1990, p.6) stated that due to global recession unemployment problems and fluctuations in the stock market has increased, so people become conscious to invest money;
  • Adverse impact on the current situation;
  • Lack of political support,
  • Abnormal causalities of the natural environment;
  • Lack of assurance in infrastructure safety

BCG Matrix

Pearce & Robinson (2006) pointed out that BCG (Boston Consultant Growth) Matrix indicates that company’s business units are classified according to market growth and relative market share to compare with largest competitors in the industry and it can be shown as:

BCG Matrix
Figure: BCG Matrix (Self-generated)

According to the BCG matrix, the position of the UK construction industry is “CASH COW”, as relative market share is high, but market-growing potentiality is comparability low within major competitors.

Life Cycle Matrix

Thomas & Roberts (2009) stated that the matrix is defined as life cycle matrix when the industry is analyzed according to the life cycle of products or services in the market and the following figure will show this matrix:

  • Business Unit Competitive Position
  • Industries Stage
  • Evolutionary
  • Life Cycle
  • Strong
  • Average Weak
Life Cycle Matrix
Figure: Life Cycle Matrix (Self-generated)

From the above matrix, it is identified that the Construction industry in the UK is in a position between competitive shake-out and rapid growth, with maximum market share than its competitors. Therefore, it can be said that the construction industry is in average positioning in the rapid growth of the overall industry.

Overall Generic Strategies

Kotler & Armstrong (2006) argued that there are mainly three generic strategies, and the Construction industry can be focused by this strategy:

Generic Strategies
Figure: Generic Strategies (Self-generated)

From these three strategies, the construction industry in the UK should develop “Cost” as a generic strategy. Product differentiation and quality enhancement are very rare in these industries. Therefore, they should be emphasized their generic strategies by being cost leadership in the market.

Strategic Implementation

Hitt, Ireland & Hoskisson (2001) mentioned that there are mainly seven elements in strategic implementation of management strategies, which are:

Strategic Implementation
Figure: Strategic Implementation (Self-generated)

The construction industry can develop any specific strategy of strategic management and give it structure as an organizational format. The style of management should be developed according to the skills of managers and staff of these industries. The system should be valued by all people related to these industries.

Conclusion

Becoming the most enlightened industry in the UK, the construction industry is now in a booming period. All of the achievements of this industry are the result of implementing the strategic management approaches heavily in every possible stage of the operation. However, still, there are some areas where strategic management is still applicable but not implementing. Thus, the firms of this industry must give proper attention to this consequence.

Reference

Anon. (2010) Porter’s 5 Forces analysis. Web. 

CIOB (2006). Corruption in the UK Construction Industry: Survey. Web. 

Giles, R., (1997) ISO 9000 perspective for the construction industry in the UK. Training for Quality. Web.

Glass, J. & Baiche, B., (2001) Perceptions of hybrid concrete construction in the UK construction industry. Engineering, Construction and Architectural Management. Web.

Hardy, L. W. & Davies, E., (1983) The Marketing of Services in the UK Construction Industry. European Journal of Marketing. 17(4). Web.

Henkes, K. & Mourer, S. (1990) Industry Analysis Construction of Single Family Homes. Web.

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2001) Strategic Management. 4th ed. South-Western Thomson Learning.

Jones, P., Comfort, D. & Hillier, D., (2006) Corporate social responsibility and the UK construction industry. Journal of Corporate Real Estate. Web.

Kotler, P., & Armstrong, G., (2006) Principles of Marketing. 11th ed. Prentice-Hall of India Private Limited.

Pearce II, J. A & Robinson, R. B., (2006) Strategic Management. 10th ed. New York: McGraw Hill.

Porter E. M. (1996) What is Strategy? Harvard Business Review.Web.

Rampure, A. (2009) PEST Analysis example. (2010). Web.

Scribd (2009) SWOT Analysis on Construction Industries. Web.

Strategic Forum. (2009) Strategic program targets. Web.

Thomas, J. P. & Roberts, H. W. (2009) Unit 4 Environmental Analysis.Web.

Thompson, A. & Strickland, A. J., (2007) Strategic Management. 11th ed. New York: McGraw Hill.

Yisa, S. B., Ndekugri, I & Ambrose, B., (1996) A review of changes in the UK construction industry: Their implications for the marketing of construction services. European Journal of Marketing. Web.

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