Executive Summary
Management doctrine as applied in the international business arena is like taking basic management principles and equating it with global dynamics. A sound business practice will always make sense and increase good service delivery. That sound business sense is what the international business manager should use when tackling different issues in global commerce. One of the vital components in global business is the transportation infrastructure. An executive has to understand fully the apparent as well as the hidden dynamics about this critical part of doing business – moving in the input and moving out the service delivery. There is an impending crisis brought about by the insufficiency of international transport system. The savvy executive should understand the problem fully to turn the crisis into profit. Another essential issue in worldwide transacting is the stability of an international monetary system. Even a company is new to international financial regulations customer service delivery is important.
The purpose of this research is to define all the elements of engineering and construction industries, the effects on the international market and measures that can be undertaken to improve the engineering and construction industries in service delivery. Industries are commonly divided into two main categories: the goods delivering industry and the service delivering in engineering and construction services. The engineering and construction industries deliver physical goods such as mining industry, manufacturing and construction. The service industry is an industry that is concerned with delivering services rather than the delivery of physical goods.
Introduction
The economic sector consists of the world is made up of three sectors: the primary, secondary and tertiary sectors. The primary sector is the extraction industry which includes mining, agriculture and fishing. The secondary sector is often regarded as the manufacturing industry. The tertiary sector is the service provider sector such as banks, tourism and information centres.
Engineering and construction services composed the arteries upon which the lifeline of global commerce exists. The international business manager should then study and understand the complexities pertaining to engineering and construction services delivery. The problem is further illuminated as factors of delivery time and input variability come into play. Profit gained may actually signify a loss once the equations are counted. Building massive factories in a single site may no longer be lucrative as congestion and bottlenecks erode profitability. Companies should reassess their business footprints – sourcing, manufacturing, and establishment of retail networks – and see if they are still worth it as pegged against the actual and indirect costs. The manager playing in the international business arena has to have a full grasp of the dynamics and should employ sound business practices to deal with the impending crisis. The looming crisis involving poor engineering and construction services is unavoidable. It entails great amounts of money and political will from governments, and the private sector, to invest grandly on infrastructure. Even with the present works exerted, the transportation system will still be inadequate once good economic times re-emerge. The international business manager should then utilize creative means to make good use of available resources effectively to deliver goods.
Common fallacies and mistakes in the international engineering
Risks
One of the common mistakes that engineering and construction service providers make is failure to understand international risks while entering into global market. There are three risks among many others that have tended to hinder the benefits derived from such international engineering and construction services by different organizations. These risks are; First and foremost, fluctuations in currency value. In most cases, the dollar is often used as the main currency of exchange. The frequent fluctuations in the value of the dollar have been identified as a major challenge to organizations that engage in international activities. This is because, when the dollar depreciates, organizations end up getting fewer benefits compared to as could have been anticipated initially.
The second challenge faced by these organizations engaging in international activities is the issue of government policies imposed by the individual governments with regards to these activities. Such policies could include taxes that are imposed on such activities and also restrictions on goods and services which may scare off the organizations involved in these activities and thus hindering the chances of these organizations deriving adequate benefits from the international activities. Other policies that can be implemented by governments that could have a direct bearing on international activities include tariffs, trade barriers and quotas.
The third factor that has been cited as being a challenge to organizations engaging in international activities is the issue of lack of cooperation among the parties involved in these activities. This lack of cooperation can be in the form of partial payments of dues, late delivery of goods, on adherence to agreed contract among others.
Failure of planning by engineering and construction companies
The level of planning instituted by large organizations has increased in modern times, as a result of the highly sophisticated technologies and markets that cater to the customer’s needs. Most planning that guides an organization’s process is long-term and broken down into short-term goals of planning with constant validation reviews ongoing to check if the strategies in place are successful in terms of the stated goals, often requiring drastic short-term solutions and amendments for unforeseen consequences. The breadth of long-term plans make it a difficult process in relation to goal achievement and in avoiding unforeseen, unplanned, undesired for consequences which is the reason why intermittent assessment is crucial to ensure success.
It is difficult to pinpoint the exact reasons why companies fail to develop products that meet customer needs due to the wide variance between industries and consumer groups. Generally, the combination of people, operations, policy and culture aspects of a corporation make or break the company’s potential for success or a successful product. The people aspect process that focuses on the impact on involved stakeholders, as well as the operations aspect which focus on the process and infrastructure which are enabled to adapt, and which included several issues such as facilitation of regular knowledge, creativity sharing and information access, will have a summary effect on the potential for success or failure. The policy process which identifies where the current bottlenecks are in the corporation in relation to current policies that may or may not make adjustments and adaptive moves to support an innovative shift in the product or need thereof will effectively impact the corporations move such as their information policy, communication policies and even their social media strategy will have an effect on the company’s end result. Similarly, the organization culture has an effect on the as to the communication and commitment that involved stakeholders maintain wherein a group that has a trustful, open and self-learning qualities may have an effect on the people and operations, all of this creating a varied mixture of success for the right company selling the right product (DeWitt and Brady, 2003).
There is not one reason on why customer needs are difficult to satisfy, but customer needs analysis studies may provide a clue as it is used to study what products are needed or wanted in the market, with the basic assumption that the industry has been identified. At this point, the study of marketing has an effective impact on how mass consumer manufacturers are able to come up with products that satisfy the needs, and wants of the varied range of consumers. This aspect has made a stress on the importance of market research, better product design, effective distribution, and sustained communication with consumers in the success of their brands. As marketing concepts and techniques increasingly became sophisticated and institutionalized in the industrial-goods sector, as well as in the services sector, the need for not only goods and services became apparent with the widespread use of social and location marketing, further buoyed up by which were often tied up with events marketing, that were actually public relations campaigns of the organizations or brands itself.
The reason for the failure of engineering and construction companies to develop products that meet customer needs and serve to satisfy their needs is varied primarily because of the variety of industries and consumer groups, which can have very diverse definitions of needs and satisfaction. A good combination of people, operations, policy and culture aspects that applies to products are seen as being effective aspects on the success potential of products and customer satisfaction. Customer needs analysis reveal the importance of market research, better product design, effective distribution, and sustained communication with consumers in the success of the product and in attaining customer satisfaction.
All of these aspects of technological development and innovation, and the related means, processes, and ideas that form product technology is increasingly becoming an activity that is used to effect change in our present environment, thereby providing constant improvement in products, in social arenas, and in life itself, making way hopefully for the eventual satisfaction of all needs.
Analysis
Value Engineering in the Construction Industry
The systematic process through which the value of goods and services has been improved through examination of their core functions is largely referred to as Value Engineering. Value Engineering is synonymous to value management, value analysis, and value methodology. The value of any good or service is measured as the ratio of its function against the cost of securing it (Cooper and Slagmulder, 1997). Improving the function of a commodity therefore improves its value. The converse- reducing its cost while maintaining the same functionality- is also a realistic way of increasing value. In industrial engineering and project management, the values of systems are optimised through the crafting of performance mixes. These mixes essentially reduce unnecessary expenditure while increasing value to commodities. The general adoption and success of Value Engineering in industries and why the same has not been as agile in the construction industry as it is in other industries. In particular, the discrepancies between traditional techniques of Value Engineering and techniques of Value Engineering in construction today are highlighted. Specific examples are used to explain the discrepancies and recommendations made on how value control within the construction industry can be bettered (Venkatesh V. 2010).
- The Original Motive in and Techniques of Value Engineering:- The motive was therefore accidental and remained so for many industries until recently. Today, a number of industries have turned the idea into a systematic process of value analysis. In contemporary value engineering, function is essentially preserved even as the value of a commodity is improved. In all areas of its application, value engineering utilizes rational logic. Sufficed, what a commodity does is the basis for function analysis where an identity relationship determines what would be necessary to increase the value of a good or service. It is a hypothesis-conclusion approach in which relationships that promises value improvement are modelled, tested and applied (Value Methodology Standard,2009). Several industries have frameworks for ensuring that cost effective Value Engineering processes are maintained. The basic steps in Value Engineering can be summarized as information gathering, generation of alternatives, evaluation of alternatives and presentation. In information gathering, Value Engineering employs functional analysis to justify what a project does, what it will do if changes are introduced, and what it must never do during its existence. The generation/creation of alternatives answers questions about how requirements will be met in project and what else may be developed to perform the desired function. Evaluation is targeted at how well the alternatives meet the desired functions and what cost-effective measures are inherent in them. Finally, presentation involves consideration of the most viable alternative. This alternative is chosen and presented to the client to make a final decision for implementation. The job plan involves preparation, information processing, analysis, creation, evaluation, development, presentation and an eventual follow-up process. However, variations are available in which industries fit their job constraints.
- The State of Value Engineering in the Construction Industry:- The impact of the construction industry on people and the environment cannot be gainsaid. On a global scale, the industry is a chief contributor to high energy consumption, essential resources’ depletion, waste creation and air pollution (Ngowi 2000). Its fragmentation further poses challenges to stakeholders who must however make do with procurements that require sourcing from different sources. Traditional approaches toward value management in the construction industry have focused on using hired consultants or in-house staff to generate programs and prepare documentations. These documents are then used as the basis of awarding projects.
With improvements in technology and heightened activity in the construction industry, however, many stakeholders are finding it impossible to avoid project sustainability analyses whose roles in enhancing performance, realizing reliability, durability and quality throughout a project’s life cycle have been extensively documented. This has necessitated the customisation of quality and the optimisation of project Life Cycle Costs. Essentially, Value Engineering has been the process through which organized life cycle assessments are steered to achieve continuous project goals (Crow 2001).
While its success relies in the capacity to identify opportunities in construction projects, reduce unnecessary costing while assuring quality, performance, and reliability to meet and exceed expectations of consumers, the implementation of Value Engineering has been quite minimal in the construction industry. The intensity of Value Engineering remains in abject disparity to the utility of the same in other industries. There are serious misunderstandings regarding the nature and objectives of Value Engineering to the construction industry. Another explanation regards the perception within the industry that Value Engineering is a mere cost cutting exercise worth no much attention. Lost to stakeholders, however, is that without proper analysis, cost cutting often lessens the value of a project and so does not provide clients with the needed quality (Needle, 2004).
To underscore this disparity, efforts to improve project service-related outcomes in the construction industry have continued to suffer from relatively constrained budgeting. While the goal of Value Engineering is to use resources efficiently to accomplish optimum mix of Life Cycle Costing, most construction projects appear to ignore this need in preference of quality and high standards of work, the cost of such projects notwithstanding. The importance of Value Engineering has also been ignored in decision-makings towards optimal expenditure even as owner funds are indiscriminately used to meet require project quality levels and functionality.
If applied systematically and correctly, Value Engineering has the potential of optimising a project’s whole life cost with a guarantee on project reliability and quality performance or reliability of a project. Aside from the direct benefits of Value Engineering in the construction process, the process has benefits in aiding the clarification of briefs about projects. It also ensures multi-disciplinary team working that is necessary in most construction processes. Through systematic Value Engineering, it is possible to identify alternative designs and solutions as well as unforeseen project benefits and risks with ease.
It is important to mention, however, that Value Engineering is incessantly receiving great recognition by contractors, clients and design team members. The philosophy behind these approaches recognizes that examination and development of a project can proceed at the optimum value for a given input of capital. However, the need for a perfect and auditable structure is imperative. Important too is that client requirements are outlined and ideas freely generated and criticized. Cost reductions for projects too must adhere to trends in project cost generation patterns within the construction industry even as agency specifications and standards are incorporated in cost-cutting strategies (Cole, 2004).
Through proper Value Engineering, substantial savings could be secured from these allocations and especially in the costs of designing and engineering. This makes project engineering and designs the first candidate for value engineering. However, the effectiveness of the whole process depends on constant interaction between the three phases of project development- procurement, engineering and construction. In designing a permanent structure, for instance, mechanization is largely determined by available construction systems and the adopted design. This is a specialized function which calls for a suave understanding of plant and machinery. Design and building organization, just as many other processes are all candidates of systematic value engineering.
For this industry, the aim must be a creation of change rather than it happening by chance. Original Value Engineering motives are well applicable within the construction industry and even much more because of the effects that construction has on the environment. This is the surest way to sustainability, cost-effectiveness, and quality improvement. It is possible to incorporate Value Engineering in all stages of project development- from inception, to identification of client and stakeholder needs, brainstorming and development of alternatives, during detailed designing, development of prototypes and review of possible alternatives and into the construction phase when issues regarding cost, maintenance and evaluations have to be resolved. Nevertheless, modifications are as appropriate in this industry as in any others. It is important, for instance, to recognize as different, the role of Value Engineering Program Meetings between job sites and main offices, a practice that is not necessary in other industries (Isamu, 1988).
Value Engineering in construction must also go beyond advice on buildability that most agencies purporting to provide and claim to be the former. Emphasis should be more on value than on cost reductions, or put differently, reduction of unnecessary project costs. The greatest benefit would also come during early design and development stages as opposed to project improvement stages that characterize Value Engineering in other industries. Importantly however, while early implementation should start a project in the desired direction, repeated applications should ensure that changes in information or client preferences are incorporated in project development. Both should help to minimize resource consumption, design for minimum waste, maximize resource reuse, practice renewability of resource use for environmental sustainability, pursue quality, and reduce unnecessary costs.
Value Chain Management
There is a need for engineering and construction service providers to analysis their value chain and events that affect their business internally and externally. Often these events stem from internal changes or external changes, and in industrial circles, it arises from the realisation that an existing policy is getting the organisation nowhere in the international market, and isn’t producing the desired results.
While the reduction of overheads on operations, the company was now able to concentrate on offering customers excellent services. For this, the company strengthened their employee retention plans, apart from awarding them for their hard and quality work (Johnson, Scholes, and Whitington, 2008).
In order to create a positive image in the eyes of the global market, engineering and construction services provider manage their value chain. In order to make their offshore operations successful, engineering and construction services provider has to invest in training, retention, and cultural development of their personnel. Engineering and construction services provider should create mergers and association in order managers assimilate the various synergistic features right from assets and equipment to technology and strategies. Therefore, despite staggering market opportunities and synergies, the amalgamations often lose ground due to the avoidance of culture conflict. It is because of the company develops and implements various compensation and reward programmes for their employees.
Identify Activities
The initial step in value chain analysis is to divide a company’s operation into specific activities or business processes, usually grouping them similarly to the primary support activity categories. Within each category, a firm typically performs a number of discrete activities that may represent key strengths or weaknesses. Service activities, for example, may include such discrete activities as installation, repair, parts distribution, and upgrading any of which could be a major source of competitive advantage or disadvantage. The manager’s challenge at this point is to be very detailed attempting to “disaggregate” what actually goes on into numerous distinct, analysable activities rather than settling for a broad, general categorization.
Allocate Costs
The next step is to attempt to attach costs to each discrete activity. Each activity in the value chain incurs costs and ties up time and assets. Value chain analysis requires managers to assign costs and assets to each activity, thereby providing a very different way of viewing costs than traditional cost accounting methods would produce (Atrill and McLaney, 2008).
Recognize the difficult in activity –based cost accounting
It is important to note that existing financial management and accounting systems in many firms are not set up to easily provide activity-based cost breakdowns. Likewise, in virtually all firms, the information requirements to support activity-based cost accounting can create redundant work because of the financial reporting requirements that may force firms to retain the traditional approach can be formidable, and still typically involves arbitrary cost allocation decisions trying to allocate selected asset or people costs across multiple activities in which they are involved. Challenges dealing with a cost-based use of VCA have not deterred use of the framework to identify sources of differentiation. Indeed, conducting a VCA to analyse competitive advantages that differentiate the firm is compatible with the RBV’s examination of intangible assets and capabilities as sources of distinctive competence.
Identify the Activities That Differentiate the Firm
Scrutinizing a firm’s value chain may not only reveal cost advantages or disadvantages, it may also bring attention to several sources of differentiation advantage relative to competitors.
Examine the Value Chain
Once the value chain has been documented, managers need to identify the activities that are critical to buyer satisfaction and market success. It is those activities that deserve major scrutiny in an internal analysis. Three considerations are essential at this stage in the value chain analysis. First, the company’s basic mission needs to influence managers’ choice of the activities they examine in detail. If the company is focused on being a low-cost provider, then management attention to lower costs should be very visible; and missions built around commitment to differentiation should find managers spending more on activities that are differentiation cornerstones.
The nature of value chains and the relative importance of the activities within them vary by industry. The relative importance of value activities can vary by a company’s position in a broader value system that includes the value chains of its upstream suppliers and downstream customers or partners involved in providing products or services to end users. A producer of roofing shingles depends heavily on the downstream activities of wholesale distributors and building supply retailers to reach roofing contractors and do-it-yourselves.
It is importance that managers take into account their level of vertical integration when comparing their cost structure for activities on their value chain to those of key competitors. Comparing a fully integrated rival with a partially integrated one requires adjusting for the scope of activities performed to achieve meaningful comparison. It also suggests the need for examining costs associated with activities provided by upstream or downstream companies; these activities ultimately determine comparable, final costs to end users. Said another way, one company’s comparative cost disadvantage or advantage may emanate more from activities undertaken by upstream or downstream “partners” than from activities under the direct control of that company – therefore suggesting less of a relative advantage or disadvantage within the company’s direct value chain.
Compare to Competitors
The final basic consideration when applying value chain analysis is the need to have a meaningful comparison to use when evaluating a value activity as a strength or weakness. Value chain analysis is most effective when comparing the value chains or activities of key competitors. Whether using the value chain approach or an examination of functional areas, or both approaches, the strategist’s next step in a systematic internal analysis is to compare the firm’s status with meaningful standards to determine which of its value activities are strengths or weaknesses. Four sources of meaningful standard for evaluating internal factors and value activities are discussed in the next section.
Core Competencies and Capabilities
Strategic capability, according to Johnson et al (2008, p.95), is defined as ‘the resources and competencies of an organisation required for it to survive and succeed.’ As seen in Table 1 below, tangible resources represent the physical aspect of the organisation like plant, its people and finance, while intangible resources constituting non-physical aspects include, ‘information, reputation and knowledge.’
Most of engineering and construction services providers pursues strong employee-centric retention and reward programme. These initiatives build a sense of security among the employees, and when they are rewarded for their hard and quality work, it lifts their morale and motivates them to perform much better. However, they do not have a strong training and induction programme which can help the organisation present a more professional outlook.
It is no secret that one’s work environment influences their attitude and the better the work environment, the more will it instigate positive work. Looking at their HR policies, there is scope for further development which will ultimately bring out better work. Better leadership styles and flexible work/career patterns can improve the quality of work. Teamwork is essential, and can go a long way to ease the pressure on employees in crunch situations. Not much has been written about their induction programme and this is an essential part of an integral corporate structure. In the induction programme, HR policies target recruitment, training, motivation, and reward. While a lot has been said about engineering and construction services provider’s retention and reward programmes, training, manager-employee relationship and flexible work patterns don’t find any mention. There are many tactics which can bring about positive operational changes and these include:
- Identifying role models and developing strong mentoring programmes
- Introducing pro employee-centric HR policies
- Provide equal opportunities and periodic training for all employees
Managing Operations for Customer Satisfaction
The companies should do business reengineering to reduce fragmentation by crossing traditional departmental lines and reducing overhead to compress formerly separate steps and tasks that are strategically intertwined in the process of meeting customer needs. This “process orientation,” rather than a traditional functional orientation, becomes the perspective around which various activities and tasks are then grouped to create the building blocks of the organization’s structure. This is usually accomplished by assembling a multifunctional, multilevel team that begins by indentifying customer needs and how the customer wants to deal with the firm. Customer focus must permeate all phases. Companies that have successfully reengineered their operations around strategically critical business processes have pursued the following steps:
- Develop a flowchart of the total business process, including its interfaces with other value chain activities.
- Try to simplify the process first, eliminating tasks and steps where possible and analyzing how to streamline the performance of what remains.
- Determine which parts of the process can be automated, consider introducing advanced technologies that can be upgraded to achieve next-generation capability and provide a basis for further productivity gains down the road.
- Evaluate each activity in the process to determine whether it is strategy-critical or not. Strategy-critical activities are candidates for benchmarking to achieve best-in-industry or best-in-world performance status.
- Weigh the pros and cons of outsourcing activities that are noncritical or that contribute little to organizational capabilities and core competencies.
- Design a structure for performing the activities that remain; reorganize the personnel and groups who perform these activities into the new structure.
Conclusion
In the international engineering and construction arena, infrastructure is a vital factor and has to be understood fully. There should be creative ways to minimize inventory and maximize efficiency in their supply chains, but congestion in the transportation system causes disruptions thereby increasing business costs. The present economic downturn masks the magnitude of the problem, but when the global economy recovers, it will hit the unprepared hard. This problem strains delivery time and supply chain variability factors of companies. Most companies in today’s engineering and construction companies placed their footprints – production function and retail networks – at a time of declining logistics costs. Moving goods took major improvements with the arrival of container shipping and better roads, rail tracks, and stable fuel costs. U.S. companies serving the nation found it efficient and quite profitable to set up manufacturing in a rural area and distribute products from there.
Managers should study their logistics system as to costs and time trade-offs. Companies should reassess their footprints and set up shop in regional bases or areas near target markets. Managers of international businesses should have a full grasp of the costs associated with time and variability in the transport chain and put resources on this for a comparative advantage. The infrastructure crisis will require financial resources and political will, but managers can utilize sound business processes and practices to counter the problem and use available resources effectively. The impending crisis may still be a source of comparative advantage if the manager has the insight and acts now to address their company’s transportation issues.
Recommendations
There are other alternatives to improve service delivery in engineering and construction services in the global market. It would be hard to defend against market crash, and so, there was no way a company could sustain their image or market value given poor service delivery. A company would be able to sustain itself against the market collapse with good marketing skills. The company also expanded their market presence globally by partnering and strategic alliances. However, expansionism causes a lot of pressure on operations and this affects work ethics (Bamford and Forrester, 2003).
When an organisation creates a paradigm for behaviour and action, they do so with the hope to inculcate in their workforce’s mind, an understanding of what their organization stands for, and what is expected of them. Many employees are scared to accept the fact that they are able to perform a particular task. They find it very difficult to say ‘I can’t do it’, or ‘I’m not sure I can do it’, out of fear. Managers find this complex situation hard to handle which ultimately leads to poor productivity. In such a situation, the organisation will have to call for strategic thinking and execution of plans to bring out the best from their employees.
The company offering the engineering and construction services should modify their operations and structure. This will reduce its operational activities and concentrate rather on strengthening its financial condition and enhance the enterprise value of its nucleus of businesses. Thus they should
- Build organisational value by strengthening international presence
- Diversifying and expanding to various markets
- Reducing operating costs by conducting a comprehensive review of cost structure
- Reducing excessive risk by winding down exposure to certain financial products and derivatives trading activities.
Reference List
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