National institute of construction management and

research

Corporate planning
and strategy in
construction

By,

Darshan M S 221092

Vivek chandar M 221099

Girish N 221106

Arunkumar N M 221107

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INDEX

1. Introduction 03

2. Levels of Strategy 05

3. Factors affecting the strategy 06

4. Characteristics of strategic decisions 08

5. Strategic management and corporate planning 09

6. Failure of corporate planning 09

7. Why corporate planning and strategic management? 10

8. Examples and cases 11

9. References 12

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1. INTRODUCTION

Construction activity is the integral part of the country’s infrastructure and industrial
development.

A construction industry provides substantial employment growth to other sectors through

backward and forward linkages. It is essential that, this vital activity is nurtured for the
healthy growth of economy.

Awareness of both the general and task environment changes is the critical starting point for
companies to gain or keep competitive advantages. A thorough knowledge of these changes
can help managers identify & understand the opportunities and threats facing origin, and then
determine suitable strategies in terms of the strength and weakness of their companies.

In short, construction industry is beginning to play an important role in India’s development.

If the government focus on improving infrastructure stays, then this industry’s importance is
likely to increase in future. For this increasing complexity and bright future of the
construction industry, it requires a pre defined strategy and planning at every stage of
expansion of growth of the construction business with in the highly intensified competitive
govt.

1.1 CORPORATE PLANNING

It is the continuous process of making present risk taking decisions systematically and with
the greatest knowledge of their futurity; organizing systematically the efforts needed to carry
out these decisions and measuring the results of these decisions against the expectations
through organized system feedback – Peter drucker

Corporate planning is the process of managing the future of organization.

1.2 What is strategy?

Strategy is a subject that has exercised the minds of political, military and business leaders
for centuries. The earliest recorded attempts to define strategy emanate from Roman military
commanders who sought to document the strategic options available on the battlefield. The
acceptance of the need for strategic behaviour in business is evidenced by the volume of
literature dedicated to the subject. Much of the knowledge base has been developed by
researchers and theorists; practitioners have had to apply critical judgments on how such
theories can be applied to their own industry. This is particularly so in the construction

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industry where little material in the strategic management field has been available despite the
efforts of authors such as Newcombe, Channon and Grinyer who have done much to bring
strategic management theories to the attention of construction management practitioners.

1.3 What is strategic management?

Strategic management is a systematic approach to major and increasingly important

responsibility of general management to position and relate the firm to its environment in a
way which will ensure its continued success and make it secure from surprises.
Strategic management is concerned with deciding on strategy, and planning how that strategy
is to be put into effect. It can be thought of as having three main elements within it. There is
strategic analysis, in which the strategist seeks to understand the strategic position of the
organization. There is strategic choice which is to do with the formulation of possible courses
of action, their evaluation and choice between them. Finally there is strategic implementation
which is concerned with planning how the choice of strategy can be put into effect. The three
elements of the strategic management are often seen as sequential in traditional texts, but
actually they overlap and interact so that partial implementation may modify strategic choices
for example.

The concept of strategy and the nature of strategic decisions

There are common themes in the definition of strategy. Strategy is concerned with the means
to meet ends, that is it is concerned with achieving objectives. A strategy is also a set of rules
for guiding decisions about organizational behaviour. Strategies may be explicit or implicit.,
kept within the senior management team or pervading the organization to produce a sense of
common direction

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2. Levels of Strategy

The corporate level: Which businesses or markets the company should be in

The business level: How to compete in a particular market

The operational level: Decisions by heads of functional departments - estimating, buying,

plant, etc, and decisions by managers of construction projects often impact on the whole
business since individual projects represent a large proportion of a building contractor's

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turnover and therefore profit.

Functional
strategy

Business
strategy

Corporate
strategy

Figure A- HIERARCHY OF STRATEGY

Two views have emerged on the nature of strategy:

The first perspective views strategy as planning mod. A strategy is worked out in advance, is
explicit and managers develop a systematic and structured plan to meet objectives.

The second perspective sees strategy as an evolutionary mode. From this viewpoint strategy
evolves over time, is not thought out and planned but is a stream of significant decisions.

3. FACTORS AFFECTING STRATEGY OF A FIRM

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3.1 EXTERNAL FACTORS:

3.1.1 Political-legal forces

Political-legal forces include such factors as the outcomes of elections, legislation, and
judicial court decisions, as well as the decisions rendered by various commissions and
agencies at every level government.

3.1.2 Economic forces

Economic forces significantly influence business operations, including growth or decline in

gross domestic product and increases or decreases in inflation, interest rates, and exchange
rates. These changes can present both opportunities and threats to strategic managers,
depending on the industry.

a. Gross domestic product

GDP refers to the value of a nation`s annual total production of goods and services. A
rapidly growing GDP is not necessarily beneficial. Likewise, a high degree of economic
volatility and unpredictability can stymie strategic decision making.

b. Inflation rates

High inflation rates have a negative effect on most, but not all businesses. One needs to
consider the composite impact that an economic factor may have on an industry, not only
the single effect that may be most intuitive.

c. Interest rates

At corporate level, interest rates also influence strategic decisions rrelated to financing.
High rates tend to dampen the business plans to raise funds to expand or to replace aging
facilities. Lower rates however are more likely to spawn capital expenditure on
expansion and development.

d. Exchange rates

Currency rates can be influenced by international agreements, the coordinated economic

policies of the government and international economic conditions.

3.1.3 Social Forces

Social forces in business sense translate into an emphasis on entrepreneurship and the belief
that one`s success is limited only by one`s ambition.

Technological factors

Technological forces include scientific improvements and innovations that create

opportunities or threats for business. The rate of technological change varies considerably

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from one industry to another and can affect a firm`s operation as well as its product and
services.

3.2 INTERNAL FACTORS

3.2.1 Organization’s mission, goals, and objectives

The mission is the reason for the firm`s existence. The organization`s goals represent the
desired general ends towards which the efforts are directed. Objectives are specific, and often
quantified, versions of goals.

3.2.2 Global influences on mission

Organisational mission and international involvement are also connected through the
economic concept of comparative advantage, the idea that certain products may be produced
more cheaply or at a higher quality in particular countries due to advantages in labour cost
and technology.

3.2.3 Goals and stake holders

Various stake holders often have different goals for the firm. Each stake holder group,
members of board of directors, managers, and employees, suppliers, Creditors and customers
view the company from different perspective.

3.2.4 Influence on goals

Balancing the various goals of an organization`s stakeholders can be challenging task. Firms
create value for various parties including employees through wages and salary, shareholders
through profits, Customers through value derived and governments through taxes

3.2.5 Agency problems

It is situation in which firm`s top managers-the agents of the owners do not act in the best
interests of stakeholders. There are two types: management serves its own interests, and
management, stockholders share same interests.

3.2.6 Takeovers

The purchase of controlling quantity of shares in a firm by an individual, a group of investors

or another organization. Takeovers may be friendly or unfriendly.

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4. Characteristics of strategic decisions

They are concerned with the scope of the organization's activities and the interface with the
environment.

They seek to match the strengths and weaknesses of the firm to the opportunities and threats
in the market place

They seek to match the firm's activities to the capabilities of of the organization and its
resources.

They commit the organization to changes in the use of its existing resources or to obtaining
additional resources

They affect operational and administrative decisions

They are complex because there is always a high degree of uncertainty about environmental
forces and outcomes.

They affect the long term direction of the firm.

4.1 Why is strategic management necessary?

A rapidly changing environment requires greater corporate awareness of changes and their
implications for the organization.

There is need for companies to have stability as far as possible and avoid the crises brought
about by strategic surprises.

The systematic appraisal of the strengths and weaknesses of the organization and matching
these to the opportunities and threats in the environment is crucial for survival in a
competitive market.

the larger the organization the more difficult is to change quickly - hence the need to
anticipate change that much earlier in order to develop an appropriate response.

Corporate harmony is enhanced if the organization is seen to have a clear strategy. People
then know where the organization is going and can tailor their contribution accordingly.

Consistent financial performance is likely if the organization's activities are systematically

thought through with realistic forecasting of the results.

The strategic management role can be filled by an internal individual or team or an external
consultant or executive director. A combination of both internal and external modes is
sometimes used.

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The timing of the strategic management is crucial to its success. Finding time time to do it is
also vital.

There is no "best" strategy which is applicable in all circumstances. A contingency approach

to strategic management is essential, based on the objectives of strategic managers.

5. Strategic management and corporate planning

It may be desirable to draw a difference between long range planning and corporate planning.
Long range planning in most cases assumes that the current environment in relation to the
organisation will continue as in the past. In other words, it is simply a forward projection of
existing operations.

Strategy begins by asking, “what activities should the company be in?’ “what will be the long
term goals of the organisation on the basis of present and future environmental factors likely
to be available to the organisation?” strategic management as has been discussed in is implied
in the corporate plan. However the time span is relatively shorter, usually 3 years as
compared to five years for a corporate plan. Due to its popularity of strategic management
terminology, corporate planning in many organisations has been rechristened as strategic
planning.

6. Failure of corporate planning:

Strategic plan usually introduced by CEO who might have had exposure to it in a
management development programme (MDP).He hands over the task to a planner and does
not get involved

some companies prepare a strategic plan and circulate it among senior managers and
externals consultants for their comments. This approach fails since most of the time senior
managers neither have time nor the skills to look at the future. Most of the time, they are
found to be good at budgeting but are unable to make an assessment of external environment.

Many organisations emphasise on hard data. In a strategic planning exercise, it is difficult to

provide hard data in every situation. This results in doubts being raised by senior
management in the organisation.

Failure to accept and balance interrelationships among intuition, judgement, managerial

values and planning system.

Failure to encourage managers to do effective strategic planning by basing performance

appraisal and rewards solely on the short range performance measures

Failure to tailor and design the strategic planning system to unique characteristics of the
company and its management.

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Top management becomes so engrossed in current problems that it does not spend enough
time on strategic planning process and the process gets discredited among the other managers
and staff.

Failure to modify the strategic planning system as conditions within the company change.

Failure to create an appropriate climate for the success of strategic planning.

Chief executive may spend too little time on planning.

Corporate planner tries to do all planning by himself or he may be of a low calibre

Company tries to move into an advanced management area before it is ready

7. Why corporate planning and strategic management required in construction

industry?

Strategic planning is an essential function of senior management in any business firm.

Planning involves the firm's behaviour in a competitive market and adaptation of the
company's resources towards the selected market strategy. This procedure consists of the
following stages. First, examine the company's mission. The mission reflects the owners'
views with regard to the company's scope of activities and objectives. Second, survey the
company's business environment. The environment includes both general economic factors
that affect all types of business activity and additional factors, specific to the construction
sector. This survey should reveal the specific "packages" of prospective project opportunities
and highlight potential threats to a company's orderly activity. Third, analyze the company's
main resources. The main resources in this respect include the construction capacity, the
procurement system, the marketing system, the organization, personnel, finances, and
knowledge. The relative strengths and weaknesses of each resource, in light of market needs,
are identified. Fourth, develop a strategy. The development of a strategy is based on
"mapping" of the relative attractiveness of the various possible activity areas. This strategy
can follow one of several generic types that must be adapted to particular conditions of the
market and company. It affects the subsequent choice of a strategy for development of the
company's own resources. The choice of the optimal strategy, from several available
alternatives, should follow a careful analysis of the costs and benefits inherent in the
implementation of each.

The traditional philosophy of management in construction, both in academia and in industry,

places great emphasis on the ability to plan and execute projects. In contrast, a similar
emphasis on strategic management has received less attention in the construction industry.
Although the pressures of project performance can often obscure the broader social,
economic, and professional context in which strategic management is undertaken, it is these

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broad contextual areas that make strategic management an essential issue for construction
organizations. Rapidly changing social and technological issues are creating a professional
environment that will look very different in the coming decades from that experienced in
today's organizations.

8. Few examples of corporate planning and strategy in construction

industry
• Rise in interest rates hits realty sector

• The uncertainty in property market is giving jitters to property funds.

• Property funds have increased their IRR expectations from (20-22)% to (27-30)%

• EU and US investors were happy with (5-6)% yields, now they want (8-9)%

• DLF,Unitech announce US $4 billion fund rising through PE in this FY

• Parsvnath to venture into retail, plans to open 10 stores in this FY ,21 commercial
projects of area 4.77 million sq ft, appoints new director and concessional pacts with
DMRC to develop properties

• Unitech to open 15 malls in the coming years with Rs 20,000 crore of investment

• Purvankara to setup fully owned subsidiary Provident housing and infrastructure

Ltd,for affordable housing segment with investment of about Rs 8,000 crore,also to
invest Rs 1,000 crore for hospitality.

• Puvankara arm goes PE route to raise Rs 750 Crore to acquire land for its affordable
housing project

• GMR acquired 50% in the Netherlands based Intergen

• GMR energy has earmarked Rs 13 K Crore for generating 3300 MW of power, plans
to raise Rs 2.6 K Crores from private placement of the equity

• Ansal API to raise Rs 2,500 crore through PE investors to develop SEZ and IT parks.

• Raheja plans Rs 4,500 crore SEZ

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• World`s largest cement maker Lafarge have brought L&T`s RMC business as a part of
its expansion plans

• JK Lakshmi cement to put in Rs 1,000 Crore for 5 RMC plants through internal
accruals

• PremjiInvest,PE fund to pick up the stake in construction companies

• ‘Swiss challenge’ ruled out in airport PPP projects

• Property firms fast-track projects to beat slowdown (30% in last six months)

9. References:

• Newcomb, R, Langford D and fellows, R Construction Management, volume I

• Fellows R etal, Construction management in practice

• Harold kerzner, Second edition, Project management- A system approach, CBS

Publishers

R Srinivasan, Second edition, Strategic management-The Indian context, Princeton

hall

• Ramaswamy and Namakumari, Strategic planning formation of corporate

strategy,Texts and cases, Indian context, Macmillan.

• John parell, Strategic management, Theory and Practice, Biztantra

• Thomas & David, Ninth edition, Strategic management and business policy, Pearson
education

• http://ascelibrary.aip.org/journals/doc/ASCERL-home/proc/

• http://www.misronet.com

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