Management in Strategic Assets for Competitiveness of Construction Organizations

Globalization presents formidable challenges to developing countries as they struggle to compete in the world market. In Thailand, after the Asian economic crisis in 1997, a few construction firms which had survived through the crisis, needed to thoroughly re-examine the opportunities for previously overlooked cost-cutting and operational improvement. A construction firm often dangles between success and failure due to the fragile makeup of its capital structure, which generally consists of high debt financing rather than the equity. This situation is a result of the limited equity capital and results in high risk, and therefore, a high cost of debt to finance the large amount of money required to facilitate construction operations. To compete successfully, the construction organization has to skillfully and cautiously evaluate the investment in assets in order to obtain the most efficient use of the total available capital. Given that construction organizations generate their main income through contracted projects, managers have put a priority on allocating resources towards construction project needs. However, this practice in resource allocation does not optimize the utilization of organization’s resources as a whole. For sustainable competitiveness of construction organizations, the budget must be allocated with comprehensive strategic considerations. The aim is to continuously cultivate resources and capabilities to cover all the organization’s vital organs. It is hoped that through this approach, the organization’s core competencies can be strengthened.

During the previous decade, the Thai Government has continuously invested in large infrastructure projects such as the Bangkok Sky Train lines, Underground Train lines, Cable-stayed Bridge, as well as the renowned Suvarnabhumi International Airport. These projects require high technological capabilities which can not be fulfilled solely by local contractors. As a result, a number of international engineering and construction firms from Europe, United States, Japan, and China entered the region to undertake these sophisticated projects. Furthermore, following the Free Trade Agreement which Thailand has with many countries, an alarming number of foreign investors invested in large capital projects. Their targets included power plants, manufacturing plants, luxurious hotels and residential projects throughout the country. Local contractors who wish to survive in this new circumstance or enter into emerging regional market need to craft effective strategies and rapidly develop the required resources and capabilities to seize opportunities.

Ms. Piyanut Vorasubin made a research which purpose was to investigate the strategic assets and their mechanism in providing sustainable competitiveness for construction firms. The following research questions are addressed in her study:
1) What are the strategic assets underlying core capabilities of Thai construction firms?

2) How should construction organizations develop strategic assets in order to achieve the sustainable competitiveness of the organization?

The main focus of her study is to provide answers to the question stated above in the following areas:
1) To identify the strategic assets underlying core capabilities of construction firms in the Thai construction industry.
2) To explore how strategic assets drive performance of Thai construction firms.
3) To propose a methodology which guides construction firms to effectively manage strategic assets for the competitiveness of their organizations.

Research Findings

Strategic Assets underlying Capabilities of Construction Firms
Factor analysis with Varimax rotation was used to identify strategic assets underlying the six capabilities of construction firm. The six strategic assets found underlying the three direct capabilities are: 1) reputation development; 2) client relations; 3) networkability; 4) bargaining power; 5) project management; and 6) construction technology. The eight strategic assets found underlying the three support capabilities are: 1) financial stability; 2) risk and investment management; 3) strategic management; 4) organizational culture; 5) human resources management; 6) information technology; 7) learning organization; and 8) development and innovation.

Mechanism of Strategic Assets in Driving Firm’s Competitiveness

Strategic management was found driving all direct strategic assets and also closely correlated with most of the support strategic assets, especially risk and investment management and learning organization. Outstanding human resources management was found to negatively impact networkability and construction technology. However, it was found strongly correlated with other support strategic assets including organizational culture, strategic management, learning organization and information technology. This indicates the indirect effect of human resources on other support strategic assets. Without a firm’s long-term direction and appropriate culture, competent staff could harm the performance of the construction firm. Construction technology, which is a fundamental direct strategic asset required for long-term competitiveness of construction firms, was driven by learning organization and development and innovation.

Most construction firms in Thailand focus on direct strategic assets with the exception of construction technology. Among the eight support strategic assets, development and innovation is rated the lowest. Strategic management is not emphasized as it should be, in fact given an 8th ranking. These three strategic assets are important to long-term success of a construction business. The lack of these three assets would make construction firm vulnerable to changes in the market environment.

An Improvement Mechanism of Strategic Asset Management

Four parts are required to attain sustainable competitiveness in construction firms. Firstly, construction firm must develop organizational motivation in order to motivate and align the firm’s human resources as well as allocate other tangible and intangible resources beyond project level towards the existence of the firm. A construction firm needs to develop strategic management together with effective risk and investment management in order to drive the organization toward its long-term goals. Secondly, a construction firm should strengthen its operational foundation to guarantee continual flow of projects matched to the firm’s construction capacity. This is so that financial stability can be achieved. Three relational assets, specifically bargaining power with suppliers and subcontractors, client relations, and networkability, drive project procurement and marketing capabilities are necessary for the construction business. Professional project management must be developed to ensure the quality of construction services delivered. The quality of previous work will accumulate and result in an excellent reputation which is the strategic asset providing competitive advantage in the construction industry. However, to sustain financial stability, effective risk and investment management in line with the firm’s strategy must be developed too.

Thirdly, management must create an encouraging working environment so synergy among the firm’s human resources necessary for long-term development of organization can occur. Three strategic assets are required to create such a working environment namely excellent human resources management, positive organization culture and efficient information technology. Construction technology which is difficult or impossible to imitate by competitors is very critical to the long-term competitive edge of a construction business.

Nonetheless, the development of the three parts previously described cannot alone give the firm a technologically leading edge. The last part necessary for sustainable competitiveness of construction firm is development of technological excellence. This requires learning organization and continuous development and innovation to be in place. Not only great effort and time but a significant amount of long-term capital is necessary for such investment. Thus, financial stability, as discussed earlier during the development of strong operational foundation, is the prerequisite to build technological excellence. Sustainable competitiveness can be secured if long-term financial stability together with continuous development of efficient construction technology is successfully developed.

Recommendation for managers in Managing Strategic Asset

The improvement mechanism for strategic assets management, recommendations are made to assist managers of Thai construction firms in securing long-term competitiveness are detailed as follows.

1) Create organization motivation
• Set up an effective firm performance evaluation system to be able to assess firm’s strengths and weaknesses.
• Establish long-range planning extending beyond 3 years by setting long-term goals and identifying firm’s target clientele
• Develop cash together with investment policy and procedure in order to achieve long-term goals including retain earnings during profitable years and upgrade quality of cash flow forecast.
• Keep utmost discipline in matching source and utilization of funding.

2) Develop strong operational foundation
• Create relationship with investors and international construction firms.
• Develop informative client and potential client database.
• Establish procedure for suppliers/subcontractors evaluation and selection in order to develop long-term contractual relationship.
• Establish systematic project cost database for all completed projects.
• Set up periodical meeting to review firm’s cost structure. •Form project team with clear authority and responsibility.

3) Create encouraging working environment
- Develop excellent business philosophy to promote good ethics, team environment, creativity, and adaptability of staffs.
- Enhance staff participation by gathering staff’s feedbacks in development of business plan and policy.
- Establish career development path and fair staff promotion policy.
- Integrate accounting information system with the project tracking system in order to provide effective decision support.

4) Develop technological excellence
• Establish periodical cross-project and cross-department meeting as formal channel to exchange knowledge and experiences for creative problem-solving.
• Develop business operation manual in order to accumulate firm’s knowledge.
• Find opportunities to send staffs to external training, seminar, and continuing education valuable to firm’s long-term goals.
• Constantly monitor best practice from construction as well as other industries.
• Find potential partner for valuable technology transfer.

Her thesis abstract is copied and posted.

ABSTRACT

This study focuses on the management of strategic assets by construction firms in order to achieve competitiveness with the following three objectives: 1) to identify the strategic assets underlying core capabilities of construction firms in the Thai construction industry; 2) to explore how strategic assets drive the performance of Thai construction firms; 3) to propose a methodology which guides the construction firms to effectively manage strategic assets for the competitiveness of their organizations.
The pre-survey consisted of four case studies and in-depth interviews with industry experts. From pre-survey results and previous literature, a preliminary list of 106 resources and competencies valuable to construction firms was developed. The questionnaire was then designed using these 106 items, categorized under six organizational capabilities: marketing, procurement, construction, financial, business management, and learning and innovation. Questionnaires assessing the level of importance given to these resources and competencies were sent to 1,027 Thai construction firms, out of which 258 sets were returned.

Using the factor analysis technique, these 106 items were reduced to 14, termed as the strategic assets. To identify how these assets drive the firms’ performances, they were classified into direct and support strategic assets. The direct strategic assets were those directly related to the firms’ products and services, including excellent reputation, exceptional client relations, strong networking, strong bargaining power, efficient construction technology, and professional project management. The eight support strategic assets, which were indirectly related to the firms’ products and services, included financial stability, effective risk and investment management, explicit strategic management, positive organization culture, efficient information technology, excellent human resources management, effective learning organization, and continuous development and innovation. Multiple regression analysis was used to explain how each support strategic asset affects each direct strategic asset.

The framework in managing these assets was developed by stressing the important role of developing explicit strategic management together with excellent human resources management and positive organization culture. These three strategic assets are the key drivers in generating and upholding effective learning organization and continuous development and innovation which are required for sustainable competitiveness of construction firms. Based on the 14 strategic assets found, recommendations were made for managers of construction firms as follow:1) create organizational motivation; 2) develop strong operational foundation; 3) create encouraging working environment; and 4) develop technological excellence.