CONSTRUCTION BUSINESS ENVIRONMENT

Construction Business Environment



Construction Business Environment

Introduction

To sustain competitiveness, indeed, in order to survive in national and international markets requires that construction businesses properly understand how they are currently performing, and how they need to perform in the future. In an increasingly competitive and shrinking global marketplace, never before have these demands been more important. To ignore this requirement results in short-termism and “blinkered” management strategies, with concomitant risks arising from those better organized and “slicker” businesses encroaching onto previously safe markets. To use a simile, it really has become “survival of the fittest”. Underlining this point is the fact that the past 20 years have witnessed many construction business takeovers and amalgamations, resulting in firms of conglomerates now dominating the UK construction sector (Mbugua et al., 1999).

This situation calls for effective business performance measurement (BPM), effective in the sense that it should enable a construction company to evaluate and establish its position with respect to its business environment. However, construction BPM tends to rely on “traditional” (bottom-line) performance measures, such as efficiency, return on capital employed, and profitability. These measures have been justifiably criticized by a number of commentators, mainly because they:

* over-rely on financial aspects (Clarke and Clegg, 1999);

* are retrospective (and hence always to some extent out-of-date); and

* do not accurately reflect the interests of stakeholders (Kaplan and Norton, 1996; Mbugua et al., 1999).

Furthermore, it is also widely acknowledged that inappropriate performance measures can:

* encourage short-termism (Hayes and Abernathy, 1980);

* lack strategic focus and fail to provide data on quality, responsiveness and flexibility (Skinner, 1974);

* fail to provide information on what customers really want (and what they are actually getting); and

* do not identify how competitors are performing (Camp, 1989; Kaplan and Norton, 1992).

Zairi (1996) and Olve et al. (1999) both asserted that BPM should look beyond traditional financial metrics and embrace essential business drivers (BD) that determine and influence a company's future business (volume/direction, etc.). In response to calls for improved BPM, several new performance measurement frameworks incorporating financial measures and BD have emerged in the management literature. Some examples include: the performance measurement matrix (Keegan et al., 1989); the performance pyramid (Lynch and Cross, 1991); the balanced scorecard (Kaplan and Norton, 1996); and the “Baldrige” Award (Anon, 1999). Other commentators have focussed on measurement of specific business performance dimensions. For example, customer satisfaction (Berry et al., 1994), employee satisfaction (House and Price, 1991), and business success (Chakravarthy, 1988). Further, the issue of the critical role that employees play in fostering an effective construction business (appropriately referred to as the “people” factor) has not been overlooked (Nesan and Holt, 1999).

In view of this situation, the aim of this paper is to underline the need for a shift in orthodox beliefs with respect to BPM, from performance measurement to, alternatively, a stakeholder perspective. The latter will adequately consider relations with customers, suppliers, employees, financiers, and the wider community - all being critical for a business's viability both in the short - and longer ...