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Strategic Alliances in Construction: a Study of Contracting Relationships and Competitive Advantage in Public Sector Building Works

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Strategic Alliances in Construction: a Study of Contracting Relationships and Competitive Advantage in Public Sector Building Works STRATEGIC ALLIANCES IN CONSTRUCTION: A STUDY OF CONTRACTING RELATIONSHIPS AND COMPETITIVE ADVANTAGE IN PUBLIC SECTOR BUILDING WORKS TOMMY LOOSHANG KWOK MBuiltEnv, GradDipProjMgt, DipAcc, CertCivilEng SCHOOL OF CONSTRUCTION MANAGEMENT AND PROPERTY FACULTY OF BUILT ENVIRONMENT AND ENGINEERING QUEENSLAND UNIVERSITY OF TECHNOLOGY This thesis is submitted in partial fulfilment of the degree of Doctor of Philosophy, Queensland University of Technology 1998 EXTERNAL THESIS EXAMINATION COMMITTEE Professor Martin Skitmore (Chair of Examiners) Director of Research Design and Construction Studies Research Concentration Queensland University of Technology Professor Murray Gillin Pro-Vice Chancellor (Academic) Swinburne University of Technology Professor Vernon Ireland Head of School Australian Graduate School of Engineering Innovation Dr John Woollett Chairman CMR Consultants TABLE OF CONTENTS Abstract i Table of Contents iii List of Figures ix List of Tables x Statement of Original Authorship xii Acknowledgments xiii 1 INTRODUCTION 1 1.1 Background to the Research 1 1.2 Research Framework 5 1.2.1 Problem 6 1.2.2 Questions 7 1.2.3 Objectives 7 1.2.4 Research Methodology 8 1.2.5 Delimitation of Scope 9 1.3 Justification for the Research 9 1.3.1 Effect on the National Economy 10 1.3.2 Application of Existing Theory 12 1.3.3 Limitation of Previous Research 13 1.3.4 Potential Applications 13 1.4 Key Findings and Results 14 1.5 Outline of the Thesis 15 1.6 Summary 16 2 REVIEW OF THE LITERATURE 17 2.1 Introduction 17 2.2 The Concept of Strategic Alliances 18 2.3 Identify Need for Research in Literature 19 2.4 Motives for Firms to Enter into Strategic Alliances 20 2.5 Types of Strategic Alliance Relationships 23 2.6 Typologies of Strategic Alliances 27 2.6.1 Business Marriages 27 2.6.2 Marketing Relationships 28 2.6.3 Buyer-Supplier Relationships 30 2.6.4 Marketing Channels 32 2.6.5 Partnering in Building Construction Industry 33 2.7 Benefits and Hindrance in Forming Strategic Alliance Relationships 34 2.7.1 Benefits 35 2.7.2 Hindrance 37 2.8 Relevance in Building Construction Industry 39 2.8.1 Building Construction Industry Reform 39 2.8.2 Public Sector Policy Analysts and Managers 42 2.8.3 Private Sector Managers 43 2.9 Difficulties in Forming Strategic Alliances in Construction Industry 46 2.10 Core Dimensions of Strategic Alliance Relationship 48 2.11 Competitive Strategy in Industry 52 2.12 Competitive Advantage in Building Construction Industry 53 2.13 Performance Indicators for Competitive Advantage 60 2.14 Link between Strategic Alliances and Competitive Performance 61 2.15 Summary 63 3 PUBLIC SECTOR BUILDING CONSTRUCTION IN QUEENSLAND 66 3.1 Introduction 66 3.2 Queensland Construction Industry 67 3.2.1 Value of Building Work in Queensland 67 3.3 The Queensland Department of Public Works and Housing 68 3.3.1 History 69 3.3.2 Functions of the Department of Public Works and Housing 71 3.4 Project Delivery Systems 73 3.4.1 Traditional Lump Sum 74 3.4.2 Design and Construct 75 3.4.3 Construction Management 75 3.5 Tendering Methods 76 3.5.1 Open Tendering 77 3.5.2 Pre-qualified Tendering 79 3.6 Pre-qualification Criteria 82 3.7 Tender Evaluation Process 85 3.7.1 Example: Royal Brisbane Hospital Central Energy Station Project 86 3.8 Recent Development of Pre-qualification System and Criteria in the Queensland Public Sector Works 90 3.9 Strategic Alliances between Contractors and Subcontractors - A Tender Evaluation Criterion for the Public Works Sector 93 3.10 Summary 96 4 METHODOLOGY AND RESEARCH DESIGN 98 4.1 Introduction 98 4.2 Hypothetical-deductive Research Method 99 4.2.1 Observation 101 4.2.2 Preliminary Information Gathering 102 4.2.3 Theoretical Framework 104 4.2.4 Hypotheses Development—Null and Alternate 111 4.2.5 Statistical Analysis Issues 112 4.2.6 Level of Significance 113 4.3 Research Design for the Current Study 114 4.3.1 Problem Statement 115 4.3.2 Purpose of the Study—Exploration and Hypothesis Testing 115 4.3.3 Type of Investigation—Correlations 116 4.3.4 Extent of Research Interference 116 4.3.5 Study Setting: Contrived and Noncontrived 116 4.3.6 Unit of Analysis 117 4.3.7 Time Horizon 117 4.3.8 Measurement of Variables 118 4.3.9 Scales and Measurement 120 4.3.10 Sampling Design 121 ` 4.3.11 Data Collection Method 123 4.3.12 Testing Goodness of Measures—Validity and Reliability 124 4.4 Formulating Questionnaire 128 4.4.1 Semi-structured In-depth Interview 129 4.4.2 First Industry Pilot Study 130 4.4.3 Inputs from Academics and Industry Professionals 131 4.4.4 Second Industry Pilot Study 132 4.4.5 Procedures Adopted in Securing a Good Response Rate 132 4.5 Summary 134 5 DATA ANALYSIS AND RESULTS 135 5.1 Introduction 135 5.2 Data Collection 136 5.3 Individual Responses 136 5.3.1 Benefit Factors 136 5.3.2 Hindering Factors 138 5.3.3 Benefit/Hindering Factors and Positions 139 5.3.4 Changing Importance and Frequency of Strategic Alliance Relationships 140 5.4 Company Responses 141 5.4.1 Value of Work from Queensland Government 141 5.4.2 Public Sector Tendering Process 141 5.4.3 Types of Public Sector Buildings 143 5.4.4 Pre-qualification Criteria for Contractors 144 5.4.5 Pre-qualification Criteria for Subcontractors 145 5.4.6 Business Relationships between Contractors and Subcontractors 146 5.4.7 Analysing Data 148 5.4.7.1 Results of 13 ‗HAVE‘ Companies 149 5.4.7.2 Hypotheses Testing for the ‗HAVE‘ Companies 151 5.4.7.3 Discussion of Findings 155 5.4.7.4 Hypotheses Testing for the ‗HAD‘ Companies 156 5.5 Summary 159 6 FACTOR ANALYSIS AND TESTING INTERITEM CONSISTENCY RELIABILITY 161 6.1 Introduction 161 6.2 Factor Validity 161 6.3 Comparing New Factors with Original Factors of Strategic Alliances 165 6.4 Testing Interitem Consistency Reliability 169 6.5 Spearman Coefficients between New Factors and New Indicators 171 6.6 Summary 172 7 ANALYSING STRATEGIC ALLIANCE FAILURE FACTORS 174 7.1 Introduction 174 7.2 Background 175 7.3 Framework for the Analysis 176 7.4 Key Factors Influencing Alliance Failure 180 7.5 Analysing the Abandonment of Strategic Alliances in Building Construction 181 7.6 Preventing Failure in Strategic Alliances 185 7.7 Summary 187 8 CONCLUSIONS, CONTRIBUTIONS AND IMPLICATIONS 189 8.1 Introduction 189 8.2 Conclusions Regarding Objectives 189 8.2.1 Concept of Strategic Alliances in Use 190 8.2.2 Strategic Alliance Attributes 191 8.2.3 Measure for Strategic Alliance Attributes 192 8.2.4 Measure for Competitive Advantage Indicators 193 8.2.5 Correlationships between Strategic Alliances and Competitive Advantage 194 8.2.6 Validity and Reliability of Measures 194 8.3 Contributions to Knowledge 196 8.4 Contributions and Implications to Industry Practice 197 8.4.1 Building Construction Industry Reform 197 8.4.2 Public Sector Policy Analysts and Managers 198 8.4.3 Private Sector Industry Professionals 199 8.5 Recommendations for Further Research 199 8.6 Closure 201 LIST OF FIGURES Figure 1.1 Strategic Alliance Relationships versus Competitive Advantage 5 Figure 1.2 Relationship between the Independent and the Dependent Variables 6 Figure 4.1 Research Methodological Issues 99 Figure 4.2 Relationship between the Independent Variable and the Dependent Variable 104 Figure 4.3 Strategic Alliance Relationships versus Competitive Advantages 105 Figure 4.4 Schematic Diagram of the Theoretical Framework 111 Figure 4.5 Research Design for Current Study 114 Figure 4.6 Dimensions and Elements of the Concept of Strategic Alliance 119 Figure 4.7 Dimensions and Elements of the Concept of Competitive Advantage 120 Figure 5.1 Business Relationships between Contractors and Subcontractors 147 LIST OF TABLES Table 1.1 Gross Domestic Product by Industry (AUD$ million) 10 Table 1.2 Principal Functions Performed in the Manufacturing and Construction Industry 12 Table 2.1 Different Types of Strategic Alliances 26 Table 2.2 Traditional Vs Supplier Partnering Elements 31 Table 2.3 Elemental Services Costs of Building 43 Table 3.1 Value of Work Completed on Building, Queensland 68 Table 3.2 Value of Work Done on Public Sector Non-Residential Building, Queensland 68 Table 3.3 Open Tender Construction Works 78 Table 3.4 Advantages and Disadvantages of Open Competitive and Selected and Pre-registered Tendering Method 81 Table 3.5 Selected and Pre-registered Tender for Construction Works 82 Table 3.6 Royal Brisbane Hospital Central Energy Station Selection Criteria Explanation 88 Table 3.7 Evaluation Criteria for Tenders 89 Table 3.8 Performance Indicators for Seamless Industry 95 Table 4.1 Seven-Step Process in the Hypothetical-Deduction Method 100 Table 4.2 Probability and Non-probability Sampling Designs 122 Table 5.1 Benefits of Strategic Alliance Relationships 137 Table 5.2 Hindering Factors 138 Table 5.3 Percentage Value of Business Generated from Queensland Government 141 Table 5.4a Percentage of Work Won by Open Competitive Tendering Process 142 Table 5.4b Percentage of Work Won by Select Tendering Process 142 Table 5.4c Percentage of Work Won by Pre-registered and Select Tendering Process 143 Table 5.4d Percentage of Work Won by Direct Negotiation 143 Table 5.5 Experience in Constructing Various Types of Government Buildings 144 Table 5.6 Pre-qualification Criteria for Contractors 145 Table 5.7 Pre-qualification Criteria for Subcontractors 145 Table 5.8 Tendering Methods in Engaging Subcontractors 148 Table 5.9 Spearman Coefficients for Strategic Alliance Elements and Competitive Advantage Indicators—13 Companies Who HAVE Strategic Alliance Relationships 149 Table 5.10 Factor Loadings Derived from Analysis of Competitive Advantage
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