Applying Porter's Frameworks to Managing a Business in Global

Applying Porter’s Frameworks to Managing A Business in Global Construction Markets Pekka Huovinen, Helsinki University of Technology (email: [email protected]) Abstract The purpose is to introduce and advance a population of the nine applications of Porter’s frameworks to managing a firm’s business(es) in global construction markets. Betts and Ofori (1992) recommend Porter’s frameworks as strategic planning techniques. Winch and Schneider (1993) suggest a model for architectural practices. Veshosky (1994) has applied the strategies to the A/E firms in the USA. Jennings and Betts (1996) have re•defined the strategies for quantity• surveying practices. Pinto et al. (2000) establish customer•based project•success metrics. Huovinen (2001) introduces fivecompetitive arenas. Langford and Male (2001) address product differentiation. Rapp (2001) links low cost, differentiation, and speedy response. Kale and Arditi (2002) recommend a neutral approach to scope with all the modes of competition. Finally, it is suggested that these existing and new applications be advanced further as a causal chain of Porter’s frameworks in the various contexts of global construction markets. @b@1@e@1@b@2@e@1 Keywords: Business management, competitive strategies, construction market, literature review, Porter Michael E. 1. Introduction This paper is one of the outcomes of a 4•year literature•review process [1].A review problem of how a firm’s dynamic business can be managed successfully was approached in light of both the generic business•management concepts and their construction•related applications published between the years 1990•2002. This focus onbusiness•level management research is based on the author’s perception, i.e. managing a single business successfully is at the same time the most challenging and the most enduring level of strategic management. During the review, the converging versus diverging answers of the various authors were identified concerning the question “What is the primary way (element) of managing that will enable managers to set challenging business goals and also to attain them?” Thus, this business•management research was regrouped intothe eight broad schools of thought in business management as follows: Porterian, resource•based, competence•based, knowledge•based, organization•based, process• based, dynamism•based, and evolutionary school [1 p. 89]. 109 In this paper,the sole focus is on Porter’s frameworks and their construction•related applications. This is so because the Porterian school seems to dominate, i.e. the total number of the practitioners applying Porter’s frameworks across industrial, service, and construction businesses is still likely to exceed the combined number of the practitioners relying on the outcomes of the other seven schools. Typically, Mintzberg et al. [2 pp. 352•3] acknowledge that Porter’s “positioning school” remained highly influential in terms of the annual “activity” (amount of publication and attention from practitioners) in the late 1990s. However, it seems that not even the Porterian school can show empirical evidence of sustained good business performance (e.g. [3]). In the early 1990s, Porter [4 pp. 428•9] emphasized thethat theory embodied in a framework is contained in choosing its elements and variables, i.e. the way these are organized into a framework, their interactions, and the ways in which alternative patterns of variables and firm choices affect outcomes. The purpose of this paper is (a) to introduce the cumulative chain of Porter’s frameworks, (b) to review the nine applications of Porter’s frameworks for managing a firm’s business in global construction markets, and (c) to suggest some promising ways of advancing the applicability and effectiveness of the same and new applications of Porter’s business•management frameworks in the future as follows. 2. Porter’s Business•Management Frameworks 2.1 Porterian school of thought in business management Herein, the introduction ofthe Porterian business management is based only on Porter’s references and Porter and Wayland’s [5] contribution that are all (re)published between the years 1990•2002. Among them, there is only one integrated account of the development of his frameworks. Porter’s [4 pp. 431•9] chain of causality connects firm behaviour and business environment to competitive market outcomes. Porter offersa set of cross•sectional strategies to managers as follows: § A contextual market strategy for choosing the attractive, strategically distinct business(es); based on gaining the knowledge of the five forces inherent in each business or competitive arena [6, 7] § A positioning strategy for choosing, building, and sustaining a firm’s attractive relative position in the targeted business; based on choosing incompatible trade•offs with alternative positions [4, 6, 7, 8] § A competitive strategy for choosing, creating, and upgrading competitive advantage(s) within a firm’s competitive scope; based on aligning a firm’s activity system, resources [including competences], and organization to the adopted strategy as well as refining 110 these according to exogenous changes; by using the underlying structural drivers [4], [7, 8, 9, 10] § A coherent set of guiding principles for reconnecting a firm with strategy and a firm’s strategy with its operational effectiveness as well as for strategizing during the Internet era [8, 9, 10] § A locational strategy for managing a firm’s membership within a vibrant cluster [4, 8, 11, 12, 13, 14, 15]. 2.2 Relevant critique of construction•related scholars Over the years, strategic management scholars have criticized Porter’s causal chain of frameworks, typically, in terms of choosing positioning as the only strategy, organization, people, and resources that are missing, meta•strategies homogenizing firms, and their realist premises. Herein, only the relevant critique of some construction•related management scholars is reviewed as follows. In the early 1990s, Fellows [16] argued thatPorter’s [7] five forces model is derived from the traditional view of competition (the perfect competition•monopoly continuum); therefore, it does not appear to take account of the theory of contestable markets. Porter’s approach is too narrow, i.e. a supply•side analysis. In addition, developed markets were recognizing the limitations of competitive perspectives and were moving toward cooperation. Thus, appropriate strategies are based on gearing the supply side to the greatest likelihood of maximizing demand•side satisfaction. In their reply to Fellows, Betts and Ofori [17] admitted that it is fair to say that Porter’s (1980, 1985) work had come under some criticism as an over•simplistic and populist approach. Yet, irrespective of its weaknesses, it cannot be doubted that the work had [already] made much impact and, on this basis, Betts and Ofori (e.g. [18]) considered it justified to apply Porter’s strategic planning principles to construction. Winch and Schneider [19] have posited that, while very attractive,Porter’s [6] generic strategies were developed for manufacturing industries. Thus, these strategies are not immediately applicable to professional practice. E.g. cost leadership, which is the result of heavy capital investment or preferential access to material inputs, is un•attainable in professional practice due to its labor•intensive nature and the lack of inputs. Later, Jennings and Betts [20 pp. 165, 176] recalled thatPorter’s competitive strategy theories had readily been applied to the [UK] construction industry. They found out that Porter’s [7] generic strategies might generally be suitable for use by private quantity•surveyor practices. However, the analysis of the traditional professions associated with construction is not so straightforward due to their service•based and knowledge•based nature. In particular, the unpopularity of cost leadership indicates that Porter’s work does not provide a balanced definition of competitive strategy for PQS practices. 111 In turn, Kale and Arditi [21 p. 238] sum up that construction•management researchers have been preoccupied with the concept of competitive positioning and its performance implications for quite some time. They consider that these works have provided important insights on this concept in the context of the construction industry. However, this research appears to be unbalanced in favor of anecdotal or descriptive approaches. Only a few researchers have empirically explored this concept (Jennings and Betts 1996) and its performance implications. 3. Construction•Related Applications of Porter’s Frameworks 3.1 Review of the Construction•Related Business•Management Concepts Published Between the Years 1990•2002 Hart’s [22] guidelines were applied to conductingthe review during the years 1999•2003.The replicable ways of searching, browsing, in•/excluding, retrieving, inferring, coding, describing, and analyzing the applied data were used and documented. The books of nine construction•related publishers and 25 journals were browsed extensively (see [1]). The generic nature of managing a firm’s business was maintained by limiting the search only for the concepts where the focal firms are based in the OECD countries. The only exception was to allow the references originating from Singapore or Hong Kong to be included in the applied data; due to the authors’ British Commonwealth heritage and interests in global business issues, too. Global construction markets deal with design, implementation, services, and life•cycle aspects of investments in the

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