The typical construction company in Australia has an adept knowledge of the external environment at the macro and industry levels. There is a good understanding of the future pipeline of works, the company’s market position and the threats and opportunities that lay before it. Skilled Business Development Managers and Business Strategy Managers with vast networks of peers scan the external environment and give great insights to their companies in developing a strategy.

The issue seems to be that many in our industry believe this outwardly facing evaluation to encompass all that is business strategy. The truth is that the external environment is only half the battle. The internal environment of your company will either help or hinder your ability to exploit any external opportunities.

SWOT ANALYSIS

To take right back to basics, the famous (or infamous) SWOT analysis is a basic but still universally relevant tool when discussing business strategy. The quadrants clearly separate the external analysis and the internal analysis. The Opportunities and Threats are identified in the external environment (outside the organisation), and the Strengths and Weaknesses are what is observable internally (inside the organisation).

External Analysis: Opportunities and Threats

When analysing the external environment, there are several levels to analyse;

• the Macro Level

• the Industry/Market level, and

• the Competitor Level

By analysing at all three levels, you will be sure to identify many opportunities and threats.

Macro Level External Analysis

This level is looking for opportunities and threats at the macro level, for trends, and megatrends, disruptions and game changers. A useful framework is a PESTLE analysis. PESTLE is an acronym for:

• Political:

  • Elections and party ideology can impact public spending.

  • Workplace relations agenda

  • AUKUS agreement and other defence spending

• Economic:

  • Rising interest rates can cause challenges in financing

  • rising AUD can temper foreign investment leading to less spending in the private sector

• Socio-Cultural

  • Increased skilled migration can lead to opportunities in the war for talent

  • social trends and activism against fossil fuels are influencing tertiary businesses (insurers, banks, etc.)

  • more workers expecting to work from home

• Technological

  • Automation and AI are growing at an accelerating pace, disrupting the status quo in the field and office alike

• Legal

  • potential new legislation and its impact on the industry

• Environmental

  • commitment to net zero and potential new regulations to meet goals.

Industry/Market Level Analysis

The industry can be analysed by looking at the following attributes:

• Suppliers: Are suppliers obtaining more relative market power? For example, if all concrete suppliers started to monopolise, and there was less competition, the concrete companies could become price setters to the detriment of the industry.

• Buyers: Are the Buyers (Clients) gaining too much market power? For major infrastructure construction, the clients are almost always Government, so there will always be a market power on the client side. That is why Government procurement acts under strict conditions to maintain fairness in the industry.

• Substitute: In the construction context, there really is no substitute to building something. Because by definition it wouldn’t be built.

• New Entrants: Construction has relatively high barriers of entry into the industry due to the high risk, capital and pre-qualifications required. This leaves the risk of new entrants somewhat low compared to other industries. However, the entrance of established foreign companies remains a threat in this analysis. Therefore, a downturn in Europe, may lead to more competitors setting up shop in Australia willing to accept lower margins.

• Rival Firms: This leads us to the next level of analysis into the competitive environment.

Competitive Environment Analysis

This is the level that most people think about. Looking at your direct competitors. For example, how much work is in the pipeline for a Tier 2 company in this region? How many competitors are there in this region at this size? What would be the expected market share for this work?

Internal Analysis: Strengths and Weaknesses

This is arguably the most important part of the strategic analysis because an opportunity and a threat are often the same thing. The difference is how you act upon it. Do you catch the wave of a megatrend? or are you left behind? Exploiting an opportunity or defending against a threat is determined by aligning your internal strategy to match your external strategy.

An external analysis may reveal growing competition in the $20m-$50m market but less competitors and higher margins in the $50m-$150m market. The external analysis may also reveal the impending disruption of AI on project controls and systems. So as not to be left behind, you may identify the need to become an adopter of technological advancements.

The key question is, “do you have the resources, capabilities and core competencies to exploit your external strategy?”. Deciding to go for $150m projects is of no use unless you have the people, finances, and systems to pull it off.

Resources

Are the sources of the company’s capabilities. They include;

• Financial Resources

  • capacity to borrow

  • ability to generate funds through internal operations

• Organisational Resources:

  • formal reporting structures

• Physical Resources

  • Plant & Equipment

  • Location

• Technological Resources

  • availability of technology-relation resources such as trade secrets

• Human Resources

  • Knowledge

  • Trust

  • Skills

  • Ability to collaborate

• Innovation Resources

  • Ideas

  • Technical capabilities

  • capacity to innovate

• Reputational Resources;

  • Brand name

  • Positive reputation with stakeholders including clients, suppliers, subcontractors etc.

Capabilities

A capability is when the aforementioned resources have been purposefully integrated to achieve a specific task or tasks.

Capabilities usually occur in the following functional areas;

• Human Resources (Motivating, empowering, and retaining employees)

• Management Information Systems

• Marketing

• Management

• Research & Development

John Kay proposes that capabilities and be divided into the following three sources;

• Architecture: the organisation’s network of internal and external relationships with employees, suppliers, subbies, and clients.

• Reputation: what clients, subbies and prospective employees think, feel, or know about the company

• Innovation: new technologies, new ideas, new ways of achieving outcomes.

Core Competencies

A Core Competency is a capability that meets the requirement of a VRIN analysis that determines the capability is a core competency that will generate competitive advantage.

VRIN

• Valuable: Resources are considered valuable if they enable a company to implement strategies that improve efficiency, effectiveness, and exploit opportunities or neutralize threats in the environment1.

• Rare: To provide a competitive advantage, a resource must be scarce among a firm’s current and potential competitors1.

• Difficult to Imitate: Resources are difficult to Imitate when competitors cannot easily replicate them. This could be due to unique historical conditions, causal ambiguity, or social complexity2.

• Non-substitutable: A resource is non-substitutable if there are no equivalent resources that competitors can use as substitutes2.

Understanding your core competencies can open your eyes to opportunities your company is already geared towards. For example, Marcel Bich, the founder of the BiC company had a business making and selling high quality cheap ball point pens globally. A traditional external analysis may have led him to expand into pencils or notepads or other stationary. Instead Bich understood the Core Competency of his company. He could manufacture high quality precision plastic and metal products on a mass scale and distribute globally. This led him to invent and popularise the BiC lighter and BiC razor.

Does your Internal Strengths and Weaknesses Match your External Ambitions

Ultimately, for any strategy to succeed, the organisation must be geared internally with the right resources, capabilities, and competencies to be able to exploit the external opportunities. Put simply, the company’s strengths must align with the opportunities to be exploited for any strategy to come to fruition.

How to Execute your Strategy

1. Clear Communication

Communicate the strategy clearly to all stakeholders. Ensure that everyone understands the vision, goals, and their role in achieving them. Use various communication tools such as meetings, emails, and internal newsletters to disseminate information.

2. Align Resources

Align your resources with your strategic objectives. This includes financial resources, human capital, and technology. Ensure that you have the right talent in the right positions and that they have the necessary tools and training.

3. Set Realistic Goals

Set specific, measurable, achievable, relevant, and time-bound (SMART) goals. Break down the strategy into actionable steps and assign clear deadlines and responsibilities.

4. Monitor Progress

Monitor progress regularly against the set goals. Use key performance indicators (KPIs) to measure success and identify areas that need adjustment.

5. Foster a Supportive Culture

Create a culture that supports strategic execution. Encourage innovation, collaboration, and continuous improvement. Recognize and reward contributions that align with strategic goals.

6. Be Flexible

Be prepared to adapt your strategy as needed. The business environment is dynamic, and flexibility can be a significant advantage.

7. Review and Refine

Regularly review the strategy and its execution. Learn from successes and failures, and refine your approach accordingly.

By following these steps, you can ensure that your business strategy is not just a document but a dynamic roadmap that leads your organization to success.

Remember, the key to successful strategy execution is not just in the planning but in the ability to translate those plans into action.