Strategic Management of IT in Construction The world was once a fairly straightforward place... Now many businesses have sophisticated information management systems integrating cash management, financial accounting, marketing and distribution such that their menus, contents, stock, promotions and scope can be rapidly changed to reflect the trend, fashion, season, developments, requirements etc.. The nature of business in all sectors has undergone accelearting change over recent years... The nature of relationship between participants in the supply chain of business processes has moved from adversarial to cooperative Within organisations, management thinking has evolved from considering functions and specialisms to thinking of business processes. Modern business have been radically influenced by the emergence of environmental concerns and the quality movement. These developments in business have been accelerated by the emergence of the information revolution; affordable computer systems, internet and telecommunication systems The need to apply a strategic perspective to business operations has been recognised for some time. Recently in business management, frameworks and priorities have shifted from short-term and tactical to long-term and strategic at both corporate and national levels, in response to challenges to business environments caused by the global competition in all industries. According to Davenport and Short (1990) the quality movement, led organisations to start analysing their total business process instead of their individual tasks or units. In conditions of rapid change, companies can no longer rely on a strict return of investment, ROI, evaluation of business ventures of a tactical nature. They must explore value-added concepts of a strategic nature. The use of ROI as a criterion for business decision making is inappropriate in view of the changes that have occurred in modern business environment. Implementation of the first ATM machines by banks would not have been justifiable on ROI criteria alone. In the context of all these dramatic changes, construction appears as an historical beacon of traditional attitudes, methods and approaches. This can not continue to be the case... The threat of substitutes to the products and services of the construction sector is increasing. Construction activity is subject to: • Influences resulting from the pace of technological change in other sectors of the economy • İncreasingly stringent regulations • Changing client desires as a result of variations in tastes, aspirations and purchasing power Partly as a respone to these external influences competition within construction industry is increasingly intense. Moreover there is now external competitionmanufacturers of construction materials and components are integrating vertically by offering construction services. In this increasingly dynamic situation construction sector will have to be vigilant and forward-looking to survive, let alone to do well. Clients are becoming more aware of the nature of construction (and of their rights) and tending to be more discerning and demanding. With increasing statutory control, greater client and user knowledge and, especially, concern with the environment, professional duties and liabilities are being defined more strictly. There is also increasing deregulation and further privatisation relating to development and building control. The environment of the construction industry is being increasingly influenced by economic, technological and social factors. Another major influence comes from the progress towards the information age. A structural re-organisation of the industry appears likely. As the way in which we execute construction projects undergoes radical changes, those who position themselves strategically can maximise their benefits. Some construction companies have diversified their activities to become integrated architecture, engineering, construction (AEC) firms. This follows an involvement in design-and-build and turnkey projects or through mergers, acquisition and strategic alliances both within and across national borders. Business development has become an important part of the construction enterprise. Competition on the basis of far more than price is increasingly important. Most companies start from, localised exploitation of IT by applying to individual systems i.e. word processing, accounting, pm and CAD. then, individual systems become integrated within the organisation. Up to this stage there may need to be little change to the strategic processes in the company and certain productivity gains should be achieved. The next stages are the ones that can transform a business or the processes it uses, and involve greater integration with customer and partners. The ways which buildings are designed or constructed need to be rethought. Relationships with clients should become long-term ones. The results of this could be revolutionary change. Partnering: Such as setting up framework agreements with consultants, contractors or suppliers for longer periods compared to a project life (5-10 yrs), allowing project teams to set up working methods that might be unproductive over the time of a single project Changing requirements and Business Strategies: Changes in future building requirements, • Distant working • Distant learning • Cultural buildings-leisure centres, call centres to handle e-business and computer centres Strategic management • High-level, unlike tactical or operational management • Competitiveness: The quest for sustainable competitive advantage (SCA)???(or continuous regeneration of the strategic plan to produce a series of short-term but unsustainable competitive advantages); growth and survival of the organisation, hence critical to modern business thinking Strategic management The hierarchy of the business planning process ‘Positioning the firm by observing external forces and internal processes, plan and manage changes’ Strategic management • Analysis: To understand the strategic positioning of the firm • Choice: Formulate courses of action to achieve the desired strategic position • Implementation: Plan and manage necessary changes in organisation Management science has been greatly influenced by the work expressed in Porter’s five forces model for an enterprise to position itself in relation to others. (Porter 1980) Competitive forces at play (Porters Five Forces model) The five forces model can be applied to strategic management in construction to analyse product and location segments of the construction market and to identify areas where superior business performance is more likely because of the more favourable position of the five forces. Five competitive forces 1. 2. 3. 4. 5. Threat of new entrants: Competetive advantage from economies of scale, large capital investment, product differentiation. Threat of new entrants is particularly potent in construction, it is easy to enter a part of the sector with minimal investment. With identical products price becomes the main competitive factor. Power of suppliers: Competitive advantage from supply relationship exist when few enterprises dominate supply, no competing product, threat of forward integration over buyer. Power of buyers: Buyer has competitive advantage when it is a large volume buyer, purchases undifferentiated products that are price sensitive not quality sensitive to its processes, threat of backward integration over supplier. Threat of substitutes: Substitutes for construction products are, e.g. communication technologies or cheap air travel instead of road/rail infrastructure (Seikan tunnel) Jockeying for position: Competitive tool in saturated markets with many competitors of equal size, slow industrial growth, undifferentiated products or services, high fixed cost in enterprises. 1. 2. 3. 4. Porter identified 4 approaches to business strategy in which the five forces model indicates the prospect of greatest success. It is important to have a clear business focus before implementing the IT systems that may be necessary to achieve it: Broad target Narrow target Lower cost Differentiation Compete on cost? In broad or narrow target market? Or whether it will go for specialisation and quality? Reengineering the business is a sequence of evolutionary and revolutionary changes, influenced by IT, which drive organisational change. Evolutionary: Step 1:Localised exploitation Step 2: Internal integration Revolutionary: Step 3: Business process redesign Step 4: Business network redesign Step 5: Business scope redefinition National competitiveness The Diamond Model Why does a nation achieve international success in a particular industry? (Porter 1990) Determinants of National Advantage (to invest and innovate) Why does a nation achieve international success in a particular industry? 1. 2. 3. 4. 5. Factor conditions: The nation's position in factors of production (traditional), such as skilled labour or infrastructure, necessary to compete in a given industry . Making the best out of them Demand conditions: The nature of home demand for the industry's product or service. The extent to which the nation’s shopping habits challenge products to improve quality and services. Associated industries: The presence or absence in the nation of supplier industries and related industries that are internationally competitive. Clusters-grouping of associated industries with common interest, to encourage each other. Firm strategy, structure, and rivalry: The conditions in the nation governing how companies are created, organized, and managed, and the nature of domestic rivalry-experience of competition. National Strategy/Government: Factor conditions are affected through subsidies and policies towards capital markets, policies towards education. Governments are also a major buyer of construction products (infrastructure etc.) The Value Chain The set of processes a firm uses to create value for its customers is often called its value chain. VC includes primary processes that directly create value and support processes that add value indirectly by making it easier for others to perform the primary processes. Difference between value chains are a key source of competitive advantage between competitors, and the importance of technology to value chain analysis should be stressed. Technique: Value chain Analysis Value chain: Can be used to identify potential for competitive advantage within individual parts of the whole firm. The VC is a structured way of analysing a business’s constituents and its links to outside organisations. Value: What a company creates, measured by the amount buyers are willing to pay for the augmented product or service. The difference between value and cost determines profitability. VC can be used to identify lower cost, higher value and value channel linkage applications. The parts of the chain include an organisation’s infrastructure as well as different categories of its direct productive processes. Technique: SWOT analysis Strengths Weaknesses Opportunities Threats Other analysis techniques.... • • • • Process analysis Benchmarking Assesment of core competencies PESTLE analysis (identify political, economical, social, technical, legal, environmental factors) • .... Implementation techniques: Methods to gain competitiveness • • • • • • Business Process Reengineering (BPR) TQM Change focus from ‘Function’ to ‘Process’ Diversification Product differentiation .... Strategic management of projects Importance of projects: 1. Organisations must adobt flexible structures to respond to the ever-changing business environment; ‘business as usual’ is no more. Projects are suitable for handling change, and project-based organisations are becoming common. Management by projects is becoming increasingly normal. 2. The fundamental operating level of contruction is the project; it is our main operating process Strategic management of projects The way one approaches a project determines how successful it will be It is useful to think of three fundamental levels of a project: 1. 2. 3. Integrative Level: Project purpose is stated, functional design, areas of work, basic parameters or constraints defined. Example: Project Definition Report Strategic Level: Project milestones required to achieve objectives are defined. Work packages, organisational units, responsibilities, budgets are defined. Examples: Milestone plan, responsibility chart, systems design. Tactical Level: Detailed design, activity schedule, responsibility chart, cost Projects must be seen in the context of the overall strategic management of the firm, for example how the firm prioritizes its projects Strategic management of projects R.Youker, a World Bank project manager, gave a much wider view of the three levels. A strategy on one level implies the objectives one level down. To achieve objectives at any level requires a strategy (Youker 1993) Strategic management of projects Projects are subjected to seven forces (Seven Forces Model, Morris 87, Turner 99) Strategic management of projects Tool: Analysis of project life-cycle (primary activities of construction value chain) Related tools: • Project management best practice (scope, time, cost, quality, risk,...) • PM methodologies, such as PRINCE 2 and PmBOK The importance of IT IT is a: 1. Tactical technology for internal efficiency 2. Strategic technology redefining the boundaries of industries and application areas In construction there is a shift from 1 to 2; it is realised that IT goes beyond improving discrete processes. Rather IT is evaluated strategically, as has already been done in other industries. The importance of IT The key to the successful utilisation of IT is effective strategic thinking: IT must be applied for strategic advantage. Without an appropriate strategic perspective and robust conceptual models, it will be difficult to identify an appropriate role for IT. In order to help understand how to plan IS, it is necessary to see how an IS strategy fits into an organisation, and its relationship with other elements of the organisation. This figure depicts the relationship of IS with IT and business strategy, which helps to view IS strategy in the overall business context. (IS/IT/business strategies relationsship, Ward & Griffiths 1996) The importance of IT General steps to set direction for business Assessment of the business Vision for the business Business strategic planning Assessment of information use and management Vision of how the business should use information Technical and managerial Information Architecture Planning steps for handling IS (IS/IT/business strategies relationsship) Business operational Plans and Budgets Information system strategic plan Information system Operational plans and budgets FRAMEWORKS A framework is a brief set of ideas for organizing a thought process about a particular type of thing or situation. A business is a system consisting of many subsystems, some of which are information systems. A system is a set of interactive components that operate together to accomplish a purpose. A business process is a related group of steps or activities that use people, information and other resources to create value for internal and external customers. Internal and external customers of a business process are the people who use its outputs. Internal Customers are the people within the same firm who work in other business processes that create additional value before the product or service goes to the external customer. External customers are people who purchase products or services from the firm, or they may be governmental agencies or groups that receive information, taxes, or other things from the firm (Alter). One of a growing number of contributions in managing IT and applying it strategically has been made by Michael Earl (1989) [The need for IT to be applied for strategic advantage and the need for frameworks to be used to support this] Earl describes a series of frameworks to support a range of IT management issues. Earl has labelled these frameworks awareness, opportunity and positioning Purpose Scope Use Vision Possibility Education Ends Probability Analysis Means Capability Implementation Each of these frameworks and the models within them are a means of changing the way we look at IT. None of them in themselves offers a complete answer. Do they apply to us? If so, do they apply in a different way to us than to other sectors? Awareness frameworks: Most conceptual They are intended for executives to explore the potential impact of IT, and areas of impact. They deal with the possibilities and the why rather than how. They are used to help change mind-sets, to suggest the scale of possible changes, and to indicate the strategic scope to a business or a sector. Refocusing models: Based on asking two fundamental questions about the use of IT: • Can IT be used to significantly change current business as opposed to continuing with traditional products and processes. • Should IT address internal operations or approach to marketplace? Application in construction: To help us think of what form of strategic IT systems we may develop. First observe and classify the type of IT systems being used by us now. Second to identify, speculate on and specify the type of IT systems that should be used in the future. Awareness frameworks: Impact models: Who should the IT systems be developed for? (e.g. industry, firm or strategy level).They suggest a number of different levels at which IT can be applied. In construction… Level 1 National Construction Industry- Public sector agencies Level 2 Professional Institution- Professional bodies and trade associations Level 3 Construction Enterprise- Enterprise Level 4 Construction Project- Level 5 Construction Product- Client and project team Client and project team Awareness frameworks: Scoping models: Concerns the information component of processes and products. There is little scope for exploitation of IT in a sector or part of a sector where the information content is low. Information intensity matrix Information intensity matrix Information content of process Information content of product Low High Low Delivery and assembly of low-tech building subsystems, e.g. windows, doors, concrete beams, excavating. Delivery and assembly of hightech building subsystems, e.g. elevator access control system. High Construction process in planning, estimating, managing and control stages Architectural and engineering design. Software development. Database creation and distribution. The number of new computer systems and current research initiatives that seem to address doors and windows because they fit demonstrations of the technology rather than the need and scope suggests this model may have application in providing us a clearer view of the strategic scope (Betts 1999) Earls Opportunities Frameworks • Systems analysis tools: Value chain (strategic), data flow diagrams (information flow), process and product models. • Application search tools: Where should IT applications be made within an economic process, life-cycle analysis. • Technology fitting framework: Examine current systems and emerging technology to identify opportunities for technological progression. Looking at new, smart technology (VR, Objectoriented systems, etc.) and trying to find problems that this technology can solve is not wrong, but only one approach. • Business strategy frameworks: Evaluate the ‘five forces’ and how IT can affect the forces and improve firms strategic position. Opportunities Frameworks System Analysis tools Three basic approaches: Strategic approach- value chain Information flow- data flow diagrams Technology- process and product models Value chain: Can be used to identify potential for competitive advantage within individual parts of the whole firm. The VC is a structured way of analysing a business’s constituents and its links to outside organisations. Value: What a company creates, measured by the amount buyers are willing to pay for the augmented product or service. The difference between value and cost determines profitability. VC can be used to identify lower cost, higher value and value channel linkage applications. The parts of the chain include an organisation’s infrastructure as well as different categories of its direct productive processes. DFD is a way of tracing the information flow within processes (figure 4.5, pg 91). They can be drawn in support of the impact model- to trace information flow within enterprises. Process analysis techniques =Systems analysis techniques Opportunities Frameworks Application search tools These help identify where IT applications should be made within an economic process (i.e. Lifecycle checklist Table 4.6) Technology fitting frameworks Current systems and emerging technology are examined to identify opportunities for technological progression. This form of framework is based on the technology-push driver of technological innovation (not strategy pull) Business strategy frameworks Strategy models such as five forces model can be used as a means of positioning an enterprise in relation to market forces particularly through exploiting industry changes. The model can be used to identify where IT can be used, • to prevent new competitor entrants, • to exploit buyer or supplier power relationship, • to offer substitutes, • Jockeying position between competitors Positioning Frameworks • Scaling models: How far to take IT systems in terms of their strategic importance to an organisation? Are they critical, or just systems that aid the business process? Example: How quickly would failure of an IT system come to the CEO’s attention? • Spatial models: Impact on industry sectors. They are appropriate for analysing whole industry sectors and their general characteristics. • Temporal models: Relate to time and level of managerial and technological progression. These frameworks address the issue that the achievement of improved IT support to effective construction processes must be managed and gradually achieved. They relate to time and the level of managerial and technological progression. The importance of IT We must be clear why are we advancing technologies and the purposes to which they will be put and the extent to which they will be used. Our approach to IT should be: ‘Systems’ ‘Strategic’ Very often the IT will only be part of a business process reenginering (BPR) effort. The importance of IT • The sectors where IT appears to have made the most dramatic impact are where major competitive forces for change exist. Examples: deregulation of airline and financial services, global survival of automobile manufacture. • In construction, there are many isolated and individual examples of enterprises and projects where IT is being used for improvements in internal productivity. The area where construction organisations appear to be failing to exploit IT strategically is for their internal or external competitiveness. In construction, few can offer new or improved services by use of IT. (Betts 1999) IS planning Systems Analysis and Design • An information system (IS) is the collection of computer hardware and software, procedures, documentation, forms, and people responsible for capture, movement, management, and distribution of data and information • The process followed to develop a system is called systems analysis and design (SA&D). SA&D processes are based on a systems approach problem solving that is driven by several fundamental principles SA&D principles • Clear idea what the system must do before discussing how it will work • Choosing an appropriate scope for the situation you will analyse greatly influences what you can and cannot do to solve a problem. • A strategy is to recursively break a problem down into smaller problems, which are more manageable than the whole problem. • Alternative solutions representing different perspectives should be generated and compared before a final solution is selected. • The problem and understanding of it continues to change while you are analysing the problem. The approach could be; a staged problem-solving approach in which the problem and solution is reassessed at each stage. Strategic information systems planning (SISP) An IS strategy brings together the business aims of the company, an understanding of the informatin needed to support those aims, and the implementation of computer systems to provide the information (Wilson 1990). SISP An information audit will normally be the first step to an effective IS strategy. • The audit is a process of discovering, monitoring and evaluating the company's information flows and resources in order to implement, maintain or improve information management. • Consideration must be given to both internal operations and the external environment of the company. • The audit will identify key aspects at all the levels of the company namely: site, project, business unit and strategic. The information audit must identify: • The construction company's information resources • The construction company's information requirements • The costs and benefits of the company's information resources • Opportunities to use information resources for strategic advantage • Information flows and processes both within the company and for its projects • IT investment options that can facilitate the construction company's business initiatives SISP Matrix of information resources and requirements Some SISP methodologies • Soft systems methodology (SSM), is driven by the analysis of human activity • Information Engineering (IE) which is predominantly data driven • Process Innovation (PI), which is driven by processes and technology SISP • Soft systems methodology (SSM): Simple to use, top-down methodology • Process innovation (PI): Ties business process reengineering with IS/IT. • Information engineering (IE): Basically a software development approach.