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18 Oct 2023 • Tom Haley

What is strategy?

A question I hadn’t fully considered until I came across this Harvard Business Review article. Admittedly, I found the theory of the article tough going, but reflecting on the content got me thinking about the absence of strategy in the construction industry.

The article explores the difference between strategy and operational effectiveness, the latter being the performance of similar activities better than rivals. The resultant productivity gains are captured by customers and suppliers rather than being retained through superior profitability.

This struck a chord with me; improved prices and better value for the customer is not resulting in improved profit for construction companies. These improvements are being given away in a cut throat willingness to sign up to a risk profile for fear of a competitor winning the tender race. In my opinion, this is one of the root cause reasons we have a profitless boom in the construction industry and why we continue to defy the basic economic rule of supply and demand.

Strategy, on the other hand, is the creation of a unique and valuable position where the activities of the company are positioned differently from rivals. The success depends on doing those activities well and integrating them effectively.

To achieve this, a company must make trade-offs which occur when activities are incompatible and create the need for choice to protect against re-positioners and straddlers. However, in the construction industry, there is a macho sense that to make trade-offs and say “no” is a sign of weakness. This results in an increased likelihood of imitating competitors for fear of missing out.

Improving operational effectiveness is a necessary part of management, but it is not strategy. In confusing the two, leaders are unintentionally driving the construction industry towards competitive convergence.

Personally, I don’t subscribe to the rhetoric that the cause of financial failures in the construction industry is clients forcing construction companies to accept unsustainable risk profiles. I am strongly of the view that defining and communicating the company’s unique position, making trade-offs, and forging fit among activities is the only way things will change and boundaries will reset.

A big part of this change is strategically learning to say "no”.

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