*An ASC 2003 Best Paper nomination

 

Introduction

An earlier study (Bausman, 2002) investigated the strategic planning practices of large general contractors. That study incorporated a self-administered survey to obtain information on organizational strategy and strategic planning and confirmed that the vast majority (74%) of large general contractors develop strategic plans. The study yielded sufficient data to test the planning – performance relationship and concluded that large general builders practicing strategic planning had superior financial results. The survey data also provided insight into the planning processes of the respondents, however the methodology used (self-administered survey) limited the depth of understanding.

Therefore a second phase of study was implemented to permit a better understanding of the strategy development and implementation process of the best performing ‘planners’. The objective of this phase was to identify how the top performing firms developed and implemented strategy with an ultimate goal of developing a ‘best practices’ listing.

The population for the initial phase of study was restricted to domestic (US) contractors that had annual revenue greater than fifty million dollars and had greater than fifty percent of their volume contracted ‘at-risk’ in the category of general building. Five hundred and seventy-seven firms (577) were identified as meeting the criteria and every member of the population was solicited to participate in the initial study. One hundred forty-five complete and usable responses were received, and of that sampling one hundred eight, or 74%, developed strategic plans. To accomplish the research objective of a ‘best practices’ listing, it was necessary to identify the top performing planners of this sample (the ‘best’) and then motivate a sufficient number of them to participate in this phase of the study.

Sample

The best performing planners, as measured by return-on-investment (ROI), were selected from the one hundred eight planners responding to the initial survey. For this phase, the top thirty-seven (37) planners were selected as candidates for the interview process. To enhance the ‘quality’ of the data and the validity and reliability of the findings, information was solicited from an ‘elite’ member of the organization (Gummesson, 2000). The president, or CEO, was identified as the most appropriate candidate for participation in the interview process.

Twenty-five (25), or 69% of the firms contacted actually participated in this phase of the study. The interviewee was the president or CEO of the company in twenty-one (84%) of the twenty-five participating firms. A senior manager who was intimately involved in the firm’s strategy development and implementation process was the interviewee for the four remaining firms.

Personal Interview Process

Over a six-week period interviews were conducted with each of the participants. To accommodate the geographical dispersion of the firms and reduce situational bias and interviewer intrusion, the personal interviews were conducted over the phone at a time convenient for the respondent. The discussion topics were selected to provide additional insight into the firm’s organizational structure, market focus and generic strategy, and their strategic plan development and implementation process. The participants were given latitude to respond to the questions as they deemed appropriate, but the agenda for the interview was structured and consistent throughout the process. The interviews ranged from fifty minutes to one and one-half hours long, with an average of approximately seventy minutes.

Recording, Analysis, and Categorization

The research strategy employed would be classified as ‘accurate description’ (Strauss and Corbin, 1990) or ‘descriptive’ qualitative research (Cooper and Schindler, 1998). The objective of this phase of the study was to develop a descriptive summary of the categories and the emergent ‘themes or patterns’ of the participants’ strategic planning process. To enhance validity and reliability the interview was approached as an iterative process where the participants were asked questions to clarify input and probe the concepts being discussed. To ensure accurate and comprehensive ‘capture’ of the participant’s input, notes were taken and the interview was taped when permission was given.

The development of the categories, and associated sub-categories, with ‘dimensionalized properties’ evolved as the data was evaluated. The coded data was evaluated and analyzed to identify the patterns, or themes, associated with each. The final selection of ‘categories’ included generic strategy and planning format in addition to the constructs used to conceptualize the strategic planning process in the initial phase of this study – flow, formality, comprehensiveness, participation, intensity, and integration. While generic strategy was not an initial focus of this study, it became apparent during the interview process that the participants had similar generic strategic intent. The strength and consistency of this association led to the addition of a ‘generic strategy’ category.

Findings – Competitive Strategy

To mitigate the influence of variables known to moderate the planning-performance relationship, the study population was restricted. Only firms that had made similar ‘strategic choices’ regarding type of work (category), company size, operating geography, and contracting method were included in the study. Strategic choices beyond these variables were not a limiting factor for participation, or of significant interest to this research effort. However, the interview process revealed a great deal of ‘common ground’ regarding generic competitive strategy and mission. Respondents had near consensus on their approach to customer satisfaction and employee fulfillment. In addition, they had a near unanimous approach concerning operational excellence, niche focus, competitive approach, and mission-strategy alignment.

All of the best performers pursued a ‘generic’ competitive strategy of differentiation with focus on a limited number of market niches. They seek to compete on value, rather than low price. To support this competitive approach, they work to attract and develop great talent and foster a passionate organizational focus on customer satisfaction and operational excellence. Their mission and competitive strategy are aligned to center on three core elements: customer satisfaction, employee opportunity and fulfillment, and operational excellence. Key elements of the respondents’ generic competitive strategy are summarized in Table 1.

Table 1

Typically, the best performers had a strategic planning process that spanned a two or three-month period of time. During the initial phase, they collected and assembled information on issues such as operating environment, customers, prospective clients, organizational strengths and weaknesses, shareholder needs and concerns, and performance. Most solicited pre-planning input from clients, employees, subcontractors, architects/engineers, consultants, and other project delivery partners.

The actual planning sessions involved a ‘core’ planning group of 8 to 12 people. This group typically convened at a ‘remote’ site to minimize distractions and promote creativity. The planning sessions generally spanned a 2-day period and often required a follow-up meeting several weeks later. During the planning period the group completed a situation analysis (SWOT), brainstormed strategic options, reviewed and updated its mission, established global strategic objectives and champions for each, and selected organizational strategies. Subsequently, management reached deep within the organization to assemble operational teams to develop detailed action plans and functional activities supporting the strategic objectives. All of these planning elements and actions are fundamental planning steps supported by strategic planning scholars and researchers, including Jackson and Bishop (2000), Chinowsky (2001), and Dess and Lumpkin (2002).

Of particular interest to this phase of the study was how the plan development and implementation process was accomplished. The planning characteristics investigated included planning flow, formality, comprehensiveness, participation, intensity, and integration. The personal interviews were structured to explore these constructs with the leadership of each firm. The findings presented in the following sections identify the best practices with regard to each of these planning characteristics.

Planning flow defines the source(s) of strategic initiatives. It identifies what level of management or operational personnel have the responsibility and authority for plan development and implementation. Planning flow is often referred to as ‘Top-down’ or ‘Bottom-up’ planning with ‘top-down’ planning characterized as centralized planning with senior management primarily responsible for strategy selection and plan development (Papke-Shields, 1997).

The study findings are similar to that purported by Langford and Male (1991). The best performing planners have a top-down approach to planning. Firm leadership assumes a primary role and is intimately involved in the planning process. Strategic initiatives are formulated at the highest level of the firm. The CEO was typically the individual responsible for initiation of the strategic planning effort of the firm and remained the ‘key’ strategist. However, the CEO does not dictate organizational strategy or action. Rather, they solicit advice and input from their planning group and involve them, as well as key organizational personnel, in the critique and refinement of strategic initiatives. Leadership solicits input from key management and operational personnel to identify problems, challenges, and needs. They maintain a close relationship with existing clients to detect operational shortcomings, customers’ changing needs, potential strategic opportunities, and developing threats. They serve as a ‘filter’ to identify the strategic issues facing the organization and act as a catalyst to initiate organizational ‘thought’ and action. The findings are summarized in Table 2.

Table 2

Planning formality is a measurement of the structure and documentation of the planning and implementation process. Formality is also related to the degree of structure for decision-making, responsibility, and authority of the planning participants.

Edum-Forte et.al. (1994) submit that the planning process for construction firms tends to be more informal and unstructured. The findings of this study support those assertions. The best performers have a planning process that could be characterized as relatively unstructured. They are focused on outcomes rather than process. Their process is not burdened with extensive written guidelines but does possess sufficient ‘structure’ to promote effective plan development and implementation. Voluminous plan documentation is viewed as ineffective and unnecessary. However, the top performers do formalize mission, objectives, and action plans to facilitate communication of the plan and provide a vehicle for implementation, assignment of responsibility, and facilitate the monitoring of progress toward planned objectives. A summary of the key characteristics is depicted in Table 3.

Table 3

Planning Formality Characteristics

The construct of strategic planning participation embodies both ‘who is participating’ and to ‘what degree’. It addresses the number and diversity of participants, the degree of their involvement, and the quality of coordination and communication amongst the parties. The best performers have a high level of organizational participation in the planning process. Company leadership is actively involved in the planning process, promotes the participation of functional managers and key organizational personnel, and supports extensive communication between planning participants during plan development and implementation. In addition, a majority of the firms utilized a ‘third party’ to facilitate the planning process. They felt a facilitator enhanced organizational preparation and data assembly, provided a proven structure and planning discipline, and brought a fresh perspective to the planning process. The planning participation findings are summarized in Table 4.

Table 4

Planning comprehensiveness is a measurement of the extent to which an organization considers and evaluates all possible strategic alternatives available to the firm (Papke-Shields, 1997). Comprehensiveness is characterized as the degree of situation diagnosis, alternate generation, alternate evaluation, and decision integration.

The personal interviews confirmed that the best performers’ planning process addressed the ‘traditional’ strategic planning elements as suggested by Fails Management Institute (Jackson and Bishop, 2000), Dess and Lumpkin (2002), and many other strategic planning scholars and researchers. The planning elements include: a) situation analysis of the current and anticipated operating environment (SWOT), b) brainstorming of the key strategic issue(s) facing the organization, c) discussion and agreement on organizational values and mission, d) evaluation and establishment of global objectives and organizational strategies, e) selection of strategies, f) development of tactics and action plans, and g) implementation and follow-up.

The interviews also provided additional insight into the firms’ internal and external assessment process and the development of organizational objectives. The sections that follow present a detailed discussion of each theme that emerged from the data.

The top performers are continually probing the market for intelligence. They are voracious consumers of market data and often draw on market insight provided by ‘outside consultants’. They believe that meaningful data and feedback concerning their operating environment, and the firm’s performance within that arena, are essential for successful plan development and effective implementation. They believe that assessment and measurement: 1) is key to identify areas needing improvement, 2) must be continuous, 3) should be as ‘objective’ as possible, and 4) needs to provide feedback that is meaningful and useful to guide future action.

The best performers have an intense focus on their current and prospective clients. They continuously solicit feedback on their performance and regularly seek information from the client’s management team concerning the customer’s operational needs. Performance feedback is requested on both a formal and informal basis. They make it easy for the client to ask for assistance, provide criticism, or offer praise. When feedback was provided they were quick to respond by making the client’s needs an organizational priority.

Understand the Customer’s Value Chain

In an effort to provide a better, and wider, spectrum of services to their clients the best often performed ‘value chain" analysis. They interviewed experts up and down the customer’s value chain to better understand the owner’s development process and gain insight as to how they could better serve their clients’ needs. They would solicit input from sources such as architects, designers, engineers, city officials, zoning boards, feasibility/market analysis firms, site investigation companies, bankers, key client customers, and the client’s own operations personnel. The overall goal was to enhance their understanding of the client’s business and identify where they could improve, or expand, service along the customer’s value chain. This process resulted in a better understanding of the contractor’s service ‘fit’, the discovery of new opportunities, and facilitated a stronger and deeper relationship with the client.

The top performers systematically identified, evaluated, and pursued firms that were strategically important to their long-term success. Action plans were then developed that could lead to a working relationship with these ‘targeted’ customers. The best performers had a marketing effort that was very focused and aligned with the firm’s long-term strategic interests.

Best practices also include input and assessment from the firm’s ‘partners’ in the delivery process. Assessment and feedback was solicited from subcontractors, vendors, architects, and engineers. They sought feedback on an informal basis via personal communication, group meetings, or roundtable discussions and formally through performance assessment surveys. In addition, some of the best performers found peer group evaluations very beneficial. However, the challenge for most was locating a non-competing group of ‘like-firms’ that could provide insight applicable for the organization.

While the best performers were very interested in their competition, they were typically more focused on their customers and their operating market. Most informally tracked competitors, evaluated unsuccessful new work proposals, reviewed competitors’ bidding and building practices, and solicited comparison evaluations from customers. However, many of the best performers found competition analysis and bench-marking of limited value for two primary reasons: 1) bench-marking financial performance was difficult because of the different cost reporting and accounting practices, and 2) knowing what a competitor was doing generally did not help them provide better service, or facilitate an improvement of their competitive advantage. They found customer input to be of greater value. The best performers spent considerably more time and resources trying to understand and exceed customer needs and expectations, than they did evaluating a competitor’s approach or operational successes. They ‘shaped’ their services and approach to ‘win’ the customer, rather than to beat a competitor.

The best performers are very committed to extensive, objective measurement of results to facilitate improvement in performance and guide decision-making. They developed processes to collect and evaluate internal data, and utilize insight from sureties, financial institutions, and industry organizations. Top performers strongly believe it is important and beneficial to widely communicate performance indicators. Leadership wants the entire organization to know how the firm is performing. They are ‘open book’ with employees concerning organizational objectives and regularly communicate performance results regarding financial and strategic objectives.

Like most general contractors, the best performing firms regularly collected financial data on each project to facilitate project control and to forecast project profitability. However, the best performers organized and analyzed profitability data on multiple levels. They evaluate profitability by client, market segment, management team, contracting method, category of work, client type, and delivery system. They evaluate both the direct and indirect cost associated with each niche. The objective of their analysis is to determine which market niches and operating approaches are most profitable for the firm to provide guidance for: 1) the selection of market niche(s), and 2) refinement of their operational abilities to more profitably service the needs of the clientele within those chosen niches.

The best performers obtain input, both formally and informally, from employees on a spectrum of issues deemed key for long-term organizational success. They canvass office employees, field supervision, and management personnel concerning subjects including employee attitudes and abilities, internal communication, employee’s insight into client and vendor satisfaction, and their perception of organizational capabilities, strengths, and weaknesses. This input is gathered through individual interviews, detailed questionnaires, round table discussions, and/or company meetings. The best recognize that many of their strategic initiatives flowed from operational problems and opportunities, and therefore established processes and feedback mechanisms to effectively obtain operational input.

The top performers have strategic objectives that draw organizational focus to more than just financial goals. While financial objectives are viewed with supreme importance, profitability is recognized as the ‘result’ of organizational actions and strategic focus. The best performers believe that non-financial objectives provide direction for organizational focus and help convert the mission into operational performance targets. They establish non-financial objectives involving key drivers seen as the ‘seeds’ for organizational success. The objectives are few in number so as to not dilute the organization’s focus but embody the select group of critical issues that have a significant impact upon organizational performance.

The findings for Planning Comprehensiveness are summarized in Table 5.

Table 5

Planning intensity embodies the concepts of planning frequency, planning horizon, resource commitments to the planning effort, and management commitment to the strategy development and implementation process. The patterns that emerged from the data distilled into three main themes: 1) management demonstrates its commitment, 2) management ‘believes’ in the value of strategic planning, and 3) planning is a continuous process.

The leadership of the best performers believes in a strong linkage between strategic planning and long-term organizational success. This belief is so strong that many cite the loss of strategic focus as the root cause of past failures. They profess that poor organizational performance results when the firm strays from its strategy - stops working its strategic plan. Leadership keeps core values, company mission, and strategic objectives in front of the organization. They actively support initiatives necessary to reach strategic objectives, promote strategic successes, quickly analyze failures or shortcomings, and champion the assessment and evaluation of implementation progress.

The best performers believe in the value of strategic planning. They see benefits similar to those purported by scholars and researchers including superior strategic assessment (Newcombe et al., 1990), improved operational alignment, better defined culture and values (Dess and Lumpkin, 2002), and enhanced organizational focus (Macmillian and Tampoe, 2000). They believe that planning encourages the firm to shape its future – to proactively create its own destiny.

The best believe that the development and implementation of strategic initiatives is a continuous process. They may have a distinct annual strategic planning process, but they are purposely planning and acting strategically each and every day. The best performers are continually assessing their operating environment and generating organizational feedback to detect operational or environmental discontinuities, opportunities, and threats. They are continually ‘working’ their strategic plan, while at the same time refining and adjusting it to optimize performance.

In summary, the best performers have a high level of planning intensity. Top management frequently discusses and evaluates strategic issues. Leadership devotes time and resources to the strategic planning effort. They are aggressively committed to the formulation and implementation of strategic plans. A summary of the key findings is shown in Table 6.

Table 6

Plan ‘integration’ is a measure of the operationalization and institutionalization of an organization’s strategic plan. It involves issues including the level and method of plan development and communication, implementation of action plans and programs, allocation of resources, selection of projects, monitoring activities, strategic plan-business plan linkage, and the relationship between strategic plan objectives and managerial incentives.

The best performers openly and actively communicate strategic objectives. They develop detailed action plans and allocate resources for the organization’s strategic initiatives. The annual ‘business’ planning process is tightly integrated with strategic intent. Progress toward planning objectives is frequently monitored. Operational policies are comprehensively evaluated to ensure alignment with strategic objectives and management performance is linked to strategic objectives. The following sections provide a detailed review of each of these emergent themes.

The best performers communicate openly and often for two primary reasons: 1) buy-in/support, and 2) critique/feedback. They want the entire organization to know and ‘live’ the organization’s core values and be familiar with the company mission. They believe that this knowledge facilitates the alignment of action. A distinguishing characteristic of the best performers is their ‘open book’ policy. They share key information on targeted niches, clients and projects. They communicate strategic objectives and the tactical plans of each department. During the implementation stage, plan progress is regularly and widely communicated. The best performers want the organization to know how the company is performing relative to its strategic objectives because they believe that informed employees make better decisions.

The tactical and functional strategies and objectives of the top performers typically emanate from the business strategy and they are supportive of the long-term objectives of the organization. Targeted market niches and clients are linked to strategic objectives. Individual projects and work programs are selected for their alignment with organizational strengths and long-term objectives. Training, resource procurement, and development initiatives often flow from the strategic planning effort. Key organizational performance indicators are selected based upon their ability to measure progress toward strategic initiatives and organizational objectives.

The vast majority of the best performers were organized as, or moving toward, semi-autonomous business units or strategic business units (SBU’s), even when the firm operated out of a single office. Each business unit was pursuing a limited number of market niches, or in some cases a single client. SBU management and personnel were selected, developed, and organized to effectively pursue the selected niche(s) or customer(s). Organizational resources were allocated to support strategic objectives and market niches important for the long-term success of the company. Firms were developing their business unit structure to increase operational efficiency, reduce risk, improve customer satisfaction, and ultimately to increase profitability. The best performers organize, staff, and train to meet long-term strategic objectives, not just short-term operational needs.

The top performers believe that company leadership, and the entire organization, must actively work the strategic plan. They know that it is not enough to plan. The top performers are convinced that an organization does not become the best by good intentions, but rather by good planning and appropriate action. A distinction of the best performers is that they emphasize implementation of the plan. ‘Action’ is their operative word. They firmly believe that action speaks louder than words, good intentions, or a thick, well-documented strategic plan. Organizational commitment to their strategy is exhibited through coordinated tactical and functional decisions and deeds. The best performers aggressively implement strategic initiatives.

The strategic objectives of the firm are identified and conceptually evaluated during plan development. A ‘champion’ is identified and responsibility is assigned for each strategic objective. The champion is typically a senior manager with the authority to marshal the resources necessary for plan implementation. However, leadership rarely dictates ‘means and methods’ to achieve strategic objectives. They commission the organization to accomplish that end. The best performers reach deep into their organization to assemble an appropriate team for the actual development and implementation of detailed action plans. They selectively pick team participants based upon ability, expertise, and commitment. Membership includes representatives from segments and functions of the organization that are affected by the strategic initiative under consideration.

Key management personnel are intimately involved in the development and implementation of functional action plans and they are held accountable for results. In addition, senior managers are often asked to establish personal goals that support the company’s strategic goals. Senior management’s performance on all of these parameters is evaluated on a regular basis. Management’s base salary, deferred compensation, bonus, advancement, and/or stock options are linked to performance on strategic initiatives.

The best performers keep the strategic plan, along with its objectives and action plans, ‘in front’ of senior management and the entire organization. They make monitoring and enforcement a part of the organizational culture. The best have an attitude and approach that they are ‘evaluating and refining’ strategic intent on a routine basis. Strategic objectives are regularly discussed, key indicators are evaluated, and ‘champions’ and/or their teams are often solicited for an update on their assigned strategic initiative(s). Successes and failures are evaluated and shared. The progress on specific action plans is frequently evaluated and any needed modifications are identified and initiated.

On a quarterly, or bi-annual, basis a more comprehensive strategic review and evaluation is undertaken. During these meetings it is common for the firm to take an exhaustive evaluation of one or more market segments/niches. The ‘core’ planning group will often meet ‘away’ from the office to critique progress, assess strategic objectives, evaluate the operating environment, and adjust or refine strategic initiatives and actions plans.

A summary of the themes that emerged from the qualitative data obtained via the personal interviews is shown in Table 7.

Table 7

The preceding sections presented the best practices that emerged from the data and organized these themes as sub-categories of the constructs utilized by this study to characterize strategic planning – flow, formality, participation, comprehensiveness, intensity, and integration. Use of the selected categories, or constructs (flow through integration), facilitated an investigation of the planning process that went beyond the traditional approach of ‘what’ was being done, to include ‘how’ the participants’ strategic plans were formulated and implemented. While the conceptualized categories serve to illuminate the planning process, they can be difficult concepts to grasp for application and/or extension of this study. Typically strategic planning has been represented as an iterative process with three traditional categories or process groupings: environmental assessment, plan development, and implementation (Mintzburg, 1994; Macmillian and Tampoe, 2000). Conceptually, each of the subcategories of the best practices tabulated in the preceding sections is also associated with one, or more, of the traditional planning categories.

A graphical representation of the themes associated with each element of the planning trilogy and the overriding influence of organizational leadership is depicted in Figure 1 – Strategic Planning Trilogy. This model aligns the best practices identified in this study with the traditional planning trilogy.

This model graphically reinforces two general propositions supported by the research data and repeatedly purported by planning scholars (Mintzburg, 1994; Macmillian and Tampoe, 2000; Dess and Lumpkin, 2002). These two overriding principles are that: 1) strategic planning is an iterative process, and 2) leadership commitment is essential. Strategic planning is not a static effort to be conducted every year or two, but rather a dynamic and living process. It is a process that must have active leadership involvement and support – leadership that actively demonstrates its commitment.