University Griffith University Brisbane Construction Essay

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Executive Summary

The purpose of this report is to define a business plan for a potential strategic alliance between my company "MCS Construction's" and its supply chain (Consultants, Major Preferred Suppliers and Major Preferred Subcontractors) both up & down to line within the construction and engineering industry.

The traditional relationship between the client, consultants, main contractor, subcontractors and suppliers within the construction industry using a traditional contract is in most cases but not all very contractual and adversarial one "Blame Culture" which is not productive in a business as it about relationships, where the client and consultants puts all of the risk on to the main contractor who in turn passes it down the line to their supplier chain i.e. Suppliers & Subcontractors, due to the nature of the construction industry i.e. large and complex projects that need to be completed to unrealistic time frames, budget, quality, safety expectations, this is the direct opposite and goes against the grain of Strategic Alliances.

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There are many definition of a strategic alliance but none are universally accepted, I have listed a several definitions of an alliances below: -

"A Strategic Alliance is a cooperative strategy in which firms combine some of their resources and capabilities to create a competitive advantage" (Hitt, 2009 p. 255);

"Cooperative agreements between two or more firms" (Hill, 2009 p. 506 & 714);

Gomes-Casseres 2003 p.12&13 combines elements of item 1 & 2 above "Alliances are agreements between two or more separate firms that involve ongoing resource contributions from each to create joint value, are "incomplete contracts" where the terms of the agreement cannot be completely specified and agreed at the outset and joint decision making to manage the business and share value"

We will be adopting the characteristics of item 3 above in our business plan.

Alliances (large and small) have been around in one form or another since the early 1990's, they are used in all different industries across the world and the construction and engineering industry is no exception some notable projects that have been completed around the world using alliances are: -

Burj Khalifa, Dubai UAE, the world's tallest building was built by a Joint Venture (type of strategic alliance) by Samsung Engineering & Construction (South Korea), Besix (Belgium) and Arabtec from UAE;

The Dubai Mall, Dubai, UAE, the world's largest retail development was built by a Joint Venture Partnership (type of strategic alliance) by Dutco Balfour Beatty (the author used to work for this company) - Al Ghandi and Consolidated Contractors International Company (DBB/AG and CCC); and

Gateway Bridge Duplication & Upgrade Project, Brisbane, Australia, was built by Leighton Contractors Abigroup Joint Venture at a cost of AUS$1.88b it consisted of the duplication of Gateway Bridge and 20km upgrading of Gateway Motorway, including the Gateway Deviation.

According to Gomes-Caseres between 30 to 60% of alliances do not succeed and fail for several reasons listed below, which this business plan will attempt to avoid: -

Unclear Objectives;

Lack of a detailed business plan;

Decision Gridlock;

Aligning with a weak or competitive partner;

Unmanaged culture clash;

Failure to learn or protect core capabilities; and

Failure to plan for alliance evolution.

This business plan has be developed using the principles of leading alliances academics, experts & practitioners in their field in particular Gomes-Casseres work to develop best practices that work, while recognising that each alliance is unique and there is no one size fits all approach.

This document is a work in progress and we would be working with the potential partners after the business alliance strategy has been established by MCS Constructions, to jointly develop the alliance operating plan, this will construct a solid foundation for a mutually beneficial relationship.

Table of Contents

Topic page 1

Title page page 3

Background

The topic of this report is "Defining a Business Plan for a Potential Strategic Alliance", there are many possible interpretations of this topic as strategic alliances have been in existence since the early 90's, are used in across a variety of different industries, companies both large and small, on a domestic and international level which can range from very simple to the complex.

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Drawing upon my own life/work experiences, knowledge, skills and qualifications in the construction and engineering industry both local and international over the last 10 years plus (refer CV in Appendix ?), and considering I do not have access to relevant information on an existing alliance, I will be looking at the feasibility of developing a potential strategic alliance and defining a business plan which will include but not limited to the following areas as outlined in the elective assignment specification (refer appendix ?): -

2) Defining a Business Plan for a Potential Strategic Alliance

Background: the organizations, the rationale for partnering and anticipated benefits

Design of the alliance: scope, goals and management process

Rollout plan, timeline and anticipated evolution of the alliance

Anticipated challenges and mitigation plan

Exit strategy

Statement of the problem(s)

The problem is to Defining a Business Plan for a Potential Strategic Alliance.

Delimitations

The following limitations on this report are listed below: -

Due to limited word count not exceeding 2,500 words (excluding appendices, topic, cover sheet, reference list etc.) and the depth and breadth of the topic on strategic alliances we were unable to cover the full scope that this encompasses so have taken an overall view and looked at the areas as outlined in the elective assignment specification;

We have not selected a specific company for our company MCS Constructions to partner with, within the construction and engineering industry we have looked at it from a broad perspective i.e. Industry Supply Chain up 7 down the line (Consultants, Major Preferred Suppliers and Major Preferred Subcontractors);

Only secondary data will be used in the report which will include but not limited to Websites, Industry Associations, Books, Journal Articles, New Paper Articles, etc. refer to the reference lists;

Definitions

For the purposes of this report we will use the following definition of a Strategic Alliance:-

Gomes-Casseres 2003 p.12&13 "Alliances are agreements between two or more separate firms that involve ongoing resource contributions from each to create joint value, are "incomplete contracts" where the terms of the agreement cannot be completely specified and agreed at the outset and joint decision making to manage the business and share value";

"A Joint Venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage" Hitt, 2009 p. 256;

"An equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage" Hitt, 2009 p. 256;

"A non-equity strategic alliance is an alliance in which two or more firms develop a contractual relationship to share some of their unique resources and capabilities to create a competitive advantage" Hitt, 2009 p. 256;

Choice of model and method of analysis

"Delete?"

Treatment of the problem (analysis)

"Delete?"

Introduction

We will be defining a business plan for a potential strategic alliance within the construction & engineering industry with our supply chain both up & down the line (Consultants, Major Preferred Suppliers and Major Preferred Subcontractors), in order to meet our strategic objectives, we will be following the 6 steps listed below as recommended by ASAP / Dr. Louis Rinfret: -

Alliance Specific Strategy;

Analysis & Selection;

Value-Creating Negotiations;

Operational Planning;

Alliances Structuring; and

Manage, Innovate & Transform.

Throughout the alliance lifecycle and the various stages listed above the evaluation.

Background: the organizations, the rationale for partnering and anticipated benefits

Organisations

MCS Construction

MCS Constructions is a newly formed company currently located in Brisbane, Australia which specialises in the construction and engineering industry in the area of commercial construction i.e. new build, fit-out, refurbishment and heritage listed work.

The company provides a variety of services including but not limited to: -

Tendering & Bidding, Estimating, Quantity Surveying, Cost Control, Contract Administration / Contract Management;

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Design, Programme, Site, Project and Construction Management;

Subcontractor & Supplier Management;

Traditional Hard $, Design & Build, Management Contractor, Construction Management, Cost Plus, PPC2000/FIDIC/JCT/PFI&PPP, EPC types of contracts;

Construction of commercial construction projects i.e. new build, fit-out, refurbishment and heritage listed work.

This is drawn on the extensive life/work experiences, knowledge, skills and qualifications gained by the owner/director Mr. Matthew C. Smith in the construction and engineering industry both local and international over the last 10 years plus (refer CV in Appendix ?), which is evident in the business today.

We are exploring the feasibility of setting up a Strategic Alliance with other trusted companies within the industry, to provide its clients (Public & Private) with single-source of responsibility, a one-stop shop to complete its projects of various sizes and complexity on time, to budget, quality and safety that exceeds the client's expectations and objectives.

In order to do this a strategic alliance would provide a vehicle with capital/finance, additional knowledge, skills, experiences, expertise from the potential partner companies (Consultants, Major Preferred Suppliers and Major Preferred Subcontractors) both local & international, resources, connections, capabilities and competencies, where the clients projects require a broad range of expertise, some of which we may not have in-house.

We would be looking at developing this alliance capability to enter the overseas and remote projects in developing and third world countries in particular Middle East / Africa / Asia etc. We would also welcome alliances closer to home (Australia) when needed and depending on our client's requirements.

We would be looking at undertaking projects for both the private and public sector, for example the United Nations, World Bank, IMF, etc.

MCS Construction's Mission

Is to provide its clients (Public & Private) with a single-source of responsibility, a one-stop shop to complete its projects of various sizes and complexity on time, to budget, quality and safety that exceeds the client's expectations and objectives in an economic, efficient, ethical, environmental sustainable way.

MCS Construction's Values

Client Satisfaction;

Trustworthiness;

Loyalty;

Integrity;

Actively solving problems;

Co-operation and Collaboration;

Relationships; and

Win-Win Outcomes.

MCS Construction's Objectives

Our business objectives are: -

Sustainable Growth;

Safety;

Quality; and

Continuous Improvement.

MCS Construction's Core Competencies

Our core competencies within our area of expertise is

Technological Know-How; and

Management Know-How.

Potential Partner Organisations

At this stage of the business plan we have not identified any particular companies as potential partner organisations but MCS Constructions would be looking to undertake a strategic alliance that consists of both local and international firms (large or small) within the construction and engineering industry supply chain both up and down the line.

The strategic alliance may be between two or more firms depending on the project requirements, this will be assessed on a project by project basis, we would envisage the potential partners to be from the following segments of the industry: -

Consultancies (Various) Single or Multi-Disciplined;

Architectural Design

Interior & Exterior Design

Landscape Design

Civil / Structural / Mechanical, Electrical, Plumbing (MEP)

Quantity Surveying / Costing / Project & Program Management Consultants

Preferred Major Suppliers; and

Preferred Major Subcontractors i.e. MEP.

One of the keys to making a strategic alliance work is the assessment and selection of the partner(s), according to (Hill 2009, p. 508-509) there are three characteristics that we should be looking for in a potential partner:-

Helps the firm to achieve its strategic goals;

Shares the vision for the purpose of the alliances; and

Unlikely to try to opportunistically exploit the alliance for its own ends.

In order to achieve this we will conduct comprehensive research into the companies by undertaking due diligence but also trusting and verifying the information the a partner provides to us, we will look at the flowing information; -

Collect as much pertinent and relevant, publicly available information as possible;

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The rationale for partnering and the anticipated benefits

The rationale for MCS Constructions to partner with the supply chain (as outlined above) both up and down the line (forward and backward integration) for it to deliver the alliances clients within the construction and engineering industry, projects that are on time, to budget, quality and safety and exceeds the clients expectations and objectives.

We offer our potential partners our core competency of Technological Know-How and Management Know-How within our chosen area of knowledge, skills, experiences and expertise in commercial construction i.e. new build, fit-out, refurbishment and heritage listed work. We would be looking for a potential partner with which would complement us and provide capital/financing, additional resources, capabilities, competences, skills, experiences, knowledge, connections, expertise etc.

The anticipated benefits would be that MCS Constructions would be able to grow and expand its business overseas into new markets with the additional capital/financing, resources, capabilities, skills, experiences and expertise in their chosen area i.e. Consultancy, Major Preferred Suppliers and Major Preferred Subcontractors, to share risk/reward (Gain/Pain Share) and am opportunity to learn.

Our Key Drivers

Risk;

Economies of scale;

Economies of scope;

Market Segment Access;

Technology Access;

Geographical Access;

Funding Constraints;

Management Skill;

Acquisition Barriers;

Sharing knowledge;

Expertise;

Expenses;

Gain entry to new markets; and

Gain a competitive advantage in one.

Design of the alliance: scope, goals and management process

Now we have made the decision to enter a strategic alliance, we have many choices to be made that relate to the design of the alliance, scope, goals, management processes including legal, tax, insurances, financing, structure etc. This will be outlined in a formal alliance agreement (refer to appendix ? for a sample copy).

In relation to legal, tax and insurances, performance bonds/guarantees, profit etc. (for the purposes of this report is outside its scope) this will depend on the local jurisdiction that the strategic alliance is under i.e. Country that the alliance is operating in for example Dubai, UAE it is a requirement that international companies setup a joint venture to partner with a local company "sponsor" where 51% will been owned by the local company and 49% by the international company.

The author used to work for Dutco Balfour Beatty LLC in Dubai, UAE which was 51% owned by the local company Dutco and 49% owned by Balfour Beatty the international company. On a separate note the author used to work for Balfour Beatty in the UK.

There are three major forms of strategic alliances Joint Venture, Equity Strategic Alliance and Non-Equity Strategic Alliances, the final decision on the form will be negotiated between all parties to their mutual benefit, but it is envisaged that we will use a Non-Equity Strategic Alliance (refer to definitions section) which over time may develop into a Joint Venture.

Scope

The scope of the alliance between MCS Construction and the alliance partners i.e. Consultants, Preferred Major Suppliers and Preferred Major Subcontractors, will be equally shared between the parties who will provide there management & technological know-how in their chosen discipline, this will include but not limited to the following listed below: -

Share Resources;

Share Knowledge;

Finance / Capital;

Gain / Pain share;

Risk & Cost;

Add Value to the Alliance Partners and client;

The scope will be broken into two stages: -

Stage 1: - Utilise the alliance partners specialty in their chosen area, we will allocate tasks and responsibilities to each partner on the basis of what they do best, we will tender and bid for constructions and engineering projects in various target markets/segments, tendering and bidding for projects requires capital, resources, time, etc., if we are not successful at winning work we will continue to look for other opportunities, if we are successful at winning work then we will move into Stage 2;

Stage 2: - Once we have successfully won and been awarded the project/contract from the client we will enter the Project Stage where we will utilise the alliance partners specialty in their chosen area, we will allocate tasks and responsibilities to each partner on the basis of what they do best, the project stage will depending on the type, size, complexity of the project be broken down into various stages which will typically following a traditional matrix: -

Contract Award;

Pre-construction Phase (On-Site and/or Off-Site) can include;

Design;

Enabling & Temporary Works; and

Mobilisation, Site Setup and Establishment.

Construction Phase (Engineering, Procurement, Construction, Management) can include: -

Various works/elements depending on the specific project requirements.

Post Construction Phase

Handover to Client;

Operational & Maintenances Manuals;

Training;

Final Accounting with clients and members of the alliances;

Evaluation & Feedback.

Stage 3: - While we are carrying out Stage 2 we will be concurrently undertaking Stage 1 Tendering & Bidding to secure future work book.

We will be continuously evaluating, monitoring & feedback on all stages above looking for continual improvement.

Goals

In order for the alliance to be successful the stakeholders to the alliance must align and balance the goals and objectives of MCS Constructions, the alliance, the alliances partners and the alliance clients / project, and outline and agree from the start what these are and how this will be achieved.

Alliance Goals

Develop a long term mutually beneficial relationship;

Share Information

Share Knowledge and experience;

Share Capabilities and Competencies;

Share Resources;

Share Connections;

Win-Win Ethos; and

Add Value to the alliance.

Management Processes

According to (Gomes-Casseres 2003 p. 19) "Between 30 percent to 60 percent of alliances do not succeed", so it is important for the alliance partners to understand and avoid the common alliances sins which there are seven listed below: -

Unclear Objectives;

Lack of a detailed business plan;

Decision Gridlock;

Aligning with a weak or competitive partner;

Unmanaged culture clash;

Failure to learn or protect core capabilities; and

Failure to plan for alliance evolution.

We would envisage the following management structure that would be propose to use during the different stages: -

Alliances Specific Strategy and Alliances Analysis & Selection this will be undertaken be the Senior Management of MCS Constructions championed by the owner / director Mr. Matthew C. Smith but will including other internal resources HRM, Accounting / Finance / Legal and Operational Managers, as well as external consultants when required and needed such as Facilitator, Lawyer, Investment Bank, Strategic Alliance Management Consultants i.e. Vantage Partners to provide their expertise as this is the first strategic alliance for MCS Constructions.

Alliance Value-Creating Negotiations, Operational Planning and Structuring this will be continued by the owner / director Mr. Matthew C. Smith and the senior management of the preferred potential partner once a MOUP has been enacted by all parties including a non-disclosure confidentiality agreement, this is to continue to build the relational capital and trust between the parties moving forward. According to (Gomes-Casseres 2003 p. 120 64% of poor or damaged relationships between firms are the foremost cause of alliance failure.

Alliance Manage, Innovate & Transform this will be broken into two stages

formal strategic alliance agreement which will be negotiated between all parties to our mutual benefit we will address the issue of an exit strategy which will cover the followi

Management processors i.e. Structure, Governance, Relational Capital are the key to achieving this and

Building trust with all of the stakeholders in the alliance from conception to completion.

Have a clear strategic purpose - alliances are never an end in

themselves, they provide tools to achieve a business strategy

2. Find a fitting partner - a partner with compatible goals and

complementary capabilities

3. Specialize - allocate tasks and responsibilities in the alliances in a

way that enables each party to do what they do best

4. Create incentives for cooperation - working together never happens

automatically, particularly when partners were formerly rivals

5. Minimize conflicts between partners - the scope of the alliance and

of partners' roles should avoid pitting one against the other in the

market

Gomes-Casseres (2004)

Share information - continual communication develops trust and

keeps joint projects on target

7. Exchange personnel - regardless of the form of the alliance,

personal contact and site visits are essential for maintaining

communication and trust

8. Operate with long time-horizons - mutual forbearance in solving

short-run conflicts is enhanced by the expectation of long-term

gains

9. Develop multiple joint projects - successful cooperation on one

project can help partners weather the storm in less successful joint

projects

10.Be flexible - alliances are open-ended and dynamic relationships

that need to evolve in pace with their environment and in pursuit of

new opportunities

Gomes-Casseres (2004)

Rollout plan, timeline and anticipated evolution of the alliance

There are a series of steps and decisions that have to be addressed through the life cycle of the strategic alliance to the mutual benefit of the alliance participants this are outlined below which are generally accepted in the research: -

Alliance Specific Strategy;

Analysis & Selection;

Value-Creating Negotiations;

Operational Planning;

Alliances Structuring; and

Manage, Innovate & Transform.

(Sourece: - ASAP / Dr. Lou

Anticipated challenges and mitigation plan

While this document, together with the Memorandum of Understanding and Principles (MOUP) / Letter of Intent and the Alliance Agreement

Intellectual Property

Opportunisms

Cultural Differences (Organisational and National Cultural)

Errors, omissions, inefficiencies, delays, coordination problems, cost overruns, productivity losses

Timelines

Exit strategy

Prior to us entering into a strategic alliance with a potential partner(s) and as part of the formal strategic alliance agreement which will be negotiated between all parties to our mutual benefit we will address the issue of an exit strategy which will cover the following issues listed below but not limited to them, they may be planned or unplanned but it is important to address them otherwise it could result in complications for the alliance participants: -

Death;

Divorce;

Incapacitated;

Insolvency & Bankruptcy Disability;

Desire to leave;

Buyout;

Dissolution of Company;

Assignment comes to an end;

No market for alliance;

Financial goals not met;

Mission fulfilled;

Goodwill to participants;

Momentum no longer in play;

Date & Time i.e. 12 months or in this case the life of the construction project;

Dollar Amount i.e. Turnover / Revenue / Profit / Costs / Budget.

It is important to end the strategic alliance in a mutually beneficial way, try to keep the relational capital we have built up during life cycle of the alliance and to avoid an adversarial "lose-lose" resolution as the cost can be considerable in terms of economic, reputational, socio-psychological.

The alliance agreement will also clearly outline the Redistribution of Assets / Capital / Staff / Profit etc.

This page is to be amended and put into the reference lists