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Unit 8
SCM, Partnering, Strategic Alliances
Bilge Erdogan

5 Types of Power
• Formal ( Coercive, Reward, Legitimate)
• Personal ( Expert, Referent)

REFERENT POWER
Being trusted and respected, well- liked
People strongly identify themselves with these
leaders in some way. (like celebrity)

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partners create a new entity

they share equity and replicate
JOINT VENTURES the hierarchical control features of organizations
Hierarchy increases

voluntary arrangements between firms involving

ALLIANCE exchange, sharing or co-development of
products, technologies or services

no sharing of equity
PARTNERING have few hierarchical controls built in them

Strategic Alliance–Mgmt

• Definition in management (mgmt) literature:

“formation of a long-term formal partnership of
a group of organizations”
• Formal Contract- binding

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Strategic Alliance–Construction
• informal rather than formal relationship,
• promotes improvements and relations rather
than liability and litigation.
• Regulates the contractual relationships between
parties of the SC rather than adding extra terms
to contracts.
• partnership is passive rather than active,
• associated with unfavourable outcomes (conflict
of interests, competition within alliance, and
win–loss relations)

Strategic Alliance–Construction
• Most commonly between separate firms who
would normally be in competition with one
another.

• Sharing or ‘pooling’:
– Knowledge;
– Information;
– Resources;
– Technology;
– Personnel; and
– Resources

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Comparison

Partnership vs Partnering

Partnering arrangements
• Vertical vs horizontal alliance
• Short term vs long term

Examples
• Client& Contractor
• Contractor & contractor
• Contractor & Subcontractors
• Design firms & Contractors
• Contractor & material supplier and
manufacturers

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Class Exercise:
Discuss benefits of strategic alliance in
construction?
Work in groups of 2-3. ~10 mins

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Discuss benefits of strategic alliance

in construction?
Benefits
@ Project level

@ Business level

ORGANIZATIONAL
@ Corporate
LEVEL level

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What are the benefits of strategic

alliance in construction?
Benefits
@ Project level Reduced risk
Improved quality
Reduced cost
Completion on time
Reduced rework
@ Business level Increased profits
Increased market share
Enhanced competitive position
Competitive bidding
Broadened client base
@ Corporate level Cost effectiveness
Increased labour productivity
Improved efficiency
Increased opportunity for innovation
Continuous improvement of quality products and services
Increased cultural responsiveness

Supply Chain
Supply chain - combination of all parties both inside and
outside the organisation, involved in delivering the inputs,
outputs or outcomes that will meet a specified requirement.
SCM- Co-ordination of all of these parties

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Supply Chain Management

“The management of upstream and
downstream relationships with suppliers and
customers to deliver superior customer value
at less cost to the supply chain as a whole”.

• Roots lie in the relationships between Clients,

Consultants and Main Contractors………

SCM and the development of strategic

alliances depend on:
• A high level of joint strategy development with
different organisations and firms, both upstream and
downstream.
• A common purpose agreed between separate firms
and organisations in the supply chain.
• Jointly agreed common goals amongst the members
of the supply chain.
• A mutual dependence for all firms in the supply
chain on the success of achieving those agreed
common goals.

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Strategic management

The hierarchy of the business planning process

Strategic management- Steps

• 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

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How do we analyse the strategic

positioning of the firm?

Competitive forces at play

(Porters Five Forces model)

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Five competitive forces

1. 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.
2. Power of suppliers: Competitive advantage from supply relationship exist when few
enterprises dominate supply, no competing product, threat of forward integration
over buyer.
3. 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.
4. Threat of substitutes: Substitutes for construction products are, e.g. communication
technologies or cheap air travel instead of road/rail infrastructure (Seikan tunnel)
5. 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.
Porter’s Five Forces

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SCM- Fundamental issues in adoption

Saad et. al (2002)

• The degree of preparedness of the industry in

effectively adopting SCM;
• The understanding of SCM concept and the
prerequisites associated with its successful
implementation.

Class Exercise:
Discuss barriers to effective SCM
in construction?
Work in groups of 2-4. ~10 mins

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Barriers to effective SCM

– Lack of commitment
– Insufficient understanding of the SCM philosophy
– Lack of strategic leadership
– Lack of understanding of the new model of network
competition
– Inappropriate organisational structures
– Lack of leverage
– Unwillingness to adopt ‘win-win’ thinking
– Insufficient allocation of time to build relationships
– Lack of common purpose and goals
– Resistance to the sharing of information
– Inappropriate use of power
– Lack of commitment to change, innovation and learning

Barriers to effective SCM

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End of slide show

The following are just a few examples to different angles we

approach to SCM and Alliances in Construction.

Example:
Observations of Current AEC Supply Chain: Focus
on IT/IS systems

• Fragmented AEC supply chain

• Lack of information sharing
• Scattered information sources
• Various software and hardware platforms
• Different goals and objectives of project
participants

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Example: E-business model- SCM

An e-business model to support the construction supply chain
(Cheng et al, 2001)

Example: Performance of international joint ventures (Ozorhon et al, 2007)

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