BSV11700 Strategic Management (CW1)

Roberto Peralta
Brief description of the company
Balfour Beatty (BB) is an influential infrastructure group that operates globally and is based in
the United Kingdom. The company has headquarters in London, Dallas and Hong Kong. This
construction company was founded in 1909 (Balfour Beatty, 2018).
Today Balfour Beatty has a wide-ranging portfolio. It has three main divisions: 1) Infrastructure
investments, 2) Construction Services and 3) Support Services. Betting on expert in-house
capabilities the company has specialized professionals in the following areas: civil engineering,
building, ground engineering, refurbishment, fit-out, rail engineering, electricity networks, and
highways. The range of infrastructure investments spans public and private projects, while the
maintenance branch has military and student accommodation contracts.
A publicly traded company in the London Stock Exchange, the group currently has 25,000
employees and reported an underlying revenue of £8,931 million in 2022 (Balfour Beatty, 2022).
Even through the complicated business environment of the COVID-19 years, BB was profitable
every year, exceeding in 2022 the profit made in pre-COVID years.
Five components of Porters Competitive Forces Model
Porter’s five forces model is a tool for analyzing industries proposed by Harvard professor
Michael E. Porter in 1979. His seminal article “How Competitive Forces Shape Strategy” (Porter,
1979) revolutionized the field of competitive strategy. According to his theory when the five
forces are “strong” profitability decreases for players in the industry.

Figure 1. Forces governing competition in an industry. (Porter, 1979)

In the case of BB its scope and magnitude allow it to exert leverage across its various business
units. This also means that the playing field it moves in is globalized and diverse. Nevertheless,
its customers and projects live in their specific local circumstances. Different forces may gain
relevance depending on the level at which the analysis is being performed.
Table 1. Porter’s Five Forces applied to Balfour Beatty’s position.

Porter’s Five Forces Applied to Balfour Beatty’s position

Bargaining power of suppliers: when this
force is strong, few powerful suppliers might
extract higher prices from competitors and
eat into their profits.
Bargaining power of customers: powerful
buyers can make competitors fight each
other for price to lower cost.
Threat of substitute products: even
established industries can be upended by
new technologies and substitute products.
For example, when the taxi industry was
revolutionized by ride-hailing apps.
Threat of new entrants: new competition can
make a huge impact on an industry.
Innovative players will bring new ideas, fresh
capital, and talent.
Competition between industry rivals: can
take many forms including “including price
discounting, new product introductions,
advertising campaigns, and service
improvements. High rivalry limits
the profitability of an industry” (Porter,
2005).
For a company of BB’s size, it can leverage its
industry position to access substitute
products, ideas, and suppliers so as not to
depend on the power of suppliers.
A company of BB trajectory, size and
expertise allows it to selectively choose the
projects where they will create more value
for the customer, itself and other
stakeholders.
This force is also weak. As a general
contractor that also finances, develops,
designs and operates projects all over the
world, the company leads the market in
innovation of new project delivery methods
and building technologies.
Achieving the level of expertise and historic
portfolio of a company like BB is an arduous
and lengthy process that is unlikely to be
easily recreated by new players in the
industry.
As a one the leading construction companies
in the UK BB can use economies of scale and
expertise across its business units to
compete.

(Peralta, 2023)
PESTEL
A PESTEL analysis is a tool used in strategic planning to analyze the external factors that can
influence a company or sector. The acronym stands for “Political, Environmental, Social,
Technological, Economic and Legal” factors influencing an organization.
Table 2. PESTEL analysis factors affecting Balfour Beatty.

As the largest infrastructure company in the UK, BB is a leading force

in the industry to propose legislation and set industry standards.

Political As a global player BB must be aware of the political risk surrounding

each market, customer and project. Low judicial security or unstable
political circumstances must be taken into account and mitigating
measures instituted.
BB is a global company in a world undergoing profound environmental
change. Each strategic business unit has a sustainability manager that
defines a climate action plan aligned with the 2030 and 2040 Group
targets (Balfour Beatty, 2022).
Environmental
Technical challenges originated by climate change and decarbonization
efforts will also be opportunities for BB as new infrastructure will be
required to achieve those environmental goals.
BB has a Zero Harm policy that strives to work safely and to impede
any harm to come to the individuals and communities involved in each
project.
Social
BB understands that lifting the communities where it builds projects is
an integral aspect of the project’s success. Indicators like local
workforce participation, use of local suppliers and subcontractors and
Earn and Learn initiatives are part of this social effort.
BB has been an industry leader in the move toward digitalization. The
use of Augmented Reality (AR), Artificial Intelligence (AI), Building
Information Modelling (BIM), robotics and more efficient off-site
manufacturing are all opportunities to increase productivity.
Technological
While challenges remain in making these technologies more available
to small government offices and small and medium suppliers and
subcontractors, BB has helped implement these standards nationwide.
Economic As of 2022 BB sees itself operating in healthy economic environments
in its main markets. The public sector in the UK, the US and Hong Kong
is projected to keep spending important sums in infrastructure in the
coming years (Balfour Beatty, 2022).
 Inflation is understood to continue to be a risk, although in a less
urgent manner than in the previous quarters. Adverse effects of the
war in Ukraine and other global conflicts continue to be a lag on the
economy.
BB must be aware of the legal risks and legal framework underlying
the various projects in its portfolio. As a company with presence
Legal
around the globe, the legal resources available to the company must
be top quality and amply available.
(Peralta, 2023)
BB employs leading experts in their wide-ranging economic activities that seek to understand
and mitigate risks and opportunities like the ones identified in the PESTEL analysis. It remains a
valuable tool in organizing outside influences in a systematic organizational model.
SWOT
Analyzing a company to understand its strategic planning and learning from it usually focusses
on the company’s internal strengths and weaknesses and the external threats and opportunities
at hand: a SWOT analysis (Boddy, 2019).
Table 3. Balfour Beatty SWOT Analysis

Strengths Threats
- Strong market position - Geopolitical disruptions like Brexit,
- Size, scope and experience allow to the dissolution of the United
bid for and win any project Kingdom, Sino-US tensions, the
imaginable. Russian invasion of the Ukraine.
- Corporate flexibility to respond to - A new pandemic
threats and seize opportunities. - Inflation
- Expert track record in public and - Bureaucratic opposition to modern
private infrastructure projects efficient methods
- Diversified portfolio, distributing risk
Weaknesses Opportunities
- Large size can make change harder to - Advent of AI
implement. - Globalization
- Being an industry leader and publicly - Immigration
traded company can make it too risk - New energy demands and
averse. decarbonization efforts
(Peralta, 2023)
As a global player with a sound financial base and varied project portfolio BB has a strategic
competitive advantage over its competitors in the UK and allows it to compete with important
groups in other markets. Bb has employed a careful risk assessment strategy that seeks to
ensure profitability in the long term.
The threats and opportunities that present themselves to the Group over the coming years are
common to other large players in the infrastructure industry. As seen recently, companies in a
globalized market economy are subject to global disruptions like the COVID-19 pandemic, the
war in Ukraine, the Evergreen incident in the Suez Canal, etc. Ensuring supply chain reliability
and resilience is paramount to facing these challenges.
Fundamentals of strategy
BB’s company strategy is titled “Build to Last” and explicitly refers to the organization’s history
of over a hundred years. It conveys a sense of stability, experience, and knowledge. At the same
time the strategy looks to the future: “sustainable growth, productivity and inclusive talent”
(Balfour Beatty, 2022). The title of the company’s 2022 Annual Report is “Building New Futures”
a nod to forward looking thinking and social and economic progress that the construction sector
brings to society.
The company’s five values and their associated KPIs are summarized in Table 4.
Table 4. Balfour Beatty’s Five Company Values

Company Value Associated KPIs

LEAN: we create value for our customers and - Net cash.
drive continuous improvement. - Underlying Profit/(Loss) from
Continuing Operations.
EXPERT: our highly skilled colleagues and - Employee Engagement Index
partners set us apart.
TRUSTED: we deliver on our promises, and - Customer Satisfaction Average
we do the right thing.
SAFE: we make safety personal. (…) We are - Lost Time Injury Rate (LTIR)
unrelenting and uncompromising in our
commitment to achieving Zero Harm.
SUSTAINABLE: we act responsibly to protect - Total Scope 1 & 2 Emissions (tCO2e)
and enhance our planet and society. per £m Revenue
(Balfour Beatty, 2022)
Lean methodology permeates through BB’s company strategy. The first value enumerated
plainly states “Lean” as a company objective that informs every level of the organization. Since
the 1990s (Koskela, 1992) Lean methodology has been applied to the construction industry with
positive results. Efforts to implement these strategies must include every actor of a projects life
from design process and the contractually defined project delivery method to crew and on site
operations.
For example, one of the “Company Behaviors” is “Collaborate Relentlessly”. One way this
implemented is by collaborating at every stage of a project and at every level of the project’s
stakeholders. They “operate under a variety of contract forms such as open book, design and
build and full turnkey contracts. In addition to traditional contracts, we have a long track record
of working in frameworks, partnerships, and alliances.” As one of the industry's leaders,
specially in the UK, BB has fully supported the move toward collaborative frameworks (Like Early
Contractor Involvement ECI) that diminish the traditional adversarial nature of the client-
supplier relationship and the inefficiencies associated with an old-fashioned tendering process
(Balfour Beatty, 2018).
Another example of lean methodology influencing BB’s strategic thinking is its commitment to
reducing onsite activity by 25% by 2025. This goal encapsulates the bet on the benefits of
standardization and working in controlled factory conditions. This reduces environmental
impact on the construction site, less activity on site necessarily means less risk of accidents and
lowers overall costs by exposing waste and reworks. This argument goes hand in hand with the
previous one, as a more collaborative approach where the contractor is incorporated earlier in a
projects process allows for increased input into the design and construction methods. It is
related to the concept of avoiding falling into a trap of over specification that stifles innovation
and contractor problem-solving (also allocating risk adversely).
Conclusion
Balfour Beatty has had an outstanding performance in pandemic and post-pandemic years. A
company as large and complex as this one can fall in decline. Institutional inertia can set in,
while bureaucratic excess can weigh down company growth. This company is a counterexample.
Balfour Beatty’s company culture and focus on lean methodology has allowed it to manage its
risk and use its competitive advantage to maintain and improve its performance.
The use of models and frameworks used in strategic thinking like Porter’s Five Forces, PESTEL
and SWOT analyses allow for better understanding and learning from BB’s strategic long-term
planning. As the company’s outstanding results over the last chaotic years attest, reflecting and
reacting about your organization’s culture, talent, direction, investment, values, and ideals pays
off handsomely when applied diligently and over time.
Even though important threats and opportunities can be identified in the next decades, BB’s
corporate governance has ensured that the Group is best placed to overcome these challenges
a to take advantage of its competitive advantage in the industry.
A review of BB’s company strategy and guiding principles evidence a deep-set commitment to
lean methodologies. Lean methodologies point to holistic approach that understands an
organization as a living process that involves every actor at every stage of a process. Ensuring
the wellbeing and improvement of the communities involved, a Zero Harm policy towards
colleagues and the environment all the while eliminating waste and creating value for every
stakeholder is winning corporate strategy. That naturally needs to be lived by executive teams,
workers, suppliers, and customers.
References
- Abdelhamid, T. S. & Salem, S. (2005). Lean Construction: A New Paradigm for Managing
Construction. International Workshop on Innovations in Materials and Design of Civil
Infrastructure. Cairo, Egypt.

- Balfour Beatty (2018). Collaborative Construction: Achieving Common Goals. July 2018.

- Balfour Beatty (2018). Ahead of the Curve: Innovation and Productivity in construction.
July 2018.

- Balfour Beatty (2022). Building New Futures: Annual Report and Accounts 2022.

- Balfour Beatty (2023). https://www.balfourbeatty.com/expertise/civil-engineering/

- Balfour Beatty (2023). https://www.balfourbeatty.com/expertise/civil-engineering/

- Boddy, D. (2019). Management. 8th Edition, Pearson International Content.

- Cheng, R., and Johnson, A. J. (2016) How and why IPD and Lean Lead to Success.

- Forbes, L. H. and Ahmed, S. M. (2011). Modern Construction: Lean Project Delivery and
Integrated Practices, 2011.

- Koskela, L. (1992). Application of the new production philosophy to construction. Center

for Integrated Facility Engineering (CIFE), Stanford, CA, 2010.

- Porter, M.E. (1979). How Competitive Forces Shape Strategy. Harvard Business Review,
57, 137-145.

- Porter, M.E. (1980). Competitive Strategy. The Free Press.

- Porter, M.E. (2008). The Five Competitive Forces that Shape Strategy. Harvard Business
Review. January 2008.