Competitive strategy

Most businesses use some variant of the theory of competitive advantage first introduced by Michael Porter about 25 years ago. His classic work, Compettive Strategy, first set forth the basic building blocks of competitive strategy used today. In his work, Porter outlines three approaches to winning in the marketplace: differentiation (mentioned earlier in this chapter), low cost and focus (which can be combined with the other two).

A larger firm can also tie to these three basic strategies: a variety of strategic thrusts, including pre-emptive moves and seeking synergy with other activities of the firm (such as cross-selling to an existing client a new service or product). The strategic vision's goal is to develop and maintain a "Sustainable Competitive Advantage."

Examples of pre-emptive moves would come from larger firms making a major effort to get half or more of their professional staff to become LEED APs, thereby establishing presumptive expertise in the design of green buildings. Table 9.5 shows the top 10 firms with LEED APs as of mid-2007. From this

Table 9.5 LEED APs at leading professional service firms, 200714

Firm Name

LEED APs

Percentage of Total Staff

Industry Rank in Category (2006)

Perkins+Will (A)

753

60.9

3

Gensler (A)

575

23.2

1

HOK (A/E)

456

21.1

1

Stantec (E/A)

277

4.6

6

The Turner Corp. (C)

260

-

-

SmithGroup (A/E)

243

29.7

7

HDR Architecture (A/E)

192

17.3

3

DPR Construction (C)

185

27.4

-

CUH2A (A)

161

43.5

-

HKS (A/E)

155

13.5

4

Mithun (A)

137

69.5

36

LPA (A)

126

59.2

-

Skanska USA Building (C)

125

-

-

Leo A Daly (A/E)

123

11.4

9

DLR Group (A/E)

120

21.6

-

Gilbane Building Co. (C)

118

6.6

-

Cannon Design (A/E)

115

15.4

10

JE Dunn Construction Group (C)

110

3.3

-

Skidmore, Owings & Merrill (A/E)

110

8.6

2

NBBJ (A)

109

15

4

Arup (E)

105

1.2

-

Swinterton Inc. (C)

103

8

-

A = Architect, A/E = Architect/Engineer, E/A = Engineer/Architect, C = Contractor

A = Architect, A/E = Architect/Engineer, E/A = Engineer/Architect, C = Contractor table, one can see that only 2 of the top 5 firms in terms of percentage LEED APs to total staff are pure architectural firms, while 14 of the top 20 in total numbers are firms that combine architecture and engineering; these firms tend to be larger and have a more diverse client base that is likely to demand LEED expertise. One can also see that, 16 of the top 20 firms with the most LEED APs also ranked in the top 10 of their industry category. This still leaves room for firms that make having LEED APs a priority, but they must start thinking of getting more than half of their total technical staff LEED Accredited to achieve reasonable parity with the larger firms.

Examples of synergy would include a mechanical engineering firm opening a building commissioning or energy modeling division, an electrical engineering firm adding capabilities in on-site energy production, PV systems or lighting design, or an architectural firm opening a green building consulting division independent of its regular practice.

In differentiating services, a business seeks to create a difference in the mind of a buyer, with attributes that make a difference to that person or organization. For example, we might want to be thought of as the "leading edge" firm or product category; that will limit our market, but sharply define us to buyers who value that attribute, namely the innovators. In today's commercial world, a major task for service firms and for specific technology solutions is to create a BRAND that will incorporate those key differences.

Of course, we can create differences for each market segment that we choose to address, since some might value innovation, others low cost, others specific technological choices such as PV or roof gardens. Without a leading brand (and with due apologies to the major companies involved in this business), the average client will not want to make a purchase. Even in commercial situations, the lack of a brand can have drawbacks (e.g., imagine the confusion in the commercial air-conditioning market without major brands such as Trane® and Carrier®).

Low cost of operations gives a firm pricing flexibility. The ability of design and construction firms and green technologies to compete on price (with low cost) is a business asset. These costs may be based on prior project experience, accurate product knowledge, good research, local or state incentives, or a willingness to "pay to get the experience."

Low-cost advantages might be more sustainable than even branding as a way to compete in the marketplace, but most firms don't have the discipline to operate in this fashion. As a good example of the competitive advantage of lower cost of operations, one can examine the almost unblemished success record of Southwest Airlines. For Southwest, the low prices made possible by lower operating costs have become their primary brand, along with "fun." Consider that many of the successful newer airlines such as Jet Blue, Frontier and Air Tran have even lower costs of operations (expressed as cost per seat mile) than Southwest, by being very focused in their routes, not trying to be all things to all people, but offering simple air transportation to budget-conscious business and leisure travelers.

Focus is a key competitive strategy, knowing which markets to compete in and which to shun, knowing which clients a firm wants and which it doesn't. Very often, a firm will try to serve too many clients, not really satisfying the clients it really wants by being too unfocused. For most professional service firms (and I have run the numbers for one engineering firm), 80 percent of revenues come from 20 percent of the clients served in a given year.

To devise an effective strategy, marketers should consider combining focus with either low cost or differentiation. For example, points of focused differentiation can include:

• Regional vs. national firms (many smaller design firms compete nationally by narrowing their focus to one target market, such as museums, libraries, zoos and the like). One large commercial PV contracting firm I called in mid-2004 for a quote really impressed me by saying that my job was too small, that they only considered jobs at 100 kilowatts (about $750,000 installation price) or larger. Here is clearly a firm that understands its profitable customer profile and has instructed its salespeople about its decision to serve only larger projects.

• Client types, which can include smaller clients, psychographic profiles (such as early adopter) or those distinguished by strong cultures and values of sustainability. Architects who focus on winning design competitions, for example, clearly seek out projects that embody a community's or institution's highest aspirations, while others serving the same project types (quite well) do not bother with such open competitions.

• Building or project types (or vertical markets) such as office buildings, public service facilities (police, fire, jails), secondary education, higher education, healthcare, laboratories, cultural centers, retail, hospitality or industrial. Those building types likely to be impacted in the future by far higher peak period electricity rates (up to $0.40 per kilowatt hour in some of the larger metropolitan areas in the Eastern United States), such as office buildings and institutional buildings (colleges, public agencies, etc.), might be very good candidates for solar power or high levels of energy efficiency, particularly in states or utility service areas with significant incentives to offset the higher initial costs of such systems.15

• Signature green measures, such as PV or green roofs that a firm commits to bring into play on each project. While it can be dangerous as engineers or architects to "always" bring certain technologies to its projects, it is more dangerous not to be known for anything in particular.

• Project size can also be a focus, allowing smaller firms, for example, to compete with larger and more capable competitors. For smaller projects, many of the larger firms in architecture, engineering and construction are simply uncompetitive in their pricing, since these projects tend to be very budget challenged.

There is no single competitive response to the growing green building market that is right for every firm, because much has to do with the strategic clarity, capability, capital and character of the firm. Nevertheless, a conscious choice among strategies is vastly preferable to having none, for that assures only a steady diet of "crumbs" from the table of more decisive firms.

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