How Zenith Pm Can Implement Its New Offsite Manufacturing Strategy

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Executive Summary

This management report aims were fourfold. These aims are to advice Zenith PM – a small UK based traditional construction company on the following core areas: (1) the current thinking on offsite manufacturing (also known as modern methods of construction), (2) the potential impact this change in direction will have on the company’s existing business strategy (from a change management perspective) – focussing on existing organisational and project processes, (3) how the company might undertake such a transition (using a solution of your choice, including a full implementation strategy), and (4) all risk management issues that need to be considered. These aims were tailored around Zenith’s three core objectives of (1) entering a new niche market (which could give them competitive advantage), (2) stabilising the workforce (to reduce turnover), and (3) improving the financial position of the company (working capital requirements and improved order book).

The report finds that, project management requires managers to objectively identify and categorise a project’s core areas into three major themes of systems analysis and design, project environment, and information management. Specifically, the management report finds that offsite manufacturing is a potentially beneficial business strategy that Zenith should implement in full especially because it will help the company stabilise its workforce through skill retention and improve its financial performance through reduced costs. Nevertheless, Zenith should appraise its repository of resources (human, financial and technological), capabilities, and competencies in order to tailor them to the new business strategy.

Further, the company should embrace Kurt Lewin three-step change management model, Certo and Peter five-steps change management model, and ultimately link its HR policies with offsite manufacturing strategy. Moreover, the company should identify and manage potential risks well talent management and ERM. Overall, the report recommends that Zenith should adopt a full implementation strategy for its new business strategy. This is because it will help the company cut onsite waste by 90%, exceed regulations on air leakage by as high as 70% and speed up project time by 50%. Nevertheless, Zenith should make proper contingency measures to allow for quick recovery from market ripple effects.

Table of Contents

Executive Summary. 2

1.0 Introduction. 4

2.0 Offsite Manufacturing. 5

3.0 Business Strategy Considerations. 9

4.0 New Business Model Solution and Implementation Strategy. 10

5.0 Risk Management 12

6.0 Conclusion and Recommendations and Limitations. 14

6.1 Conclusion. 14

6.2 Recommendations. 15

Bibliography. 16

1.0 Introduction

The contemporary global business environment has become very unpredictable. As expert analysis from Cleland and Gareis (2006) and Ireland (2006) show, most players are facing diminishing order books, reduced cash flows and huge staff turnover. Arguably, this has forced small and large construction companies alike to adopt new marketing and operational strategies such as offsite production in order to remain afloat during recession (Venables, Barlow, and Gann, 2004). Some theorists reason that such contingent strategies may enhance competitiveness since they result into increased innovation and new opportunities (Kwak, 2005). Nevertheless, it is only wise to evaluate the impacts of these new strategies in order to establish their viability in terms of helping a company to compete successfully with its rivals. As a matter of fact, Cleland and Gareis (2006) and Ireland (2006) require analysts to conduct an evaluation of the three critical themes of project development management.

Arguably, these themes are systems analysis and design, project environment, and information management (Ireland, 2006). Specifically, the systems analysis theme covers areas such as business drivers, strategic and operational plans, strategic trajectories, signposting techniques, and new business solutions (Cleland and Gareis, 2006). Further, and as Ireland (2006) advices, the project environment theme covers organisation, management, project processes, project teams, skills requirements, contractor selection, supply chain management, tendering and procurement. Lastly, Kwak (2005) offers that the information management theme covers change management, information management principles, communication flows, management information systems, and risk management.

In order to address these core areas well, this management report will narrow its scope on a hypothetical company, Zenith PM, a small UK based traditional construction company that employs 173 workers. Currently, the company is unable to maintain a health order book for long-term contracts because of the on-going economic downturn and immense competition. This has forced the company to employ manual staff on contract basis and dismiss them once contracts expire. As expected, this strategy has negatively impacted on the company’s core business since it occasions high staff turnover and increases costs associated with re-training. As such, the company is contemplating to switch to offsite manufacturing with the intention to: (1) enter a new niche market (which could give them competitive advantage), (2) stabilise the workforce (to reduce turnover), and (3) improve the financial position of the company (working capital requirements and improved order book).

To this end, this management report’s core aim is to advice Zenith PM’s management on the following core areas: (1) the current thinking on offsite manufacturing (also known as modern methods of construction), (2) the potential impact this change in direction will have on the company’s existing business strategy (from a change management perspective) – focussing on existing organisational and project processes, (3) how the company might undertake such a transition (using a solution of your choice, including a full implementation strategy), and (4) all risk management issues that need to be considered. Arguably, the management report will provide a basis for critical thinking and analysis that is cognisant of the three core drivers of sustainable development, internationalisation, enterprise and employability.

2.0 Offsite Manufacturing

Offsite manufacturing or offsite construction is a general term that denotes all operational activities that take place at a different site other the site they are finally required. In the construction industry, offsite construction entails constructing special-fit individual building modules right at the company’s premises and then moving those modules using specially designed movers to the locations they are needed (Rendall, 2011). Evidence from developed countries such as the UK and the US with sophisticated housing sectors (Taylor, 2009), shows that this form of construction can be employed in a variety of buildings including residential premises, office blocks, heavy manufacturing go-downs, education institutions, healthcare blocks and even military installations of varying heights (Venables et al., 2004). Arguably, and as Rendall (2011) clarifies, this modern method of construction differs with modular construction because it is only applicable for permanent construction while modular construction is mostly employed in temporary construction. Further, growing political pressure from lobby groups in both developed and developing nations for affordable and quality housing for the lowly-earning population has created a huge demand for offsite construction (Pan, Gibb and Dainty, 2012). As a matter of fact, community-based organisations such as build-offsite in the UK comprising of clients, contractors, government agencies, community-based lobby groups, suppliers, and manufacturers of building materials have been on the fore front in encouraging the wide acceptance of offsite built housing units (Taylor, 2009). Arguably, this has created a potentially lucrative opportunities for small construction companies such as Zenith.

The initial requirements of offsite construction are fundamentally tasking. In order to successfully enlist this strategy as per its three core objectives of entering into a new niche market, stabilising its workforce, and improving its financial position, Zenith will be required to remodel its premises so as to allow for the heavy manufacturing (Nadim and Goulding, 2010). As a matter of fact, it will procure special steel frameworks and casings to support the successful construction of large individual building modules such as girders for bridges or steel wall casings for large warehouses (Anderson and Anderson, 2006). Further, and individual client orders will require, the company will be required to undertake substantial work at the site of construction before delivering the prefabricated building modules (Sigh, 2001). Specifically, it will be required to construct special concrete foundations in the area where the building will be laid down (Pan and Goodier, 2012). As Gibb (1999) advices, these concrete foundations will be dug deep into the earth so as to allow the building to achieve the minimum required strength to support large individual modules of buildings without the need for stairs or even ramps. Upon reaching the client’s premises, the prefabricated building modules will be carefully fixed on the concrete framework and to other modules through normal steel fabrication techniques such as bolting and welding (Pan and Goodier, 2012). Later, any visible seams are sealed with concrete or any other suitable material depending on the client’s specifications making the prefabricated building look as similar as possible with other conventionally erected buildings (Anderson and Anderson, 2006). Overall, and as Pan and Goodier (2012) show, this will cost the company a fortune in terms of initial capital investment, however, the company will benefit in the long-term after breaking even and establishing a sustainable client trust for this new business approach.

Offsite construction comes with a number of benefits to both the client and the contracted company. Based on Zenith’s espoused goals of gaining competitive advantage through reducing employee turnover, increasing working capital requirements and improving order book, it is arguable that offsite manufacturing reduces project time. This is because the actual building is constructed together with the site (Anderson and Anderson, 2006). As a matter of fact, Rendall (2011) offers that offsite construction can reduce project time by an average of 50%. Further, project time is reduced because instances of site disruptions are reduced considerably since only minimal work is undertaken at the site. Further, small construction companies such as Zenith with small workforces stand to benefit immensely from offsite manufacturing since this modern method of construction requires minimal on-site labour since the bulk of the work is performed at the contracted company’s premises (Akintoye, Goulding, and Zawdie, 2012). Moreover, offsite construction will help Zenith to successfully undertake construction in rural and suburban sites with poor terrain and minimal open space that does not support on-site heavy construction activities (Gibb, 1999). Overall, and as Sigh (2001) posits, projects undertaken through the offsite construction approach are bound to achieve high levels of success due to the accrued project efficiencies emanating from greater accuracies, reduced thermal loss, enhanced material utilisation, manufacture of composite materials and economies of scale due to the acquisition of materials in large quantities.

Other benefits accrual from offsite manufacturing includes enhanced performance since project tasks are simplified and critical paths clearly defined therefore leading to the execution of the tasks with immense speed (Emmitt, Barry and Gorse, 2010). Further, undertaking projects at the contractor’s premises enhances organisational learning among the employees who are therefore in a position to undertake similar future projects with a lot of precision by employing innovation and creativity (Venables et al., 2004). For instance, Rendall (2011: 2) argue that buildings constructed using the offsite manufacturing methods sometimes exceed conventional building regulations regarding air leakage by as much as 70% and can reduce on-site waste by up to 90%. These sentiments are echoed by Nadim and Goulding (2010) who reason that the whole life cost of a building is improved because each independent unit of the building is made up of less amount of materials compressed together to make it more strong as to resist harsh environmental conditions and quick aging. Offsite construction also streamlines recruitment since long-term labour needs can be easily projected and proper hiring and selection plans laid in place, and the necessary working conditions put in place as per the minimum occupational health and safety requirements (Emmitt et al., 2010). Overall, a combination of waste reduction, streamlined recruitment, enhanced project performance and enhanced organisational learning makes offsite construction a robust modern business strategy capable of enhancing firm competitiveness.

Proponents posit that offsite manufacturing is a contemporary business strategy that enhances continuity and competitiveness among the modern construction companies at the brink of insolvency. According to Nadim and Goulding (2010), small construction companies such as Zenith which are experiencing diminishing order books should consider pursuing lean operational strategies such as offsite manufacturing which help them to reduce redundancy and streamline their task execution prospects. These sentiments are shared by Akintoye et al. (2012) who reason that offsite manufacturing increases employee commitment in the sense that all sections of the employees are imparted with the understanding that their organisation is pursuing a lean manufacturing strategy as part of efforts made to redeem its standing at the market. Further, and as Pan et al. (2012) reason, offsite manufacturing allows firms to review their existing technological resources and capabilities and therefore make the necessary arrangements towards improving or even leveraging those resources and capabilities in order to enhance productivity. Arguably, these sentiments reflect the underlying premise behind most contemporary business approaches made by large companies with operations in numerous markets which according to De Wit and Meyer (2009) and Hitt, Ireland and Hoskin (2007), are meant to effect cost cutting, increase product differentiation, enhance employee job engagement, and improve general firm competitiveness. It can therefore be concluded that when leveraged alongside other potentially advantageous business approaches, offsite manufacturing can help Zenith to successfully enter a new market niche as it will able to serve a wide customer base with a small but stable workforce.

Nevertheless, some forms of offsite manufacturing have long been successfully tried in other sectors in the mainstream industrial operations. For instance, Emmitt et al. (2010) reasons that people should not view offsite manufacturing as a new phenomenon but rather as a common practice which he likens to the conventional prefabrication approach which has been in use for so many decades in the mainstream industrial operations. Further, Taylor (2009) argues that offsite manufacturing should not be shunned by modern construction companies since there have been lots of gains made n the realm of technology. Moreover, Venables et al. (2004) argue that offsite manufacturing is a cost-cutting measure especially among small constructions companies with minimal employee numbers and with ambitious intentions to enter the mainstream construction market dominated by large construction companies. With the immense contribution made by the construction and the housing industry in the most developed economies such as the UK where the industry contributes up to 6% of the country’s GDP (Rendall (2011), it is only wise to assert that offsite manufacturing is a welcome alternative business approach that holds the future profitability prospects from small and large construction companies alike. These sentiments are shared by Nadim and Goulding (2010) who reason that offsite manufacturing enhances customer satisfaction especially when the manufacturers expedite the process of delivering the final product to the customer’s premises while occasioning minimal operational disruptions. Overall, since it is the expectation of every firm to satisfy their customers by giving them value for their money (De Wit and Meyer, 2009), it can therefore be argued that offsite manufacturing is a potentially advantageous approach for Zenith’s quest for improving its financial position.

3.0 Business Strategy Considerations

The choice of a business strategy involves an objective examination of both the internal and external environment within which a business operates. Based on expert analysis from Cleland and Gareis (2006), De Wit and Meyer (2009), Hitt et al. (2007), Johnson, Scholes and Whittington (2010) and Ireland (2006) in their respective publications of the field of strategic management and project development management, it can be generally held that choosing a business strategy is guided by the underlying business purpose (goals, objectives, values and culture), organisational resources, core capabilities, core competencies, level of competition, prevailing regulatory regime as well as customer expectations. Specifically, this argument is in tandem with Hitt et al. (2007: 106) argument that a business level strategy comprises of a set of commitments that are sewn and executed together  by a firm in a bid to maximise the utility of its resources, core capabilities and core competencies. Arguably, and as De Wit and Meyer (2009) and Johnson et al. (2010) show that, when a firm maximises the utility of its resources and core capabilities it realises above-average returns and hence sustainable competitive advantage. For example, Zenith’s decision to switch to offsite manufacturing was advised by the desire to maximise the utility of its human, financial and technological resources through stabilising its workforce, venturing into new markets and enhancing its financial performance.

Zenith must consider is structure and culture before rolling out the new offsite manufacturing business strategy. According to De Wit and Meyer (2009), structure and culture are key organisational pillars that determine the strategic direction that a company takes in the face of new challenges in the market. Since Zenith has confirmed that it is facing reduced business opportunities and high staff turnover, and now it intends to stabilise its workforce, venture into new markets and improve its financial performance, it is only wise to assert that the company needs to audit its structure and culture first (Cleland and Gareis, 2006). This is because an organisation’s structure and culture determine its ability to compete well in the market. As Johnson et al. (2010), the company should examine its structure and culture within the aegis of the question, “is our structure and culture suitable for the new business strategy?” This way, the company will be able to clearly see what ought to be done to bring the existing structure and culture in tandem with the offsite manufacturing strategy. For example, a tall and rigid structure coupled with an unfriendly organisational culture will make it very hard for the company to effectively switch from onsite construction to offsite construction.

Moreover, the company must consider the quality and quantity of its workforce. As PMI (2010) advices, Zenith must consider the strengths and weaknesses of its workforce before rolling out the new strategy. Though offsite manufacturing requires less employees (Taylor, 2009), it is only wise to argue that the skills of these few employees should be in tandem with the inherent requirements of building and carrying individual building units to the client’s site. This is true since highly skilled employees will be in a position to quickly adjust to the new business strategy than their unskilled counterparts (PMI, 2010). Further, the company should assess its workforce’s level of loyalty and commitment and therefore make the necessary decisions whether to roll out loyalty enhancing programmes. Moreover, and as Ireland (2006) shows, the company must take into considerations, its workforce’s level of creativity and innovation and how this can be tapped for the successful implementation of the new business strategy. Overall, it is arguable that the company cannot stabilise its workforce or even venture into markets if its workforce is not creative and skilled.

Zenith should make the necessary financial considerations to cushion against potential market ripple effects. This is a crucial project management undertaking that requires Zenith to determine the financial implications of the new business strategy while factoring in regulatory requirements, level of competition, customer expectations, and shareholders needs (Kwak, 2005). Specifically, PMI (2010) advices that in order to increase the chances of business success, Zenith should set all its strategic goals should be done in tandem with the available budget. To this end, the company can begin with small easy to implement projects then move on to large projects after it has gained financial confidence to that effect. This is very crucial since Taylor (2009) cautions that, though the UK construction industry is robust in the sense that it is relatively new and most players including the government and non-government organisations and the ev.............

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