Business management concepts are also applicable to construction outfits just as applicable they are to large corporations and mom & pop stores. However, it rare for general construction outfits categorised as SMEs to use these concepts mainly due to the fact that they are just unaware that these strategic business tools exist.
From the 4 Ps of the Marketing Mix, to Michael E Porter’s Competitive Forces to business canvases, these concepts could actually make the difference to your construction business. This article will provide a brief overview of Michael E Porter’s competitive forces (Forces that drive competition) which are also generally referred to as Porter’s Five Forces. Porter’s five forces are divided in as you would have guessed 5 components.
These components are the bargaining power of buyers (clients), bargaining power of suppliers (your suppliers), threat of new entrants, threat of substitutes and competition. This concept of business tool is vital to understand the position that the business is in within the market and crucial towards making informed business decisions.
To begin with we shall begin with the first element of this tool which is the ‘bargaining power of buyers; which involves how far clients are able to negotiate with prices. This is essential to gauge based on the fact that the higher their bargaining power, the less leverage the business has and has to give in to their demands.
This means that if you charge a certain price and they demand a discount, you would be able to gauge just how much discount you will be able to give based on their level of bargaining power which could be categorised into three levels (high, medium or low). The higher the bargaining power, the more you have to give in and that is a fact or risk losing the client to a competitor. Following this we arrive at the bargaining power of suppliers.
How many suppliers do you have and the options that you have in obtaining credit and equipment from them? It is the same as the bargaining power of buyers, the higher their power, the lower your advantage. For instance if you have a supplier who provide excavator hire, the prices they charge you will depend on the prices of other suppliers who also have similar excavators for hire.
If these suppliers are competing with each other and drop prices one after another, you have the upper-hand in the scope of things as you would be able to demand lower prices for mini excavator rentals. The threat of new entrants revolves around understanding how easy or hard it is to penetrate the industry so that you may be prepared in case there is a surge of new construction outfits.
However, as far as the construction industry goes, this component’s level has always been low as it is difficult for new entrants to penetrate into established markets.
The above would have provided a rough overview of how to go about managing a construction outfit’s management in a more professional and strategic manner.
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