NYU-Thesis-2010

AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY
LEND LEASE GROUP: A CASE STUDY

by
Martín I. Neiman

A Project in Strategy & Innovation
Presented to the Faculty of Management

Submitted in partial fulfillment of the
Requirements for the degree
Master in Science in Management

Graduate School of Management

POLYTECHNIC INSTITUTE OF NEW YORK UNIVERSITY

August, 2010

"There are really two critical dimensions of success in your business. The first is finding the
good deals. Finding those projects, finding those tenants, finding those locations that are
going to be economically attractive. The second critical dimension of the business is
executing those deals well. So you find the project but then you are able to build it on time
and make sure it is nice and deliver it up to expectation. Now you might think that that is an
opportunistic process. But it’s not. Why do you find good deals? You find them because you
have special insight into tenants in that particular area, because you have an unusual
knowledge of a particular geographic region, you find them because you understand that
particular type of project better than the other guys. Because you have superior market
intelligence, because you have superior economic intelligence. Why do you have superior
economic intelligence or market intelligence? Because you have a strategy."

Michael E. Porter, Competitive Strategy and Real Estate Development,
Remarks to the 1989 Harvard Business School Real Estate Symposium.

2 AN ANALYSIS OF TRENDS AND OPPORTUNITIES IN THE PROPERTY INDUSTRY

Abstract
The current economic recession and its significant impact to the Property Industry as well as
the World Construction Industry represent an opportunity for reflection. After the enormous
damage caused by unprecedented levels of opportunism and speculation extended beyond the
financial markets, it seems to be the perfect time to analyze the environment and rethink how
to build a solid and sustainable strategic framework to be able to face the future challenges.

In the present, fast-pace changes in the global markets in other industries are working as
parameter for benchmarking, increasing customer expectations. Profound instability affecting
major economies has evaporated the demand for private development. Private players are
struggling and many strong investors are hesitating to fund new projects. In Real Estate
Markets, risks are still considerably high while confidence continues to be low in many
geographic locations. The Credit Crisis has forced banks to remain conservative at the same
time as opportunistic capital continues to be on hold.

In the short and medium term future, major demographic transformations will increase the
demand for housing and other facilities. In addition, the aging infrastructure is demanding
governments a bigger economic stimulus. The year 2007 represented the inflexion point
where mankind reached majority of urban population. Urban areas will continue to grow and
more efficient cities will be required in the near future.

In the meantime, there is a lot of interaction between government officials, regulators, the
influential voices of the private sector and the public on new ways of fostering innovation.
The necessity for innovative solutions in these industries has long been emphasized by both
internal players and external observers. This continues to expand over professional
consciousness, financial competitiveness, and the global community. Old practices are
starting to affect financial performances and the private sector reputation. In this environment,
a 50 year-old Australian company seems to be emerging and riding through the storm.

This study intends to analyze and compare Lend Lease Corporation strategic framework with
the historical behavior and culture within the Property Industry, evaluate its current position,
weaknesses and opportunities to determine future challenges. Finally, this concludes with a
set of recommendations to improve and strengthen a leadership position as the global provider
of fully integrated sustainable property solutions.

Martin i. Neiman, Aug. 2010


Table of Contents

Abstract .....................................................................................................................................3
Table of Contents..................................................................................................................4
1.1 Introduction ........................................................................................................................6
1.1.2 Literature Survey ...........................................................................................................6
1.1.3 Data Gathering...............................................................................................................7
1.1.4 Methodology used in this document..............................................................................8
2.1 Theoretical Background ....................................................................................................9
2.1.1 The Conception of Strategy ...........................................................................................9
3.1 Presentation of the Case Study ........................................................................................19
3.1.1 Lend Lease Corporation Brief Overview ....................................................................19
4.1 External Environment Analysis ......................................................................................22
4.1.1 Introduction to the Property Industry ..........................................................................22
4.1.2 Overview of the main fields ........................................................................................23
4.2.1 Introduction to the Construction Industry ...................................................................25
4.2.2 Innovation Adoption in the Construction Industry ......................................................26
4.3.1 Current Challenges and Future Trends ........................................................................26
4.3.2 Global Demographic Trends & Challenges.................................................................27
4.3.3 Global Climate Trends & Challenges..........................................................................28
4.3.4 Infrastructure Trends & Challenges ............................................................................29
4.3.5 Technological Trends & Challenges ...........................................................................30
4.3.6 Information Trends & Challenges ...............................................................................33
4.3.7 Workforce Trends & Challenges .................................................................................34
4.3.8 Productivity Trends & Challenges ..............................................................................35
4.4 PEST Analysis for External Environmental Examination..............................................36
4.5 Porter Five Forces Analysis Overview ...........................................................................41
5.1 Internal Strategic Analysis ..............................................................................................46
5.1.1 Corporate Vision .........................................................................................................46
5.1.2 Corporate Culture ........................................................................................................46
5.1.3 Corporate Core Values ................................................................................................46
5.1.4 Corporate Value Proposition .......................................................................................47
5.1.5 Corporate Goals ...........................................................................................................47
5.1.6 Corporate Structure .....................................................................................................48
5.1.7 Stakeholders ................................................................................................................50
5.1.8 Strategic Business Relationships .................................................................................51


5.1.9 Business Segments ......................................................................................................52
5.1.10 Market Overview .......................................................................................................54
5.2 Value Chain Activity System .........................................................................................55
5.2.2 Secondary Activities ...................................................................................64
5.2.2.1.1 Procurement, the value of Stakeholders ............................................................66
5.2.2.1.2 Procurement, Total Facility Management .........................................................66
5.3 SWOT Analysis for Strategic Planning ..........................................................................73
5.4 Ansoff Matrix for Product-market Growth Analysis......................................................78
5.5 The BCG – Matrix ..........................................................................................................81
5.6 Porter Generic Strategies ................................................................................................83
6.1 Strategic Development - Lend Lease Strategic Mapping .................................................87
6.1.1 Value Proposition & Business Model Strategy ...........................................................87
6.1.2 Capital Allocation Strategy .........................................................................................89
6.1.3 Global – Local Collaboration Strategy ........................................................................91
6.1.4 Public Private Partnership (PPP's) Strategy.................................................................92
6.1.5 Retirement Sector Strategy ..........................................................................................94
6.1.6 Urban Regenerations Strategy .....................................................................................95
6.1.7 Sustainability Strategy .................................................................................................97
6.1.8 Innovation Strategy ...................................................................................................105
7.1 Conclusion .......................................................................................................................110
7.2 Main Detected Problems ..............................................................................................112
7.2.1 Efficiency ..................................................................................................................112
7.2.2 Capital .......................................................................................................................113
7.2.3 Structure inefficiency ................................................................................................114
7.3.4 Human Resources Rewarding System.......................................................................114
7.2.5 Internal Research and Development (R&D)..............................................................114
7.2 Recommendations ............................................................................................................115
8.1 Bibliography....................................................................................................................118
9.1 Appendix .........................................................................................................................127


1.1 Introduction
The main purpose of this work is to procure a strategic analysis for a leading player company
from the Property Industry involved in the entire value chain of this broad, extensive and
exciting industry in the year 2010.

As an approach to learn more about the current challenging environmental conditions and to
rethink about the future trends, this paper analyzes a selected corporation that participates in
different business segments and sectors of the Property Industry worldwide. From inception
of the development cycle, through the entire planning, design and construction process and
beyond, sometimes remaining as the asset & property manager or even the seller in some
cases.

This document presents the opportunity to compare a well-developed strategic framework
based on a clear vision of the future, with the backside of an industry carrying a historically
monolithic culture supported by a remarkable rigidity to face and adapt to changes. After
driving thought this process, there will hopefully be achieved a counterpoint constructed by
an analysis of the strengths together with a revision of the weakness, and opportunities.

At that point, it will be possible to understand the most relevant issues affecting both the
industry and this specific corporation. Moreover, to conclude with a set of recommendations
regarding how to allocate its resources looking to face future challenges and to become a
leader in providing integrated sustainable property solutions.

1.1.2 Literature Survey

The literature survey examines the literature used on this piece. The section summarizes and
gives a general idea of what have been read, studied, argued and analyzed regarding the
subject. The organization of this review includes a chronological analysis of each strategic
model taking into consideration as a working tool. It also oversee the most influential articles,
books and other sources that where relevant to a particular topic, area of research, or theory,
and provides a short description and a critical view of the reasons why it has been taken into
consideration.

The organization pattern systemizes well recognized academic material in an attempt to
provide a different point of view creating a theoretical background used for the development
of the work. In addition, based on up-dated articles, books, readings, and other research, it
will describe the relevancy of each one in the building process and progress of this piece of
work. Finally, this literature survey will put an emphasis in trends and key aspects that need to
be considered to take the best outcome out of the reading.


1.1.3 Data Gathering

The term "Data collection" is generally used to illustrate a process of preparing and collecting
data that can be used for several purposes. In this piece of work the Data Collection process
appear to obtain information from multiple angles that will supply a theoretical background
and for the construction of the project. In addition, the data was collected in order to provide
information regarding the specific topic. 1

As in many cases, the strongest focus on data collection took place early on the process of
accumulation of information, and took a lower strength later during the analytical process.
However, since the vast amount of elements and variables affecting the environment, the
industry and the specific company use in the case study, the data gathering process continued
to be intense during all the process, helping to give technical references, point of views, and a
clear time and space reference to improve the quality of the analysis as well as the reader
understanding of the big picture.

The Data Gathering process has been structured in different stages. The first can be defined as
the "Pre-Collection activity", where the majority of the original material was found providing
a basic foundation to set goals, targets of the work. Some definitions and methods where
studied and a great part of the theoretical strategic sources were recognized. This process
assisted in the overall framework creation of the work. This was one of the most crucial steps
of the whole process and even though a lot of information was capture afterwards, the value
of this original data in terms of structuring the analysis made the rest of it more organized and
clear.

The second stage can be considered as the "Collection" period. During this process, a lot of
finding went on involving different sorts of reading. While the majority of them were coming
from internet source, some key reading came from books found in the NYU-Poly library.
Taking into consideration the limited timeframe available to develop the work, no personal
interviews, questionnaires or any contact with executives has been done. However, a
substantial amount of information came from surveys, interviews, and analysis already made
that was available on-line. As if there have been taken place interviews, this material was
extremely useful and provided real, accurate and updated-data which extremely enhance the
final product. This interview and strategic presentations ensured both a baseline from which
to measure from and in many cases a target on what to improve. During the "Collection"
period, a lot research was done regarding all the internal and external elements affecting the
organization.
1
Data collection, source: http://en.wikipedia.org/wiki/Data_collection


1.1.4 Methodology used in this document

There are uncountable methods, theories, models and techniques created to analyze, formulate
and implement strategies.2 Some have been selected according to the grade effectiveness,
public recognition, and most importantly depending on the efficiency by which its use pays
back to this study. In the first section of this document this methods will be described and
evaluated to weather if they contribute to improve the construction of the analysis,
formulation and implementation of a frame of strategies.

3
This framework is structured along a Strategic Management background to conduct the
drafting, implementation and evaluation of cross-functional decision making system. This
process will enable the organization to identify, focus, and achieve its long-term objectives,
satisfying the mission, the vision, and assessing on the development of plans, policies and
programs designed to achieve these goals. Furthermore, it will help re-allocating resources if
needed.

The ultimate goal is to provide the enterprise with an overall direction and align each single
strategy into a "strategic consistency". Arieu (2007), describes this consistency as the moment
when "the actions of an organization are consistent with the expectations of management, and
these in turn are with the market and the context." 4

In addition to all the theoretical background required to establish a framework of knowledge
necessary to develop analysis, a lot of research was done on the selected organization. First,
an outline of was created to set a scope of work. Shortly after that, an overview examination
of the company was carried out, including internal information such as its history, mission
and core competencies.

Along with this, an internal strategic analysis was initiated to evaluate the firm's vision, core
values, culture, goals and objectives, market positioning and business segments, together with
its products, services & project. This was followed by a breakdown of its corporate structure
& global footprint, and operations activities based in Porter's Value Chain Model (including
logistics, operations, procurement, marketing & sales, services, technologies, HRM, and
infrastructure).

Later on, a vast amount of material was selected to explore and understand the complexity of
all forces factors affecting the performance of the group. During this specific process, many

2
List of Strategic Methods, Models, Theories, and techniques, source: http://www.12manage.com/i_s.html
3
Wikipedia, Strategic Management, source: http://en.wikipedia.org/wiki/Strategic_management
4


different sources where consulted to create a wide picture of all the economical, political,
social, technological, and physical factored involved in this dynamic environment. Soon after,
based on Porter's Five Forces an extended analysis of the changing competitive atmosphere
was made.

Afterwards, based on many sources such as internal presentations, news paper articles and
financial statements, the company strategic mapping was analyzed. Additionally, a significant
amount of projects where analyzed in detail to understand the company's approach to
innovation and Sustainability. Different Models were selected for the strategic development
process. Many single strategies were categorized and placed within a major strategic
mapping.

The final stage includes a detailed evaluation of the wide material made possible to identify
both internal and external problems. These issues were taken into consideration to set a list of
recommendations for the company, to conclude on establishing the growing path to the future.

2.1 Theoretical Background

2.1.1 The Conception of Strategy
5
The utilization of a balanced Scorecard will be need for future evaluation of the future
performance, progress and achievements of the business. The ultimate goal is to provide the
enterprise with an overall direction and align each single strategy into a "strategic
consistency". Arieu (2007), describes this consistency as the moment when "the actions of an
organization are consistent with the expectations of management, and these in turn are with
the market and the context." 6

Lamb (1984) defined Strategic management as an "ongoing process that evaluates and
controls the business and the industries in which the company is involved; assesses its
competitors and sets goals and strategies to meet all existing and potential competitors; and
then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has
been implemented and whether it has succeeded or needs replacement by a new strategy to
meet changed circumstances, new technology, new competitors, a new economic
environment., or a new social, financial, or political environment.”

5
Wikipedia, Robert S. Kaplan, Balanced Scorecard, Source: http://en.wikipedia.org/wiki/Balanced_scorecard
6


2.2.1 Models for Strategic Analysis

2.2.2 PEST Analysis

The PEST analysis is key for strategic management. It consists of setting the framework of
macro-environmental factors that will shape the way business will be conducted. Therefore,
identifying the appropriate factors relevant to the specific business a company will be
carrying and, most importantly, applying the analysis properly could make the difference
between being successful or not, between being profitable or going out of business eventually.
PEST represents “Political, Economic, Social and Technological” analysis. Some analysts
added “Legal” into consideration since legal aspects are always important when doing
business. And, most importantly, with the rising concept of ‘going green’ even in the business
spheres of life, “Environmental” is now part of the acronym as well.

Political factors relate to how much involvement of the government there is in any given
economy. Specifically, these factors include areas such as taxes, labor laws, and diplomatic
relations that will determine trade restrictions or tariffs. In addition, the government has
significant influence in important matters such as education, health and infrastructure.

Economic factors include GDP growth, exchange rates, interest rates and inflation. All of
these have great impact in businesses. For example, exchange rates are extremely important
for companies involved with imports and exports; inflation will affect the ability for local
businesses to buy goods or raw materials needed for their production.

Social factors are sometimes overlooked. However, they are so important that many times
they will determine whether a company will market a product in a specific country or not. The
customs, religious practices, and preferences of a social group will affect directly the demand
of a certain product or services in a certain region or country. These factors also include the
population growth rate and age distribution, and the cultural and sociological aspects of a
society. The above will certainly shape the actions of a company, as well as the production,
distribution or marketing efforts.

Technological change is a key component of innovation. In turn, innovation will many times
bring success to any given company. An important factor to be considered by all business
should be the constant aim to automate processes to increase efficiency and achieve
technological advancements. One way to get there is by investing in R&D. Unfortunately,
most companies nowadays are too focus in cost-cutting that they forget an important way to
set themselves apart from the competition. Ultimately, investing in technology and seeking
efficiencies will most likely reduce costs and make the business more profitable.


Legal aspects of business have significant influence on how companies operate. Legal factor
include anything from consumer, antitrust, employment and discrimination laws to health and
safety laws.

Environmental factors include ecological and environmental aspects that affect certain
industries directly, such as agricultural-related and tourism. Weather and climate change are
shifting how companies operate. Not only that, the recent awakening and strong awareness of
potential dangers due to the critical impacts that climate change is already causing, is already
shaping existing markets and creating new opportunities.

After analyzing this model, it is important to understand that some factors will have a bigger
impact than others depending on the type of company and business we are dealing with. If we
focus on a company that produces military-related goods, the political factors will be
extremely important as the international relations with neighboring countries will determine
the existence or not of any conflicts or wars, which will impact directly the supply and
demand of goods in such an industry. On the other hand, if we focus on a financial company,
the economic factors will be the ones to take closer look at since changes in the monetary
policy or interest rates will make an impact. However, it is still important to take into account
every factor. Furthermore, highly complex companies should carry PEST analysis in every
department and for better results, the analysis should be broken into geographical significance
and pay attention to factors in all levels: local, national and global.

2.2.3 Porter Five Forces Analysis

The Five Forces analysis was developed by Michael Porter in 1979. He focused on five main
forces that determine how attractive a given industry is given the competitive elements. This
is a very important analysis because a company’s strengths cannot be viewed in absolute
terms. Even a company that has realistic objectives and the appropriate strategies to achieve
those objectives will have to deal with the competition and the external forces in order to be
successful. Porter’s analysis is meant to help conclude how competitively intense a given
market is, and in this analysis, the concept of attractiveness relates directly to profitability.
The higher the chances of achieving profitability, the more attractive that industry will be.
And in contrast, a very competitive industry will be considered unattractive. Going back to
the consideration of internal and external factors in the SWOT and TOWS analysis, Porter’s
Five Forces analysis is made of two forces deriving from internal sources and three deriving
from external sources. The first two forces are considered vertical competition and include the
bargaining power of customers and the bargaining power of suppliers. The other three forces
are defined as horizontal competition and include the threat of established competitors, the
threat of substitute products, and the threat of new competitors.

The bargaining power of buyers is the ability of customers to put the company under pressure.
Some factors relevant here would be the buyer switching costs relative to the company doing
so, the existence of substitute products or output, the buyers’ information accessibility, and
the dependency on the existing channels of distribution. The bargaining power of suppliers is
the ability of suppliers to put the company under pressure. If there are few substitutes, they
can represent high pressure. Some factors to consider are the suppliers switching costs relative
to the company doing so, the existence of substitute inputs, the suppliers’ information
accessibility, and the power of distribution channels.

As far as the main factors for the threat of existing competitors, companies should pay
attention to competitive advantages and how sustainable they are, how much more innovative
they are compared to the established competitors, and how high are the levels of advertising
expense. When considering the threats of substitute products or services, companies should
always be aware of how many substitute products are available in the market and the buyers’
tendency to substitutes. In addition to those, understanding product differentiation is key. And
certainly last but not least, companies need to consider the threats of the entry of new
competitors to the industry. The more profitable a market is, the more firms will be attracted
to it. Eventually, the phenomenon of new competitors entering the market will decrease
profitability for all participants. Profits will tend to approach zero in markets of perfect or
pure competition. The main factor to consider here would be the presence of barriers to entry.
Markets are more attractive when there are high entry barriers; the new competitors will have
a hard time entering those markets while the players already in it will have time to consolidate
and establish their image and claim a share of the pie. Some other factors to consider are
government policies, access to distribution, capital requirements, absolute cost advantage and
learning curve advantages.

According to Porter, to make the best use out of this Five Forces analysis, companies should
use this method at the most basic level. Instead of using it at the industry or sector as a whole,
they should use it specifically at a line-of-business level.

2.2.4 Value Chain Analysis

The Value Chain analysis was also developed by Michael Porter. This analysis highlights the
importance of value chains in every company, where products go through every component of
the chain in order gaining value in each activity. The key idea is that products get more added
value from the chain of activities than they would get from the sum of the values of all
activities. Value chains are formed by the primary and support activities. The primary
activities include the inbound logistics, the operations, the outbound logistics, the marketing
and sales, and the service, while the support activities include the company’s infrastructure,

the management of human resources, the technology and research & development, and the
procurement.

The concept of value chains is so important that it can be applied to entire supply chains and
distribution networks instead of just a specific company. The interactions of local value
chains are capable of creating extended value chains that were defined by Porter as a Value
System. The value system includes the value chains of the suppliers, the company itself, the
distribution channels, and the customers. The idea is that everyone involved in this value
system will benefit in one way or another.

2.2.5 SWOT Analysis

The SWOT analysis was created by Albert Humphrey. SWOT represents Strengths,
Weaknesses, Opportunities, and Threats. This method is used to evaluate the key external and
internal factors that are favorable or unfavorable to carry on a project or a business as a
whole. Before the analysis can be carried out, the company needs to set the objective or
objectives to be achieved. Once the ultimate goal is in place, this strategic planning will
identify the attributes that will help the company reach the objective (strengths), the attributes
that will be detrimental to reaching the objective (weaknesses), the external conditions that
will be helpful to achieving the objective (opportunities), and the external conditions that
could do damage to the objectives (threats).

Companies that successfully carry on a SWOT analysis will have better chances or reaching
their objectives, or even more, they will have a better shot at reaching them quicker and in a
cheaper and more efficient way. The reason for this is because a well done analysis will
depict clear steps of action towards achieving the objectives. The management or people
involved in the decision making process will need to determine if the objective is attainable
given the SWOTs. Otherwise, they should proceed and identify a different objective, a more
realistic one.

As mentioned above, SWOT analysis is used to identify the key internal and external factors
that are important to achieve the objective. The internal factors are internal to the organization
and the external factors are found in the external environment to the organization. In order to
carry a more significant SWOT, the management teams can use a PEST analysis to identify
more effectively the external factors (threats and opportunities).

Finally, a very important note is that an attribute could be considered to be a strength for a
specific objective, but could be viewed as a weakness in achieving another objective, hence
the importance in identifying the relevant factors and selecting the objectives appropriately.


2.2.6 TOWS Analysis

The TOWS analysis is similar to the SWOT analysis. In fact, both acronyms make reference
to the same concepts of Strengths, Weaknesses, Opportunities, and Threats but in different
order. The only difference is that the SWOT method emphasizes the factors in the internal
environment (strengths and weaknesses) while the TOWS method emphasizes the external
environment (threats and opportunities). Either approach is very effective for companies when
trying to identify strategic options for a specific project or a whole new line of business.

A strategy is essentially the path through which companies will reach their objectives. And a
TOWS or SWOT analysis will show them the way. The most important takeaway after
conducting any of these two methods should be for management teams to have the ability to
answer the following key questions: how to make the most of the strengths, how to overcome
the weaknesses, how to take advantage of the opportunities, and how to deal with the threats.

2.2.7 Ansoff Matrix

The Ansoff Matrix was presented by Igor Ansoff to depict different corporate growth
strategies. Essentially, the Ansoff Matrix identifies the present and potential products and
consumers for a given company. By considering growth possibilities through the existing
products and new products, and in current markets and new markets, Ansoff describes four
strategies given the possible product-market combinations.

The first strategy is market penetration, where the company intends to achieve growth through
the products that is already offering in the existing markets. The goal is to increase market
share. This strategy is the least risky for a company since it leverages the already existing
resources and capabilities. If the market grows, the company will grow automatically by
simply maintaining its market share. However, the danger of this strategy is saturation. If the
company reaches the capacity limits, it will have to adopt a different strategy to keep
growing.

The second growth strategy described by Ansoff is market development. Companies applying
this strategy will aim to grow by targeting their existing products to new segments of the
markets. This could translate into a firm extending the supply of its products in new countries
or regions. If the product is perceived by the new customers as being a high quality product at
an accessible price then the company will have good chances to grow. However, companies
adopting market development over market penetration strategy will assume the higher risks
associated with trying to pursue new markets.


The third strategy is product development. This is simply the innovative desire for companies
to develop new products and target them to its existing market segments. This strategy may
apply well for companies whose strengths are more based in the customer rather than having
the strengths in the product itself. In such cases, the firm will seek growth by developing new
products for its already existing customer base. Just like with the market development
strategy, product development will carry more risk than just trying to grow by rising market
share.

And last but not least, the fourth growth strategy in the Ansoff Matrix is call diversification.
When companies adopt this strategy they try to generate new business by offering new
products in new markets. This is clearly the riskiest of all four strategies because companies
that choose to adopt it will have to face the challenges of new product and market
development simultaneously. However, companies may see this strategy appealing if they
consider one of the most basics foundations in finance: the higher the risk, the higher the
returns.

2.2.8 Growth-Share Matrix

The BCG Matrix was created by Bruce Henderson for the Boston Consulting Group in 1968.
The main purpose was to provide a chart that would help companies analyze their product
lines. This way, a firm can better allocate their resources and improve in certain areas, such as
strategic and product management. From a marketing perspective, this tool is very useful for
portfolio planning. This chart contains two controlling aspects: relative market share and
market growth. In order to use this matrix appropriately, a company should place each
product in their portfolio onto the matrix and then plot their competitors’ products to
understand the relative market share

There are 4 products types that can be drawn from this matrix, depending on which quarter
they are placed on. Dogs are also known as products with a low share of a los growth market.
Usually these are very profitable products as they tend to require the company’s money rather
than generate it. Often times it is advised to eliminate these. Cash Cows are those products
with high share of low growth market. Thus, these tend to generate more money than is
invested in them, and therefore should be kept. Problem Children is a term that refers to
products with low share of high growth market. They need a lot of resources and do not
generate so much in return. Lastly, stars are those products that are in high growth markets
with a relatively high share of that market. These usually generate great income so it is
advised to build up this type of products. The best scenario is to have a balanced portfolio
with all these kinds of products, except for dogs.


2.2.9 Business Model

A business model explains the grounds of how an organization produces or delivers value to
customers. It is especially important for entrepreneurs founding a new business, but also
managers of established companies should dedicate significant time to business modeling to
explore alternatives of future developments and growth. The term business model is mainly
used to describe the core aspects of a business, such as its purpose, the organizational
structure, its infrastructure, its policies, its strategies and operational processes.

The essence of a business model is that it will define how companies will provide value to
clients, who will pay for the products or services offered, which will bring profits into the
firms. The key enigma for companies to figure out is what clients want and how they want it.
Once they identify this, they need to organize their resources to meet the client needs. Many
times companies overlook the fact that client needs evolve and they need to evolve with them,
making all the necessary adjustments to their strategies, their production lines or services
offerings. This is why business models are crucial not only at the time of the foundation of the
company but all throughout its existence. Examples of bad business modeling can be found
during the dot-com crisis. On the other hand, some examples of good business models can be
attributed to companies such as McDonalds, Wal-Mart, Blockbuster, Dell Computer, eBay,
Starbucks, Apple, among others. These firms certainly changed their respective industries and
the customers experience in a way that business will never be the same.

Today, technology plays an extremely important role and companies can take advantages of
endless revenue opportunities that could not have been even dreamed of before the internet
revolution. Some retail businesses actually generate more revenue via their e-Commerce
channels than at their physical stores. Some others do not even have stores and are only web-
based; Amazon.com is the perfect example. A great advantage these type of firms posses is
that they can generate revenue 24/7 and they can access markets and regions all over the
world.

2.2.10 Porter Generic Strategies

Michael Porter’s generic strategies model consists of three general types of strategies that
companies can use to generate and maintain competitive advantages. There are two important
dimensions for these strategies. Strategic scope is a demand dimension, which considers the
intended target market. Strategic strength is a supply side dimension and it is concerned with
the core competencies of the company, namely product differentiation and cost efficiency.


The 3 main strategies are known as cost leadership, differentiation and market segmentation.
Cost Leadership refers to the firm gaining market share by offering the lowest prices, which is
usually very appealing to cost-conscious consumers. In order to offer the lowest price while
also maintaining profitability, a firm must operate at lower cost than its main competitors.
There are three key ways to do this: achieving high asset turnover, maintaining a low direct
and indirect operating cost and controlling over the supply/procurement chain to ensure low
costs .

Differentiation Strategy aims to come up with a very unique product or service that will stand
out from throughout the industry. This differentiation among the others can be associated with
any features, such as technology, brand image, design, quality, customer service and more.
When this strategy is used, a firm usually will gain brand loyalty, which helps them to
eliminate competition and earn above average returns .

Lastly, there is the focus or strategic scope, as it describes the scope over which the company
can compete in the market by either providing the lowest price or the most unique goods. In
other words, a company can decide if they want to be part of a defined focused market or aim
for a broader mass market. If the focus is narrow, then there are only a few target markets also
referred to as niche strategy, where there are groups with specific needs and wants. If a
company adopts a broad focus scope, the concept is similar, to match the customers’ needs
and wants of a mass market, competing on wither low prices or brand recognition and
superior quality .

2.2.11 Strategy Maps & Balanced Scorecard

Strategy maps are diagrams that companies use to document their main strategic goals. The
creation of the strategy map is the first step towards the success in strategic management. The
Balanced Scorecard is a strategic performance management tool that allows managers to
monitor the execution of the activities by the people who report to him or her. Managers
identify certain financial and non-financial measures and assign targets to them. The idea
behind this is that after conducting reviews management teams are able then to determine
whether the expectations were met by the current performance. This will lead to strengthening
certain weak points and develop areas that need improvement.

The balanced scorecard method involves a clear definition of the business strategies. It
usually takes several intense brainstorming sessions in which high-level management should
be involved. The participation of managers of all lines of businesses within the organization is
very important in order to consider all functions and processes involved. Transparent


communication and fluid interaction between all levels and departments may be one of the
keys to the success of a business.

Robert Kaplan and David Norton highlighted four main steps in the design process of the
Balanced Scorecard. First, the management has to translate the company’s vision into
operational goals. Then, the vision needs to be communicated and linked to individual
performances. The third step is business planning. And last but not least, the fourth step,
which often gets overlooked, involves obtaining feedback and applying the lessons learned in
order to adjust strategies accordingly.


3.1 Presentation of the Case Study
3.1.1 Lend Lease Corporation Brief Overview

Lend Lease Group, inc. is a multinational property development, property management and
investment company based in Australia, which became one of the world leaders in providing
fully integrated property solutions.

3.1.2 Core Capabilities

The company built its position out of a highly efficient process including development,
investment management, project & construction management and asset & property
management capabilities, together with a strong commitment to creating and building
innovative and sustainable solutions, forging partnerships and delivering solid investment
solutions,
returns.

3.1.3 Lend Lease Corporation Logo

3.1.4 Lend Lease Corporation Brief History 7

Lend Lease Corporation was born out of a construction business founded by Dutch immigrant
Dick Dusseldorp in the 1950's.The founder visited Australia looking for opportunities as part
of the Dutch Company Bredero's Bouwbedrijf. After his visit, Lend Lease Corporation was
Bouwbedrijf.
formed in 1958, to provide finance for building contracts being undertaken by Civil and
Civic, as the largest shareholder. He signed a productivity agreement with the Building
Trades' Union after wining stage one of the Sydney Opera House. 8

In the 1960's Lend Lease introduce superannuation for staff 20 years before becoming
ease
industry practice, and becomes a progressive employer The company acquires Civil & Civic
employer.
from Bredero's Bouwbedrijf expanding its operations all over Australia, and commences in
Bouwbedrijf,
New Zealand. The "Australia Square" opens becoming the country’s first lightweight concrete
.
building.

7
Lend Lease Corporation History Highlights,
Source: http://www.lendlease.com/llweb/llc/main.nsf/all/all_who_history
8
Lend Lease Corporation History, source: http://en.wikipedia.org/wiki/Lend_Lease_Group


In the 1970's, Lend Lease established new brands in Singapore and the United States. The
company introduces Profit share for employees in Australia, continuing as a leader in
employee benefits. The Annual revenue exceeds $300m. The GPT group is formed, becoming
one of the first and largest diversified property trusts in Australia. The company invests A$
100m to open "MLC Center". The Prime Property Fund is formed, as one of the first
commingled real estate accounts for US pension funds.

In the early 1980's, together with the founder retirement, Lend Lease starts to be perceived as
one of Australia’s leading blue chip companies, while continues to set the benchmark in
employee benefits. Australian Prime Property Funds (APPF) is founded to provide the
opportunity to institutions to invest in Australian portfolios properties managed under a new
professional platform. ACTU/Lend Lease Foundation is established as a way of encouraging
people acquiring new skills, and looking after employee and community wellbeing. The Lend
Lease Youth Council, the Lend Lease Apprentice Council, and several Equal Opportunity
Management programs are created. Lend Lease acquires the MLC Center becoming a wholly
owned subsidiary. The Sydney Football Stadium and National Tennis Centre in Melbourne
are completed.

In the 1990's, both the formation of Actus Lend Lease to develop large-scale military housing
communities, together with the acquisition of Bovis-P&O's Global Project Management,
build up the company's International operations. In addition, Lend Lease expands its
operations through the Americas and Asia and commences in Europe with the acquisition of 5
real estate investment businesses from AMRESCO and The Boston Financial Group. The
Bluewater Center opens, becoming a major retail and leisure destination in Europe. At the
same time, the Aquatic Centre at the Sydney Olympic site opens its doors. The Employee
Share Plan Program is extended to US while the Lend Lease Foundation becomes global.
Australian Prime Minister's Award for Business and Community Partnerships is given to the
Lend Lease Corporation.

In the beginning of the 2000's, Lend Lease celebrates its 50th Anniversary. The company
focuses its capabilities towards becoming one of the world’s leading fully integrated property
solutions providers, after acquiring the MLC Center and several investment management
businesses in the United States. Major sales were the US Real Estate Investments Equity
Advisory, IBM Global Services Australia, Lend Lease Mortgage Capital / Holliday Fenoglio
Fowler, and Housing & Community investing / CapMark Services. Probably one of the most
important ones is the Australian firm Delfin Corp., focused in residential communities'
developments. The acquisition of Babcock and Brown Communities, rebranded as Lend Lease
Primelife, made Lend Lease Australia's largest provider of "senior living" retirement villages.


Another major acquisitions was The Crosby Group plc., a urban regeneration specialist in the
United Kingdom. The company wins a £1.5b "urban regeneration" in London, which includes
Athletes Village at Stratford City. The GPT Group decides to split from the company and
internalize management. Millers Point Youth and Employment Partnership, chaired by Lend
Lease, wins NSW Prime Minister’s Community Business Partnership Award for Excellence.

In the past five years, Lend Lease has developed Australia’s first 5 Star Green Star and 6 Star
Green Star buildings. The company was selected as developer for Stage 1 of Barangaroo, the
largest CBD development in the history of Sydney with an end value of A$ 6 billion. On
another major event of its history, Bovis Lend Lease is selected by the WTCMF (World Trade
Center Memorial Foundation) as Construction Manager for the US$360 million Memorial and
Museum to be built at Ground Zero in New York.9

9
Bovis Lend Lease History source: http://www.bovislendlease.com/llweb/bll/main.nsf/all/all_who_history


4.1 External Environment Analysis
4.1.1 Introduction to the Property Industry
he

The Property industry or Real Estate Industry has shown over the last few decades one of the
highest growth in the world’s economy. Since the development of private property ownership,
real estate has become a major area of business. The industry has evolved into several distinct
ed
fields, and many different businesses have been created as a result of this, including property
appraisal, property brokerages, property development, property management, real estate
marketing, real estate investing, relocation services, and corporate real estate. These
services,
businesses may specialize in a particular type of real estate, within each field, such as
residential, commercial, or industrial property. In addition, almost all construction business
effectively has a connection to real estate.

The market sector value, according to a study run by ¨The Economist¨, in developed
economies, Real Estate Assets at the end of the year 2002 were valued in $115 trillion US
dollars, and the breakdown was the following: $48t for residential, $14t for commer
commercial, $20t
for equities, $20t for government bonds, $13t for corporate bonds. These make real estate
assets 54% and financial assets 46% of total stocks, bonds, and real estate assets, without
counting bank deposits, insurance ¨reserve assets¨, natural resources, and human assets.
resources,

The current conditions facing the industry are difficult as a consequence of a severe economic
downturn over the past two years produced by an extremely high speculative environment
that ended up with the Global Financial Crisis10 and the Subprime Mortgages Credit Crisis11
in 2008, becoming the deepest recession since the Great Depression of 1930
1930.

The map shows in red the most affected economies in the world and those where the impact
was less profound. In the following graph, it is clear the change in the US Subprime lending

10
Global Financial Crisis, source: http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932010
11
Subprime Mortgages Credit Crisis source: http://en.wikipedia.org/wiki/Mortgage_crisis
Crisis,


and its significant expansion between 2004 and 2006, which ended being a major factor for
the collapsing of the financial system.

After two years, there are still risky clouds when we analyze the immediate outlook.
However, there seems to be many opportunities in the property industry both for those
companies which remain liquid as well as for redefining the political agenda and the
regulatory system.

In Australia for example, Governments have not only stimulated economic activity with
,
national-building investment programs, they also have committed to modernize the rules that
building
govern the marketplace. The main present concerns are engaging governments to create new
ideas in order to redefine the regulatory tax and investment framework. They want to re
regulatory, re-
connect the marketplace and re engage the key stakeholders, regulators and customers with
re-engage
property industry leaders.

4.1.2 Overview of the main fields

The main fields analyzed in this piece of work are Real Estate investment, property
Estate
development, property management and construction.

Investments in Real Estate involve the purchase, ownership, management, rental and / or sale
of real estate property to generate a profit. The corporation designed for investing in real
estate is named REIT – Real Estate Investment Trust. This type of investment reduces or
eliminates corporate income tax. In return, REITs are required to distribute 90% of their


income, which may be taxable, to its investors. This structure was designed to provide a
similar framework for real estate investment as mutual funds provide for investment in stocks.
This type of corporation can be held as a private or public company, being the last one able to
be listed on public stock exchanges and can be qualified as a mortgage, equity of Hybrid
Company.

Real Estate Development is a multifaceted type of business, which encompasses activities
from renovation of existing buildings to purchase of raw land and the sale of improved
parcels to other individuals or companies. The Developer coordinates activities orchestrating
the development process. They are typically in charge of purchase land, determine the
marketing of the property, develop the building program and design, obtain the necessary
public approval and financing, build the structure, and lease, manage, and ultimately sell it.
This may include financing the real estate deal, building or having builders build a project,
creating, imagining, and controlling the process from the beginning to the end. Architects,
city planners, engineers, surveyors, inspectors, contractors, leasing agents are some of the
counterparts that participate in the process. The main goal of the developer is to convert an
idea into a real property that can be considered a Real Estate product. The developer is the
one who takes the greatest risk and receives the greatest rewards in the industry.

Property management is the field that deals with all the Real Estate operations for
commercial, industrial and/or residential properties taking a managerial role similar to other
businesses. It also includes the management of all personal property, equipment, tools and
physical capital assets acquired and used to build, repair and maintain the property. The
managerial role involves the processes, systems and manpower required to manage the life
cycle of property including acquisition, control, accountability, maintenance, utilization, and
disposition.12

Construction is considered a process that consists of the building or assembling an
infrastructure, as part of the field of architecture and civil engineering. At a large scale,
construction is a multitasking group of activities. The job is managed by a figure named
project manager, and supervised by others called the construction manager, design engineer,
construction engineer and / or project architect. An effective planning, including technical
documents, scheduling, budgeting, availability of materials, logistics, legal documentation,
site safety, environmental impact analysis, is essential to reach a successful execution of a
project.13 The main stakeholders and activities can be found in the appendix.

12
Property Management field description, source: http://en.wikipedia.org/wiki/Real_estate
13
Construction Industry Introduction, source: http://en.wikipedia.org/wiki/Construction


4.2.1 Introduction to the Construction Industry

The global construction industry is one of the biggest and most important industries in the
planet. The industry is mainly based in urban areas, being its contribution to the world’s
economy is extremely important both as a growth producer and employment generator as
well. Its input to the global GDP reaches one tenth of the globe’s cumulative amount, and it is
the provider of almost seven percent of the total employed person in the whole world. The
annual construction total spending estimation is close to $2.3 trillion, where $1.2 trillion was
spent in the US alone during the last period prior to the Global Financial Crisis. The offset of
its boundaries has become so immense that the energy, in the form of electricity or fuel,
consumed by the industry is around two fifth of the total energy consumed all over the planet.
From another point of view, the consumption of resources is also extremely high reaching
almost fifty percent of the total global resources.

This very heterogeneous industry is considered the base of the world’s economy, achieved
through development and construction of residential and commercial real estate properties,
and of hard infrastructure projects including bridges, tunnels, roads, railway tracks, airports,
and soft infrastructure projects such as education and health facilities. This is the reason why
economists analyze the World Construction Industry a method to judging the performance of
the economic condition of a country. 14

The industry has experience a boom in the past few decades and suffered several crisis due to
its cyclic characteristic. The growth of the world population, especially in the "Asian Tiger"
countries, China and India, has accelerated the process.

The industry Facts: 15

Inputs > it is the largest sector in terms of energy consumption
• 2/5 of energy consumption worldwide and 1/2 of global resource utilization

Outputs > it is one of the highest influential industries for the world's economy
• Generates 1/10 of the global GDP and offers 1/7 of global employment

14
World Construction Industry details,
Source: http://www.economywatch.com/world-industries/construction/world.html
15
World Construction Industry facts, source: http://www.economywatch.com/world-industries/construction/


The industry has been conservative and organized and unions have strong presence especially
in developed economies. On the contrary, in developed countries is still unorganized. Growth
has been lower in comparison to other industries, being efficiency one of the main issues to
reduce speed of development. Interoperability issues have probably been one of the major
problems.16 Only in the US market $15.8 billion has been lost due to inefficiencies. However,
major shifts have started to affect the industry since the inclusion of software and
communication technologies.17

4.2.2 Innovation Adoption in the Construction Industry

The construction industry has been characterized by its slow adoption of innovations, mainly
because of some impediments. The most relevant were the resistance to change both by
humans and institutions, perception of undesirable supplementary project risk associated with
innovations, fragmentation of the industry producing a lack of financial mass necessary to
pursue innovation, and ineffective knowledge management due to the uniqueness of its
products that affected mass manufacturing principles and innovation. In summary, the focus
on the short term project-based conception and the cyclic quality of the business, blocked
continual improvement processes in the industry, while companies were more concerned in
dealing with new delivery methods, design standards, and legal structures for every project. 18

4.3.1 Current Challenges and Future Trends

The World Construction Industry is currently facing a number of deep challenges that are
driving by internal and external forces. These conditions are motivating some profound

16
Interoperability, source: http://en.wikipedia.org/wiki/Interoperability
17
Stakeholders & engineering process,
Source: http://en.wikipedia.org/wiki/Engineering_process_outsourcing#AEC_stakeholders
18
CII, Breakthrough Strategy Committee (BTSC),
Source: t https://www.construction-institute.org/scriptcontent/break.cfm?section=break


transformations in the way in which people design, build, operate, and maintain buildings and
infrastructure. While these new approaches allow to design and create new technologies to
address challenges in the construction industry, innovations will probably affect other sectors
of the value chain such as operations, security, maintenance, emergency planning, and of
19
course, urban planning, at both short and long term. An overview analysis of the major
challenges facing the industry is essential to understand such a complex environment.
Moreover after the global financial crisis, that came as a consequence of the high speculative
environment at the end of 2007.

4.3.2 Global Demographic Trends & Challenges

Demographic changes are a major trend not only for the Property and Construction Industry,
but also for the whole world economy. It is a known fact that human population is growing.
This growth is impacting deeply from different perspectives. The main three impacts are the
aging growth, the disparity between population growth and GDP growth, and the urban
growth.

Professor Joel Cohen from Rockefeller & Columbia University is a specialist in this subject.
In a lecture given in May 2009 at the Hebrew University20, he mentioned and demonstrated
how "the World economy grew faster than population in 20th century". GDP per person grew
much faster than human population. According to his study, in 1900, human population was
1.6 billion, GDP per person was $1,263 and World GDP was $2 Trillion. In 1950, human
population was 2.5 billion, GDP per person was $2,138 and World GDP was $5 Trillion. And
in 2000, human population was 6.1 billion, GDP per person was $5,204 and World GDP was
$32 Trillion. The result of this study allows concluding that more people live in poverty today
than in 1900. It has been calculated that 2.7 billion people live under US$2 per day.21 These
are very complex issues that stand outside the boundaries of this paper. However, it is
profoundly affecting the way people is living and will be living in the next generations.

The third major demographic trend is Urban Growth. The year 2007 represented an inflexion
point where the majority of human population appeared living in cities for the first time in
history. According to Cohen's study, in the year 2000, both rural and urban population
reached 3 billion people. By 2050, it is expected to have 3 billion people living in rural areas
and 9 billion living in urban conglomerates. This impressive statistic shows that within the

19
Blog Between the Poles, All about infrastructure,
Source:http://geospatial.blogs.com/geospatial/2007/09/convergence.html
20
Human Population to 2050: Problems and Opportunities.
Source: http://www.youtube.com/watch?v=-4vOz5JmBPA&feature=channel
21
Human Population to 2050: Problems and Opportunities, Professor Joel Cohen from Columbia University.
Lecture at the Hebrew University. Source: http://www.youtube.com/watch?v=-4vOz5JmBPA&feature=channel


next 40 years urban residents will quadruple its size, becoming 3 times larger than rural
population. Even though the majority of the shift's impacts will affect developing countries,
especially middle range cities (1-5 million), this is a global trend. As a consequence, to supply
these demand humans must be building an equivalent of a 1 million people city every 5 days
until 2050. Many issues will have to be taken into consideration in order to maintain an
average life quality, as Energy, Water, and Waste Management will become top priorities.
Energy consumption will be extremely increased and much more efficient cities will be
required. Moreover, in countries like China or India, urban growth could probably affect food
availability generating a social disaster.22 It sounds extremely problematic indeed.

Furthermore, in the next decades the global population aging over 60 years old (60+ plus) is
expected to increase from 10% to 23%. By the year 2050, 60+ is expected to triple and 80+.
This is a major phenomenon shaping human demographics, and this change seems to be a
major trend affecting many industries, and the property industry is not an exception.

In Professor Cohen's study, he declared that "aging is a problem bought by success." He said
that "lower fertility and long life, especially in developed countries are the two main drivers,
being lower fertility its first contributor". In addition, Dr. Cohen demonstrated the differences
affecting the demand for energy consumption connected to aging, comparing a standard
family household with older residents. The contrast was clear. The study illustrated the
variables driven by aging showing how residential energy consumption increases, while
transportation energy consumption decreases. As a result, older household consumption is
higher than younger household energy consumption. Finally, to summarize this idea, he
expressed that "US, China, India & Africa geographies are the main affected by this trend".
This study demonstrates the importance of becoming a specialist in the retirement sector in
order to both providing sustainable solutions to mitigate the forecasted impact, plus taking
advantage of the huge market trend as well.

4.3.3 Global Climate Trends & Challenges

The awareness of the global warming phenomenon has increased from 11% to 35% in the
United States between 2003 and 2006 according to the Global Warming Survey run by the
research institute of MIT. In addition to this, in the US alone (the main energy consumer
worldwide), buildings are responsible for over 39% of total energy consumption, 68% of total
electricity use, and 38% of the total carbon dioxide emissions. These facts in conjunction are
causing a strong pressure on the industry to replace old techniques and to renovate old
buildings to minimize impact on the environment as well.

22
Human Population to 2050: Problems and Opportunities, Professor Joel Cohen from Columbia University.
Lecture at the Hebrew University. Source: http://www.youtube.com/watch?v=-4vOz5JmBPA&feature=channel


As a consequence, in recent years, Green Council organizations are becoming more
influential in many countries, being the UK, the US, and Australia on the front seat of this
revolution. Environmental organizations are pressing to reduce fossil fuel consumption of
buildings by 50 percent by the year 2010, pursuing the goal of achieving carbon-neutral
buildings by 2030.

The Leadership in Energy and Environmental Design Green Building Rating System (LEED),
developed by the U.S. Green Building Council (USGBC), is setting the standards to achieving
environmental sustainable solutions for the AEC industry. Since its creation in 1998 until
present, the organization has incorporated more than 14,000 professionals all over the US,
which has represented more than 1,062 billion square feet of development (July 2007 USGBC
figures).

4.3.4 Infrastructure Trends & Challenges

The issue of infrastructure becoming obsolete is expected to be a major problem in many
parts of the world. The American Society of Civil Engineers (ASCE) presents reports every
two years on the situation of infrastructure in the United States, where evaluates roads,
highways, and transit among other sectors. Between 2003 and 2005 the grading has been
decreasing and barely being approved. The organization has estimated traffic congestion costs
for the US economy at $67.5 billion annually in terms of lost productivity and wasted fuel.

Moreover, the Federal Highway Administration (FHwA) has reported that outdated road and
bridge designs, pavement conditions, and safety low standards have implications in one third
of all fatal highway accidents. The ASCE estimates on average 43,000 fatalities per year on
vehicle accidents in the United States, with a cost of $230 billion per year to all U.S. citizens,
which can be translated into $819 per resident on medical costs; lost productivity; travel
delay; and workplace, insurance and legal costs every year.

The ASCE estimates an investment of $1.6 trillion over five years is required in order to bring
US infrastructure to good condition. Considering the US as one of the most advanced
countries in the world, it becomes clear that aging infrastructure is global problem.


23

The graphs show en estimation of the square footage that will be renovated between
the year 2010 and the year 2035, emphasizing the impact of old infrastructure on the
economy and the construction industry.

4.3.5 Technological Trends & Challenges

“New computer programs may soon change the way groups of people work together -- and
start delivering the long-awaited payoff from office automation.” 24

By Louis S. Richman REPORTER ASSOCIATE Julianne Slovak June 8, 1987

One of the most significant aspects that are associated with the industry trends is how
technology is affecting every process, the way people connect to each other and the way

23
Architecture 2030.org
24
CNN Money, Fortune Magazine quotation, source:
http://money.cnn.com/magazines/fortune/fortune_archive/1987/06/08/69109/index.htm


activities take place. These IT technologies are pacing up the work thanks to several cutting
edge technologies which are being implemented, mainly to raise the efficiency level of
engineering and designing in the industry. 25

The adoption of several different types of software application systems developed since 1982,
when Autodesk, Inc. first release its famous AutoCAD software, set the beginning of a
revolutionary transformation, which changed the way stakeholders relate with each other.
Nowadays it is very rear to find a company or a professional who is not familiar or even
proficient with these systems, which became a basic skill necessary to participate in the
industry. The AutoCAD26 has been extensively adopted as a “sort of standardized” CAD
(Computer Aided Design or Computer Aided Drafting) software application for 2D and 3D
design and drafting. The program was one of the first to run in personal computers. At that
time, most of the versions used primitive entities such as lines, polylines, circles, arcs, and
text to virtually construct objects. Since the mid 1990s, with the API (Application
programming interface), modern AutoCAD began to include a set of basic solid modeling 3D
tools. The program is available in several languages including English, German, French,
Italian, Spanish, Japanese, Korean, Chinese Simplified, Chinese Traditional, Russian, Czech,
Polish, Hungarian, Brazilian, Portuguese, Danish, Dutch, Swedish, Finnish, Norwegian, and
Vietnamese to reach the most important domestic markets. In the past 20 years, Autodesk
R&D department lead the market, releasing all types of software solutions focused on
providing the AEC Industry with the necessary support to successfully accomplish the most
advanced and complex projects. With all this amazing technology in place, however, there

25
Source: http://www.economywatch.com/world-industries/construction/trends.html
26
Autodesk, AutoCAD Software, Source: http://en.wikipedia.org/wiki/AutoCAD


still was a wide gap to cover in terms of how all this valuable information flows among the
big number of stakeholders in a clear and efficient way.

In the recent years, many other advanced solutions for architecture, engineering, and
construction were release by Autodesk,27 including AutoCAD Architecture, AutoCAD MEP,
and AutoCAD Civil 3D, 3D Studio and Maya for modeling complex 3Dimentional surfaces.
But without any doubts, the most important technology recently created is the 3D rendering &
simulation model, being the relational Building Information Modeling (BIM),28 system
released in 2005 under the name of Revit Architecture, the most popular in the marketplace.
This technology has touch the mainstream only in some developed countries, but will
probably become a worldwide standard in the next two to three years, same as AutoCAD was.

From the project management point of view, the globalization process of the world’s
economy that came together with the evolution of the Internet during the mid-1990s, shaped
new geographical boundaries. During the past few years, development teams increasingly
became more remote generating a major change in the projects dynamics, its teams, and thus
the way to be managed. As a consequence, the project management started to evolve into
more collaborative processes. Big companies such as Boeing or IBM, started to adopt the first
groupware commercial products, using electronic meeting systems to leverage key internal
projects. This phenomenon has created a need for new tools to address the gaps that emerged.

Collaborative software (also known as groupware or group support systems) is a technology
designed to help people involved in a common task achieve their goals. Several Collaborative
project management tools (CPMT) are being developed to cover all detailed aspects of
collaboration activities and management of the overall project and its related knowledge
areas. CPMT mostly considers business or corporate related goals with some kind of social
boundaries most commonly used for project management. Collaborative Management Tools
facilitate to manage group activities, using several tools such as Electronic calendars, Project
management systems, Workflow systems, Knowledge management, Prediction markets,
Extranet systems, Social software, Online spreadsheets, Online artwork proofing, feedback,
review and approval tool, HR and equipment management, Time and cost management,
Online chat, Instant messaging, Telephony, Videoconferencing, Web conferencing, Data
conferencing, Application sharing, Electronic meeting systems (EMS), Synchronous
conferencing, E-mail, Faxing, voice mail, Wikis, Web publishing, Revision control, Charting,

27
Autodesk, Source: http://en.wikipedia.org/wiki/Autodesk
28
Building Information Modeling (BIM), Source: http://en.wikipedia.org/wiki/Building_Information_Modeling


Document versioning, Document retention, Document sharing, Document repository,
Evaluation and survey, and more.29 30

4.3.6 Information Trends & Challenges

The property industry lifecycle includes planning, development, design, construction,
operation and maintenance of facilities. The disciplines involved include developers,
architects, engineers, telecommunication companies, and local governments, just to mention
some participants. There are many specific software applications for architectural design,
structural engineering, civil engineering, land development, geospatial, and surveying
applications. Historically each discipline remained isolated from the rest and kept its own
island of technology and information. As a result of this, often logistics turned into a
nightmare and operating costs became a major concern to owners, managers and operators
reaching 90% of the facility cost over its life period. However, whether we are developing a
building or a hard infrastructure project, the lifecycle is being compressed.

These disciplines are classic information islands of comprised of data. The biggest challenge
is not getting the data that already exists, but having the appropriate access to these islands
that make it very difficult to integrate the existing information. As an example, when an
emergency occurs, the rescuers need immediate availability to information regarding how the
building works, in terms of interiors, surroundings, access, telecommunications, etc. Currently
there are no applications that enable access to all design and geospatial necessary files to deal
with an urgent situation.

29
Collaborative Software, Source: http://en.wikipedia.org/wiki/Collaborative_software
30
Interoperability, Source: http://en.wikipedia.org/wiki/Interoperability


The utility companies are facing similar challenges worldwide when they need to analyze the
data flowing within teams. Operators use CAD applications systems, large-format printings,
GIS tools and databases to record the documentations and operations. The information flow
result usually is very inefficient characterized by data redundancy, redundant processes, and
poor data quality.

A study run by The National Institute of Standards and Technology (NIST) trying to quantify
the efficiency in the capital facilities industry in America, showed redundant paper records
across the entire facility life-cycle. The research on interoperability issues including design,
engineering, facility management, and business processes software systems estimated in
$15.8 billion as inefficient capital facilities cost. The NIST estimated that over 60% of this
amount is directly related to operation and maintenance by owners and operators.

4.3.7 Workforce Trends & Challenges

The contraction of the workforce is a worldwide phenomenon. Statistics predict that countries
like Canada, Germany, Italy, the UK, the US, Japan, and China will face difficulties to
replace workforce going on retirement with the new generation. Declination of labor force
between 34 and 44 years old is predicted to reach an 8% to 21% range of between 2010 and
2016 especially in developed countries, according to "Managing the Mature Workforce"
Conference Board study. In addition, workers aged 55 to 64 are expected to increase up to
52%.

A study from the American Public Power Association (APPA) has recently reported that the
loss of critical knowledge and the inability to find skilful replacements are the biggest
challenges facing this industry. The organization declared that the average age of workers is
near to 50 and by the year 2010, 60% of the current experienced workers will retire.


A report by the U.S. Department of Labor Employment and Training Administration (ETA)
showed in 2004 that the construction industry is also experiencing a shortage of workers
identifying several challenges including the main two trends: the growth of the industry, and
the retirement of the “baby boomers". The workforce contraction problem affects utilities as
well as the construction industry. In addition to this, in a recent survey of career trends in the
U.S., a career in construction ranked 248th out of a possible 250 career choices.

4.3.8 Productivity Trends & Challenges

The competition within the construction industry is very high, and companies must constantly
improve their performances to remain in the market. This challenge of continual productivity
improvement is reaching critical proportions. The US Bureau of Labor Statistics showed that
performances of the construction industry have declined in the last 40 years, together with a
200% growth of non-farm productivity in the same period.


4.4 PEST Analysis for External Environmental Examination

An environmental examination has been carried out, analyzing the main variables affecting
each of the areas of the Property Industry Environment where the company participates.

4.4.1 Political Environment

4.4.1.1 Increased Participation of Governments – G20
• G20 Stimulus
o Political efforts towards economic stimulus
• Political actions towards stimulation of infrastructure developments
• Increasing Political Response on Climate Change Regulation
o World Green Building Council
o United Nations Principles for Responsible Investments (UNPRI)
o Clinton Foundation Climate Initiatives
• Increased regulatory environments
o Mandatory trading carbon schemes
o Green building councils
o Green challenges: Focus on increase collar of workers, Focus on retrofitting,
Increase sustainability standards, Thumb up for green technology.
• Tax incentives for Pharmaceutical Industry
o US, Singapore – Puerto Rico
• Stimulus on Public Private Partnerships Models 31(PPP's) as preferred mechanism
o Australia, US, Canada, China. Not very strong in the UK.
• Current- urgency to let projects out
o Future- privatization trends to rebalance budgets
• Trends
o towards energy and water (alternative energies)
o Big urban redevelopment (Australia, UK, China)
o Emerging countries

4.4.2 Economical Environment

4.4.2.1 G20 Economic Stimulus

• UK- tax incentives to encourage energy efficiency and low carbon growth
o $750 Millions - industrial incentives
o $250 Millions - education incentives

31
Private Public Partnerships (PPP's) Model,
Source: http://en.wikipedia.org/wiki/Public%E2%80%93private_partnership


o $70 Billions / annually – 10 years period

• Australia
o Total incentive $54 Billions
o $3 Billion healthcare
o Federal desire to privatize health

• US- Obama's Huge Stimulus Package
o $790 Billion total
o $130 Billion to infrastructure and construction
o $28 Billion social infrastructure (health and education)
o Focus on refurbishment & Green building

4.4.2.2 Global Property Market Conditions

o After Global Financial Crisis, markets remain very challenging
o Affected market conditions
o Bonding and insure markets still tight
o $1.4 Trillion commercial real estate loans 2010-2014 responsibilities
o Threads to American economy
o UK ↓--- very low confidence
o Europe ↓
o US residential commercial retail ↓
o US Social infrastructure ↑
o ↑ Asia → China, Singapore, emerging countries: India, Thailand, Malaysia
o Australia ↑--- extremely strong
o Dubai ↓ --- no signs of recovery
o Middle East ↔ very low confidence
o Singapore ↑
o Emerging countries ↑- Brazil, Mexico, India, Russia
o Other countries growing: Chile (economic laboratory), Central America
(Costa Rica stability), Nord Africa & South Africa

4.4.2.3 Transaction activities ↓ decreasing

o Commercial real estate markets frozen
o Residential markets in US & UK 70% less since 2006
o Residential markets in AU ↑


4.4.2.4 Investor Stage of the Property Cycle

o ↑ Competitive environment
o ↑ pressure on pricing
o ↓ direct negotiations
o Decrease on margins
o Liquidity, a lot of opportunities for good deals due to slow market
o ↓ New projects in the US, Europe, Africa and Middle East
o Competitors struggling
o Competitors selling
o ↑ Super annuation funds under management

4.4.2.5 Market Trends

o A- REITs de-risking (AU)
o Development decreasing activities (passive market)
o Residential markets ↑ (AU)
o Retail sales slow
o Pharmaceutical Sector – US, Singapore ↑
o Investments in green R&D ↑
o Sustainable Business markets ↑
o Sustainable refurbishment market ↑
4.4.3 Social Environment

4.4.3.1 Climate change cultural shifts

o Environmental imperative perception
o Green awareness
o World Green councils
o Discussions on sustainability ↑
o Agenda on sustainability
o Organizations, Contractors & clients within the industry
o Corporations giving sustainable reports due to social pressure
o Pressure on new Triple bottom line Assessments (Not only financial)

4.4.3.2 Demographics

o Global population ↑
o Urban population ↑
o Aging population ↑


o Retiring population ↑ (baby-boomer generation)
o Generation Y revolution

4.4.3.3 Personal Income ↑ (Developing Economies Growth)

o Demand for quality products and services ↑

4.4.3.4 Workforce

o Global market crisis layoffs
o Labor force quality and security ↓
o Global downsizing
o Construction industry global unemployment: 24,9 %

4.4.3.5 Major Social Events

o World Expo 2010, China
o World Cup Soccer 2010, South Africa
o Olympic games 2012, London

4.4.3.6 Information & Communication Revolution

o Collaboration evolution
o Organizations reaching new ways of collaboration & teamwork.
o 24 organizations + "Architecture 2030" asking congress to update building
codes to meet energy reduction standards
o Energy reduction audits & benchmarking
o Industry Organizations moving towards collaboration
ENVI, BSRIA, COMIT, ECBP, IMPRESS

4.4.4 Technological Environment

4.4.4.1 Communication Revolution

o New Network of Connectivity
o Autodesk – Labs & Collaboration
o Building Information Modeling (BIM) 1st 100% BIM generated Building
o Collaborative Project Management (CPM)
o Interoperability (Public Safety)
o Automation technology


4.4.4.2 Sustainability

o Still high Advocacy & Research but low Commercialization
o R&D in Energy ↑
o Testing Rapid Energy Modeling Systems
o New Measuring systems "BREAM"

4.4.4.3 Technological advancement in new materials

o Technology developments in:
o Advance materials
o Bioscience & healthcare
o Design, engineering & advanced manufactured products
o Electronics & photonics
o Information & communication technology
o Sustainable production & consumption

4.4.4.4 Active R&D Organizations

o CASE Organization (SOM), ISC Project, AVANTI Project, Building Off-Site
Project, BRERFID, STRATEGIC RISK, VALID, NGCC

4.4.5 Physical Environment

4.4.5.1 Physical Interventions and Renovations

o 80% of existing buildings in 2010 will exist in 2020


4.5 Porter Five Forces Analysis Overview

The World Construction Industry has been deeply affected by the Global Financial Crisis.
Since September 2008, the world has witnessed the fall of the Stock Markets, failure of the
banking system, and a massive amount of bailouts. This uncertain environment has delayed
and cancelled projects worldwide at a rate that has no precedent. In addition, headlines
continue to report negative outcomes in the United States, Europe and the Middle East
countries, and raising the alarm of declining confidence. Most sectors of the industry are
facing their most severe downturn in more than twenty-five years, after an extended period of
economic growth and prosperity.

The mentioned factors have dramatically shifted the forces affecting the industry in the last
three years. While some of them might be seen as temporal variations due to the current
market conditions, others will re-shape the future of the industry in the years to come.

Comparing the industry in 2007 with 2010, today we can find a decreasing threat of new
entrants, where new competitors have lost the attractiveness or incentives to enter the
industry. There is a decreased bargain power of suppliers, where contractors have lost the
ability to put pressure on customers. On the other hand, there are increasing threats of
substitute products, thanks to an availability of suppliers of property and construction
services. An increasing bargain power of buyers is the result of an increased ability of
customers to put pressure on the industry participants. Finally, a remarkable increase in
competitive rivalry is the consequence of ferocity of a distressed competition with poor
pipelines, anxious to get some of the fewer projects available in the market. These changing
dynamics between the industry stakeholders (contractors, competitors and customers), lead to
a drastic change in the competitive environment, bringing uncertainty to the industry.

Although this has been a worldwide phenomenon affecting most industries and markets of the
global economy, both the Real Estate and the construction industries have been probably the
most affected ones. The main reasons for this crisis were the increase speculative
environment, the growth in the commodities prices, and the collapse of the banking system
together with the subprime crisis, which produced a universal loss of confidence. The fact that
in any economic downturn affecting the global economy, the first being damaged will
probably be the property industry might be related both to its high productivity and its
workforce generation capacity.32

32
See appendix. FMI Management Consulting-Investment banking for the construction industry.
Construction Industry Strategic Survey 2009, “Strategy in the eye of the Storm”, Exhibit 1.
Source: http://www.fminet.com/article/587


Surveys have been done to analyze the real impact of the current economic downturn and how
it has affected to participants. A survey presented by the FMI at begging of 2010 has shown
the following results:

More than 50% expressed that the economic scenario facing the industry during 2009, 2010,
and 2011 was most likely be the one called “On Edge”, referring to slow growth in a few
sectors while others languish. Only 14% believed in a near-term recovery of any sort. In
addition, 91% is expecting increased uncertainty, differing as to whether the potential
scenarios may come to an end, while 53% are anticipating a range of possible futures, without
ensuring the ultimate outcome.33

On another survey regarding the expected impact of the current market conditions on the
companies of the construction industry, 73% of participants has anticipated a decrease in the
size of their workforce in 2009 & 2010, while only 11 percent anticipate any sort of increase.
Also, 74% have increased their business development efforts in the last six months, 57% of
firms are only "somewhat confident" in their strategy, while 10% are experiencing a deeper
lack of confidence.

A survey about the most common strategies followed by companies in 2010 compared to 3-5
years ago, the highest rates of answers included an increase in workforce downsizing, project
execution efficiency, and general uncertainty, weather diversification, better penetration of
current markets and growth by acquisition appeared far behind, showing an important
decrease compared to strategies adopted before 2007.34

In terms of the profitability, a survey has shown signals of the impact of the economic
meltdown on their firms’ balances in 2009 & 2010. Over 77% has anticipated a decrease in
profitability.

Finally, on a survey measuring competition in the market, 84% mentioned an increase in
competition in their primary sectors, while 80% indentified there is a lower pricing effect as
the primary response to the current market conditions. As few as 30% have expressed they
have a detailed understanding of the strategies and competitive advantages of the competition,
while only 29% said they are actively evaluating the competition. The survey revealed that
most of the companies remain focus on delivering the same services to the same customers
they had in the past, while diversification among customers, markets and geographies are still
common, but less prevalent.

33
See appendix. Idem 6 Exhibit 6, Source: http://www.fminet.com/article/587
34
See appendix. Idem 6 Exhibit 15, Source: http://www.fminet.com/article/587


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