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Strategic Management Practices in Construction Industry: A Study of Indonesian Enterprises
FINAL SEMINAR MUHAMMAD SAPRI PAMULU
BEng (Hons.), MEng (PM)

Presentation Outline
1. 2. 3. 4. 5. 6. Introduction Literature Review Conceptual Model & Hypothesis Research Methodology Analysis and Results Conclusions & Recommendations

Introduction - Background
• The construction industry is one of the key contributors to most economies.
– The gross domestic product (GDP) – Investment – Labour employed
8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0%
00 07 08 02 03 04 05 10 06 01 20 20 20 20 20 20 20 20 20 20 20 20 20 11 09 12

7.7%

7.8%

6.6%

5.5%

Introduction - Background
• The promising prospects but, many local construction firms have poor performance and low competitiveness.

Introduction - Background
• Strategic management research related to the Indonesian construction industry remain scarce. This has potentially become one of the factors hampering efforts to guide Indonesian construction enterprises.

Research Objectives
• Major aims is to construct a conceptual model to enable Indonesian construction enterprises to develop sound long-term corporate strategy that generates competitive advantage and superior performance.

Research Objectives
Specific objectives:
• Explore a number of strategic factors and their characteristics and inter-relationships that may potentially affect the competitive advantage and the performance of a firm. • Construct a conceptual model that captures the linkages with specific factors, competitive advantage and performance • Verify the characteristics and inter-relationships of the factors and setting within the conceptual model based on survey feedback.

Research Scope
• Specific focus on exploring the “Dynamic Capabilities Framework” (Teece et al. 1997; Teece 2007). • Limited to those Indonesian construction enterprises belonging to the first-class qualification (Grade 6-7)

Research Significance
• Filling the gap between theoretical construct and practical evidence of dynamic capabilities framework within the construction industrial context • Introduces the framework for Indonesian construction firms which has never adopted previously by others.

Literature Review
Strategy Paradigms

Competitive Forces

Strategic Conflict

Resourcebased

Dynamic Capabilities

Strategy Paradigms (Teece et al. 1997) Strategy Paradigms (Teece et al. 1997)

Literature Review
Processes New Paths and Positions Dynamic Capabilities

Positions (assets)

Prior Paths

Competitive Advantage

Dynamic Capabilities Framework (Teece et al. 1997, Teece 2007) Dynamic Capabilities Framework (Teece et al. 1997, Teece 2007)

Research Gap
• • • • • • Strategy Research in Construction: Static vs. Dynamic Approach Single vs. Integrated Approach The standard vs. Multi-stage models Specific vs. All asset/capabilities Competitive advantage = Organisational Performance Construction Industry in Developing countries

Conceptual Model

Combination of Assetcapabilities

+

Competitive Advantage

+

Performance

Conceptual Model Conceptual Model

Research Hypothesis
H1
Value of Assetcapabilities combination Competitive Advantage Rareness of Assetcapabilities combination

H3
Performance

H2

Research Hypothesis
Competitive Advantage

A

B

AssetCapabilities Combination / Dynamic Capabilities

C’
Performance

Research Methodology
Stage 1 Literature Review
Review of the mainstream Strategic Management Theories

Provision of theoretical foundation and skeleton of the model

Provision of theoretical foundation in the context of Construction Industry Stage 2 Model Development

Dynamic Capabilities Framework (Assets & Capabilities)

Identify Critical variables in the model

Conceptual Model

Identify Critical variables and interrelationships among variables Stage 3 Model Verification

Questionnaire Survey (Sampling, Design, & Construct)

Hypotheses Test Conceptual Model Verification

Research Methodology
Why Survey?
• The type of research question (Yin 2003). • 70% of empirical studies on dynamic capabilities used surveys and case-based data sources (Arend and Bromiley, 2009) • Data Access to private firms • Limited time resources (Cross Section)

Research Methodology
Sample Required 1. More than 84 cases (Kish, 1965) 2. More than 106 cases (Tabachnick and Fidell, 2007) Respondents 1. Contractors (AKI, GAPENSI, AKLI) 2. Consulting/Eng. Firms (INKINDO)

Research Methodology
Questionnaire Survey Construct *) Questionnaire Survey Construct *)
Research Construct Performance Competitive Advantage Value of Asset-Capabilities Rarity of Asset-Capabilities Environmental Hostility Micro-foundation of dynamic capabilities
*) English, Bahasa & Japanese version *) English, Bahasa & Japanese version

Scale/Measurement item 4 items: P1 – P4 3 items: CA1 – CA3 6 items: V1 – V6 3 items: R1 – R3 3 items: H1 – H3 12 items: DC1 – DC12

Response Analysis
• Response Rate
Number of Replies Returned Undelivered Total Number of Forms Sent Response Rate (%) 120 75 503 28,04 % (delivered) 23,86 % (of total)

Response Analysis
Research Survey
Strategic management in construction Changing strategic management practice within UK construction industry Strategic analysis of large local construction firms in China Strategic assets driving organizational capabilities of Thai construction firms

Author (year)
Chinowsky, P.S., & Meredith, J.E (2000) Price, A.D.F., Ganiev, B.V., & Newson, E. (2003) Cheah, C.Y.J, Kang, J. & Chew, D.A.S (2007)

Response Rate
26.5% (106/400) 22.5% (45/200)

28.3% (85/300)

Wetyavivorn, 25.1% (258/1027) Charoenngam, & Teerajetgul, W. (2009) 37.4% (52/139)

Strategic management practices in Kazaz, A. & Ulubeyli, S. Turkish construction firms (2009)

Response Analysis
• Non-response Bias
Table ANOVA Result: Significant Group Response Table ANOVA Result: Significant Group Response
Item Group Mean 11.66 11.77 3.15 3.70 2.861+ F-statistic 0.069+ Performance Early Respondents Late Respondents Employees Early Respondents Late Respondents
+ p>0.05 + p>0.05

Construct Analysis
The item scales are suitably reliable and valid.
• All Alpha coefficients are above the 0.7 threshold (Nunnaly, 1978). • All loading coefficients are above the 0.5 cut-off (Tosi et al. 1973).

Construct Analysis
Table Reliability & Validity Analysis Table Reliability & Validity Analysis
Construct Performance Competitive Advantage Value of Asset-Capabilities Rareness of Asset-Capabilities Environment Hostility Dynamic Capability Processes
*) Alpha ;;N=120 *) Alpha N=120 **) Min. Loading ;;N=120 **) Min. Loading N=120

Item 4 21 42 21 3 12

Reliability *) Validity **) .839 .936 .973 .955 .734 .872 .773 .556 .525 .540 .806 .616

Results of Statistical Analysis
Table Regression Results for Hypothesis 1 and 2 Table Regression Results for Hypothesis 1 and 2
Technological Assets and Capabilities (Model 1) Regression Model Environment (β) Value (β) Rarity (β) Stage 1 Stage 2 .55*** .28* Complementar y Assets and Capabilities (Model 2) Stage 1 -.13
ns

Financial Assets and Capabilities (Model 3) Stage 1 .02 ns Stage 2 .09 ns .45*** .30**

Reputational Assets and Capabilities (Model 4) Stage 1 -.19* Stage 2 -.01 ns .36*** .39***

Stage 2 -.05 ns .48*** 15+

-.11 ns -.07 ns

ns Not sig., +p<0.1, **p<0.05, **p<0.01, ***p<0.001 ns Not sig., +p<0.1, p<0.05, **p<0.01, ***p<0.001

Results of Statistical Analysis
Table Regression Results for Hypothesis 1 and 2 (Cont.) Table Regression Results for Hypothesis 1 and 2 (Cont.)
Structural Assets and Capabilities (Model 5) Regression Model Environment (β) Value (β) Rarity (β) Stage 1 Stage 2 .41*** .19+ Institutional Assets and Capabilities (Model 6) Stage 1 -.19* Stage 2 -.05 ns .49*** .24* Market Assets and Capabilities (Model 7) Stage Stage 1 2 -.21* .47*** .26* Average Assets and Capabilities (Model 8) Stage 1 Stage 2 -.04 ns .25*** .45**

-.30*** -.17*

-.02 ns -.20*

ns Not sig., +p<0.1, **p<0.05, **p<0.01, ***p<0.001 ns Not sig., +p<0.1, p<0.05, **p<0.01, ***p<0.001

Results of Statistical Analysis
Table Regression Results for Hypothesis 3 Table Regression Results for Hypothesis 3
Technological Assets and Capabilities (Model 1) Hierarchical Reg. Model Environment (β) Competitive Advantage (β) Stage 1 Complementar y Assets and Capabilities (Model 2) Stage 2 -.22* .28** Financial Assets and Capabilities (Model 3) Stage 1 -.28** Stage 2 .32*** Reputational Assets and Capabilities (Model 4) Stage 1 Stage 2 .33***

Stage Stage 2 1 .19*

-.30*** -.28** -.26**

-.30*** -.30*** -.23**

ns Not sig., +p<0.1, **p<0.05, **p<0.01, ***p<0.001 ns Not sig., +p<0.1, p<0.05, **p<0.01, ***p<0.001

Results of Statistical Analysis
Table Regression Results for Hypothesis 3 (Cont.) Table Regression Results for Hypothesis 3 (Cont.)
Structural Assets and Capabilities (Model 5) Hierarchical Reg. Model Environment (β) Competitive Advantage (β) Stage 1 -.26** Stage 2 -.20* .27** Institutional Assets and Capabilities (Model 6) Stage 1 -.19* Stage 2 -.18* .27*** Market Assets and Capabilities (Model 7) Stage 1 Stage 2 Average Assets and Capabilities (Model 8) Stage 1 Stage 2

-.30*** -.23** -.30*** -.24** .36*** .31***

ns Not sig., +p<0.1, **p<0.05, **p<0.01, ***p<0.001 ns Not sig., +p<0.1, p<0.05, **p<0.01, ***p<0.001

Results of Statistical Analysis
Table Regression Results for Hypothesis 4 Table Regression Results for Hypothesis 4
Mediated Relationships 1 Rareness of Reputational Assetcapability combinations and Performance Rareness of Market Assetcapability combinations and Performance
ns Not sig., +p<0.1, **p<0.05 ns Not sig., +p<0.1, p<0.05

Sobel 1.75 +

Aroian 1.72 +

Goodman 1.77 +

2.45 *

2.40*

2.50 *

Results of Statistical Analysis
Table Regression Results for Hypothesis 5 Table Regression Results for Hypothesis 5
Mediated Relationships Transforming capability and Performance are mediated by reputational competitive advantage Transforming capability and Performance are mediated by institutional competitive advantage Transforming capability and Performance are mediated by market competitive advantage Transforming capability and Performance are mediated by average competitive advantage
ns Not sig., +p<0.1, **p<0.05, **p<0.01 ns Not sig., +p<0.1, p<0.05, **p<0.01

Sobel 2.66 *

Aroian 2.62*

Goodman 2.71 *

1.74 +

1.69+

1.79 +

2.69 **

2.65**

2.74**

2.35 *

2.31 *

2.41 *

Summary of Results
Hypotheses Findings
1. The value of asset-capability combinations Supported that an enterprise exploits will have positive relations to its competitive advantage 2. The rarity of asset-capability combinations Supported that an enterprise exploits will have positive relations to its competitive advantage 3. An enterprise’s competitive advantage will Supported have a positive correlation to its performance.

Summary of Results (cont.)
Hypotheses
4. An enterprise’s competitive advantage will mediate the relationship between the value and rareness of the dynamic capability combinations and its performance. 5. An enterprise’s competitive advantage will mediate the relationship between the dynamic capability combinations and its performance

Findings
Partially Supported

Partially Supported

Discussion of Results
Model Evaluation – H1/H2
• All regression models fully support hypotheses 1 and 2 : all asset-capability combinations fully exhibit the characteristics of value and rarity • All value variables contribute more to the competitive advantage than rarity variables (except in the reputational model) • Reputational model records the largest contributor of rarity, the technological model contributes the highest value

Discussion of Results
Model Evaluation – H3
• Market and reputational asset-capability combinations are major contributors in determining the competitive advantage and performance of Indonesian construction enterprises • The technological advantage model is the lowest contributors to the performance.

Discussion of Results
Model Evaluation – H4 / H5
• Competitive advantage fully plays it mediation role in the relationship between characteristics of asset-capabilities combination and performance of the firm. • The results affirm previous studies that competitive advantage and performance are two distinct construct (Tang and Liou’s 2009; Grahovac & Miller 2009; O’Shannassy 2008; Newbert 2007).

Conclusions
1. This study provides empirical evidence in support of the notion that a competitive advantage via the implementation of dynamic capability framework is an important way by the construction enterprise in improving its organisational performance.

Conclusions
2. The value and rarity characteristics of asset-capability combinations contribute to the competitive advantage of the Indonesian construction enterprises, and that such an advantage, sequentially contribute to its organisational performance (Hypotheses 1,2,3).

Conclusions
3. This study offers practical evidence of positively direct relationship between characteristics of the enterprises’ assetcapability, dynamic capability, competitive advantage, and its mediating effect on organisational performance (Hypothesis 4 & 5).

Contributions & Implications
• For academics, this study fills an important gap in the empirical literature. • Hence, the present findings reinforce the dynamic capabilities framework’s recognition as a rigorous theory of strategic management.

Contributions & Implications
• For practitioners, this study’s finding that a competitive advantage stems from the combination of valuable and rare assets and capabilities may inform the way in which managers make decisions to alter their firms’ asset/capability bases.

Contributions & Implications
• This study suggest that importance knowledge asset as micro-foundation for dynamic capabilities. • To sustain competitive advantage, it is important that managers develop and/or renewal dynamic capabilities by focusing on elements of knowledge assets through learning process.

Limitations & Recommendations
• Cross sectional -> Longitudinal studies • Single respondents and method -> Multiple respondents and methods • Large firms sample and level -> different company size and level of analysis • Indonesia focus –> different emerging countries

Publication
• Publication
– Conference Paper (Published)
• Pamulu, M. S, S. Kajewski and M. Betts (2009) Financial

Research Theme Postgraduate Student Conference 2009, 26 March 2009, Queensland University of Technology, Brisbane. • Pamulu, Muhammad Sapri and Kajewski, Stephen L. and Betts, Martin (2008) Financial ratio analysis of Indonesian construction firms. In: Fourth International Conference on Global Research in Business & Economics, December 27-30, 2008, Bangkok, Thailand. • Pamulu, Muhammad Sapri and Kajewski, Stephen L. and Betts, Martin (2007) Evaluating financial ratios in Civil Engineering Forum (EACEF), 26 - 27 September 2007, Jakarta, Indonesia.

management effectiveness of Indonesia's construction state-owned enterprises. In: Infrastructure

construction industry : a case study of Indonesian firms. In: 1st International Conference of European Asian

Publication
• Publication
– Book Part (Published)
• Pamulu, M. S, S. Kajewski and M. Betts (2007) Management of Information Technology. In Indonesian Construction

Firms, in Construction: Industry, Management and Engineering. Ed. M. Abduh, 73-83. Bandung: ITB Press.
ISBN 979-3507-98-5

– Journal Paper (in progress)
• Pamulu, M. S, S. Kajewski and M. Betts (2010) Dynamic capabilities framework in construction: A Study of Indonesian Enterprises. • Pamulu, M. S, S. Kajewski and M. Betts (2011) Microfoundations of dynamic capabilities: A Study of Indonesian Construction Firms.

Acknowledgements
• Supervisory Team
– Professor Stephen Kajewski – Professor Martin Betts

• Scholarships providers
– QUT – BEE

Questions?

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