Balfour Beatty. The purpose of this report is to identify and select a UK construction company and, using information readily available in the public domain, review the companys current business performance and its ability to meet the demands of the bu

Authors Avatar

Corporate Management Coursework 1

Contents Page:


1        Introduction

The purpose of this report is to identify and select a UK construction company and, using information readily available in the public domain, review the company’s current business performance and its ability to meet the demands of the business environment over the next five years.

The report will:

  1. Review the various elements of the company’s business environment;
  2. Using the appropriate techniques discusses key factors in the company’s business and evaluate the current strategy;
  3. Proposes a business plan and strategy for increasing the level of it business; and,
  4. What are the financial implications of the suggested strategy?  

Balfour Beatty was founded in 1909 by a Scottish Mechanical Engineer called George Balfour and an English Chartered Accountant called Andrew Beatty. Initially it set itself out as a ‘General and electrical engineers, contractors, operating managers for tramways, railways and lighting properties and for the promoting of new enterprises’ and then expanded into Civil Engineering.

Balfour Beatty began tendering for jobs worldwide, and in 1924 landed its first international project in East Africa. A hundred years on from when it was first established Balfour Beatty is now the 19th largest construction company in the world, and the largest in the UK.  

More recently Balfour Beatty embarked on a series of acquisitions including Mansell plc, another construction services business, for £42m in 2003, Birse plc, a UK construction & Civils contractor, for £32 m in 2006, Centex Construction, the commercial construction division of the builder, for £180m in 2007 and Cowlin Construction, a UK construction company based in also in 2007.

In 2008 the Company bought GMH Military Housing, a US-based military accommodation business, for £180m and Dean and Dyball, a leading UK regional contractor, for £45 million. In September 2009 the Company announced an intention to buy Parsons Brinckerhoff, a US-based project management firm, for $626 million.

See Appendix 11 to view the FULL History of the Company

Balfour Beatty has four business streams:

  • Building, Building Management and Services
  • Civil and Specialist Engineering and Services
  • Rail Engineering and Services
  • Investments

Balfour Beatty has capabilities in construction, civil engineering contracting and consulting, mechanical and electrical engineering, electronics, systems and control engineering, chemical/materials engineering as well as project management and long term investment services.

Around half of Balfour Beatty’s revenue now comes from outside the UK with over 30% from the US and around 15% from the rest of the world.

Worth US$ 301.5 million, One Island East is located in the commercial centre of Island East, on the Eastern shore of Hong Kong Island. Construction of the 70-storey, triple Grade-A office building began in March 2006 and was completed in March 2008. At 298m high, the building includes two basement floors and has a typical floor area of 2,364m²

2        Business Environment

The First logical stage is to comprehend the nature of Balfour’s business environment and its influences, For example, as the complexity of business environment conditions increase or become more dynamic, uncertainty increases. Furthermore this increase in complexity may also play a role in Balfour’s certainty or uncertainty.

come back to

Balfour’s diversity allows it to compete in many sectors, and due to its huge work load the business was split into four sectors. Each sector contains smaller Balfour companies, both in the UK and Abroad.  

a)        Building, Building Management and Services – this sector consists of  7 companies, who work on projects ranging from design and construction management, through construction to building services and whole-life asset management and maintenance.

b)        Rail Engineering and Services – the 6 companies have helped Balfour Beatty become an international leader in the design, construction, equipping, maintenance, management and renewal of rail assets and systems. With the majority of its works being abroad in this sector.

c)        Civil and Specialist Engineering and Services -  10 companies make up this sector, as well as major civils works, this sector also includes specialist engineering work such as overhead transmission lines and cabling, gas and water utility contracting, and in road management and maintenance.

d)        Investments - Balfour Beatty Capital has made Balfour a market-leading investor in essential infrastructure assets. With the recent acquisition of Balfour Beatty Communities, it has a broad range of infrastructure investment skills from project promotion and development to project execution, financing and long-term asset management and operations.

Balfour claims to be able to participate in projects during any phase due to these four business sectors. These established sectors also allow Balfour Beatty to compete in a variety of markets and projects including:

  • Airports
  • PFI/PPP (Public Finance Initiative/Public Private Partnerships)
  • Commercial Property and Interiors
  • Rail
  • Refurbishment

See Appendix 1 for full list of Markets and Projects & Group Structure.

Balfour Beatty’s stakeholder system consists mainly of individuals (86.12%), but between them they only own 4.59% of the shares. In contrast to the banks and Nominees who between them posses 403,796,535 (93.25%) shares, but only make up 12.66% of the holdings. The rest of the shares (2.16%), are split between Investment and Pension trusts, Other Corporate bodies, Insurance and other companies. Between them they still only make up a small section of the stakeholders, just 1.22%. The geographical breakdown of the stakeholders shows that out of the 17,137 shares the majority are owned by bodies within the UK, 76 shares by bodies in the USA, 245 from within Europe and the rest of the world 188.

2.1        Band Analysis

Class - Ordinary
Analysis of Categories as at 31 December 2009

2.2        Geographical Breakdown
There was 17,137 Ordinary Shareholders at 31 December 2009.

2.3        Pest Analysis

To review the various elements of Balfour Beatty’s business environment it is important to consider what the business environment consists of,

  • The macro-environment - Political (and legal) forces, Economic forces, Socio-cultural forces and Technological forces. These are known as PEST factors.
  • The micro-environment - our external customers, agents and distributors, suppliers and our competitors.
  • The internal environment - staff (or internal customers), office technology, wages and finance.

A PEST is a structured review of the primary influences impacting on the business environment & therefore the organisation. This looks at the Political, Economical, Social and Technological developments and assesses the implications of such issues”

See Appendix 2 for the table of the PEST analysis.


3        Current Strategy

Balfour Beatty has an excellent record, in recent years, in creating shareholder value by providing value-added engineering, construction and service skills to customers for whom infrastructure quality, efficiency and reliability are critical. Balfour Beatty have a clear strategy, which they believe will enable them to achieve their ambitions for continuing growth.

See Appendix 3 for the table showing Balfour Beatty’s Strategy and Vision

3.1        SWOT Analysis

A SWOT analysis is a structured approach to evaluating the strategic position of a business by identifying its strengths, weaknesses, opportunities and threats. It provides a simple method of synthesizing the results of the marketing audit.

A SWOT analysis must first start with defining a desired end state or objective. A SWOT analysis may be incorporated into the strategic planning model. Strategic Planning, including SWOT and SCAN analysis, has been the subject of much research.

  • Strengths: attributes of the person or company that are helpful to achieving the objectives.
  • Weaknesses: attributes of the person or company that are harmful to achieving the objectives.
  • Opportunities: external conditions that are helpful to achieving the objectives.
  • Threats: external conditions which could do damage to the objectives.

Identification of SWOTs are essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs.

See Appendix 4 for the table of the SWOT analysis.


3.2        Marketing Mix – 4P’s Analysis

The marketing mix is probably the most famous marketing term. Its elements are the basic, tactical components of a marketing plan. Also known as the Four P's, the marketing mix elements are price, place, product, and promotion.

        

See Appendix 5 for the table of the Marketing Mix – 4Ps analysis.

3.3        The 4 A’s Analysis

The suppliers decisions on the 4 P’s will affect the customers reaction which is assessed by the 4 A’s, this reaction is also known as ‘Supplier-Customer Exchanges’. 

See Appendix 6 for the table of the 4 A’s analysis.


3.4        Porters 5 forces of Competitiveness Analysis

The Porter's 5 Forces tool is a simple but powerful tool for understanding where power lies in a business situation. This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you're looking to move into.

See Appendix 7 for the table of Porter’s 5 forces of Competitiveness Analysis.

To enter the market and compete at the level of Balfour would take a huge amount of time and money, even with no real protection of the technologies used on projects, this would still be difficult. For new companies to get loans needed for projects and/or to start up will be extremely difficult, at the moment, as banks are extremely reluctant to invest or lend. Especially as the construction industry is historically, very badly affected during recessions. The number of projects is starting to decline, leading to a decrease in the number of suppliers and construction companies, again making entry into the market very risky.

In the construction industry the Power of the Buyer is very strong at the moment, due to the global “recession.” This is due to the decrease in the number of projects, making any current and future projects very competitive, as work is decreasing. Therefore Balfour must be prepared to decrease the amount of profit they would usually make in order to stay competitive. However with the range of services Balfour offer they can dictate to certain buyers in certain sectors. For example the Rail, Road construction sectors are less competitive due to little competition.

Many organisations are holding back planned projects and instead of making new offices are deciding to rent existing buildings. This kind of substitution is a major threat to the construction industry, as it decreases the amount of work at al levels, from housing to small offices to major head quarters. However in some of Balfour’s sectors the client has no choice, for example, railway, road repairs and maintenance. So for Balfour the threat of substitution is mixed depending on the sector, it will impact certain sectors but not others, however it all depends on the clients’ needs and budgets.

In the current climate acquisitions are commonly made by those in better situations. Balfour is in a better financial situation than most and so it is unlikely that the biggest construction will be taken over. It is much more likely that Balfour will continue to increase their group adding new acquisitions to the existing 23 companies. Although many companies offer similar services to Balfour, none offer the variety of services present especially at the same level. There will always be rivalry in the construction industry, especially when considering the system in which contracts are awarded. Tenders are offered, with companies competing against each other for the project. So it will always contain rivalry. Balfour has many competitors in the industry, however not all or many of these are at the same size as Balfour. Thus many of the large projects seem to be fought for by the same few companies, such as, Carillion, Laing O’Rourke, Taylor Woodrow amongst others (See appendix 10 for the full list of competitors). These companies are Belfour’s main rivals when it comes to major projects. The current market is slowing down, therefore decreasing the threat of rivals, making the industry less competitive then it was a couple of years ago

Join now!


4        Business Plan/Strategy

4.1        Ansoff Matrix

For Balfour Beatty to increase the level of its business over the next five years, from 2010 to 2015, a relevant Business plan/strategy is needed. The Ansoff Matrix helps businesses decide their product and market growth strategy. The strategy proposes Balfour’s attempt to expand its business, will depend on “Whether it markets new or existing products in new or existing markets.” 

This depends on four growth strategies, to help develop the course of the business strategy:

  • Market Penetration – is a growth strategy whereby businesses ...

This is a preview of the whole essay