An investigation into firms' strategies and their financial performance in the UK construction industry
This study has two main objectives. The first objective is to identify the relationship between the construction firms' competitive strategies and their financial performance. The second objective is to observe the behaviour of the construction firms' strategies in three different economic periods, i.e., boom (1986-89), recession (1990-93) and recovery (1994-onward). In order to achieve these objectives, the study was divided into two main phases. Firstly, the relationship between firms' competitive strategies and their financial performance was investigated. Four strategic variables were chosen to represent competitive strategies: type of activity; extent of diversification; extent of internationalisation; and level of gearing. Firms' financial performance was represented by five variables: return on capital employed; return on shareholders' funds; current ratio; quick ratio; and turnover. Secondly, the behaviour of the construction firms' strategies in the three different economic periods was investigated. The following main variables were chosen to represent the firms' strategies: direction; method; generic; diversification; internationalisation; functional; resources; financial performance measurements; and financial performance determinants. The findings of the first phase indicated that, there were significant relationships between firms' competitive strategies and their financial performance. Type of activity had relationships with firms' profitability and liquidity. Profitability was also influenced by the level of gearing. However, extent of diversification and extent of internationalisation had strong relationships with turnover, in the second phase, it was found that the construction firms considered that expansion by way of internal expansion and joint-venturing as their most important developmental strategies. Housing was regarded as the most important strategy for diversification purposes. Europe was considered as their most important market outside the UK. R&D and advanced technology were not considered as the important functional strategies. Management, skilled workers and cash capital were their three most critical resources. Cash flow was regarded as the most important financial performance indicator whilst market condition was perceived as the most important financial performance determinant.