Sustainable construction practice and contractors’ competitiveness: A preliminary study

Sustainable construction practice and contractors’ competitiveness: A preliminary study

Habitat International 35 (2011) 225e230 Contents lists available at ScienceDirect Habitat International journal homepage: www.elsevier.com/locate/ha...

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Habitat International 35 (2011) 225e230

Contents lists available at ScienceDirect

Habitat International journal homepage: www.elsevier.com/locate/habitatint

Sustainable construction practice and contractors’ competitiveness: A preliminary study Yongtao Tan*, Liyin Shen, Hong Yao Department of Building & Real Estate, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong

a b s t r a c t Keywords: Sustainable construction practice Sustainability Competitiveness Construction industry Contractor

With the increasing requirement for resource efficiency and climate change adaptation in the construction industry, there is a need for contractors to implement sustainable practices. Such action will also be the source of competitive advantage in the future. However, there are few studies investigating the contribution of sustainable construction practice to contractors’ competitiveness. This paper is a review of sustainable practice in the construction industry and the relationship between sustainability performance and business competitiveness. A framework for implementing sustainable construction practice to improve contractors’ competitiveness is introduced to help contractors develop their sustainable strategies for meeting a changing competition environment. Ó 2010 Elsevier Ltd. All rights reserved.

Introduction Existing research shows that construction activity has a significant impact on the environment (e.g. McDonald & Smithers, 1998; Poon, 2000; Shen & Zhang, 2002). Contractors play an important role in promoting sustainable development within the context of the construction industry by assuming the responsibility to minimize their negative impact on environment and society and maximize their economic contribution. There are multiple benefits to contractors from implementing sustainable practices. Evidence has shown that good corporate governance of environmental and social issues enhances companies’ shareholders value, or at the very least, protects their highly valuable reputations (SCTG, 2002). In pursuing sustainable construction practice, a great deal of research has been done (Kibert, 2008). For example, Hill and Bowen (1997) proposed a framework for attaining sustainable construction where the major components of the framework included project environmental assessment, environmental policy, organizational structure, environmental management program and external/internal audit of environmental performance. Trufil and Hunter (2006) developed a sustainability framework for small and medium contractors to improve their performance against

* Corresponding author. E-mail address: [email protected] (Y. Tan). 0197-3975/$ e see front matter Ó 2010 Elsevier Ltd. All rights reserved. doi:10.1016/j.habitatint.2010.09.008

four dimensions of sustainability, i.e. economic, environment, social and processes. Furthermore, construction clients are increasingly requiring contractors, suppliers and business consultants to adopt sustainable policies in construction processes. For example, Sainsbury’s, Shell, BP, Marks & Spencer, and BT have made strong commitment to minimizing environmental impacts and contributing positively to society, and they implement these commitments in the whole supply chain whenever they build offices, warehouses, stores and other facilities (SCTG, 2002). According to SCTG (2002), the FTSE4Good index series includes only those companies which respect the environment, human rights and have positive relationships with their stakeholders. The FTSE4Good companies are considered having better performance than conventional FTSE100 companies through back-testing (SCTG, 2002). The Dow Jones Global Sustainability Index (DJGSI) tracks the financial performance of the world’s leading sustainabilitydriven companies. The data shows that the companies on the DJGSI would have outperformed the standard Dow Jones Global Index by 15% per year during 1994e2000 (SCTG, 2002). All these show the positive relationship between sustainability performance and business performance, which is leading to a growing market for sustainability investment. Therefore contractors should realize the importance to improve their sustainable performance in order to grow their business. However, there are few studies on how to improve contractors’ competitiveness by implementing sustainable construction practice. Based on a comprehensive literature review on the connection

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between sustainability performance and business competitiveness, this paper aims to develop a framework for examining how contractors can improve their competitiveness through implementing sustainable construction practice.

Economic success

Revisionist view

Long-term view

Linkage between sustainability and competitiveness Porter and van der Linde (1995: p. 120) realize that improvement in sustainable performance contributes to business competitiveness. “Proper designed environmental standards can trigger innovations that lower the total cost of a product or improve its value. Such innovations allow companies to use a range of inputs more productively e from raw materials to energy to labor e thus offsetting the costs of improving environmental impact and ending the stalemate. Ultimately, this enhanced resource productivity makes companies more competitive, not less.” The relationship between environmental and economic performance and social responsibility committed by firms has been studied by many researchers (e.g. Edwards, 1998; Porter 1991; Schaltegger & Synnestvedt, 2002; Stanwick & Stanwick 1998; Toms, 2000; Wagner, 2001; Wagner, Schaltegger, & Wehrmeyer, 2002). Top managers’ commitment to corporate environmental management will influence the formulation of different types of corporate strategy and financial performance (Lee & Ball, 2003). Wagner and Schaltegger (2003) conducted a comprehensive review of literature on the link between sustainability performance, business competitiveness and economic success, and suggested an empirical framework for analyzing the link between sustainability performance and business competitiveness, as shown in Fig. 1. However, there is no unique relationship prevailed in these studies. Wagner and Schaltegger (2003) pointed out two major reasons for this: methodological reasons (such as the lack of statistical data, its low quality, or incomplete environmental and

Change of the ‘best possible’ relationship between sustainability performance and economic success over time

Traditionalist view

Sustainability performance

Fig. 2. Phenomenological relationship between sustainability performance and economic success. (Source: Wagner & Schaltegger, 2003).

sustainability data) and theoretical reasons (such as the influence of different corporate strategies having relatively less influence on the economic or financial success of firms than other factors). Furthermore, Wagner and Schaltegger (2003) also proposed a phenomenological relationship between sustainability performance and economic success based on the model by Schaltegger and Synnestvedt (2002), as shown in Fig. 2. The decreasing curve in Fig. 2 indicates the ‘traditionalist’ view of neoclassical environmental economics. They argue that the environmental protection activities would reduce economic success and the purpose of environmental regulation is to correct for negative behavior which would consequently burden companies with additional costs. In contrast to this view, the ‘revisionist’ view (inverse U-shaped curve in Fig. 2) argues that the sustainable practice by a company has a beneficial effect on its economic success. The reason is that improved sustainable performance is a potential source of competitive advantage leading to more efficient processes, improvements in productivity, lower costs of compliance and new

Fig. 1. Framework for the interaction of explanatory factors with sustainability performance and competitiveness. (Source: Wagner & Schaltegger, 2003).

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market opportunities (Porter, 1991; Porter & van der Linde, 1995; Sinclair-Desgagné, 1999). However, these benefits will be decreasing after the peak point due to the increasing investment on sustainable activities. From a longer-term perspective (dotted line in Fig. 2), the ability of innovation and developing new technologies and production approaches would be more important for sustaining competitiveness than traditional competitive advantage factors (Porter & van der Linde, 1995). However, little research has been done on examining the relationship between sustainability and business competitiveness in the context of the construction industry. In Trufil and Hunter (2006) a sustainability framework has been developed for small and medium sized enterprise (SMEs) to help enhance business competitiveness and promote their innovative capacity. This framework provides a benchmark tool for construction business to measure, evaluate and improve their sustainable performance. It was appreciated that the improvement of environmental performance in a construction organization provides the opportunity for increasing its competitive advantage (Fergusson & Langford, 2006). They also introduced a model for illustrating the relationship between strategy development, performance improvement and competitive advantage, as shown in Fig. 3. The implementation of environmental strategies will improve contractors’ competencies in environmental management, and consequently lead to improvements in business performance. Existing research results show that there is no unique relationship between sustainability performance and business competitiveness, including the construction industry. It is also difficult to identify this relationship by using quantitative methods. However, it is likely that implementation of sustainable practice would be the source of competitive advantage in the future. Therefore, there is a need to establish a framework for contractors to implement sustainable construction practice to improve their competitiveness. Sustainable construction practices

Industry Leadership Business Differentiation Tendering Opportunities Client Requirements

Marketing

Sharing Competencies

Published Performance

Performance Measured

Environmental Training

Target Setting

Continuous Improvement

System

Strategy

Compliance with Legislation

Business Performance Improvement

Sustainable construction refers to the integration of environmental, social and economic considerations into construction business strategies and practices. It is the application of the principles of sustainable development to the comprehensive construction cycle from the extraction of raw materials, through the planning, design and construction of buildings and infrastructure, until their final deconstruction and management of the resultant waste.

Environmental Strategy Development Fig. 3. Relationship between environmental strategy development, performance improvement and competitive advantage. (Source: Fergusson & Langford, 2006).

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Since the construction industry has great impact on the environment, the improvements in environmental performance in construction business have been identified as major contributors to maintain contractor competitiveness (Shen & Zhang, 2002). Special emphasis has been placed on the attempts for reducing waste generation and improving techniques in minimization of the harmful effects of construction activities on the environment. Many research efforts have been done on environmental concerns in the construction industry, including impacts of rapid infrastructure growth on the environment (Shen & Zhang, 2002; Zhang, Shen, & Scott, 2000); examination on the waste flows and control on construction sites (Shen, Tam, Tam, & Drew, 2004; Tam, Shen, Fung, & Wang, 2007); approaches for assessing the feasibility of a construction projects in contributing to the attainment of sustainable development (Shen, Wu, & Wang, 2002); assessment of sustainable performance of construction projects and contractor activities (Shen, Lu, Yao, & Wu, 2005; Shen & Tam, 2002; Shen, Wu, Chan, & Hao, 2005; Shen & Yao, 2006; Tam, Tam, Shen, Zeng, & Ho, 2006). Apart from environmental impact, social equity and cultural issues have also been promoted in conducting construction business. Corporate social responsibility (CSR) reporting is increasingly adopted for representing a company’s environmental, social and economic performance (Myers, 2005). In the report by Commission for the European Communities (2001: p. 6), CSR is defined as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders on a voluntary basis”. Porter and Kramer (2006) introduced four prevailing justifications for CSR, including moral obligation, sustainability, license to operate, and reputation; and examined their practical limitations. Jones, Comfort, and Hillier (2006) found that corporate social responsibility issues are being addressed by the UK’s leading construction companies. PetrovicLazarevic (2008) identified the CSR related activities in the Australian construction industry, including: moral obligation to be a good citizen; sustainability; reputation; relationship with employees and unions; relationship with suppliers and community representatives; and commitment to reporting on CSR. There are still other studies on the subject of sustainable construction. In the typical study by Kibert (1994), sustainable construction concept focuses on creating sustainable built environment under six principles: 1) minimize resource consumption 2) maximize resource reuse 3) use renewable or recyclable resources 4) protect the natural environment 5) create a healthy, non-toxic environment and 6) pursue quality in creating the built environment. Hill and Bowen (1997) summarized the principles of sustainable construction and divided them into four ‘pillars’, including social, economic, biophysical and technical principles with a set of process-oriented principles. Procurement, design, innovation, people, and better regulation are considered as the ‘means’ for sustainable construction in the report by HM Government and Strategic Forum for Construction (2008). DTI (2006) outlined key sustainable construction practices, namely: establishing effective construction programmes; developing and supporting well focused and capable public sector clients; designing and decision making based on ‘whole-life value’; using the appropriate procurement and contracting strategies; working collaboratively through fully integrated teams; evaluating performance, and embedding project learning. Following the review of existing studies (e.g. Bakhtiar, Shen, & Misnan, 2008; Bourdeau, 1999; Christini, Fetsko, & Hendrickson, 2004; CIB, 1999; DTI, 2006; Hill & Bowen, 1997; HM Government and Strategic Forum for Construction, 2008; Kein, Ofori, & Briffett, 1999; Kibert, 2008; Manoliadis, Tsolas, & Nakou, 2006; Nelms, Russell, & Lence, 2007; Ngowi, 1998; Ofori, 1998; Pitt, Tucker, Riley, & Longden, 2009; Rwelamila, Talukhaba, & Ngowi, 2000; Shen & Tam, 2002; Shen &

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Table 1 Sustainable construction practices. Sustainable practices

Principles

Compliance with sustainability legislation

To comply with different governmental sustainability legislations, including environmental requirement and social responsibility, to improve business competitiveness. To improve the project’s whole life value through green design and the promotion of best practice construction procurement throughout the supply chain. To enhance the company’s capacity of technology & innovation for increasing the sustainability of both the construction process and its resultant assets. To re-organize and re-engineer the organizational structure and process for facilitating the implementation of sustainable policy and strategy. To increase organizations’ commitment to sustainable construction through better education and training of every staff in the company. To develop a measurement and reporting system or use existing benchmarks for evaluating companies’ environmental and social performance and identify the areas for improvement.

Design & procurement

Technology & innovation

Organizational structure & process

Education and training

Measurement and reporting

Yao, 2006; Trufil & Hunter, 2006; Watuka & Aligula, 2002), important sustainable construction practices can be summarized in Table 1. A framework for implementing sustainable construction practice to improve contractors’ competitiveness The presence of cost increases, time consuming activities and resource consumption for implementing environmentally friendly construction practices discourages contractors from engaging actively in improving their sustainability performance. They believe that these will erode their competitiveness due to loss of immediate economic benefits. There are some proactive contractors adopting EMSs (Environmental Management Systems) in the Hong Kong construction industry, but this approach has not been echoed by the whole industry. Other studies have been conducted to find solutions. For example, Tse (2001) suggests imposing governmental policies forcing construction firms to establish EMS standards within their organizations. These measures are considered as external driving forces for pushing contractors to implement sustainable practice without considering the competitiveness strategy. However, better effectiveness will be gained if the implementation of sustainable construction practice is regarded as internal driving forces for an integrated competitiveness strategy. It is considered that a guiding framework can assist contractors in improving their competitiveness by implementing sustainable construction practice. For developing the framework, the wellknown Deming Cycle is considered a good reference. The Deming Cycle is broadly applied to the implementation of total quality management systems, ISO 14000 standards and environmental management systems to foster improved environmental performance (Cascio, 1996; Mitra, 2008). It consists of four basic stages (the PDCA cycle): plan, do, check and act. Based on the above, a framework for improving contractors’ competitiveness through implementing sustainable construction practice is developed, as shown in Fig. 4. There are two dimensions in the framework, representing sustainability performance and business competitiveness

Business Performance / Competitiveness

228

Continual Improvement

Sustainability Principles and Legislation

-

Sustainability Policy

-

Commitment to Sustainability

-

Compliance with legislation

-

Communicated to every employee

Social

-

Environmental

-

Economic

-

Technological

-

Process

Sustainability Strategy

-

Clear Sustainability Strategy for Improving Sustainability Performance

Sustainable Construction Practice

-

Compliance with Sustainability Legislation

-

Design & Procurement

-

Technology & Innovation

-

Organizational Structure & Process

-

Education and Training

-

Measurement and Reporting

Review and Correction

Sustainability Performance

Fig. 4. A framework to improve contractors’ competitiveness from implementing sustainable construction practice.

respectively. Understanding sustainability principles and legislation is the basis of the integration. Sustainability policy and strategy are guidelines for implementing appropriate sustainable construction practice. Review and correction is used to find the problems and make continuous improvement possible. With the implementation of sustainable construction practice in an effective way, an increase in sustainability performance will induce an increase in business competitiveness. Sustainability principles and legislation Sustainability in construction has become one of the major research topics since the late 1980s, but the effectiveness in application is a limitation (Kibert, 2008). Sustainable construction is typically quoted as “the creation and responsible management of a healthy built environment based on resource efficient and ecological principles”. Construction activities need to reduce environmental impact and enhance social contribution (Hill & Bowen, 1997). When contractors set up a sustainability strategy, the principles of sustainable construction should be embedded in the strategy and appreciated by all employees. On the other hand, with the significant impacts of construction activities on society and the environment, governments worldwide have introduced various policies and regulations for controlling the impacts. For example, the UK Government amended building regulations (ODPM, 2003) to extend the control on the environmental performance of buildings. In Hong Kong, there is legislation for controlling environmental performance during implementation of construction projects, including the Air Pollution Control (Open Burning) Regulation (DJ, 1996), the Waste Disposal Ordinance (DJ, 1980), and the Noise Control (General) Regulation (DJ, 1989). The sustainability legislation requires contractors to take action to protect the environment and assume their social responsibility via business activities. In China, the enforcement regulations on the prevention of air pollution require contractors to include action in their construction plans. Contractors need to clearly understand and comply with these regulations when implementing sustainable construction practices. Sustainability policy With sustainability awareness, sustainability policy within contractor organizations is a must. Sustainability policy is

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a statement of commitment from top management about the goals to be achieved. It is a commitment for protecting the environment and enhancing social responsibility. The policy is designated to comply with relevant sustainability principles and legislation. On the other hand, the policy is unique to a particular contractor by taking into account its own background and characteristics. The policy should be communicated clearly to every employee within the organization, and be available to the public. The policy should set the desired level of sustainability performance and provide guidelines for establishing specific project policies. Sustainability strategy In complying with sustainability policy, contractors also need to have a clear sustainability strategy for achieving their sustainability goals. Sustainability strategies should be designed to work to improve contractors’ sustainability performance and enhance the link between them. However, many companies implement sustainability management and publish sustainability reports without a clear sustainability strategy or the link is missing in many cases (Baumgartner & Ebner, 2010). By implementing sustainability strategies, firms can achieve competitive advantage by integrating long-run profitability with their efforts in sustainable development, such as enhancing environmental and social responsibility (Stead & Stead, 1992). Managers should pursue the implementation of sustainability strategies based on analysis of their respective situations (Stead & Stead, 1995). The sustainable strategic management (SSM) has evolved from a rudimentary idea to a mature framework for managing business organizations (Stead & Stead, 2008). Therefore, contractors need to develop their own sustainability strategy based on their own background to improve their future competitiveness. Sustainable construction practice With a clear sustainability strategy, contractors should identify and select their specific sustainable construction practices to assume their commitments. As discussed before, sustainable construction practices include five major areas: compliance with sustainability legislation, design and procurement; technology and innovation; organizational structure and process; education and training; and measurement and reporting. Different company characteristics will lead to different choices in sustainable construction practices. The selected sustainable construction practices should be consistent with the overarching strategy. Compliance with sustainability legislation will sacrifice company profit. However, better regulation will provide the right balance between regulation and environmental protection without disproportionately increasing costs or deterring compliance (HM Government and Strategic Forum for Construction, 2008). Sustainable design has significant impact on project sustainability before construction begins. Sustainable procurement provides a green supply chain system where all the materials and equipment are supplied in a green manner (Vanegas, 2003). Technology R&D plays an important role in sustainable construction and effective R&D will result in great improvement in sustainability performance (Miyatake, 1996). Appropriate organizational structure and process are also necessary to determine responsibilities, authority, lines of communication, process and the resources needed to implement sustainable management systems (Hill & Bowen, 1997). The importance of education and training for sustainable development has been pointed out by many governments and non-governmental organizations (NGOs) because it is far-reaching and changes the way we think about nature (Huckle & Sterling, 1996). Measurement and reporting provide the proof of

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business care for sustainable construction and also encourages companies to promote their sustainability performance (Pitt et al., 2009). Review and correction A contractor’s top management needs to undertake management review on a regular basis to examine its sustainability performance, illustrate the problems that exist in practice, and determine whether any changes or revisions are needed in their organizational sustainability policy, strategy and practice. The review should consider the development of sustainable construction practice within the construction industry and any response or complaints from customers or other third-parties. The review should also consider the contribution of sustainability to business competitiveness for a better integration of sustainability into construction business. The main objective for implementing sustainable construction practice is to achieve continuous improvement of sustainability performance and business competitiveness. Conclusion The implementation of sustainable construction practices can contribute to the improvement of contractors’ sustainability performance. However, there are few studies on examining their contribution to business competitiveness. This paper conducts a comprehensive review of studies on the relationship between sustainability performance and business competitiveness and finds that there is no unique relationship between the two variables. But using a long-term view, sustainability performance will have greater contribution to business competitiveness in the future. Therefore, a framework for implementing sustainable construction practice is developed. The application of the framework can improve contractors’ sustainability performance and also business competitiveness. The framework is a useful guideline for contractors to develop their sustainability policy, strategy and practice for meeting the increasing requirement for sustainable development in construction. References Bakhtiar, K. A. B., Shen, L. Y., & Misnan, S. H. B. (2008). A framework for comparison study on the major methods in promoting sustainable construction practice. Jurnal Alam Bina, 12(3), 55e69. Baumgartner, R. J., & Ebner, D. (2010). Corporate sustainability strategies: sustainability profiles and maturity levels. Sustainable Development, 18(2), 76e89. Bourdeau, L. (1999). Sustainable development and the future of construction: a comparison of visions from various countries. Building Research & Information, 27(6), 354e366. Cascio, J. (1996). The ISO 14000 handbook. Virginia, US: CEEM Information Services with ASQC Quality Press. Christini, G., Fetsko, M., & Hendrickson, C. (2004). Environmental management systems and ISO 14001 certification for construction firms. Journal of Construction Engineering and Management, 130(3), 330e336. CIB. (1999). Agenda 21 on sustainable construction. CIB report publication 237. Commission for the European Communities. (2001). Green paper: promoting a European framework for corporate social responsibility. Brussels. DJ (Department of Justice of Hong Kong Government). (1980). Waste disposal ordinance. Hong Kong: DJ. Available at www.legislation.gov.hk/eng/home.htm Accessed May 2010. DJ (Department of Justice of Hong Kong Government). (1989). Noise control (general) regulation. Hong Kong: DJ. Available at www.legislation.gov.hk/eng/home.htm Accessed May 2010. DJ (Department of Justice of Hong Kong Government). (1996). Air pollution control (open burning). Hong Kong: DJ. Available at www.legislation.gov.hk/eng/home. htm Accessed May 2010. DTI. (2006). Sustainable construction strategy report 2006. Available at http:// www.dti.gov.uk/files/file21332.pdf Accessed May 2010. Edwards, D. (1998). The link between company environmental and financial performance. London: Earthscan Publications.

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