Fundamental Analysis of Profitability of Large Engineering and Construction Firms

This research examines the strategic performance of sixty-one large international engineering and construction (E&C) firms from the regions of North America, Europe, and East Asia. The primary objective is to identify critical factors of corporate strategy that potentially affect the prospects of a large E&C firm. The research methodology relies on financial analysis and strategic management theories to draw meaningful conclusions. Statistical tests are selectively conducted to assess various aspects, including profitability, capital structure and asset liquidity. This paper documents the research findings for the first aspect—profitability. The first part of the findings suggests that there is no significant correlation between firm size and profitability. Large firms, which are endowed with greater resources and prowess, are not guaranteed to be more profitable. However, firm size has some influence on generic strategies, as large firms tend to adopt either a broadly targeted or a nonrelated diversification strategy. Regional trends of revenue growth of firms are subsequently presented. Despite strong forces of globalization experienced in many other industries, the growth trends suggest that the construction business remains largely localized in nature. Consequently, domestic and regional economic outlook, rather than global trends, should be given more weights in strategic planning.     

Strategies Adopted by International Architectural, Engineering, and Construction Firms in Southeast Asia

There are many business opportunities for international architectural, engineering, and construction firms to work in Southeast Asia (SEA) due to its high volume of construction demand and its growing economy. Before entering the region, these industry practitioners need to decide on the appropriate market entry modes and business strategies. The objectives of this research are to investigate the effective market entry modes and business management strategies that industry practitioners can adopt for SEA projects. The research method is based on a structured questionnaire. The study found that the most effective market entry modes are: setting up wholly owned foreign subsidiaries and forming project joint ventures with local firms. The most effective business strategies are: providing a superior product or service and paying great attention to client satisfaction. It is recommended that industry practitioners place emphasis on customer satisfaction by considering all aspects of the client’s requirements and the proposed project’s usage throughout its intended life cycle, to differentiate itself from its competitors.     

How to Evaluate and Invest in Emerging A/E/C Technologies under Uncertainty

Many emerging architectural/engineering/construction (A/E/C) technology investments are of strategic importance and may create future growth opportunities. Therefore, from the strategic perspective, management needs a better method that can quantify the strategic value of technology investment and suggest optimal investment strategies when the future is uncertain. This paper presents a quantitative valuation method based on modern option pricing theory for evaluating major investments in emerging A/E/C technologies. This framework considers specifically the technology investment risk and embedded managerial options. It further aligns the investment evaluation process with the financial market. The analysis may help A/E/C firms more accurately evaluate investments in emerging technologies, such as information technology and automation, and make strategic investment decisions under uncertainty.     

Global Legal Issues for Engineers and Constructors

When performing engineering and construction (E&C) throughout the world E&C personnel need to be aware of the differences in legal systems and how contracts are enforced in different countries. This paper provides information on some of the international legal conventions, regional legal issues, and comparative legal systems. Next the paper addresses international engineering and construction contracts by providing a discussion on the clauses that could differ in contracts throughout the world and which clauses are important to include in international contracts. Specific contract clauses are examined in relation to how their inclusion or exclusion might impact global engineering and construction projects. The next section presents issues related to claims and change orders along with a brief discussion of dispute resolution techniques including international arbitration and contract clauses related to dispute resolution techniques. Anticorruption legislation is mentioned along with kidnapping and ransom insurance because both of these issues are increasing in importance in the global E&C arena. Liability issues that firms might face in the global E&C marketplace are explained along with risks associated with currency valuations and local labor conditions. A table of clauses pertinent to global E&C contracts is provided to help firms prepare for projects in foreign nations.     

Relationship between Construction Firm Strategies and Innovation Outcomes

Survey results provide a preliminary assessment of the relative contribution of a range of tactical business strategies to innovation performance by firms in the Australian construction industry. Over 1,300 firms were surveyed in 2004, resulting in a response rate of 29%. Respondents were classified as high, medium or low innovators according to an innovation index based on the novelty and impact of their innovations and their adoption of listed technological and organizational advances. The relative significance of 23 business strategies concerning (1) employees; (2) marketing; (3) technology; (4) knowledge; and (5) relationships was examined by determining the extent to which they distinguished high innovators from low innovators. The individual business strategies that most strongly distinguished high innovators were (1) investing in R&D; (2) participating in partnering and alliances on projects; (3) ensuring project learnings are transferred into continuous business processes; (4) monitoring international best practice; and (5) recruiting new graduates. Of the five types of strategies assessed, marketing strategies were the least significant in supporting innovation. The results provide practical guidance to managers in project-based industries wishing to improve their innovation performance.     

Information Technology Planning Framework for Large-Scale Projects

New information technology developments continue to have a significant impact on large-scale architectural∕engineering∕construction (A∕E∕C) projects. However, the issue of whether A∕E∕C organizations are receiving adequate returns from their information technology (IT) investments remains an important managerial concern. Earlier work on financial models has concentrated on firm-wide strategies for maximizing the return of investments. Traditional financial models for measuring the value of information technology investments typically work well for static business strategies and single business scenarios. These models are inappropriate for large-scale A∕E∕C projects, which typically have multiple firms participating over a fixed project life cycle and proportionately splitting the cumulative benefits accrued over the project life cycle after their involvement on the project. To resolve these issues, the paper proposes a strategic planning framework based on IT diffusion for maximizing the value of investments in strategic capabilities. The essential steps in the strategic planning framework include environmental scan, internal scrutiny, IT diffusion analysis, and IT investment modeling. To demonstrate the framework and an integrated approach to IT investment planning, the paper presents a case study based on a large-scale A∕E∕C project.     

Fuzzy Intellectual Capital Index for Construction Firms

Construction firms are now operating in a new era. Gaining and sustaining competitive advantage in this era primarily depends on effective and efficient management of knowledge assets. This paper proposes a performance evaluation model called fuzzy intellectual capital index (FICI) that can guide construction business executives to effectively and efficiently manage their knowledge assets. FICI incorporates an intellectual capital performance measurement model with fuzzy set theory to adequately handle imprecision, vagueness, and uncertainty that prevail in this process. FICI uses the fuzzy-weighted average algorithm to compute the intellectual capital performance of architectural/engineering/construction (A/E/C) firms. It is an internal reporting model that can guide executives of A/E/C firms to evaluate their firm’s ability to achieve their strategic objectives and to pinpoint their firm’s strengths and weaknesses in order to neutralize threats and to exploit opportunities presented by today’s construction business environment. A real-world case study is presented to illustrate the implementation and utility of the proposed model. Implications for practitioners and directions for future research are discussed.     

Long-Term Entropy and Profitability Change of United States Public Construction Firms

A firm’s business composition and the sales volume of each business segment are subject to change depending, to a considerable extent, on the firm’s business strategy. These changes were first weighted and represented as a single index, referred to by scholars in strategic management and industrial organization research fields as “firm entropy,” then the impact of firm entropy on firms’ profitability was assessed over 12?years. The performance differences between contractor and noncontractor firms, as well as focused and diversified firms, were compared through a longitudinal data analysis technique within a hierarchical linear modeling framework. Two hypotheses were formulated based on firm diversification theories and previous research findings. These hypotheses were tested according to the modeling outcomes, and implications are presented. The research findings indicate that the entropy changed constantly for both contractor and noncontractor firms. In addition, the level of firms’ long-term profitability supports the argument that the construction industry is highly competitive and mature.     

Contractors in Cyclical Economic Environments

This study investigated how the performance of construction firms during different extremes in the business cycle was impacted by a variety of the firms' characteristics. A performance index for a firm's relative market performance was devised and used with a step‐wise regression technique to model the relationships between operational variables and the performance index. Ten interviews wifh senior construction executives were conducted to guide the development of the model. The results show that a firm's relative market performance can be influenced by: Efforts in planning and control; control at firm level; effectiveness of project planning and control; efforts in marketing; effectiveness of marketing; subcontracting; long‐range planning; safety; geographic diversification; technological competence; and union∕open‐shop construction. Significance varied with cycle point and size. Recommendations are made on how to improve a contractor's performance in cyclical business environments.     

Disease management contracting: key elements

Although the data at the outset of a contractual agreement can often be incomplete or inaccurate, and the analytical tools necessary to interpret these data are still being developed, partners about to enter a disease management (DM) arrangement can nonetheless take steps to ensure that the relationship will be sound and successful. Pharmaceutical firms (and other service providers) wishing to enter into DM relationships with managed-care organizations must consider several important factors of the contracting process to protect their financial interests and benefit from the partnership, particularly in the first 1 to 2 years of the arrangement. This paper provides recommendations for both general strategies and financial elements of DM contracting, and defines several contractual elements that can help to secure a harmonious and profitable partnership. These suggestions address concerns for various types of partnerships, including risk-sharing and fee-for-service plans. Early and careful consideration of the legal aspects of the DM business can protect companies from incurring significant, unanticipated losses.     

Relationship between Governance Structure and Financial Performance in Construction

Although corporate governance has emerged as an issue of considerable importance in shaping the organizational structure and the vision of the firm, this entity has yet to receive sufficient scrutiny in the construction industry. The purpose of this study is to determine the extent by which the configuration of corporate governance may impact on the financial performance of construction firms. The investigation utilizes 100 companies of differing sizes. The analysis reveals that a critical mass of outside independent directors and the dissociation of the roles of CEO and Chairmanship of the board do translate into superior financial market returns for the firms. Other corporate governance variables have no apparent impact on the financial performance of the firms. These findings are significant to construction firms that are already established or in the process of being formed.     

Determinants of International Architectural, Engineering, and Construction Firms’ Project Success in China

As China becomes a member of the World Trade Organization, many international architectural, engineering, and construction (AEC) firms are undertaking or expected to undertake projects there. This study identifies the significant factors that contribute to the successful performance of projects undertaken by international AEC firms in China. Data were collected using structured questionnaires from foreign (non-Chinese) AEC firms that have completed projects in China. Personal interviews with 27 experts were also conducted to supplement and test the survey findings. The findings reveal that the variable that affects the most number of success measures is the AEC firm’s ability to understand the client’s requirement. Achieving this brings about good project quality performance and owner satisfaction. Furthermore, firms that have superior product or service quality would also achieve better project performance. The interviewees also exhorted the importance of having core competencies as a critical success factor for projects in China. Practitioners may use the findings to help them manage their projects in China, so as to achieve higher levels of success.     

Analysis of Techniques Leading to Radical Reduction in Project Cycle Time

Today’s construction business relies on first-to-market product strategies to gain competitive advantages and increase profit margins. This has created an increased demand for a high performance capital project delivery system that can achieve a dramatic reduction in project cycle time. Very few decision tools and guidelines exist to assist owners in choosing appropriate delivery systems and project strategies to radically reduce the project cycle time from the preplanning stage through start up. The research presented in this paper surveyed the construction owners and architectural/engineering/construction firms to identify projects that have achieved greater than 25% reduction in overall project cycle time when compared to current industry standards. The data collected were analyzed to determine the techniques that facilitate radical reduction in project cycle time. These techniques include, best practices and schedule reduction techniques as well as the various management techniques employed on the projects identified by the Construction Industry Institute (CII). This research also identified the barriers to radical schedule reduction. The research concludes that radical schedule reduction well in excess of 25% can be achieved through the selective employment of management techniques, schedule reduction techniques and CII best practices. Almost every construction manager can utilize this research to improve project performance whether for radical reduction or simply more effective execution.     

Enhancing Financial Success Among Electrical Contractors

This paper provides electrical contractors with significant information related to enhancing company financial performance. The methodology involves understanding the determinants of contractor financial success through: (1) an extensive literature review; (2) collection of financial- and management-related data from electrical contractors; and (3) analysis of data to identify management trends that are more prevalent in profitable firms. Ninety-six usable responses were collected from small, medium, and larger electrical contracting companies. General trends reveal that more profitable firms place greater emphasis in the areas of certain management initiatives (higher lines of credit and supporting continuing education), marketing initiatives (involvement in formal alliances and partnering), and technology initiatives related to spending more capital resources on computers and software. Significant differences are revealed with financial ratios as well. A Financial Success Scorecard is created for firms to compare their management inputs to those of successful firms. Findings from this study could provide helpful guidelines for nonelectrical contracting firms. Recommendations for achieving future financial success are also provided.     

Multicriteria Financial Portfolio Risk Management for International Projects

While opportunities for international construction firms have been growing with globalization, the risks involved with international construction projects are increasing significantly. However, due to the complex skein of various risks, it is difficult to evaluate the severity of risk variables at the corporate level and to examine key success factors in an attempt to maximize a firm’s value under the challenging global business environment. This paper focuses on a financial portfolio risk management for international projects to integrate the risk hierarchy of both individual projects and at the corporate level, which applies a multicriteria decision making method to maximize the total value of firms. To demonstrate the approach, a case study is conducted based on real projects collected from a multinational general contractor. Finally, we present lessons learned as well as guidelines for the application of these lessons to future projects through a workshop with industry practitioners.     

Managed competition in practice: 'value purchasing' by fourteen employers

Many large U.S. companies have transformed their procurement of health benefits in the 1990s by combining the principles of managed competition with other business tactics to create a business-savvy hybrid of the private sector's own design, often referred to as "value purchasing." Until recently, few policymakers or health care observers believed that large firms would be a force in health system reform. Yet to implement value purchasing, the large companies in this study created new organizational forms, provided employees with financial incentives to select low-cost health plans, and used business tactics such as competitive bidding to negotiate more favorable rates and to improve quality among health plans. The financial results were impressive for the companies studied. In addition, the companies' demands on the health care delivery system are multiplying as the interface between business firms and health care organizations changes. These demands will only increase as the practices we found become more widespread.     

Strengths, Weaknesses, Opportunities, and Threats for Architectural, Engineering, and Construction Firms: Case Study of Vietnam

After Vietnam became a member of the World Trade Organization, Vietnamese architectural, engineering, and construction (A/E/C) firms face competition from not only their domestic competitors but also from foreign A/E/C firms. As most Vietnamese firms are used to operating under a protected setting, they may face difficulties competing in the globalized environment. This study undertakes a strengths, weaknesses, opportunities, and threats (SWOT) analysis of Vietnamese A/E/C firms, investigates how they respond to opportunities and threats, and recommends how foreign A/E/C firms operating in Vietnam could respond. Using semistructured interview questions, face-to-face interviews were conducted with Vietnamese and foreign A/E/C firms. The SWOT analysis reveals that Vietnamese A/E/C firms are lagging behind foreign firms in financial capacity, experience in complex projects, knowledge in advanced design and construction technology, and management ability. Industry practitioners from outside Vietnam who are contemplating entering the Vietnamese market can leverage on Vietnamese firms’ strengths by forming joint ventures with strong and reputable private Vietnamese firms. To improve their competitive advantage, it is recommended that foreign A/E/C firms offer superior products and services and familiarize themselves with local culture and regulations. They should be mindful of corruption and set up surveillance systems to curb wasteful spending.     

Determination of Key Performance Indicators with Enterprise Resource Planning Systems in Engineering Construction Firms

The study focuses on developing a unified approach to define information specificities for key performance indicators (KPIs). Borrowing from the time-system theory, the paper defines different types of KPI and identifies that a KPI has two dimensions—knowledge specificity and time specificity. Different approaches are presented to analyze knowledge and time sensitivities. This paper addresses a key question related to enterprise resource planning (ERP) systems applications in the engineering construction industry: what are the areas of business processes within the engineering construction industry where ERP cannot be used to collect KPIs related to business processes? The writers review empirical and specialized processes within the construction industry to identify business processes not covered by existing ERP systems. A survey focused on qualitative aspects of ERP systems implementation in engineering construction firms was conducted among ERP-enablers in the construction industry and provided a basis for the presented case study. Data collected are from major engineering and construction firms in the United States and therefore the results are relevant for researchers and industry practitioners concerned with application of enterprise management systems in the respective firms.     

Electrophysiologic and electrocardiographic aspects of the transplanted heart

The authors suggest that academic institutions build business-oriented policies and practices into the development of any nurse-run clinic to set the stage for financial independence when special or development funding ends. One university-affiliated program that provides 4,000 to 5,000 annual visits drastically changed its strategies when threatened with closure after free rent and other subsidies were withdrawn. The growing emphasis on ambulatory care roles for nurses at all levels makes such clinics critical to the success of the broad-based curricula of nursing education programs, as well as the clinic's value to communities they serve. Funding difficulties frequently threaten the existence of such nurse-run clinics once the initial grant funding is no longer available. This has caused a new emphasis on running such clinics in a business-wise manner. Among the strategies initiated were: direct full-pay at the time of service; a realistic business management plan; aggressive planned marketing; contracts and agreements with other agencies; obtaining provider status with selected HMOs.     

Empirical Analysis of the Determinants of Organizational Flexibility in the Construction Business

Flexibility has been touted as an important requirement for firms to survive and prosper in turbulent and volatile economic environments. The aim of this research is to investigate the relevance of organizational flexibility management to construction firms, because firms that are more flexible are more likely to survive and prosper than less flexible firms. More specifically, the objectives are to define a model that will allow contractors to understand the complex factors that contribute to organizational flexibility; ascertain whether organizational flexibility should be treated as a uni- or multidimensional construct; and identify the key determinants that drive organizational flexibility. A two-pronged research method with exploratory interviews and an industrywide survey was adopted. Data were collected from face-to-face interviews with construction industry experts. The data collection instrument for the survey was a structured questionnaire specifically designed for this study. By using structural equation modeling, the study empirically investigated the key dimensions and determinants of organizational flexibility. The results showed that organizational flexibility should be treated as a multidimensional concept, comprising operational flexibility, tactical flexibility, and strategic flexibility. The key determinants—employees’ skills and behavior, supply chain capabilities, and business strategies—were found to have the highest positive impacts on operational flexibility, tactical flexibility, and strategic flexibility, respectively. The structural equation model developed from this research provides guidance to practitioners on the organizational attributes that they could improve to achieve organizational flexibility, which would help them to survive and grow.