Management of Construction Firm Performance Using Benchmarking

In today’s highly competitive construction industry, there is a critical need for managers to continuously improve their firm’s efficiency and effectiveness. More specifically, managers need to know which performance measures are most critical in determining their firm’s overall success. Benchmarking, when done properly, can accurately identify both successful companies and the underlying reasons for their success. However, rigorous benchmarking within the construction industry still remains an embryonic field. This paper analyzes and critiques both the performance measures and metrics used traditionally in the construction industry and the benchmarking models developed to date for the industry. Based on the results of this analysis, benchmarking models using data envelope analysis are proposed that offer significant improvements over current models. The proposed models measure construction firm performance on a company-wide basis, foster trade-off analyses among various performance metrics, and tie the resources expended by construction firms to how well those firms perform overall. The models also provide managers guidance in determining how specific company resources can be reallocated to improve overall company performance.     

Performance Evaluating Model for Construction Companies: Egyptian Case Study

The dynamic nature of today’s construction industry compels construction partners to seek strategies in order to improve performance. Current research introduces a performance evaluation model for construction companies in order to provide a proper tool for a company’s managers, owners, shareholders, and funding agencies to evaluate the performance of construction companies. The model developed helps a company’s management to make the right decisions. Financial, economical, and industrial data are collected from Egyptian construction companies for nine consecutive years (1992–2000). Five indices (models) are developed: company performance score, economy performance score, industry performance score, performance index, and performance grade. The models developed consider companies in four construction sectors: general building, heavy, special trade, and real estate. These models accommodate the effect of macroeconomic and industry related factors and company size on the performance evaluation. The final outcome of current research is a performance grade, which provides the performance of a construction company. The developed model is validated, which shows robust results.     

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.     

Impact of Resources and Strategies on Construction Company Performance

Globalized competition and customer needs forced construction companies to measure their performance beyond the financial measures such as profitability, turnover, etc. As qualitative determinants were added to measurement systems, their investigation and evaluation became a major area of research. In this study, the impact of “resources and capabilities,” “strategic decisions,” “project management competencies,” and “strength of relationships with other parties” on “company performance” was investigated. A questionnaire survey was administered to 73 Turkish contractors and the results of the survey were analyzed using structural equation modeling. The findings indicate that, as expected, resources and capabilities and strategic decisions have an important and direct impact on company performance, whereas project management competencies and strength of relationships with other parties impact company performance only indirectly, through their impact on companies’ resources and capabilities and strategic decisions.     

Indirect Discrimination in Construction Organizations and the Impact on Women’s Careers

Over the last 20?years, equality legislation and positive action on diversity has increased awareness of the detrimental impact of sex discrimination and has begun to address harassment and inequality in many large organizations. While this may yield positive benefits for underrepresented groups working within the construction industry, it remains to be seen whether this legislative drive has overcome indirect forms of discrimination brought about by the ingrained culture and working practices of the sector. This paper explores the impact of indirect discrimination by systematically combining the results of two research projects which explored perspectives on women’s careers in the industry. The first examined the ways in which women’s careers were affected by the nature of working practices within the U.K. construction industry, while the second explored gendered perspectives on work-life balance within the context of the Australian construction sector. Taken in combination, the findings provide prima facie evidence of how construction companies disadvantage women’s careers through their work practices and cultures. Based on this evidence, this paper develops a grounded proposition that the ingrained structures and work cultures of the sector, combined with women’s restricted occupational choices, stymie attempts to create an equitable workplace environment. Suggestions are made as to how construction companies can encourage the structural and cultural shift necessary to overcome the corrosive effect of indirect discrimination on women’s careers in the future.     

Contractors’ Competition Strategies in Bidding: Hong Kong Study

Selecting an appropriate competition strategy in bidding is the ambition of most contractors. The multiple requirements of clients encourage contractors to consider other strategies to deliver additional benefits besides offering a low-price bid. Offering low bids will reduce contractors’ profits and potentially make development less attractive. Contractors need to understand their specific resources that generate competitive advantage and accordingly develop strategies to win contracts. This paper reports the findings from a recent survey on competition strategies in the Hong Kong construction industry. Thirteen typical bidding strategies, their used frequency in bidding, and their effectiveness for winning contracts of different types and between different groups of contractors are studied. The analysis of findings is explored to provide local contractors and clients with new insights into competition strategies in bidding.     

Models for Predicting Project Performance in China Using Project Management Practices Adopted by Foreign AEC Firms

China is a new market to many international architectural, engineering, and construction (AEC) firms and it is not known what would be the likely project outcomes, based on different project management (PM) practices adopted. This research developed and tested five models to predict the likely project success levels, based on PM practices adopted by foreign AEC firms in China. Based on data obtained from 33 projects, multiple linear regression (MLR) models for predicting the performance of foreign managed projects in China were constructed. The models were tested against 13 new cases, and the results show that they are able to predict project outcomes with some level of accuracy. The models show that certain scope management practices can be used to predict owner satisfaction, profit margin, and cost and quality performance of the project. Construction industry practitioners who are managing projects in China may benefit from the findings by focusing more on upstream management, like managing project scope, in order to ensure project success. It is recommended that construction industry practitioners use the MLR models to make preliminary assessment of the possibility of project success based on the type of PM practices they intend to adopt in China. From the results, they can then decide if they should change their practices or abort the 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.     

Exploiting Knowledge Management: The Engineering and Construction Perspective

Construction companies have always relied on their knowledge assets to provide services to clients. In recent years the terminology “knowledge management” has been introduced. Knowledge management (KM) seeks to formalize the manner in which companies exploit their knowledge assets by harnessing organizational knowledge, promoting greater collaboration between groups with similar interests, capturing and using lessons learned on previous projects, etc. This paper investigates how major United States engineering design and construction firms are implementing knowledge management initiatives in order to identify best practice. It adopts a case study methodology to investigate companies’ strategy and implementation, people aspects, and metrics for performance. The study finds that there is a clear distinction between the knowledge management activities undertaken by large engineering design firms and those of construction firms. There is also a much greater emphasis on knowledge sharing, which is just one component of knowledge management. Moreover, some companies have specific KM initiatives while others have activities that are part of their normal business processes.     

Benchmarking System for Evaluating Management Practices in the Construction Industry

This paper presents the results obtained for the initial application of a management evaluation system whose objective is to provide a continuous improvement tool for construction companies through benchmarking management practices. The outlined system seeks to support a benchmarking system that has been recently established in the Chilean construction industry by incorporating qualitative management aspects in addition to performance indicators. Different analyses were made to determine trends in the sector and to establish correlations between qualitative aspects coming from surveys and quantitative aspects coming from performance indicators. Thirteen construction companies participated in the initial application of the benchmarking system. A correlation analysis found that safety performance was strongly related to companies having superior planning and control, quality management, cost control, and subcontractor management policies. A factor analysis found that central office priorities focus on strategic management policies having longer-term competitive impact, while site management emphasizes tactical management dimensions having short-term impact. There is scope to elevate the profile of continuous improvement initiatives to strategic significance at the central office level.     

Comparison of Contract General Conditions between United States and China

In light of the fact that construction projects are expensive, complex, and time-consuming undertakings, a well-written contract that specifies each participant’s duties and obligations is required. Furthermore, a well-written contract with regard to business practice differences between the United States and China is unquestionably needed by American owners, design firms, and construction companies conducting business in China. In response to this industry need, general conditions of construction contracts commonly used in the United States (AIA-A201) and China (GF-1999-0201) have been analyzed and compared. The findings of this research reveal that the content of subclauses in AIA-A201 and GF-1999-0201 is different in several ways. These differences may have been caused by cultural, historical, geographical, political, and language variations that exist between the American and Chinese construction markets. Understanding these differences could help U.S. companies stay competitive and profitable in China.     

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.     

Diffusion of Network Planning in Construction

The history of the use of network analysis in the construction industry is reviewed. The difficulties encountered in the diffusion process from country to country, from industry to industry, and from company to company are examined. Differences between industrialized and developing countries are also considered. It is found that: (1) Research and development activities in the construction industry are inadequate whereas implementation problems in network applications require thorough investigation; (2) the diffusion of networks in developing countries is taking place with a delay when compared to the diffusion in industrialized countries, mainly because of the smaller sizes of companies and projects, limited resources, and because of the inherent higher uncertainty in the construction industry; (3) most civil engineering curricula have recently been revised and incorporate new management topics; and (4) successful introduction of network planning into construction companies, and therefore the rate of diffusion, seem to be directly dependent on the reasons why they were introduced initially.     

Exploratory Study on Value of Information Systems to Electrical Construction Companies: Resource-Based View

Many practitioners and researchers believe that the application of information systems in the construction industry lags behind that of other industries such as the manufacturing industry, because the construction industry is mainly composed of small to medium size companies. Besides, to many people, the value of information systems to their business is vague and elusive. Existing studies on the value of information systems are not specifically focused on small to medium size specialty contractors such as electrical contractors. In addition, with an intention to demonstrate the value of information systems to the improvement of operations or business of all relevant companies, those studies typically do not look into the impact of information systems on the competitive advantage of individual companies. This paper argues that such a generalization of the value of information systems, although valuable to both practitioners and researchers, may have overlooked the fact that the value of information systems needs to be reflected through improved competitive advantage of a company and the competitive advantage is company specific. Thus, the examination of different effects of information systems on individual companies can generate useful insight into the value of information systems because such a strategy leads to a better understanding of the relationships between information systems and the competitive advantage of individual companies. With such a perspective, this study applies a case study strategy to study five small to medium size electrical construction companies based on the resource-based view theory. The case studies show that the observed electrical construction companies are well equipped in terms of physical information infrastructure in relation to their business objectives regardless of company size. However, their capabilities of strategically integrating information systems with their business plans and with their external business partners are general lacking, compared with their physical information system infrastructure. This is partly because many electrical contractors do not fully understand that there are many different forms of information systems that have different impacts on gaining and sustaining competitive advantage. This paper then conjectures that the existing imbalanced application of information systems may not lead to the improved competitive advantage of electrical construction companies, which in turn prevent many contractors from clearly seeing the value of the information systems. Thus, the paper further points out that a plan for the systematical implementation of information systems in a company is very important. However, the successful development of such a plan depends on a better understanding of electrical contactors on the concepts of information system capabilities, competitive advantage, and their relationships.     

Tailoring Competitive Advantages Derived from Innovation to the Needs of Construction Firms

Innovation is often classified as a cost intensive investment in the construction industry with indefinite returns. Due to the clients’ tendency to award projects based on the lowest costs, innovation is often seen as an unfeasible strategy toward the competitiveness that construction firms are seeking. This study questions whether it is indeed ineffective for construction firms to develop their competitive advantage through innovation. By the application of statistical data across 18 Organization for Economic Cooperation and Development (OECD) countries and expert interviews in Singapore, innovation systems models are developed for both manufacturing and construction firms, respectively. Through comparison of both models, the results suggest that the peculiarities of the construction industry deem innovation as a poor competitive instrument for direct profits. Instead, construction firms can develop their competitive advantage through manipulating innovations that consumers are willing to pay for and innovations that would reduce construction costs. It is recommended that construction firms first utilize quality improvements to exploit consumers’ willingness to pay for innovative products. This initiative would enable construction firms to improve their finances for innovation and develop their “brand” in construction products. Sustainable competitive advantage could then be firmly established when construction firms engage in productivity improvements that lead to lower construction costs and/or faster completion times. This study concludes that innovation can be a useful competitive tool if construction firms aptly strategize it in according to its competitive environment.     

Differentiation, Conformity, and Construction Firm Performance

Competitive strategy and neo-institutional scholars offer different views for studying a firm’s relationship with its environment. Competitive strategy scholars propose that a firm’s environment hosts competitive forces and that a firm’s performance is closely related with its ability to differentiate itself from its rivals. Neo-institutional scholars, on the other hand, propose that a firm’s environment hosts institutional forces and that a firm’s performance is closely related with its ability to conform to institutional norms. The research presented here builds on the premise that the propositions set forth by competitive strategy and neo-institutional scholars are complementary rather than contradictory. It empirically explores these propositions in the context of the U.S. construction industry. Research findings provide considerable empirical support for the competitive strategy scholars’ proposition that differentiation vis-à-vis rivals is positively related with a firm’s performance. On the other hand, research findings do not provide any empirical support to the neo-institutional scholars’ proposition that conformity to regulatory and societal expectations is positively related to a firm’s performance.     

Comparable Performance Measurement System for Construction Companies

The construction industry has mainly relied on financially focused performance measurements, and studies on performance measurement systems (PMSs) have been carried out at the project level. However, recently, the demand for performance evaluation and management at the company level has increased. A few previous efforts have aimed to develop a conceptual framework for company performance, but there have been few follow-up studies. From this perspective, we have developed an implementation model and practical methodology to measure and compare the performance of construction companies. First, our thorough qualitative and quantitative analysis was used to develop a set of indicators for performance measurement, and an analysis of the relative weightings of the indicators was carried out. Second, we calculated the performance score of construction companies using a study of 34 Korean construction companies. Finally, we carried out a performance evaluation and system analysis using the calculated performance scores and identified practical issues for the implementation of our PMS. Using the results of our analytical processes identified in this work, further research is suggested.     

Association of Risk Attitude with Market Diversification in the Construction Business

In construction, many large firms are diversified, and their diversification is recognized as a corporate strategy for growth and risk management. Diversification indicates extended competition into a different market sector. It is a departure from a firm’s experience base, and it can be riskier than improving performance in the currently operating market. Then, contractors’ diversification and their aggregate pattern in the market, if there is any, are realized outcomes through competition among contractors over different market sectors. The competing contractors may have different risk attitudes, which are the subconscious but critical basis of their risk-taking behaviors in competition. This study investigates the association of contractors’ organizational risk attitudes with their diversification on the basis of simulated competition among multiple contractors. The simulation replicates the actual diversification pattern of large U.S. construction contractors. The results provide new insight on the relationship between contractors’ risk attitude and their diversification as well as their competitive success.