Running head: Organizational Barriers in Construction
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Douglas Hutcheon
APRJ-699
The Affect of Organizational Structure on the Successful Delivery of Megascale Construction Projects.
Word count: 14,830
August 31, 2014
Dr. Bernie Williams
Behavioral Barriers in Construction
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Abstract
The construction industry is currently challenged with an increasingly competitive
environment with record levels of Volatility, Uncertainty, Complexity, and Ambiguity
(VUCA). Many companies are increasing in size through Mergers and Acquisitions
(M&A), expanding their global footprint, entering new markets, and some are entering
the new big league of construction by undertaking the pursuit and execution of highprofile, high risk megaprojects.
In order for construction companies to successfully negotiate such a dynamic
environment and deliver these challenging megaprojects, their organizations must
achieve a high-performance state, where they are adaptive, efficient, and able to
respond quickly to internal and external stimuli.
The foundation for achieving this kind of high performance state begins at the level of
the organizations structure. A poor organizational design will spawn numerous structural
deficiencies that will reduce effectiveness, erode efficiency, and slow responsiveness,
all of which negatively affect megaproject delivery.
In order to recognize and prevent poor organizational structure from negatively affecting
project delivery several questions were asked to better understand the forces at work:
1. Are the organizational structures of construction enterprises appropriate for
megaproject delivery?
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2. How does organizational structure affect the transparency of megaproject
information?
3. What role does culture play within the construction enterprise and does it affect
megaproject delivery?
4. Is profit the best determinate of successful megaproject execution?
The picture that emerged from this researcher’s observations and a review of industry
publications and related literature revealed four issues that are negatively affecting
project delivery:
•
Excessive bureaucracy;
•
A lack of transparency;
•
Cultural stratification;
•
A misalignment of incentives.
All four of these issues can be associated with multiple symptoms of organizational
structural deficiency. These symptoms can be observed when (a) the organization
ability to make decisions is slow and the quality of those decisions is poor; (b) the
organization inadequately responds to change; (c) the organization is experiencing a
decrease in employee performance and goal achievement; and (d) there is excessive
inter-organizational conflict (Daft and Armstrong, 2012, p).
Given the observable issues and the existence of structural deficiency, it seems unlikely
that the current organizational structure of construction companies today is an
appropriate one to support megaproject delivery. The choice of organizational structure
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has a clear affect on fragmentation, the number of principal-agent layers, and the
stratification of culture, all of which create a perfect storm of disinformation that
decreases transparency. When cultures are too different they can create greater interorganizational conflict (a structural deficiency). Construction companies that only use
Profit as an internal, overall measure of megaproject success do not adequately
consider the new stakeholder reality of today’s VUCA environment. Megaproject
success must be measured using metrics that are important to internal and external
stakeholders. These metrics or key performance indicators (KPIs) should be
contractually incentivized and where possible, project team personnel should have
these same KPIs included in their individual project performance assessments.
Framing the identified issues within the context of the applicable symptoms of structural
deficiency created a focus for the review of the related literature. The mapping of
individual issue, to symptoms, and then to relevant theory to form structural deficiency
matrices addressing each individual issue created a framework around each issue that
was used to analyze each issue a develop the following recommendations:
1. Operationalize Support Teams;
2. Reduce Reporting Complexity;
3. Communicate the Culture;
4. Align Organizational Incentives.
The issues, theories, and deficiencies discussed in this paper are all at play within
construction organizations today. These organizations are grappling with the VUCA
Behavioral Barriers in Construction
environment, constrained by outdated mechanistic organizational structures. The
response from industry should be an organic one that promotes the reimagining of the
project-based organization. A project team that is well-supported, will be more
responsive, adaptable, and should be given the authority to make command decisions
in the field as situations unfold. This is how we can tangibly improve project delivery on
mega projects in the construction industry.
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Table of Contents
Chapter I. INTRODUCTION ................................................................................................................. 7 The Industry’s Challenges ............................................................................................................................ 7 The Industry’s Response ............................................................................................................................... 9 Statement of the Problem – This Isn’t Your Father’s Construction Company .......................... 11 Purpose of the Study ................................................................................................................................... 14 Chapter II. RESEARCH ........................................................................................................................ 15 Research Purpose ......................................................................................................................................... 15 Issues and Observations ............................................................................................................................ 16 Research Questions ..................................................................................................................................... 23 Chapter III. LITERATURE REVIEW ................................................................................................. 25 Issue 1 – “Corporate” ................................................................................................................................... 25 Issue 2 – “Known Unknowns” ................................................................................................................... 34 Issue 3 – “This is an engineering company” ........................................................................................ 46 Issue 4 – “We are here to make money” ................................................................................................ 49 The Big Picture .............................................................................................................................................. 52 Chapter IV. RESEARCH DESIGN AND DATA COLLECTION ...................................................... 52 Research Design ............................................................................................................................................ 52 Data Collection .............................................................................................................................................. 56 Chapter V. ANALYSIS .......................................................................................................................... 57 Analytical Perspective ................................................................................................................................ 57 Structural Deficiency ................................................................................................................................... 58 Issue 1 -­‐ Excessive Bureaucracy .............................................................................................................. 61 Issue 2 -­‐ Lack of Transparency ................................................................................................................ 63 Issue 3 – Cultural Stratification ............................................................................................................... 64 Issue 4 -­‐ Misaligned Incentives ................................................................................................................ 66 Limitations ...................................................................................................................................................... 67 Chapter VI. RECOMMENDATIONS .................................................................................................. 67 Issue 1 -­‐ Operationalize Support Teams ............................................................................................... 67 Issue 2 -­‐ Reduce Reporting Complexity ................................................................................................ 69 Issue 3 – Communicate the Culture ........................................................................................................ 71 Issue 4 -­‐ Align Organizational Incentives ............................................................................................. 71 Chapter VII. CONCLUSION ................................................................................................................. 72 Chapter VIII. REFERENCES ............................................................................................................... 75 Behavioral Barriers in Construction
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Chapter I. INTRODUCTION
The Industry’s Challenges
The construction industry’s very nature requires those people who work within it to solve
problems, develop technical solutions, and overcome logistical challenges on a daily
basis. This dynamic work environment has been referred to recently as a “VUCA”
environment (FMI, 2012). The letters of this acronym stand for factors that construction
professionals know extremely well, Volatility, Uncertainty, Complexity and Ambiguity.
Taming these factors requires an organization to be agile, adaptive, efficient, and
responsive.
The construction industry already predominantly uses the best organizational structure to
deal with the challenges of working in a VUCA environment, the project. Generally, a
construction project is a temporary organizational unit, consisting of a constantly
changing number of people and expertise that must come together quickly, as a team for
several years, united under a common purpose; a contract, to plan, design, build, test,
and commission, complex, large-scale infrastructure within stringent timelines.
These project teams are comprised of numerous internal and external stakeholders
represented by three primary groups; first, the project management and execution team
consisting of engineers, technical staff specializing in various disciplines, union and nonunion trade labor, and a wide variety of administrative and clerical employees; second
the extended project management and support team consisting of administrative shared
services like human resources, information technology, and procurement, and technical
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services like internal design groups, accountants, and lawyers, third, external
stakeholders consisting of the client, insurers, financiers, representatives from affected
communities, local indigenous peoples, and concerned Non-Governmental
Organizations (NGOs). This diverse range of stakeholders face the challenge of quickly
learning to work together, establish relationships and behavioral norms that will ideally
form the foundation for a successful project delivery.
For those construction companies involved in mega-scale construction projects or
“megaprojects”, the aforementioned VUCA challenges are further exacerbated due to
the increase in scale of the project, length of delivery, sheer number of stakeholders, and
the greater sophistication level of the client’s organization. In many cases, the project
management team is well experienced in dealing with external stakeholders, however,
what many project management teams are lacking is extensive experience with interorganizational stakeholders.
Megaprojects often experience increased bureaucracy, utilize inadequate systems, and
suffer from duplicative, inefficient processes that can confound even the savviest
technical minds. Whereas smaller projects can be managed with simpler structures,
megaprojects, because of their increased organizational complexity require members of
the project management team to possess not only technical competency, but also welldeveloped soft skills. These soft skills allow project managers to successfully interface
with various parent company factions and negotiate cultural differences between joint
venture and consortium partners. The emphasis begins to shift from one of narrow
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technical calculation, to a wider non-technical skill-set focused on building consensus
around multi-stakeholder decisions, effectively communicating across functional lines,
and understanding the importance of developing strategies for the effective management
and development of project-level human capital.
The Industry’s Response
The main thrust of industry discussion in response to this VUCA environment and the
challenges inherent to megaprojects has focused on the requirement for more time to be
spent on project planning, the lack of megaproject experience at both the project and
executive levels, the challenge of achieving better productivities during the delivery
phase of the project, and the need for integrated project management systems that can
provide adequate control, data transparency and accurate forecasting.
In their 2012 Construction Industry Trends report, the FMI concluded that the changing
nature of the construction industry will require contractors of the future will need to be
dynamic innovators in all aspects of their business (FMI, 2012). McKinsey & Company’s
Infrastructure Practice echoed the FMI with their emphasis on the Construction industry’s
need to enhance their practices to raise productivity, quality, and timeliness of
infrastructure projects (MGI, 2013, pg.6).
The majority of the discussion has been centered around the use of highly specialized
3D modeling software like Building Information Modeling (BIM) and the adoption of
manufacturing techniques like modularization and pre-fabrication, which can offer
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significant savings versus the traditional stick build or cast-in-place methods. Leveraging
newer technologies and production techniques can be effective in a VUCA environment;
however, there has not been any discussion around what organizational changes will be
required to support these new capabilities. Companies have been forging ahead making
investments in technology and facilities, and some have begun to aggressively engaging
in subcontracting strategies for pre-fabricated components, but many have made no
changes to the structure of their organization to promote the smooth integration of these
new skill-sets into the current organization. This lack of organizational analysis and
modification will potential create more inefficiency than they were intended to improve.
With the rise of mega-scale construction projects all around the globe, construction
companies that participate in this niche of the industry contend with levels of Volatility,
Uncertainty, Complexity, and Ambiguity that in some cases cannot be navigated alone.
This has given rise to new models of collaboration and “teaming” in the form of joint
ventures and consortia. These new models also constitute a new form of organizational
structure compared to traditional project structures, so it is important to understand the
“number of very critical considerations for companies to consider when partnering in a
JV where the risks on these mega projects are substantial”. (Deloitte, 2013, pg.25)
Absent from the discussion to-date has been any significant analysis of the current
organizational state of construction companies and the projects that generate their
revenues. As construction companies have expanded globally many organizational
concepts have been borrowed from the manufacturing sector, but given the project-
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based nature of the industry, and mega-projects in particular, these initially adopted
structures seem to now be inadequate and may be negatively affecting operations
throughout the enterprise, particularly, project delivery.
The construction industry is experiencing increasing competiveness as the number of
firms pursuing and executing work globally continues to increase. In addition to an
increased number of competitors in traditional “home” markets, the industry is trending
towards “consilience” as discussed by the (FMI, 2012), and has seen significant Mergers
& Acquisitions (M&A) activity expand the service offerings of many of the largest industry
players, transforming them into truly integrated solutions providers, able to cover the
entire lifecycle as Architectural, Construction, and Engineering (ACE) entities.
Acquiring new capabilities is not a guaranteed fix. For construction companies to be
competitive in the VUCA environment they will need to efficiently manage their diverse
organizations in this hyper-competitive market. To do this, the very structure of their
organizations will need to be designed to facilitate communication, decision-making, and
the deployment of resources and human capital, globally. To-date there has been
inadequate time devoted to this endeavor.
Statement of the Problem – This Isn’t Your Father’s Construction Company
This researcher has observed that construction project teams are generally unable to
execute their projects as efficiently and profitability as possible due to organizational
constraints. These organizational constraints cause affected stakeholder to engage in
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deficient behavior that acts as a behavioral barrier to organizational efficiency. These
constraints and their associated behavioral deficiencies originate from many sources,
resulting in a cacophony of burdensome processes, quasi-functional systems,
inadequate responsiveness, and ambiguous accuracy; further worsened by poor
communication and transparency at all levels.
This researcher believes that the common element to these various behaviors is that
they all spawn from some form of organizational deficiency. These behaviors are highly
visible and to some degree tolerated within construction organizations today, however,
the extent of their negative affects is cause for action.
A significant challenge for many construction companies and a main focus of this paper
is the successful delivery of mega-scale construction projects. The external industry
environment with its VUCA challenges has elicited for the most part, traditional
Mechanistic responses by adding more meetings, more processes, more layers, more
control. Yet what may be required is an Organic approach that decentralizing decisionmaking establishes objectives, clear goals, creates an environment of accountability, and
an organization where information is transparent and communication is concise and
timely. Tom Burns and G.M. Stalker (as cited by Daft and Armstrong, 2012, pg.149)
discovered in their research that when the external environment is stable, that
organizations adopted a hierarchical, top-down framework, replete with rules,
procedures, and centralized decision making that they refer to as Mechanistic.
Conversely, when the external environment was unstable, like the current VUCA
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scenario, organizations responded in a more Organic way by becoming more adaptive
with decentralized decision making that encouraged teamwork and empowered people
closest to the problem with the authority to remedy it.
The organization of a construction project, particularly megaprojects, and the enterprise
that supports them can be designed to encourage behavioral efficiency and discourage
behavioral deficiency and the barriers they create. However, after more than a decade in
the industry, the organizational structures that this researcher has been exposed to have
not shown any evidence of being “designed” as much as they have simply been “copy &
pasted” together. It seems that there is not enough emphasis placed on analyzing the
organizational requirements of projects during the bid phase of the project. What often
happens is organizational charts from past projects are thrown together along purely
functional lines without any consideration for the actual expected workflows, stakeholder
interfaces, or appropriate spans of control. The additional time devoted to optimizing the
design of a project’s organizational structure and its stakeholder interfaces, intuitively,
would increase overall efficiency through the improvement of communication,
information flows, and the speed of decision making.
In today’s operating environment the business of construction is in some ways even
more “old school” than it ever was. A late adopter of technology and management
practices, the construction industry is attempting to catch up in many areas of its
organization, but resistance is heavy. Those companies that cannot find a way to
embrace change, reconfigure and reorient their cultures, will experience an erosion in
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their competitiveness due to organizational atrophy, characterized by Daft and
Armstrong (2012, pg.340) as the point when an organization “becomes inefficient and
overly bureaucratized” and when “The organization’s ability to adapt to its environment
deteriorates”.
Purpose of the Study
This paper will attempt to start a conversation, a meaningful dialogue about what is
working and not working organizationally within an industry that is clinging to the status
quo while it struggles with inconsistency in the delivery of its megaprojects.
It is this researchers opinion that the industry needs to change its perspective. For an
industry that prides itself on its ability to handle volatility, negotiate uncertainty, navigate
complexity, and embrace ambiguity; negotiating these organizational constraints, the
behavioral deficiencies that they encourage, and the resulting barriers to project delivery
will require a paradigm shift in the way current construction leaders view their roles.
The contents of this conversation have been collected via the systematic identification of
issues and concerns that are currently negatively affecting project delivery, with an
emphasis on those that have particular relevance to the unique requirements of
megaprojects. The recommendations in this paper have been developed to mitigate
these constraints by translating contemporary organizational theories into tangible
deliverables that can executed in reality. These recommendations may also be used to
objectively analyze existing structures, or aide in the design of new structures to ensure
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that they are structured optimally to maximize their efficiency and increase the probability
of achieving a successful project delivery.
Chapter II. RESEARCH
Research Purpose
The research conducted in this conceptual paper unfolded in two stages, first, the
acquiring of a knowledge base about how organizational structure affects organizational
performance; and second, synthesizing this new knowledge into a functional framework
that can be applied to modern construction companies and megaprojects.
A construction company’s choice of organizational structure has an impact on how
effectively its projects are executed. If the chosen organizational structure is an
inadequate fit, organizational constraints like departmental “siloing” will begin to
manifest, which will in turn, encourage behavioral deficiencies that can impede the
organization’s agility, efficiency, and responsiveness.
The research methodology employed used this researcher’s organizational observations
combined with industry publications and related organizational theory to unite them into
a framework that project managers, project sponsors, and construction executives can
use when considering company-wide restructuring, divisional re-alignments,
departmental transformations, or the unique needs of individual construction projects.
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Issues and Observations
Of the many challenges facing the industry, the issues examined in this paper are all
connected in some significant way to human behavior. The best processes,
technologies, and plans are all dependent on the human element to initiate, decide,
interpret, and react. In light of this fact, understanding how to influence the behavior of
the human variable should be a significant priority for organizations, but in reality, this
does not seem to be the case.
Issue 1 - “Corporate”
The Observation
A consistent organizational phenomenon across the few construction organizations I
have worked for has been the poor communication between the project and “corporate”.
The degrees of misalignment vary, but several of the same issues pervade and produce
common behavioral deficiencies that suggest an underlying mutual organizational
problem.
When this inter-organizational relationship is at its worst, it can be adversarial or
indifferent, which can undermine the project team’s effectiveness. Understanding what
organizational factors contribute to this internal “eroding force” must be understood, so
that actions can be taken to convert these inter-organizational relationships from
conflictive to collaborative.
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Some may interpret this disparate position between corporate and the projects as typical
bureaucracy. While some bureaucracy is essential, “The point is to ensure that
organizations are not top-heavy with lawyers, accountants, and financial analysts who
inhibit the flexibility and autonomy of divisions”. (Daft and Armstrong, 2012, pg. 335)
The Industry
While certain manufacturing principles can be extended to construction, standardization,
or a one-size-fits-all approach, for the most part is difficult to operationalize given the
unique requirements of most projects, and the differing requirements of particular
business segments. For example, professional engineering services and self-perform
construction have common aspects, but their differences are significant enough that they
each require particular functionality from information systems and special consideration
in terms of policies and procedures. Organizations that force their projects to use
existing corporate policies, procedures, and systems that are not fit-for-purpose will
experience negative influence on their project delivery. KPMG address this issue with
the recommendation that “While your own company may have policies, guidelines, and
procedures for managing large capital projects, it is recommended that the project team
develop tailored policies and procedures appropriate to the specific needs and
circumstances of the mega-project”. (KMPG, 2013a, pg.9)
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Issue 2 – “Known Unknowns”
The Observation
This researcher has observed that there is a lack of project-level transparency in the
construction industry. The degree of transparency decreases with as project’s increase
in complexity, size, and number of stakeholders.
Numerous biases and incentives contribute to this lack of transparency as project
managers and directors preside over the “management” of corporate’s expectations. In
the majority of observed cases, this has involved the concealment, filtering, manipulation
or withholding of information, so as not to “excite” or “surprise” senior management. This
withholding of information creates an environment of asymmetric information, which
more often than not exacerbates the transparency problem by constraining the quality of
the information that numerous other project stakeholders are relying on for their own
decisions.
When the real information about cost, schedule, and potential risks are “revealed” to
senior management, stakeholder relationships are affected, forecasts and earnings
guidance revised and in many cases the credibility and competency of the project
management team is called into question.
The Industry Perception
This lack of transparency has been most visible over the past couple of decades by the
poor accuracy of megaproject forecasts. There have been significant cost overruns, and
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schedule delays on major projects all over the globe. According to a recent study by
Ernst & Young that researched the performance of 365 megaprojects “a high percentage
of projects fail to deliver on time or meet approved budgets”. (EYGM, 2014, pg.2). These
two variables, time and budget, comprise two thirds of the construction trifecta known as
the “iron triangle”, which consists of cost, time, and scope. There doesn’t seem to be any
one company, geographic region, or segment of the industry that has not been
negatively affected to some extent by this issue.
Construction companies both public and private have struggled with forecast
inaccuracies. Public companies especially need to rely on the accuracy of these
forecasts to develop earnings guidance for investors, and various external stakeholders
rely on these forecasts when to decide whether or not to offer favorable terms for
insurance, financing, and bonding. KMPG’s guidance on Effective Reporting for
Construction Projects is quite to the point when it says, ” Senior management, board
members, the audit committee, regulators, and other stakeholders demand accurate and
transparent project information for making informed decisions and ensuring compliance
with statutes, debt covenants, and other project requirements”. (KPMG, 2010, pg1).
Issue 3 – “This is an Engineering Company”
The Observation
While working in the construction industry, this researcher has experienced, what could,
in extreme cases, be described as the classist treatment of non-operational or support
employees. Early in my career, I discussed this observation with my direct supervisor
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and his matter-of-fact response was that “this is an engineering company”, as if that was
all the explanation that was required to justify the preferential and discriminatory
treatment that was prevalent at that time. This would not be the last time this researcher
would hear that phrase uttered as justification.
There is a significant number of people in the construction industry that move between
companies quite regularly, from project to project, particularly those that are not
employed in a management capacity. The construction industry is one that requires a
willingness to relocate to be able to take full advantage of the next developmental
opportunity. These transient employees have made it possible for this researcher to gain
insight into other companies via inquiry and discussion with these temporary team
members. The picture that has emerged suggests a consistency in the inconsistency of
how companies create healthy work environments.
Common experiences across many companies are the lack of feedback, an inconsistent
annual review process and the lack of training and development. , Without clear
objectives, career opportunities or succession planning, it is difficult for a workforce to
remaining vigorously engaged.
For an industry that has traditionally been “sink or swim”, the development of a culturally
balanced organization can be an enabler for creating high-performing teams, which can
in turn, lead to competitive advantage.
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The people who work for “corporate” are culturally quite different from those that work “in
the field” on the actual Projects. This difference is a major cause of significant
inefficiency and organizational misalignment that leads to delayed, poor quality
decisions.
The Industry Perception
The importance of Human Capital Management (HCM) has been emphasized by the
both the FMI and KPMG though each with a slightly different focus. The FMI focuses on
the lack of attention to the company’s “leadership pipeline”, their identification and
development of future leaders and the significant vacuum that will be created as the old
guard retires. (FMI, 2012, pg.72). KPMG emphasis the need to conduct performance
appraisals during the project, which are linked to performance goals; appraisals are also
encouraged for senior and functional manager and leaders using powerful
developmental tools like 360 feedback. (KPMG, 2013c, pg.5).
These advisory reports suggest that the industry and the survey respondents are
prioritizing the need to do more to develop their talent. The challenges of implementing
an effective HCM strategy are further complicated due to the temporary nature of the
project organization, particularly, succession planning, and development planning, can
be very limited. Static industries like manufacturing tend to have more robust plans with
challenging developmental rotations that expose participants to inter-disciplinary and
cross-functional assignments within and outside of their home business unit. Given the
temporary reality of the project-based organization, rotations are extremely difficult to
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achieve without significant planning and commitment from the project management
team. From a change management perspective, getting experienced managers to find
the time required to provide meaningful feedback, coaching, and mentoring, will require
a paradigm shift that only the most committed professionals will even consider
attempting.
Issue 4 – “We are here to make money”
The Observation
Project Managers, Sponsors, and Executives are primarily motivated by the bottom line.
Partially, because they are incentivized in this manner and partially because the industry
has not developed its Managers and Leaders in a more conscious or holistic fashion.
This researcher has attended Managerial and Leadership Development Programs at
each of the construction organizations they have worked for and there was a distinct lack
of content about ethics and corporate social responsibility. As a result these concepts
have not yet been incorporated into the Leadership DNA of these firms.
The main emphasis of training remains squarely on execution in the pursuit of profit. I
believe this fundamental concept is slowly being reconsidered; profit should not be the
only reason for a corporations existence. Corporations, particularly large global multinationals, have evolved to become much more than they were ever envisioned to
become I terms of social and environmental collateral impacts.
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Society’s expectations of the responsibilities and accountabilities of the corporation
continue to evolve and need to be considered by construction companies as they craft
their strategies. There is an “old school” focus that continues to frame decisions from a
predominantly cost-benefit perspective. This a is short-sighted perspective that may
serve certain stakeholders, particularly those that are incentivized over the short-run i.e.
by yearly bonuses and stock options, but this kind of thinking potentially undermines the
long-run health and competitiveness of the project, its team members, and the company.
The Industry Perception
The industry has recognized the need to get “green” and many have adopted cosmetic
reporting that provides the look and feel of genuine social, environmental concern.
However, it is not yet a part of the culture of most construction companies today. There
are pockets of devoted professionals, but at the senior management-level, the concern
remains primarily about cost, i.e. what is the minimum requirement/specification?
Research Questions
There are so many different issues within the construction enterprise itself and the
projects that constitute its core business. Many of these issues are not unique to the
construction industry. But the necessary level of managerial motivation, commitment,
and competency required to accept, understand, and adjust an organization’s culture is a
tall order no matter what industry you are in. The construction industry seems to be
lacking the requisite incentive to act. The focus of my inquiry therefore is premised on
the belief that these behavioral deficiencies are caused or influenced by the very
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organizational structure of the construction enterprises, its divisions, business units, and
projects, and that when presented with a practical list of recommendations, the industry
will respond.
In a recent Project Management survey conducted by PWC their data revealed a
positive correlation between inadequate organizational structure and ill-defined and
documented roles and responsibilities. (PWC, 2012,pg.5), suggesting that company
structure has been recognized by project management professionals as having an affect
on project delivery.
To begin the exploration of the identified issues, the following questions were formulated:
1. Are the organizational structures of construction enterprises appropriate for
megaproject delivery?
2. How does organizational structure affect the transparency of megaproject
information?
3. What role does culture play within the construction enterprise and does it affect
megaproject delivery?
4. Is profit the best determinate of successful megaproject execution?
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Chapter III. LITERATURE REVIEW
This research is underpinned by the basic contingency model of organizational
effectiveness, which essentially states that to be successful; an organization must align
its strategy and structure with the external environment (Daft and Armstrong, 2012). As
noted above, this is a fundamental challenge in the construction industry as the VUCA
environment is volatile and rapidly changing, which suggest that organic structures are
most appropriate. However, for a variety of reasons, many construction companies seem
to adopt or continue to use outdated mechanistic structures. This literature review is
designed to provide more insights into the possible causes and consequences of
mechanistic structures and is organized around the themes identified in the previous
section.
Issue 1 – “Corporate”
Organizational Structure – “The Matryoshka Organization”
Large construction companies are complex organizations. It seems that construction
companies are similar to Russian nesting dolls, or Matryoshka, considering that
“Engineering construction projects are nested hierarchies of complex adaptive systems
involving numerous, diverse stakeholders.” (Fellows & Liu, 2012, pg.667).
In their article “What is the Right Organization Design?” Anand and Daft (2007) discuss
what they refer to as the three Eras of Organizational Design. Using these Eras as a
framework for analysis it seems that the construction organizations that I have worked
for and those of my peers in the industry are blends, collectives, or “frankensteins” of
different organizational structures, which are referred to in the literature as hybrid
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structures. Theory aside “many structures in the real world do not exist in the pure forms”
(Daft and Armstrong, 2012, pg.117) so attempting to overlay a particular pure form onto
an industry that by its very VUCA nature requires flexibility, can create more
inefficiencies than those it was designed to fix.
Era 1 organizational structures focus on self-contained organizations that had clear
boundaries between internal and external stakeholders Anand and Daft (2007). These
structures will perhaps be the most familiar, with command-and-control, predominantly
vertical structures like Functional and Divisional, and the recently popular Matrix
structure that combine horizontal structure with traditional vertical structure in an attempt
to utilize dual-reporting to cross the functional, departmental, and geographical siloing
that can occur under a purely Functional or Divisional structure.
Era 2 organizational structures focus on team and process-based organizations that
organize around workflows instead of departments. This form of structure has been
popular with product development type organizations that are required to be responsive
to customer needs; examples include various service industries and manufacturing.
Era 3 organizational structures in many ways are the opposite of Era 1 organizations
with an emphasis towards eliminating internal and external stakeholder boundaries.
There are two main structures from this most recent Era, the Hollow and the Modular
structure. Both structures are characterized by outsourcing, with Hollow organizations
focusing on the outsourcing of processes like payroll, accounts payable, information
Behavioral Barriers in Construction
27
technology, etc. and Modular organizations focusing on outsourcing particular pieces or
components of the products that they manufacture. A third structure from Era 3 is the
Virtual organization. This organization has evolved in response to the VUCA nature of
global business and is characterized by collaboration or joint-venturing between
competitors, usually involving the creation of a separate company external to all of the
participants, temporary in nature, for the explicit purpose of exploiting the identified
opportunity. (Anand and Daft, 2007, pg.338).
The Era 3 Virtual organization best represents the most common model adopted today
for construction megaprojects, which often involve numerous competitors coming
together under an agreement, utilizing a separate company, sometimes referred to as a
Special Purpose Vehicle (SPV), for the purpose of building a particular, large, complex,
project.
Form my recent observations; it seems quite clear that my current employer is a
patchwork of numerous structures. It has an Era 1 Divisional Structure with Horizontal
Overlays at the Corporate level, with some Era 2 Horizontal Design evident in several of
the company’s Divisions, Business Units and Shared Service elements, and numerous
Virtual organizations represented by a significant number of consortia and joint-ventures
megaprojects These structures all require different managerial mindsets. The people and
teams within these different structures will also have a different subculture from their
parent organizations, which can further add to the organizational complexity, creating a
perfect storm of organizational chaos, that can will challenge the clarity of
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communication between stakeholders and stress the organizations linkages, both
horizontal and vertical.
Enterprise Structure – “The ivory towers”
In today’s VUCA environment construction companies are focusing on maintaining or
reducing overhead costs to increase their competitiveness. Projects however, use
numerous metrics to monitor performance, man-hour productivities, staff-to-craft ratios,
cost-versus-budget, and various earned value measurements like Planned Value (PV),
Earned Value (EV), Schedule Performance Index (SPI) and Cost-Performance-Index
(CPI) to name just a few. These scrutinized indices are all hallmarks of a Rational-Goal
Emphasis towards Organizational Effectiveness as outlined by (Daft & Armstrong, 2012).
This goal orientation is combined with a Low-Cost Leadership Strategy (Daft &
Armstrong, 2012), which emphasizes in the case of construction, the need to delivery a
contract at the lowest possible cost. In public bidding, the lowest price is often awarded
the contract, which creates a high-pressure environment for project teams that could
encourage strategic misrepresentation at the bidding stage to secure the contract and
during project delivery when it becomes evident that there was not enough money in the
awarded budget to build the project at the as-sold margin.
Many construction companies that compete globally describe themselves as matrix
organizations, however, upon inspection, in most cases this is an oversimplification of
their reality. As construction companies began to extend themselves globally, it appears
that many simply adopted the seemingly mature organizational structures being used by
Behavioral Barriers in Construction
29
the manufacturing and service industries. In theory, this might have worked reasonably
well, if the construction industry shared a majority of the same characteristics as these
two industries, however, the actual characteristics of the construction industry have
numerous significant differences. Individual companies should have analyzed their
differences and incorporated them into the final design for more industry specific
structural fit. Some companies may have done as suggested, but empirical confirmation
of this and the type of analyses that these companies did I beyond the scope of this
paper.
The literature suggests, “Project teams tend to be the strongest horizontal linkage
mechanism.”(Daft & Armstrong, 2012, pg.93), however, the decentralized and
entrepreneurial structure of a megaproject is a stark exception to this definition.
Megaprojects tend to be “islands unto themselves” and quite often have chronic difficulty
bridging the horizontal and vertical linkages to the corporate level. The project
management team takes a protectionist, and at times adversarial stance against internal
and external stakeholders. This behavior could also possibly contribute to strategic
misrepresentation due to misalignment with company objectives.
Project Structure – “Fiefdoms”
Projects are temporary in nature and have been referred to as Temporary MultiOrganizations (TMOs) as cited by (Fellows & Liu, 2012). As temporary organizations
they do not generally benefit from the same efficiencies that a more static organization
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can achieve over longer time periods like in the manufacturing industry. Projects can be
structured in numerous ways to support commercial decisions like risk diversification
through the use of subcontracting strategies for example, there is rarely ever a one-sizefits-all solution.
A project’s structure is quite often significantly influenced by its legal structure. The three
dominant forms of legal structure for projects are Wholly Owned, Consortiums, and Joint
Ventures, each with its own particular advantages and disadvantages. The choice of
which form of structure to use can be a contractual one imposed by the project owner, or
it can be driven by the a company’s decision to diversify the projects risk by taking on
partners with greater expertise in delivering certain types of work within the over-all
scope of the project.
Organizationally, the structural benefits of using a wholly owned entity can possibly
accrue from the already established standardized procedures and systems, but quite
often these global standards have inadequate flexibility and only end up constraining
project delivery. In a joint venture or consortia arrangement where there is consent
required by multiple partners on operating procedures, there is an opportunity for the
constraints inherent in all of the partner’s parent organizations, to be “designed out”
however, this is an aspect of most agreements that are not adequately, if ever,
discussed, so this opportunity is often missed and the project’s delivery is hindered by
excessive bureaucracy.
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Wholly Owned projects tend to have a “cookie cutter” structure that is simply an
organizational template that is used time and time again, without any analysis of the
unique needs of the projects.
The Consortium or Construction Joint Venture (CJV) structures are forms of Strategic
Alliance that have almost become the global standard adopted for the megaprojects.
There are still examples of megaprojects being executed by wholly owned entities, but
with large subcontracts issued to companies that could just as easily have been jointventure partners. Sometimes partnering negotiations are not successful and what started
as a proposed joint-venture arrangement reverts to a subcontract opportunity for the
minority partner.
According to (Lin & Ho, 2013, pg.304) “In the construction industry, CJVs have become
one of the major organizational forms utilized in large-scale or international projects”.
CJVs are governed by Management Committees with representatives from all of the
partners. The Committee Agreement should be a robust document, but the are often
poorly written and lacking in adequate commercial definition to allow for effective day-today administration without having to bring items to the committee for discussion,
agreement, and decision, which only serves to delay the project management team’s
ability to efficiently manage. A greater time commitment up-front in the development of a
robust agreement, with input from project-level stakeholders would generate significant
efficiency gains during project delivery.
Behavioral Barriers in Construction
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To further understand the impact of governance structure on CJVs, Lin & Ho examine
two different types of CJVs, the Jointly Managed JV (JMJ) and the Separately Managed
JV (SMJ) to determine if there is any performance difference between the two. They
conclude that “…it is verified that a JMJ performs slightly better than an SMJ…”(Lin &
Ho, 2013, pg.310). Their study used owner/client satisfaction as the basis for assessing
performance, and there was no discrete examination of the behavioral tendencies of
either structure.
Trend Modeling
A project’s hierarchical structure extends downward to multiple tiers of contractors,
subcontractors, sub-subcontractors, and sometimes, even farther. Cheng, Su, and You
propose a framework for the optimization of this hierarchy using a technique known as
trend modeling. Trend modeling in an exhaustive exercise involving a seven step
analysis, that requires the mapping the project’s work breakdown structure (WBS), the
development of an Activity Relationship Matrix (ARM) and a Communication Resistance
Matrix (CRM), stakeholder survey’s to assign values to relationships identified by
analyzing the schedule logic of relationships with the WBS to generate data that is
placed into a mathematical calculation that predicts the optimal structuring of a given
organization by identifying path of least resistance for communication between
stakeholders on the project. This author agrees with one of their introductory statements
that, “The key element for the smooth execution of a huge construction project is a
suitable project organizational structure, which will improve the efficiency of
communication between different groups of project members.”
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This proposed model was developed for use with Construction Management (CM)
contracts and would require an unwieldy amount of effort to apply to self-perform
contracts that have larger WBS structures and more stakeholders. The current model
was also developed assuming static conditions, which is significant barrier to adoption
given the highly volatile nature of megaproject organizations. Future variations of this
model may better address volatility and uncertainty, at which time it may be worthy of
reconsideration.
Organizational Fragmentation – “Silos”
The sheer size and technical complexity of megaprojects require a range of specialists;
Project Managers, Construction Managers; Designers, Architects, Engineers of various
disciplines, Technicians in specialty software applications like Computer Assisted
Drafting (CAD) CAD, Building Information Modeling (BIM), and project scheduling
Primavera Version 6 (P6), additionally, there are a wide range of back-office
administration professionals that handle the Project Accounting, Cost Control, Payroll,
Accounts Payable (AP), Accounts Receivable (AR) Information Technology (IT), Human
Resources (HR), Industrial Relations (IR) Procurement , and general office facilities and
administration.
The growing demands on the construction industry to deliver larger and larger, more
complex and ambitious projects has been one of the most significant drivers of
organizational fragmentation. One article observed, “Specialization has caused
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differentiation and led to increasingly complex organizational structures…” (Fellows &
Liu, 2012, pg.654). The more complex an organization, the slower it tends to move,
which is a dichotomy for the construction industry, because, construction projects must
be adaptive and fast moving to address changing conditions in the field operations,
procurement activities, the logistics of local geography, differing cultures if globally
located, design changes, owner requests, labor unrest, and the list goes on.
Organizational fragmentation presents in two ways, generally horizontal and vertical.
“The construction industry exhibits extensive fragmentation along both dimensions and,
especially for major projects.” (Fellows & Liu, 2012, pg.655). One of the goals of this
paper is to identify ways to reduce or overcome both of these forms of fragmentation.
Issue 2 – “Known Unknowns”
Reporting Complexity – “Lost in translation”
The reporting demands on a project can be a barrier to project delivery. Reports are
produced to provide managers and executives with information for decision-making. The
format and granularity of the reporting is driven by the recipient stakeholders’ needs and
the complexity of the decision being made. In their paper, which explores the affect of
project reporting requirements on complexity, Antonaids, Edum-Fotwe, and Thorpe
declare, “ When structuring the project organization, consideration should be given to the
individual parties that contribute to the project, the agents that equally contribute to the
execution of the project.” (Antonaids, Edum-Fotwe, and Thorpe, 2006,pg.129).
Behavioral Barriers in Construction
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Project teams spend a significant amount of time generating reports for various
stakeholders. Generally, the project team’s reporting obligations arise from the need to
provide information to the different internal and external stakeholders, and can be
classified into four categories, Management/Execution Reporting, Corporate/Regulatory
Reporting, Contractual/Client Reporting, and Ad-Hoc Reporting that spawns from the
atypical requests from the three previous categories. Ideally, a particular report would
satisfy all three categories, but most often, three separate reports are produced in
different formats and to varying levels of granularity, at different times. This tripleredundant exercise is a constant “hidden” drag on project resources that decreases
efficiency. In the industry there is a term, “secondary costs”, which refers to costs that
are known to be incurred, but are difficult to track and quantify. These “secondary costs”
are normally incurred as additional scope is added to the existing project. The
“secondary costs” incurred by a project team as a result of an overly complex reporting
structure manifests as project personnel spending significant amounts of unbudgeted
time preparing reports. This kind of administrative drag on project resources arguably
erodes the bottom line fractionally every instance.
Poor stakeholder communication can increase the magnitude of secondary costs if the
schedule of routine reports is not known or clearly communicated, however the most
common communication breakdown is the lead-time given projects for ad-hoc report or
information requests, which resulting the proverbial “fire-drill”. Inadequate lead time
results the quality of the reporting eroding because of insufficient time and the disruption
of previously scheduled delivery activities on the project doesn’t just impact the
Behavioral Barriers in Construction
36
functional department that was the recipient of the request, but often numerous other
cross-functional project stakeholders, which can see the secondary costs quickly
cascade and compound across the project.
This author’s observation has been that such ad-hoc requests, primarily from internal
corporate stakeholders show no understanding or consideration for the project’s
commitments, normally evidenced by unrealistic timelines and “required” levels of detail.
Even more frustrating is that the request was often known well before the actual request
was received by the project, robbing the project of valuable lead-time it could have used
to mitigate the secondary costs that would be incurred.
The communication transaction that takes place via the reporting process is subject to
misinterpretation. Antonaids, Edum-Fotwe, and Thorpe (2006) identify three factors that
can influence the quality of the information communicated via reporting. Either the
message content is not understood by the receiver, the message is in the wrong
“language”, or the format of the information is not easily understood.
The first factor, the message/report content is not understood by the receiver, speaks to
the straightforward clarity of the communication itself. Secondly, the message is in the
wrong language, a classic industry example is the operational or field explanations for
forecast variances provided by project execution personnel, who use different terms and
have a different perspective than the back-office accountant that requires these
explanations for financial reporting purposes. I have observed this type of
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37
miscommunication trigger many altercations that could have been avoided if the
organization had a more common language.
Third, the medium, or format of the information, charts, spreadsheets, etc. are not
understood or that require some form of conversion to answer the inquiry. Quite often
spreadsheets and charts built for presentation make sense to the originator of the
information, but the information ends up being lost-in-translation, so it is important to
consider the audience or end-user of the information and construct a format that can be
easily understood by all participant stakeholders.
Strategic Misrepresentation – “Deception or Not”
A particular area of attention currently is the inaccuracy of construction forecasts.
Megaproject in particular have a track record of over-running their original cost
estimates. This author has observed three distinctive reasons that begin to explain this
phenomenon. First, the project management team is genuinely unaware of an
impending problem due because of a lack of experience or competence, Second, the
project management team has an excellent understanding of their forecast, but their
forecast is then optimistically adjusted, by either themselves, or more often, by
management at the next highest level. The basis for their optimism often involves using
rationale like “its too early to adjust the forecast, we are only 10% complete” or “ we can’t
let the project team give up margin so easily”. The duality of this behavior is such that if
the project improves, no one outside the project is the wiser and the project team’s
performance is perceived positively. However, if the project deteriorates further to the
Behavioral Barriers in Construction
38
point where it must be written down, then the project team’s performance perceived
negatively. These practices also raise transparency concerns that can result in improper
financial reporting. Third, the available data that the project management team has is
inherently inaccurate, which results in a poor forecast.
This behavior is an industry example of strategic misrepresentation. There have been
numerous articles written on the subject and there are different perspectives as to the
cause, but there are two distinctive positions, plainly put, people are either engaging in
willful deception, exacerbated to some extent by bias induced delusion or the
management of megaprojects is of such incredible complexity that the best that can be
expected is an ambiguous, inaccurate estimation of the end result.
One deception-orientated position suggests, “Undoubtedly, substantial resources have
been spent over several decades on improving data and forecasting models.
Nevertheless, this has had no effect on the accuracy of forecasts. This indicates that
something other than poor data and models is at play in generating inaccurate
forecasts.” (Flyvbjerg, 2008, pg.6).
There are numerous biases that have been well studied that affect project managers,
forecasters and other key members of the construction team. Among the most significant
that affect project delivery as indicted by (Flyvbjerg, Garbuio, & Lovallo, 2009), are the
Planning Fallacy, and Anchoring and Adjustment.
Behavioral Barriers in Construction
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The Planning Fallacy has been described as the tendency to underestimate taskcompletion times and costs, even knowing that similar tasks have run late or gone over
budget (Flyvbjerg, Garbuio, & Lovallo, 2009, pg.174). Anchoring and Adjustment is the
tendency of forecasters to keep their new estimates near their original estimate, which
commonly in the case of construction is the budgetary number. This anchoring to the
budgetary number results in un-objective re-estimates or adjustment, which can lead to
“optimistic forecasts” (Flyvbjerg, Garbuio, & Lovallo, 2009, pg.174).
In sympathetic opposition to the deception and delusion position championed by
Flyvbjerg et al. (2009), the team of van Marrewijk, A., Clegg, S. R., Pitsis, T. S., &
Veenswijk, M., (2008, pg.598) “contend that instead of seeing the budget overruns,
inflated forecasts, costs and public benefit as occurring by malevolent design, we should
seem them as the result of normal practice of professionals operating with limited
knowledge, but influenced dramatically by a range of ambiguous and uncertain external
and internal forces.” (van Marrewijk, A., Clegg, S. R., Pitsis, T. S., & Veenswijk, M.,
2008, pg.599)
However, what is not yet clear, is if there is a structural link associated with these
behaviors, one that encourages strategic misrepresentation. External influences on
project decision making can also been seen by examining various combinations of
Behavioral Barriers in Construction
40
Principal-Agent relationships and types of Strategic Deception as described by
(Flyvbjerg et al., 2009).
Asymmetric Stakeholder Information –“You don’t know, what you don’t know”
Asymmetric information arises whenever a stakeholder involved in a collaborative
transaction or interaction with one or more additional stakeholders has more information
pertaining to the interaction than the other stakeholders. Not all stakeholders are
incentivized the same, even when they are involved in a formalized collaboration like a
consortium or joint venture, so the potential for an asymmetric situation to develop is
almost assured. A particular stakeholder may withhold information from an interaction
due to self-interest. This withholding behavior creates a lack of transparency, which will
affect the quality of any decision arising from the interaction, ultimately negatively
affecting the outcome the collaborative effort.
In an environment were asymmetric information exists, the difference in outcome
between an interaction made with all the known stakeholder information and made
without all stakeholder information resulting from an asymmetric scenario is an agency
cost referred to as a “loss of welfare”. (Schieg, 2008,pg.49).
It is this author’s experience that project organizations exist in a constant state of
asymmetric information. There are many different factors that encourage this inefficient
state, but using an Occam’s Razor approach, the simplest answer being the most likely,
is that stakeholder incentivization is misaligned. There is a constant adversarial tension
Behavioral Barriers in Construction
41
between external stakeholders, and internal stakeholders, predominately those that
make up the extended project management team i.e. shared service organizations, and
corporate departments. This behavior encourages opacity and contributes to the
perception that information reported by the project team may be, to some degree,
“managed” or “filtered”, and often in actuality it is. This “management of expectations” as
observed by the author on numerous projects is driven mainly by organizational factors
like employee incentivization, poor inter-organizational relationships, and lack of
accountability.
This kind of environment generates inaccuracies in the information that multiple
stakeholders rely on for decision-making. These inaccuracies can lead to economic
disadvantages for stakeholders, the inefficient use of resources, and potentially
increased agency costs like loss of welfare. (Schieg, 2008).
The consequences of negative outcomes resulting from the poor quality of information
can be clearly identified and quantified. But without a culture of accountability, the
exercise is pointless. The improvement or eradication of this asymmetry in stakeholder
information should lead to an increase in organizational effectiveness.
Contested Information – “Everyone has an opinion”
Related to misrepresentation, contested information views decision-making through the
consideration of two main factors, the level of certainty of the information being used by
Behavioral Barriers in Construction
42
stakeholders and the normative standards of the same stakeholders when making a
decision. Similar to the numerous articles written by Flyvbjerg, the authors, De Bruijn and
Leijten, in their article Megaprojects and Contested Information (2007), present their
research from the view of policy-making and in their introduction insist that “Information
is crucial to good decision-making in large infrastructure projects” (De Bruijn and Leijten,
2007, pg.49).
The two main factors of contested information are viewed together when identifying the
contested nature of a particular problem requiring a decision. An interpretation of De
Bruijn and Leijten's “Four types of policy problems” table (De Bruijn and Leijten, 2007,
pg.52) appears in Figure 1 in a format that can be readily applied to identifying the
contested nature of a particular problem or decision.
A problem is considered Tameable when the level of certainty of information is high and
there is consensus on the normative standards used by all applicable stakeholders. An
example of high certainty data would be a proposed technical design supported by all
the applicable data and high consensus on standards would be the contractual
specifications to which all stakeholders would use as a determinant of the technical
design’s conformance or adequacy. Decisions that use highly certain information and
have low consensus are referred to as ethical problems because even though the facts
can be measured objectively; there is often much debate with no consensus amongst
stakeholders (De Bruijn and Leijten, 2007). The opposite of untameable ethical
problems are untameable scientific problems where consensus among stakeholders is
high, but there is low certainty of knowledge available. This type of problem is a common
Behavioral Barriers in Construction
43
one is construction where many possible decisions or courses of actions are developed
or planned, but require information or data confirmation in terms of finalized design,
updated schedule analysis, quantity takeoffs, or other data to attain the high level of
certainty required to move the problem into the realm of objective, which in most cases
constitutes the best quality decision.
The most difficult problems are those that lay in the lower leftmost quadrant, untameable
political problems. In situations where information certainty is low, most often
characterized by ambiguity or conflicting multiple sources, and there is as also low
consensus, normally due to contractual ambiguity, the different stakeholder views will be
different and as such any decision will require significant influence by one stakeholder or
several, thus the political moniker.
The concept however, seems equally applicable to the delivery phase of megaprojects
as well. Given the highly technical nature of megaproject construction, much of the data
tends to be of High Certainty, however, the normative standards of stakeholders, defined
as Goals, Values, and Principles (De Bruijn and Leijten, 2007, pg.52), tends to lack
Consensus.
Behavioral Barriers in Construction
44
Figure 1.
The contested nature of information highlights the very real need for organizations to
consider what (De Bruijn and Leijten, 2007) refer to as a process design. By agreeing in
advance to a set of “rules of the game” (De Bruijn and Leijten, 2007, pg.64) participants
in a particular decision can adopt standards for both knowledge and consensus that can
facilitate timely decisions of an acceptable quality. To achieve the best organizational
impact, the process design requires a decision matrix or plan that establishes the rules
of the game for some or all decision points. There is often some process design
established between external stakeholders like the project owner and jointventure/consortia partners, but there is seldom-adequate definition established internally
between the project team and the extended project team.
Behavioral Barriers in Construction
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Agency Theory
Individual Projects have a direct External Principal-Agent relationship with their
Contractual Clients/Owners; however, the Enterprise-Project relationship can be viewed
as an Internal Principal-Agent relationship. Agency Theory focuses on “the so-called
agency problem that occurs when cooperating parties have different goals and division
of labour” (Eisenhardt, 1989, pg.57).
With the construction industry’s highly fragmented nature, each of these fragments has
become its own functional group or department that must all work with each other
cooperatively to achieve the same goal. At the project level this is presumably the
successful delivery of a given project, as defined by both the contract and the
organizations internal goals for safety, quality, profit, employee turnover, etc.
However, organizational structure can impede cooperation, particularly when resources
required by the project are not dedicated to the project. When resources are not project
specific their goals tend to not be aligned with the project they are supporting, but remain
within their respective discipline group or department. This can create a situation where
there is internal competition for resources and task prioritization where the ability to hold
these shared resources adequately accountability can become difficult or functionally
impossible, undermining the project team’s task efficiency related to the resources in
question.
Behavioral Barriers in Construction
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Issue 3 – “This is an engineering company”
As the industry’s competitiveness increases, companies will begin to run out of
processes to “improve”, overhead to “reduce”, and training budgets to cut. These
improvements and reductions seldom generate long-term savings, but can be used
effectively in the short-term by companies to manage earnings expectations.
One of best remaining options for improvement lies within the human resources that the
company employs. A company’s culture does not lie exclusively within the realm of
Human Capital Management (HCM) per se, but strong HCM can play a role in evolving a
strong organizational culture; which can have a powerful impact on the company’s
performance. (Daft & Armstrong, 2012, pg.364).
Organizational Theory - “Cultural Levels”
According to Daft & Armstrong an organization’s culture can be viewed in two distinct
parts. The first distinct part is observable behaviors like the way people dress and act,
there are slogans, stories, and even physical settings that members share. These
observable behaviors create a veneer or façade of cultural continuity across Divisions,
Departments, and Projects, but the second distinct part of organizational culture, the
underlying values, assumptions, beliefs, and thought process, are a company’s true
culture (Daft & Armstrong, 2012, pg.356).
The underlying culture manifests as distinctive subcultures, which originate from the
distinctiveness of the Divisions, Departments, and Projects themselves.
Behavioral Barriers in Construction
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Another view of the composition of organizational culture cited by (Cheung, Wong & Wu,
2011, pg.34) comes from (Schein, 2004), which is a three-level framework rather than
two-level, that emphasis’s Artifacts as the top observable behavior or explicit expression
of an organizations culture, followed by Espoused Beliefs and finishing with Underlying
Assumptions, aligning with Daft’s Underlying Values.
Cheung, Wong & Wu’s study was construction industry specific and reviewed several
models of organizational behavior to compile a list of cultural Artifacts, which he then
compiled into a survey and solicited responses from the Honk Kong construction market.
The data received was analyzed using principal component factor analysis and the
results were then grouped into 7 Organizational Culture Factors that he proposes affects
the organizational culture of construction organizations. The 7 Organizational Culture
Factors proposed, in order of significance were:
1. Goal settings and accomplishments;
2. Team Orientation;
3. Coordination and integration;
4. Performance emphasis;
5. Innovation orientation;
6. Member’s participation; and
7. Reward orientation.
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The results of the research and quantitative analysis suggest that the proposed
Organizational Culture Factors could be of use to construction organizations in their
analysis of current organizational structures and future organizational designs. Cheung,
Wong & Wu in their concluding remarks state that the proposed structure can be used as
a guide for organizational cultural development and where appropriate the structure can
be modified to suit the specific particularities of an organization. (Cheung, Wong & Wu,
2011, pg.42).
Organizational Reality –“Boots on the ground”
In their paper Managing public-private megaprojects: Paradoxes, complexity, and project
design, van Marrewijk et al., examined two modern megaprojects with different
organizational structures and resulting cultural environments that had significant effects
on how the projects were delivered. In the book Projects as arenas for renewal and
learning processes, edited by Lundin, R.A. and C. Midler, Mats Engwall asserts that
“Megaprojects are characterized by a culture that is ambiguous; it has fuzzy limits and
embodies a duality between objects and actors who are willing the projects into being”.
(as cited by van Marrewijk, A., Clegg, S. R., Pitsis, T. S., & Veenswijk, M., 2008, pg.592).
The data collected for their paper was gathered by observation and interviews of actual
project stakeholders during execution of the projects over periods ranging from 12 -18
months. They concluded, “That there are fundamental project design implications to be
drawn from the two cases.” (van Marrewijk et al, 2008, pg.598).
Behavioral Barriers in Construction
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Issue 4 – “We are here to make money”
Successful Delivery –“What does success look like?”
Based on the literature reviewed so far, identifying what constitutes Successful Project
Delivery is a question with several moving parts, with many of those parts being related
to each particular company culture. There are some proposed “industry standards”
however, they do not seem to be universally supported or adopted in practice. One view
of success comes from the perspective of the construction company or “Contractor” and
the opposing view of the client or “Owner”.
From the Contractor’s perspective, most Project Directors would consider being
completed on time and on budget, a successful delivery. Being on time mitigates the
potential for liquidated damages or other penalties for late completion; conversely early
completion provides for the realization of additional overhead savings and possibly an
early completion bonus. At their core, construction projects remain for the most part,
solely incentivized by profit.
But is this the best incentive? Should megaprojects have a more sophisticated
measuring stick other than just “making money”? J. Richard Capka in his article
Megaprojects – They Are a Different Breed, concluded among other things “A successful
project needs to leave behind a sense of public pride in both the accomplishment and
the manner of accomplishment.” (Capka, 2004, pg.9). This to a large degree is quite a
different mindset from the average construction employee’s mentality. Could a particular
form of project structure encourage this kind of mindset?
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From an Owner perspective; there are many other variables to consider in evaluating a
successful project, such as first nations obligations, environmental considerations,
community preferences, and project financing. One key area of research is the
evaluation of Alternative Contracting Models (ACMs) like the Public Private Partnership
(PPP) “…and its variants such as build-transfer operate (BOT), design-build-financeoperate (DBFO), build-own-operate (BOO), design-build-operate-maintain (DBOM), and
several others (Miller 2000; Zhang and Kumaraswamy 2001) as cited by (Abdel Aziz,
2007, pg.918).
The Contract structure may also have influence on the Project Structure discussed
earlier in the chapter, so there is a possible “knock-on” effect that may flow all the way
down to project execution in the field; for example, mega-scale PPP projects that require
public financing and contain lengthy Operations & Maintenance (O&M) scope are most
often undertaken by Consortia and/or Joint Ventures.
Adverse Selection –“What lies beneath?”
As discussed earlier in the chapter, the relationship between Corporate and the Project
can be viewed with in the context of a Principal – Agent relationship. Within large
companies there is really a hierarchical chain of Principal – Agent relationships
extending downward from the uppermost corporate level down throughout the
organization to the lowest tiers of the project organization as depicted in Figure 2. This
series of descending internal Principal-Agent relationships, where Agent becomes
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Principal creates numerous instances of the agency problem. The excessive amount of
bureaucracy that is prevalent in many large construction organizations has presumably
evolved over time in response to this situation as a way for the organization to minimize
the potential impact of adverse selection, defined as “the misrepresentation of ability by
the Agent” (Eisenhardt, 1989, pg.57).
Figure 2
Corporate
Division Principal
Division
Corporate Agent
Business Unit Principal
Business Unit
Division Agent
Project Principal
Project
Business Unit Agent
Project Agent
Subcontractor Principal
Subcontractor
Sub-subcontractor Principal
Ability in construction terms can mean the achievement of a contractual milestone
schedule dates, the delivery of procured items, completion of design, testing &
commissioning or a forecasted amount of profit. In order to minimize adverse selection,
systems and controls are implemented “investing in information systems such as
budgeting systems, reporting procedures, boards of directors, and additional layers of
management.” (Eisenhardt, 1989, pg.57). All to ascertain what lies beneath the veneer of
the agent/project’s represented position.
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The Big Picture
This researcher’s review of the literature has revealed a diverse range of concepts,
theories, frameworks, and notions about the structuring of construction organizations.
There was consensus throughout the literature that structure does indeed affect project
delivery.
Within he context of Contingency Theory the literature reviewed served to strengthen the
position that the mechanistic structure of construction organizations is a main source of
the structural deficiencies that arise. Contending with the VUCA environment requires an
organic solution that prioritizes adaptability and empowers the project team to make
decisions quickly in response to the constantly changing conditions that are encountered
in the field.
Chapter IV. RESEARCH DESIGN AND DATA COLLECTION
Research Design
Review of Industry Reports
The global construction industry is a large one and there are numerous organizations
that produce regular industry analysis of various topics affecting the industry. These
include, technical publications, advisory publications, and non-governmental
publications. Each of these categories is defined and outlined below.
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Industry Publications
An iconic industry publication for construction professionals, Engineering News Record
(ENR), owned by McGraw Hill Construction, produces several annual reports ranking top
contractors, designers, and relevant market data. For subscribers the website offers
additional resources like a searchable archive of its publications, and whitepapers
spanning a variety of topics.
Searching this resource was useful as an initial survey tool to determine if organizational
structure was a topic of discussion in the current construction industry zeitgeist. There
were numerous articles about the growing popularity of mega-scale projects, particularly
of the PPP variety in the Transportation sector, however, there no discrete articles or
publications found that expressly discussed how these projects should be
organizationally structured. This represents to the author an opportunity to contribute to
an as yet undefined field that has the potential to significantly impact the successful
delivery of mega-scale construction projects.
Advisory
Professional services firms have responded to a variety of industry needs, expanding
beyond their initial accounting offerings into numerous other consultancy service fields
that have become known as advisory. These infrastructure practices are now present in
many of the biggest firms and most offer annual reports on the industry and several
specialty reports on particular trends of interest. Reports from several of the most
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prominent firms, namely KPMG, Deloitte, Price Waterhouse Coopers (PwC) and
McKinsey were reviewed.
Lesser-known reports from private consultancy’s like the FMI’s Global Construction
Survey offer a more detailed perspective of many of the same issues and attempt to
offer more tangible advice as to what can be done in response.
Large capital projects, particularly infrastructure projects are often tied in some respects
to the prevailing political climate. Projects are conceived, researched, shelved, revived,
and initiated as different governments move into and out of office. The government as
owner, combined with an increasing regulatory environment and these projects
represent large revenue-generating opportunities for professional service firms. These
firms have amassed a significant amount of global experience with a large
representation of clients and geographies, so their advisory reports contain a diverse
perspective grounded in real world challenges and lesson’s learned. A review of
numerous reports showed that there is discussion related to project team composition,
systems, reporting, process and procedures; many issues that are related to and
influenced by organizational structure, however, like with ENR, in the publications
reviewed there was no express discussion pertaining to the design of a projects
organizational structure.
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Non-Governmental Agencies (NGOs)
The impact construction companies, particularly, those that engage in mega-scale
projects significantly affect the environment, communities, and economies were they are
built. For this reason they attract scrutiny from a wide range of NGOs. Of particular
interest for this study is Transparency International’s Global Corruption Report 2005,
which was a Special Focus edition on Corruption in Construction and Post-Conflict
Reconstruction.
NGOs seem to often have a perspective that is different from the prevailing industry
perspective. As the role of industry NGOs continues to evolve, they are starting to have
more and more influence on policy making, particularly regulatory policy, that has the
potential to impact how market participants operate their businesses.
Review of Relevant Literature
After the main organizational structures have been identified, a literature review will be
used to identify the particular pros and cons of each chosen structure to again infer any
potential constraints or promoters that may transfer downstream to the projects resulting
from the inferred enterprise structure.
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Data Collection
Primary Material
The research for this paper consisted primarily of keyword on-line searches using
Google, Google Scholar and the Athabasca University Online Library to build an initial
list of articles, videos, and industry reports to be reviewed. Articles identified on Google
and Google Scholar were then searched in the AU Library and if found, exported to
Refworks for subsequent citation and if not found added to Refworks manually.
Secondary Material
During the literature review of the primary articles, interesting and seemingly relevant
cited material and books were noted and subsequently searched using the method
identified in previous section. These secondary materials where then screened for
relevance based on the initial findings from the primary materials and only the material
that was most strongly associated with the main thrust of the paper were chosen for
review.
The different sources of information reviewed were to some degree hierarchical in nature
in a descending order. The Industry and NGO material was general in nature, and
sometimes referenced Advisory material, which tended to further define and
recommended specific challenges, problems, processes, and systems that should be
addressed to improve project delivery, however, there was minimal discussion about
actionable steps and real world implementation. Reviewing related literature, there was
considerable material on project management, culture, bureaucracy, but very little in the
context of construction and especially in the context of construction megaprojects, but
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there was some material available, and for the most part it was heavy external
observations and theory that often proves different in reality. All of the material reviewed
did however, trend in a meaningful direction and clusters of information were discerned
that were applicable to the issues in question.
Chapter V. ANALYSIS
Analytical Perspective
This researcher was introduced to the idea that “if we cannot express what something is
exactly, we can say something about what it is not – the indirect rather than the direct
expression” (Taleb, 2012, pg.301). This researcher has developed a perspective to look
for the “negative space”, the “gap” or “missing” pieces of information when investigating
problem. Responses to inquiry can be verbal or written, and take the form of research or
provided data, whatever the format, the adequacy of the answer, or its explanatory
power, can quickly be ascertained. It is this lack of explanatory power that often reveals
the “negative space” that this researcher focuses on. By defining and understanding the
missing piece can lead to the definitive identification of all factors that are affecting any
issue and then an effective remediation can be planned and executed.
During the literature review, the concept of structural deficiency in organizations, seemed
to some share some aspects of this researchers “negative space” perspective. Using
these observable symptoms as a lens through which to search for the negative spaces
within the identified issues seemed plausible. The negative spaces identified will be
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categorized using the relevant concepts, theories, frameworks, and notions from the
literature review as a means of associating information for analysis.
The reviewed literature strongly suggests that the choice of organizational structure is an
important one. Much of the literature reviewed pertaining to organizational structure was
focused at the enterprise level and did not extend below the business unit or project
structure, however, the literature that did look at project-level organizations, stressed the
temporary nature of these organizations and the challenges dealing with the
development of a high performance culture over such a short timeline. On large megascale projects executed using joint-ventures or consortia structures where multiple
companies come together to execute a particular scope of work, each with their own way
of doing things, designing a temporary organizational structure that can tame all of the
different variables at play is no small task. The results of this analysis should provide an
understanding of where to begin.
Structural Deficiency
Daft and Armstrong (2012) discuss four factors or symptoms of structural deficiency that
can be observed in organizations.
Symptom One – Decision-making is delayed or lacking in quality
Organizations need to make timely decisions to capitalize on opportunities and mitigate
risks. In addition to timeliness, decisions should be made with the best available
information whenever possible. Organizations that experience excessive turnaround time
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in their decision making process are experiencing deficiency. If decisions being made
within and organization do not adequately consider all stakeholders, the resulting
decision will be lacking in quality i.e. it will not have been the best possible decision. A
common example of this is when companies publish policies written from only one
stakeholder’s perspective without adequate consideration as to the impact, applicability,
or execution of the new policy across the organization. This observable, one-sided
perspective is a clear signal that there is a greater underlying structural problem.
Symptom Two – Inadequate response to change
Organizations need to respond to environmental factors in novel ways. Status quo
responses to shifting market forces, competitor strategies, talent shortages, etc. will
result in losses of market share, the capitulation of talent, and organizational atrophy will
result. Organizations that are unwilling to change or adapt their internal processes,
policies, and structures in response to internal business requirements are exhibiting this
symptom of structural deficiency.
Symptom Three –A decline in employee performance and goal achievement.
Effective, high-performing organizations invest in the management and development of
their employees. Like any other capital investment in new production technology,
equipment, or design software, human capital requires not just an investment of money,
but more critically, time. Organizations with poor HCM practices, whose supervisors,
managers, and leaders, do not provide feedback, clear objectives, or hold people
adequately accountable, cannot expect high-preforming teams. Additionally, company’s
need to provide their employees with career opportunities, engage in succession
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planning, and invest in leadership development. High performing employees expect this
kind of HCM from their employers and will become quickly frustrated and disengaged by
the absence of what should now be Standard Operating Procedure (SOP) for any
sophisticated company. A solid HCM program can contribute to the development of high
performing teams and individuals.
Symptom Four – Excessive inter-organizational conflict
To varying degrees within organizations there is conflict between internal stakeholders.
Normally observable as “friction” between departments, the frequency of the conflicts
and the intensity of the exchanges can be an indicator of an existing problem and its
severity. Some conflict can be considered functional in terms of generating robust
discussion via the inclusion of multiple stakeholder requirements and viewpoints,
however, when conflict becomes a regular occurrence, unproductive, adversarial and
disrespectful; there is a problem that needs to be addressed.
These symptoms of structural deficiency are readily observable within organizations and
existing within the consciousness of the company’s underlying culture and in daily
conversations between employees. The issues that have been observed and discussed
in earlier chapters can be framed within the context of one or more symptoms of
structural deficiency. The deficiencies that arise from particular issues can be explained
by theories in the reviewed literature. This three-way association of Issue, Symptoms,
and contributing Literature creates a matrix of influencing factors that will be used to
develop targeted recommendations.
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Issue 1 - Excessive Bureaucracy
The structural deficiencies that excessive bureaucracy can cause in an organization can
be seen in structural deficiency matrix in Table 1. These structural deficiencies are
easily observable by the speed at which decisions are made, the amount of internal
conflict there is between different functions and departments, and the speed at which the
organization responds to changing internal and external conditions.
Table 1
Issue
Symptomatic Output(s)
Contributing Literature
Enterprise Structure
Poor Decision Making
"Corporate" – Excessive
Bureaucracy
Project Structure
Reporting Complexity
Heightened Internal Conflict
Poor Response to Change
Strategic Misrepresentation
Fragmentation
Culture
To some extent it seems that excessive bureaucracy is simply accepted as something
inherent in large complex organizations. Some organizations minimize the amount of
bureaucracy through continuous improvement initiatives, but given the temporary nature
of construction projects, the window for analysis and improvement tends to be too short,
resulting in lingering bureaucratic inefficiencies that negatively affect project delivery.
Given the multiple hierarchies within the construction enterprise, bureaucracy can be
added at every level creating a cumulative inefficiency that results in negative synergy or
discord throughout the organization.
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Excessive Bureaucracy tends to encourage reporting complexity. As the enterprise
struggles with slow decisions, poor responsiveness, and unproductive internal
relationships it reacts by attempting to establish more control, which generates more
reporting. Very quickly the situation can become a reporting for the sake of reporting
scenario, which decreases organizational efficiency and encourages strategic
misrepresentation that leads to poor quality decisions that leads to bad internal
relationships and a dysfunctional cycle is created.
The amount of bureaucracy that exists in an organization appears to have a positive
relationship to the amount of fragmentation within it. The more silos, the slower an
organization responds and decisions are delayed, increasing frustration and heightening
conflict among inter-organizational stakeholders.
A company’s advertised core culture can often be as much about brand management as
it is about truly understanding what underlying cultural factors in an organization create
or promote competitive advantage. This researcher has observed that the advertised
culture depicted on corporate websites and in annual reports is seldom the culture that
actually exists in the field. As someone moves away from corporate headquarters,
culture begins to morph. The Divisions and Business Units within large corporations
have distinctly different cultures because they have adapted and evolved over time in
response to their particular markets’ stimuli. An organization's advertised or baseline
culture continues to mutate further still as you move continue to move outwards and
downward to the project level. The projects, because of their temporary nature, spawn
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distinctly different cultures with each and every project instance, particularly mega-scale
projects that involve Consortium and Joint Venture partners. In these cases there isn’t
just one strain of one particular company’s culture competing for dominance over the
other, it is a much more chaotic environment with numerous entirely different cultures,
confined together, each potentially with numerous strains of its own resulting in a volatile
project culture that may be completely unrecognizable to each of its contributors.
Issue 2 - Lack of Transparency
The structural deficiencies caused by an organizations lack of transparency can be seen
in the structural deficiency matrix in Table 2. This particular issue is rampant within the
industry, particularly at the project level. Decisions are made in ambiguity and
relationships between the project and corporate are adversarial because the information
provided by the project is of poor quality. This situation is not because the information
isn’t available, but because the organization is rife with asymmetric information, strategic
misrepresentation, and contested information.
Table 2
Issue
Symptomatic Output(s)
Contributing Literature
Asymmetric Information
"Known Unknowns" - Lack of
Transparency
Poor Decision Making
Strategic Misrepresentation
Contested Information
Heightened Internal Conflict
Fragmentation
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Significant Fragmentation within the construction industry has resulted in many different
departments and organizational subunits, each with information at their disposal for
localized decision making, however, when this information is shared with other interorganizational stakeholders from the different silos the information can often become
contested, particularly when information requires some form of consensus i.e. projectlevel forecasts provided to Corporate can be subject to contestation, misrepresentation,
and filtering and several points. Using the previous simple example, project forecasts
can be “adjusted” at the Business Unit Level, and then again at the Division level before
being reported to Corporate. A tightly integrated information management system can
minimize this deficient behavior by increasing transparency and requiring a sophisticated
review and approval process before changes can be made.
When transparency is low, the information that the corporation relies on can have a large
amount of uncertainty in it. This will result in fluctuating forecasts and poor quality
decisions due to incomplete information.
Issue 3 – Cultural Stratification
The structural deficiencies caused by cultural stratification can be seen in the structural
deficiency matrix in Table 3.
Table 3
Issue
Symptomatic Output(s)
Poor Employee Performance
"Its Engineering Company" –
Cultural Stratification
Heightened Internal Conflict
Poor Response to Change
Contributing Literature
Culture
Fragmentation
Contested Information
Asymmetric Information
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During my first tenure with a construction company I observed a distinct difference
between the engineering or ‘operational’ members of the organization and the members
of the ‘support ‘ staff. Members of the support staff where consistently paid below
market, while members of the operational organization were compensated more in line
with industry guidelines as published by the various professional associations like the
Association of Professional Engineers and Geologists (APEG). Bonuses were awarded
to operational personnel with almost no consideration given to the support staff. There
seemed to be an invisible barrier, comparable to that of the ‘glass ceiling’ experienced by
professional women only this barrier crossed all genders and seemed in some sense
classist. Upon inquiry this clear differentiation in treatment was explained away by
numerous people with the matter-of-fact response “Its an Engineering company”.
As I have moved between construction companies, to a large extent this distinction
remains in various forms. And in every case it breeds resentment between the different
factions. This culturally fed cliquism or elitism is to some degree compounded by
organizational fragmentation, which reduces the productive interaction between
operational and support personnel. The resulting ‘silos’ encourage asymmetric
information and when there is collaboration the information is more often than not,
contested due to a lack of common language. Internal conflict manifests between “silos”,
department versus department, corporate versus project, operations versus finance, etc.
all of which only serve to detract from timely, effective, profitable project delivery.
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Issue 4 - Misaligned Incentives
The structural deficiencies that are caused by misaligned incentives can be seen in the
structural deficiency matrix in Table 4. Construction companies, in the traditional,
capitalistic view, exist to earn profits and maximize shareholder value. Organizations that
over-emphasis, or more accurately over-incentivize the profit motive can create a culture
where not all employees are compensated equitably, decision making becomes primarily
a cost-benefit exercise with little consideration for other more expensive qualitative
options that may have may result in greater socio-economic or environmental benefit.
Table 4
Issue
Symptomatic Output(s)
Poor Employee Performance
"We Are Here to Make Money" Misaligned Incentives
Poor Decision Making
Heightened Internal Conflict
Contributing Literature
Culture
Contested Information
Strategic Misrepresentation
Asymmetric Information
Misaligned incentives can also have an adverse affect on the accuracy of financial
reporting, particularly, the proper timing of results i.e. the recognition of revenue and
losses in the appropriate reporting period. Management pressure to maintain minimally
fluctuating forecasts combined with optimism bias frequently results in forecast
adjustments being delayed by one or more periods as the contested information used to
produce the forecast is proposed, defended, revised, and finally accepted. The reality is
however, that projects showing negligible activity are those that are most suspect and
should attract greater scrutiny.
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Limitations
During the research of this paper it has become clear that this is a very complex topic.
The breadth and depth of literature reviewed illustrated this with many articles focusing
on small pieces of the overall puzzle. Many of the concepts identified within this
research paper, like Agency Theory, Strategic Misrepresentation, and Culture are
mature fields of study unto themselves. As a result this current effort is developed into a
high level overview of some of the more observable organizational factors that affect
project delivery. A more detailed analysis would be more favorably received by such a
quantitative industry like construction; unfortunately such an analysis is beyond the
scope of this paper. Future efforts of smaller scope, using a more quantitative approach
could achieve a level of detail that may satisfy industry holdouts.
Chapter VI. RECOMMENDATIONS
Using the structural deficiency matrix to define the relationships between observed
issues, the applicable symptoms of structural deficiency, and the related literature
enabled the development of the following four recommendations that can be
implemented to address these observed issues, alleviate the related symptoms of
structural deficiency and ultimately improve organizational efficiency.
Issue 1 - Operationalize Support Teams
1.1 - Embed Shared Service and Support Personnel
In order to minimize cultural misalignment, off-project shared service and support
personnel should be co-located with the project organization that they support, if
possible. This will increase these functional employees’ understanding of the business
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that they support and will allow them the opportunity to develop relationships with project
personnel. If co-location is not possible, then it may be possible for interface personnel
from the project to be located with the support teams to ensure project requirements are
being met in a timely fashion. An example of this would be a project design manager colocated in the off-site office of the shared service engineering staff. The majority of this
project person’s face-to-face time is best spent interfacing with design resources.
Providing updates and attending meetings with project management on-site can easily
be accomplished with today’s standard technology. Project Manager’s often like their
teams together, but traditional behaviors need to be changed to achieve the best
possible results.
1.2 - Define the Participatory, Advisory and Decision Making Nature of
Relationships
Organizational charts are unrepresentative visuals that have perhaps contributed to the
excessive bureaucracy that many organizations appear to be mired in. Functional
Managers identified on the same line of an organizational chart are not all “equal”. The
reality is that there is a hierarchy to decision making and the nature of the decision often
defines who has the decision-making authority, who should advise on the decision, and
who, if anyone should be solicited to participate in the discussion.
Legal and Compliance items aside, much of the day-to-day operations of a company can
get mired in gate-like processes that require numerous approvals that are simply overreactions to the perceived agency problem of adverse selection. By explicitly re-base
lining the role of the numerous support organizations inside the enterprise, or more
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accurately, reframing their roles as advisory or participatory, the cycle time for project
decisions that require off-project input and support can be improved.
1.3 - Use Service Level Agreements (SLAs) and Key Performance Indicators (KPIs)
SLAs and KPIs define support team goals and objectives in a quantifiable way that
encourages accountability and allows for the accurate monitoring of team performance.
Without SLAs and KPIs an organization is unable to understand the level of support that
inter-organizational departments provide. Inadequate project support takes many forms
and the negative effect that it can have on project delivery is both constant and
cumulative, resulting in a significant aggregate effect on the project. The development of
SLAs and KPIs should not be a top down exercise, they should be developed bottom up
to ensure that the right level of service and the proper deliverables are selected for
measurement to ensure that project delivery is being adequately support.
Issue 2 - Reduce Reporting Complexity
2.1 - Create a Common Language
Within large organizations there can be many different topical dialects. A classic
example is the difference in the concept of revenue between finance and the field, where
finance views revenue in accounting terms and projects tend to view revenue in terms of
what they have invoiced or been paid. To ensure that all members of the organization
are able to communicate with each other effectively the company needs to invest in
educating and establishing a common language for its employees. There may also be
industry norms and cultural artifacts that will need to be changed. Some companies may
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have developed meaningful attachments to phrases or terms that are worth retaining, but
in most cases it will make the most sense to adopt the industry’s norms so that
communication with external stakeholders is as clear as possible.
2.2 - Standardize the Look and Feel
A significant amount of time is wasted at the project, business unit, departmental, and
divisional level, repackaging the look and feel of information multiple times as it moves
up the chain. In order to eliminate this redundant exercise from the system, the required
information should be generated in the required format at the point of origin, wherever
and whenever possible.
To facilitate this, all end users of the information should collaborate to determine a
format that will address all of their needs. A needs analysis should be done to determine
what information is truly required. In today’s era of business analytics and data mining it
is easy to produce information for the sake of information that does not truly add value to
the decision making process.
2.3 - Establish a Set Schedule
Without a set reporting schedule, projects are constantly pressured to provide
information, reports, and forecasts that do not align with the project’s internal,
contractually driven reporting cycle. These regular fire drills detract from the project
personnel’s primary roles pertaining to project delivery and create immediate, tangible
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erosion in productivity, efficiency, and effectiveness. Establishing a set-reporting
schedule can significantly minimize this erosion; the requirements of which are
communicated and understood by all stakeholders, so the project team can schedule the
production of these reports like any other project activity.
Issue 3 – Communicate the Culture
3.1 - Information is Not Communication
Posting a Vision, Mission, Statement of Values, etc. to the internal company website is
not communication, it is simply making information available to anyone with the time or
inclination to read it. In order to communicate this information to employees effectively
there needs to be tangible, face-to-face interaction with the leaders of the organization.
Mandatory live web conferences from the CEO, town hall style meetings at division,
business unit, and project offices, combined with further dissemination by leaders at all
levels of the organization is what is required to effectively communicate and cultivate the
intended culture throughout the organization.
Issue 4 - Align Organizational Incentives
4.1 - Establish Common Goals
In order for an organization to function as efficiently as possible, all of its members
should be working towards the same goal. If that goal is delivering a certain percentage
of profit or achieving a certain level of productivity, then that goal should be formalized
for all teams, across all functions as the over-arching goal. Feeding into that goal will be
supporting goals and targets that are discipline specific, but these departmental targets
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should be framed within the context of the company’s over-archiving goals to create a
kind of goal unity throughout the organization.
4.2 - Consider Profit a By-Product
Henry Ford is quoted as saying “Profit is a by-product of work…”. When a project, the
work, is executed well it generally makes money, barring of course poor estimates and
unforeseen events. By incentivizing the processes and execution activities that comprise
the work across all functions like Safety, Quality, Compliance, Change Management,
HCM, and Project Management, the efficiency of the organization and project execution
excellence becomes the focus, not profit. When combined with appropriate SLAs and
KPIs this subtle shift in focus can produce powerful results.
Chapter VII. CONCLUSION
The issues and observations made about the construction industry and the workings of
megaprojects in particular are not unique to construction. This researcher suspects that
they are prevalent in the majority of industries and organizations to some degree or
another.
One of this researcher’s graduate professors highlighted the salient fact that
dysfunctional organizations are the norm and that high performing organizations are
atypical. Only those organizations that are exceptional are willing to subject themselves
to written testimony in the form of articles, case studies, and books. This has resulted in
the business zeitgeist being convinced that all of this wonderful organizational theory
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and its implied outcome, if applied is “normal”, however the reality is far different, the
reality is that most organizations are probably far more chaotic than the literature would
suggest.
After identifying four observable issues, reviewing the relevant literature and developing
a matrices for analyzing the factors that contribute to organizational deficiency there
were some indicative answers formulated. After examining the different types of
organizational structures it seems quite evident that construction organizations are
nested organizations that contain within them distinctive instances of numerous
structures, loosely tethered together with frayed horizontal and vertical linkages, which
suggests that construction enterprises today, are not currently appropriately structured to
support megaproject delivery because of the inherent inefficiencies that such a
fragmented mechanistic structure induces, which manifests as excessive bureaucracy
and poor decision making. When organizations are fragmented, asymmetries in
information are created, leading to a lack of transparency, resulting in poor quality
decisions.
When there are different structures within the organization, each with different
information and misaligned goals, they each develop their own distinctive subcultures.
These subcultures may promote withholding behaviors that slow down decision-making
and contribute to increasing the bureaucratic volume within the organization. There can
be stark cultural differences between the project-level personnel and the different
stakeholder organizations, internal, external, extended team, etc. The more aligned the
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support organizations’ culture the better and timelier the level of support they will provide
the project, which will improve the execution of the project.
Lastly, proper incentivization of the various organizations is important. Projects can
make money, but wreck relationships along the way, damaging future revenue
opportunities with the client. Poor workmanship can have an impact on reputation, and
not managing people and trade labour appropriately can result in grievances. Always
choosing the most economical option instead of delivering the best value or meeting the
spec. Not all stakeholders are aligned to make profit; in fact some stakeholders to the
project execution are incentivized to minimize profit i.e. limit change orders subcontractor
claims, support departments are incentivized by the projects profit margins, they are
completely un-aligned, if they are incentivized in any what at all.
The issues, theories, and deficiencies discussed in this paper are all at play within
construction organizations today. These organizations are grappling with the VUCA
environment, constrained by outdated mechanistic organizational structures. The
response from industry should be an organic one that promotes the reimagining of the
project-based organization. A project team that is better supported, more responsive,
adaptable, and that has the authority to make command decisions in the field as
situations unfold. This is how we can tangibly improve project delivery.
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Chapter VIII. REFERENCES
Abdel Aziz, A. M. (2007). Successful delivery of public-private partnerships for
infrastructure development. Journal of Construction Engineering & Management,
133(12), 918-931. doi:10.1061/(ASCE)0733-9364(2007)133:12(918)
Anand, N., & Daft, R. L. (2007). What is the right organization design? Organizational
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