background and perception of the problem · background and perception of the problem technology or...

Future organisation of the building process Chapter 2. Background and perception of the problem

2 . BACKGROUND AND PERCEPTION OF THE PROBLEM

2.1. INTRODUCTION

Studies concerning the future of the Construction Industry have different objectives and

scopes. Some studies deal with subjects closely related to market developments and

planning, for example predictions on housing needs based on demographic modelling. In

contrast to this there are studies focusing on production factors such as labour, capital or

technology. The interest of this study is somewhere between the two extremes of the

scale, namely the structure of the Construction Industry and the organisation of the

building process itself.

Our basic assumption or hypothesis mentioned in Chapter 1 is that the construction sector

is slowly but unmistakably entering a new stage of its development. Not only are its

sector structure and market behaviour changing, but also its methods of working and

especially the organisation of the construction process. This chapter describes some of the

strategies construction firms follow by comparing different countries as found in the

literature. It will be shown that many of the identified determinants of company strategies

are closely related to the organisation of the construction process itself.

Within the Construction Industry, international competition has gained new attention in

the last decade. This is due to major political shifts such as the creation of the European

Single Market, the dissolution of the USSR, and to the entrance of new competitors on

foreign markets.

restricted market local small scale market

international market

I I

Illustration 2.1 Turnover on the global construction market


The sheer size of the world market is hard to assess. Although the major part of the

approximately 1400 billion US $ world market is a local small scale one, the international

market - where competition between f m of different origin takes place - is nonetheless

large and there are reasons to believe that it is likely to expand. Restricted markets (for

example East European ones) are opened up and home markets are gradually penetrated

by foreign firms seeking for profits on smaller projects as well. The international market

has been dominated in the past by relatively few players, but newcomers increase the

number and niche-strategies decrease the share. So the scene is changing.

This roughly sketched picture has given birth to numerous studies in various countries to

assess strengths and weaknesses of the Construction Industry on home and foreign

markets. They can be analysed by using the 'Porter Diamond'. According to this method,

international competitiveness of f m s and countries is based on the successful

exploitation of local (national or regional) production factors and resources. The analytical

framework has been tested in an international four year research project and has been

applied to several sectors, among them the Construction Industry. Analysing strengths

and weaknesses of national sectors and firms within that sector has significance for both

policy making and company strategy formulation.

CHANCE

Illustration 2.2 Porters diamond

According to the theory, determinants for national competitive advantage can be grouped

under four broad national attributes, constituting the playing field for companies on the

home market: (a) Sector structure describing economic behaviour of firms such as rivalry

between similar firms forcing each other to an upgrading strategy, (b) factor conditions or

the national resources such as skilled labour, access to capital, raw materials,

infrastructure, (c) demand conditions such as buyers putting pressure on quality, fashion,

fast delivery, maximal service and (d) networks of related industries giving access to


technology or invaluable knowledge. The relation between these economic attributes is

further influenced by institutional factors (e) government, which enhances or diminishes

competition by setting market conditions and (f) chance, an opportunity or threat which

suddenly emerges. These determinants are visualised in a 'diamond' which is applied to

the construction sectors in Japan, North America and Western Europe.

The following analysis of the overall performance of the Construction Industry in these

three regions and of the potential strategies for improvement inevitably contains some

generalisations. Of course, reality is a bit more differentiated than can be shown in such a

short text. Nevertheless, these analyses give enough information about the relevance of

improving the organisation of the building process as a potentially crucial contribution to

the performance of the industry.

2.2. WESTERN EUROPE

The main characteristics of the Construction Industry in Western European countries, as

elaborated in this paragraph, are surnmarised in illustration 2.3.

* many SME's * concentntion * take-overs

DEMAND

* diversities * environmental legislation * harmonized specifications

pziziq * strong engineering and design * upgrading subcontractors and suppliers

Illustration 2.3 Construction Diamond for Western Europe

Sector structure

Generally speaking, the structure of the European industry is constituted by a limited

group of Large Enterprises, followed by a majority of Medium and Small sized

Enterprises. One could even include 'Very Small sized Enterprises', consisting of just


one or two employees and an owner-entrepreneur. In many countries, these VSE's offer

a broad spectrum of professions involved in building. Of course, this general picture

should be modulated. For example in the UK and France, construction output is

dominated by firms of more than 500 employees, whereas the structures of Germany and

Italy show a strong position for Medium enterprises.

Is such a structure, with its many SME's, a competitive advantage? Some studies see it as

an out-dated phenomenon, the remnants of the old way of building. This structure is also

held responsible for ambiguity in liabilities and the cause of many building errors. On the

other hand, construction is a very complex production process performed mostly on local

markets. In any case, the sector recently saw an increasing concentration (market share of

the largest firms) not only within the various EU (European Union) member states but

notably by cross-border take-overs.

Demand conditions

Construction markets in Europe are diversified and still bound to national and even local

customs. As in any country, governmental demand plays an important role. Governments

are still initiating large projects such as the 'grand projects' in France, infrastructure

projects in the former DDR, or coastal defence works in the Netherlands, often using

these projects to set technological bench-marks.

The market for construction is generally perceived as a mature one. Indicators show that

the governmentally supported housing programmes are dwindling and repair,

maintenance and do-it yourself activities are increasing. Anticyclical governmental policy

in terms of cutting or creating demand for construction is not propagated any more.

Maturity also implies that market power shifts from sellers to buyers. Evolution of

architectural styles, a revival of "originality" in design, and an increasing array of

building products and components available are witnesses to this shift.

Most important are the efforts of the EU to harmonise technical specifications to facilitate

intra-EU building materials trade. Stiffer environmental legislation directed at the re-use

of waste materials, at the improvement of indoor climate and at energy conservation, is

often mentioned as a long term trend, forcing the industry to new levels of performance.

It fits with the trend that the actual construction of a building is now seen as one stage of

its entire life cycle; the reason for this is that management and maintenance costs of a

building are of far higher magnitude than its mere construction. On top of this,

environmental issues are gaining importance and sometimes create markets of their own.


Factor conditions

Europe has a vast array of labour of an extreme diversity. Non-harmonised legislation,

building traditions and education systems explain differences, for instance in direct wages

costs within the EU. Similar disparities can be found in fiscal systems and energy costs.

Such differences create advantages and disadvantages for small (sub)contractors working

cross-border within Europe. On the overseas market, other assets have to be taken into

account such as levels of Education and Training, Research and Development and of

course access to capital. There is a general feeling that R&D efforts are not linked closely

enough to the needs of building firms, which in turn find it difficult to set medium term

research priorities.

Networks

Europe has a strong design and engineering reputation, with a proven export capability,

although restricted to larger firms and some networking specialised medium sized firms.

Traditionally, design and engineering firms are independent of construction firms. There

are many complaints about the disparity between design, engineering, construction and

supplying industries. But common sharing of resources like public funded R&D and

educational and training facilities, and at a different level the harmonisation of certification

and standardisation throughout the EU create possibilities for synergy. A major factor in

Europe is the presence of a vast array of construction materials firms, who are in a

process of upgrading their products and production capacities and who are seeking new

forms of co-operation. Some of them are increasingly involved in upstream activities,

thus getting close to engineering and building activities. This trend is now accelerated by

the creation of the Single Market.

2.3. NORTH AMERICA

The main characteristics of the Construction Industry in the US and Canada, as elaborated

in this paragraph, are sumrnarised in illustration 2.4.

Sector structure

The US Construction Industry contains a number of the largest firms in the world. These

firms are virtually dominating the international market although loss of market share is


registered. As in any country, the major part of the home based industry is very

fragmented - long tail - so as to serve local markets, for example in housing.

* large firms long tail * wide range of services

-1

$ ' CONDITIONS

* dominant culture \.$ * export oriented * heavy engineering * large projects * weak R&D infrastructure * low productivity

rYE iGq * separation D& E * upstream technology and suppliers

Illustration 2.4 Construction Diamond for North America

Demand conditions

Major firms are accustomed to work on both national and international markets and their

export capabilities are outstanding. Major works in civil engineering and the industrial

sector are executed by these firms. Activities encompass both feasibility study , project

engineering, design and execution and both project and construction management.

In line with local building traditions and perfectly fitting them, individual communities

and States developed their own building codes, often based on adjusted model codes.

When in the past some innovative construction firms undertook a serious effort towards

production based on prefabrication (components, sometimes even assembled in

factories), the drawback of local codes and the lack of a nation wide product acceptance

system became apparent. This situation favours the continued reliance on local enterprises

- particularly for general and specialty construction - and on the continued use of

traditional methods of building and building management. Fragmentation and often

unbridled competition are, in this sector, the rule rather than the exception.

Factor conditions

Resources for the US Construction Industry are enormous, especially for the largest

contractors. Major projects are commissioned by heavy industries, while other parts of


what is still the largest economic structure in the world supply the Construction Industry

with new technologies, that quickly are taken up by leading enterprises. Many studies

express the technological capabilities of US construction as the decisive factor in global

competition. However, fear is often expressed of losing ground on key technologies.

Such statements are further underlined by studies dealing with R&D and Education &

Training. Expenditures in these two areas are considered to be too low and the

corresponding infrastructures not updated. However, much of design and construction is

carried out by small enterprises, usually well-equipped to execute their specific

professional or trade activities rapidly and effectively. High levels of specialisation enable

traditional designing and building tools to be simplified by an extensive use of simple and

versatile tools and equipment, though management of the specialty participants is often a

source of difficulty.

For the Construction Industry, public funded education and training (E&T) is very

important. As in many other countries, professional education focuses either on analyt~c

methods (civil engineering) or on creative design (architecture). What generally lacks is

training in construction process design, in building techniques and in architectural

engineering, preferably in relation to site management and construction management. A

possible weak spot therefore is low productivity - though this holds for many other

countries as well.

It goes without saying that one of the main assets of US construction on the international

scene is the political, technical and cultural dominance of the US. Political presence in

many regions of the world lowers entry thresholds and creates a backing for financial

agreements and aid programmes. Accepted technical standards and practices enhance the

willingness to accept US contractors abroad.

Conditions in Canada are somewhat similar; however, the geographical spread of the

market leads to even greater emphasis on local or regional operations, with a few

engineering and construction firms attaining a large enough scale to operate effectively in

global markets.

Networks

The US Construction Industry gains advantages from the large heavy engineering sector

and the materials and equipment supplying industry. The presence of very powerful

industrial suppliers - both materials, equipment and technology - creates a steady influx of

innovations in construction activities. However, the transfer of these innovations to the


local market is often slow and depends on the adoption of new ideas by local "gate

keepers" who then can demonstrate the advantages to be gained.

2.4. JAPAN

The main characteristics of the Construction Industry in Japan, as elaborated in this

paragraph, are surnmarised in illustration 2.5.

* 5-6 Zenecons + License system * Competition * Financing facilities

* Setback social infrastructure

* Long term relations * Vertically integrated firms

Illustration 2.5 Construction Diamond for Japan

Sector structure

The Japanese Construction Industry is structured by a license system dominated by five

or six big firms, the vertically integrated 'zenecons' (general contractors). Often they can

fall back on financial facilities offered by banks belonging to the same business group.

The major contractors employ a labour force of their own but also apply extensive

subcontracting while maintaining long term relationships. Investigations show that there

is a tight control exercised by the main contractor, making sub-contractors virtually

dependent to a degree unknown in EU or US.

The Construction Industry has strong connections with the government, showing in

family ties between leading politicians and major f m s . The administration, headed by the

Ministry of Construction is of a low political status but holds a large share of the General

Accounts and the Fiscal investment and Loan Plan. This enables the Ministry to maintain

up to 900 offices for construction, research and maintenance (plus an additional 165

Future organisation of the building process Chapter 2. Backgound and perception of the problem

extra-departmental ones) executing over half a million projects. The Ministry also

maintains the license system.

Demand conditions

It is well known that commissioning of contracts in Japan is based on lines of mutual

trust. Generally there is no aggressive bidding system but a combination of pre-set

arrangements and preferred contracting. This could explain why the home market is

expensive. An on the average 10% higher price level than comparable projects in Europe

is mentioned. Surprisingly, the preference system is not downgrading the industry's

performance, because clients expect a total dedication to their expressed needs. A

characteristic often mentioned is the quality approach of the client. Unexpected surprises

are to be avoided at all costs.

In Japan, living space, infrastructure and social facilities are relatively low per capita.

Indicators suggest that expenditures are less directed at these durable goods compared

with other countries. Home operations are still profitable and this fact may explain why

Japanese penetration of foreign markets is still a second priority and hence very modest.

Factor conditions

The Japanese Construction Industry is obsessed with quality. It shows up in the efforts

of controlling the building site by the plentifully available site-management and the

extensive use of quality control and planning techniques. Together with the typical result-

oriented attitude of the construction worker, this permits establishing a tight control of the

progress of work. It is the impression that the on-average low productivity per worker is

the price that has to be paid for a controlled process in the short term, meanwhile creating

a responsive environment for future improvements.

Traditionally, Japanese firms have extensive R&D and testing facilities. The annual

budgets spent by larger firms on R&D mount up to 1% of turn-over which is

exceptionally high compared with the US and EU. The public funding of R&D in Japan

is relatively low, so the resulting overall national expenditure on R&D is only somewhat

higher than in the Western world. The advantage in Japan seems to be the close

relationship between research activities and the application of results, thus leading to

enhanced feedback from practice to theory.

In foreign markets, the ability to negotiate contracts often fraught with ambiguity and in a

stubborn commercial environment requires social skills other than those of mutual trust

and quality orientation; Japanese contractors themselves see this as their weak point.


Networks

Networks in the Japanese industry are proverbial. Contracting firms are vertically

integrated, including supply industries and architectural and engineering companies.

Subcontracting however does exist in an extensive form. Normally, these contractors

operate on long term relations and are fully dependent on their main contractor. Co-maker

relations are asymmetrical and therefore ensure both the volume flexibility of the main

contractor and the quality of delivered services

2.5. DIFFERENT STRATEGIES

In Porter's approach, the fundamental choice a fm has to make is either being a price

competitor or a specialist. This statement is reminiscent of the relation of a product's life-

cycle and the shape of competition. Products in the infancy of their economic life compete

exclusively on their performance, while in the maturity stage, price competition starts.

But the building market is not as simple as a consumer based product market and its

fabrication process is not controlled by just cutting down or starting up a production line.

The building market is of a cyclical nature, buildings as fixed assets being dependent on

the overall state of the economy. It consists of relatively large single and unique projects,

often acquired in tender and locally bound. Codes of practice, routines and high

technological exit barriers (for example, what to do with a dredging fleet when there is no

work?) give the sector its own inertia. And last but not least building, as a mixture of

production and service, is characterised by a large variety of forms of contracts: turnkey,

lease back, design and build, split or regrouped responsibilities, a l l to the choice of the

client, giving rise to numerous procurement methods. These features are not

fundamentally different for any of the three regions described above. Consequently, the

need to adapt the size and performance of each firm to the evolving conditions of the

market environment is typical of the Construction Industry. The resulting versatility is of

quite another nature than in other industries, because it is based on the sector's own

characteristics.

The author feels that the strategy of building firms first of all has to balance these two

major critical factors: specialisation and adaptability. Simple solutions do not exist, which

can be shown by the following notes.


Of paramount importance regarding the specialisation of US firms are technological

knowledge and standards often used as terms of reference in international contracts. US

construction firms have their technological capabilities as their main asset, putting them

on top of the international construction market. Their ability places them in an excellent

position for feasibility studies as a first entrance to large contracts. They are backed up by

strong relations with equipment industries and heavy engineering firms. Thus it is not by

accident that many of the US studies stress policies and recommendations to safeguard

their technological lead. This is the main lesson to be learned. Regarding adaptability, this

implies the ability to work in different countries, having access to local intelligence. A

strong support here is still given by the political and cultural dominance of the US

throughout the world.

When compared to the US firms and when looking at the global construction market, the

European firms, generally being of a smaller size are condemned to specialise in smaller

niches. This strategy is enhanced by the corning Single Market. Due to increased overseas

competition, the Single Market as an export area gets a higher priority for the larger

European building firms. This explains the take-overs on home markets and in

neighbouring countries, which is the only possible course for rapid growth. The objective

of firms following this strategy is to appear as a national supplier in a foreign country. By

shifting labour from the building site to the factory, adaptability is gained, but it often

prohibits strong co-maker relations between the firms involved. Typical for Europe is the

changing role of subcontractors and suppliers who are competing with the Construction

Industry for a larger share in the value added chain. In consequence, main contractors

seek some forward integration by becoming project developers.

In Japan specialisation, to the main contractors, means becoming an Engineering

Contractor or project developer. It includes the scanning of needs, project development

and taking financial risks, but also refurbishing and maintenance. The organisational

setting and networks are unique and form the necessary prerequisites. The main challenge

for the general contractor virtually controlling the whole value added chain is to further

simplify the activities on the building site, so as to make way for new optirnisation

techniques. For adaptability, detailed project-management, quality control and

organisational skill is the major Japanese strength, backed up by long term financial

strength. But the Japanese working methods and process organisation are hard to export

and here lies a potential weak spot on foreign operations.


Illustration 2.6 Distinctive strategies

Turning back to Porters 'diamonds', one can compare the different strategies and see

where the emphasis is put. US capabilities lie in the skilful handling of production factors

where technological capabilities by networking with other industrial sectors are a key

factor. European firms feel a strong influence from changing market conditions. This will

result in another allocation of production factors. The outcome of 'rivalry' between

contractors and suppliers is unclear, hence the networking possibilities are small. The

Japanese strategy is different from the two just mentioned by putting networking in the

first place, meanwhile exploiting production factors to the utmost.

2.6. CONSTRUCTION PROCESS IMPROVEMENT

But is there anything else to be learned? A more detailed investigation of papers,

proceedings and seminars dealing with the Construction Industry leads to identification of

a set of disadvantages which are to be held typical for most of the Western European

countries, but which to some extend are characteristic of the North American and

Japanese Construction Industry also. There is a strong consensus that the structure of the

industry is differentiated to a high degree. This leads in some case to fragmentation - a

differentiation sometimes based on obsolete market protection principles and at other

times associated with technical or operational specificities. Unclear (split) liabilities

resulting from this fragmentation is just an example of the negative effects felt by the

clients. Demand conditions in most cases hamper upgrading and innovation. Operating a

construction fm is difficult when there is an emphasis on over-specification (stating

detailed technical solutions in calls for tender) and price competition in a market where

volumes may rise and drop swiftly. Factor conditions do not favour either, if one regards

the traditional complaints on loss of quality of workmanship and a non-directed R&D


policy. Crossing borders becomes difficult when there is a lack of standardisation and

strong market protection. Networking is dominated by functional opportunism as the

basic rule of the game.

*Following attitude *Lack of vertical integration * Split liabilities

* Poor R&D and QA * Environmental problems

* Rapid changes in volume

p E G E q * Opportunism * Market protection * Lack of standardization

Illustration 2.7 Perceived drawbacks

It is interesting to see - in line with the basic assumption of this chapter - that both the

perceived drawbacks and the suggested solutions have a strong relationship with the

organisation of the construction process. Sector structure could be improved by a clear

single point responsibility - seen from the viewpoint of the client. Vertical integration

could be a following step though other scenarios for process integration are possible;

similar effects can be obtained, for example, by well-managed network arrangements. If

such developments take place, they will determine the organisation of the construction

process to a great extent. A change of demand conditions, notably the redefinition of

liabilities and the use of performance specifications, would have a similar effect. Looking

to factor conditions, it is clear that a re-organised process could benefit more from IT and

component standardisation than is usual nowadays. Effects from a changed construction

process would be felt in the networks.

The suggested remedies for improving the overall performance of the Construction

Industry will be used later on in this study as starting point for looking at possible future

changes in the organisation of the building process. Changes that support or strengthen

the suggested remedies will be strongly favoured over changes that don't.


* Vertical integration * Single point responsibility

CONDITIONS CONDITIONS * Education of labour * Redefinition of liability * Improvement of R&D * Performance specification * Application of IT * Competition on quality * component standardization i

I NETWORKS I * Forward integration * Concenmtion

lllustrat%n 12.8 Suggested remedies

The possible implementation of the remedies suggested above will have to be

differentiated, taking into account the differences between each country's traditions and

regulations, the different abilities of companies in the Construction Industry because of

their sizes and positions on the building market and also the different segments of the

market.

2.7. DIFFERENT PERCEPTIONS

Various factors influence the way the problem of process segmentation and the

opportunities for improving the organisation of the building process are perceived in the

countries involved in the study, specially in the eight Western European countries. Four

dominating factors of influence, concerning which there are major differences between

the countries involved, seem to be: recent quantitative market developments, role of the

government, special national characteristics of the traditional building process and

national strategies for implementing strategic changes.

Recent quantitative market developments

Developments in a market have a strong impact on the behaviour of companies and on the

scope for co-operation between companies. For example, in a growing market contractors


will be more willing to contract out parts of their work and in a fast declining market the

focus of companies in general will be more on short term survival than on developing and

implementing strategies for long term and structural improvement of their performance.

In general, the last three years have seen a decline in the building markets in the Western

European countries and future perspectives are unsure. In this context, specially

regarding the extremely strong reduction in the Scandinavian countries, Finland and

Sweden must be mentioned; for example in this three year period Finland had a reduction

of building production volume of more than 40%. A return to the traditional models for

competition (with a strong emphasis on price competition and a lesser willingness

towards co-operation and towards investments in long term strategic improvements) were

the first results of this.

Role of the government

The role of the government as an important client, as the institute responsible for building

regulations and procedures and sometimes also as the guardian of future customers'

interests can have a strong impact on the organisation of the process and on the

possibilities for its improvement. However, the role of the government on the building

market is different in the different countries. In essence, in all countries concerned there is

a more or less strong trend of the national governments diminishing their active roles on

the market-place and letting market mechanisms play their natural role. The direction of

change is more or less the same in all countries, but the speed of development and the

starting situation is different.

For example, in the Netherlands until the mid-Eighties, the house building market was

very strongly dominated by the Dutch government through regulations, subsidy

procedures and housing programs. Since then this system has almost completely

disappeared and this has strongly effected the house building market scene and thereby

also the market positions of all types of companies and instituted involved in the house

building process. Instead of government involvement entrepreneurship now seems to be

the dominant market force and this gave rise to many changes in the organisation of the

building process in this sector of the market.

Since more than five years ago the same process of the national government retreating

from the building market seems to be going on in Italy, so their comparable effects on the

organisation of the building process must be expected there in the near future as well.

Some other countries did not ever have such a strong government involvement and others


already have gone through this process in the past. In conclusion, in all countries the

trend is the same, but the countries' present position in the process of change is different.

Concerning the changing roles of national governments, differences concerning the

internationalisation of government are also important. In this context, the coming about of

the Single European Market is relevant, resulting, for the member states of the European

Economic Community, in fewer tasks and responsibilities at the level of the national

governments and a stronger interference in the building market by the 'European

government'. Since Finland and Sweden have become members of this international

community, the construction Industry in these countries will also notice the effect of this

shift in responsibility.

Characteristics of the traditional organisation of the process

By tradition, some of the Western European countries have a dominant model for the

organisation of the process that strongly differs from the models that are dominant at

present in other countries. For example, in the United Kingdom there is the phenomenon

of the Quantity Surveyor, an important process participant that is not known in most other

countries. Another example is that in some of the countries involved, like Spain, the

position of the architect is relatively very strong; this means that all changes that threaten

his position there will meet more resistance than elsewhere. This raises the possibility that

if there is a trend for change targeted at more or less the same goal in a group of countries

such as the members of the European Community, the speed of development will be

different if only because these changes will meet different levels of resistance in the

different countries. In short, a countries' tradition concerning the organisation of the

building process has a major influence on the speed at which change can take place.

Strategies for change

Recognition of the potential importance of the problem of segmentation in a country will

be strongly effected by the perceived opportunities to tackle this problem, and indeed by

the prevailing opinion regarding whether fragmentation and segmentation actually

constitute a critical problem or not. If no strategies for change that are likely to be

successful seem to be available, people will tend to disregard the problem.

Where this is seen as a problem, changing the building process from a segmented or

fragmented one to a integrated one needs the co-operation of all process participants and

their representatives. Achieving such co-operation is possible only if some strong market


forces emerge, obliging others to follow, or if there is already an infrastructure for inter-

branch co-operation and change existing in a given country.

For example, in France there are some really big building and construction companies that

have enough market power to force structural changes on others, specially if the French

government actively supports these changes. On the other hand, when for example we

look at the Netherlands, we see that a market power comparable to the French big

companies does not exist; the six biggest compPanies together have a share of no more

than 12% of the building market and so are not really able to enforce significant structural

changes, even if they may be co-operating closely in this.

For example in a Scandinavian country like Finland, by tradition there are operational

infrastructures for co-operation between all parties interested in the Building Industry;

they can be used for developing a shared vision of the future as a basis for a really

powerful strategic change in the Industry. We now see that the Finnish Industry is far

more willing to recognise the problem of the segmented building process than the

Industry in other countries, because in Finland it is a problem that can be tackled.

Looking at these four factors of influence, the ten countries involved in the study can be

clustered into the following four groups.

1. Sweden, Finland and Denmark, three countries in whlch the construction market

declined rather drastically over the last years. For example Finland saw a reduction of

about 40% in three years.

2. The United Kingdom, a country that has a very specific tradition concerning the

organisation of the building process, in the context of which the Quantity Surveyor

plays a crucial role.

3 . The Netherlands, Belgium, France and Italy are four countries with more or less

comparable traditions; being 'old' members of the European Economic Community,

they all are in the same stage of internationalisation of their markets.

4. The USA and Canada, two countries that by tradition are similar in many ways, have

developed in an environment of minimal government intervention, leading to pro-

active strategies for dealing with change in the free-enterprise mode. Market reduction

leads to fiercer competition, leading in turn to process innovation.

However, there is the impression that one country must also be mentioned separately,

namely Finland. Notwithstanding its recent extremely strong market decline, or may be


just because of it, the realisation that things have to change rather drastically is stronger in

Finland than in almost any other country. In Finland the opportunity for implementing

really strategic changes all over the Building Industry seems better than in any other

country, apparently because of its long existing infrastructure enabling shared decision

making and co-operation to prevail in the industry.

2.8. INTERIM CONCLUSIONS

Although the perception of the problem and whether it is indeed a problem, together with

the ensuing drive for change and the amount of resistance against any change are different

depending on the country, many similarities between the Western Industrialised countries

can be mentioned. In this context the following can be concluded from the various

national inventory reports.

In all Western Industrialised countries, though to a lesser degree in North America,

people recognise or are starting to recognise that the traditional segmented

organisation of the building process as a major problem in general and as a major

hindrance for innovation in particular. In all those countries experts are searching for

possible solutions, aimed at achieving a better co-ordinated or a better integrated

building process. In research programs this has a high priority in all those countries.

In this context, different motivations are put forward, such as: "the sellers market has

become or is becoming a buyers market", "clients become more professional",

"building demands become more individual", "there is a growing need for sustainable

building", "technological innovation is a necessity to cope with future market

demands", "there is a need for consumer-oriented building" and "the role of the

government is changing and thereby the structure of the building market is also

changing". However different these proclamations may be, all experts involved

suggest that there is a need for major changes in the organisation of the building

process though there are several approaches regarding the form these changes may

take.

In national and international discussions about the needed changes, different aspects

of the organisation of the building process are emphasised, like: "problems of

liability", "entrepreneurship of the process participants", "division of roles",


"inefficient communication", "quality improvement", "industrialisation of building",

"network organisation" and "growth of productivity". - Depending on the view point of the experts involved, different items are highlighted

in proposed strategies for improvement such as: "quality management in all phases of

the building process", "integrated application of information technology", "better

procurement systems", "life cycle costing", "co-makership" and "front-end

integration of building professions". In this context, the most important differences

concern how to strive for more integration: should all aspects of process organisation

be included, or should a one-dimensional improvement be aimed for. There are two

popular examples of such one-dimensional improvements. One example, that seems

to be very popular, specially with large contractors, is an attempt at process

integration through stimulating procurement models in which as many responsibilities

as possible are vested in one company, as for example with the 'Design and build

contract'. A second example, that is very popular in circles of technology-oriented

researchers, is the concern for process integration through computer integration,

based on the belief that both types of integration are equivalent.

Notwithstanding the fact that many different words are used to describe and possibly

tackle the problem in different countries and often the differences between countries are

strongly stressed, there are similarities in higher level perceptions of problems and of the

final goals for strategic changes in all the countries involved in the study.

However, an important question in this context is whether the traditionally segmented

building process and the need for a better integrated process are only seen as a problem

typically for the Western European countries involved in the study, or whether a problem

of equal importance to the Building Industry in all Western Industrialised countries exists,

including Japan and The USA.

At first glance, the differences between the Western European countries and North

America seem to indicate that process segmentation is seen more as a problem in

European countries. In the Western European countries (as indeed in North America), by

tradition there is usually a strong separation between design and construction

responsibilities, this being the basis for all the traditional segmented models for process

organisation in which participants have different interests and in which there is no clearly

established leadership for the process as a whole. In North America and especially in the


USA, the situation is somewhat less clear-cut. There, the thinking of most observers is

influenced by the image of the success of the large, integrated USA companies on the

world construction market. In the projects concerned, there is a clear leadership, provided

by the dominating engineering firms. However, in the USA home market itself, the

problem of segregation is not perceived as such, or, at least, not as an insuperable

problem, mainly because the solution, found in a networking approach or in co-

operation, seems to reconcile the all-dominating American requirement for competition on

the one hand with the need for mechanisms of concertation on the other. Also, when a

client is explicitly afraid of serious consequences stemming from a segmented process

organisation, it is then normal to choose a procurement model like 'Turn-Key' or 'Design

and Build', in which all responsibilities are lodged in one hand and segmentation appears

to be under control.

Of course, process segmentation or integration is not merely a question of contract

models; if all responsibilities are in the hands of one company or if there is an undisputed

legal leadership for the process as a whole, then, according to this line of reasoning, the

process is considered to be integrated. In reality, the one - legal - entity responsible for

both design and construction might be a building fm with separate departments for

design and construction. In such a situation, it could well be that these departments have

different, even incompatible working methods and that the people worlung in these

departments do not get along, so that there is a need for a third party to be able to

coordinate their work in an optimum way. This third party can be someone specially

responsible for process management; without this third party, the co-ordination of design

and construction activities might even be far less effective than in the situation where there

are two legally separated roles.

In fact, there are other ways of looking at segmentation and integration. These include

compatibility of the working methods of process participants, clarity of the definition of

roles and responsibilities, ability to communicate and co-operate, sharing of interests of

participants (instead of conflict), etc. Indeed, to look at the 'problem' of the segmented

organisation of the building process purely from a legal point of view fails to take into

account these other aspects and, at best, can result in a partial solution to the problem,

leading only to partial improvements. Looking at it in this more fundamental way means

that the problem we are discussing is relevant to all industrialised countries in which

building is considered as a domain in which different experts can intervene, in which their


different interests have to be subordinated to their co-operation towards producing that

one final and integrated product for the client, the building.

Solutions to the problem, as we shall see, differ from one context to another and from

one continent to another; they range from systematic networking of specialist firms

(typical in forecasts of North American construction) to integrated enterprises (proposed

for some Western European countries). In all cases, the aim is to increase the integration

of the aspects of the building process, whoever is actually responsible for them.

background and perception of the problem · background and perception of the problem technology or...

Documents