EMPOWERING SMALLER CONSTRUCTION ENTERPRISES

Mohan M. Kumaraswamy1a, M. Motiar Rahman2, Christopher M. Miller2,

S. Thomas Ng1, Ekambaram Palaneeswaran1 and Onuegbu O. Ugwu1 1 Centre for Infrastructure & Construction Industry Development, The University of Hong Kong,

China; 2 University of Glamorgan, Pontypridd, Wales, UK

corresponding author (1a): mohan@hkucc.hku.hk; Dept. of Civil Engineering, The University of

Hong Kong, Pokfulam Road, Hong Kong SAR, China

Small & Medium Construction Enterprises (SCEs) do most of the actual work in many construction

industries, but often receive the least attention. Recent industry development initiatives have mostly

targeted the issues raised by large, and therefore prominent, construction enterprises.

This paper profiles a recent Hong Kong based initiative to empower the organisational learning and

development of Small & Medium Contractors (SMCs). This learning is facilitated by providing a

SCE-friendly web-based platform and useful tools for continuous improvement in boosting

productivity, quality and image, through strategic information and knowledge management. For

example, efficiencies are envisaged through accelerated access via the web-based platform to (a)

specially compiled SCE-friendly information modules, (b) a wider range of potential business

partners (e.g. suppliers, subcontractors, etc.), and (c) formats and guides to assist in some basic

work processes, such as materials management, permit applications, as well as for performance

improvements through benchmarking etc. Parallels are drawn with a recent initiative to stimulate

innovations in Small Construction Enterprises (SCEs) in Wales. While each approach should be

designed to suit specific regional characteristics and priorities, it is concluded that academia-

industry partnerships are valuable in uplifting the lower levels of the construction supply chain; and

that without this boost, the industry can never grow to its expected heights.

Keywords: small & medium construction enterprises, information & knowledge management,

academia-industry partnerships.

1. Background and Introduction

Importance of Small Construction Enterprises (SCEs)

Those familiar with construction industries in most countries, would know that SCEs constitute a

critical industry core that provides the resources depended upon by the more visible bigger

organisations. While less so in the case of consultants, large contractors have slashed their direct

employee numbers drastically over the last few decades, increasingly relying on sub-contractors

and extended supply chains not only for specialty work, but also for general workers and

supplies.

The extent of outsourcing by ‘big’ contractors and the numbers of layers in their sub-contracting

and supply chains may be roughly estimated in some developed industries. For example, it has

been estimated that SMEs (Small and Medium Enterprises) employ 62% of the construction

industry workforce in the UK (ICE, 2005); while the value of sub-contracted work can be as high

as 90% (Kumaraswamy and Matthews, 2000). However, the extent of SCE contributions can

only be ‘guesstimated’ in some developing economies where countless SCEs rapidly emerge and

disappear in the ‘informal sub-sector’. Their substantial contributions to ‘the good, the bad and

the ugly’ in projects (e.g. in quality and safety, or lack thereof) are thus much more in such

industries, where more commercially oriented bigger companies may win jobs that they try to

execute through SCEs, focusing on short term profits. Even where more fomalised e.g. in the

UK, or where exercises are underway to register and regulate sub-contractors as in Hong Kong,

much more is evidently needed to uplift these industry ‘backbones’ so that construction

industries can raise themselves to the heights envisaged, for example in the UK (Egan, 1998),

Australia (ISR, 1999), Singapore (C21, 1999), Hong Kong (CIRC, 2001) and the Netherlands

(PSIB, 2004).

Why SCEs need empowerment

From the above it is evident that improving SCEs is crucial, not only because large numbers of

people depend on them for their livelihood, or because industry depends heavily on this SCE

resource-base, but also because widely recommended construction industry improvements,

cannot materialise without uplifting SCEs. Some recent recommendations to improve

performance levels aim for value for money (VfM) through significantly improved teamworking.

For example: (a) the Construction Industry Review Committee in Hong Kong recommended a

‘changed culture’, ‘partnering’ and ‘process re-engineering to achieve better integration’ (CIRC

2001), while (b) The UK Office of Government Commerce advocated Teamworking to ensure

VfM (OGC 2003).

Industry reports also recommend harnessing the rapid developments in ‘Information &

Communication Technologies’ and ‘Knowledge Management’ through significantly improved

Information & Knowledge Management’ (Kumaraswamy et al., in print). However, the literature

suggests that the above measures are at present mostly focused on large contractors, as for

example, for developing partnering and alliancing mechanisms with big clients. The crucial role

of SCEs in the project teams is frequently ignored. This is a serious oversight since no industry

improvement initiative can succeed without addressing SCE problems and empowering their

own development.

Scope and thrusts of this paper

This paper considers scenarios from Hong Kong and Wales in order to extract typical SCE needs

and to present examples of recent academia-led initiatives to help industry in addressing some

identified critical issues. After sketching the special needs for empowering SCE improvements

as above, the following sections indicate how such needs were identified and some solutions

developed in a R&D exercise in Hong Kong and proposed in conceptualised frameworks for

Wales. The need for a two-pronged three-party approach is identified, combining the top-down

enabling strategies and structures as envisaged in Wales, with the bottom-up tools and

mechanisms as developed in Hong Kong, in order to ensure the effective empowerment of SCEs,

through Government-industry-academia partnerships.

2. Identifying SCE needs

A view from Wales

Miller et al (2004) confirmed the importance of the construction sector in the Welsh economy in

terms of employment and growth. SCEs play an important role in this sector, as competition in

construction is mostly ‘between clusters of interrelated organisations’ that generate and add

value through co-operation. Such integrated activities require managers to recognise the

interdependence of all the stakeholders including SCEs. However, as large contracting firms

have concentrated on their core activities and subcontracted peripheral activities to SCEs,

problems have surfaced with key competence and capacity shortfalls. For example, Briscoe et al

(2001) found that the problems of skill inadequacy are most severe in SCEs. It is also seen that

these small firms have often failed to improve their technical competency and productivity

levels, thereby severely compromising their service levels to clients (Cox and Townsend, 1998).

Also, Miller et al (2002) suggest that while “Wales can offer the required labour, skills and

knowledge [it] lacks the support mechanisms and motivation to succeed…within this complex

environment”.

For example, SCEs in Wales have been found to be particularly slow at embracing Information

& Communication Technologies (ICT), also affecting related large contracting firms aiming to

advance technologically (Barthorpe et al, 2000). Important issues in training shortfalls are also

recognized, e.g. Stewart et al (2003), who suggested that business owners tend to concentrate on

continuing their trade skills in business rather than management, finance, marketing and sales

functions. However, Clifton et al (2005) highlighted that the construction industry in Wales

appears to have still been growing despite these shortfalls. Still, the study identified serious

weaknesses in the use and development of technology, human resource development,

management and local governance. Clifton et al (2005) also maintain that there is an urgent

need to tackle these skills shortages, and to ensure that new technologies and processes are

successfully disseminated and adopted by firms throughout the construction supply chain. Some

of the problems noted in the Hong Kong scenario below are seen to be similar to the above, e.g.

on ICT uptake.

The SMILE-SMC initiative in Hong Kong

It was found that there are over 23,500 registered construction organisations in Hong Kong, of

which more than 98% are SMEs (Small and Medium Enterprises, being defined as those

employing less than 50 persons). Although, SCEs carry out most of the actual construction works

as elsewhere, they often suffer from a lack of continuous work and tough price competition. On

the other hand, they also suffer from inadequate ‘information’, suitable knowledge management

frameworks and tools, lack of time and resources for self-improvement and technological

upgrading. Without sound Information & Knowledge Management (IKM) it is difficult to

improve their competitiveness and performance levels. These shortfalls spotlight the urgent

needs for an SCE-friendly IKM system.

In order to meet specific needs of SCEs in Hong Kong, a research and development (R&D)

project was launched from the Dept. of Civil Engineering at The University of Hong Kong, led

by the Centre for Infrastructure and Construction Industry Development (CICID). Entitled

‘Strategic Management with Information Leveraged Excellence’ for Small and Medium

Contractors (SMILE-SMC), the aim of the project was to empower the continuous improvement

of small firms by providing a ‘SCE-friendly’ IKM framework and innovative tools for

continuous improvement in boosting productivity, quality and image, through strategic IKM. For

example, savings are envisaged through faster access to critical information (e.g. on new

business opportunities, and on changes/ variations in ongoing projects) reduced wastage (of

resources) and less rework (in rectifying substandard or defective works).

The objectives of the SMILE-SMC project were formulated as:

• To identify, consolidate, and develop good practices, critical success factors and appropriate

benchmarks for small construction firms

• To develop a comprehensive framework and innovative tools for enhancing SMC

competitiveness through structured modelling, knowledge capture, information management,

collaborative team working and benchmarking mechanisms

• To develop a SMC-friendly web-based ‘strategic information and knowledge manager’ to

empower improved productivity, quality, safety and other critical performance aspects

• To implement (on a ‘pilot run’ basis in at least three small firms), test and refine the above

framework and tools.

These objectives were targeted using easily available and usable ICT tools, and through a ‘one-

stop’ information source and knowledge management resource. Deliverables were planned to

include:

• A web-based information library for boosting SMCs’ business and operations, including

information on new technologies, business opportunities and innovative approaches for small

firms.

• A collaborative information and knowledge management framework that captures (and

makes easily available) relevant SMC strategic information and business process knowledge.

• Templates and initial issues of periodical (e.g. quarterly) newsletters/ e-bulletins on useful

issues and a basic workshop training package and a self-learning package to enable quick and

effective usage of the other deliverables.

Clearly, the above required the capture and dissemination of huge, diverse packets of

information from and for SCEs: for their day-to-day business activities, as well as for their

strategic decision-making. Therefore, close collaboration and active participation from a

motivated set of ‘pioneering’ small construction firms or ‘Partner Contractors’ (PCs) was felt

essential. 15 such PCs were enlisted in stages (beginning with five at the outset), along with

active assistance and support from four collaborating organisations: the Construction Industry

Training Authority, Hong Kong Construction Association, General Building Contractors

Association, and Hong Kong Construction Subcontractors Association. Many of the PCs

supplied useful data, assist in collecting information from their trade/ sub-contractors, attended

monthly full team meetings, and provided feedback and valuable suggestions in developing the

SMILE-SMC system, and participated actively in its validation and dissemination. Five overseas

advisory institutions, two from Australia, two from the UK and one from Singapore also

provided useful inputs and support during the system development, including participation in

Dissemination Workshops.

Given the constraining pressures of ‘less work’ amidst shrinking construction opportunities in

Hong Kong and ‘greater price competition’, Figure 1 broadly envisions the targeted integrated

industry ‘development and growth’ through ‘improved information and knowledge management’

empowered by the SMILE-SMC initiative.

FIGURE 1: Targeting Industry Development amidst Market Constraints

3. Addressing SCE needs in Hong Kong through SMILE SMC

Overview of R&D in SMILE SMC

RD&D (Research, Development & Dissemination) to address the above needs, was proposed by

the Centre for Infrastructure and Construction Industry Development (CICID) led team from the

Faculties of Engineering and Architecture and the eBusiness Technology Institute of The

University of Hong Kong. The Small and Medium Enterprises Development Fund of the Trade

and Industry Department in Hong Kong funded the above SMILE-SMC project proposal.

The specific needs and basic system were developed on the basis of findings from intensive and

extensive Research, including an initial pilot ‘needs analysis’ survey conducted with a cluster of

partner contractors (PCs), followed by a structured questionnaire survey across the industry,

‘workflow analyses’ with the site staff and senior management of PCs, monthly brainstorming

‘Team Meetings’ arranged with industry partners and collaborators, and a series of well-attended

Workshops open to the whole industry (including a Development Workshop, three

Dissemination Workshops and a Training Workshop). All these exercises elicited many diverse

GREATER PRICECOMPETITION

Internalimprovements

mutualimprovements

LESS WORKOPPORTUNITIES

Parent/JV/subsidarycompany

Othercompanies

on sameprojects

Subcontractors Suppliers

mutualimprovements

IMPROVED INFORMATION &KNOWLEDGE MANAGEMENT

DEVELOPMENTAND GROWTH

INTEGRATED DEVELOPMENT THROUGH SMILE-SMC

needs, but enabled prioritisation of areas of particular concern, that fed into the Development of

the SMILE-SMC system. The funded R&D project for SMILE-SMC development was thereby

successfully completed in Feb. 2006. Trialing and refinements proceeded between March and

May 2006.

Dissemination of SMILE-SMC and solutions overview

Dissemination commenced in March 2006, along with a ‘Trial Period’ up to 31 May 2006.

During dissemination, the front-end and major parts of the web-site are available to any ‘visitor’

to http://smile.hku.hk, while some specially developed inner parts are restricted to ‘members’.

Such members will need to pay a nominal annual fee, so as to finance the Operation &

Maintenance, essential up-dating and any possible upgrading. It was felt that daily monitoring is

needed for this type of web-site, because of the nature of the rapidly changing information &

knowledge and the wide range of users. Nominal membership fees are thus targeted to meet such

costs. The objective is to fund essential part-time staff and consumables, and if possible (if more

time is enabled) to develop useful ‘add-ons’ to add value to members, if so desired.

While basic information (including about members) is available to anybody visiting the web-site,

membership will enable many additional and direct benefits, such as being able to publicise

one’s own services and/or needs to all those who visit the web-site. Figure 2 provides an

overview of the uses and users of the web-site, while the following listing summarises the

‘business’ and ‘process’ solutions offered by SMILE-SMC to help SCEs in boosting their

competitiveness, productivity and image, e.g. in sourcing new business partners through the first

three zones: The services are provided in six broad ‘zones’: Member Zone, Wanted Zone,

Available Zone, Information Library, Discussion Forum and Performance Improvement. Other

important features of the SMILE website include the, ‘News and Events’, a section for ‘search’,

a section for ‘downloads’ and the self-learning package.

A. Member Zone: (a) Members can publicise company information including descriptions of

up to 5 projects; while (b) all who access the web-site can search for potential business ‘partners’

B. Wanted Zone: (a) contains messages on services, information, materials and people

NEEDED by members; since (b) Members can advertise their own needs in ‘wanted’ messages

C. Available Zone: (a) will have messages on services, equipment and materials AVAILABLE

with members; since (b) Members can advertise their own ‘available’ items

FIGURE 2: Users and Uses of SMILE-SMC

D. Information Library: contains valuable construction industry information, collected from

various sources, while special information has been stored with specially designed flow-charts,

check-lists etc. for later use by Members

E. Discussion Forum: Members can exchange ideas on hot topics and common concerns

F. Performance Improvement Zone: contains ideas on how IKM can improve performance

levels, e.g. through special tools and plug-ins, such as for more efficient ‘electronic information

exchange’ with sites and partners, convenient formats for capturing and retrieving operational

and business information e.g. in purchasing, materials management etc.; and benchmarking

platforms etc.: all of which can be made available to Members.

The EIE (Electronic Information Exchange) has been developed to optimise email based

communication in the construction supply chain. The business case centres on the need to avoid

duplication of data entry in order to reduce errors, improve data quality and efficiency. This

requires the integration of functions across different departments e.g. Component & Material

Specification (Design Dept.), Order Placing (Purchasing Dept.), Order Processing, Manufacture

& Delivery (manufacturer), Site Installation (site engineers). The EIE solution is underpinned by

the evolving e-business extensible markup language technologies which are being developed

rapidly to address interoperability problems in the wider business world.

In the specific case of construction applications, data exchanged can range from purchase order

specification for a construction component (e.g. door), to submitting daily site records from

construction sites to head office, and issuing requests for information (RFIs). One of the major

contributions of the EIE solution is to develop XML schemas for these construction processes.

This would empower performance improvement in the context of communication and

collaboration.

4. Targeting SCE Innovations in Wales

While innovative approaches are needed to deal with issues raised in the ‘View from Wales’ in

the first part of Section 1, it was also noted that ‘innovation take-up’ depends crucially on the

relationships in the supply chain, between the larger firms and the SCEs. Miller et al (2004) state

however, that; ‘distance and self-interest inhibit effective inter-organisation relations’. Thus

whilst there is a general need to upgrade the capacity of the supply chain, there are severe

problems in actually achieving this goal given current structures and relationships. Consequently,

any policy to develop technology transfer networks would therefore need to acknowledge the

process of building ‘conduits’ which facilitate the development of inter-firm management skills

to build inter-firm relationships that focused on the collective rather than individual firm. In

parallel, ‘relationally integrated supply chains’ and shorter-term ‘relationally integrated project

teams’ as envisaged by Rahman and Kumaraswamy (2005), are increasingly seen to be feasible

and popular, as per the evidence from a multi-country survey launched from Hong Kong and

including Australia, the Netherlands, Singapore and the UK (Kumaraswamy et al., 2005;

Rahman et al., 2005).

In Wales, it has been seen that in launching and implementing innovations, ‘technology transfer

networks’ are one of the best fora for SCEs to learn from each other, to exchange experiences,

and to diffuse technology. Also it was felt useful to determine an SCE’s needs by auditing and

drawing-up agreements and contracts, and hence spread technological expertise and know-how

(including standards and regulatory issues), and also to provide services such as for organisation,

management and public relations (Commission of the European Communities, 1998).

It is important that if or when an organisation is established as envisaged above, to assist in the

innovation process within the construction industry, it allows flexibility and adequate networking

for the innovation process to develop and adapt as needed. After some of the new innovations are

shown to be beneficial, the organisation should then act as a ‘project knowledge broker’ (Goffin

and Mitchell, 2005) and an ‘enabler’ of the wider business, strategic and operational needs of the

construction industry (Aouad et al, 1999). This of course depends on longer term relationships

reducing the potential for today’s collaborators becoming tomorrow’s competitors, again re-

emphasising the need for effective supply chain, network and cluster management.

Based on the above, a team from the University of Glamorgan has formulated a conceptual

framework for innovation management in Welsh SCEs. This needs to build on the generation

process through the interaction of key stakeholders (industry, government and institutions),

concentrating on innovation enabling via the use of effective education and training, fora and

conduits, and management of networks and their constituents, and diffusion to innovative SCEs

and the industry more generally. The proposed framework for innovation management in the

Welsh construction industry broadly includes: (1) effective management and governance by an

umbrella body, (2) relevant education and training, and (3) suitable conduits and fora, as

discussed above. These will mobilise Government, research institutions and the industry, in a

framework that has been conceptualised and presented in detail by Miller et al. (2006).

5. Concluding Observations

SCEs carry out the largest share of the actual construction work in most countries - working as

main contractors on small projects and subcontractors or suppliers on large projects. They need

assistance to uplift themselves, specially in critical areas such as IKM, as well as in enabling

integration into effective construction teams.

The academia-industry partnership that was funded by Government and forged in Hong Kong,

empowered the specific development of SMILE-SMC – that can help Contractors to improve

their competitiveness and performance levels. It will help them to obtain and process important

information and ‘knowledge’. SMILE-SMC is also designed to be used by Clients and

Consultants e.g. when they look for a wider range of nominated sub-contractors, specialist

contractors, suppliers and other services. In general, it opens up opportunities (a) for sourcing

new business partners, and (b) for efficiently accessing useful information and knowledge in

what can be a ‘one-stop’ portal.

Overall, in addressing the industry needs as were identified at the beginning of this paper,

SMILE-SMC can contribute to construction industry development through various provisions for

better teamworking (e.g. through facilities for sourcing and co-operating more efficiently with

new and existing business partners) and improved IKM - through a ‘one-stop’ industry

information source, special tools, formats, flow-charts and check-lists, benchmarking etc.

The SMILE-SMC approach is seen to be a ‘bottom-up’ development of enabling tools and

mechanisms, initially funded by Government, and led by academia with industry inputs.

However, the three-way partnership proposed in Wales also involves Government, researchers

and industry, but envisages (a) more direct and sustained Governmental inputs, and (b) a more

‘top-down’ approach, in management & governance and specific education & training strategies

and structures.

An initially slow response to access and use the SMILE-SMC web-site, despite the wide

publicity, indicates the advantages of a higher level support framework for implementation. A

two-pronged

simultaneous top-down and bottom-up approach is thus seen to be useful, in order to draw SCEs

into an accelerated learning-development curve. Of course specific strategies and approaches

will depend on national and regional conditions and priorities, but general lessons can be learned

from international experiences in tackling the typical problems faced in uplifting SCEs

worldwide.

6. Acknowledgements

Hong Kong RGC Grant HKU 7138/05E facilitated the development of this paper.

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