WELSHENTERPRISEINSTITUTE Monograph No 3

THE SMALL BUSINESS OFCONSTRUCTION

Edited by Christopher Miller, Gary Packham andBrychan ThomasSeries editor: David Brooksbank

Culture ManagementSkills

Partnering

Training

E-Commerce

SmallConstructionEnterprises

WELSHENTERPRISEINSTITUTE Monograph

THE SMALL BUSINESS OFCONSTRUCTION

Edited by Christopher Miller, Gary Packham and BrychanThomasSeries editor: David Brooksbank

University of Glamorgan Business SchoolOctober 2001

NOTES ON CONTRIBUTORS

Geoffrey Briscoe, Construction Labour Market Research Group,School of Science and the Environment, Coventry University.

Professor David Brooksbank, Welsh Enterprise Institute, BusinessSchool, University of Glamorgan.

Dr. Eddie Cheng, Department of Building and Real Estate, HongKong Polytechnic University, Kowloon, Hong Kong.

Dr. Andrew Dainty, Construction Labour Market Research Group,School of Science and the Environment, Coventry University.

Jeff Hodgson, Principal Lecturer, School of Technology, University ofGlamorgan

Dr. Zahir Irani, Information Systems Evaluation and IntegrationGroup, Department of Information Systems & Computing, BrunelUniversity, Uxbridge, Middlesex.

Dr. Mohan Kumaraswamy, Department of Civil Engineering, TheUniversity of Hong Kong.

Professor Heng Li, Department of Building and Real Estate, HongKong Polytechnic University, Kowloon, Hong Kong.

Christopher Lloyd, Director, Calibre Construction.

Professor Peter Love, School of Architecture and Building, DeakinUniversity, Geelong, Australia.

Dr. Christopher Miller, Welsh Enterprise Institute, Business School,University of Glamorgan.

Sarah Millett, Construction Labour Market Research Group, School ofScience and the Environment, Coventry University.

Dr.Gary Packham, Welsh Enterprise Institute, Business School,University of Glamorgan.

Dr. Brychan Thomas, Welsh Enterprise Institute, Business School,University of Glamorgan.

Professor Raymond Tse, Department of Building and Real Estate,Hong Kong Polytechnic University, Kowloon, Hong Kong.

Andrew Wheten, Design & Construction Management Development& European Affairs, Cardiff County Council.

WELSH ENTERPRISE INSTITUTE MONOGRAPH

The Small Business of Construction

Preface David Brooksbank

Introduction

Understanding Small Christopher Miller, Gary PackhamConstruction & Brychan ThomasEnterprises in Wales

Cultural Synergies through Mohan KumaraswamyTechnology Exchange

Management Skills in the SME Geoffrey Briscoe, AndrewConstruction Sector: An Dainty & Sarah MillettEmpirical Investigation

An empirical analysis of the Peter Love, Zahir Irani, Hengbarriers to implementing Li, Eddie Cheng & Raymond Tsee-commerce in small-medium sized construction contractors

Partnering the Supply Chain: Brychan Thomas, Gary PackhamBenefits for All? & Christopher Lloyd

Harmonisation within the Andrew Wheten, Jeff HodgsonConstruction Supply Chain: & Christopher MillerA New Perspective?

Welsh Enterprise InstituteSefydliad Menter Cymreig

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Monograph Series

Editor

Professor David Brooksbank

Editorial Board

Professor David BrooksbankProfessor Tony GearProfessor Stephen HillDr. Christopher MillerDr. Gary PackhamDr. David PickernellProfessor Michael QuayleDr. Brychan Thomas

ISBN: 1-840540-45-1

The Small Business of Construction

University of Glamorgan 2001

PREFACE

Professor David Brooksbank

The Welsh Enterprise Institute (WEI) is the largest research anddevelopment organisation of its type in Wales. Located at theUniversity of Glamorgan Business School, it provides a centre ofexpertise in the areas of entrepreneurship, innovation and smallbusiness management. A significant amount of its research, in bothacademic and consultancy terms, is focused in these areas. The WEIhas more than two dozen members of staff specialising in fields asdiverse as strategy, regional development, economics, marketing,management of change, purchasing and logistics, decision-making andenvironmental management. With an emphasis on Enterprise withinthe Welsh National Development Strategy, the EntrepreneurshipAction Plan for Wales and the Future Skills Wales report, the aim ofthe Institute is to provide a focus for a positive, encouraging andsupportive entrepreneurial environment within the University andsociety at large.This monograph is the third in a new series of works bringing focus tosome of our contemporary research themes. It presents a coherent andin-depth analysis of some key issues concerning small firms in theconstruction industry and contains much that is useful to practitionersand academic readers. The importance of small construction firms toeconomies is well recognised and this collection presents an empiricaland up-to-date view that is timely and significant to current debate.The papers draw on research from around the World and it wouldseem that the importance of this work is common place across theglobe. Also, something that is good to see, are contributions from wellestablished and emerging academics in the field of constructionmanagement.The editorial team welcomes views from all quarters concerning theresearch undertaken and reported at the Institute and we urge thoseinterested readers to contact us.

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INTRODUCTION

This monograph is a collection of papers concerning ‘The SmallBusiness of Construction’ which have been published at internationalconferences or written as working papers.

The first paper reports that the culture of the construction industryoften means that technological progression and innovative methods arefailing to filter through the supply chain. Innovation and developmentoften provides firms with skills and capabilities to develop and grow.It has been recognised that the way knowledge and information is usedwithin the firm is essentially determined by the internal capabilities ofthe firm together with the values and aspirations of the entrepreneur. Itis documented that the construction industry in the United Kingdomtrails foreign competition in terms of training and developmentespecially within small firms. This paper establishes the link betweensmall business theory and small construction enterprises and offers anunderstanding of how such firms operate and survive within a hostileenvironment.

In the second paper radical transformations are envisaged in movingfrom prevalent ‘cultural clashes’ and conflicts in construction projects,towards cultural complementarities, close collaboration and resultantsynergies. This paper advocates ‘two-way’ technology transfers,termed ‘technology exchange’, based on the more holistic fourfoldframework of technology first formulated by ESCAP. Following apilot study in Hong Kong, technology exchange is shown to bedesirable between particular organisations (whether big and smalland/or from different countries) by complementing each others’strengths and weaknesses in terms of the four components oftechnoware, orgaware, humanware and infoware. Such technologyexchange can generate operational synergies between Joint Venturepartners in particular, and across the whole construction supply chain

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in general. It is further postulated that these operational synergies canpropel construction project cultures towards an optimal balancebetween (and within) the various operational, organisational,individualistic and professional sub-cultures. This should also energisethe long-awaited overall ‘cultural shift’ that is evidently needed forrealistic re-integration of fragmented supply chains. This should inturn help to generate the much-desired dramatic gains in productivitylevels, as envisaged in some recent reports and discussions onconstruction industries in both developed and less developedcountries.

The third paper investigates the range of skills found in the small andmedium-size companies that are key suppliers of subcontractingservices in the UK construction sector. Various skill surveys arebriefly reviewed as background to an empirical study into genericskills possessed by managers and owners in a number of representativeSMEs. Skills are ranked into order of both present and futureimportance. The relevance of such generic skills for the smallerconstruction firm's business performance is placed into context. Someimplications are drawn for training needs and potential barriers torealising higher levels of skill training are identified.

The fourth paper considers that in order to improve organisationalperformance and sustain a competitive advantage many Australianbusinesses have begun to embrace e-commerce. For example,businesses from the automotive, banking, insurance and retailindustries have already been able to leverage the benefits ofinformation and communication technologies. Yet, those from theconstruction industry have been slow, perhaps even reluctant, toimplement information and communication technologies to support e-commerce. Thus, this paper aims to determine the barriers that small-medium sized contractors are experiencing when confronted with theneed to implement e-commerce to sustain their competitiveness.Unstructured interviews were undertaken with managers from 20small-medium sized contractors from the State of Victoria inAustralia, with annual turnovers ranging from $1-50 million. The

financial, organisational, technical and human barriers that wereidentified from the findings are presented and discussed. The paperconcludes by proposing strategies that small-medium sized contractorsmay adopt if they are to leverage the benefits of e-commerce:

In the fifth paper it is reported that partnering can lead to constructionprojects being delivered quickly, efficiently and cost effectively.Indeed, research has shown that partnering arrangements can reduceconstruction time and standardisation can lead to efficiency on site.This is achieved by partnering a dedicated team of consultants,contractors and manufacturers, who develop their expertise over aseries of projects. This paper reviews partnering arrangements andexamines the present state of the industry and the effects of thesearrangements on small construction enterprises (SCEs). It alsodiscusses a recent case study investigating the impact of partnering onan SCE. The research involved a series of interviews with themanaging director of a South Wales based subcontracting firm in orderto develop an understanding of how SCEs are treated within partneringarrangements. Evidence from this study suggests that under its currentguise partnering may not offer SCEs with many tangible benefits andoften has a detrimental effect upon the contractor-subcontractorrelationship.

The last paper reports that there is a need to reduce conflict betweenlarge contractors and small subcontracting firms within theconstruction industry. The industry has endeavoured to reduce manysystems and introduce new working methods in order to improveworking relationships and increase efficiency. Many processes andsystems are managed by large contracting firms and often fail to attachsignificance to harmonisation with the small firm. This paper arguesthat the conflict between those parties involved in the constructionprocess can be reduced through means other than litigation. Itsuggests that Alternative Dispute Resolution (ADR) can provide avehicle for inexpensive dispute resolution whilst maintainingfavourable business relationships with those involved. It is argued thatthis method may assist in further reducing costs and increasing

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harmonisation between small subcontracting firms and largecontractors.

UNDERSTANDING SMALL CONSTRUCTIONENTERPRISES IN WALES

Christopher Miller, Gary Packham and Brychan Thomas

Introduction

The construction industry's academic arena focuses much of itsresearch on the needs of larger contractors. Small business theorysuggests that there are significant differences between large and smallfirms, and that these differences must be understood if the academicarena within construction is to progress. Much of the work withinsmall and medium sized enterprises (SMEs) began after the BoltonReport (1971). The construction industry has not been the principalfocus of similar research, but can benefit from many of theconclusions from previous reports. Barriers to training, high levels ofcustomer dependency, a lack of strategic planning, poor managementand marketing however, all suggest that inter organisational relationswithin the construction industry are prone to failure.

The small construction enterprise (SCE) in Wales, and the industry asa whole, has been criticised by many with regard to the take-up of newtechnologies, processes, organisational issues and an adversarialculture (Central Council for Works and Buildings (1944); EmmersonReport, 1962; Latham Report, 1994; European Observatory for SMEsReport, 1996; Labour Market Assessment for Industrial South WalesReport, 1996). The construction industry does not differ from the bodyof empirical evidence pertaining to the general problems faced bySMEs, if viewed as one homogenous group. For example, Woo et al.(1989) identified that craftspeople and independent entrepreneurs hadless experience in marketing and sales. It is also maintained that SMEsare not adept at financial control, or management and often possesslittle motivation (Storey, 1994; Stokes, 1995). Given that theseproblems have also been identified in the construction arena, it is

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surprising that very little research exists in regard to the role played bySCEs in the industry in Wales.

For the purposes of comparative analysis, a definition of a SCE isrequired. The construction sector has historically defined enterprisesby either trade or size of firm. It is argued that it is necessary toredefine SCEs in order that much of the Entrepreneurship literaturecan be used as a theoretical underpinning to develop ConstructionManagement literature.

Definition of a Small Construction Enterprise

The Bolton report (1971) concluded that the small firm sector willremain, for the near future, sufficiently vigorous to fulfil the “seedbed”function, and is not therefore in need of special support (Stanworthand Curran 1976). It was however short lived as certain sectors werefailing in terms of development. The European Commission (EC)reasoned that certain sectors such as construction required assistance ifdevelopment was to be achieved (The European Observatory forSMEs Report 1996).

The Bolton Report (1971) concluded by offering that no uniformlyacceptable definition of a small construction firm exists. Firms in theindustry will generally have higher levels of capital employed thansome other sectors. Definitions in terms of employment and saleswere treated similarly, in that all firms could be classed as small. Theconstruction industry follows this pattern. To overcome theseproblems Bolton offered an economic definition, in which firmspossessed a small share of their market, were managed in a personalway and were independent and not part of a large enterprise.

The idea that the small firm sector is heterogeneous was made explicitby the Bolton Commission of Inquiry. They recognised that the smallfirms sector cannot be treated as one homogenous group. Thecommission stated that:

“When we come to look at the human and social factorsaffecting (small firms) we can see that firms are, in fact, asvaried and individual as the men who founded them” (BoltonReport, 1971, p. 22).

The Bolton Report did attempt to offer an industry type definitionusing employment and turnover to offer a workable solution.Examination of Table 1 provides an example of this.

Table 1Bolton Report: The Definition of a small firm

Small firm type Definition UsedConstruction 25 employees or less

Manufacturing 200 employees or lessRoad Transport 5 vehicles or less

Retailing £50,000 pa t/over or lessMiscellaneous services £50,000 pa t/over or less

The Commission of European Communities in their directive DG 23(1994) offered a definition of a small business to replace themultiplicity of criteria reported within the Bolton Report and others.A small business was thus to possess between 10-50 employees and aturnover of less than 5M ECU or a maximum balance sheet of 2million ECU, or any combination of the two.

An American study in 1975 identified more than 50 different statisticaldefinitions in 75 countries (Watson and Everett 1996). Similarly, aCongressional Committee in the United States of America waspresented with over 700 definitions of a small business. Researchersand policy makers throughout the world have used a variety of criteriain an attempt to define a small business. These include:• Total worth• Relative size within industry• Number of employees• Value of products

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• Annual sales turnover• Managerial processes• Net worthSource: Atkins and Lowe (1994); Watson and Everett (1996).

The benchmarks used to define a small business vary considerably.Studies have used benchmarks ranging from 100 to 1500 employees.Storey (1994) reported that the definition of a small business ranges upfrom 50 employees in the Netherlands, to 1000 or more in the UnitedStates. It may therefore be necessary to assess the relationship betweenthe size of country and definition. Atkins and Lowe (1994) howeverview the definition of a small firm as being somewhat removed fromthe atypical historical definition, and view smallness as an issue thatcannot be accommodated through the use of employee numbers orthrough owner-management

In whatever form the subcontract arrangement takes it is imperativefor the construction industry that a healthy SCE sector exists (Cox andTownsend 1998). Despite this there are few that view the relationshipbetween small subcontractors and large contractors as being extremelyimportant to the industry's future development (Bresnen and Marshall2000). The UK construction sector has placed very little emphasis onthe development of the SCE, seeing it merely as a part of thefragmentation of the industry, due to the structure of demand (Morton& Jagger 1995). Large contracting firms have concentrated on coreactivities and subcontracted non-core work to SCEs. This has allowedlarge firms to respond quickly to demand fluctuations and survive.Small firms, however, have failed to improve technical competencyand efficiency and have experienced problems that ultimately affectthe delivery of a competent service to clients (Cox and Townsend1998). The industry has also a reputation for the onerous contractsentered into by very small firms (Hughes, et al 1997).

Due to the nature of construction, the work carried out by the industrynormally calls for a variety of different skills and expertise (Gann

1996). Main contractors will normally aim to maintain contact with avariety of different specialists, and offer intermittent employment thatsuits the skills of the chosen professional. Brochner (1990) explainsthis relationship as “economies of scope”. That is to say that the costsof providing services through a relationship are less than providingthem separately. This logical step by the industry has led to theformation of many SCEs that offer specialism to the industry. Thisstructure can lead to what Penrose (1995) classes as “the reduction ofinefficient team performance”. Firms learn to work together overtime. The instability and subcontract arrangement of the constructionindustry leads to a very difficult task for contractors andsubcontractors.

The types of firms operating as specialists often work with largecontractors that possess professional management teams and utilisecomplex systems to increase efficiency. Small firms do not normallypossess such management teams or systems, thus creating atechnological and process gap, which can hinder project performance(Hughes et al 1997). The construction industry defines the industryunder the 1992 Standard Industrial Classification (SIC). Constructionis classified F and is currently the second largest form of industryoperating within the UK (Labour Market Trends 1999).

Small building firms are often analysed using the measure of less thanone hundred and fourteen employees but more than seven. Very smallfirms often fail to provide a significant amount of new work and areessentially involved in repair and maintenance. Those firms thatprovide significant levels of new work are firms with over sevenemployees. 61.9% of all new work is undertaken by firms withbetween eight and one thousand two hundred employees. Those firmswith between eight and one hundred and fourteen employees accountfor approximately 28% of all new work (Harvey and Ashworth 1997).Much of the construction management literature uses the statisticalcategorisation of the Department of Environment and Trade andRegions figures that provides such wide bands of firms. Weston

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(1996) however, views this as unsatisfactory as over 99.5% of firmsfall into this category.

Very small firms with less than seven employees are indeed importantwithin the construction sector in Wales. It is also argued that many ofthese firms will be self-employed operatives often working from homeand involved in repair and maintenance. It is often the case that microconstruction firms have high failure rates within the industry and areoften transient (Goffee and Scase 1995). Within certain sectors, thosefirms with less than twenty employees often fail to survive or developover time (Burns and Harrison 1996). It is offered that subcontractingfirms possessing between ten and fifty employees should beconsidered SCEs. These firms should be managed in a personalisedway and within the financial limits of the DG23 directive. They shouldalso be essentially firms involved in new work and subcontracting tolarge contracting organisations.

The structure of the construction industry

A main characteristic of the construction industry is that demand isvariable (Hillebrandt and Cannon, 1994; Shutt, 1995; Morton andJagger, 1995), or from an economic perspective the demand for theproduct is derived (Anderton, 1991). Thus, the product is only indemand because it is required for the production of other goods. Itcould therefore be argued that the industry is shaped by this variabilityin demand, together with the firms and individuals that operate withinit.

The industry can be divided into four areas (Langford and Male,1991); building, civil engineering, repair and maintenance andmaterials and manufacture. The industry can be further sub-dividedwithin these external boundaries. The construction industry issegmented into several markets, offering opportunities and threats tothe firms that operate within the market place. If we accept that theconstruction market for many small companies is constrainedgeographically, and that they do not have the economies of scale to

undertake large projects, then it could be argued that some degree ofknowledge must exist pertaining to the opportunities that particularmarkets offers (Malmberg, Solvell and Zander, 1996). Consequently,firms benefit from the development of general labour markets andspecialised skills; enhanced interaction between local suppliers andcustomers; shared infrastructure, and other localised externalities.These issues are important in terms of developing inter organisationsalrelations within the construction industry.

The construction industry in Wales

Industry in Wales is mainly dominated by the manufacturing andpublic sectors. These contribute a disproportionate percentage of theregion's Gross Domestic Product (GDP) compared with the nationalaverage (Pathway to Prosperity, 1998). The construction industryaccounts for 8.4% of GDP in Wales compared to 7.7% in the UK(DfEE, 2000). This figure emphasises the importance of theconstruction industry to the Welsh economy. Table 2 highlights thecontinued importance of the construction industry to Wales in terms ofthe work undertaken by contracting and subcontracting firms, and itscontribution to the economy. The value of the work undertaken hasincreased by 9% since 1995. In fact, between 1970 and 1994 there wasa 175% increase in the number of contracting firms operating withinWales (Harvey and Ashworth, 1998).

Table 2Total Output of Work (Contractors) – Wales

Year Total Work Wales(£ million)

1995 2,3771996 2,3311997 2,5391998 2,591

Source: DETR (1999)

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The growth and development of new technologies is changing the faceof many businesses. Technology is fundamentally altering products,processes and services. Advances in computing, telecommunications,pollution control and the Internet are stimulating the development ofnew industries and changing the nature of many older ones. In certainsectors customers are becoming more demanding and placing greateremphasis upon the use of technologies to deliver goods and services.Notwithstanding this fact it is pertinent to note that the constructionindustry is one of low growth, low skill and often averse totechnological and process improvement especially within small firms.The construction industry within the South Wales region has enjoyedsignificant activity, but showed a greater degree of fluctuation than therest of the UK. In 1995 the region had approximately 2600 SCEs. Theoverall change in numbers of VAT registered SCEs within the regionhas decreased by 16% from 1991-1995, resulting in a 15% decrease inemployment (Nomis, 1997).

Figure 1Total Number of Construction Firms by Number of Employees in

Wales 1998. Source: DETR (1999)

Only 44 firms with between 60 and 1,200 employees were in businessin 1998. The majority of firms employed between 1 and 13 people.Those firms acting as self-employed operatives, sole traders or smallfirms also predominantly dominate the construction industry in Wales.Almost 8,000 firms had between 1 and 13 employees. It is acceptedthat the new Inland Revenue (IR) Construction Industry Scheme (CIS)will further alter these figures to allow those persons currentlysubcontracting to be classed either as employers or as employees. Thescheme (which replaces the old 714 tax system) aims to reduce thenumber of operatives currently acting as self employed, and to reduceproblems by legitimising those firms that currently use labourconsistently but fail to pay employer/employee contributions. Self-employed operatives will therefore probably decrease in number,resulting in an increase in those firms employing people.

Governmental and European Support for Wales

The trend for inward investment within the region continues to offerconstruction firms many sizeable projects. Many of the projectsundertaken are led by large contractors, with smaller firms acting assubcontractors. If Wales mirrors the rest of the construction industryin terms of obtaining and completing work, it is argued that labour andspecialised subcontractors will predominantly be hired locally to assistin the reduction of costs. The development of infrastructure within theregion is deemed adequate for many firms wishing to operate and/ortrade, as the quantity and quality of work available is significant.Wales has benefited from improvements, which have strengthenedconstruction activity and the competitive position of the area. Onesuch improvement is the Regional Technology Plan (RTP). Wales isthe only region of the UK to benefit from this initiative. The rationalefor this is simply that the initial findings indicate that the Welsheconomy is suffering and its weaknesses far outweigh its strengths.These inferences suggest that the region is failing in terms of itsinnovative capacity and entrepreneurial ability.

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1 2 to 3 4 to 7 8 to 13 14 to24

25 to34

35 to59

60 to79

80 to114

115 to299

300 to1199

1200+

4521

2447

820

177 154 54 53 16 9 13 6 0

Total No. of Employees: 8273

Size of Firm (By Employment)

No.

of F

irms

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Parts of Wales have secured European funding (Objective One) todevelop the infrastructure and improve quality of life. These factshighlight that the region is experiencing significant economicproblems and has few growing or developing market sectors.Objective One funding aims to promote the development of thoseregions whose GDP per head is less than 75% of the European Unionaverage. The promotion of sustainable economic growth, thereductions of disparities and increase in the prosperity of the regionare all main issues addressed by the programme. The initiative alsoaims to reverse social exclusion, inactivity and inequality.

The construction sector in Wales is in desperate need of development.Smaller firms currently dominate the construction sector and aretherefore required to be at the forefront of economic regeneration ofWales. South Glamorgan TEC (1996) recorded that almost 50% ofconstruction firms indicated that they were involved in a complexsystem of sub-contracting. Thus, the structure of the constructionindustry has changed from being dominated by contractors, to a highlyflexible system that uses sub-contractors for a large percentage of thework. Such methods have enabled organisations to pull throughrecessionary periods, but have failed to retain the skills and knowledgerequired to take the industry into the next century (South GlamorganTEC 1997). This should be of concern to policy makers and largecontractors, if the local skills and knowledge inherent within SCEs areto be retained for the foreseeable future. The industry, however, istransient in nature and employees are transferable. What should be ofconcern, is that Wales can offer the required labour, skills andknowledge but lacks the support mechanisms and motivation tosucceed in order to survive within this complex environment. Asmeans of an illustration of this point, it is pertinent to note that theSouth Glamorgan TEC Report (1996) indicated that contractors andprofessionals did not expect the industry to grow within the region inthe next five years. Given that low barriers to entry exist it isconceivable that this problem could be amplified. Thus it is reasonableto surmise that the industry is unstable and incumbent firms arelimited to exploiting existing markets.

Small Construction Firm Survival in South Wales

SCEs must acknowledge the low barriers to entry in the industry ifthey are to survive. Substitutes, powerful customers, suppliers andcompetitors, are instrumental in ensuring that the competitive positionof SCEs within the market is not set to improve however. It is notsuggested that SCEs fail to undertake any form of strategic planningand/or consider the benefits of new processes and technologies thatpertain to the construction industry. Instead it is submitted that they donot perceive the benefits of implementing such technologies in termsof offering a competitive advantage, and that the benefits of thesestrategies do not seem relevant. Moreover, it is contended that someorganisations are so deeply involved with planning that the firmsthemselves are no longer able to act in an entrepreneurial way(Mintzberg 1994). Thompson (1993), however, views strategy asessential for a firm operating in a turbulent environment. He alsomakes the point that firms need to know where they are, where theyare going and how to manage such changes. Furthermore, it is arguedthat weak management skills and marketing capabilities have ensuredthat craft-based firms are unable to sustain a competitive edge (TheEuropean Observatory for SMEs Report 1996). It has beenacknowledged that a shortage of skills within a nation can also inhibitthe diffusion of new technologies (DfEE 2000). There is sufficientevidence to suggest that general skill shortages have constrained thetechnological development of the United Kingdom and regions such asWales (DfEE 2000). Kay and Willman (1993) stress the importance ofincreasing organisational learning and building core skills in bothtechnical and business areas. These areas are deemed to be ofparamount importance in terms of a firm’s ability to be effective in themarket place and in terms of competently managing change (DfEE2000).

The Institute of Management published a report in 1994 (Welch 1996)that highlighted the need for essential skills and competencies. Itconcluded that owner managers were failing to train despite viewing

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skills as essential to development. This is further supported by theDfEE (2000) who submit that the skills required by the constructionindustry are escalating. Various reasons exist as to the lack of trainingwithin small firms generally but skills shortages are prevalent in manysectors. The construction industry however suffers more than mostindustries from skills shortages and lack of training. SCEs arecontinuing to fail to train employees in both technical and genericskills (Welch 1996, DfEE 2000). Nevertheless, there is little researchoutlining why this apathy to training exists within the industry.

Research conducted by Roper (1998) of 703 small firms concludedthat education and training were of significant importance in terms ofthe growth potential of the firm and of a firm’s ability to undertakestrategic initiatives. Hall (1991, 1995) also places great emphasis onthe small firm within the construction industry to effectively managefinance and to develop a skilled workforce. The DfEE (2000) proposethat the construction industry should be the focus of additionalresources. They submit that the industry has the highest percentage ofskills shortages within the UK. In fact, previous studies haveconcluded that the education and experience of owner managers maybe positively correlated with the survival and development of the firm(Hall 1995, Westhead and Birley 1995). Thompson (1996) however,argues that although individuals are important to survival anddevelopment, it is also necessary to account for organisational andmarket environment factors. At present, the industry possesses anadversarial nature, which is not conducive to high survival rates andmay render training initiatives ineffective.

In a study by Wynarczyk et al (1993) of 150 small businesses, themanagement and marketing abilities of owner-managers has beenshown to have a positive effect upon the financial success of smallfirms. Kale and Arditi (1998) add that the lack of financial resourcesand the lack of financial support from creditors often compound theproblems faced by small firms. Managerial weaknesses faced byowner-managers of small firms can also impact upon survival. Manysmall firms fail to effectively manage markets, finance and employees.

Small firms often refuse to acknowledge that the environment inwhich they operate is constantly changing or adapt to externalities(Kale and Arditi 1998). Construction Industry reports such as Latham(1994) and Egan (1998) highlight the need for the industry to embracecontemporary technologies and processes. Very few publicationshowever, investigate the level of technological and process inadequacyof SCEs. The report by Saad and Jones (1998) indicates that theindustry must acknowledge the importance of specialists within theconstruction arena.

The industry continues to embrace new initiatives in recognition of theneed for change and development (Egan 1998). It is recognised thatnew technologies and processes are important if the industry is todevelop (Miller et al 1998). Much has been published that advocatesthis way forward. It is argued that the values and motivations of ownermanagers determine the purpose of a firm (Kotey and Meredith 1987,Jennings and Beaver 1997, Penrose 1995, Smallbone et al 1995O’Farrell and Hitchens 1988). It is therefore logical to assume thatowner managers largely determine, and develop the culture of smallfirms. Culture is defined as the “way things happen in organisations”(Mullins 1993). Some commentators argue that the culture of a firmmust be acknowledged as integral to a firm’s development (Thompson1999, Barthorpe et al 2000). The culture of the construction industryhas historically been one entrenched in an adversarial and maledominated environment (Egan 1998). It has been argued that thecontractual arrangements in place between all parties attempting towork within the construction system are failing to develop a betterculture (Barthorpe et al 2000). It is further contended that the systemcontinues to put pressure upon all involved within the process andcreates an environment of intimidation and distrust: factors that oftenconstrain the value of support initiatives.

A New Agenda for Wales

It is evident that the link between SCEs and SMEs is not tenuous. Theproblems faced by small firms generally are indeed prominent within

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Welsh construction. SCEs are attempting to prosper and develop in anenvironment that continues to remain unstable and provides littleentrepreneurial profit. SCEs continue to face problems withsubcontracting arrangements. Small business theory illustrates thatsmall firms develop better when operating in markets that offercertainty and stability: this paper has illustrated that the constructionsector in Wales is significant yet fails to adopt new technologies andprocesses at a rate demanded by the environment. It is also argued thatfor development to take place within the region the needs of SCEsshould be understood and addressed.

Owner managers of small firms are often unable to manage effectivelyin a complex environment. Small firms generally, have difficultysurviving within complex markets and have limited managementexperience. There is evidence to suggest however, that training anddevelopment could assist in the reduction of market uncertainty andassist SCEs to manage complexity. Small businesses often fail in theirability to manage people competently and can possess poor humanresource strategies. Financial management, marketing and planningare also issues that may be compounding the problem of small firmssurviving and developing in complex markets.

Small business theory recognises that small firms would benefit fromincreased awareness in management skills, financial planning andcontrol, marketing, and engender the necessary motivation to be, forwant of a better term, entrepreneurial in nature. The plethora of reportsrelating to the construction industry show that the industry must adoptnew technologies and processes. The work of Hall (1991, 1995)indicates that sub-contracting poses severe problems, especially ifSCEs perceive these new processes to be of little value. This isbecause clients and contractors are so distant from the sub-contractorsthat the SCEs can attain no benefit through the provision of qualitywork. Hall (1991, 1995) also places great emphasis on the smallconstruction firm's ability to manage finance effectively, and that thefirm must possess a skilled workforce.

This paper therefore posits that the development of SCEs is importantif success is to be achieved within the construction industry (Hughes etal 1997). The culture of organisations if nurtured can assist incompetitive advantage. It is submitted that for success to bemaintained the firm itself must believe in something. The values ofthe organisation, the environment in which the firm operates, rolemodels, rituals and the cultural network are all considered to be ofsignificant importance (Barthorpe et al 2000). SCEs are also importantdue to the fact that they possess local knowledge and can assist in thereduction of costs. Many larger contractors already choose to utilisethe services of smaller firms to assist in the completion of projects.

Notwithstanding this fact, it is evident that the general lack ofharmony between contractors and subcontractors ensure that costs canactually escalate. In this sense, it is argued that distrust and selfinterest inhibit effective inter-organisational relations. The challengefor Wales and its construction industry are therefore three-fold:

1) Acknowledge the pivotal role of SCEs in the construction process.2) Develop training initiatives that are beneficial to SCEs and

explicitly illustrate the advantage of new technologies andprocesses.

3) Engender a more inclusive construction culture that meets theneeds of all contracting parties and aspires to the notion ofincreased profitability for all.

These challenges however, cannot be met by simply setting up genericsupport initiatives. Instead, this paper has highlighted that the industryis very adversarial in nature and any initiative must not only recognisethis complexity but pay proper attention to its most significantcontributor: the SCE. By understanding how these pivotal firmsoperate, it is hoped that this proposed new agenda for Welshconstruction will avoid the pitfalls of past endeavours.

2021

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Hall, G. (1995) Surviving and Prospering in the Small Firm Sector,Routledge, London.

Harvey, R. C. and Ashworth, A. (1998) The Construction Industry ofGreat Britain, 2nd Edition, Laxtons, Oxford.

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24 25

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2627

CULTURAL SYNERGIES THROUGHTECHNOLOGY EXCHANGE

Mohan Kumaraswamy

Introduction

Clarion calls for a radical change of ‘industry culture’ resonate fromrecent reports on construction industries, for example in the UK (CTF,1998), Australia (ISR, 1999) and Hong Kong (CIRC, 2001).Exhortations to break down the barriers in an ingrained adversarialculture are also common in international industry fora and academicdiscourses analysing construction industry under-performance.However, the limited success to-date indicates a scarcity of specificand practical tools to dismantle these long-standing barriers, in orderto at least move forward towards the espoused Gospel of closelyintegrated supply chains and the Nirvana of mutual trust andteamworking based on clearly identified common objectives.

Meanwhile, it is increasingly evident that small and medium sizedorganisations form the bulk, if not the back-bone of constructionindustries in many countries. This also increases the number ofparticipants to be integrated in a project and the complexity of thesupply chain. Furthermore, many of the smaller units may be from the‘informal construction sector’ which has grown significantly in recentyears in many parts of the developing world’ (Ofori, 2001). Multiplelayers of sub-contracting and the sourcing of special materials andspecialist skills in even more developed countries like Hong Kong,also reach into such an informal sector. All this adds to thecomplexities of integrating project teams. It is seen to be useful toformalise, strengthen and lengthen the relationships with small andmedium term participants, so as to extend these (in both ‘time’ and‘space’) to other projects as well. This should reduce the relevantlearning curves on new projects and proactively promote the

2829

continuous improvement, teamworking and trust that is sought throughpartnering, alliancing and other forms of what can be collectivelycalled ‘relational contracting’.

This paper explores some tools that would assist in dismantling theabove-mentioned barriers, in integrating supply chains and sparkingthe desired ‘cultural revolution’. The incorporation of specificselection criteria that value teamworking track-records (and/orpotential) when choosing project participants is shown to be one wayof catalysing the cultural shift at the outset (Kumaraswamy andMatthews, 2000). Potential participants could be proactivelyconditioned up-front and hopefully committed towards teamworkingand ‘joint risk management’. Furthermore, the focus of this paper is oninculcating an appreciation of the ‘technology exchange’ that isneeded between participants in achieving the desired culturalsynergies, that will in turn unleash the latent energies needed to triggerthe step gains in performance levels that are being urged in theconstruction industry.

Why and how to Transform Construction Project Cultures

Conceptualising ‘Culture’

In order to release and channel the ‘right’ energies to propelconstruction culture in the desired directions, it is necessary to know:(a) where we want to go, (b) where we are now and (c) how we gothere – so that we may learn from past pitfalls and previous ‘slip-ups’,while plotting our way upwards.

Descriptions of culture range from: (a) ‘the way we do things here’,(b) ‘collective programming of minds’ (Hofstede, 1980), to (c)‘patterned ways of thinking, feeling and reacting, acquired andtransmitted mainly by symbols, constituting the distinctiveachievements of human groups, including ……’ (Joynt, 1985).

The CIB TG29 Task Force on ‘Construction in Developing Countries’,realising the significance of the cultural context in industrydevelopment, identified and described the following aspects: (1)industry level culture; (2) professional culture; (3) company culture;and (4) project culture (Ofori, 2001).

Sources and ‘Shaping’ of Construction Project Cultures

Kumaraswamy et al. (2001a) analysed the origins and formation of atypical project culture, as postulated to be derived from: (a)organisational, (b) operational, (c) professional and (d) individualisticsub-cultures. Typical ‘contributors’ to these sub-cultures are mappedin Figure 1. For example, each professional sub-culture, such as that of‘architects’, will be contributed to by its ‘origins and history’ – bothinternationally and in that country/locality, the relative status ofarchitects in the construction industry, and in society, the ‘type’ ofmembers who man this profession at that time and the type oftasks/functions expected of them.

The particular impacts of each of these sub-cultures in shaping a givenproject culture in turn depends on the specific professions mobilised,their relative importance on the project, the sequence of mobilisationand similar factors. The roots and relative impacts of other sub-cultures are mapped similarly in Figure 1. A degree of overlapping isevident, for example in multiple contributions of ‘national’ factors toorganisational and individualistic sub-cultures. These should assist inestablishing commonalities, compatibilities and in achieving thedesired synergies.

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Figure 1Tracing potential Sources of a typical Construction Project

CultureSuch a conceptualisation should also help to map out a migration froma ‘culture clash scenario’, for example in mismatched joint venturesbetween incompatible partners, towards a collaborative project culture.In this context Kumaraswamy et al. (2001a) thus recommended to: (a)identify and analyse all contributory sub-cultures and their owncontributory components, (b) to further analyse particularly dominantsub-cultures and sub-culture components in a given project scenario;(c) to suppress ‘undesirable’ components; and (d) strengthen andsynergise the desirable components into an integrated proactive andproductive culture.

The above is easier said than done; as identifying and isolating‘undesirable’ culture components, amidst their collective participantproject scenarios. Dealing with the culture components manifestations,will be clouded by the many variables in multi- adequately (tosuppress/strengthen and synergise as recommended above) will befurther complicated by their multiple interactions. It is also worthnoting that all conflict is not necessarily dysfunctional and counter-productive. For example, constructive conflict can help to generatewell-rounded design solutions, by triggering lateral thinking and theconsideration of better alternatives, as against a uni-directionalapproach that may be blinkered by a one-dimensional culturalperspective. This constructive conflict arising from considering (andsynergising) different viewpoints at the outset, can also help to reducecostly design changes and variations when a problem is only seen laterin the project. In the context of dysfunctional conflict in small andmedium sized projects, Gardiner and Simmons (1998) found that inter-organisational team-building at the start (whether part of formal‘partnering’ arrangements or not) can be used ‘to reduce conditions oflatent conflicts’ and ‘help engender a culture of co-operation andconflict resolution between the client, designers, utilities andconstruction organisations’.

Techniques and Tools for Transforming Project Cultures

ORGANISATIONALSUB-CULTURES

National

Ownership (Public/ QuasiGovt./ Private listed/ Private ..)Sectoral (Industry sector eg. construction)

Historical (oforganisation)

ManagerialStyle

PROJECTCULTURE

OPERATIONAL^SUB-CULTURES

INDIVIDUALISTIC*SUB-CULTURES

PROFESSIONALSUB-CULTURES

National Ethnic

Educational Religious/otherSocial status

/ 'class'

tySafety

ning

Co-operations/ Disputeolution

Communication

RiskManagement

Planning, Control &Target orientation Origins & History

'Type' of Members

ORGANISATIONS A, B and C (some may be stronger /more

Status in Society

Type of Task/FunctionStatus in Construction Industry32

33

Innovative procurement systems, that for example, promote integratedsupply chains and align them towards a common project focus, canprovide one driver towards the targeted performance-oriented culturalparadigm. However, it has been confirmed that superlativeprocurement systems by themselves cannot achieve the desired stepgains in project performance levels (Dissanayaka, 1998). Similarly,innovative procurement systems can be taken to be necessary, but notsufficient to trigger the desired cultural shifts and synergies.Innovative ‘operational’, ‘technological’ and ‘education, training andprofessional development’ systems are also necessary for industrydevelopment (Kumaraswamy et al., 2001b). A holistic approach isthus recommended, with for example education, training andprofessional development being re-designed to incorporate greatersensitivities and an appreciation of the functions of, and necessaryinteractions with parallel professions.

Specific examples of innovative procurement and operational systemsthemselves would include recent trends towards partnering andalliancing, and to incorporating downstream supply chain members(such as smaller sub-contractors and suppliers) in suchpartnering/alliancing arrangements. The theoretical foundation andunderlying roots of these partnering/alliancing practices have beentraced by Rahman et al. (2001) to ‘relational contracting’ principles.These have been also shown to promote ‘Joint Risk Management’which can deal with risks that can not be clearly allocated at the outset(however stringent and comprehensive the contract documents) andalso with those risks that are best dealt with jointly i.e. by more thanone project participant.

Another practical approach to triggering upfront ‘cultural change is inassessing organisational and individual capacities to work towards thedesired changes when selecting project participants (Kumaraswamy etal., 2001a). Thus, if partnering/ alliancing track records and potentialare known to be important criteria in selecting contractors, sub-contractors, this should tend to more effectively ‘focus the minds’ ofprospective participants in suitable directions.

The above approaches, while necessary and useful in themselves, alsofeed synergistically into the following strategy which is the focus ofthis paper: that of ‘technology exchange’ or mutual technologytransfers between project participants. Based on a holisticconceptualisation of technology, this technology exchange includes‘two-way’ technology transfers between joint venture partners, as wellas across the supply chain. These in turn reinforce the binding andbonding forces, and release the cultural synergies needed for theproject success, as well as for organisational learning and industrydevelopment.

This ‘technology exchange’ conceptualisation help lead to re-orientprocurement and operational frameworks and project environmentstowards more productive joint ventures between partners fromcountries at different levels of development, and also in integratingsupply chains that include small and medium-sized enterprises,alongside larger organisations. The next section examines how thiscould ‘work well’ to yield the desired results.

Moving from attempted Technology Transfers to a ‘TechnologyExchange Culture’

Technology and attempted Technology Transfers in Construction

The term ‘technology’, being derived from the Greek words for skillsand knowledge has broad connotations. However, these are oftenneglected in narrower interpretations that focus on just thetechnological hardware components and their usage. Somewhatsimilarly, Abbot (1985) saw technology transfer as ‘the movement ofscience from one group to another, such movement involving its use’.However, Simkoko (1989) saw deficiencies in applying this definitionto construction projects, drawing attention to the ability of the receiverto absorb that knowledge and to a two-way process that works within awell organised transfer programme. Proceeding further, a relevant adhoc CIB TG29 sub-group (in which this author participated)

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postulated that ‘real technology transfer has taken place where thereceiver can use and adapt technology components on a self-reliantand sustainable basis in the construction/ production processes’; that‘the receiver has gained capabilities to adapt, maintain and evengenerate “technology components” more or less based on theoriginally received ones’; and that ‘in the end the receiver might be acompetitor of the supplier’ (Ofori, 2001).

The “technology components” referred to above are those that wereidentified in a holistic conceptualisation of technology in the modeldeveloped by the Asia Pacific Centre for the Transfer of Technology(APCTT, 1989). It is based on a broad framework of technology as inFigure 2. This framework clearly incorporates the 'softer' technologycomponents of 'Inforware' (Document - embodied facts), Orgaware(Institution - embodied frameworks) and Humanware (Person -embodied abilities) in addition to Technoware (Object embodiedfacilities). This wider visualisation of the totality of technology and itsanalysis into technology components also led to a comprehensivesystem of evaluation based on detailed assessments of each of theforegoing four components. The technology 'level' of say, a cementplant in China or a steel plant in Japan, could thus be projectedthrough a profile as in Figure 2.

The Case for ‘Technology Exchange’ oriented approaches

Technology transfers under the previous (narrower) paradigm on theother hand, rarely seemed to really ‘work’. Despite many explicit andimplicit commitments to technology transfer that may accompanyforeign investments, many pitfalls are often encountered by bothtransferor and transferee. The instances of real and sustained transfersof technology are few. In particular, in the construction industry forexample, Carrillo (1995) confirmed that technology transfer isneglected due to commercial imperatives, time constraints andsometimes even deliberately avoided, in order to maintain acompetitive advantage on 'high-tech' jobs. Other barriers to technologytransfers were examined in a recent survey of construction

professionals in Hong Kong. Most of the respondents had beeninvolved in the various joint ventures that have proliferated to handlecomplex work packages in many recent infrastructure programmes,such as for the new Airport and ongoing railway extensions. Majorbarriers to technology transfers were identified as: organisationcultures, attitudes of the individuals, lack of time, limited capacities ofindividuals (to participate in transfers), and a lack of clear policies(Shrestha and Kumaraswamy, 2000).

In overcoming such barriers and facilitating smoother flows, it is feltuseful to revert to the more holistic conceptualisation of technology asin Figure 2. Based on this, a new paradigm of 'Technology exchange'based on the complementarity of the strengths and weaknesses oforganisations in relation to different components of technology wasproposed by Kumaraswamy (1995). This model visualised a two-wayflow, rather than the elusive uni-directional transfers envisaged in theprevious paradigm of Technology Transfer. The need for suchexchanges in different components of technology is exemplified by theneed for foreign partners with technical know-how and possiblyfinance, to have local partners with easy access to local skills,materials and markets. For this purpose, Kumaraswamy (1995)proposed that the aforesaid Technology Evaluation model (as inFigure 2) be used to appraise the synergistic potential of twoprospective Joint Venture partners, based on their relative strengthsand weaknesses, in relation to different components of technology asin Figure 3.

It is also more likely that a climate of dynamic exchange betweenpartners will generate more useful technological adaptations and eveninnovations, than the previously envisaged sterile deposition oftechniques tested elsewhere. Going further, the potential for ‘reversetechnology transfers’ was described by Shrestha and Kumaraswamy(2000): in a case study of a Swiss aided suspension bridgeconstruction and rehabilitation programme in Nepal, it was seen how a‘hybrid technology’ developed for more economical anchorage blocks

3637

was transferred back to Switzerland and then re-transferred to otherless developed countries.

Figure 2The APCTT Model for Evaluating and Projecting TechnologyProfile of an Organization [(APCTT, 1989), (Kumaraswamy,

1995)]

Figure 3

Appraising Synergistic Potential through the Technology Profilesof two Organisations (Kumaraswamy, 1995)

Orgaware

Technoware

Humanware

1.0

1.0

1.0

1.0

I

OH

Infoware

Orgaware

Technoware

Humanware

Infoware ORGANISATION A

ORGANISATION B

COMBINED PROFILE (Synergistic; NOT Additive)

Key

1.

1. 1.

1.

T

I

H

T

1.0

3839

Such technology development and diffusion, through ‘exchange’based on a genuine mutual respect for each others’ strengths, is whatneeds to be targeted in improving construction supply chains as well.This focus on mutual longer term benefits could help to catalyse thecultural synergies needed for industry development as discussedpreviously. In this context it is also worth referring to three casestudies of technology transfers within national industries:(1) In Singapore: as described by Sridharan (1994), where the

advantages of ‘integrated’ over ‘non-integrated’ construction jointventures were proven, in that the former (e.g. where formed asjoint venture companies, and where individuals from differentcountries were assigned to work together on jointly handledactivities) continued to thrive on new projects together; whereas‘non-integrated’ joint ventures (i.e. where work activities werecompartmentalised and assigned to be handled independently bythe joint venture partners) did not survive for long nor prove veryeffective. Furthermore, it was found that European firms had greatdifficulty in adjusting to the cultural differences and mainlyformed non-integrated organisations for their projects, with thejoint venture used as a vehicle for achieving short-termcommercial objectives. This led to a loss of market share in theSingapore construction industry to Japanese and Korean firms thatembraced longer term visions, and presumably sought some‘cultural synergies’. Sridharan (1994) also concluded thattechnology transfers and longevity of the joint venture weredirectly linked. This belies certain previously diagnosed fears (insome construction organisations from more ‘developed’ countries)of losing out to newly created competitors after technologytransfers (Carrillo, 1995) and aligns with the advantages of asustainable ‘technology exchange’ environment.

(2) In Sri Lanka: as described by Devapriya and Ganesan (2000),where internal technology transfers through construction jointventures and sub-contracting arrangements were examined.Barriers to such transfers were identified in this context of a ‘lessdeveloped’ country, while some routes to technology acquisitionand diffusion in organisations and in the domestic industry were

identified. The technology exchange framework may be proposedas a suitable model through which to approach such diffusion,with particular reference to small and medium organisations,whether in less developed or ‘developed’ countries.

(3) In Taiwanese manufacturing: as described by Lin and Berge(2001), with empirical evidence that cultural differences (betweenthe technology ‘provider’ and the ‘receiver’) might not onlyimpose technical communication barriers, but also interact withthe ‘nature of technology’. This reinforces the argument in thepresent paper for a focus on both technology exchange and a pushtowards cultural synergies in specific ventures, as against attemptsto ignore cultural differences.

Concluding Observations

Drawing together the threads from the foregoing section, it isconcluded that a re-conceptualisation of technology and its potentialmodes of transfer/diffusion/ exchange is a corner stone of the muchclamoured-for cultural change in the construction industry. Otherstrategies and tools such as innovative procurement and operationalsystems, more ‘relational’ arrangements (e.g. alliancing), joint riskmanagement, and relationship-oriented participant selection criteria,are seen to be other corner stones of a plausible platform forsustainable cultural change. The objectives, processes and interimoutcomes from technology exchange should greatly facilitate thetransformation of adversarial industry cultures, parochial sub-culturesand win-lose mind-sets; towards collaborative cultures, co-operativeteamwork and win-win-win scenarios. It is also seen that somefundamental attitudinal and ‘cultural’ shifts are in turn needed tocreate the trust necessary for meaningful technology exchange itself.However, it is believed that recent widespread partnering andalliancing experiences, and moves towards integrated supply chains,have already generated sufficient momentum to trigger these basiccultural shifts. It may thus be concluded the ‘pumps have already beenprimed’ to unleash mutually reinforcing improvements from cultural

40 41

synergies through technology exchange. We now need to press the‘right buttons’ to channel the flows in the right directions.

References

Abbot, P G (1985) Technology Transfer in the Construction Industry:Infrastructure and Industrial Development, The EconomistIntelligence Unit. Special Report No. 223. The Economist PublicationsLtd., UK.

APCTT (1989) A Framework for Technology - Based DevelopmentPlanning, Vol. 2, Technology Content Assessment'. Asia PacificCentre for the Transfer of Technology, ESCAP, U.N.

Carrillo, P. (1995) Technology Transfer on International Joint VentureProjects, Proceedings of First International Conference onConstruction Project Management, Nanyang TechnologicalUniversity, Singapore, Jan. 1995, pp. 327 - 334.

CIRC (Construction Industry Review Committee) (2001) Constructfor Excellence, The Government of Hong Kong SpecialAdministrative Region, 207 pp.

CTF (Construction Task Force) (1998) Rethinking Construction,Department of the Environment, Transport and the Regions, London,UK, July, 40 pp.

Devapriya, K.A.K. and Ganesan, S. (2000) Technology Transferthrough Sub-contracting in Developing countries, Proceedings of the2nd International Conference on Construction in DevelopingCountries, Botswana, Nov. 2000, Editors: J. Ngowi and J. Ssegawa,Faculty of Engineering and Technology, University of Botswana,Botswana, pp. 513-522.

Dissanayaka, S.M. (1998) Comparing Procurement and non-Procurement related Contributors to Project Performance, M.Phil.Thesis, The University of Hong Kong, Hong Kong.

Gardiner, P.D. and Simmons, J.E.L. (1998) Conflict in Small- andMedium- Sized Projects: Case of Partnering to the Rescue, ASCEJournal of Management in Engineering, Vol. 14, No. 1, Jan./Feb.1998, pp. 35-40.

Hofstede, G. (1980) Culture's Consequences: InternationalDifferences In Work-Related Values, Sage Publications, BeverleyHills, USA.

ISR (Department of Industry, Science and Resources) (1999) Buildingfor Growth – An analysis of Australian Building and ConstructionIndustries, Commonwealth of Australia, 87 pp.

Joynt, P. (1985) Cross-Cultural Management: the cultural context ofmicro and macro organisational variables, Chapter 4 on ‘Managing inDifferent Cultures’, Ed.: P. Joynt and M. Warner, Universitetsforlget,Norway

Kumaraswamy, M.M. (1995) Synergy through Technology Exchange,1995 International Congress of Engineering Deans and IndustryLeaders, Melbourne, Australia, July 1995, pp 563 - 567.

Kumaraswamy, M.M., Rowlinson, S.M. and Phua, F.T.T. (2001a)“Origins and desired Destinations of Construction Project Cultures”,CIB TG-23 Workshop on ‘Culture in Construction’, at the CIB WorldCongress, Wellington, New Zealand, April 2001, on CD Rom, pp. 1-6.

Kumaraswamy, M.M., Rahman, M., Dulaimi, M. and Love, P.E.D.(2001b) “Synergising Construction Procurement and OperationalInnovations through a Product Focused Paradigm”, Proceedings of the1st International Conference on Innovation in Architecture,Engineering and Construction, Loughborough, July 2001, Editors:

42 43

C.J. Anumba, C. Egbu and A. Thorpe, Centre for InnovativeConstruction Engineering, Loughborough, UK, pp. 345-357.

Lin, B-W. and Berg, D. (2001) Effects of Cultural differences onTechnology Transfer Projects: an empirical study of Taiwanesemanufacturing companies, International Journal of ProjectManagement, Vol. 19, pp. 287-293.

Ofori, G. (2001) CIB TG29 – Construction in Developing Countries,Progress Report 1997-2000, Singapore, July 2001.

Rahman, M., Palaneeswaran, E. and Kumaraswamy, M.M. (2001)“Applying Transaction Costing and Relational Contracting Principlesto Improved Risk Management and Contractor Selection”,Proceedings of 2001 International Conference on Project CostManagement, Beijing, China, 25th-27th May 2001, Editors: A. Liu, R.Fellows and D. Drew, Ministry of Construction, China, The ChinaEngineering Cost Association and the Hong Kong Institute ofSurveyors, China, pp. 171-181.

Shrestha, G.B. and Kumaraswamy, M.M. (2000) Problems inTechnology Transfer vs Potential for Technology Exchange: A HongKong construction perspective’, Proceedings of the 2nd InternationalConference on Construction in Developing Countries, Botswana, Nov.2000, Editors: J. Ngowi and J. Ssegawa, Faculty of Engineering andTechnology, University of Botswana, Botswana, pp. 485-493.

Simkoko, E.E. (1989) Analysis of factors impacting technologytransfer in construction projects: case studies from developingcountries. Swedish Council for Building Research, Stockholm,Sweden.

Sridharan G. (1994) Managing Technology Transfer in ConstructionJoint Ventures. American Association of Cost Engineers Transactions,Morgantown, USA, Vol.: 1994, pp. INT 6.1-6.8.

MANAGEMENT SKILLS IN THE CONSTRUCTIONSME SECTOR: AN EMPIRICAL INVESTIGATION

Geoffrey Briscoe, Andrew Dainty and Sarah Millett

Introduction

Over the period 1998 to 2000, the Department for Education andEmployment (DfEE), through its National Skills Taskforce, carried outan in-depth investigation into the state of skills across the UKeconomy. A large number of reports and working papers on differentaspects of skills and training were produced. Much of this work issummarised in Skills Task Force (2000a and 2000b). One of the mainconclusions is that key deficiencies lie in basic and generic skills -literacy, numeracy and transferable skills for employability. Inaddition, other identified gaps are in intermediate level skills (coveringcraft and associate professional occupations) and also in specialistinformation and communications technology skills. The Skills TaskForce research shows how there is an ongoing need for increasingskills in all areas of the economy and skill deficiencies are asignificant factor in poor business performance. These findings arehighly relevant to the UK construction sector where the problems ofskill inadequacy are most acute amongst the small and medium-sizedenterprises (SMEs) that dominate this industry's structure.

The Skills Task Force recommended the setting-up of a programme ofskill dialogues, specific to a number of key industrial and businesssectors. Various National Training Organisations, including theConstruction Industry Training Board (CITB), contributed to thedialogue report into the skill needs in construction and relatedindustries. Consultants, Business Strategies Ltd, compiled this report,for the DfEE (Department for Education and Employment, 2000).Broadly, widespread evidence of skill shortages across the UKconstruction sector was found and significant gaps were noted

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between the existing skills of the workforce and the skills employersideally required. Skill deficiencies were found to have an adverseimpact on customer service and the ability of companies to controloperating costs and so compete more effectively. The DfEE dialoguereport used a wide range of existing research and informationresources, but it did not undertake any new surveys or case studies,and it did not specifically examine skills amongst the SMEs in theindustry.

The issue of skill deficiency in construction was indirectly raised intwo earlier government-sponsored reports into the industry. TheLatham Report (1994) was concerned, amongst other things, with lowproductivity in construction and it identified low levels of skills andrelatively low investment in labour training as contributory causes ofpoor performance. The later Egan Report (1998) was predominantlyconcerned with establishing modern supply chain principles andintegrated project management techniques into UK construction. Thisreport recognised that better skills, especially wider generic skillsassociated with management, would be required to bring aboutsignificant change in the industry. The present authors, Briscoe et al(2001), have investigated the linkage between the successfulimplementation of partnering principles in construction and the skilland knowledge base of the prospective partners, especially the SMEsubcontractors and suppliers.

This paper is concerned to examine the skills currently available in thesmall and medium size companies that are the main suppliers ofsubcontracting services in the construction industry. Section 2 brieflyexamines the wider statistical evidence on levels of skills possessed bythe current workforce. Section 3 introduces the empirical research andestablishes the research methodology, whilst section 4 presents theresults of the questionnaire survey into management skills found in theSMEs. Section 5 discusses these results to establish the importance ofdifferent types of skill for business performance and efficiency.Section 6 draws some implications for training to improve the

construction skills base, whilst recognising potential barriers to fullertraining. Section 7 offers some brief conclusions.

General skill appraisals for the construction sector

Labour skills are often divided into two main categories: "hard" skillsare mainly vocational in nature and are used primarily in manual work,whereas "soft" skills are generic and are applied most commonly innon-manual work and management. Both types of skill are needed forconstruction companies to operate successfully in the commercialenvironment. Whilst surveys often provide more information on hardskill qualifications, it is soft skills and managerial ability that are likelyto prove the more critical determinants of business performance.

There exists some recent survey evidence on the hard qualificationsachieved by the British construction workforce. Richter (1998) usedLabour Force Survey data to compare British qualifications with thoseof German counterparts working in construction. Richter's analysis,which was based on the 1995 LFS, indicated that some 65 percent ofBritish construction manual employees possessed at least NationalVocational Qualification (NVQ) level 2 and the comparable figure fornon-manual employees was 83 percent. Thereafter the percentagesachieving NVQ level 3, or its equivalent, declined quite sharply,especially amongst manual employees. These percentages weregenerally appreciably lower for the British construction workforcethan for its German counterpart.

Another survey, reported by Ashton et al (1999), is based on the 1997British Skills Survey, which is much more narrowly focused than theLabour Force Survey, whose main concerns are employment issuesother than skills. The data from this British Skills Survey identifiesthe highest qualification level held by construction workers, as well asthose for other industrial sectors. It was found that only 2 percent ofthe construction workforce had Degrees, some 14 percent had HigherNational Diplomas or Certificates or their equivalence, whilst some 30percent had NVQ level 3 or its A-level equivalent. At the lower end

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of the qualifications spectrum, some 31 per cent had NVQ level 2 orequivalent, 6 percent had NVQ level 1 and a residual 17 percent hadno formal qualifications at all. These results, for a very differentsample frame, are broadly consistent with those reported by Richter(1998) for the earlier time period.

Business Strategies Ltd (Department for Education and Employment,2000) have published some qualifications estimates for the UKconstruction workforce for the year 1999. This sample survey data isshown in modified format as Table 1. These results are also consistentwith the two earlier sets of results. Some 1 in 7 construction workershave no sort of formal qualification and only a relatively small numberof manual operatives have higher level qualifications (NVQ 4 or 5 orequivalent). Amongst the non-manual occupational groups, mostworkers have at least NVQ 3; clerical and secretarial workers beingthe only exception. However, relatively few workers have achievedthe highest qualification level, NVQ5.

The percentages of all construction workers achieving higher levelNVQs and above, where managerial and communication skills are anestablished part of the qualification, is relatively low. All the publishedsurvey results also identify a significant section of the workforce whohave no formally recognised skills whatsoever. It is likely that manyof these workers are employed in SMEs, who form such an importantpart of the industry’s supply chain. Some of the companies who are anintegral part of this chain are not classified as belonging to theconstruction industry; material supply companies are usually treated aspart of the manufacturing sector. Nevertheless, there is no reason tosuppose that the workforce in such companies is any better qualifiedthan their construction counterparts.

Table 1Construction NVQ Equivalent Qualifications in 1999

Percentage of TotalOccupation Group

Totals

Occupation Group None NVQ1 NVQ2 NVQ3 NVQ4 NVQ5 ('000) Managers & Administrators 5.9 8.1 12.0 40.4 31.1 2.5 170.2 Professionals 0.4 6.0 3.2 19.1 63.7 7.6 43.5 Associate Professionals 3.9 4.8 8.3 32.6 50.4 0 58.8 Clerical & Secretarial 16.7 17.6 40.2 18.2 7.1 0.2 109.9 Craft & Related 13.5 10.0 12.5 60.2 3.6 0.2 1074.6 Plant & Machine Operatives 17.4 37.4 14.8 28.1 2.3 0 145.2 Other Occupations 32.9 31.4 19.1 15.0 1.6 0 155.5 Totals (%) 14.4 14.2 14.6 47.1 9.2 0.5 1757.7 Notes: Derived from sample survey by Business Strategies Ltd (DfEE,2000)

Data are for both NVQs and equivalent qualifications.

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The original NVQ framework, which was established in the late1980s, was viewed by many as unduly restrictive of the breadth andknowledge base for acquiring construction skills (Clarke and Wall,1998). The skill classifications devised for the construction NVQsappeared to place a high emphasis on specific, rather than genericskills (Gann and Senker, 1998). The NVQ system in operation in theearly 1990s was criticised for restricting the content and scope oftraining programmes that tended to put an over-emphasis on formalqualifications, as opposed to learning processes. The NVQ frameworkis not static and the introduction of Modern Apprenticeships after 1996has re-established an emphasis on core skills in literacy and numeracy.However, construction NVQs, up to and including level 3, remainbased in hard vocational skills and the softer generic skills are notwidely taught within the industry's training programmes.

Research Methodology

In order to establish both the range and strength of generic skillsavailable in the SME construction sector, some 20 such companieswere approached through the offices of two major contractingcompanies located in the West Midlands region of the UK. Theselected SMEs are drawn from a range of different trades, includingbuilding and civil engineering subcontractors, building servicespecialists, construction material suppliers and labour-only firms. Thesample companies vary significantly in terms of sales turnover, withthe median annual turnover estimated at only £2 million. Similarly, thecompanies show marked differences in the number of directemployees, with the median number being some 28 employees. Thesmallest company employed less than 10 people, whilst the largestemployed over 60. In the construction industry, a company employing60 or more workers might well be regarded as relatively large, but inthe materials supply sector, where these bigger companies are located,this size is relatively small or, at best, only medium. Overall, thesecompanies are considered to be a representative cross-section of thesmall and medium-size enterprises who operate within the UKconstruction industry.

Senior executives in each of the SMEs, usually senior managers,directors or proprietors, were interviewed in depth about manybusiness issues and, in particular, on their perceptions about skills andrelated attitudes in their organisations. These interviews all took placein the period July to December 1999. During the course of theinterviews, the SME executives were questioned about their own skillsin use, their views on future skill needs and their perception of thetraining requirements for new skills in their respective companies. Theresponses were recorded into a standard questionnaire format.

The selection of managerial skills for incorporation into thequestionnaire was based on the generic skill categories originallydeveloped for the British Skills Survey in 1997 (Ashton et al, 1999).The 8 broad skill categories, labelled A through H in Table 2, roughlycorrespond to those used in this first national skill survey, whichselected its original skill groupings after an intensive research studyand statistical testing to establish the most relevant sets of skills formeasurement. Some of the group labels were modified and withineach group, a number of specific, more disaggregated skills wereidentified. The result was a range of separate skills, all potentiallyimportant in the construction management context, were identified.The questionnaire was piloted with a typical small subcontractingcompany and adjustments were made before it was applied in the mainSME interviews.

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Table 2Current managerial Skill Ratings

Mean Rating Ranking Variation(%)A. Writing/Reading Skills1.Writing letters and reports 4.11 9 26.12.Reading technical documents 4.58 2 14.73.Understanding contracts 4.62 1 17.8B. Numeric/Financial Skills4.Basic calculations 4.16 8 21.05.ICT and computing 3.42 17 28.96.Financial management 3.63 14 18.3C.Client/Contractor Relationships7.Verbal presentations 4.47 4 13.38.Marketing techniques (Internet) 4.05 12 20.49.Negotiation ability 4.53 3 13.2D. Design Communications10.Communication with designers 3.68 13 35.311.Communication with engineers 2.79 20 54.0E.Supplier Communications12. Purchasing and order chasing 4.11 11 19.213. Product knowledge 4.32 7 21.3F.Teamwork within the Firm14.Motivation 4.42 6 13.415.Leadership and instruction 4.45 5 13.316.Training 3.53 16 32.6G. Planning and Problem Solving17.Work scheduling (networking) 4.11 9 17.518.Troubleshooting and problem solving 3.63 15 24.0H. Manual Skills19. Craft skills 3.21 19 43.620.Operating plant and machinery 3.26 18 48.6

Notes:

Rating is based on: 1-Does not apply, 2-Not very important, 3-Useful,4-Very important, 5-Essential

Variation is the standard deviation divided by the mean, expressed asa percentage

A simple 5 point rating scale was adopted for measuring the responses.The company executives were asked to assess a skill as either essentialto their job (5), very important (4), merely useful (3), not veryimportant (2), not important at all or does not apply (1). Such a scoringsystem is again similar to that used in the British Skills Survey.

Results of Soft Skills Appraisal in SMEs

The primary objective of the questionnaire research is to try tomeasure the range and type of skills currently used by the seniorexecutives in the SME companies. These organisations arerepresentative of the many thousands of such firms who currentlyoperate in construction.

Current Managerial Skill Ratings

Table 2 summarises the key results from the questionnaire. The firstcolumn of this table gives the mean result, averaged over all the SMEinterviewees, for the selected 20 skills and the second column ranksthe skills in descending order of importance. The third columncomputes the percentage coefficient of variation across therespondents; the higher the value of this coefficient the greater thevariability of the ratings within the sample.

The results show how the most important perceived skills are thoseassociated with reading and understanding technical documentationand legal contracts. The coefficient of variation for these skills is

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relatively low, so indicating closer agreement with this rating acrossthe range of SME interviewees. Thereafter, the next most important setof skills are found to be those linked with the formation andmaintenance of main contractor and client relationships. Notsurprisingly, negotiating and marketing skills were placed at a highpremium by most of the companies. In a traditionally competitiveenvironment such skills are critical for the smaller enterprise's survivaland profitability.

Another group of skills to warrant a high rating are those related toteamwork within the company and particularly, the motivation andleadership skills. The commercial achievement of smallerorganisations is often highly reliant on the drive and example of theowner or the senior management team. This ability to enthuse andmotivate the workforce is a critical determinant of business success. Itis noteworthy that training, which is a skill that has been logicallygrouped with motivation and leadership, did not rate as highly as theseother skills. Training is perceived to have significantly lowerimportance and it has a much higher percentage variation. This findingreflects the approach to skills training which has been apparent in theconstruction sector for some time now. A few companies believe verystrongly in training and commit comparatively heavily to develop thehuman resource, but many other companies (probably in the majority)regard training as an overhead cost which is largely avoidable and theyare only too happy to leave others to train the industry's workforce.

Lower in the ratings are skills associated with suppliercommunications and those aligned with planning and problem solving.Both of these sets of skills are still perceived as important but they rateless strongly than those related to contracts, marketing and leadership.The importance of good product knowledge is obviously veryimportant to the smaller specialist company who works in a narrowerarea than its main contractor partners. Similarly, work-schedulingskills also rate highly where several contracts may be beingsimultaneously fulfilled in the face of a limited workforce andrestricted plant capacity.

Information communications technology (ICT) and computing, as wellas financial management, occur relatively lower down on the ratingscale of skills. Construction is not known as a sector at the forefront ofnew computing developments and, indeed, the adoption of informationand communication technology across the industry has beencomparatively slow (Construction Research Communications, 1999).Whilst larger organisations have invested significantly in ICT systems,the same has not been true for the SMEs in the subcontractor market.The questionnaire findings reflect this slow adoption, with executivesin the smaller companies making only limited use of computingpower. The medium-size organisations, with higher sales turnoversand numbers of employees, gave responses that indicated a muchhigher use of ICT and computing, and a corresponding higher ratingfor computer skills.

The relatively low ranking for financial management probablyindicates the use of specialist accountants to deal with this functionalarea. Few of the executives who were interviewed had any training orspecific skills in business finance and most usually passed onbookkeeping issues to the accountancy specialists. However, most ofthe same executives were extremely well tuned to company cashflows, although these skills derived from hard business experiencerather than any formal training.

The low ranking of manual skills was much as expected, although thewide variation indicates how a few sample respondents placed a highrating on such skills. For the most part, it was the owner mangers inthe very small companies who considered craft and plant skills to bevery important or even essential to their jobs. Executives in therelatively larger SMEs, even those from a craft background, no longerconsidered such skills relevant to their managerial function.

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Future Skill Assessments

A secondary objective of the questionnaire was to get the executives toprovide an indication of how they perceived the development of skillneeds in the near future, particularly with the likelihood of moresupply chain partnering taking place. Table 3 summarises the resultsof this question. The table shows the percentage of respondents whoexpected each identified skill to increase in importance. The skills arethen ranked on the basis of these percentages.

Some 90 percent of the interviewees saw ICT and computing skillsincreasing in importance in the near future. This outcome reflects therapid advances of information and communication technology acrossindustry in general and its increasing inroads into many aspects ofconstruction management. The other skill that was widely expected toshow future growth was the understanding of legal contracts. Whilst itis sometimes claimed that more partnering across the industry shouldreduce the need for legal contracts, the perception of these respondingSMEs suggests otherwise.

Below the two top-ranked skills there was a significant gap down to agroup of skills that about half of the executives saw as increasing inimportance. This group included the provision of more training andnegotiating skills. Marketing, finance and appreciation of technicaldocumentation were also seen as skills that were likely to increase inimportance by almost 50 percent of the sample. The remaining skillswere felt to be of growing significance by less than 40 percent of thoseinterviewed. Amongst those skills considered least likely to be moreimportant to this group of managers were those associated withmanual activity.

Discussion on the importance of generic skills to businessperformance

The recent British Skills Survey (Ashton et al, 1999) has establishedthe wide range of generic skills in use across all industrial sectors. The

Table 3Future Skill Assessment

Percentage of firms indicating specific skills expected to increase inimportance in future Percent (%) RankingA. Writing/Reading Skills1.Writing letters and reports 26.3 162.Reading technical documents 47.4 83.Understanding contracts 73.7 2B. Numeric/Financial Skills4.Basic calculations 10.5 205.ICT and computing 90.0 16.Financial management 48.5 7C.Client/Contractor Relationships7.Verbal presentations 38.8 98.Marketing techniques (Internet) 49.5 69.Negotiation ability 52.6 4=D. Design Communications10.Communication with designers 31.6 13=11.Communication with engineers 15.8 18E.Supplier Communications12. Purchasing and order chasing 12.5 1913. Product knowledge 37.4 10F.Teamwork within the Firm14.Motivation 36.8 1115.Leadership and instruction 33.3 1216.Training 57.9 3G. Planning and Problem Solving17.Work scheduling (networking) 31.6 13=18.Troubleshooting and problem solving 52.6 4=H. Manual Skills19. Craft skills 26.6 1520.Operating plant and machinery 25.4 17

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DfEE construction dialogue report (Department for Education andEmployment, 2000) suggested that skill deficiencies, especially thoseassociated with generic management skills, impact on businessperformance. The present study has identified the wide range ofgeneric skills found in SME construction companies. This sectiondiscusses the relevance of these skills for the efficient performance ofthese smaller construction companies.

Most managers are assumed to possess a good level of oral and writtencommunication skills, although often these may not have beenformally taught, rather they will have been acquired through on-the-job experience. Many managers in the construction sector do not havefurther and higher education qualifications and gaps in the range ofbasic skills are very likely. Indeed, only three of the twenty executiveswho were interviewed had Degrees or HND qualifications. Althoughindividuals become owners, directors and senior managers in smallerorganisations, lower in the construction supply chain, they may welllack key oral and written skills that are essential for business success.A good example of such deficiencies is the ability to understand andbe able to fully respond to technical documents and contracts. Whilstuse will often be made of external expert advice in this area, aninability to comprehend the finer points of a legal contract may beseen as a significant handicap to subcontracting organisations.

Increasingly, managers are expected to have a good appreciation ofinformation communications technology (ICT), or certainly, to makesure that they employ experts who bring these key skills into thecompany. In particular, partnership working will often involve theelectronic transfer of documents and plans. A lack of ICT skills canbe seen as a major handicap in forming effective construction teams.The gap between larger main contractors and their (usually smaller)supply companies, with respect to ICT skills, is commonly very largein the construction sector and this must inhibit constructionperformance.

Another area of potential skill deficiency is accounting and finance.Whilst smaller companies use external accountants to meet legal book-keeping work, day to day maintenance of financial records for controland planning is often quite minimal. Where a lack of financial skillsexists, such shortcomings may pose a significant threat to the efficientoperation of the small construction firm. In particular, the SMEsinvolved in the research identified financial skills as being ofparamount importance if they were to be involved in value engineeringor related exercises.

Initially subcontractors often need to secure work with the client andmain contractors by making presentations to show their abilities tocarry out the requirements of the project. Similarly, in any partnershipworking, they will need to possess strong negotiating skills to ensurethey obtain a fair share of the profits commensurate with the risksincurred. Each of these skills needs to be acquired and developed. Itcannot be assumed that senior executives will necessarily have naturalstrengths in these areas.

Where SME companies are brought into closer integration with themain contractors, contact and communication with the clientorganisation is likely to increase. There will be a growing need forcommunication skills in dealing with the client to ensure satisfaction atall levels and the delivery of a quality service and product. Marketingand customer care skills will be emphasised and, once more it remainsto be seen to what extent such soft skills are readily available amongstsubcontractors and suppliers. Today, the SME may need to reinforceits marketing efforts with a presence on the World Wide Web and toensure the maintenance of a Web page, if all profitable opportunitiesare to be realised. Computing skills are once more indicated.

Subcontractors usually work as part of a team on a constructionproject and this teamwork will often bring the SME into contact withdesign professionals, architects and sometimes engineers, dependenton the precise specialism. The SME will need to be able tocommunicate effectively with these other professionals, who

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frequently will possess highly developed skills and advanced levels oftraining. Increasingly, such professionals will seek to transfer plansand drawings down the supply chain using computer technology. If theSME is to contribute fully to the design process, ICT skills will be at apremium.

The subcontracting company has to obtain its own supply of materials,components and plant to fulfil its role in the production process. Oftensuch firms are required to meet very precise design specifications andthis will involve considerable product knowledge. The profitability ofthe SME may well be critically determined by an ability to obtainsupplies of the right quality, on time and at the most favoured prices.Skills are needed in dealing with their own supply network to ensurethat the SME can deliver to the required standard. Both purchasingskill and product knowledge are likely to prove key attributes.

Leadership and motivation of the workforce are other critical skills. Itis very important that the owner proprietors and senior managers insmaller supply companies have the ability to lead their staff throughthe disciplines that teamworking requires. Unless the companyexecutives have acquired higher level management qualifications, it isunlikely that they will possess formal leadership skills, althoughlearning by experience will often produce significant leadershipabilities. Whether these abilities extend towards providing thenecessary supervisory and motivational influences remainsproblematic. It is also a function of leadership to be able to train othersin the organisation in new working methods.

Construction is a sequential activity that relies heavily on detailedplanning and programming. Frequently, a given activity cannot beundertaken until a preceding activity has been completed. Planningskills are very important and such skills are once again associated withthe need for ICT proficiency. Many small construction organisationshave not, historically, exhibited high levels of proficiency in theplanning disciplines, although it could be argued that often they werenot given the opportunity to be involved in the project programming.

Problem solving involves a set of specific knowledge-based abilities toovercome design, production, plant and transport difficulties. ManySME organisations, which engage in highly specialised activities, arelikely to exhibit strong skills in these areas, but often such skills willhave been acquired through learning-by-doing, rather than formalqualification. Such knowledge skills will commonly need to bewidened to solve new problems arising from changing workingmethods.

Many of the senior executives in SME companies have risen to theirpresent position through the construction trades route. In the presentsample of companies, about a half of those interviewed had tradequalifications (City and Guilds or lower level NVQs or theirequivalent). Normally manual skills would not be regarded asimportant for senior staff in the management context. Clearly, theworkforces of these organisations would be expected to possess such"hard" craft and plant skills, but not necessarily the management.However, in small companies, with relatively few employees, theowner managers frequently see themselves as "jacks-of-all-trades" andwill engage in manual tasks where the need arises. This class ofmanager may well strive to maintain and enhance these manual skillsin order to improve the flexibility and overall performance of the smallcompany.

Training Opportunities

The final objective of the questionnaire was to identify those skillareas in which the interviewed executives felt that more training wouldsignificantly benefit their company's performance. The mostcommonly identified skill areas for additional training are detailed inTable 4. It was expected that there would be a close associationbetween the identified skills in this table and the most important futureskills in Table 3.

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The results of Table 4 show, unsurprisingly, how computing andfinancial skills emerge as the most commonly cited area for futuretraining needs. Many of the managers and senior executives in theSMEs have only very limited current abilities in this area and, giventheir perceptions of future skill trends, it is entirely logical that theyshould identify a prime need for training in this particular area.

Teamwork, with an emphasis on instruction in leadership skills and inthe skills needed to train others in the organisation, was another keyarea for additional training. Similarly, it was felt that companyperformance would benefit from further training in skills associatedwith the interpretation of legal contracts and the evaluation oftechnical documents. Again, this result matched well with the rankingsof Table 3.

Table 4Skill Areas Requiring More Training:Skills ranked in order of importance

Group Specific Skills

Numeric and Financial Skills IT and Computing (most areas)Financial Management

Teamwork within the Firm LeadershipTraining Other Personnel

Writing and Reading Skills Understanding ContractsEvaluating Technical Documents

Client/Contractor Relationships Marketing (Use of Internet)Verbal Presentations

Planning and Problem Solving Work SchedulingProblem Solving Approaches

The only two other areas where interviewees collectively felt thatadditional training would be beneficial to company performance werein client and contractor relationships, especially marketing, and inplanning and problem solving techniques. Individual companiesidentified the need for more training in some of the other skill areas,but Table 4 only lists the most frequently identified skills.

The British structure of training for construction skills has been fullydescribed elsewhere (Druker and White, 1996 and Agapiou, 1998).The emphasis is on the NVQ route and predominantly it is concernedwith craft training up to NVQ level 3. Modern Apprenticeships,which were introduced in 1995, specify level 3 and they provide anelement of personal development skills. Training for non-manualskills, which cover administrative, professional, clerical and technicalduties, is less well developed in construction than the training for craftskills. There is a clear route for technicians through the NVQstructures and some of these workers go forward to level 4, whichembraces competence in a broad range of technical or professionalskills, as well as managerial responsibilities for the work of others.Level 5, the top level NVQ, is most commonly reached by those whohave first obtained a Degree and then added practical managerialcompetencies. Some of the younger managers in the present dayconstruction sector will have completed a higher education course in abuilding, civil engineering, surveying or architectural discipline. Mostof these courses will contain some instruction in the range of skills,identified in Table 3. However the level to which the skills are taughtwill vary widely dependent upon the specific programme of studyundertaken at university.

There is a wide provision of training courses for vocational skills inconstruction, both at the further and higher education levels. Theproblem is not the supply of courses but the willingness of companies,especially SMEs, to invest in training. Recent research indicates howthe net costs of training construction operatives, only to NVQ level 2,are comparatively high when set against other industrial sectors(Hogarth et al, 1998). For smaller companies, with relatively low

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profit margins, investment in training is seen as an unacceptable short-term cost, producing uncertain longer-term returns. Such companiesmight spend on short courses which convey specific product or serviceknowledge, but they are unlikely to commit to longer programmesfocused on soft-skills for management.

The National Training Organisation for the industry (CITB) is wellaware of the need to train for soft skills and it has introduced someinitiatives in this direction. However, there are significant barriers forthe CITB and other industry trainers to reach the SMEs and convincethem of the need to engage in training to enhance their stock of skills(CITB, 1999). Financial incentives, in the form of training grants, haveproved insufficient in recent years to induce enough smallercompanies to introduce enhanced training regimes.

Conclusions

The present study has identified a wide range of generic skillscurrently in use in the SME supply companies. It has attempted somesimple measurement of the various skill categories and their rankinginto relative importance. Currently, skills concerned with ICT andcomputing are not regarded as important as those associated withunderstanding legal contracts and negotiating abilities. In future years,it is recognised that the demand for many skills will increase,especially if, as seems likely, a greater degree of partnering becomesestablished in the construction sector. In particular, information andcommunication technology skills are expected to increase verysignificantly in importance. There will arise a need for higher traininginputs to extend the soft skills amongst the small and medium-sizedorganisations in the supply sector, where there is no establishedtradition of training for such skills. Much of the skill acquisition in thispart of the industry is through learning-by-doing, but it remains to beseen whether this mechanism is adequate to equip the management ofthe SMEs with the full skill range necessary to facilitate enhancedbusiness performance.

Acknowledgement

The original study from which this paper is derived was partly fundedwith a grant from the European Social Fund.

References

Agapiou, A. (1998) A review of recent developments in constructionoperativetraining in the UK. Construction Management and Economics 16, pp.511-520.

Ashton, D., Davies, B., Felstead, A. and Green, F. (1999) Work Skillsin Britain.Centre for Skills, Knowledge and Organisational Performance(SKOPE). Oxford and Warwick Universities.

Briscoe, G., Dainty A. and Millett S. (2001) Construction supply chainpartnerships: Skills, knowledge and attitudinal requirements. EuropeanJournal of Purchasing and Supply Management.

Clarke, L. and Wall, C. (1998) A Blueprint for Change: ConstructionSkills Training in Britain. Policy Press, Bristol.

Construction Industry Training Board (1999) Skills Foresight Report,CITB, Bircham Newton.

Construction Research Communications and Lychgate Projects (1999)IT Usage in the Construction Team, The Building Centre Trust:London.

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Druker, J. and White, G. (1996) Managing People in Construction.Institute of Personnel and Development, London.

Egan, J. (1998) Rethinking Construction. Department ofEnvironment, Transport and the Regions, London.

Gann, D. and Senker, P. (1998) Construction skills training for thenext Millennium.Construction Management and Economics, 16, pp. 569-580.

Hogarth, T., Hasluck, C., Pitcher, J., Shackleton, R. and Briscoe, G.(1998) Employers' Net Costs of Training to NVQ Level 2. DfEEResearch Report 57 Department for Education and Employment,London.

Latham, M. (1994) Constructing the Team. HMSO, London.

Richter, A. (1998) Qualifications in the German construction industry:Stocks, flows and comparisons with the British construction sector.Construction Management and Economics, 16, pp. 581-592.

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AN EMPIRICAL ANALYSIS OF THE BARRIERSTO IMPLEMENTING E-COMMERCE IN SMALL-

MEDIUM SIZED CONSTRUCTIONCONTRACTORS IN THE STATE OF VICTORIA,

AUSTRALIA

Peter Love, Zahir Irani, Heng Li, Eddie Cheng and Raymond Tse

Introduction

E-commerce is revolutionising the way that organisations conducttheir business operations, and is set to have significant socio-technicalimplications (Currie, 2000). Whilst consensus on the revenue streamsfrom e-commerce are unavailable, there remains numerouspredications on e-commerce growth rates. For example, the ForresterResearch group (1999) suggests that e-commerce will double everyyear over a five-year period surging from US$43 billion in 1998 toUS$1.3 trillion by 2003. Similarly, IDC (1998) have predicted that in2001, e-commerce will represent 1% of all world trade. While inEurope, the Forrester Research group (1999) expects Britain andGermany to move into ‘hyper growth’ two years after the US.

In light of the impact e-commerce is expected to have on organisationsand its expected growth, much research has been directed todeveloping and/or redefining business models. For example,comprehensive discussions and comparisons of different businessmodels used in e-commerce have been reported by Dickey et al.,(2000), Shaw (2000) and Currie (2000). However, the impact that e-commerce has had is not restricted to strategic business planning, butalso has tactical and operational implications. For instance, issuessurrounding privacy and security, ‘on-line’ transactions and payment,and software and hardware selection for different user population and

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business needs (O’Connor and O’Keefe 2000, Banning and Tung2000, Warren et al., 2000).

The scope and application of e-commerce continues to grow, withbusiness applications increasing. For example within the constructionindustry Elliman and Orange (2000) and Anumba et al. (2000)describe e-commerce examples that support supply chainmanagement, and include the development of information platformsfor construction material exchange. Such systems support business-to-business as well as business-to-customers enterprise models. Theimplementation of these systems continues to grow in popularity, withexamples including those developed by VHsoft Technology1. Clearlythere is much motivation by companies to embrace change whileseeking improvements in performance. Such searches for efficiencyand effectiveness gains are being facilitated by Egan (1998), whocalled for reducing the cost base of construction by a third, whilstimproving quality. Elsewhere, the US Construction Industry Instituteset targets to improve project cost and schedule levels by 20 percent(Tucker, 1997). In comparison, Australian initiatives identified thepotential time saving of 25 percent – 40 percent by reducing non-valueadded steps in the building process. Hence, such targets are leadingconstruction companies to investigate improvements to businessperformance, with e-commerce clearly seen as a means to support theirambitious goals, although its evaluation remains somewhat difficult(Irani and Love, 2000).

E-Commerce Business Models

Fundamentally, e-commerce focuses on the electronic exchange ofinformation using information and telecommunication infrastructures(particularly the World Wide Web and the Internet). Whilst there aremany definitions of e-commerce, there are also many forms of e-

1 Detailed information of this e-commerce system can be obtained atwww.vhcome.com.

commerce, for example Kalakota and Whinston (1997: p.18) proposethree types:

• inter-organisational (business to business);• intra-organisation (within businesses); and• customer to business.

Industry sectors such as retail and banking have openly embraced e-commerce to improve their performance, and gain a strategiccompetitive advantage. While at the most basic level, e-commerce issimply about doing business electronically. The benefits of using theWWW and the Internet to conduct business-to-business transactionsand to sell products have been well documented (eg, Gattiker et al.,2000). For example, e-commerce can reduce an organisation’s costs,particularly across supply chains, improve customer service, createadditional revenue streams and create new business relationships. Inparticular, McAdam et al. (2000) suggests that small-medium sizedcontracting organisations may benefit from sharing resources throughan enhanced collaborative process. Cheng et al. (2001) suggests thatthe strategic decision to adopt e-commerce require an organisation tore-examine their business operations as well as their businessrelationships with customers and suppliers. Yet, the decision toembrace e-commerce may soon be a matter of survival and lessstrategic in nature. For example, such a decision is expected to movefrom being strategic to one of a tactical decision, and then from beinga tactical decision to being an operational process.

Love and Gunasekaran (1997) suggested that inter-organisationalcollaboration enabled by electronic information exchange and sharing,can create a competitive advantage for organisations that re-engineertheir supply chains. In doing so, optimising the benefits ofcollaboration as well as reducing risks associated with informationtechnology (IT) implementation. However, Gulati (1999) suggests thatthe benefits gained from the collaboration are dependent on the

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exchange relationship between organisations such as trust,interdependence and bargaining power.

While research has widely publicised the benefits of e-commerce, littleattention has been given to the barriers that organisations face whenconfronted with the need to implement e-commerce to sustain theircompetitiveness. For example, business organisations in theconstruction industry have been slow, perhaps even reluctant, toimplement information and communication technologies to support e-commerce (DIST, 1998). In addition, the Australian constructionindustry has been criticised for its poor performance and productivityin relation to other industries (DIST, 1998). This is often attributed tothe fragmented nature of the construction industry, as no singleorganisation can dictate and therefore be responsible for establishingand maintaining the necessary communication networks for aconstruction project. Consequently, this industry sector is faced withineffective communication and information processes, which haveinadvertently contributed to project cost and time overruns. Alty(1993) suggests that for projects to be procured successfully,construction businesses must communicate and exchange informationmore effectively by adopting IT. Indeed, Latham (1994) attributes theadoption of IT as an enabler in the reduction of project costs, which inturn provides competitive advantage.

As such Australian construction organisations are being encouraged totransform their business operations to conduct business transactionselectronically in a “seamless supply chain” (DIST, 1998). Yet, thetraditional adversarial and low profit margined nature of theconstruction environment has created a reluctance to explore andimplement new and different methods for performing businessoperations (Love et al., 2000). With this in mind, the authors of thispaper propose to add to the body of literature by identifying thebarriers that small-medium sized contracting organisations areexperiencing when confronted with the need to implement e-commerce. In doing so, proposing strategies to overcome theidentified barriers that exist within construction businesses.

Information and Communication Technology in Australia

Many small-medium sized firms find it difficult to compete in today’scompetitive markets. Acknowledging this point Chan et al, (2000) andWiele and Brown (1998) have propagated innovative strategies forimproving work practices, and the quality of products/services. E-commerce has been wisely acknowledged as particularly useful forcontracting organisations to revive their communication and co-ordination processes (Chan et al, 2001). However, the up-take ofinformation and communication technologies by businesses in theconstruction industry has been very slow (DIST, 1998). This point hasbeen reiterated by Love et al (2000) who state that "contractors lagwell behind other industries, some of which are allied". It wouldappear that contractors have ignored emerging technologies that havethe ability to provide significant performance improvements.Noteworthy, however, this is not the case for all contractors, as someembraced the Internet by adopting electronic mail, remote login, filetransfer protocol, Intranet and Extranet services.

Research undertaken by Love et al (1996) found that contractors hadsimply used IT to automate existing processes. Love et al (1996)stated that contractors reported that the associated benefits of ITadoption were simply reduced cycle times and as a result increases inproductivity. As a result, positioning such benefits as operationalwithin the taxonomy discussed by Irani and Love (2000). A similarstudy undertaken by Marosszeky et al (2000) confirmed the findingsof Love et al (1996) and reported that some contractors had re-designed their business processes to leverage IT benefits, and as aresult achieved significant productivity gains. While there are somebusinesses leveraging IT benefits, most inter-organisationalapplications of IT are confined to the automation of communications.For example, e-mail partially replaces ordinary mail, telephone andfax, and it is common for CAD files to be e-mailed to and fromconsultants, and Electronic Fund Transfer (EFT) automates paymentsamong contractors. Such technologies have helped reduce cycle time

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and are now considered as competitive necessities (DIST, 1998).Fundamentally, if businesses in construction are to leverage the fullbenefits of IT, then the way in which projects are procured needs to bere-structured (Love et al, 1998). For example, network structures canbe used to support the formation of inter-organisational collaborativepartnerships and the implementation of business-to-business e-commerce.

Tam (1999) and Deng et al (2001) have both used a similar structureto support an Intranet and Extranet facility, which can transfer andexchange information within and between organisations involved in aproject. The use of business-to-business e-commerce has been limitedto only a few projects in Australia, for example, the Acton PeninsulaNational Museum in Canberra (Walker et al, 2000). Noteworthy, thebusinesses involved in this project are some of the industry’sforerunners in the adoption of information and communicationtechnology in Australia.

According to DIST (1998) the factors that tend to inhibit the adoptionof information and communication technologies in constructioninclude:

• resistance from management;• tight profit margins which make it difficult to fund investment in

an IT infrastructure;• lack of IT awareness;• lack of employee education and training;• degree of organisational change required; and• a belief that the industry is doing well without IT.

Khalifa et al (1999) suggest that one of the major barriers associatedwith the adoption of information and communication technologies isrisk, which can be either perceived or real. Perceived risk is associatedwith the fear of the unknown, whereas real risk involves the actualphysical risk to data transfer, authentication issues and the use of

information. According to Khalifa et al (1999) much of the riskassociated with the adoption of e-commerce centres around perceivedrisk in the form of security, privacy, authentication and legal issues. Inaddition, the implementation of e-commerce may require organisationsto re-examine their existing processes, systems and people (skills andtraining/attitude and behaviour) so that a culture of innovation can bestimulated (Lefebvre and Lefebvre, 1993, Irani and Sharp, 1997).

Dieterich (1998) then suggests that the small-medium sizedenterprises (SMEs) face an evaluation dilemma, as the payback forinvesting in business-to-business or business-to-consumer e-commercetypically extends beyond 12 months. Consequently, many SMEs whorequire revenue generation are unable to outlay funds to support an e-commerce infrastructure. Many of the technological issues used tosupport e-commerce have been found to be confusing and not wellunderstood by managers and employees of SMEs (Elliman andOrange, 2000). In addition, Elliman and Orange (2000) suggest thatthe adversarial and competitive nature of the business in constructionis a barrier to implementing e-commerce in as much as there is adegree of uncertainty associated with formation of businesspartnerships and virtual organisations. It is noteworthy that byovercoming the barriers, parties are able to develop the necessary corevalues for e-commerce, which are those beliefs, practices and activitiesof the companies that demand an e-commerce environment. Hellstenand Klefsjo (2000) indicate in their proposed virtualized total qualitymanagement that core values form the direction for identifying therequired techniques and associated supporting tools.

Research Approach

Since the emergence of e-commerce there has been a tendency tofocus on its benefits, successes and technological issues rather than thebarriers that businesses may encounter when implementing e-commerce. With this in mind, the research approach was exploratoryin nature and therefore relied on the use of unstructured interviews.Fifty firms who were selected from the Yellow pages in the

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Southwestern State of Victoria in Australia were invited to participatein the research, which aimed to identify their perceived barriers toimplementing e-commerce. In total, 20 small-medium sizedcontracting organisations, which have annual turnovers ranging from$1 to $50 million (see Table 1) agreed to be interviewed.

Table 1 Details of the firms interviewed

Company Turnover($M)

Number ofEmployees

Type of work Level of ITImplementationHead Office On-site

A 30 35 C, I, R Medium LowB 17 22 C Low LowC 8 3 C, CM, I Low LowD 10 13 CM, D Low LowE 1 3 M, RE Low NilF 5 15 D, CM, LI Low NilG 1 2 D, M Low NilH 50 45 CM, I, M, RE,

RFLow Low

I 15 15 D, CM, I Medium LowJ 12 12 D, C, I, M, RE Medium LowK 25 25 CM, D, I, LI,

RF, RMedium Low

L 8 5 CM, D, R, M,RE

Medium Low

M 12 7 C, I, M Low LowN 10 8 D, R, RE, RF Low LowO 18 12 C, D, I, M, RE Medium LowP 13 8 D, RE, M Low LowQ 10 5 C Low NilR 1 2 D, RE Low NilS 15 9 D, R, RE, Low NilT 8 5 CM, LI, M, RE Low Nil

RF-Refurbishment, M-Maintenance and Repair, R-Residential, D-Domestic Housing,

Data Collection

Unstructured interviews were conducted on a one-to-one basis with aCompany Director, and were open to stimulate conversation and tobreakdown any barriers that may have existed between the interviewerand interviewee. The interviewee was allowed to talk freely withoutinterruption or intervention, to acquire a clear picture of theirperspective about their organisation’s perceptions about e-commerce.Prior to the commencement of the interview, the interviewee wasasked to describe their organisation’s current level of information andcommunication technology adoption and indicate whether it was high,medium or low. Following this, the interviews aimed to gain:

• an understanding of the constructs that the interviewee uses as abasis for forming opinions and beliefs about e-commerce;

• an understanding of the problems associated with theimplementation of information and communication technologies;and

• the confidence of the interviewee, to overcome the reluctance tobe truthful about an issue other than through confidentially in aone-to-one situation.

The researchers acted as a neutral medium through which questionsand answers were transmitted. The researcher’s aim was to obtainobjective data through maintaining the friction of an interestingconversation, which avoided unbalanced questions and obtained bias-free data. In trying to clarify the respondent’s answers the researcherswere careful not to introduce any ideas, which may form part of therespondent’s subsequent answer. Furthermore, the researchers werealso mindful of the feedback respondents gained from their verbal andnon-verbal responses. Hence, the researchers avoided giving overtsignals such as smiling and nodding approvingly when a respondentfailed to answer a question, which could lead to respondentswithholding responses to later questions. The interviewees reviewed

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the notes from the interviews and their views were invited to ensuretheir accuracy.

Findings and Discussion

Table 1 identifies the characteristics of contracting organisationsinterviewed (i.e. Turnover, Number of Employees, and Type ofWork), and the level of e-commerce implementation in Head Officeand On-site. It is worth noting that although there is no clear indicationthat the three characteristics have significant impacts on the level of e-commerce implementation, some general observations can be made:

• the higher turnover and number of employees the higher the levelof e-commerce implementation;

• a contractor with a higher turnover is expected to bid for moreprojects or for larger projects, and thus may use IT to supportcompetitive business practices such as the production of tenderdocumentation and post contract administration; and

• with more employees, a contractor may need to invest indeveloping a productive communication and co-ordinationnetwork, which is IT-based.

The barriers that were identified from the interviews have beencategorised as follows: organisational, financial, technical, andbehavioural. Figure 1 depicts the interdependency of these barriers. Inaddition, risk, uncertainty, change and knowledge were identified asthe underlying factors that businesses considered as being theconstraints to the introduction of information and communicationtechnologies to support an e-commerce infrastructure.

Figure 1Barriers to adopting e-commerce in construction

The organisational barriers that were identified included thefollowing:

• indirect or hidden costs;• inability to quantify (financially) the impact of e-commerce;• inappropriate investment appraisal techniques;• myopic strategic planning;• lack of employee knowledge;• lack of an IT infrastructure;• a reluctance to form collaborative partnerships; and• a general reluctance to change the way business was undertaken.

Technical Organisational

Barriers

Financial Behavioural

Risk

Knowledge

Change

Uncertainty

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It was generally perceived that firms did not want to change as theywere not able to foresee the benefits that e-commerce offered. In fact,none of the 20 businesses interviewed had begun to embrace business-to-business e-commerce, despite the forthcoming introduction ofelectronic tendering for Government projects and the General SalesTax (GST). Seventeen firms considered e-commerce to be simply aninteractive web page. In fact, when probed about the idea of sharinginformation and knowledge using the Internet there was found to be ageneral consensus that this would jeopardise their competitiveadvantage.

One interviewee did state that they would like to transform theirbusiness processes by developing appropriate internal structures,systems and protocols to take advantage of web-based technologies.While the interviewee recognised the urgency to employ suchtechnologies, the degree of change that was required to transform theirbusiness was considered to be too dramatic, at least in the short andmedium terms. Essentially, this business like all others was heavilyreliant on cash flow and thus, could not invest in technologies thatwould not bring about immediate benefits.

The financial barriers that were identified focused on investmentissues, such as:

• the cost of system requirements and maintenance;• investment risk;• amount of available credit;• cost to training and education;• losses in productivity; and• market uncertainty.

The firms were not aware of any techniques that could be used toevaluate the investment potential of e-commerce. In fact, it wasgenerally found that the decision to invest in IT was based on a gutfeeling. Interestingly enough, such conclusions are similar to those

reported by Irani et al. (1999) and Irani and Love (2000) where casestudies from the service and manufacturing sector were reported,respectively.

Businesses were asked to indicate the extent of IT being utilised attheir head office and on-site so as to assess the potential for the use ofe-commerce. Only six firms stated that their level of IT usage was ofmedium level. These firms did use e-mail to transfer CAD files, andgeneral correspondences to clients and project team members. Lowlevels in this instance referred to simply using PC’s for tasks such asword processing, fax and the like. Without ample investment ininformation and communication technologies small contractors willnever be able to leverage the benefits of e-commerce. If contractorsevaluated their investments in information and communicationtechnologies in a rigorous and systematic manner by taking intoaccount the direct and indirect benefits and costs of implementationthen they may be able to gain the financial and non-financial benefitsoffered by e-commerce.

The technical barriers that were identified pertained to issues such asidentifying the type of technologies that would match theorganisation’s business requirements, the types of software, lack ofeducation and knowledge about system requirements, the risksassociated with security and authentication. In addition, one contractorpointed out that if their information system was not aligned with thetechnologies adopted then this could result in loss of business andadded costs. Therefore, the firm appointed an external consultant tomake sure that the IT was aligned with the technologies beingimplemented. However, this can be costly, and may subject theorganisation to on-going costs, which they may not be able to afford.However, this might be explained as an evaluation problem that couldbe overcome if the firm were able to strategically think about how theycould leverage the benefits of e-commerce in their market place. Inthis instance the firm may consider investing in a bespoke e-commercesystem which is integrated with an IS that is responsive toenvironmental and organisational changes.

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The behavioural barriers that were identified focused on issues to dowith the fear that jobs would be lost, changes in working habits, therequirement to undertake additional training and skill development,and the degree of uncertainty and change that technology instils inpeople. When people are confronted with change they naturally resistit and may need gentle persuasion to overcome the fear of theunknown, especially if it is technology related. As a result, it isimportant to identify and use appropriate channels of communicationto ensure the workforce is informed of changes and its impact on theirjob functions. Otherwise, the grape-wise might take over and supportthe development of a fear-based culture.

Conclusions

The adoption of new technology remains a lengthy, time consumingand complex process that requires substantial amounts oforganisational capital. As such, the evaluation of information andcommunication technology remains an important process that requirescareful management and control. The challenge facing companies istheir positioning relative to customer needs, which requires inherentflexibility. The research presented has identified that larger theorganisation and more complex the business operations the higher thelevel of IT implementation. Nevertheless, the results indicate that thelevel of e-commerce implementation has yet to mature in the small-medium sized contracting firms that were sampled.

This paper has identified that there are substantial barriers toimplementing e-commerce, which can affect organisationalperformance at a micro and macro level. Yet, there remain severalbarriers to e-commerce implementation that can be categorised astechnical, financial, organisational and behavioural. In addition, risk,uncertainty, change and knowledge were identified as the underlyingfactors that acted as constraints to the introduction of information andcommunication technologies to support an e-commerce infrastructure.In fact, none of the businesses interviewed had begun to embrace

business-to-business e-commerce. The level of IT employed by theseorganisations was limited to CAD, e-mail applications and wordprocessing.

While the research was limited to a specific region in Australia, it issuggested that many small-medium sized firms will face similardilemmas. In making a start to overcome some of the barriersidentified in this paper, the authors suggest that small-sized firmsconsider the following descriptive recommendations if they are toeffectively leverage the benefits of e-commerce:

• Be clear on what kind of change is required: e.g. A major shake-up versus moderate process improvement, slow versus rapid roll-out of technology; each involves different implications (fromfinancial to structural); decide what approach is best from both acustomer (internal and external) and competitive viewpoint.

• Plan: Schedule the project and do not skip steps that must occurthroughout the development, implementation (rollout) andadoption process. This can be supported by setting out clearlydefined objectives, critical success factors and responsibilities;focus on the detail and establish criteria.

• Pre-empt resistance: Managers need to respond to resistance;hook into what people have got to gain or lose by changing fromadopting new technology.

• Prepare employees: Address the training, education anddevelopment of employees prior to initiating the changeprogramme and adopting the technology. This will provide staffwith the confidence and ability to overcome barriers to IT-relatedbusiness process change.

• Communicate: ensure communication is two-way e.g. establishfeedback sessions, anonymous comment or suggestion slips, opendialogue; identify how information should be cascaded throughoutthe organisation and do not use the grapevine.

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• Ownership: Recognise that people are much more inclined tosupport what they help to create (stakeholders) and resist what isforced upon them.

• Avoid complacency: Create an environment where people aredissatisfied with the status quo; drive people out of their comfortzone; shock treatment, where rapid change is required, createsurgency and momentum.

• Set your sights on the specific objective: for example, is the aim tobe first to adopt X technology through e-commerce, to gain Y%market share.

The authors of this paper believe that by identifying the barriers to e-commerce, small-medium sized firms may be better positioned torespond to the problems and challenges that they might encounter inits implementing.

Acknowledgements

The authors would like to thank the contracting organisations for theirparticipation in this research. Without their co-operation, the researchcould not have been undertaken. The authors are also most grateful tothe anonymous referees for their helpful constructive comments,which helped improve this manuscript.

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Irani Z and Love P.E.D. (2000) The propagation of technologymanagement taxonomies for evaluating investments in informationsystems. Journal of Management Information System, 17(3), pp. 159-175.

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PARTNERING THE SUPPLY CHAIN: BENEFITSFOR ALL?

Brychan Thomas, Gary Packham and Christopher Lloyd

Introduction

The Rethinking Construction Report by Sir John Egan, set out torevolutionise the construction industry and respond to the observationsmade by the Latham Report (1994). One of the key issues identifiedby this report was that project standardisation often led to greaterefficiency (Egan, 1998). In this sense, it was argued that the partneringof consultants, contractors, subcontractors and manufacturers couldreduce the ex post costs associated with conflicts and disputes withinthe construction process. Moreover, the report suggested that mutualco-operation also allowed participants to augment their expertise.

Partnering and standardisation are considered to be essential ifconstruction projects are to be delivered quickly, efficiently and costeffectively (Egan, 1998). Previous research has submitted that pre-assembled components and partnering can reduce construction time. Infact, research has revealed that the UK site worker in 1997 was onlyeffective for 37% of the time (Smith, 1999). With the introduction ofstandardisation and partnering it is now possible to reduce totalconstruction time by approximately 10% and reduce wastage by up to20% per annum (Egan, 1998; Smith, 1999). Despite these claims,Crane (2000) argues that these benefits are not being filtered down thesupply chain to the small subcontracting firm. Instead, it is maintainedthat only clients and major contractors are enjoying the recompensesof partnering. Given that 85% of UK construction work (Saad andJones, 1998) is undertaken by small construction enterprises (SCEs) itseems reasonable to posit that the majority of construction firms arenot reaping the rewards associated with partnering. This papertherefore investigates the extent to which small subcontracting firms

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are benefiting from the adoption of a partnered relationship with largecontractors.

Partnering Defined

Previous research has yet to provide a definitive definition ofpartnering. According to Barlow et al (1997) partnering is animprecise term that covers a variety of arrangements with varyingdegrees of intensity. Cox and Townsend (1998) contend thatpartnering is simply a form of strategic planning or a variant of TotalQuality Management (TQM). Others have argued that partneringshould be construed simply as being reasonable, conscientious andprofessional in business (Smith, 1999). Furthermore, Barlow et al(1996) emphasises that mutual objectives, trust and an understandingof each other's commitments are crucial to partnering success.

Whilst a single definition remains elusive, it is commonly acceptedthat the culture of partnering cannot be viewed solely in terms of anadvancement in technology, but more an incentive between firms toshare common objectives for long term benefit. Consequently thedefinition operationalised by Cox and Townsend (1998) seemssomewhat appropriate:

“Partnering is a long term commitment between two or moreorganisations for the purpose of achieving specific businessobjectives by maximising the effectiveness of each participant’sresources...The relationship is based on trust, dedication tocommon goals and an understanding of each other’s individualexpectations and values. Expected benefits include improvedefficiency and cost effectiveness, increased opportunity forinnovation, and the continuous improvement of qualityproducts and service.”

It is however reasonable to surmise that the definition of partneringdepends primarily on the context in which it is being applied. Inaddition to the above definition it can be argued that partnering can

also be defined as a management approach used by two or moreorganisations to achieve specific objectives by maximising theeffectiveness of each participant’s resources. Despite the apparentproblems of defining partnering it is apparent that most definitionsimply that the partnering philosophy is dependent upon mutual co-operation between all contracting parties. Consequently, it is submittedthat for partnering to work, construction firms that subscribe to itsphilosophy must be seeking the additional rewards associated withharmonisation (Miller et al, 2000, 2001).

Partnering in Action

Undoubtedly, more attention is being paid to the construction industryand in particular the rewards associated with partnering arrangements.For example, case studies undertaken for companies such as BAA andMcDonalds have illustrated the improvements that can be made interms of overall cost and construction time through partnering. In fact,BAA reported that co-operation had significantly reduced costs forwork between 1995 and 1997 and had led to projects being completed30% faster than under normal contractual conditions (Anon, 1998).McDonalds has also championed the partnering cause by stating thatnew partnering arrangements had reduced new restaurant openings to10 weeks and site erection to just two days (Smith, 1999). The SevenPillars of Partnering Report (1998) highlighted a number of othercases in which organisations are achieving varying levels of successthrough the partnering process. The Report suggests that evencompanies that are only implementing ‘first generation’ partnering,which involves agreeing mutual objectives at the start of a project andresolving decisions and problems openly, have noticed increases inefficiency. Other firms that have reached higher level partneringarrangements have also realised significant reductions in cost. Rover,for example, since adopting a partnered approach with key suppliershas enjoyed a 40% reduction in costs and an increased production flow(Bennett, 1995). The report also mentions “third generation”partnering between clients and contractors in which construction costs

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and construction times have reduced by up to 50% and 80%respectively.

These case studies insinuate that partnering is the way forward for theconstruction industry. Indeed, partnering may be the best way toorganise existing trading relationships but it is important to recognisethat the process also creates power relationships that may not beconducive to mutual co-operation (Cox and Townsend, 1998).Moreover, whilst it can also be an efficient, successful and enjoyableway to trade, over dependency on a limited range of contractualpartners can, especially for smaller firms, lead to decline or evenfailure (Bingham, 1998). Thus, if unequal power relationships exist, itis conceivable that SCEs are failing to benefit from the partneringprocess. Some commentators advocate partnering as a possiblesolution to the adversial nature of the construction industry arguingthat partnering plays a key role in reducing problems and conflicts(David, 1999). Notwithstanding these claims, long-term workingrelationships are usually based on mutual trust. Within the domesticsubcontracting role, SCEs are limited in their ability to influence theconstruction process. In this sense, it is submitted that existingreporting structures within the supply chain are not conducive to opencommunication. Furthermore, subcontractors are often viewed asbeing a component of the construction process rather than anindependent decision-making firm (Miller et al, 2000). This positionserves in stark contrast to the perception of partnering being anintegrated management approach which involves contracting partiesworking together towards the common goal of reduced costs andincreased profit (Keil, 1999; Fox, 2000).

Research Strategy

Partnering therefore seems ideally suited to long term expert clientprojects like car manufacturing plants and airport terminals wherethere is integration between “blue chip” clients and contractors. Thedevelopment of partnering in the construction industry however, issomewhat unclear. There is enough anecdotal evidence to suggest that

partnering arrangements are conducive to faster completion times andreduced costs. Nevertheless, it is posited that these benefits may not beuniformly distributed throughout the supply chain and that inparticular the partnering philosophy maybe having an adverse effectupon SCEs. To investigate this proposition a case study approach hasbeen adopted to analyse this situation (Aaker et al, 1998). Given theexploratory nature of research purpose a single case study is justified(Yin, 1994). In this sense, it is argued that the research does not haveany preconditioned ideas in relation to the impact of partnering uponthe SCE. Thus, the research attempts to uncover the perceptions of asmall subcontracting firm in regard to the existing partneringarrangements it currently undertakes. The research used multiplemethods to collect qualitative and quantitative data. Quantitative dataand company documentation was utilised to provide research contextwhile qualitative data, collected in the form of a number ofunstructured interviews, sought to understand how partnering wasviewed by the small subcontractor. The case study approach followedthe etiquette developed by Yin (1994) in order to improve the validityof the research design. Consequently, the research design included anumber of key elements such as clear and concise research objectives,a predetermined field procedure and an interview guide (see Yin,1994; Aaker et al, 1998).

The study involved multiple visits including three interviews with theManaging Director (MD) of a small subcontracting company in SouthWales. All three interviews lasted for approximately one hour. Apseudonym for the company has been adopted for the purpose ofconfidentiality. In each of the interviews, responses were obtainedregarding existing partnering arrangements with large contractors andthe MD was asked to comment as to the extent to which partneringhad affected his business. This strategy also allowed the long-termeffects of partnering, as perceived by a small-scale contractoroperating with the supply chain, to be established. With the permissionof the MD the interviews were tape-recorded. It is contended that theuse of a face-to-face personal interview has a number of advantagesover other forms of qualitative data collection techniques since it

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enables the interviewer to probe and clarify answers (Bryman, 1989).Company documentation, including organisational charts,performance indicators and minutes of management meetings werealso collected to corroborate and support data obtained from theinterviews and confirm content. To improve the validity of theresearch, the MD was also provided with full transcriptions of theinterviews and asked to confirm their content.

Results

Overview of the Organisation

The case study considered BHM, a house building, electrical andplumbing contractor, employing 32 people with an approximateturnover of £1.2 million per annum. The company can be classified asa small-scale contractor as it, according to Harvey and Ashworth(1998), employs less than 100 people and has a turnover under £3million. The company conducts its business in the South Wales area,and has no aspirations to conduct business in any other regions. BHMhas traded since 1962. Originally its core competence was electricalwork but the company has since diversified into plumbing and heatinginstallations. BHM incorporated partnering into their operation in1998 to increase continuity of work and improve quality.

The Partnering experience

The view offered by the MD was that partnering did not substantiallyaffect the UK house building sector since major contractors had a onesided approach to the process due to its derived nature. Thus,continuity of work was indicated as a very important factor due to thehousing market’s fluctuating demand:

“The house building sector has the disadvantage of startingconstruction whilst trying to sell the development to potentialclients at the same time, if the houses fail to sell construction is

slowed down and eventually stopped, resulting in no continuityof work.”

The MD commented that disputes with contractors were still mainlycost orientated. BHM were constantly being authorised to carry outcontract extras, which were then carried out under the supervision ofthe site managers. Once extras were processed and sent to the quantitysurveyor the main contractor often disputed price. Other causes ofconflict identified by the MD were contract completion times andspecification. The company also experienced a high percentage ofdisputes caused by the reprogramming of work. In this sense, it wasargued by the MD that major contractors now expected other trades tomake up lost time by increasing labour inputs and working overtime.The MD however, stated that under normal circumstances the firmwas willing to make this sacrifice but only if the main contractorhelped to cover the additional costs involved. Despite this reoccurringrequest, the MD implied that main contractors were usually reluctantto fund their demands and as a consequence this unwillingness tocompromise was another source of project conflict. This issueprompted the researcher to ask the MD if the company had beentreated fairly in its dealings with main contractors under the partneringphilosophy. The MD commented that in general the firm had beentreated with little respect although it was evident that the MD had alsobeen involved with contractors that fully appreciated and respected thecompany’s role in the construction process. The MD also identifiedkey differences in management attitude towards the contractor-subcontractor relationship that existed within the main contractorhierarchy. In general, it was observed that whilst good relationshipshad been established with company directors over a period of time,these relationship were less valued by lower management levels. As aresult, the relationships and trust that had been formed in initial projectnegotiations were usually not carried through to project completion.Thus, once a project had commenced the MD felt that the firm wasoften excluded from the decision-making process and were ‘bullied’into courses of action that were typically to the detriment of the firm’soverall profitability.

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The focus of this study was to also analyse the experiences of an SCEand the effects partnering arrangements had on the company whendealing with major contractors. The MD highlighted that currentlyrelationships were very much a one sided affair and that financially,the only benefactors were clients and main contractors. A sentimentthat was echoed in the following statement:

“One contractor changed specification of materials during aproject without informing or consulting us…and we wereexpected to absorb the additional cost and still be ready ontime to proceed with the next stage of the project.”

The MD also submitted that subcontractors were simply expected todeal with the distress and conflict caused by partnering especially incircumstances where contractors threatened non-compliance withexpulsion from a construction project. In this sense, the MDcontended that due to a distinct lack of bargaining power underpartnering arrangements it was conceivable that another subcontractorat any point of time could replace the firm if they didn’t meetcontractor expectations or follow their instructions. In addition, it wasevident that the MD did not see partnering as a viable long-termsolution for the derived nature of the company’s demand. The MDwent on to explain this view by stating that whilst partneringarrangements were geared to productivity and efficiency gains,fundamental issues relating to the unfair treatment of SCEs meant thatcontracting relationships usually remained transactional rather thanstrategic and mutually beneficial. The MD therefore believed thatgiven current attitudes to partnering in the industry, the philosophyunder its existing remit would not prove successful in the currentclimate of housing construction projects.

Despite the misgivings the MD of BHM expressed over existingpartnering arrangements, it was apparent that he recognised that if thephilosophy was correctly applied for the good of all contracting partiesthen there were certain benefits to be gained from its adoption. The

MD suggested that the shared experience, knowledge and contactswith other organisations could provide tangible benefits for all partiesthrough open communication and trust. The MD also stated that goodcommunication was essential as it helped to improve the relationshipbetween contractors and subcontractors. BHM currently held the viewthat communication was important at both a strategic and operationallevel and the MD expresses his desire for large contractors to desistwith existing power oriented tactics and adopt a more strategicapproach to project management.

The improvements that partnering could provide at an operationallevel was also valued highly by the MD. The need for open two-waycommunication was considered to be imperative to the continuity andquality of work. The MD gave an example of how this lack ofcommunication under existing partnering arrangements had adverselyaffected both the company and its contractor. Under one multiple siteproject the same skilled labour was required on the same day. Insteadof reaching a compromise, the site managers of the main contractordecided that their site was most in need of the labour provided byBHM and the resulting dispute led to increased construction time andinefficiency. BHM was subsequently forced to justify why it hadtaken longer to complete a given operation at an inflated cost despitethe conflict being caused by the main contractors.

Overall, the MD maintained that the primary purpose behind theadoption of partnering had been to secure continuity of work andenhance their image with major contractors in the South Wales region.The MD however, believed that current attitudes to partnering werenot conducive to sustaining the housing building industry and oftenserved in detriment to the aspirations and goals of SCEs. Under thesearrangements the MD concluded that his firm gained no additionalbenefits from partnering and consequently felt that entering intoadditional partnering arrangements would continue to do little for thefirm’s reputation or profitability

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Conclusions

The aim of this paper was to investigate how the introduction of“partnering” into the construction industry had assisted thedevelopment of SCEs. It was observed that factors that inhibited thepartnered approach included deteriorating contractor-subcontractorrelationships, contractor self-interest and distrust. Differences werealso found at distinct levels of hierarchy in terms of attitudes towardsthe small subcontracting firm.

The study indicated that power relationships also served as a potentialbarrier to the successful adoption of the partnering philosophy. Fromthis case study it seems reasonable to conclude that SCEs, underexisting partnering arrangements are vulnerable to bullying by maincontractors. This situation continues to constrain the diffusion of thestrategic benefits of partnering throughout the industry. In this sense, itis argued that the SCE will place little importance on this initiativeunless real benefits can be achieved. Moreover, issues of survival andthe continuity of work still dominate the SCE decision-making processand unless partnering can convince these firms that it can improvetheir chances of survival it is unlikely to have a significant impactupon the small subcontracting firm. Nevertheless, it is evident that thecorrect implementation of partnering could enable the small-scalecontractor to operate successfully and profitably. Furthermore, thepartnering process has the potential to pool the experience andknowledge of all contracting parties together: a process that couldimprove the long-term sustainability of the construction industry. As aresult of this research it has been noted that teamwork, profit sharing,trust and mutual co-operation are key elements of the successfulworking relationships required to secure the industry’s future. It cantherefore also be posited that the overall importance of the SCE to theconstruction industry demands that increased efforts are made toensure that all contracting parties subscribe and adhere to the truenature of the partnering philosophy.

References

Aaker, D., Kumar, V. and Day, G. (1998) Marketing Research (6th

Edition), London: John Wiley & Sons.

Anonymous, (1998) Pillars of wisdom for partnering. SupplyManagement, London.

Barlow, J. Cohen, M. Jashapara, A. Simpson, Y. (1996) PartneringRevealing the Realities in the Construction Industry. The Policy Press.

Barlow, J., Jashpara, A. and Cohen, M. (1997) OrganisationalLearning and inter-firm partnering in the UK construction industry,British Academy of Management Conference, London, September 8-10.

Bennet, J. Jayes, S. (1995) Trusting the team: The best practice guideto partnering in construction. University of Reading.

Bingham, T. (1998) Spot the balls. Building, August, 3 (5), 31.

Bryman, A. (1989) Research Methods and Organisation Studies.Unwin Hyman.

Cox, A. and Townsend, M. (1998) Strategic Procurement inConstruction, London, Thomas Telford Publishing.

Crane, A. (2000) Driving forward the movement for change.Construction manager, 5 (7), pp. 8-10.

David, P. (1999) Flat Mates. Supply Management, London, April.

Drewer, S. (1998) The Task forces blind spot. Construction News.August, 10 (4), pp. 28-29.

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Egan, J. (1998) Rethinking Construction, Construction task force.HMSO London.

Fox, P. (2000) The role of partnering in the construction industry.Building Science Forum of Australia.

Hall, G. (1994) Factors distinguishing survivors from failures amongstsmall firms in the UK Construction Sector, Journal of ManagementStudies, 31 (5), pp. 737-760.

Harvey, R.C. and Ashworth, A. (1998) The Construction Industry ofGreat Britain. 2nd ed. Laxtons. Oxford.

Keil, J.H. (1999) The benefit of partnering. Dispute ResolutionJournal, New York, February.

Latham, M. (1994) Construction the Team. HMSO London.

Latham, M. (1998) Latham on Egan. Building, July, pp. 28-29.

Miller, C.J.M., Packham, G.A. and Williams, T. (2000) TransactionCosts and The Construction Process, Journal of ConstructionManagement, Vol. 15(1), pp. 39-51.

Miller, C.J.M., Packham, G.A. and Thomas, B.C. (2001)Harmonisation between Main Contractors and Subcontractors: APrerequisite for Lean Construction? Journal of Construction Research,In Press.

Saad, M. and Jones, M. (1998) Unlocking Specialist Potential.Reading construction forum.

Smith, M. (1999) Click to fit. Building Services Journal. January, pp.25-26.Wimpey Homes, (1998). Site Manager Workshop.

Yin, R.K. (1994) Case study research. Design and Methods. 2nd. Ed.Sage Publications.

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HARMONISATION WITHIN THECONSTRUCTION SUPPLY CHAIN: A NEW

PERSPECTIVE?

Andrew Wheten, Jeff Hodgson & Christopher Miller

The need for a Reduction of Conflict between Large Contractorsand Small Subcontracting Firms

The construction industry has been heavily criticised for its adversarialnature, the take up of new technologies and issues relating to themanagement process (Egan 1998). Historically, large constructionfirms have been able to negate the effects of economic recession anddeclining profits by initiating strategies of retrenchment anddisinvestment. This in turn has arguably led to the proliferation ofsmall subcontracting firms. It is posited however that small and largefirms are very different and are failing to successfully harmonise inorder to achieve the necessary outcomes of successful constructionprojects (Miller et al 2000).

The co-existence of small subcontracting firms and retrenchmentstrategies suggest that large and small construction firms areinterdependent. In other words it is argued that both parties secureproject success and customer satisfaction through the process ofmutual co-operation and harmonisation. The fact that large and smallfirms are fundamentally different however, implies that thisharmonisation between the contractor and subcontractor cannot beconstrued as being automatic. The differences that exist are oftendetrimental to the effective management of a construction project andthe process of adding value (Cox and Townsend 1998). The industryhas sought ways to assist the harmonisation between smallsubcontracting firms and large contractors but often to no avail. Manyprocesses have been adopted over the past twenty years that haveaimed to reduce conflict and ensure professionalism in the industry.

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Some initiatives have succeeded but many have been criticised bysmall firms who argue that benefits accrue to the larger firms at theirexpense (Miller et al 2000).

Despite the fact that there is a need for greater harmony between theinterdependent parties of the construction process, most studies haveso far failed to account for the important differences that exist betweenthe contractor and the subcontractor. For example, research by Saadand Jones (1998) has recognised that small firms’ subcontractingshould have a significant part to play in the process of construction asthey account for 80% of contract expenditure.

It is argued that the failure to acknowledge the existence offundamental differences between contractors and small subcontractingfirms constrain any efforts to improve strategic fit (Miller et al 2000).Moreover, it is argued that the small construction firm derives littlebenefit from traditional subcontracting arrangements. Instead, it issuggested that the transactional nature of the construction industryenable the larger contractor to take advantage of superior networks andstrategic knowledge to reduce operational costs at the expense of thesmall firm.

A plethora of literature exists highlighting the need for theconstruction industry, as a whole, to adopt new value adding practices(Egan 1998). The universal adoption of innovative practices however,is deemed problematic. In fact, it is contended that many smallsubcontracting firms cannot visualise how such practices are ofadditional benefit to existing methods of construction. In addition, itis submitted that the considerable distance that exists between theclient and the subcontractor ensures that the small subcontracting firmis unlikely to derive benefit from the provision of quality work. It hasalready been submitted that numerous problems faced by theconstruction arena can be minimised through mutual co-operation.Large firms recognise this potential and now commonly seekpartnership with clients and suppliers although problems can still arisedue to lack of trust and self-interest.

Harmonisation essentially depends upon the extent to which both largecontractors and the small specialist firms can enjoy favourablebenefits. Furthermore, it is contended that harmony cannot exist in anindustry that is considered hostile and one of little trust.Consequently, for harmony to exist it is imperative for largecontracting firms and small subcontractors to mutually assist in thedevelopment of universally accepted practices that not only generatesustainable profit margins but also add value throughout theconstruction process. In this paper it is submitted that AlternativeDispute Resolution (ADR) may assist the reduction of existingtransaction costs caused by disharmony. This may in turn assist bothlarge and small firms with an alternative to existing forms of litigation.

Background to Change

The vast majority of professionals operating within constructioncurrently possess little or no knowledge of the essential aspects,potential benefits, and drawbacks of ADR. The processes of ADRwere initially developed in the USA in the early 1970’s by lawyersattempting to overcome long delays in court listings for litigationhearings. The construction industry was at that time becomingincreasingly litigious, with disputes arising almost inevitably on everymedium to large project. Concurring with this viewpoint, McAlpine(1992) summarised the culture of the US construction industry bystating that:

“Disputes are a fact of life in the constructionindustry, arising on virtually every project.”

Traditional methods of dispute resolution are however not exclusive toNorth America. In the UK it has also been recognised that alternativemethods are required to achieve amicable solutions to constructionrelated disputes. This perspective is shared by prominent exponents ofADR in the UK. Beckett (1998), Director of the ADR Group,

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eloquently summarises one of litigation’s principal deficiencies, byquoting London Barrister Hillary Heilbron QC who remarks:

“Why does it take longer to fight a case throughthe civil courts than it did to win the last war?”

Modern construction revolves around a constantly evolvingenvironment, with faster and more informal communication systems,ever increasing levels of competition, rising customer expectations,and the emergence of a blame culture (Cox and Townsend 1998). It isclear that extensive dispute times, excessive costs and relationalproblems continue with the current mode of the litigation process. Inbrief, it has been recognised that alternatives that are more efficient arerequired.

In an attempt to overcome some of the inadequacies of thesetraditional adversarial processes, alternative forms of disputeresolution have been formulated as a vehicle for quicker, cheaper, andless damaging resolution of construction disputes.

ADR is described by Ramus & Birchall (1996) as:

“ A number of formal, non-adversarial methods ofresolving disputes without resorting to the courts orarbitration. ”

The primary ethos of ADR is its ability to designate a negotiatedsettlement, which suitably reflects the commercial interests of thedisputants, not merely an award based upon austere legal principles.This is achieved by appointing a neutral and independent advisor, whois charged with facilitating a negtotiated settlement as opposed tomaking a binding award. Although ADR can be applied to most formsof dispute, there are certain instances where its application may beinappropriate:

• If a legal precedent is to be set because of the case.

• If the case is to be heard in public.• If an injunction is required quickly to preserve rights or

property.• Where an imposed decision is required.• Where merely negotiation will suffice.• Where one party will only participate upon commencement

of formal legal proceedings.• When one party has no desire for settlement of the dispute.

Characteristics for Success

ADR benefits from several significant advantages over moretraditional forms of dispute resolution. Richbell (1998), however,appraising the use of ADR by the construction industry, suggests thatit’s main advantage is flexibility, contending that:

“ADR processes are not bound by legal procedures,legal rules or legal remedies. There is, therefore, scopeto consider other factors, such as aspects of fairness orrealism that a court could not take into account. Itsstructure has a powerful potential to improvenegotiations and ‘turn up the volume on dialogue”.

In essence, ADR benefits from its inherent advantage of providingdisputants with increased options for settlement. These mayincorporate the protection of future business arrangements, andprovide settlement on a commercial basis. The benefits of ADR forsuccessful resolutions are further consolidated by its congenitaladvantages in terms of speed, and cost. Average mediation takes 1 to 2days, and therefore faster settlement leads to reduced expenses.

For all of the benefits that ADR may offer to potential disputants, itshould be remembered that it could not necessarily be regarded as apanacea of the dispute process. ADR has been the subject ofcontinued criticism over recent years. One such reflection submitted

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by Klein & Minogue (1997), contemplating ADR’s relation to theconstruction industry suggest that:

“ ADR works best where there is trust andgoodwill on both sides, but there is little ofeither of these in the construction industry. ”

Potential Barriers associated with the Process

Although the legal process generally cannot guarantee success, the factthat ADR results in only a non-binding recommendation based uponthe agreement of the parties it may provide no result at all! Indeed,for all the deficiencies of litigation and arbitration, it must be arguedthat these methods produce a guaranteed result in the form of animposed solution by the judge or arbitrator, irrespective of itssuitability to the parties. Therefore, should ADR prove unsuccessful,the use of traditional procedures is inevitable, consequently increasingcosts to the disputants, and augmenting the likelihood of delay.

Disclosure of information

The intrinsic enigma in the use of ADR is that should the processultimately fail, the disclosure of incisive information, best saved forthe court process, is foregone. However, if both parties have agenuine interest in settlement, it is essential for this information to beforwarded for consideration if an acceptable and informed conclusionis to be attained by the neutral third party.

The legal response

Unsurprisingly, the legal fraternity may regard the growth of ADR assomewhat of a threat, reducing their potential to extract enormous feelevels from exorbitantly prolonged and costly litigious actions.

In support of this viewpoint, Beckett (1998) articulately summarisesthe attitude of many operating within the judiciary to ADR bycommenting:

“ Does ADR stand for Alternative DisputeResolution, or Alarming Drop in Revenue? ”

Nevertheless, it would be unfair to suggest that this is the view of allwithin the legal profession. Many see the growth of ADR as abusiness opportunity to expand the range of services provided toaccommodate the use of methods such as mediation, conciliation andadjudication. These business opportunities may be given addedimpetus when the recommendations of the Woolf Report (1996) arefully integrated. He aspired to radically improve the dispute resolutionprocess, and his recommendations strongly favour the use of ADR.

The Construction Process and Alternative Dispute Resolution

Conflict within the construction process is as prevalent today as it wasat the time of the Simon Report (1944). Procurement systems and thecontractual and legal framework adopted by most participants areoften criticised as being confrontational and adversarial. Competitivetendering which aims to reduce costs can also result in the situationbeing further compounded. The result of such actions can lead todispute and conflict, usually revolving around the financial self-interest of the various stakeholders within the process (Cox andTownsend 1998, Miller et al 2000).

There has been a proliferation of text written of late regarding theprocesses of dispute resolution within the construction industry. Forexample, with the advent of new legislation such as the HousingGrants, Construction & Regeneration Act (1996), which enforcesstatutory adjudication, the options available to potential disputants arenow much more diverse than traditional litigation and arbitrationprocedures.

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A new law in the United States directs district courts to require alllitigants in civil cases to consider the use of an ADR process at anappropriate stage in the litigation. In essence, the Act directs thecourts to:

• Devise and implement their own ADR program toencourage and promote ADR use in their districts.

• Examine the effectiveness of existing ADR programs,and adopt appropriate improvements.

• Retain or designate an employee or judicial officer whois knowledgeable in ADR to implement, administer,oversee and evaluate the court’s ADR program.

• Provide litigants in civil cases with at least one ADRprocess.

A particularly interesting study by Brooker & Lavers (1997)investigates attitudes to dispute resolution in the construction industry.The research calls for improvement in the way dispute resolution isconducted due to the adversarial nature of the process. The study alsoinsinuates that traditional vehicles for dispute resolution areinadequate due to the excessive potential for delay and their biastoward larger contractors.

Potential Ways forward for the Industry

It must be remembered that litigation will always have a place withinan industry as contentious as construction. Although litigation hasmany deficiencies, it has the ability to offer future opportunities interms of reducing costs and conflict. From the foregoing discussion, itcan clearly be established that ADR is a significant dispute resolutiontool within both Canada and the USA. It is clear that the governingbodies of both countries are eager to encourage its prevailing use. Forthis reason alone, ADR has a particularly promising future in bothcountries. Notwithstanding this fact, another particular incentive forusing ADR in the USA is it’s constitutional right to jury trial for any

individual or corporation should litigation be pursued. This alone maybe regarded as a powerful incentive to amicably settle without going tocourt, as the vagaries of jury trials are universally accepted. In thislight, American mediators use the threat of trial by jury to persuadedisputants to settle. Clearly these incentives for the use of ADR are notyet present within the UK legal system, and these reasons alone mayexplain the growth of ADR in North America.

A positive step towards the increased use of ADR in the UK wasachieved when Lord Woolf’s recommendations became statute on 26th

April 1999 under the guise of the new Civil Justice Procedures. LordWoolf’s report on Civil Justice was, according to Brooker & Lavers(1997)

“Forthright in its condemnation of the deficiencies ofcivil litigation, and insistent that reform is necessary toproduce speedy, affordable dispute resolution in thecourts.”

The report concluded that these inadequacies were resulting ininjustice, especially where one party was at a financial disadvantage.This viewpoint in relation to litigation is shared by Bingham (1998)who suggest that:

“ Many a disputing party is not interested insettling early or conveniently by any technique,because he can afford to litigate but the opponentcannot. The simple idea is to wait until the otherchap has forked out painful legal fees, weaken hisresolve, and then settle for much less than isowed. In these circumstances, the potential payeris not interested in a slick and efficient solution. ”

Clearly, this situation is unacceptable in the context that litigation isstill the most prevalent dispute resolution process in the UK at present.

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In an attempt to surmount these problems, Woolf submitted thefollowing aspirations:

• Information on sources of ADR to be provided atall civil courts, enabling parties to resolvedisputes in an economic, expeditious andpractical manner.

• Encouragement to settle before going to law,with courts having due regard to a disputant’slack of co-operation in preliminary ADR.

• Courts to encourage the use of ADR whereverappropriate.

• Courts are to monitor disputant’s attitudetowards ADR, and their participation during theprocess.

• The parties must be kept fully informed ofincurred costs, and also be provided withestimates.

• There should be legal aid for pre-litigationresolution and ADR techniques.

These aspirations would appear similar to the requirements of theAlternative Dispute Resolution Act 1998, in the USA. Clearly, ADRis particularly high on the agenda as a method of reducing the courtimpact on disputing parties. This alone is an incisive development inthe more predominant use of ADR in the UK.

Naturally, Woolf has received an element of criticism, and indeed,Blackler (1999) strongly believes that the use of the courts is a civilright, maintaining that:

“ Once the parties have decided to go to court,they should be allowed to exercise their civilrights, and to have their grievances decidedaccording to law………..Surely the courts should

be competing with ADR rather than promoting it.”

In the light of the recommendations of the Woolf Report, it can beseen that the use of ADR will not only become a legal requirement,but will potentially grow to become the principle method of disputeresolution. Considering the significant differences that exist betweensmall subcontracting firms and large contractors it is evident that thesatisfaction of the needs of both parties is necessary to achieve mutualsatisfaction. The negation of disputes within the process may go someway to reducing transaction costs associated with contractual disputeand disharmony.

Conclusions

This paper has attempted to establish the basic principles of ADR as ameans of assisting harmonisation and reducing conflict between smalland large firms. It is evident that the construction industry has requireda more efficient method of resolving its disputes than the traditionallyarduous litigation and arbitration processes. Furthermore, it may beobserved that the processes of ADR has the potential to producequicker and cheaper resolutions whilst protecting businessrelationships and reducing transaction costs. The concern for ADR isthat it will follow the process of litigation and arbitration and becomeprolonged and costly thus debilitating its current benefits.

References

Beckett. B. (1998). Letter to the Authors. 16th February 1998.

Bingham. A. 1998. Letter to the Authors. 2nd November.

Blackler. A. 1999. Is this Evolution? Building. 12th March. p. 71.

Brooker. P. and Lavers. A. (1997) Perceptions of Alternative DisputeResolution as Constraints Upon it’s Use in the UK Construction

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Industry. Construction Management and Economics, 14 (3) pp519-526.

Cox. A. and Townsend, M. (1998) Strategic Procurement inConstruction, Thomas Telford Publishing. London.

Egan, J. (1998) Rethinking construction: The report of theConstruction Task Force to the Deputy Prime minister John Prescott,on the scope for improving the quality and efficiency of UKconstruction, Dept of The Environment, Transport and the Regions,London.

Klein. R. and Minogue. A. (1997) Clash Points: AlternativeProspects. Building Magazine. 10th January. p. 26.

McAlpine, R. (1992). Resolving Construction Disputes. MichiganBar Journal. October.

Miller, C. .J. M., Packham, G. A. and Williams, T. (2000) TransactionCosts and the Construction Process, Journal of ConstructionManagement, XV (1), pp 39-51.

Ramus. J and Birchall. S. (1996) Contract Practice for Surveyors.Laxtons.

Richbell. D. 1998. Construction Industry Leads the Field in ADR.Architecture and Surveying Institute Journal. December. pp. 12-13.

Saad, M. & Jones, M. (1998) Unlocking Specialist Potential, ReadingConstruction Forum, Reading University.

Woolf. (The Right Honourable The Lord Woolf, Master of the Rolls).(1996). Access to Justice : The Final Report to the Lord Chancelloron the Civil Justice System in England & Wales. HMSO. London.

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