Running head: Organizational Barriers in Construction 1

Running head: Organizational Barriers in Construction

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Douglas Hutcheon

APRJ-699

The Affect of Organizational Structure on the Successful Delivery of Mega-

scale Construction Projects.

Word count: 14,830

August 31, 2014

Dr. Bernie Williams

Behavioral Barriers in Construction

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Abstract The construction industry is currently challenged with an increasingly competitive

environment with record levels of Volatility, Uncertainty, Complexity, and Ambiguity

(VUCA). Many companies are increasing in size through Mergers and Acquisitions

(M&A), expanding their global footprint, entering new markets, and some are entering

the new big league of construction by undertaking the pursuit and execution of high-

profile, high risk megaprojects.

In order for construction companies to successfully negotiate such a dynamic

environment and deliver these challenging megaprojects, their organizations must

achieve a high-performance state, where they are adaptive, efficient, and able to

respond quickly to internal and external stimuli.

The foundation for achieving this kind of high performance state begins at the level of

the organizations structure. A poor organizational design will spawn numerous structural

deficiencies that will reduce effectiveness, erode efficiency, and slow responsiveness,

all of which negatively affect megaproject delivery.

In order to recognize and prevent poor organizational structure from negatively affecting

project delivery several questions were asked to better understand the forces at work:

1. Are the organizational structures of construction enterprises appropriate for

megaproject delivery?


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2. How does organizational structure affect the transparency of megaproject

information?

3. What role does culture play within the construction enterprise and does it affect


4. Is profit the best determinate of successful megaproject execution?

The picture that emerged from this researcher’s observations and a review of industry

publications and related literature revealed four issues that are negatively affecting

project delivery:

• Excessive bureaucracy;

• A lack of transparency;

• Cultural stratification;

• A misalignment of incentives.

All four of these issues can be associated with multiple symptoms of organizational

structural deficiency. These symptoms can be observed when (a) the organization

ability to make decisions is slow and the quality of those decisions is poor; (b) the

organization inadequately responds to change; (c) the organization is experiencing a

decrease in employee performance and goal achievement; and (d) there is excessive

inter-organizational conflict (Daft and Armstrong, 2012, p).

Given the observable issues and the existence of structural deficiency, it seems unlikely

that the current organizational structure of construction companies today is an

appropriate one to support megaproject delivery. The choice of organizational structure


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has a clear affect on fragmentation, the number of principal-agent layers, and the

stratification of culture, all of which create a perfect storm of disinformation that

decreases transparency. When cultures are too different they can create greater inter-

organizational conflict (a structural deficiency). Construction companies that only use

Profit as an internal, overall measure of megaproject success do not adequately

consider the new stakeholder reality of today’s VUCA environment. Megaproject

success must be measured using metrics that are important to internal and external

stakeholders. These metrics or key performance indicators (KPIs) should be

contractually incentivized and where possible, project team personnel should have

these same KPIs included in their individual project performance assessments.

Framing the identified issues within the context of the applicable symptoms of structural

deficiency created a focus for the review of the related literature. The mapping of

individual issue, to symptoms, and then to relevant theory to form structural deficiency

matrices addressing each individual issue created a framework around each issue that

was used to analyze each issue a develop the following recommendations:

1. Operationalize Support Teams;

2. Reduce Reporting Complexity;

3. Communicate the Culture;

4. Align Organizational Incentives.

The issues, theories, and deficiencies discussed in this paper are all at play within

construction organizations today. These organizations are grappling with the VUCA


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environment, constrained by outdated mechanistic organizational structures. The

response from industry should be an organic one that promotes the reimagining of the

project-based organization. A project team that is well-supported, will be more

responsive, adaptable, and should be given the authority to make command decisions

in the field as situations unfold. This is how we can tangibly improve project delivery on

mega projects in the construction industry.


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Table of Contents Chapter I. INTRODUCTION ................................................................................................................. 7 The Industry’s Challenges ............................................................................................................................ 7 The Industry’s Response ............................................................................................................................... 9 Statement of the Problem – This Isn’t Your Father’s Construction Company .......................... 11 Purpose of the Study ................................................................................................................................... 14

Chapter II. RESEARCH ........................................................................................................................ 15 Research Purpose ......................................................................................................................................... 15 Issues and Observations ............................................................................................................................ 16 Research Questions ..................................................................................................................................... 23

Chapter III. LITERATURE REVIEW ................................................................................................. 25 Issue 1 – “Corporate” ................................................................................................................................... 25 Issue 2 – “Known Unknowns” ................................................................................................................... 34 Issue 3 – “This is an engineering company” ........................................................................................ 46 Issue 4 – “We are here to make money” ................................................................................................ 49 The Big Picture .............................................................................................................................................. 52

Chapter IV. RESEARCH DESIGN AND DATA COLLECTION ...................................................... 52 Research Design ............................................................................................................................................ 52 Data Collection .............................................................................................................................................. 56

Chapter V. ANALYSIS .......................................................................................................................... 57 Analytical Perspective ................................................................................................................................ 57 Structural Deficiency ................................................................................................................................... 58 Issue 1 -‐ Excessive Bureaucracy .............................................................................................................. 61 Issue 2 -‐ Lack of Transparency ................................................................................................................ 63 Issue 3 – Cultural Stratification ............................................................................................................... 64 Issue 4 -‐ Misaligned Incentives ................................................................................................................ 66 Limitations ...................................................................................................................................................... 67

Chapter VI. RECOMMENDATIONS .................................................................................................. 67 Issue 1 -‐ Operationalize Support Teams ............................................................................................... 67 Issue 2 -‐ Reduce Reporting Complexity ................................................................................................ 69 Issue 3 – Communicate the Culture ........................................................................................................ 71 Issue 4 -‐ Align Organizational Incentives ............................................................................................. 71

Chapter VII. CONCLUSION ................................................................................................................. 72 Chapter VIII. REFERENCES ............................................................................................................... 75


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Chapter I. INTRODUCTION

The Industry’s Challenges

The construction industry’s very nature requires those people who work within it to solve

problems, develop technical solutions, and overcome logistical challenges on a daily

basis. This dynamic work environment has been referred to recently as a “VUCA”

environment (FMI, 2012). The letters of this acronym stand for factors that construction

professionals know extremely well, Volatility, Uncertainty, Complexity and Ambiguity.

Taming these factors requires an organization to be agile, adaptive, efficient, and

responsive.

The construction industry already predominantly uses the best organizational structure to

deal with the challenges of working in a VUCA environment, the project. Generally, a

construction project is a temporary organizational unit, consisting of a constantly

changing number of people and expertise that must come together quickly, as a team for

several years, united under a common purpose; a contract, to plan, design, build, test,

and commission, complex, large-scale infrastructure within stringent timelines.

These project teams are comprised of numerous internal and external stakeholders

represented by three primary groups; first, the project management and execution team

consisting of engineers, technical staff specializing in various disciplines, union and non-

union trade labor, and a wide variety of administrative and clerical employees; second

the extended project management and support team consisting of administrative shared

services like human resources, information technology, and procurement, and technical


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services like internal design groups, accountants, and lawyers, third, external

stakeholders consisting of the client, insurers, financiers, representatives from affected

communities, local indigenous peoples, and concerned Non-Governmental

Organizations (NGOs). This diverse range of stakeholders face the challenge of quickly

learning to work together, establish relationships and behavioral norms that will ideally

form the foundation for a successful project delivery.

For those construction companies involved in mega-scale construction projects or

“megaprojects”, the aforementioned VUCA challenges are further exacerbated due to

the increase in scale of the project, length of delivery, sheer number of stakeholders, and

the greater sophistication level of the client’s organization. In many cases, the project

management team is well experienced in dealing with external stakeholders, however,

what many project management teams are lacking is extensive experience with inter-

organizational stakeholders.

Megaprojects often experience increased bureaucracy, utilize inadequate systems, and

suffer from duplicative, inefficient processes that can confound even the savviest

technical minds. Whereas smaller projects can be managed with simpler structures,

megaprojects, because of their increased organizational complexity require members of

the project management team to possess not only technical competency, but also well-

developed soft skills. These soft skills allow project managers to successfully interface

with various parent company factions and negotiate cultural differences between joint

venture and consortium partners. The emphasis begins to shift from one of narrow


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technical calculation, to a wider non-technical skill-set focused on building consensus

around multi-stakeholder decisions, effectively communicating across functional lines,

and understanding the importance of developing strategies for the effective management

and development of project-level human capital.

The Industry’s Response

The main thrust of industry discussion in response to this VUCA environment and the

challenges inherent to megaprojects has focused on the requirement for more time to be

spent on project planning, the lack of megaproject experience at both the project and

executive levels, the challenge of achieving better productivities during the delivery

phase of the project, and the need for integrated project management systems that can

provide adequate control, data transparency and accurate forecasting.

In their 2012 Construction Industry Trends report, the FMI concluded that the changing

nature of the construction industry will require contractors of the future will need to be

dynamic innovators in all aspects of their business (FMI, 2012). McKinsey & Company’s

Infrastructure Practice echoed the FMI with their emphasis on the Construction industry’s

need to enhance their practices to raise productivity, quality, and timeliness of

infrastructure projects (MGI, 2013, pg.6).

The majority of the discussion has been centered around the use of highly specialized

3D modeling software like Building Information Modeling (BIM) and the adoption of

manufacturing techniques like modularization and pre-fabrication, which can offer


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significant savings versus the traditional stick build or cast-in-place methods. Leveraging

newer technologies and production techniques can be effective in a VUCA environment;

however, there has not been any discussion around what organizational changes will be

required to support these new capabilities. Companies have been forging ahead making

investments in technology and facilities, and some have begun to aggressively engaging

in subcontracting strategies for pre-fabricated components, but many have made no

changes to the structure of their organization to promote the smooth integration of these

new skill-sets into the current organization. This lack of organizational analysis and

modification will potential create more inefficiency than they were intended to improve.

With the rise of mega-scale construction projects all around the globe, construction

companies that participate in this niche of the industry contend with levels of Volatility,

Uncertainty, Complexity, and Ambiguity that in some cases cannot be navigated alone.

This has given rise to new models of collaboration and “teaming” in the form of joint

ventures and consortia. These new models also constitute a new form of organizational

structure compared to traditional project structures, so it is important to understand the

“number of very critical considerations for companies to consider when partnering in a

JV where the risks on these mega projects are substantial”. (Deloitte, 2013, pg.25)

Absent from the discussion to-date has been any significant analysis of the current

organizational state of construction companies and the projects that generate their

revenues. As construction companies have expanded globally many organizational

concepts have been borrowed from the manufacturing sector, but given the project-


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based nature of the industry, and mega-projects in particular, these initially adopted

structures seem to now be inadequate and may be negatively affecting operations

throughout the enterprise, particularly, project delivery.

The construction industry is experiencing increasing competiveness as the number of

firms pursuing and executing work globally continues to increase. In addition to an

increased number of competitors in traditional “home” markets, the industry is trending

towards “consilience” as discussed by the (FMI, 2012), and has seen significant Mergers

& Acquisitions (M&A) activity expand the service offerings of many of the largest industry

players, transforming them into truly integrated solutions providers, able to cover the

entire lifecycle as Architectural, Construction, and Engineering (ACE) entities.

Acquiring new capabilities is not a guaranteed fix. For construction companies to be

competitive in the VUCA environment they will need to efficiently manage their diverse

organizations in this hyper-competitive market. To do this, the very structure of their

organizations will need to be designed to facilitate communication, decision-making, and

the deployment of resources and human capital, globally. To-date there has been

inadequate time devoted to this endeavor.

Statement of the Problem – This Isn’t Your Father’s Construction Company

This researcher has observed that construction project teams are generally unable to

execute their projects as efficiently and profitability as possible due to organizational

constraints. These organizational constraints cause affected stakeholder to engage in


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deficient behavior that acts as a behavioral barrier to organizational efficiency. These

constraints and their associated behavioral deficiencies originate from many sources,

resulting in a cacophony of burdensome processes, quasi-functional systems,

inadequate responsiveness, and ambiguous accuracy; further worsened by poor

communication and transparency at all levels.

This researcher believes that the common element to these various behaviors is that

they all spawn from some form of organizational deficiency. These behaviors are highly

visible and to some degree tolerated within construction organizations today, however,

the extent of their negative affects is cause for action.

A significant challenge for many construction companies and a main focus of this paper

is the successful delivery of mega-scale construction projects. The external industry

environment with its VUCA challenges has elicited for the most part, traditional

Mechanistic responses by adding more meetings, more processes, more layers, more

control. Yet what may be required is an Organic approach that decentralizing decision-

making establishes objectives, clear goals, creates an environment of accountability, and

an organization where information is transparent and communication is concise and

timely. Tom Burns and G.M. Stalker (as cited by Daft and Armstrong, 2012, pg.149)

discovered in their research that when the external environment is stable, that

organizations adopted a hierarchical, top-down framework, replete with rules,

procedures, and centralized decision making that they refer to as Mechanistic.

Conversely, when the external environment was unstable, like the current VUCA


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scenario, organizations responded in a more Organic way by becoming more adaptive

with decentralized decision making that encouraged teamwork and empowered people

closest to the problem with the authority to remedy it.

The organization of a construction project, particularly megaprojects, and the enterprise

that supports them can be designed to encourage behavioral efficiency and discourage

behavioral deficiency and the barriers they create. However, after more than a decade in

the industry, the organizational structures that this researcher has been exposed to have

not shown any evidence of being “designed” as much as they have simply been “copy &

pasted” together. It seems that there is not enough emphasis placed on analyzing the

organizational requirements of projects during the bid phase of the project. What often

happens is organizational charts from past projects are thrown together along purely

functional lines without any consideration for the actual expected workflows, stakeholder

interfaces, or appropriate spans of control. The additional time devoted to optimizing the

design of a project’s organizational structure and its stakeholder interfaces, intuitively,

would increase overall efficiency through the improvement of communication,

information flows, and the speed of decision making.

In today’s operating environment the business of construction is in some ways even

more “old school” than it ever was. A late adopter of technology and management

practices, the construction industry is attempting to catch up in many areas of its

organization, but resistance is heavy. Those companies that cannot find a way to

embrace change, reconfigure and reorient their cultures, will experience an erosion in


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their competitiveness due to organizational atrophy, characterized by Daft and

Armstrong (2012, pg.340) as the point when an organization “becomes inefficient and

overly bureaucratized” and when “The organization’s ability to adapt to its environment

deteriorates”.

Purpose of the Study

This paper will attempt to start a conversation, a meaningful dialogue about what is

working and not working organizationally within an industry that is clinging to the status

quo while it struggles with inconsistency in the delivery of its megaprojects.

It is this researchers opinion that the industry needs to change its perspective. For an

industry that prides itself on its ability to handle volatility, negotiate uncertainty, navigate

complexity, and embrace ambiguity; negotiating these organizational constraints, the

behavioral deficiencies that they encourage, and the resulting barriers to project delivery

will require a paradigm shift in the way current construction leaders view their roles.

The contents of this conversation have been collected via the systematic identification of

issues and concerns that are currently negatively affecting project delivery, with an

emphasis on those that have particular relevance to the unique requirements of

megaprojects. The recommendations in this paper have been developed to mitigate

these constraints by translating contemporary organizational theories into tangible

deliverables that can executed in reality. These recommendations may also be used to

objectively analyze existing structures, or aide in the design of new structures to ensure


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that they are structured optimally to maximize their efficiency and increase the probability

of achieving a successful project delivery.

Chapter II. RESEARCH

Research Purpose The research conducted in this conceptual paper unfolded in two stages, first, the

acquiring of a knowledge base about how organizational structure affects organizational

performance; and second, synthesizing this new knowledge into a functional framework

that can be applied to modern construction companies and megaprojects.

A construction company’s choice of organizational structure has an impact on how

effectively its projects are executed. If the chosen organizational structure is an

inadequate fit, organizational constraints like departmental “siloing” will begin to

manifest, which will in turn, encourage behavioral deficiencies that can impede the

organization’s agility, efficiency, and responsiveness.

The research methodology employed used this researcher’s organizational observations

combined with industry publications and related organizational theory to unite them into

a framework that project managers, project sponsors, and construction executives can

use when considering company-wide restructuring, divisional re-alignments,

departmental transformations, or the unique needs of individual construction projects.


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Issues and Observations Of the many challenges facing the industry, the issues examined in this paper are all

connected in some significant way to human behavior. The best processes,

technologies, and plans are all dependent on the human element to initiate, decide,

interpret, and react. In light of this fact, understanding how to influence the behavior of

the human variable should be a significant priority for organizations, but in reality, this

does not seem to be the case.

Issue 1 - “Corporate” The Observation

A consistent organizational phenomenon across the few construction organizations I

have worked for has been the poor communication between the project and “corporate”.

The degrees of misalignment vary, but several of the same issues pervade and produce

common behavioral deficiencies that suggest an underlying mutual organizational

problem.

When this inter-organizational relationship is at its worst, it can be adversarial or

indifferent, which can undermine the project team’s effectiveness. Understanding what

organizational factors contribute to this internal “eroding force” must be understood, so

that actions can be taken to convert these inter-organizational relationships from

conflictive to collaborative.


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Some may interpret this disparate position between corporate and the projects as typical

bureaucracy. While some bureaucracy is essential, “The point is to ensure that

organizations are not top-heavy with lawyers, accountants, and financial analysts who

inhibit the flexibility and autonomy of divisions”. (Daft and Armstrong, 2012, pg. 335)

The Industry

While certain manufacturing principles can be extended to construction, standardization,

or a one-size-fits-all approach, for the most part is difficult to operationalize given the

unique requirements of most projects, and the differing requirements of particular

business segments. For example, professional engineering services and self-perform

construction have common aspects, but their differences are significant enough that they

each require particular functionality from information systems and special consideration

in terms of policies and procedures. Organizations that force their projects to use

existing corporate policies, procedures, and systems that are not fit-for-purpose will

experience negative influence on their project delivery. KPMG address this issue with

the recommendation that “While your own company may have policies, guidelines, and

procedures for managing large capital projects, it is recommended that the project team

develop tailored policies and procedures appropriate to the specific needs and

circumstances of the mega-project”. (KMPG, 2013a, pg.9)


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Issue 2 – “Known Unknowns” The Observation

This researcher has observed that there is a lack of project-level transparency in the

construction industry. The degree of transparency decreases with as project’s increase

in complexity, size, and number of stakeholders.

Numerous biases and incentives contribute to this lack of transparency as project

managers and directors preside over the “management” of corporate’s expectations. In

the majority of observed cases, this has involved the concealment, filtering, manipulation

or withholding of information, so as not to “excite” or “surprise” senior management. This

withholding of information creates an environment of asymmetric information, which

more often than not exacerbates the transparency problem by constraining the quality of

the information that numerous other project stakeholders are relying on for their own

decisions.

When the real information about cost, schedule, and potential risks are “revealed” to

senior management, stakeholder relationships are affected, forecasts and earnings

guidance revised and in many cases the credibility and competency of the project

management team is called into question.

The Industry Perception

This lack of transparency has been most visible over the past couple of decades by the

poor accuracy of megaproject forecasts. There have been significant cost overruns, and


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schedule delays on major projects all over the globe. According to a recent study by

Ernst & Young that researched the performance of 365 megaprojects “a high percentage

of projects fail to deliver on time or meet approved budgets”. (EYGM, 2014, pg.2). These

two variables, time and budget, comprise two thirds of the construction trifecta known as

the “iron triangle”, which consists of cost, time, and scope. There doesn’t seem to be any

one company, geographic region, or segment of the industry that has not been

negatively affected to some extent by this issue.

Construction companies both public and private have struggled with forecast

inaccuracies. Public companies especially need to rely on the accuracy of these

forecasts to develop earnings guidance for investors, and various external stakeholders

rely on these forecasts when to decide whether or not to offer favorable terms for

insurance, financing, and bonding. KMPG’s guidance on Effective Reporting for

Construction Projects is quite to the point when it says, ” Senior management, board

members, the audit committee, regulators, and other stakeholders demand accurate and

transparent project information for making informed decisions and ensuring compliance

with statutes, debt covenants, and other project requirements”. (KPMG, 2010, pg1).

Issue 3 – “This is an Engineering Company” The Observation

While working in the construction industry, this researcher has experienced, what could,

in extreme cases, be described as the classist treatment of non-operational or support

employees. Early in my career, I discussed this observation with my direct supervisor


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and his matter-of-fact response was that “this is an engineering company”, as if that was

all the explanation that was required to justify the preferential and discriminatory

treatment that was prevalent at that time. This would not be the last time this researcher

would hear that phrase uttered as justification.

There is a significant number of people in the construction industry that move between

companies quite regularly, from project to project, particularly those that are not

employed in a management capacity. The construction industry is one that requires a

willingness to relocate to be able to take full advantage of the next developmental

opportunity. These transient employees have made it possible for this researcher to gain

insight into other companies via inquiry and discussion with these temporary team

members. The picture that has emerged suggests a consistency in the inconsistency of

how companies create healthy work environments.

Common experiences across many companies are the lack of feedback, an inconsistent

annual review process and the lack of training and development. , Without clear

objectives, career opportunities or succession planning, it is difficult for a workforce to

remaining vigorously engaged.

For an industry that has traditionally been “sink or swim”, the development of a culturally

balanced organization can be an enabler for creating high-performing teams, which can

in turn, lead to competitive advantage.


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The people who work for “corporate” are culturally quite different from those that work “in

the field” on the actual Projects. This difference is a major cause of significant

inefficiency and organizational misalignment that leads to delayed, poor quality

decisions.


The importance of Human Capital Management (HCM) has been emphasized by the

both the FMI and KPMG though each with a slightly different focus. The FMI focuses on

the lack of attention to the company’s “leadership pipeline”, their identification and

development of future leaders and the significant vacuum that will be created as the old

guard retires. (FMI, 2012, pg.72). KPMG emphasis the need to conduct performance

appraisals during the project, which are linked to performance goals; appraisals are also

encouraged for senior and functional manager and leaders using powerful

developmental tools like 360 feedback. (KPMG, 2013c, pg.5).

These advisory reports suggest that the industry and the survey respondents are

prioritizing the need to do more to develop their talent. The challenges of implementing

an effective HCM strategy are further complicated due to the temporary nature of the

project organization, particularly, succession planning, and development planning, can

be very limited. Static industries like manufacturing tend to have more robust plans with

challenging developmental rotations that expose participants to inter-disciplinary and

cross-functional assignments within and outside of their home business unit. Given the

temporary reality of the project-based organization, rotations are extremely difficult to


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achieve without significant planning and commitment from the project management

team. From a change management perspective, getting experienced managers to find

the time required to provide meaningful feedback, coaching, and mentoring, will require

a paradigm shift that only the most committed professionals will even consider

attempting.

Issue 4 – “We are here to make money” The Observation

Project Managers, Sponsors, and Executives are primarily motivated by the bottom line.

Partially, because they are incentivized in this manner and partially because the industry

has not developed its Managers and Leaders in a more conscious or holistic fashion.

This researcher has attended Managerial and Leadership Development Programs at

each of the construction organizations they have worked for and there was a distinct lack

of content about ethics and corporate social responsibility. As a result these concepts

have not yet been incorporated into the Leadership DNA of these firms.

The main emphasis of training remains squarely on execution in the pursuit of profit. I

believe this fundamental concept is slowly being reconsidered; profit should not be the

only reason for a corporations existence. Corporations, particularly large global multi-

nationals, have evolved to become much more than they were ever envisioned to

become I terms of social and environmental collateral impacts.


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Society’s expectations of the responsibilities and accountabilities of the corporation

continue to evolve and need to be considered by construction companies as they craft

their strategies. There is an “old school” focus that continues to frame decisions from a

predominantly cost-benefit perspective. This a is short-sighted perspective that may

serve certain stakeholders, particularly those that are incentivized over the short-run i.e.

by yearly bonuses and stock options, but this kind of thinking potentially undermines the

long-run health and competitiveness of the project, its team members, and the company.


The industry has recognized the need to get “green” and many have adopted cosmetic

reporting that provides the look and feel of genuine social, environmental concern.

However, it is not yet a part of the culture of most construction companies today. There

are pockets of devoted professionals, but at the senior management-level, the concern

remains primarily about cost, i.e. what is the minimum requirement/specification?

Research Questions There are so many different issues within the construction enterprise itself and the

projects that constitute its core business. Many of these issues are not unique to the

construction industry. But the necessary level of managerial motivation, commitment,

and competency required to accept, understand, and adjust an organization’s culture is a

tall order no matter what industry you are in. The construction industry seems to be

lacking the requisite incentive to act. The focus of my inquiry therefore is premised on

the belief that these behavioral deficiencies are caused or influenced by the very


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organizational structure of the construction enterprises, its divisions, business units, and

projects, and that when presented with a practical list of recommendations, the industry

will respond.

In a recent Project Management survey conducted by PWC their data revealed a

positive correlation between inadequate organizational structure and ill-defined and

documented roles and responsibilities. (PWC, 2012,pg.5), suggesting that company

structure has been recognized by project management professionals as having an affect

on project delivery.

To begin the exploration of the identified issues, the following questions were formulated:

1. Are the organizational structures of construction enterprises appropriate for


2. How does organizational structure affect the transparency of megaproject

information?

3. What role does culture play within the construction enterprise and does it affect


4. Is profit the best determinate of successful megaproject execution?


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Chapter III. LITERATURE REVIEW This research is underpinned by the basic contingency model of organizational

effectiveness, which essentially states that to be successful; an organization must align

its strategy and structure with the external environment (Daft and Armstrong, 2012). As

noted above, this is a fundamental challenge in the construction industry as the VUCA

environment is volatile and rapidly changing, which suggest that organic structures are

most appropriate. However, for a variety of reasons, many construction companies seem

to adopt or continue to use outdated mechanistic structures. This literature review is

designed to provide more insights into the possible causes and consequences of

mechanistic structures and is organized around the themes identified in the previous

section.

Issue 1 – “Corporate”

Organizational Structure – “The Matryoshka Organization” Large construction companies are complex organizations. It seems that construction

companies are similar to Russian nesting dolls, or Matryoshka, considering that

“Engineering construction projects are nested hierarchies of complex adaptive systems

involving numerous, diverse stakeholders.” (Fellows & Liu, 2012, pg.667).

In their article “What is the Right Organization Design?” Anand and Daft (2007) discuss

what they refer to as the three Eras of Organizational Design. Using these Eras as a

framework for analysis it seems that the construction organizations that I have worked

for and those of my peers in the industry are blends, collectives, or “frankensteins” of

different organizational structures, which are referred to in the literature as hybrid


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structures. Theory aside “many structures in the real world do not exist in the pure forms”

(Daft and Armstrong, 2012, pg.117) so attempting to overlay a particular pure form onto

an industry that by its very VUCA nature requires flexibility, can create more

inefficiencies than those it was designed to fix.

Era 1 organizational structures focus on self-contained organizations that had clear

boundaries between internal and external stakeholders Anand and Daft (2007). These

structures will perhaps be the most familiar, with command-and-control, predominantly

vertical structures like Functional and Divisional, and the recently popular Matrix

structure that combine horizontal structure with traditional vertical structure in an attempt

to utilize dual-reporting to cross the functional, departmental, and geographical siloing

that can occur under a purely Functional or Divisional structure.

Era 2 organizational structures focus on team and process-based organizations that

organize around workflows instead of departments. This form of structure has been

popular with product development type organizations that are required to be responsive

to customer needs; examples include various service industries and manufacturing.

Era 3 organizational structures in many ways are the opposite of Era 1 organizations

with an emphasis towards eliminating internal and external stakeholder boundaries.

There are two main structures from this most recent Era, the Hollow and the Modular

structure. Both structures are characterized by outsourcing, with Hollow organizations

focusing on the outsourcing of processes like payroll, accounts payable, information


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technology, etc. and Modular organizations focusing on outsourcing particular pieces or

components of the products that they manufacture. A third structure from Era 3 is the

Virtual organization. This organization has evolved in response to the VUCA nature of

global business and is characterized by collaboration or joint-venturing between

competitors, usually involving the creation of a separate company external to all of the

participants, temporary in nature, for the explicit purpose of exploiting the identified

opportunity. (Anand and Daft, 2007, pg.338).

The Era 3 Virtual organization best represents the most common model adopted today

for construction megaprojects, which often involve numerous competitors coming

together under an agreement, utilizing a separate company, sometimes referred to as a

Special Purpose Vehicle (SPV), for the purpose of building a particular, large, complex,

project.

Form my recent observations; it seems quite clear that my current employer is a

patchwork of numerous structures. It has an Era 1 Divisional Structure with Horizontal

Overlays at the Corporate level, with some Era 2 Horizontal Design evident in several of

the company’s Divisions, Business Units and Shared Service elements, and numerous

Virtual organizations represented by a significant number of consortia and joint-ventures

megaprojects These structures all require different managerial mindsets. The people and

teams within these different structures will also have a different subculture from their

parent organizations, which can further add to the organizational complexity, creating a

perfect storm of organizational chaos, that can will challenge the clarity of


28

communication between stakeholders and stress the organizations linkages, both

horizontal and vertical.

Enterprise Structure – “The ivory towers” In today’s VUCA environment construction companies are focusing on maintaining or

reducing overhead costs to increase their competitiveness. Projects however, use

numerous metrics to monitor performance, man-hour productivities, staff-to-craft ratios,

cost-versus-budget, and various earned value measurements like Planned Value (PV),

Earned Value (EV), Schedule Performance Index (SPI) and Cost-Performance-Index

(CPI) to name just a few. These scrutinized indices are all hallmarks of a Rational-Goal

Emphasis towards Organizational Effectiveness as outlined by (Daft & Armstrong, 2012).

This goal orientation is combined with a Low-Cost Leadership Strategy (Daft &

Armstrong, 2012), which emphasizes in the case of construction, the need to delivery a

contract at the lowest possible cost. In public bidding, the lowest price is often awarded

the contract, which creates a high-pressure environment for project teams that could

encourage strategic misrepresentation at the bidding stage to secure the contract and

during project delivery when it becomes evident that there was not enough money in the

awarded budget to build the project at the as-sold margin.

Many construction companies that compete globally describe themselves as matrix

organizations, however, upon inspection, in most cases this is an oversimplification of

their reality. As construction companies began to extend themselves globally, it appears

that many simply adopted the seemingly mature organizational structures being used by


29

the manufacturing and service industries. In theory, this might have worked reasonably

well, if the construction industry shared a majority of the same characteristics as these

two industries, however, the actual characteristics of the construction industry have

numerous significant differences. Individual companies should have analyzed their

differences and incorporated them into the final design for more industry specific

structural fit. Some companies may have done as suggested, but empirical confirmation

of this and the type of analyses that these companies did I beyond the scope of this

paper.

The literature suggests, “Project teams tend to be the strongest horizontal linkage

mechanism.”(Daft & Armstrong, 2012, pg.93), however, the decentralized and

entrepreneurial structure of a megaproject is a stark exception to this definition.

Megaprojects tend to be “islands unto themselves” and quite often have chronic difficulty

bridging the horizontal and vertical linkages to the corporate level. The project

management team takes a protectionist, and at times adversarial stance against internal

and external stakeholders. This behavior could also possibly contribute to strategic

misrepresentation due to misalignment with company objectives.

Project Structure – “Fiefdoms” Projects are temporary in nature and have been referred to as Temporary Multi-

Organizations (TMOs) as cited by (Fellows & Liu, 2012). As temporary organizations

they do not generally benefit from the same efficiencies that a more static organization


30

can achieve over longer time periods like in the manufacturing industry. Projects can be

structured in numerous ways to support commercial decisions like risk diversification

through the use of subcontracting strategies for example, there is rarely ever a one-size-

fits-all solution.

A project’s structure is quite often significantly influenced by its legal structure. The three

dominant forms of legal structure for projects are Wholly Owned, Consortiums, and Joint

Ventures, each with its own particular advantages and disadvantages. The choice of

which form of structure to use can be a contractual one imposed by the project owner, or

it can be driven by the a company’s decision to diversify the projects risk by taking on

partners with greater expertise in delivering certain types of work within the over-all

scope of the project.

Organizationally, the structural benefits of using a wholly owned entity can possibly

accrue from the already established standardized procedures and systems, but quite

often these global standards have inadequate flexibility and only end up constraining

project delivery. In a joint venture or consortia arrangement where there is consent

required by multiple partners on operating procedures, there is an opportunity for the

constraints inherent in all of the partner’s parent organizations, to be “designed out”

however, this is an aspect of most agreements that are not adequately, if ever,

discussed, so this opportunity is often missed and the project’s delivery is hindered by

excessive bureaucracy.


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Wholly Owned projects tend to have a “cookie cutter” structure that is simply an

organizational template that is used time and time again, without any analysis of the

unique needs of the projects.

The Consortium or Construction Joint Venture (CJV) structures are forms of Strategic

Alliance that have almost become the global standard adopted for the megaprojects.

There are still examples of megaprojects being executed by wholly owned entities, but

with large subcontracts issued to companies that could just as easily have been joint-

venture partners. Sometimes partnering negotiations are not successful and what started

as a proposed joint-venture arrangement reverts to a subcontract opportunity for the

minority partner.

According to (Lin & Ho, 2013, pg.304) “In the construction industry, CJVs have become

one of the major organizational forms utilized in large-scale or international projects”.

CJVs are governed by Management Committees with representatives from all of the

partners. The Committee Agreement should be a robust document, but the are often

poorly written and lacking in adequate commercial definition to allow for effective day-to-

day administration without having to bring items to the committee for discussion,

agreement, and decision, which only serves to delay the project management team’s

ability to efficiently manage. A greater time commitment up-front in the development of a

robust agreement, with input from project-level stakeholders would generate significant

efficiency gains during project delivery.


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To further understand the impact of governance structure on CJVs, Lin & Ho examine

two different types of CJVs, the Jointly Managed JV (JMJ) and the Separately Managed

JV (SMJ) to determine if there is any performance difference between the two. They

conclude that “…it is verified that a JMJ performs slightly better than an SMJ…”(Lin &

Ho, 2013, pg.310). Their study used owner/client satisfaction as the basis for assessing

performance, and there was no discrete examination of the behavioral tendencies of

either structure.

Trend Modeling A project’s hierarchical structure extends downward to multiple tiers of contractors,

subcontractors, sub-subcontractors, and sometimes, even farther. Cheng, Su, and You

propose a framework for the optimization of this hierarchy using a technique known as

trend modeling. Trend modeling in an exhaustive exercise involving a seven step

analysis, that requires the mapping the project’s work breakdown structure (WBS), the

development of an Activity Relationship Matrix (ARM) and a Communication Resistance

Matrix (CRM), stakeholder survey’s to assign values to relationships identified by

analyzing the schedule logic of relationships with the WBS to generate data that is

placed into a mathematical calculation that predicts the optimal structuring of a given

organization by identifying path of least resistance for communication between

stakeholders on the project. This author agrees with one of their introductory statements

that, “The key element for the smooth execution of a huge construction project is a

suitable project organizational structure, which will improve the efficiency of

communication between different groups of project members.”


33

This proposed model was developed for use with Construction Management (CM)

contracts and would require an unwieldy amount of effort to apply to self-perform

contracts that have larger WBS structures and more stakeholders. The current model

was also developed assuming static conditions, which is significant barrier to adoption

given the highly volatile nature of megaproject organizations. Future variations of this

model may better address volatility and uncertainty, at which time it may be worthy of

reconsideration.

Organizational Fragmentation – “Silos” The sheer size and technical complexity of megaprojects require a range of specialists;

Project Managers, Construction Managers; Designers, Architects, Engineers of various

disciplines, Technicians in specialty software applications like Computer Assisted

Drafting (CAD) CAD, Building Information Modeling (BIM), and project scheduling

Primavera Version 6 (P6), additionally, there are a wide range of back-office

administration professionals that handle the Project Accounting, Cost Control, Payroll,

Accounts Payable (AP), Accounts Receivable (AR) Information Technology (IT), Human

Resources (HR), Industrial Relations (IR) Procurement , and general office facilities and

administration.

The growing demands on the construction industry to deliver larger and larger, more

complex and ambitious projects has been one of the most significant drivers of

organizational fragmentation. One article observed, “Specialization has caused


34

differentiation and led to increasingly complex organizational structures…” (Fellows &

Liu, 2012, pg.654). The more complex an organization, the slower it tends to move,

which is a dichotomy for the construction industry, because, construction projects must

be adaptive and fast moving to address changing conditions in the field operations,

procurement activities, the logistics of local geography, differing cultures if globally

located, design changes, owner requests, labor unrest, and the list goes on.

Organizational fragmentation presents in two ways, generally horizontal and vertical.

“The construction industry exhibits extensive fragmentation along both dimensions and,

especially for major projects.” (Fellows & Liu, 2012, pg.655). One of the goals of this

paper is to identify ways to reduce or overcome both of these forms of fragmentation.

Issue 2 – “Known Unknowns”

Reporting Complexity – “Lost in translation” The reporting demands on a project can be a barrier to project delivery. Reports are

produced to provide managers and executives with information for decision-making. The

format and granularity of the reporting is driven by the recipient stakeholders’ needs and

the complexity of the decision being made. In their paper, which explores the affect of

project reporting requirements on complexity, Antonaids, Edum-Fotwe, and Thorpe

declare, “ When structuring the project organization, consideration should be given to the

individual parties that contribute to the project, the agents that equally contribute to the

execution of the project.” (Antonaids, Edum-Fotwe, and Thorpe, 2006,pg.129).


35

Project teams spend a significant amount of time generating reports for various

stakeholders. Generally, the project team’s reporting obligations arise from the need to

provide information to the different internal and external stakeholders, and can be

classified into four categories, Management/Execution Reporting, Corporate/Regulatory

Reporting, Contractual/Client Reporting, and Ad-Hoc Reporting that spawns from the

atypical requests from the three previous categories. Ideally, a particular report would

satisfy all three categories, but most often, three separate reports are produced in

different formats and to varying levels of granularity, at different times. This triple-

redundant exercise is a constant “hidden” drag on project resources that decreases

efficiency. In the industry there is a term, “secondary costs”, which refers to costs that

are known to be incurred, but are difficult to track and quantify. These “secondary costs”

are normally incurred as additional scope is added to the existing project. The

“secondary costs” incurred by a project team as a result of an overly complex reporting

structure manifests as project personnel spending significant amounts of unbudgeted

time preparing reports. This kind of administrative drag on project resources arguably

erodes the bottom line fractionally every instance.

Poor stakeholder communication can increase the magnitude of secondary costs if the

schedule of routine reports is not known or clearly communicated, however the most

common communication breakdown is the lead-time given projects for ad-hoc report or

information requests, which resulting the proverbial “fire-drill”. Inadequate lead time

results the quality of the reporting eroding because of insufficient time and the disruption

of previously scheduled delivery activities on the project doesn’t just impact the


36

functional department that was the recipient of the request, but often numerous other

cross-functional project stakeholders, which can see the secondary costs quickly

cascade and compound across the project.

This author’s observation has been that such ad-hoc requests, primarily from internal

corporate stakeholders show no understanding or consideration for the project’s

commitments, normally evidenced by unrealistic timelines and “required” levels of detail.

Even more frustrating is that the request was often known well before the actual request

was received by the project, robbing the project of valuable lead-time it could have used

to mitigate the secondary costs that would be incurred.

The communication transaction that takes place via the reporting process is subject to

misinterpretation. Antonaids, Edum-Fotwe, and Thorpe (2006) identify three factors that

can influence the quality of the information communicated via reporting. Either the

message content is not understood by the receiver, the message is in the wrong

“language”, or the format of the information is not easily understood.

The first factor, the message/report content is not understood by the receiver, speaks to

the straightforward clarity of the communication itself. Secondly, the message is in the

wrong language, a classic industry example is the operational or field explanations for

forecast variances provided by project execution personnel, who use different terms and

have a different perspective than the back-office accountant that requires these

explanations for financial reporting purposes. I have observed this type of


37

miscommunication trigger many altercations that could have been avoided if the

organization had a more common language.

Third, the medium, or format of the information, charts, spreadsheets, etc. are not

understood or that require some form of conversion to answer the inquiry. Quite often

spreadsheets and charts built for presentation make sense to the originator of the

information, but the information ends up being lost-in-translation, so it is important to

consider the audience or end-user of the information and construct a format that can be

easily understood by all participant stakeholders.

Strategic Misrepresentation – “Deception or Not” A particular area of attention currently is the inaccuracy of construction forecasts.

Megaproject in particular have a track record of over-running their original cost

estimates. This author has observed three distinctive reasons that begin to explain this

phenomenon. First, the project management team is genuinely unaware of an

impending problem due because of a lack of experience or competence, Second, the

project management team has an excellent understanding of their forecast, but their

forecast is then optimistically adjusted, by either themselves, or more often, by

management at the next highest level. The basis for their optimism often involves using

rationale like “its too early to adjust the forecast, we are only 10% complete” or “ we can’t

let the project team give up margin so easily”. The duality of this behavior is such that if

the project improves, no one outside the project is the wiser and the project team’s

performance is perceived positively. However, if the project deteriorates further to the


38

point where it must be written down, then the project team’s performance perceived

negatively. These practices also raise transparency concerns that can result in improper

financial reporting. Third, the available data that the project management team has is

inherently inaccurate, which results in a poor forecast.

This behavior is an industry example of strategic misrepresentation. There have been

numerous articles written on the subject and there are different perspectives as to the

cause, but there are two distinctive positions, plainly put, people are either engaging in

willful deception, exacerbated to some extent by bias induced delusion or the

management of megaprojects is of such incredible complexity that the best that can be

expected is an ambiguous, inaccurate estimation of the end result.

One deception-orientated position suggests, “Undoubtedly, substantial resources have

been spent over several decades on improving data and forecasting models.

Nevertheless, this has had no effect on the accuracy of forecasts. This indicates that

something other than poor data and models is at play in generating inaccurate

forecasts.” (Flyvbjerg, 2008, pg.6).

There are numerous biases that have been well studied that affect project managers,

forecasters and other key members of the construction team. Among the most significant

that affect project delivery as indicted by (Flyvbjerg, Garbuio, & Lovallo, 2009), are the

Planning Fallacy, and Anchoring and Adjustment.


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The Planning Fallacy has been described as the tendency to underestimate task-

completion times and costs, even knowing that similar tasks have run late or gone over

budget (Flyvbjerg, Garbuio, & Lovallo, 2009, pg.174). Anchoring and Adjustment is the

tendency of forecasters to keep their new estimates near their original estimate, which

commonly in the case of construction is the budgetary number. This anchoring to the

budgetary number results in un-objective re-estimates or adjustment, which can lead to

“optimistic forecasts” (Flyvbjerg, Garbuio, & Lovallo, 2009, pg.174).

In sympathetic opposition to the deception and delusion position championed by

Flyvbjerg et al. (2009), the team of van Marrewijk, A., Clegg, S. R., Pitsis, T. S., &

Veenswijk, M., (2008, pg.598) “contend that instead of seeing the budget overruns,

inflated forecasts, costs and public benefit as occurring by malevolent design, we should

seem them as the result of normal practice of professionals operating with limited

knowledge, but influenced dramatically by a range of ambiguous and uncertain external

and internal forces.” (van Marrewijk, A., Clegg, S. R., Pitsis, T. S., & Veenswijk, M.,

2008, pg.599)

However, what is not yet clear, is if there is a structural link associated with these

behaviors, one that encourages strategic misrepresentation. External influences on

project decision making can also been seen by examining various combinations of


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Principal-Agent relationships and types of Strategic Deception as described by

(Flyvbjerg et al., 2009).

Asymmetric Stakeholder Information –“You don’t know, what you don’t know” Asymmetric information arises whenever a stakeholder involved in a collaborative

transaction or interaction with one or more additional stakeholders has more information

pertaining to the interaction than the other stakeholders. Not all stakeholders are

incentivized the same, even when they are involved in a formalized collaboration like a

consortium or joint venture, so the potential for an asymmetric situation to develop is

almost assured. A particular stakeholder may withhold information from an interaction

due to self-interest. This withholding behavior creates a lack of transparency, which will

affect the quality of any decision arising from the interaction, ultimately negatively

affecting the outcome the collaborative effort.

In an environment were asymmetric information exists, the difference in outcome

between an interaction made with all the known stakeholder information and made

without all stakeholder information resulting from an asymmetric scenario is an agency

cost referred to as a “loss of welfare”. (Schieg, 2008,pg.49).

It is this author’s experience that project organizations exist in a constant state of

asymmetric information. There are many different factors that encourage this inefficient

state, but using an Occam’s Razor approach, the simplest answer being the most likely,

is that stakeholder incentivization is misaligned. There is a constant adversarial tension


41

between external stakeholders, and internal stakeholders, predominately those that

make up the extended project management team i.e. shared service organizations, and

corporate departments. This behavior encourages opacity and contributes to the

perception that information reported by the project team may be, to some degree,

“managed” or “filtered”, and often in actuality it is. This “management of expectations” as

observed by the author on numerous projects is driven mainly by organizational factors

like employee incentivization, poor inter-organizational relationships, and lack of

accountability.

This kind of environment generates inaccuracies in the information that multiple

stakeholders rely on for decision-making. These inaccuracies can lead to economic

disadvantages for stakeholders, the inefficient use of resources, and potentially

increased agency costs like loss of welfare. (Schieg, 2008).

The consequences of negative outcomes resulting from the poor quality of information

can be clearly identified and quantified. But without a culture of accountability, the

exercise is pointless. The improvement or eradication of this asymmetry in stakeholder

information should lead to an increase in organizational effectiveness.

Contested Information – “Everyone has an opinion” Related to misrepresentation, contested information views decision-making through the

consideration of two main factors, the level of certainty of the information being used by


42

stakeholders and the normative standards of the same stakeholders when making a

decision. Similar to the numerous articles written by Flyvbjerg, the authors, De Bruijn and

Leijten, in their article Megaprojects and Contested Information (2007), present their

research from the view of policy-making and in their introduction insist that “Information

is crucial to good decision-making in large infrastructure projects” (De Bruijn and Leijten,

2007, pg.49).

The two main factors of contested information are viewed together when identifying the

contested nature of a particular problem requiring a decision. An interpretation of De

Bruijn and Leijten's “Four types of policy problems” table (De Bruijn and Leijten, 2007,

pg.52) appears in Figure 1 in a format that can be readily applied to identifying the

contested nature of a particular problem or decision.

A problem is considered Tameable when the level of certainty of information is high and

there is consensus on the normative standards used by all applicable stakeholders. An

example of high certainty data would be a proposed technical design supported by all

the applicable data and high consensus on standards would be the contractual

specifications to which all stakeholders would use as a determinant of the technical

design’s conformance or adequacy. Decisions that use highly certain information and

have low consensus are referred to as ethical problems because even though the facts

can be measured objectively; there is often much debate with no consensus amongst

stakeholders (De Bruijn and Leijten, 2007). The opposite of untameable ethical

problems are untameable scientific problems where consensus among stakeholders is

high, but there is low certainty of knowledge available. This type of problem is a common


43

one is construction where many possible decisions or courses of actions are developed

or planned, but require information or data confirmation in terms of finalized design,

updated schedule analysis, quantity takeoffs, or other data to attain the high level of

certainty required to move the problem into the realm of objective, which in most cases

constitutes the best quality decision.

The most difficult problems are those that lay in the lower leftmost quadrant, untameable

political problems. In situations where information certainty is low, most often

characterized by ambiguity or conflicting multiple sources, and there is as also low

consensus, normally due to contractual ambiguity, the different stakeholder views will be

different and as such any decision will require significant influence by one stakeholder or

several, thus the political moniker.

The concept however, seems equally applicable to the delivery phase of megaprojects

as well. Given the highly technical nature of megaproject construction, much of the data

tends to be of High Certainty, however, the normative standards of stakeholders, defined

as Goals, Values, and Principles (De Bruijn and Leijten, 2007, pg.52), tends to lack

Consensus.


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Figure 1.

The contested nature of information highlights the very real need for organizations to

consider what (De Bruijn and Leijten, 2007) refer to as a process design. By agreeing in

advance to a set of “rules of the game” (De Bruijn and Leijten, 2007, pg.64) participants

in a particular decision can adopt standards for both knowledge and consensus that can

facilitate timely decisions of an acceptable quality. To achieve the best organizational

impact, the process design requires a decision matrix or plan that establishes the rules

of the game for some or all decision points. There is often some process design

established between external stakeholders like the project owner and joint-

venture/consortia partners, but there is seldom-adequate definition established internally

between the project team and the extended project team.


45

Agency Theory Individual Projects have a direct External Principal-Agent relationship with their

Contractual Clients/Owners; however, the Enterprise-Project relationship can be viewed

as an Internal Principal-Agent relationship. Agency Theory focuses on “the so-called

agency problem that occurs when cooperating parties have different goals and division

of labour” (Eisenhardt, 1989, pg.57).

With the construction industry’s highly fragmented nature, each of these fragments has

become its own functional group or department that must all work with each other

cooperatively to achieve the same goal. At the project level this is presumably the

successful delivery of a given project, as defined by both the contract and the

organizations internal goals for safety, quality, profit, employee turnover, etc.

However, organizational structure can impede cooperation, particularly when resources

required by the project are not dedicated to the project. When resources are not project

specific their goals tend to not be aligned with the project they are supporting, but remain

within their respective discipline group or department. This can create a situation where

there is internal competition for resources and task prioritization where the ability to hold

these shared resources adequately accountability can become difficult or functionally

impossible, undermining the project team’s task efficiency related to the resources in

question.


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Issue 3 – “This is an engineering company”

As the industry’s competitiveness increases, companies will begin to run out of

processes to “improve”, overhead to “reduce”, and training budgets to cut. These

improvements and reductions seldom generate long-term savings, but can be used

effectively in the short-term by companies to manage earnings expectations.

One of best remaining options for improvement lies within the human resources that the

company employs. A company’s culture does not lie exclusively within the realm of

Human Capital Management (HCM) per se, but strong HCM can play a role in evolving a

strong organizational culture; which can have a powerful impact on the company’s

performance. (Daft & Armstrong, 2012, pg.364).

Organizational Theory - “Cultural Levels” According to Daft & Armstrong an organization’s culture can be viewed in two distinct

parts. The first distinct part is observable behaviors like the way people dress and act,

there are slogans, stories, and even physical settings that members share. These

observable behaviors create a veneer or façade of cultural continuity across Divisions,

Departments, and Projects, but the second distinct part of organizational culture, the

underlying values, assumptions, beliefs, and thought process, are a company’s true

culture (Daft & Armstrong, 2012, pg.356).

The underlying culture manifests as distinctive subcultures, which originate from the

distinctiveness of the Divisions, Departments, and Projects themselves.


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Another view of the composition of organizational culture cited by (Cheung, Wong & Wu,

2011, pg.34) comes from (Schein, 2004), which is a three-level framework rather than

two-level, that emphasis’s Artifacts as the top observable behavior or explicit expression

of an organizations culture, followed by Espoused Beliefs and finishing with Underlying

Assumptions, aligning with Daft’s Underlying Values.

Cheung, Wong & Wu’s study was construction industry specific and reviewed several

models of organizational behavior to compile a list of cultural Artifacts, which he then

compiled into a survey and solicited responses from the Honk Kong construction market.

The data received was analyzed using principal component factor analysis and the

results were then grouped into 7 Organizational Culture Factors that he proposes affects

the organizational culture of construction organizations. The 7 Organizational Culture

Factors proposed, in order of significance were:

1. Goal settings and accomplishments;

2. Team Orientation;

3. Coordination and integration;

4. Performance emphasis;

5. Innovation orientation;

6. Member’s participation; and

7. Reward orientation.


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The results of the research and quantitative analysis suggest that the proposed

Organizational Culture Factors could be of use to construction organizations in their

analysis of current organizational structures and future organizational designs. Cheung,

Wong & Wu in their concluding remarks state that the proposed structure can be used as

a guide for organizational cultural development and where appropriate the structure can

be modified to suit the specific particularities of an organization. (Cheung, Wong & Wu,

2011, pg.42).

Organizational Reality –“Boots on the ground” In their paper Managing public-private megaprojects: Paradoxes, complexity, and project

design, van Marrewijk et al., examined two modern megaprojects with different

organizational structures and resulting cultural environments that had significant effects

on how the projects were delivered. In the book Projects as arenas for renewal and

learning processes, edited by Lundin, R.A. and C. Midler, Mats Engwall asserts that

“Megaprojects are characterized by a culture that is ambiguous; it has fuzzy limits and

embodies a duality between objects and actors who are willing the projects into being”.

(as cited by van Marrewijk, A., Clegg, S. R., Pitsis, T. S., & Veenswijk, M., 2008, pg.592).

The data collected for their paper was gathered by observation and interviews of actual

project stakeholders during execution of the projects over periods ranging from 12 -18

months. They concluded, “That there are fundamental project design implications to be

drawn from the two cases.” (van Marrewijk et al, 2008, pg.598).


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Issue 4 – “We are here to make money”

Successful Delivery –“What does success look like?” Based on the literature reviewed so far, identifying what constitutes Successful Project

Delivery is a question with several moving parts, with many of those parts being related

to each particular company culture. There are some proposed “industry standards”

however, they do not seem to be universally supported or adopted in practice. One view

of success comes from the perspective of the construction company or “Contractor” and

the opposing view of the client or “Owner”.

From the Contractor’s perspective, most Project Directors would consider being

completed on time and on budget, a successful delivery. Being on time mitigates the

potential for liquidated damages or other penalties for late completion; conversely early

completion provides for the realization of additional overhead savings and possibly an

early completion bonus. At their core, construction projects remain for the most part,

solely incentivized by profit.

But is this the best incentive? Should megaprojects have a more sophisticated

measuring stick other than just “making money”? J. Richard Capka in his article

Megaprojects – They Are a Different Breed, concluded among other things “A successful

project needs to leave behind a sense of public pride in both the accomplishment and

the manner of accomplishment.” (Capka, 2004, pg.9). This to a large degree is quite a

different mindset from the average construction employee’s mentality. Could a particular

form of project structure encourage this kind of mindset?


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From an Owner perspective; there are many other variables to consider in evaluating a

successful project, such as first nations obligations, environmental considerations,

community preferences, and project financing. One key area of research is the

evaluation of Alternative Contracting Models (ACMs) like the Public Private Partnership

(PPP) “…and its variants such as build-transfer operate (BOT), design-build-finance-

operate (DBFO), build-own-operate (BOO), design-build-operate-maintain (DBOM), and

several others (Miller 2000; Zhang and Kumaraswamy 2001) as cited by (Abdel Aziz,

2007, pg.918).

The Contract structure may also have influence on the Project Structure discussed

earlier in the chapter, so there is a possible “knock-on” effect that may flow all the way

down to project execution in the field; for example, mega-scale PPP projects that require

public financing and contain lengthy Operations & Maintenance (O&M) scope are most

often undertaken by Consortia and/or Joint Ventures.

Adverse Selection –“What lies beneath?” As discussed earlier in the chapter, the relationship between Corporate and the Project

can be viewed with in the context of a Principal – Agent relationship. Within large

companies there is really a hierarchical chain of Principal – Agent relationships

extending downward from the uppermost corporate level down throughout the

organization to the lowest tiers of the project organization as depicted in Figure 2. This

series of descending internal Principal-Agent relationships, where Agent becomes


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Principal creates numerous instances of the agency problem. The excessive amount of

bureaucracy that is prevalent in many large construction organizations has presumably

evolved over time in response to this situation as a way for the organization to minimize

the potential impact of adverse selection, defined as “the misrepresentation of ability by

the Agent” (Eisenhardt, 1989, pg.57).

Figure 2

Ability in construction terms can mean the achievement of a contractual milestone

schedule dates, the delivery of procured items, completion of design, testing &

commissioning or a forecasted amount of profit. In order to minimize adverse selection,

systems and controls are implemented “investing in information systems such as

budgeting systems, reporting procedures, boards of directors, and additional layers of

management.” (Eisenhardt, 1989, pg.57). All to ascertain what lies beneath the veneer of

the agent/project’s represented position.

Subcontractor Project Agent Sub-subcontractor Principal

Project Business Unit Agent Subcontractor Principal

Business Unit Division Agent Project Principal

Division Corporate Agent Business Unit Principal

Corporate Division Principal


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The Big Picture This researcher’s review of the literature has revealed a diverse range of concepts,

theories, frameworks, and notions about the structuring of construction organizations.

There was consensus throughout the literature that structure does indeed affect project

delivery.

Within he context of Contingency Theory the literature reviewed served to strengthen the

position that the mechanistic structure of construction organizations is a main source of

the structural deficiencies that arise. Contending with the VUCA environment requires an

organic solution that prioritizes adaptability and empowers the project team to make

decisions quickly in response to the constantly changing conditions that are encountered

in the field.

Chapter IV. RESEARCH DESIGN AND DATA COLLECTION

Research Design Review of Industry Reports The global construction industry is a large one and there are numerous organizations

that produce regular industry analysis of various topics affecting the industry. These

include, technical publications, advisory publications, and non-governmental

publications. Each of these categories is defined and outlined below.


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Industry Publications

An iconic industry publication for construction professionals, Engineering News Record

(ENR), owned by McGraw Hill Construction, produces several annual reports ranking top

contractors, designers, and relevant market data. For subscribers the website offers

additional resources like a searchable archive of its publications, and whitepapers

spanning a variety of topics.

Searching this resource was useful as an initial survey tool to determine if organizational

structure was a topic of discussion in the current construction industry zeitgeist. There

were numerous articles about the growing popularity of mega-scale projects, particularly

of the PPP variety in the Transportation sector, however, there no discrete articles or

publications found that expressly discussed how these projects should be

organizationally structured. This represents to the author an opportunity to contribute to

an as yet undefined field that has the potential to significantly impact the successful

delivery of mega-scale construction projects.

Advisory

Professional services firms have responded to a variety of industry needs, expanding

beyond their initial accounting offerings into numerous other consultancy service fields

that have become known as advisory. These infrastructure practices are now present in

many of the biggest firms and most offer annual reports on the industry and several

specialty reports on particular trends of interest. Reports from several of the most


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prominent firms, namely KPMG, Deloitte, Price Waterhouse Coopers (PwC) and

McKinsey were reviewed.

Lesser-known reports from private consultancy’s like the FMI’s Global Construction

Survey offer a more detailed perspective of many of the same issues and attempt to

offer more tangible advice as to what can be done in response.

Large capital projects, particularly infrastructure projects are often tied in some respects

to the prevailing political climate. Projects are conceived, researched, shelved, revived,

and initiated as different governments move into and out of office. The government as

owner, combined with an increasing regulatory environment and these projects

represent large revenue-generating opportunities for professional service firms. These

firms have amassed a significant amount of global experience with a large

representation of clients and geographies, so their advisory reports contain a diverse

perspective grounded in real world challenges and lesson’s learned. A review of

numerous reports showed that there is discussion related to project team composition,

systems, reporting, process and procedures; many issues that are related to and

influenced by organizational structure, however, like with ENR, in the publications

reviewed there was no express discussion pertaining to the design of a projects

organizational structure.


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Non-Governmental Agencies (NGOs)

The impact construction companies, particularly, those that engage in mega-scale

projects significantly affect the environment, communities, and economies were they are

built. For this reason they attract scrutiny from a wide range of NGOs. Of particular

interest for this study is Transparency International’s Global Corruption Report 2005,

which was a Special Focus edition on Corruption in Construction and Post-Conflict

Reconstruction.

NGOs seem to often have a perspective that is different from the prevailing industry

perspective. As the role of industry NGOs continues to evolve, they are starting to have

more and more influence on policy making, particularly regulatory policy, that has the

potential to impact how market participants operate their businesses.

Review of Relevant Literature After the main organizational structures have been identified, a literature review will be

used to identify the particular pros and cons of each chosen structure to again infer any

potential constraints or promoters that may transfer downstream to the projects resulting

from the inferred enterprise structure.


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Data Collection

Primary Material The research for this paper consisted primarily of keyword on-line searches using

Google, Google Scholar and the Athabasca University Online Library to build an initial

list of articles, videos, and industry reports to be reviewed. Articles identified on Google

and Google Scholar were then searched in the AU Library and if found, exported to

Refworks for subsequent citation and if not found added to Refworks manually.

Secondary Material During the literature review of the primary articles, interesting and seemingly relevant

cited material and books were noted and subsequently searched using the method

identified in previous section. These secondary materials where then screened for

relevance based on the initial findings from the primary materials and only the material

that was most strongly associated with the main thrust of the paper were chosen for

review.

The different sources of information reviewed were to some degree hierarchical in nature

in a descending order. The Industry and NGO material was general in nature, and

sometimes referenced Advisory material, which tended to further define and

recommended specific challenges, problems, processes, and systems that should be

addressed to improve project delivery, however, there was minimal discussion about

actionable steps and real world implementation. Reviewing related literature, there was

considerable material on project management, culture, bureaucracy, but very little in the

context of construction and especially in the context of construction megaprojects, but


57

there was some material available, and for the most part it was heavy external

observations and theory that often proves different in reality. All of the material reviewed

did however, trend in a meaningful direction and clusters of information were discerned

that were applicable to the issues in question.

Chapter V. ANALYSIS

Analytical Perspective

This researcher was introduced to the idea that “if we cannot express what something is

exactly, we can say something about what it is not – the indirect rather than the direct

expression” (Taleb, 2012, pg.301). This researcher has developed a perspective to look

for the “negative space”, the “gap” or “missing” pieces of information when investigating

problem. Responses to inquiry can be verbal or written, and take the form of research or

provided data, whatever the format, the adequacy of the answer, or its explanatory

power, can quickly be ascertained. It is this lack of explanatory power that often reveals

the “negative space” that this researcher focuses on. By defining and understanding the

missing piece can lead to the definitive identification of all factors that are affecting any

issue and then an effective remediation can be planned and executed.

During the literature review, the concept of structural deficiency in organizations, seemed

to some share some aspects of this researchers “negative space” perspective. Using

these observable symptoms as a lens through which to search for the negative spaces

within the identified issues seemed plausible. The negative spaces identified will be


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categorized using the relevant concepts, theories, frameworks, and notions from the

literature review as a means of associating information for analysis.

The reviewed literature strongly suggests that the choice of organizational structure is an

important one. Much of the literature reviewed pertaining to organizational structure was

focused at the enterprise level and did not extend below the business unit or project

structure, however, the literature that did look at project-level organizations, stressed the

temporary nature of these organizations and the challenges dealing with the

development of a high performance culture over such a short timeline. On large mega-

scale projects executed using joint-ventures or consortia structures where multiple

companies come together to execute a particular scope of work, each with their own way

of doing things, designing a temporary organizational structure that can tame all of the

different variables at play is no small task. The results of this analysis should provide an

understanding of where to begin.

Structural Deficiency

Daft and Armstrong (2012) discuss four factors or symptoms of structural deficiency that

can be observed in organizations.

Symptom One – Decision-making is delayed or lacking in quality Organizations need to make timely decisions to capitalize on opportunities and mitigate

risks. In addition to timeliness, decisions should be made with the best available

information whenever possible. Organizations that experience excessive turnaround time


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in their decision making process are experiencing deficiency. If decisions being made

within and organization do not adequately consider all stakeholders, the resulting

decision will be lacking in quality i.e. it will not have been the best possible decision. A

common example of this is when companies publish policies written from only one

stakeholder’s perspective without adequate consideration as to the impact, applicability,

or execution of the new policy across the organization. This observable, one-sided

perspective is a clear signal that there is a greater underlying structural problem.

Symptom Two – Inadequate response to change Organizations need to respond to environmental factors in novel ways. Status quo

responses to shifting market forces, competitor strategies, talent shortages, etc. will

result in losses of market share, the capitulation of talent, and organizational atrophy will

result. Organizations that are unwilling to change or adapt their internal processes,

policies, and structures in response to internal business requirements are exhibiting this

symptom of structural deficiency.

Symptom Three –A decline in employee performance and goal achievement. Effective, high-performing organizations invest in the management and development of

their employees. Like any other capital investment in new production technology,

equipment, or design software, human capital requires not just an investment of money,

but more critically, time. Organizations with poor HCM practices, whose supervisors,

managers, and leaders, do not provide feedback, clear objectives, or hold people

adequately accountable, cannot expect high-preforming teams. Additionally, company’s

need to provide their employees with career opportunities, engage in succession


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planning, and invest in leadership development. High performing employees expect this

kind of HCM from their employers and will become quickly frustrated and disengaged by

the absence of what should now be Standard Operating Procedure (SOP) for any

sophisticated company. A solid HCM program can contribute to the development of high

performing teams and individuals.

Symptom Four – Excessive inter-organizational conflict To varying degrees within organizations there is conflict between internal stakeholders.

Normally observable as “friction” between departments, the frequency of the conflicts

and the intensity of the exchanges can be an indicator of an existing problem and its

severity. Some conflict can be considered functional in terms of generating robust

discussion via the inclusion of multiple stakeholder requirements and viewpoints,

however, when conflict becomes a regular occurrence, unproductive, adversarial and

disrespectful; there is a problem that needs to be addressed.

These symptoms of structural deficiency are readily observable within organizations and

existing within the consciousness of the company’s underlying culture and in daily

conversations between employees. The issues that have been observed and discussed

in earlier chapters can be framed within the context of one or more symptoms of

structural deficiency. The deficiencies that arise from particular issues can be explained

by theories in the reviewed literature. This three-way association of Issue, Symptoms,

and contributing Literature creates a matrix of influencing factors that will be used to

develop targeted recommendations.


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Issue 1 - Excessive Bureaucracy The structural deficiencies that excessive bureaucracy can cause in an organization can

be seen in structural deficiency matrix in Table 1. These structural deficiencies are

easily observable by the speed at which decisions are made, the amount of internal

conflict there is between different functions and departments, and the speed at which the

organization responds to changing internal and external conditions.

Table 1

Issue Symptomatic Output(s) Contributing Literature

"Corporate" – Excessive Bureaucracy

Poor Decision Making Enterprise Structure Project Structure Reporting Complexity

Heightened Internal Conflict Strategic Misrepresentation

Poor Response to Change Fragmentation

Culture

To some extent it seems that excessive bureaucracy is simply accepted as something

inherent in large complex organizations. Some organizations minimize the amount of

bureaucracy through continuous improvement initiatives, but given the temporary nature

of construction projects, the window for analysis and improvement tends to be too short,

resulting in lingering bureaucratic inefficiencies that negatively affect project delivery.

Given the multiple hierarchies within the construction enterprise, bureaucracy can be

added at every level creating a cumulative inefficiency that results in negative synergy or

discord throughout the organization.


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Excessive Bureaucracy tends to encourage reporting complexity. As the enterprise

struggles with slow decisions, poor responsiveness, and unproductive internal

relationships it reacts by attempting to establish more control, which generates more

reporting. Very quickly the situation can become a reporting for the sake of reporting

scenario, which decreases organizational efficiency and encourages strategic

misrepresentation that leads to poor quality decisions that leads to bad internal

relationships and a dysfunctional cycle is created.

The amount of bureaucracy that exists in an organization appears to have a positive

relationship to the amount of fragmentation within it. The more silos, the slower an

organization responds and decisions are delayed, increasing frustration and heightening

conflict among inter-organizational stakeholders.

A company’s advertised core culture can often be as much about brand management as

it is about truly understanding what underlying cultural factors in an organization create

or promote competitive advantage. This researcher has observed that the advertised

culture depicted on corporate websites and in annual reports is seldom the culture that

actually exists in the field. As someone moves away from corporate headquarters,

culture begins to morph. The Divisions and Business Units within large corporations

have distinctly different cultures because they have adapted and evolved over time in

response to their particular markets’ stimuli. An organization's advertised or baseline

culture continues to mutate further still as you move continue to move outwards and

downward to the project level. The projects, because of their temporary nature, spawn


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distinctly different cultures with each and every project instance, particularly mega-scale

projects that involve Consortium and Joint Venture partners. In these cases there isn’t

just one strain of one particular company’s culture competing for dominance over the

other, it is a much more chaotic environment with numerous entirely different cultures,

confined together, each potentially with numerous strains of its own resulting in a volatile

project culture that may be completely unrecognizable to each of its contributors.

Issue 2 - Lack of Transparency

The structural deficiencies caused by an organizations lack of transparency can be seen

in the structural deficiency matrix in Table 2. This particular issue is rampant within the

industry, particularly at the project level. Decisions are made in ambiguity and

relationships between the project and corporate are adversarial because the information

provided by the project is of poor quality. This situation is not because the information

isn’t available, but because the organization is rife with asymmetric information, strategic

misrepresentation, and contested information.

Table 2


"Known Unknowns" - Lack of Transparency

Poor Decision Making Asymmetric Information Strategic Misrepresentation Contested Information

Heightened Internal Conflict Fragmentation


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Significant Fragmentation within the construction industry has resulted in many different

departments and organizational subunits, each with information at their disposal for

localized decision making, however, when this information is shared with other inter-

organizational stakeholders from the different silos the information can often become

contested, particularly when information requires some form of consensus i.e. project-

level forecasts provided to Corporate can be subject to contestation, misrepresentation,

and filtering and several points. Using the previous simple example, project forecasts

can be “adjusted” at the Business Unit Level, and then again at the Division level before

being reported to Corporate. A tightly integrated information management system can

minimize this deficient behavior by increasing transparency and requiring a sophisticated

review and approval process before changes can be made.

When transparency is low, the information that the corporation relies on can have a large

amount of uncertainty in it. This will result in fluctuating forecasts and poor quality

decisions due to incomplete information.

Issue 3 – Cultural Stratification The structural deficiencies caused by cultural stratification can be seen in the structural

deficiency matrix in Table 3.

Table 3


"Its Engineering Company" – Cultural Stratification

Poor Employee Performance Culture

Heightened Internal Conflict Fragmentation Contested Information

Poor Response to Change Asymmetric Information


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During my first tenure with a construction company I observed a distinct difference

between the engineering or ‘operational’ members of the organization and the members

of the ‘support ‘ staff. Members of the support staff where consistently paid below

market, while members of the operational organization were compensated more in line

with industry guidelines as published by the various professional associations like the

Association of Professional Engineers and Geologists (APEG). Bonuses were awarded

to operational personnel with almost no consideration given to the support staff. There

seemed to be an invisible barrier, comparable to that of the ‘glass ceiling’ experienced by

professional women only this barrier crossed all genders and seemed in some sense

classist. Upon inquiry this clear differentiation in treatment was explained away by

numerous people with the matter-of-fact response “Its an Engineering company”.

As I have moved between construction companies, to a large extent this distinction

remains in various forms. And in every case it breeds resentment between the different

factions. This culturally fed cliquism or elitism is to some degree compounded by

organizational fragmentation, which reduces the productive interaction between

operational and support personnel. The resulting ‘silos’ encourage asymmetric

information and when there is collaboration the information is more often than not,

contested due to a lack of common language. Internal conflict manifests between “silos”,

department versus department, corporate versus project, operations versus finance, etc.

all of which only serve to detract from timely, effective, profitable project delivery.


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Issue 4 - Misaligned Incentives The structural deficiencies that are caused by misaligned incentives can be seen in the

structural deficiency matrix in Table 4. Construction companies, in the traditional,

capitalistic view, exist to earn profits and maximize shareholder value. Organizations that

over-emphasis, or more accurately over-incentivize the profit motive can create a culture

where not all employees are compensated equitably, decision making becomes primarily

a cost-benefit exercise with little consideration for other more expensive qualitative

options that may have may result in greater socio-economic or environmental benefit.

Table 4


"We Are Here to Make Money" - Misaligned Incentives

Poor Employee Performance Culture Poor Decision Making Contested Information

Heightened Internal Conflict Strategic Misrepresentation Asymmetric Information

Misaligned incentives can also have an adverse affect on the accuracy of financial

reporting, particularly, the proper timing of results i.e. the recognition of revenue and

losses in the appropriate reporting period. Management pressure to maintain minimally

fluctuating forecasts combined with optimism bias frequently results in forecast

adjustments being delayed by one or more periods as the contested information used to

produce the forecast is proposed, defended, revised, and finally accepted. The reality is

however, that projects showing negligible activity are those that are most suspect and

should attract greater scrutiny.


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Limitations During the research of this paper it has become clear that this is a very complex topic.

The breadth and depth of literature reviewed illustrated this with many articles focusing

on small pieces of the overall puzzle. Many of the concepts identified within this

research paper, like Agency Theory, Strategic Misrepresentation, and Culture are

mature fields of study unto themselves. As a result this current effort is developed into a

high level overview of some of the more observable organizational factors that affect

project delivery. A more detailed analysis would be more favorably received by such a

quantitative industry like construction; unfortunately such an analysis is beyond the

scope of this paper. Future efforts of smaller scope, using a more quantitative approach

could achieve a level of detail that may satisfy industry holdouts.

Chapter VI. RECOMMENDATIONS Using the structural deficiency matrix to define the relationships between observed

issues, the applicable symptoms of structural deficiency, and the related literature

enabled the development of the following four recommendations that can be

implemented to address these observed issues, alleviate the related symptoms of

structural deficiency and ultimately improve organizational efficiency.

Issue 1 - Operationalize Support Teams 1.1 - Embed Shared Service and Support Personnel

In order to minimize cultural misalignment, off-project shared service and support

personnel should be co-located with the project organization that they support, if

possible. This will increase these functional employees’ understanding of the business


68

that they support and will allow them the opportunity to develop relationships with project

personnel. If co-location is not possible, then it may be possible for interface personnel

from the project to be located with the support teams to ensure project requirements are

being met in a timely fashion. An example of this would be a project design manager co-

located in the off-site office of the shared service engineering staff. The majority of this

project person’s face-to-face time is best spent interfacing with design resources.

Providing updates and attending meetings with project management on-site can easily

be accomplished with today’s standard technology. Project Manager’s often like their

teams together, but traditional behaviors need to be changed to achieve the best

possible results.

1.2 - Define the Participatory, Advisory and Decision Making Nature of

Relationships

Organizational charts are unrepresentative visuals that have perhaps contributed to the

excessive bureaucracy that many organizations appear to be mired in. Functional

Managers identified on the same line of an organizational chart are not all “equal”. The

reality is that there is a hierarchy to decision making and the nature of the decision often

defines who has the decision-making authority, who should advise on the decision, and

who, if anyone should be solicited to participate in the discussion.

Legal and Compliance items aside, much of the day-to-day operations of a company can

get mired in gate-like processes that require numerous approvals that are simply over-

reactions to the perceived agency problem of adverse selection. By explicitly re-base

lining the role of the numerous support organizations inside the enterprise, or more


69

accurately, reframing their roles as advisory or participatory, the cycle time for project

decisions that require off-project input and support can be improved.

1.3 - Use Service Level Agreements (SLAs) and Key Performance Indicators (KPIs)

SLAs and KPIs define support team goals and objectives in a quantifiable way that

encourages accountability and allows for the accurate monitoring of team performance.

Without SLAs and KPIs an organization is unable to understand the level of support that

inter-organizational departments provide. Inadequate project support takes many forms

and the negative effect that it can have on project delivery is both constant and

cumulative, resulting in a significant aggregate effect on the project. The development of

SLAs and KPIs should not be a top down exercise, they should be developed bottom up

to ensure that the right level of service and the proper deliverables are selected for

measurement to ensure that project delivery is being adequately support.

Issue 2 - Reduce Reporting Complexity

2.1 - Create a Common Language Within large organizations there can be many different topical dialects. A classic

example is the difference in the concept of revenue between finance and the field, where

finance views revenue in accounting terms and projects tend to view revenue in terms of

what they have invoiced or been paid. To ensure that all members of the organization

are able to communicate with each other effectively the company needs to invest in

educating and establishing a common language for its employees. There may also be

industry norms and cultural artifacts that will need to be changed. Some companies may


70

have developed meaningful attachments to phrases or terms that are worth retaining, but

in most cases it will make the most sense to adopt the industry’s norms so that

communication with external stakeholders is as clear as possible.

2.2 - Standardize the Look and Feel A significant amount of time is wasted at the project, business unit, departmental, and

divisional level, repackaging the look and feel of information multiple times as it moves

up the chain. In order to eliminate this redundant exercise from the system, the required

information should be generated in the required format at the point of origin, wherever

and whenever possible.

To facilitate this, all end users of the information should collaborate to determine a

format that will address all of their needs. A needs analysis should be done to determine

what information is truly required. In today’s era of business analytics and data mining it

is easy to produce information for the sake of information that does not truly add value to

the decision making process.

2.3 - Establish a Set Schedule Without a set reporting schedule, projects are constantly pressured to provide

information, reports, and forecasts that do not align with the project’s internal,

contractually driven reporting cycle. These regular fire drills detract from the project

personnel’s primary roles pertaining to project delivery and create immediate, tangible


71

erosion in productivity, efficiency, and effectiveness. Establishing a set-reporting

schedule can significantly minimize this erosion; the requirements of which are

communicated and understood by all stakeholders, so the project team can schedule the

production of these reports like any other project activity.

Issue 3 – Communicate the Culture

3.1 - Information is Not Communication Posting a Vision, Mission, Statement of Values, etc. to the internal company website is

not communication, it is simply making information available to anyone with the time or

inclination to read it. In order to communicate this information to employees effectively

there needs to be tangible, face-to-face interaction with the leaders of the organization.

Mandatory live web conferences from the CEO, town hall style meetings at division,

business unit, and project offices, combined with further dissemination by leaders at all

levels of the organization is what is required to effectively communicate and cultivate the

intended culture throughout the organization.

Issue 4 - Align Organizational Incentives

4.1 - Establish Common Goals In order for an organization to function as efficiently as possible, all of its members

should be working towards the same goal. If that goal is delivering a certain percentage

of profit or achieving a certain level of productivity, then that goal should be formalized

for all teams, across all functions as the over-arching goal. Feeding into that goal will be

supporting goals and targets that are discipline specific, but these departmental targets


72

should be framed within the context of the company’s over-archiving goals to create a

kind of goal unity throughout the organization.

4.2 - Consider Profit a By-Product Henry Ford is quoted as saying “Profit is a by-product of work…”. When a project, the

work, is executed well it generally makes money, barring of course poor estimates and

unforeseen events. By incentivizing the processes and execution activities that comprise

the work across all functions like Safety, Quality, Compliance, Change Management,

HCM, and Project Management, the efficiency of the organization and project execution

excellence becomes the focus, not profit. When combined with appropriate SLAs and

KPIs this subtle shift in focus can produce powerful results.

Chapter VII. CONCLUSION The issues and observations made about the construction industry and the workings of

megaprojects in particular are not unique to construction. This researcher suspects that

they are prevalent in the majority of industries and organizations to some degree or

another.

One of this researcher’s graduate professors highlighted the salient fact that

dysfunctional organizations are the norm and that high performing organizations are

atypical. Only those organizations that are exceptional are willing to subject themselves

to written testimony in the form of articles, case studies, and books. This has resulted in

the business zeitgeist being convinced that all of this wonderful organizational theory


73

and its implied outcome, if applied is “normal”, however the reality is far different, the

reality is that most organizations are probably far more chaotic than the literature would

suggest.

After identifying four observable issues, reviewing the relevant literature and developing

a matrices for analyzing the factors that contribute to organizational deficiency there

were some indicative answers formulated. After examining the different types of

organizational structures it seems quite evident that construction organizations are

nested organizations that contain within them distinctive instances of numerous

structures, loosely tethered together with frayed horizontal and vertical linkages, which

suggests that construction enterprises today, are not currently appropriately structured to

support megaproject delivery because of the inherent inefficiencies that such a

fragmented mechanistic structure induces, which manifests as excessive bureaucracy

and poor decision making. When organizations are fragmented, asymmetries in

information are created, leading to a lack of transparency, resulting in poor quality

decisions.

When there are different structures within the organization, each with different

information and misaligned goals, they each develop their own distinctive subcultures.

These subcultures may promote withholding behaviors that slow down decision-making

and contribute to increasing the bureaucratic volume within the organization. There can

be stark cultural differences between the project-level personnel and the different

stakeholder organizations, internal, external, extended team, etc. The more aligned the


74

support organizations’ culture the better and timelier the level of support they will provide

the project, which will improve the execution of the project.

Lastly, proper incentivization of the various organizations is important. Projects can

make money, but wreck relationships along the way, damaging future revenue

opportunities with the client. Poor workmanship can have an impact on reputation, and

not managing people and trade labour appropriately can result in grievances. Always

choosing the most economical option instead of delivering the best value or meeting the

spec. Not all stakeholders are aligned to make profit; in fact some stakeholders to the

project execution are incentivized to minimize profit i.e. limit change orders subcontractor

claims, support departments are incentivized by the projects profit margins, they are

completely un-aligned, if they are incentivized in any what at all.

The issues, theories, and deficiencies discussed in this paper are all at play within

construction organizations today. These organizations are grappling with the VUCA

environment, constrained by outdated mechanistic organizational structures. The

response from industry should be an organic one that promotes the reimagining of the

project-based organization. A project team that is better supported, more responsive,

adaptable, and that has the authority to make command decisions in the field as

situations unfold. This is how we can tangibly improve project delivery.


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