TYPES OF FIRMS IN THE CONSTRUCTION INDUSTRY

PRESENTATION BY KIBOWEN K.C.

The construction process involves the translation of client needs and intentions first into

documents and other information, and later into a physical item. The process is organized in

several ways and so are various players involved. The client engages various

professionals at a fee to design, prepare documentation, advice and finally build the

project. The professionals are knowledgeable with various aspects of design and cost

implications along with any regulations that govern and affect the project. They are also

familiar with their own roles within the project as well as that played by other firms.

i. Design/consultancy

Various types: Surveying and cost

consultants Design & Engineering

firms Construction Project management

and auditing Health Safety and

environmental Legal

ii. Manufacturing

Various types:• Material manufacturing• Machinery manufacturing

iii. Building and construction

Various types:• General Contractors• Specialist contractors

STRUCTURE OF FIRMS IN THE CONSTRUCTION INDUSTRY

The structure of the firm involves several issues that must be

addressed and controlled early in the process. Among these issues is the

basic type of legal entity planned, its organization – social, managerial etc.

ORGANIZATIONAL

The organizational structure, reporting relationships, line of authority and

working relationships must be designed. Will they be rigid, loose or

somewhere in between?

I. Social/cultural and political

• Social structure refers to relationships or bonds between groups and individuals. It refers to groups or entities in definite relation to each other or social institutions and norms becoming embedded into social systems in such a way that they shape the behavior of actors within those social systems. We need to understand that everyday life is predominantly shaped by interactions in the workplace.

• The organizational structure of a firm affects the social formation and interactions in that market competition induces firms to adopt efficient forms of internal organization which in turn shapes attitudes and behavioral inclinations of the employees. For example effectiveness of economic incentives to workers is partly determined by the workers responsiveness to them.

• Societies vary in the work and authority arrangements of which formal organizations are composed, and these reflect their distinctive traditions, values, and historical experiences. For multinational organizations become hybrids of some sort: they adopt in varying combinations the practices of the host society in which they operate.

II. Technological

The structure of a firm’s technological profile is related to its capability to innovate. The

relevance of the technological position of a firm is that it is likely to influence both the

form and the future direction of the evolution of the spectrum of the firm’s technological

competence.The profile of technological competence of a

firm should be measured by its pattern of technological specialization, relative to other

players within the industry.

III. StructuralThis involves the definition, distribution, and

arrangement of interlocking roles (i.e., who does what). This is in order to create a structure that will coordinate tasks that shall achieve the goals of the entity. The challenge to be faced is to choose appropriate levels and types of vertical and horizontal differentiation and integration.

The structure of the organization shall affect the physical appearance of the organization, the nature of jobs to be done, its efficiency and effectiveness, its relation with other organizations, nature and quality of work experience for members and the culture.

Basic Characteristics of Organizational Structure

• Division of labor: dividing up the many tasks of the organization into specialized jobs

• Hierarchy of authority: Who manages whom.

• Span of control: Who manages whom.• Line vs staff positions• Decentralization

• Functional: Based on functions performed (e.g., production, sales, research)

• Product: Based on products and services produced (e.g., food, cleaning supplies, pharmaceuticals)

• Market: Based on customers served (e.g., convenience stores, supermarkets)

• Geography: Based on physical location• Matrix: Based on a combination of function, product,

customer and/or geography. Creates dual authority and dual responsibility

Sub-Unit ChoicesDepartments, Divisions, etc.

a. Functional Structure

M anufacturing Sales R & D Accounting &Finance

CEO

Advantage: efficiency, communicationDisadvantage: isolation of units

b. Product Structure

M anufaacturing Sales

SoupDivision

M anufacturing Sales

NutsDivision

CEO

Advantages: Product focus, flexibilityDisadvantage: Duplication of effort

c. Market Structure

Sales Custom erService

CorporateCustom ers

Sales Custom erService

IndividualCustom ers

CEO

d. Geographic Structure

Sales Custom erService

W est

Sales Custom erService

East

CEO

e. Matrix Structure

Product A

Product B

Product C

R & D Engineering Manufact’ing

Hierarchy of Authority

• Tall organizations have many levels

• Flat organizations have few levels

iv. Managerial The choices of managerial structure best suited for

the company are many and depend on several factors such as the size of the company, its

geographical location, the type of work being done, and the managerial and technical skills available.

The initial decisions of the managers will be in terms of what market the organization is entering, level of competition, and characteristics of the organization, who will be the boss and who will directly influence

the organization structure. The construction industry in itself is unique as it necessitates a relatively fairly flat arrangement with few levels of management.

v. Legal

Firms in construction are regulated by laws governing the different countries in which they exist in. A firm should select the legal

structure that best meets its business needs. Legal counsel should be sort in determining the kind of legal structure to go for. However it should be noted that for consultants, they are personally liable for their professional acts not the firm they work in. some of the

legal entities available globally are:

i. Sole proprietorshipA sole proprietor is an individual conducting business as an unincorporated entity. Legally,

the individual and the business are indistinguishable from one another. All business revenues and expenses (including wages paid to employees, if any) are treated as the personal revenue and expenses of the proprietor. This is

the simplest form of organization for an individual starting a business because it typically

requires no creation papers or additional tax returns to be filed.

ii. CorporationsThe principal advantage of a corporate legal

structure is that, unlike a proprietorship or a partnership, the personal assets of the

shareholders generally cannot be reached to satisfy the liabilities or obligations of the

company. General business corporations are separate

and distinct legal entities that may be formed for any legal purpose and that are often recognized as having many of the

rights and obligations of “persons” before the law. Certain legal requirements must

be met to establish and maintain a corporation, but because its legal

existence is independent of the individuals who own or manage it, a corporation is

likely to be more durable than a proprietorship or partnership.

iii. PartnershipsLike a sole proprietorship, a partnership is an

unincorporated business that traditionally has been legally indistinguishable from the partners.

However, because ambiguities, assumptions, or differences in understanding among partners

sometimes lead to legal disputes, “partnership acts” or statutes have been enacted that establish

basic legal principles to govern the relationship among partners and the business relationships

between the partnership and other parties. When forming a partnership, it is advisable to consult

legal counsel to determine the provisions of applicable law.

Issues that a partnership agreement should address are:

– Initial investment of each partner – Distribution of profits and allocation of responsibility for losses among

the partners – Fiduciary duties of the partners—how additional investments, if

needed, will be made, by whom, and in what proportion – Management and operational structure of the firm, including each

partner’s decision-making responsibilities and authority – Expectations for each partner – Dispute resolution mechanisms – Admission of new partners – Departure of existing partners, including provisions in the event of a

partner’s death, divorce, or incapacity – Terms of dissolution, liquidation, or sale of the partnership