Metodologia d’obtenció de la caracterització

Based on an extensive review of literature, a list of 52 factors was compiled as an exhaustive list of factors that are responsible for business failure in construction companies (see Table 2.2). Most were iterations of Dun and Bradstreet’s credit reporting database of 1989 - 1993. In this paper, the factors were outlined under the same categories as in Arditi et al (2000). The categories are; budgetary issues which covers financial management aspects of the company; human and organisational capital issues which covers some aspects of company tangible and intangible resources; issues of adaptation to market conditions which covers sales, competitiveness, diversification and expansion; and business and macroeconomic issues which covers industry specific and national economy issues. A new category was added to accommodate social reasons for business failure. It was found that race and/or minority status of company owners can impede the growth and hence survival

16 of the construction company (Bates, 1997). After the factors were outlined and ranked, the input/output model designed by Koksal and Arditi (2004) was used to show cause-and- effect relationship (See Figure 2.1 below).

Figure 2.1: Input and Output framework of business failure/survival in the construction industry (adopted from Koksal and Arditi, 2004)

From the systems theorist’s point of view, organisations are continuously transforming inputs into outputs. This model shows that organisational factors as well as external factors are the main determinants of business failure in construction, which then reflects on company performance also known as symptoms or indicators. This argument is supported by the work of Dikmen et al, (2010) as they identified 33 determinants mostly associated with failure likelihood that fall under “value chain”, “resources”, “decisions” and “chance factors” which are same as organisational and external factors. The effect of these determinants on the company performance will then be the symptoms. These symptoms can either show growth (survival) stagnation or failure (outcomes). For example, Lack of business knowledge and inadequate managerial experience may increase operational expenses, create conflict within the organization, create a poor company image to clients,

17 which will hurt the competitiveness of the company and hence result in inadequate sale of goods and services, and may in turn affect an organization’s profits. Having the symptoms does not automatically mean business failure. Not when the company yields returns greater than the minimum acceptable hurdle rate. By implication it can still pay lenders and stakeholders but has not learnt to cut cost. As a matter of fact, the input and output model points out clearly to managers the areas that need improving. Koksal and Arditi (2010) called it the feedback loop. Staging a turn-around to improve company performance could save the company.

Dikmen et al, (2010) saw “poor company image” as an intangible resource and as a determinant. However this research argues that poor company image is a performance indicator, a symptom of failure. Before it becomes a company resource it is a performance indicator. A “poor company image” could be a result of insufficient capital for a company to promote itself or because of its poor technical and technological capacity hence cannot maintain a certain required standard of work in the market it operates. Or, it could be as a result of poor relations with clients, supervisors and government or managerial incompetence. It is a result of any of or a combination of the above reasons. Therefore, it’s been placed under symptoms or performance indicators. By discretion, other factors mentioned by other researchers, which were not mentioned by Arditi et al (2000), were placed under the categories they belong.

Table 2.2 shows determinants of business failure in construction companies on the left vertical corner and a list of researchers on the top horizontal corner. The factors were weighted based on which factor the individual researchers considered to be most important. Other researchers did not mention some factors, they, hence, did not rank these factors. The factors were then grouped and represented using the input and output model with human, organisational and financial capital, macroeconomic, social and natural factors as inputs. And, budgetary, business and market adaptability issues as outputs. This is represented in Table 2.3 and Table 2.4 respectively.

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Table 2.2: Ranking of determinants of failure in construction by Researchers

Dikmen et al (2010) Arditi et al (2000) Everett and Watson (1998) Kale and Arditi (1998) Hall and Young (1991) Stead and Smallman (1999) Koksal and Arditi (2004) Chan et al (2005) Byabashaija (2007) Harada, and Kageyama (2011) Perry (2001) FACTORS Budgetary issues 1. Insufficient profit 1 4 2 1 2

2. Heavy operating expenses 3 9 2

3. Insufficient capital 15 4 1 2 1 1

4. Burdensome institutional debt 5 3

5. Receivable difficulties from the client 6 10 6

Human: organizational capital issues

6. Lack of business knowledge 6 2 1 2 2 2 1 1 2

7. Lack of organisational knowledge 2 3 4 3 3

8. Poor relations with 5 6 5 2 3

9. Lack of managerial experience/competence 1 11 1 1 2 1 4 1 1 1

10. Poor technical and technological capacity 3 7 10

11. Saving non-value adding activities 9

12. Poor company image 10 5

13. Scarcity of financial resources 15 4

14. Overexpansion/not expanding 26 18 3 9

15. Wrong level of diversification 20

16. Fraud 12 3 4 3 2 1

17. Lack of line experience 13 6

18. Lack of commitment 14 8

19. Poor project cost estimation 25 4 6

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21. Wrong project selection 21

22. Poor working habit 15 7

23. Unexpected change within the workforce 17

24. Poor value chain analysis at the corporate level 7 2

25. Poor strategic planning 8 4

26. Poor human resource management 16 2

27. Poor leadership 14

28. Poor investment decisions 13 6

29. Poor communication 18 4

30. Poor planning and scheduling 19

31. Poor monitoring and control 22

32. Poor environmental scanning 11

33. Poor organisation of resources 28

34. Poor quality management and control 30

35. Poor selection and management of supply chain 31

36. Poor project risk management 32

37. Poor change order and claim management 33

38. Unsuccessful restructuring/reorganisation 4 5

Issues of adaptation to market conditions

39. Inadequate sales 27 9 5 6 4 40. Not competitive 16 7 Business issues 41. Business conflicts 8 6 5 42. Family problems 5 6 5 Macroeconomic issues 43. Industry weakness 2 6 7 1

44. Poor growth prospects 17 3

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46. Economic fluctuations 24

47. Shrinkage in construction demand 27 9 5 6 4

Natural factors

48. Disasters 7 2

49. Change in politics 29

50. Sudden death of the company leader 23

Social factors

51. Race

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2.6.1 Human, Organisational and Financial Capital

Table 2.3 shows that ‘Human, Organisational And Financial Capital’ and ‘Macroeconomic, social and natural factors’ are the determinants of business failure. These are factors unique to the organisation. They have to do with company resources (tangible and intangible), and how they are managed i.e. every decision made to allocate these resources both at corporate and project level. Company intangible resources are company assets that are saleable though not material or physical such as relationship capital and skill (Lu, 2009; Lu and Sexton, 2006). According to Dikmen et al, (2010), those factors associated with intangible resources are lack of organisational knowledge and experience, poor relations with clients/government, and poor leadership while poor technical and technological capacity and insufficient capital and scarcity of financial resources are those associated with tangible resources. In terms of organisational management, these can be separated into management at corporate and project level.

At corporate level, the determinants responsible for business failure are more related to management incompetence; fraud, poor financial management, poor value-chain analysis, poor human resources management, poor communication, poor strategic planning, poor environmental scanning, saving non-value adding activities; and decisions leading to overexpansion, poor investment, wrong level of diversification, unsuccessful restructuring/reorganisation. At project level, the determinants of business failure are; wrong project selection and poor project cost estimation, lack of line experience lack of commitment, poor working habit, poor planning and scheduling, poor organisation of resources, poor monitoring and control, poor project risk management, poor change order and claims management, poor selection and management of suppliers and subcontractors, and poor quality management and control.

Table 2.3: Determinants of business failure in order of importance