ABSTRACT
Two basic and related questions about industry in general is why production is organized in a particular way, e.g. what is produced in-house and what is outsourced to external firms? Unfortunately, this binary question is an oversimplification of a complex situation and cannot be used to cover the many possible alternative strategies. Lansley (1994) argues that a construction firm can be seen as a broker of opportunities for projects and as an intermediary acquiring resources for undertaking building projects. From a functional perspective, Tenah (1986) defines a construction firm as a group of people sharing specialized knowledge to design, estimate, bid, procure and obtain resources to complete a construction project. These functions extend beyond the boundary of a single legal entity and include an interwoven relationship with subcontractors, manufacturers, materials’ producers and equipment suppliers. Thus, the interaction of these entities and how they transact their services and products shapes the organizational structure of a project and, ultimately, determines the governance structure of the specific firm (Shirazi et al., 1996). Winch (1989) argues that the primary object of construction management research should be the firm and the project should be seen as a temporary coalition of firms together with the client or owner. In line with Winch’s argument, we will focus in this chapter on the organizational patterns of the firm – or group of firms – delivering the building project rather than the project itself. The objective of this chapter is to analyze various models of the organization of the firm within a particular sector of the industry – house-building – from the perspective of transaction cost theory. This approach to analyzing the house-building sector in terms of organizational patterns may enable us to understand better the bearers of risk and incentives, responsibility and control mechanisms and, consequently, it may shed light on the determinants of construction cost. The choice of this approach is motivated by the need to study organizational structure in terms of the nature of the relationships among participants in the construction process, rather than as an archetypical study of the kind that is often
based on department groupings and management style of the organization. These groupings are often based on common tasks, products, geography and process (Grant, 2005). The chapter presents some basic models of organizational structures in the construction industry. Four possible organizational forms will be presented. In the first model, the major players of the building process are integrated and market transactions are limited or non-existent. The other three models are basically an extension of this model and envisage a variety of organizational forms that could emerge when different firms in the process interact. Here, the prevailing structure is dictated by competition and market transactions. A later section explains a theoretical approach and the criteria for evaluating different organizational structures. Transaction cost theory in relation to various organizational patterns and the basis of three evaluation criteria will also be discussed. The evaluation of these structures is presented and followed by an appraisal of opportunities and challenges facing each type of organizational pattern in terms of flexibility and risk allocation, competitiveness and competence. Finally, the organizational patterns are summarized and future research directions identified.
