CRITICAL SUCCESS FACTORS FOR CONTRACTING ORGANIZATION DURING
RECESSION
AZLINDA BINTI MAT LAZIM
A project report submitted in partial fulfillment of the
requirements for the award of the degree of
Master of Science (Construction Management)
Faculty of Civil Engineering
Universiti Teknologi Malaysia
APRIL 2010
iii
To my beloved mother, Puan Hjh. Asiah Kasim, beloved father, Tuan Hj. Mat Lazim
Zakaria, and youngest sister, Azliyana. Last but not least, to the support given by my
best friend and fiancé, Muhammad Shahril Mahizan.
iv
ACKNOWLEDGEMENT
In preparing this thesis, I was in contact with many people who are involved in
construction industry. They have contributed towards my understanding and thoughts.
In particular, I wish to express my sincere appreciation to my main project supervisor,
Professor Dr. Muhd. Zaimi bin Abd. Majid, for his encouragement, guidance, and
comments. Without his continuous support and interest, this project report would not
have been the same as presented here. Librarians at UTM also deserve special thanks
for their assistance in supplying the relevant literatures.
My fellow postgraduate
students should also be recognized for their support. My sincere appreciation also
extends to all my colleagues and others who have provided assistance at various
occasions. Their views and tips are useful indeed. Unfortunately, it is not possible to
list all of them in this limited space. I am grateful to all my family members and close
friends for their understanding and valuable support.
v
ABSTRACT
The unfavorable economic condition has caused tremendous impact on
construction industry. It is interesting to note that the impact is not only focusing on the
success rate in obtaining new project, but also selection of approach made by
construction companies. Thus, specifically, this study is to focus on the critical success
factors (CSFs) for a contracting organization faced during recession. To achieve the aim
of the study, an investigation on the impact, business objectives, and measures taken by
contracting organizations is identified. The research methodology includes literature
review and questionnaire survey. The data was analyzed using relativity index and
average weighting index method. Based on the analysis of the data obtained from the
survey, it was concluded that the most agreeable critical success factor is to possess
strong financial status. For future research, it is recommended that a specific study can
be conducted on the benchmarking during recession.
vi
ABSTRAK
Keadaan ekonomi yang kurang memberangsangkan telah meninggalkan kesan
diluar jangkaan kepada industri pembinaan. Adalah menarik untuk mengetahui bahawa
kesan ini bukan hanya berfokus pada peluang untuk mendapatkan projek baru, malah
pada pilihan pendekatan yang diambil oleh syarikat pembinaan. Oleh itu, dengan lebih
spesifik, kertas kerja ini difokuskan pada Faktor Keberjayaan Kritikal (FKK) untuk
sesebuah syarikat kontraktor sewaktu menghadapi kegawatan ekonomi. Bagi mencapai
tujuan kajian, penyiasatan dijalankan keatas kesan, misi perniagaan, dan pendekatan
yang telah diambil oleh syarikat kontraktor. Kaedah kajian meliputi pembacaan kajian
terdahulu dan soalselidik. Keputusan kertas kerja dipersembahkan menggunakan indeks
kerelatifan dan kaedah berat purata indeks. Berdasarkan analisis keatas data yang
diperolehi melalui soalselidik, faktor keberjayaan kritikal sesebuah syarikat kontraktor
semasa kegawatan ekonomi adalah dengan mempunyai asas kewangan yang kukuh.
Untuk kajian di masa hadapan, adalah disarankan supaya kajian spesifik dilakukan
keatas penanda aras kemajuan sewaktu kegawatan ekonomi.
vii
TABLE OF CONTENTS
CHAPTER
1
TITLE
PAGE
DECLARATION
ii
DEDICATION
iii
ACKNOWLEDGEMENTS
iv
ABSTRACT
v
ABSTRAK
vi
TABLE OF CONTENTS
vii
LIST OF TABLES
x
LIST OF FIGURES
xi
LIST OF APPENDICES
xiii
INTRODUCTION
1.1
Background
2
1.2
Problem Statement
6
1.3
Aim and Objectives of the Research
10
1.4
Scope of the Study
10
1.5
Research Methodology
11
1.6
Summary of Chapters
12
viii
2
3
LITERATURE REVIEW
2.1
Introduction
13
2.2
Impact of Recession on Contracting Organization
16
2.3
Contracting Organization Approach
23
2.4
The Success Factors
27
2.5
Summary
31
RESEARCH METHODOLOGY
3.1
Introduction
33
3.2
Literature Review
34
3.3
Questionnaire Design
34
3.4
Data Collection
35
3.4.1 Quota Sampling
35
3.4.2
36
Convenient Sampling
3.5
Likert Scaling
36
3.6
Success Factor Model
37
3.6.1
Impact Index
40
3.6.1.1
Inter-organization
40
3.6.1.2
Intra-organization
41
3.6.2
3.6.3
Aims Index
42
3.6.2.1
Attitude
43
3.6.2.2
Background
43
3.6.2.3
External
44
3.6.2.4
Knowledge
45
3.6.2.5
Product
45
3.6.2.6
Strategies
46
Measures Index
46
3.6.3.1
Management
47
3.6.3.2
Strategies
48
ix
3.7
4
5
Summary
48
RESULTS AND FINDINGS
4.1
Introduction
50
4.2
Respondent Distribution and Background
51
4.3
Results and Findings
53
4.4
Discussions
63
4.5
Summary
65
CONCLUSIONS AND RECOMMENDATION
5.1
Introduction
67
5.2
Conclusion
67
5.3
Recommendation
69
REFERENCES
70
Appendices A
77
x
LIST OF TABLES
TABLE NO.
TITLE
PAGE
4.1
Respondent employment position demographic
51
4.2
Respondent organization type demographic
52
4.3
Rank ordered impact of recession to the contracting
organization scores
54
4.4
Rank ordered Critical Success Factors (CSF) scores
57
4.5
Rank ordered contracting organization approach during
recession scores
59
4.6
Component Index
62
4.7
Distribution of SFI, Component and Sub-indexes
62
xi
LIST OF FIGURES
FIGURE NO.
1.1
TITLE
Total number of projects awarded to by category as
of December 2009
1.2
PAGE
7
Total value of projects awarded to by category as of
December 2009
8
1.3
Methodology process flow chart
11
2.1
Reaction scheme of research and development budgets
to changes in business cycles
21
3.1
The Success Factors Model
39
4.1
The distribution of sample based on employment position
52
4.2
The distribution of sample based on organization type
53
4.3
Mean score for sub-indexes in Impact Index component
56
xii
4.4
Mean score for sub-indexes in Aims Index component
58
4.5
Mean score for sub-indexes in Measures Index component
60
4.6
Means score and percentage for Success Factors Index
61
4.7
Distributions of Impact Index, Aim Index and Measure Index
63
xiii
LIST OF APPENDICES
APPENDIX
A
TITLE
Questionnaire Survey Form
PAGE
77
CHAPTER 1
INTRODUCTION
This study is engineered to investigate the impact of recession to the construction
industry in Malaysia namely contracting organization. Following the impact is the
measures taken by the contracting organization in addressing financial constraint during
financial crisis. Finally is to gather the contracting organization perception towards the
success factors. All these attributes are contributing to the aim of the study which is to
identify the critical success factors (CSFs) during recession and this aim is to focus on
contracting organization.
In this chapter, introduction is made on the general
information regarding economic recession and the impact to construction industry,
problem statement of the research, research objectives, scope of project, methodology in
brief, and summary of all chapters.
2
1.1
Background
Periods of recessions have followed dramatic increases in the price of oil. The
industries that depended on energy prices suffered a sharp decrease in business and
subsequently, reduced output and staff.
An economy-wide decline in demand and
reduction in real is influenced greatly by the higher cost of oil imports and a stringent
monetary policy.
The influencing factors slow down overall demand, and lead to
subsequent recessions. The economic recession is the outcome of the impact on the
economy by drop in demand, role of aggregate forces and the allocated forces.
According to Brandel and Betts (2010), with the economic meltdown in 2008 and 2009,
the pendulum swung all the way back to total budget lockdown, where governance was
centralized. Maty (Ed.) (2008) affirmed in his words about the possibility of reeling in
new-construction scene due to economic downturn but not on the maintenance and
restoration side.
The Malaysian-German Chamber of Commerce (MGCC) exposed the
construction industry growth level in Market Watch 2009. Due to economic hibernation,
this result to higher price of building materials, especially in cement and steels prices
followed by the abandoned projects in 2008, several measures has been taken by
government to improve the delivery system for construction industry. In the previous
recession, the Malaysia government had allocated RM 18 billion under 2000 Budget to
pump primp the construction sector. The results have been favorable as reflected in the
growing optimism and rise in construction activity. Loans approved by the banks for the
construction sector has also risen in tandem with the rise in Gross Domestic Product
(GDP) growth rate and per capita income. For the ensuring year, the 2001 Budget has
forecasted and growth rate of 5.5 per cent for the construction sector (Construction
Industry Development Board, 2008a). Added to this, the employment opportunity for
building and construction graduates across the country is supported by the data obtained
from the survey done by Bank Negara Malaysia (2008a) on employment outlook in the
3
manufacturing, services and construction sectors, 24 per cent of the companies stated
that they would reduce number of jobs in 2009.
According to Construction Industry Development Board (2008b), government
budget and expenditure reacting to economic tidal may well portray the condition of
industry as well.
In the mid-term review of the Ninth Malaysian Plan (NMP),
government announced an additional budget of RM 10 billion, and increment from RM
220 billion to RM 250 billion. Up to now, there has been no evidence of reduction in
government expenditure especially for construction activities. In year 2008, RM 63.15
billion worth of projects was awarded (of which 43.7 per cent of RM 27.60 billion, is
from government coffers) compared to 2007 and 2006 values of RM 47.48 billion and
RM 22.45 billion respectively, that is, no cutback in government spending for
construction activities. Kaur (2009) in Business Times reviews that the government
awarding contracts under RM 60 billion stimulus package. The first stimulus of RM 7
billion had benefited some 15,000 small contractors who were given contracts for
building works, maintenance and repair, and the extension of schools.
Referring to Business Monitor International (2009a) on Malaysia Infrastructure
Report for Quarter Four 2009, Malaysian water firm, Puncak Niaga’s subsidiary Syabas
has halted a USD 7.14 billion project to repair and replace old pipes, which was due to
start in early 2010, as it is restructuring its water assets, according to Bernama. Rozali
Ismail, executive chairman of Syabas, stated the federal government has instructed
Syabas officials to delay the works including its repair works under the third program.
No restart date has been agreed.
Further to construction review made by Business Monitor International (2009b),
in June 2008, government officials said that they would remove the price cap on cement.
This move was made to help the country’s building industry, which had been affected by
4
rising fuel costs. As fuel prices rose, cement makers were more reluctant to supply their
product to outlying regions because of the costs involved with transport. However,
cement prices have since fallen, as a far bigger preoccupation; the global economic
downturn has taken hold of the construction market. The outlook for construction is
poor for 2009. The global economic downturn bodes ill for exports and economic
growth in Malaysia, so private commercial construction will be undermined.
Furthermore, the government is limited in its ability to spend on public infrastructure
construction.
In contrary, approaches for improving business performance in the construction
industry have evolved tremendously over the years, in example, from quality assurance
to Total Quality Management (TQM). However, there are several considerations to be
taken to the implementation of approaches in contracting organization. One of major
deliberations is on the declining economics.
Setting up appropriate objectives to
incorporate business aims is the essence of success.
The next stage involves
maneuvering the strategic plan by establishing a set of measures. Later is to take into
action what has been planned as accordance to the guidelines set by the management. At
the core of a contracting organization business, assessment is important to determine
whether there is improvement to be done, which includes process flow, profit making,
efficiency and productivity. Results then reviewed using key performance indicator or
other tool to achieve key business result. Hence, impact should be studied closely in
order to get the clear picture of aims in determining the critical success factors.
Despite seeing economy trend as the major factor to profitability in construction
industry, there is no research or study has been carried out by researchers to unveil the
impact of recession to Malaysia construction industry. Literature review sighted from
Emerald database shows few studies have been done but not specifically to the impact
and contributed to other sector such as business. Ilmakunnas (2002) as example has
studied the turnover of jobs and workers in a deep recession by revealing the evidence
5
from the Finnish business sector. Jannadi (1997a) studied the reasons for construction
failures in Saudi Arabia, identified the major factors that contribute to the failure of
construction contractors in the Eastern Province of Saudi Arabia. Jannadi (1997b)
ranked the factors according to their importance from the viewpoint of contractors and
legal accountants and the Spearman rank correlation coefficient was calculated.
According to Lam et al. (2004a), various research efforts in the context of
Critical Success Factors (CSFs) were identified. As construction projects are often
initiated according to stated goals and objectives, most of the lists were based on a
particular project scope and purpose. As a result, the factors are very specific for a
particular project scope and purpose. Consequently, there is no specific effort to discuss
on the CSFs for contracting organization during financial crisis.
Lam et al. (2004b) also studied the CSFs concerns the features of a design and
build project. The CSFs are including project characteristics, project procedures, project
management strategies, project-related participants, project work atmosphere, and
project environment. Therefore, this research is proposed to study the CSFs especially
to contractors in Malaysia construction industry.
In order to derive the factors to
success, impact of financial crisis to be identified and comprehended. Accompanying
the step is the measures taken by the contracting organization in addressing financial
constraint during recession. Lastly is the perception on business objectives or aims,
which is later to be considered as factors to success.
Different from the study made by Jannadi (1997c), the survey which is to be
conducted will cover respondents from all major parties involved in construction
industry and not solely focusing on contractors.
Lam et al. (2004c) once again
specifically referred to design and build procurement systems in construction. In further,
most of the time the paper relates CSFs to the benchmarking. Added to this, what makes
6
this study dissimilar compares to other studies is the focus on the contracting
organization within recessionary period.
1.2
Problem Statement
Construction industry performance is improving through case studies and
research.
This is motivated through benchmarking and stimulus injection by the
government. According to Bank Negara Malaysia (2009b), the implementation of two
fiscal stimulus programmes, together with the easing of monetary policy, and the
implementation of construction-related projects under the Ninth Malaysia Plan (NMP)
provided support for domestic demand. On the other hand, other sectors with the
exception of construction, recorded negative growth in the first quarter of 2009. Despite
seeing the positive growth due to government helping hands, there is always a concern
that financial crisis might arise again. Does Malaysia government might be able to be
prepared for this at anytime in the future and does construction sector will always need
support in order to be sustainable?
Managing a contract what else to sustain organization growth is to some extent
decisive during depression stage. The construction industry has been long depending on
the world economic weather. Making the right decision is crucial for the developers at
time of recession to ensure that the choice made is not only an advantage for the
company’s development and growth but the most essential part is making profit. The
biggest impact will be on the contracting organization, whereby they have to endure with
smaller profit margin and more financial constraint. This statement is supported by the
data obtained from Construction Industry Development Board (2010c).
7
8,000
7,000
Total Numbers
6,000
5,000
4,000
3,000
2,000
1,000
0
FY06
FY07
FY08
No. of Projects
Figure 1.1
FY09
FY06
FY07
FY08
FY09
5,854
7,358
6,327
5,281
Histogram shows total number of projects awarded to by category as of
December 2009 (Construction Industry Development Board, 2010d).
Figure 1.1 derived from a table obtained from CIDB official website. The figure
shows the obvious fall in total number of projects, during the years when recession
occurs. Number of projects awarded to the contractors dropped (-7.5 per cent) from
7,358 in 2007 to 6,327 in 2008. This is followed by another plunge (-9.0 per cent) in
year 2009 with total number of projects is 5,281, which made total percentile dropped
from 2007 to 2009 is 16.5 per cent.
8
100,000.00
90,000.00
Total Value (RM mil)
80,000.00
70,000.00
60,000.00
50,000.00
40,000.00
30,000.00
20,000.00
10,000.00
0.00
FY06
FY07
FY08
FY09
Project Value
Figure 1.2
FY06
FY07
FY08
FY09
60,926.99
93,294.21
81,131.99
57,195.60
Histogram shows total value of projects awarded by category as of
December 2009 (Construction Industry Development Board, 2010e).
Figure 1.2 also derived from a table obtained from CIDB official website. The
figure shows total value of projects awarded to the contractors from year 2006 to 2009.
Total value of projects awarded to the contractors depreciated as much as 6.97 per cent
from 93,294.21 million in 2007 to 81,131.99 million in 2008. This is followed by
another fall in 2009 at 17.3 per cent from 2008 to 57,195.60 million in 2009, which
made total of depreciation percentile is 24.2 in three years.
The study of recession in construction industry has not been an entirely
straightforward matter.
One of the main problems that arise is a common one in
9
research: how exactly does one define the impact? That is to say, what exactly is
recession?
People seem to see the recession in many ways for many different
perspectives. Adding to this confusion is the difficulty of disentangling the impact from
other related, but decidedly different, processes such learning to adapt, struggling to
survive, or ignoring the even altogether. Does recession, as some have suggested,
require conscious and deliberate effort by the construction players, or can it pass by
passively? Is there a consistent model that can be applied to the stages of recession? Or
do multiple stages necessarily have to occur at all?
Can recession be a state of
equilibrium in construction process?
Other major obstacles found when proposing the research is no suitable reference
for analysis in this research title. The closest information only can be obtained based on
the survey and statistic prepared by the Malaysia Department of Statistic and
Construction Industry Board of Malaysia. Due to no topic of research found closest to
the project title, the study has been proposed. Consequently, recession impact is widely
recognized in the construction industry but not specifically focused on the contracting
organization. The impact may be severe if not because of the government helping
hands.
However, the problem is, do the contractors aware of the impact on their
organizations and does they know how to adapt and successfully survive? Other than
that, number of projects dropped whenever there is financial crisis. Thereby, a study
needs to be conducted to understand the relativity of recession impact to the success rate
of a contracting organization during recession. Last but not least, company approach
also to be taken into account. This is because of the measures taken by the contracting
organizations may affect the chances to successfully achieve their goals. Due to the
above problems, aim and objectives of the research are developed.
10
1.3
Aim and Objectives of the Research
The aim of this research is to determine the Critical Success Factors (CSFs) for
contracting organization during recessionary period. To achieve the aim of study, three
objectives have been determined as following:
(i) To identify critical impacts on contracting organizations during recessionary
period;
(ii) To identify company approaches in addressing financial constraints during
recession; and
(iii) To identify the Critical Success Factors (CSFs) for a contracting organization
during financial crisis.
1.4
Scope of the Study
There are few considerations have been taken while carrying this study. Due to
resources and time constraint, following are the limitations which have been imposed on
the study:
(i) Survey correspondence only done to 30 respondents in Peninsular Malaysia;
(ii) Questionnaires only spread to respondents residing in Klang Valley area; and
(iii) Samples may be biased because not all major contracting organizations are
selected.
11
1.5
Research Methodology
Research methodology is briefly shown in the following process flow chart
(Figure 1.3).
All eight (8) phases shown are explained in Chapter 3 (Research
Methodology):
PHASE 1
Prepare methodology schedule
PHASE 2
Literature review
PHASE 3
Questionnaire design
PHASE 4
Sampling and identify respondents
PHASE 5
Development of questionnaires
PHASE 6
Distribution of questionnaires
PHASE 7
Data compilation and analysis
PHASE 8
Findings and Results
Figure 1.3
Methodology process flow chart
12
1.6
Summary of Chapters
Chapter One highlights framework of the study and statement of problem in
brief. Framework structured based on the current issues occur in Malaysia construction
industry and previous researches closest to the project title. The chapter shows on how
the project title is determined.
Chapter Two explains on the literature review which has been conducted based
on the three (3) objectives. Views by the previous researchers and practitioners on the
relevant topic to the research is examined and taken as background in this project.
Chapter Three describes the methodology conducted in the research. The two (2)
methods opted in the research is to provide the necessary data needed to obtain. From
thereon, the analysis of data is conducted to get the expected results.
Chapter Four details out the analysis on the data obtained from the questionnaire
survey. Data analyzed using specified methods in the previous chapter. Based on the
three (3) objectives, the results obtained are discussed in the final sub-chapter.
Chapter Five is the conclusion of study. Results and discussions from the data
analysis are summarized. Based on the summary, recommendation for future research
also proposed at the end of the chapter.
CHAPTER 2
LITERATURE REVIEW
2.1
Introduction
In this chapter, research has been conducted to the studies made by previous
researchers and practitioners on the critical success factors, of which however only
focused on specific area. Accordingly, views by these researchers on relevant topic to
this research is examined and taken as background in this project.
This includes
definition of recession, recent statistics and reports on construction field, recession
impact to contracting organization, organization approach, and the success factors.
14
2.2
Economic Recession
The word of economy has been referred to the Oxford Dictionaries (2009a) and it
has several definitions. However, by narrowing down to the relevance with research
topic, the most precise definition is the state of a country or region in terms of the
production and consumption of goods and services and the supply of money. Later, the
word Economic is formulated. According to Oxford Dictionaries (2009b), economic is
defined as relating to economics or the economy and recession means a temporary
economic decline during which trade and industrial activity are reduced.
Overview made on the monetary and financial conditions revealed the
understanding of the latest recessionary period and its significance impact to global
economic. Bank Negara Malaysia (2009a) stated, following the widespread fallout from
the US subprime crisis and the collapse of Lehman Brothers in September 2008, global
monetary and financial conditions deteriorated in the first quarter of 2009. In the
advanced economies, the crisis reached its peak in March 2009 and contributed to the
worst global recession since World War II.
Bank Negara Malaysia (2009b) also
reported that Malaysia was adversely affected by the large contraction in external
demand and the sharp decline in domestic financial asset prices as the worldwide
deleveraging by investors caused large outflows of portfolio funds.
Business Monitor International (2009a) alleged that much has been made by the
local press and financial markets, with construction firms surging in value in the first
half year of 2009 of Malaysia’s fiscal stimulus plans. However, the impact of these
spending plans remains dubious, particularly for the current calendar year. Malaysia’s
Sixth Prime Minister, Dato’ Sri Mohd Najib Bin Tun Hj Abd Razak announced that in
the six (6) and a half months since the first fiscal stimulus package was first announced
in November 2008, only RM 4.0 billion of the planned RM 7.0 billion in additional
15
spending has been offered to successful contractors, and as of June 5th, only RM 1.4
billion had actually been spent.
Moreover, although the government announced a
second fiscal stimulus package to the tune of RM 60 billion, equivalent to approximately
nine (9) per cent of Gross Domestic Product (GDP); as of March, only RM 10 billion of
this was reported to be spent this year. While RM 4.2 billion of this has already been
allocated, only RM 1.2 billion has been spent.
In Malaysia Infrastructure Report Quarter Four 2009 as reported by Business
Monitor International (2009b), stated that the fiscal stimulus measures should have a
more pronounced impact on the economy particularly the construction sector in 2010,
but even then, fiscal constraints generate concern about the government’s ability to carry
forward its spending plans fully. Meanwhile, the economy remains mired in recession,
with GDP growth in the first quarter of 2009 registering a contraction of 6.2 per cent
year-on-year (y-o-y) in real terms. For the full calendar year, it is anticipated that the
economy will contract by 3.4 per cent in real terms. In further, it is has been predicted
that Malaysia’s construction sector will contract by 4.29 per cent in real terms in 2009,
and 1.21 per cent in 2010. Furthermore, 2011 is likely to witness near zero real growth
in sector output. These forecasts represent a significant negative revision from the first
quarter of the year, when it has been once again predicted that the construction sector
would contract by a relatively modest 1.4 per cent in 2009 before returning to real
growth of 2.1 per cent in 2010.
16
2.3
Impact of Recession on Contracting Organization
Gunaratne (1993a) in a revealing article stated that the construction industry has
been one of the hardest hit industries in recession. Survey conducted by E. C. Harris
showed orders in 1990 in the United Kingdom (UK) have fallen from ₤32,500 million to
₤21,125 million, with approximately 580 job losses every day.
Construction output
almost halved during the previous two years. Demand on competitiveness increased
result of the depressed market condition. Organization tender bids much less than the
estimated cost, labor costs reduced and wages on site decreased 75 per cent.
Organizations choose to adopt cost cutting, restructuring, centralization and even
mergers. Professionals are forced to leave construction industry and in the end, the
impact will be on the skill shortage. In spite of the above, according to Bajaj (2001e),
the change in economic and market conditions has an impact on the change of strategy.
In review of the construction industry made by Chan et al. (2005a), consequent
to recession, the overall construction output performed by main contractors has peaked
in the year 1998 and then started declining, more significantly in the output for building
work. Due to severe competition, tender price index has dropped drastically since 1998
while the Building Cost Index (BCI) remains fairly stable. The contrast has revealed the
difficulty of changing the cost structure in Hong Kong and there are no means to lower
the wage rates of construction labor and to lower the costs of imported construction
materials.
In the article journal wrote by Dainty et al. (2004), the poor image of the
industry, which adversely affects popularity as a career choice and the high number of
jobs shed during the recession of the early 1990s are amongst the factors that influence
the construction skills shortfall.
Depending organizations such as suppliers,
manufacturers and sub-contractors were badly affected.
17
Hsieh and Wang (2001) affirmed that beginning in the midst of year 1990, the
downturn of the property industry began. Most firms downsized their staff and focused
on maintaining short-term solvency. Some public ones shortsightedly attempted to
initiate more projects, hoping to strengthen their stock prices, regardless of stagnant
sales. Consequently, every year dozens of developers faced sudden collapse due to a
shortage of operating capital.
Gunaratne (1993b) narrated many organizations struggle to stay in business and
maintain the cash flow. Mann and Runge (2009) addressed that in order to cater this,
reduced revenues from the economic slowdown will delay needed capital investments
and potentially reduce service level. Gunaratne (1993c) added, they also tend to use
minimum manpower resources and planning to use acceleration program at tender stage
to win contracts. An Executive Director of the SCDOT as cited by Kudelka (2000a)
commented that the company were taking 27 years of planned work and compressing it
into seven (7) years to take advantage of low interest rates, to avoid paying the inflation
costs of construction, and to simply get a lot of needed work done faster.
In the mean time, according to Gunaratne (1993d), level of jobs uncertainty has
naturally affected employee morale. Employee need jobs rather than job satisfaction.
However, referring to Anonymous (Ed.) (2009a), somewhat surprisingly given the
economic climate, 35 per cent of global respondents have not reduced their workforce at
all. In fact, very few contractors have even felt the need to cut workforce costs via
salary reductions, reduced working hours, or unpaid sabbaticals, and in a very bold move
given the intensity of the global recession, 28 per cent respondents have taken no action
at all.
Bidding behavior is to be taken as one of the factors influences the chances of
getting projects. However, Reimer (1997a) concluded in his study that bidding patterns
18
are constructed by and through contractors' perceptions of example, local political
histories.
Oo et al. (2007) studied on mark-up decision factors in construction which fall
into two groups that are market-environment factors (number of bidders, market
conditions) and project-specific factors (type and size of project). A factor is with
regards to the number of bidders on any specific project, resulting in tender prices rising
as demand increases and falling when demand declines. Demand for buildings recedes
in the recession phase and this generally accepted that the degree of competition depends
upon the amplitude of the cycle, and that in severe recessions the competition becomes
so fierce that contractors are even prepared to tender at their estimated cost (excluding
any profit mark-up) in order to maintain turnover.
Pertaining to quality and safety, as narrated Gunaratne (1993e), attitudes
changing have led to quality is not anymore a concern and leaders may also not actively
promote quality awareness. Change of employee attitude during recession as studied by
Ng et al. (2005) was in term of stress. The economic recession in Hong Kong in recent
years has induced an exceptionally high stress level on construction project participants,
as projects have to be finished within a very tight budget and time frame in order to
attain maximum savings.
Pells, (Ed.) (2008) in his article focused on one part of construction lines which
is project management. He said, the biggest negative impact on the project management
will be the cancellation or delays of capital investment, and therefore in programs and
projects, in many industries. Short term impact will include job losses for project
managers and project teams. The next biggest effect will be on families of project team
members, as more family members become unemployed and as general economic
conditions affect everyday citizens. Other negative effects will include stresses on
19
budgets, schedules, customers, supply chains, and other aspects of project management,
and negative pressure on the project management products and services industry. In the
long run, however, there may be a silver lining. Project management tools may be set to
benefit in unexpected ways.
As stated by Jabatan Tenaga Kerja Semenanjung Malaysia (2009), with quite
numbers of immigrants residing as labor in Malaysia, level of expertise in contracting
has been a question. 27 per cent of the workers in Malaysia are foreign workers. Lee
and Sivananthiran (1996a) quoted that by 1990, this incidence had risen to 71 per cent in
the construction industry, up from 64 per cent in 1980. The hesitation whether these
immigrants have narrowed down the opportunities for Malaysian local labor or not is
still undetermined. The Government response by opening chances to foreign migrant
workers had left significant long-term impact to Malaysian economy namely small
contractors. The issue is not only in term of labor resources but as well as project
awards.
The International Labor Organization (1996) acknowledged that principal
employers, or user enterprises, see in contract labor a number of benefits that contribute
to increased competitiveness and efficiency.
Concerning to the issue, in a study
conducted by Lee and Sivananthiran (1996b) mentioned that principal employers
believed the preference of contract labor over domestic contract workers are because of
its flexibility, higher productivity, lower management costs, and to overcome the
shortage of direct workers.
At the time of recession, the possibility of insolvency in construction industry
cannot be totally rejected.
Mohan (2005) commented in his casebook study on
insolvency and the construction industry. He referred to the extent of the recession on
issues that may arise from building contracts. This includes direct payment to sub-
20
contractors (an undue preference), performance bond improperly, in an attempt to solve
problem of insolvency, removal of fixtures by unpaid contractor, settlement agreement,
and the renewal of contract (novation) with an insolvent contractor (an undervalued
transaction).
Generally, low bid contracting creates business relationship which is based on
price. While Prior (2009) in his study pointed out that cut-throat tendering is one of the
factors for the contracting firms to work below the cost price to win contract. Such
suicide bid mostly happens outside public sector and the bad effect will be on the long
term although it might boost competition among the contractors.
In further, he
commented that the time between bidding and winning an order too is getting longer.
Selection of contractors which based on the low bidder indicates that the contractor has
been well established in the industry and has excess of resources. This may as well
implies that the newly established contractor might face difficulties to win bids. It is
signified that by carefully crafting a complete, unambiguous set of project plans and
specifications, price becomes the sole competitive factor. Gardiner and Theobald (2008)
remarked, tender price indicator for the fourth quarter 2008 forecast that tender price
inflation will continue to fall, -3.5 per cent in 2009 and -3 per cent in 2010 in the United
Kingdom (UK).
Market conditions have an effect on forecasting accuracy. According to Pearl
(1994), this major factor may contribute to another effect such as increase of
competitiveness level of contractors and the estimating performance of cost engineers
and quantity surveyors. Odusami and Onukwabe (2008) in their focused paper stated
that when the economy is buoyant, contractors tend to be less competitive in tendering.
When there is an economic recession, contractors are more competitive. According to
Grogan (2009), while materials prices may be reading the bottom of the market, fierce
competition is continuing to drive costs even lower as contractors and suppliers cut
margins in a desperate search for work. Referring to Cassidy (2009), it’s a sign of how
21
desperate things are that national architectural firms that normally work on hundred
million dollar projects are themselves “reduced” to fighting for the “scraps” that in the
past would have gone to small local firms.
Research and development is one part of an organization.
Some of the
companies establish one separate department to handle research and development
activities for improvement purpose. Brockhoff and Pearson (1998a) studied the impact
of recession to the research and development activity. They concluded that recessions
can have effects on the level and on the composition of corporate research and
development program (Figure 2.1).
Per cent (%) change
of the RD budget
Proportional reaction
Hypothetical reaction scheme
Per cent (%) change of business
activities
Figure 2.1
Reaction scheme of Research and development (RD) budgets to changes in
business cycles (Brockhoff and Pearson, 1998b).
Besides, the possibility that government tightens the standard of contract
proposal is getting higher in bearish market. Musso (1992a) also use the term Activity
22
Based Costing (ABC) by referring to the contracting practice in the country. He cited
the statement from regulations that if the costs under ABC result in lower costs to the
government, then the government will initiate a downward price adjustment. If the costs
under ABC result in higher costs to the government, no increase will be allowed for Cost
Accounting Standards (CAS) contracts unless the contracting officer determines that it is
in the interest of the government to pay for the increased costs.
In contrary, Reimer
(1997b) used the term Compulsory Competitive Tendering (CCT) by referring to the
contracting practice in the country.
However, there is argument by the previous
researchers that economic decisions are as much affected by tradition, historical
precedent, class and gender interests and other social factors as by considerations or
efficiency or profit.
Other than that, internal factors (intra-organizational) also to be considered.
Juhary et al. (2004) stated in his writing that internal factors which are affecting
economical aspects of the contracting organizations are; hierarchical line and staff
structure, permanent employment of staff, various functions and disciplines within an
organizations, and depth the organization with multiple layers. Hussey (2001) said that
there is a role of chance that lies outside his proposed model and there can be external
(inter-organizational) events that can devastate a strategy and even destroy a business.
He marked Bowman’s writing in 1976 that there is also a tendency for managers to
blame external events for failures and to claim the credit when an unpredicted external
event brings unexpected success.
In conclusion, this sub chapter raises awareness of the recession impact to
construction industry. Whilst cycle of recession possibly will come to an end in the near
future, the same pattern of impact could occur at anytime during financial downfall. It is
therefore crucial to identify challenging issues at recession stage before configuring the
success factors.
23
2.4
Contracting Organization Approach
Bajaj (2001a) in print highlighted the risk response and contingency strategies
among contractors.
The study is specified to Sydney, Australia and the survey
conducted for 1995 and 1998 to make the comparison. Bajaj (2001b) opted for these
two years due to in Sydney during 1995; the construction industry was coming out of a
recession. By 1998, partly triggered by the Olympic Games announcement, the industry
was in a boom. The study showed the percentage of response was different depended on
variables. Procurement method used by the contractors based on the mean percentage in
1995 is disclosed as following: design and construct 16.1 per cent; schedule of rates, 6.5
per cent; fixed price, 59.9 per cent, and others, 17.5 per cent. While for 1998 survey is
design and construct, 32.1 per cent; schedule of rates, 15.8 per cent; fixed price, 43.4 per
cent; and others, 8.7 per cent. The data gathered by Bajaj (2001c) is purposely to see
how the company responses to risk.
As stated by Bajaj (2001d), the change to procurement strategies is one of the
reasons for this shift from the 1995 survey, when none of the respondent contractors
used it as an option. Sharing risk with subcontractors is the most popular method of
responding to risk, based on the 1998 survey.
The sharing option has grown in
popularity during the 1990s. Covering of high risk by high contingency, which was one
of the most readily used methods to respond based on the 1995 survey, has dropped to
the lowest-ranked method in the 1998 survey. The decline in popularity of this method
is as dramatic as is the increase in popularity of negotiation with the client on the price
of risk. Deliberately, the study shows contracting organizations tend to enhance and
fitting the risk response according to procurement strategy type during recession.
24
Most of the employers are anxious to invest in marketing. Companies which
stand in cyclical sector such as construction often approaches short-term strategy while
firms adopting long-term approaches across cycles tended to attain superior
performance. Rochford and Wotruba (1993) stressed on the studies from previous
researchers that one reason why new products fail is that there has been poor or no
marketing research conducted. On the other hand, Bennett (2005) in his research offers
practical advice to managers in the construction industry regarding their staff
recruitment, retention, development policies during cyclical downturns, their
employment of relationship marketing, appropriate corporate strategies and budgeting
methods for use in cyclical environments.
Obviously, marketing and investment
strategy should be reviewed during recession. As recommended by previous researchers
and practitioners, allocation of budget on certain approach such as investment and
marketing may not necessarily be reduced.
Besides, in an article wrote by Anonymous (Ed.) (2009b), KPMG’s Global
Construction Survey shows that the recession, rather than forcing cutbacks as would be
expected, has in fact intensified contractor’s efforts to manage the risks associated with
projects. 70 per cent of the respondents say that they have put more effort in the last
twelve (12) months into due diligence and checking the financial stability of clients.
The majority of respondents reported carrying out more in-depth analysis of
performance risks on “mega projects” and devoting considerable time and resources to
improving risk management, through investments in systems and more comprehensive
assessment of cash flow, compliance and safety risks.
Schaafsma (1997) in a research stated that most small builders and subcontractors have traditionally relied on "learning by doing", and usually their only
formal training was in a specialized trade or technical area. It is therefore significant
that in this industry so many of today's "survivors" from the last two recessions reported
25
that there is a growing need for more management training.
In a boom and bust
industry, perhaps management training could also be flexibly integrated with periods of
downturn. Contracting organizations will have to segregate allocation of budget on the
labor management and training to up-skill the workers in time of recession.
According to Ward and Lewandowska (2005a), in highly competitive or
disturbed environments such as existed in Singapore at the time of the 1999 downturn,
competitive strategies are a more effective means of increasing or at least maintaining
company performance.
Inadequate attention to international competitiveness and
strategic management at the industrial level may be a cause of the persistence of issues
to win projects.
Significant impact of economic recession such as boost the
competitiveness among contracting organizations to getting project can be adapted
although it leads to factor that chances to win is reduced. Momaya and Selby (1997a)
states example of remarkable contributions of the automobile and electronics industries
to the prosperity of Japan are excellent examples of impacts of competitive industries.
Goodell and Martin (1992b) stressed the importance of understanding the way
customers are likely to feel and behave. The point is even more appropriate during
recessions, given that organizational purchasing behaviors and attitudes change rapidly
as the recession progresses through its stages.
customer confidence more during recession.
It is somewhat essential to boost
Thereby, many of the contracting
organizations tried to increase sales activity and retain the existing customers.
It has been alleged that adversarial attitudes towards customers exist within
construction companies, resulting from a tendering culture that focuses on winning
individual orders rather than on developing sound long-term relationships with clients.
Reimer (1997c) on the other part said that a dynamic, two-way relationship between
private firms and local authorities has produced regional variations in the proportion of
26
tenders won by private contractors. On one hand, councils are able to encourage or
discourage private sector interests; on the other, firms actively seek work in some areas
of the country and not in others.
Gransberg (1997a) in his article explained that construction cost containment
becomes the major focus of effort, often resulting in extended construction periods,
omitted features, and reduced project functionality. Such measure often considered as
one of the revenue increasing steps in certain contracting organization.
The model of Williamson by Lai and Yik (2006) frames that an appropriate
choice of governance structure is depends on investment characteristics (asset
specificity), frequency and uncertainty of transactions. These factors affect the amount
of transaction costs, including the ex ante (before entering into a contact) resources
required to search information for drafting contract document, and to negotiate with
tenderer; and the ex post (after entering into a contact) costs incurred for measurement
and monitoring of contract performance, and for enforcement of the contract. Chan et
al. (2005b) stressed on Egan’s Report, “Rethinking Construction” expressed grave
concern on the low and reliable rate of profitability of the construction industry, which
was difficult to sustain healthy development. The industry also invests too little in
capital, research, development and training.
The construction industry has lacked vision of the manufacturing sector, where
innovation has long been used as an important tool for achieving competitive advantage,
process improvements and cost efficiency. In a study conducted by Ngowi (2000) on
construction procurement based on concurrent engineering principles shows that one of
the barriers in implementation is Botswana government reacts very slowly to innovative
proposals.
27
2.5
The Success Factors
A comprehensive review of the relevant literature was found debated on the topic
of critical success factors. As discussed by Lam et al. (2004a), CSFs are determinants to
affect the success level of a construction project. The critical success factors (CSFs) are
the statements of how improved business practice must be achieved if an organization is
to be able to attain its mission. Previous researchers have identified factors which can
demonstrate the characteristics of CSFs. Furthermore, criteria and factors resemble the
cause-and-effect relationship. Thereby, relevant literatures on the topic are studied in the
hope these CSFs can be transformed into business aims and practicable.
Jeon (2009) narrated the success factors for a lessons-learned system in a
construction organization.
Construction industry has shifted the focus from offline
communication system to online communication system. Paradigm shift has indeed
encouraged the need for implementation of self-interactive system and intranet for better
communication in construction industry. Employers usually tend to be stingy on the
investment of this system. That is why a leader with optimist mindset is somewhat
important during hard times.
Davenport and Prusak (1998) stated that companies have begun to realize that
actual returns on this investment would be less than initial expectations if online efforts
do not incorporate companies' general offline knowledge management efforts, which are
done without the use of computer networks.
Thereby, leaders in any contracting
organization first have to be equipped with the knowledge of recession before continuing
to purchase a system without having any idea of what to do with it.
28
Ability to adapt to the globalization of the industry and keep track of latest
building and construction technology is the essence of organizations growth. High
levels of globalization have been observed in some segments of the construction
industry. The petrochemical sector in the Middle East and infrastructure sectors in many
developing countries are examples of globalization in the construction industry. On the
word of Momaya and Selby (1997b), the growing popularity or prefabricated houses or
industrialized housing in many developed countries is another indicator of globalization
of the industry. Therefore keeping track is considered as one of the factors to increase
sales during recession.
Public attention is necessary some times, especially for growing contracting
organizations. Plank et al. (1997) summarized in his study that without a detailed public
involvement program, initiation of new projects will be extremely difficult, if not
impossible. Without initiation of new projects from government, contractors may find
not many projects to bid for. From the literature, it is crucial for any contracting
organization to close the gap between them and the local authorities or client. In the
needs to addressing the issue, contracting organization should focus on the market
condition, and study the trend of shares indicator as well as to hire experts in this field.
Unawareness of market condition shall affect the chances to win bids.
In addition, looking at both tendering market and current tendering legislation,
rumors that tendering process is getting complicated and affecting contracting
organizations sounds true. Instead, Talal (2006) of the opinion that lack of industry
consensus and standards has created even more confusion among buyers or sellers of
construction services as well as commodities in the marketplace.
Reimer (1997d)
highlighted the collusion between corporate interests and the former Conservative
Governments reveals that Compulsory Competitive Tendering (CCT) has not been about
29
efficient achievement of cost savings but rather the politically-motivated reshaping of
service provision. Case study on four projects done by Gransberg (1997b) revealed
information that the firm may have been eliminated from competition if the district has
used a different procurement strategy.
Despite the important role of the construction sector within the United Kingdom
economy (it accounts for more than 10 per cent of the UK’s GDP and 12 per cent of total
employment), according to Miozzo and Ivory (2000), the sector is not well protected
against downturns in the business cycle. Its peculiar characteristics such as the physical
nature of its product, the one-off designs and lack of prototyping (lack of continuity in
its ‘production function’). The fact that the activities take place at clients or premises
may explain why it suffers severely during times of recession such as that of the UK
economy in the late 1970s/ early 1980s and in the early 1990s.
Directed by the sighted literature on construction nature of product, although the
similarity in its production is widely recognized throughout the industry, it is somehow
essential to be more innovative and think out of the nature itself. This might increase
competition and run away from old nature of business for something new. In a review
made by Clark (2010), according to the United States of America (USA) Green Building
Council, the brightest spot in the USA building industry is green construction, which is
not affected by the overall down market.
Seymour and Rooke (1995) specified that construction firms have also been
condemned for assuming that downturns lead to fewer new entrants and consequently
less competition, whereas in fact competition intensifies during a downturn and
completely new critical success factors emerge. Rough summary from the research is
that there are several factors affecting the chances of contractors to getting projects in
economic recession which are tender period and market condition, availability and
supplies of labor and materials, client’s financial situation and budget, and type of client.
30
Conversing about clients, they often looks into balanced cost and quality in construction,
meaning to say that the contracting organization has to hold proven record in the
previous projects to stand out in the crowd. Musso (1992b) pointed, it should follow
that the company with better cost management is in position to maximize efficiency and
competitiveness. Inadvertently, contracting organization with better cost management
reflects stronger financial status.
Ward and Lewandowska (2005b) in his article journal highlighted the importance
of fitting marketing decisions and strategy to the particular business climate or
environment that the firm operates in. According to Goodell and Martin (1992c), given
that recession can be a time of rapid change, pain, and hardship, companies may need to
rethink their entire marketing strategy. A carefully prepared recession marketing plan
will reduce company losses and perhaps even leverage the firms’ post-recession market
position and profitability. Following the current economic weather risks, contracting
organizations has to strengthen marketing strategies and draw more attention from
strong stakeholders.
Napier (1989) in his paper further discussed that best-value procurement focuses
on selecting the contractor with the offer most advantageous to the government, when
price and other factors are considered. These factors include technical and managerial
merit, financial health, and past performance. Best-value procurement is not only to
address the matter of efficiency but also found to be the most suitable method during
recession. Involuntarily, best-value procurement is considered as one of the success
factors.
The Chairman of the York County Council as cited in an article by Kudelka
(2000b) mentioned that by partnering with the Department of Transportation, the council
was able to look at a long-term solution and address that. Kudelka (2009c) also further
31
added that partnering is actually going to end up a much less expensive approach, and it
will bring the construction to fruition in a much shorter period of time.
A research conducted by Oo et al. (2008) shows that Hong Kong contractors are
most influenced by market conditions in their decision to bid than Singapore contractors
and this influence is independent of the intensity of competition. The odds of a decision
to bid in Hong Kong are four times higher in recession than in booming times whereas in
Singapore this is only two times. Both Hong Kong and Singapore contractor’s decision
to bid decreases as the number of bidders increased. In further, the research showed that
contracting organization usually decides on the action to bid based on number of
bidders, client type, and project characteristics. The most important point a contracting
organization should obtain is strategizing bidding activities during recession.
2.6
Summary
This chapter has finally revealed that the contracting organization approach
during recession is varies within the organization structure and may be depending on
many means.
Nevertheless, aims and selection of objectives must be reviewed and
revised accordingly based on the economic cycle before converting it into organization
policy and practice.
Different from other studies which are more focusing on the
Critical Success Factors (CSFs) according to the case study and the closest study by Lam
et al. (2004b) on design-build procurement benchmarking, this research is to identify the
critical success factors index through there set of elements of impact, aims and measures
during recession.
32
CHAPTER 3
RESEARCH METHODOLOGY
3.1
Introduction
In this chapter, methodology adopted is discussed.
There are two (2)
methodologies conducted in the research; a review of the literature and questionnaire
survey. From literature review, variables are developed and grouped into indexes based
on the three (3) objectives specified in the study. Respondents were then asked to
response using questionnaire survey sheets within specific time frame. Concisely, the
literature review provided the platform for developing specific themes for the
questionnaire survey conducted.
34
3.2
Literature Review
Literature review was conducted in three (3) phases according to the three (3)
objectives, which are impact of recession, contracting organization approach, and
success factors. Research papers from the previous researchers and practitioners on the
relevant topic were studied. The sources varied from article journals, official reports,
proceedings, books, and authorities’ official websites. Article journals, official reports,
books, and proceedings were obtained from the online databases namely Emerald,
ProQuest, and Science Direct which are available online at Perpustakaan Sultanah
Zanariah (PSZ) portal. Other readings such as statistics and published information were
retrieved from the local authorities’ official websites.
3.3
Questionnaire Design
This survey focused on the respondents’ opinions and experiences depending on
the objectives given out. The questions are structured and standardized to reduce bias
and every respondent to be presented with the same questions and in the same order as
other respondents. This is important so that the questions are always answered within
the same context and impact of context effects can be minimized.
Respondents were asked in the questionnaire sheets which provided based on the
objectives. Section A is questions on the respondent particulars such as name, position,
company name and contact number. Later in Section B is a question on the impact of
recession to the respondent’s organization. In Section C, questions asked are on the
respondent’s company measures which currently or previously have been taken in
35
addressing financial constraint during recessionary period. Finally in Section D is the
question on the success factors that considered as business objectives or aims for the
respondent’s company during financial crisis.
There are total of four (4) main questions asked to the respondents. Each section
which consists of one (1) question then detailed out into sets of statements. On the
question of impact, there are 24 statements were given with options of five scale of
agreement (1 = Strongly Disagree to 5 = Strongly Agree). As for the questions of aim,
there are total of 15 statements and following is 13 statements on the questions of
measures. All these statements were later known as variables.
3.4
Data Collection
The sample was chosen based on the two steps. First step is quota sampling and
the second step is convenient sampling.
Sample selection represents the pool of
contracting organizations that are being studied.
3.4.1
Quota Sampling
The targeted sample size for this study is 50 respondents. Target of respondents
for this research is mainly intended at the contracting organizations involved in the
construction industry. The organizations preferably have been established in Malaysia.
36
The respondents are carefully selected from local companies in Malaysia, which
includes contractors from all classes, suppliers and consultants.
Other than that,
representatives from Public Works Department (PWD) and developer also have not been
totally neglected. Distribution of sample is based on the computation of percentage.
Computation of percentage is based on the following equation:
Percentage (%) = total number of respondent for each employment position/
total number of respondents for all employment position
(1)
Percentage (%) = total number of respondent for each organization type/ total
number of respondents for all organization types
3.4.2
(2)
Convenient Sampling
The survey was conducted in public places, such as the university library, shop
lots, and conferences. Respondents were also selected based on convenient sampling
method until the quotas targeted were met.
3.5
Likert Scaling
The organized data is analyzed using frequency class and relativity index. The
relativity index (R.I) is calculated using the following equation:
37
R.I. = [N1 (1) + N2 (2) + N3 (3) + N4 (4) + N5 (5)]
(3)
N (5)
Where,
R.I
is relativity index
N1
is number of respondents choosing 1 (Strongly Disagree)
N2
is number of respondents choosing 2 (Disagree)
N3
is number of respondents choosing 3 (Slightly Agree)
N4
is number of respondents choosing 4 (Agree)
N5
is number of respondents choosing 5 (Strongly Agree)
The frequency of each class within particular variables then converted into the
percentage of respondents scoring by applying below equation:
Percentage of respondent scoring (P) = n / N x 100%
(4)
Where,
3.6
n
is frequency of the respondents
N
is total number of respondents
Success Factor Model
The success factor model discussed in this paper is modified from the
Knowledge Economy Readiness Model by Cheng et al. (2009a).
The Knowledge
Economy Readiness (KER) model examines the individual readiness based on the
38
reported behavior and perception of what they know, how they do, and what they have
done.
The success factor model adopted in this study consists of three hierarchies,
namely impact, aims, and measures (see Figure 3.1).
Although the hierarchical
framework is applied in this study, it is not the intention to infer that an organization
have to experience the impact of recession before targeting to success.
Based on the readiness model, the Success Factors Index (SFI) that aims to
determine the Critical Success Factors (CSFs) in general is constructed based on three
component indices, namely the Impact Index (II), Aim Index (AI) and Measures Index
(MI). The equal weight method is used as these three indicators are assumed to have an
equal contribution to the SFI Index.
SFI = 1/3 II + 1/3 AI + 1/3 MI
(5)
This study assesses success factor based on the reported impact due to recession
and perception of contracting organization to success. Therefore, the success factor in
this study is viewed as a set of factors induced from impact, aims and measures. The
methodology of using experts’ opinion, perception and reported behavior for a
prediction is common in studies evaluating qualitative variables.
Many factors affect the contracting organization success during recession.
Financial constraint, physiological, strategies and demographic variables such as field
specifications and hierarchy level in a project (employment position) are important
variables to consider. Therefore in this study, the data analysis is conducted to examine
39
the influence of these factors on the determining success of contracting organization
during recessionary period.
Due to no clear guideline on the selection of variables for each sub-index, nonqualitative method applied in methodology of research.
Literatures from previous
researchers that related to recession impact in construction industry were studied. The
variables then selected to best represent the impacts in a contracting organization. 24
variables were chosen to capture the response contributing to the recession impact.
Sub-indexes
Component Index
CSF Index
(Main Index)
Inter-organization
Intra-organization
Recession
Attitude
Background
Impacts
Contracting
organization
Aims
CSF
External
Knowledge
Product
Measures
Strategies
Management
Strategies
Figure 3.1
The Success Factors Model (SFM)
40
3.6.1
Impact Index (II)
Recession has brought immense implication to the construction industry. The
impact is not only varies within many contexts but shockingly has made industry
professionals tremble merely to stay intact despite the financial problem. To examine
whether organization are taking certain approach and changes during recession and to
what extent they are attentive to these changes is one of the useful methods to measure
the impacts. The impact component index thus incorporates two (2) sub-indexes: (i)
inter-organization, and (ii) intra-organization. Intra-organization comprises of five (5)
statements related to the impact ensued within an organization.
As for inter-
organization, it consist of 19 statements related to the impact occurs outside an
organization. This sub-index measures the type of impacts incurred to their organization
of which within the knowledge of respondents.
Other than that, consideration for
additional suggestions from respondents also has been taken. A total of 24 terms were
asked in this question survey. The score is based on the five (5) Likert scaling method,
where 1 = strongly disagree and 5 = strongly agree with the term/statement, the alpha
reliability is 0.9231 for terms. Each sub-index is calculated by averaging the total score
from each sub-component.
II = ½ tools of inter-organization + ½ tools of intra-organization
(6)
3.6.1.1 Inter-organization
External factors may influence the way organization function. As debated by
Hussey (2001) on external events and unexpected success, the event such as recession
41
may allow the decision makers within an organization making the blame on drop of
performance. Thus, this study assesses whether inter-organization elements capable to
be a success factor. It measures to which degree recession contacts the contracting
organization from outside. The Impact Index is constructed based on the following
variables (variables are scaled based on the five-scaled basis, with scale = 1 indicating
low intensity):
(i)
Competition amongst contractor increase;
(ii)
Difficult to win project;
(iii) Number of projects awarded to the company is lessen;
(iv) Lose project to foreign company;
(v)
Number of bidders increase in a bided project; and
(vi) Tender bids lower compares to the estimated cost.
3.6.1.2 Intra-organization
Recession most felt from within an organization. Referring to study made by
Juhary et al. (2004) on internal factors emerged from the impact of recession, internal
factors may affect economical aspects of the contracting organizations. The Impact
Index is constructed based on the following variables (variables are scaled based on the
five-scaled basis, with scale = 1 indicating low intensity):
(i)
Application of acceleration program;
(ii)
Cancellation and delays of capital investment;
(iii)
Centralizations of part or whole organization structure;
(iv)
Change of bidding behavior and pattern;
(v)
Employee attitude revolutionize;
(vi)
Employee termination and deployment;
42
(vii) Insolvencies increase;
(viii) Employee wages slashed;
(ix)
Low bonuses and increment;
(x)
Merge of part or whole organization structure;
(xi)
More attention is given to project management tools;
(xii) Less or zero demand for projects at a time;
(xiii) Quality and safety is no longer a concern;
(xiv) Cutting down of resources;
(xv) Restructuring of part or whole organization structure;
(xvi) Skill shortage due to employee resignation;
(xvii) Tendency to look for cost containment method; and
(xviii) Unpaid or slow overtime claims.
3.6.2
Aims Index (AI)
Each contracting organization is using aims/ targets to create successful practice.
Thus, several categories are identified and considered as the main factors to achieve
triumph in the economic recession.
The categories/ sub-indexes are attitude,
background, external, knowledge, product and strategies. As a result, these six (6) subindexes are considered as the main factors to achieving success. These six (6) elements
together are used to construct the Aims Index (AI) in this study.
AI
=
1/6 attitude + 1/6 background + 1/6 external + 1/6 knowledge + 1/6
product + 1/6 strategies
(7)
43
3.6.2.1 Attitude
Attitude includes not only of the personnel behavior, but physiological and state
of mind. Hence, attitude evolves in daily life. Attitude in this study refers to the way
personnel who involves in a contracting organization act towards the change subject to
recession. This act which later transforms into an organization culture, and able to lead
the organization into win or lose, and success or failure. Review has been conducted on
the literature which narrated about attitude changes and its relation with winning.
Another review was made to the article prepared by Reimer (1997) on two-way
relationship between private firms and the local authorities.
This study assesses whether the contracting organization attitudes capable to be a
success factor. It measures to which degree an optimistic leadership counts and does the
relationship between contracting organization and local authorities/ clients really
matters. The Aims Index is constructed based on the following variables (variables are
scaled based on the five-scaled basis, with scale = 1 indicating low intensity):
(i)
Optimistic leadership; and
(ii)
Tighten rapport with local authorities/ clients.
3.6.2.2 Background
Background is considered as the criteria that supporting other factors that will
lead to success. Compared to attitude, background is non-rivalry and with extensive
effects. Therefore, establishing first-class background will not diminish the value of an
44
organization. On the contrary, it may help the organization to go further and acquire
optimum attention from major stakeholders in the construction industry. Review has
been conducted on the literature related to cost management wrote by Musso (1992).
Another review was on the economic decision based on tradition, historical precedent,
class, gender interests, and other social factors. However, in this study, the Aims Index
is constructed based on the following variables (variables are scaled based on the fivescaled basis, with scale = 1 indicating low intensity):
(i)
Proven track record; and
(ii)
Strong financial status.
3.6.2.3 External
This sub-index is structured in order to assess whether contracting organization
found that number of bidders or competitors considered as an obstacle following the
path to success.
However, contracting organization may argue that the choice of
variable is rather being a factor to success and not to be listed as one of the business
objectives. Supposedly, the upper management can realize the variables into aim such
selecting projects based on the number of bidders. The Aims Index is constructed based
on the following variable; bid of project that has less number of bidders. This variable is
scaled based on the five-scaled basis, with scale = 1 indicating low intensity.
45
3.6.2.4 Knowledge
Knowledge is the root of civilization. In spite of economic market condition,
knowledge is considered as foundation and stepping stone to gaining success.
As
referred to a literature in print by Cheng et al. (2009b), from an individual perspective,
knowledge application improves both work performance and quality of life.
The
improvement in work performance may benefit an organization by increasing
effectiveness and efficiency which may turn into profit. The Aims Index is constructed
based on the following variable; awareness on the financial and economy. This variable
is scaled based on the five-scaled basis, with scale = 1 indicating low intensity.
3.6.2.5 Product
Good business depends on good product. High-quality product results from
excellent process. In order to draw more customers, a contracting organization product
needs to have the ability to adapt to latest technology. The master key in a production is
the quality, quantity, specification, design and demand. Review made on the literature
that construction industry is lacking of innovation compared to the manufacturing sector.
Thus, the Aims Index is constructed based on the following variables (variables are
scaled based on the five-scaled basis, with scale = 1 indicating low intensity):
(i)
Keeping track with global trends;
(ii)
Meeting clients’ expectation; and
(iii) Nature of product that meets end-user demand.
46
3.6.2.6 Strategies
This sub-index is intended to evaluate the perception of contracting organization
towards implementing strategies in various angles of business. Most of the managers
often opted for specific improvement rather than the whole due to cost containment.
Thus, the study in this particular sub-index is to know the most acceptable aims by the
contracting organization to fit with market downfall. The Aims Index is constructed
based on the following variables (variables are scaled based on the five-scaled basis,
with scale = 1 indicating low intensity):
(i)
Best-value procurement;
(ii)
Planned and actual expenses within the allocated budget;
(iii) Bidding strategies that suits market condition;
(iv) Marketing strategies that fit market weather;
(v)
Negotiation and partnering/ outsourcing; and
(vi) Public involvement/ Corporate Social Responsibility (CSR).
3.6.3
Measures Index (MI)
Encouraging measures adopted by the contracting organization during recession
is usually depends on the management decision.
Measures, method or approach
affecting result in the way that the organization future undertakings. The most important
part relevant to this study is whether the measures taken capable to sustain contracting
organization position in construction industry.
Consequently, several sub-indexes
determined and considered as the main actions taken by the contracting organization in
47
addressing financial constraint during recession. These two (2) elements together are
used to construct the Measures Index (MI) in this study.
MI = 1/2 management + 1/2 strategies
(8)
3.6.3.1 Management
This study assesses whether contracting organization approaches the main step to
manage the organization itself through management. It measures to which degree the
management (upper leaders) focuses on solving constraints from the top and whether the
method chosen is widely acceptable among other organizations within the same industry.
The Measures Index is constructed based on the following variables (variables are scaled
based on the five-scaled basis, with scale = 1 indicating low intensity):
(i)
Cost containment;
(ii)
Enhance risk response and contingency plan;
(iii) Mitigation of insolvencies;
(iv) More in-house training and development program;
(v)
Competitive and strategic management; and
(vi) Revenue increasing steps.
48
3.6.3.2 Strategies
Strategies in this sub-index and component are different from another strategies
sub-index in Aim Index (AI) components. In this section, responses obtained are rather
more related to the measure which has taken or currently applied by the contracting
organization. Hence, the variables designed are specifically purposed to know level of
agreement by the contracting organization in term of applying specific strategy in
business. The Measures Index is constructed based on the following variables (variables
are scaled based on the five-scaled basis, with scale = 1 indicating low intensity):
(i)
Bidding strategies;
(ii)
Employ economic experts and advisors;
(iii) Enhance investment strategies;
(iv) Enhance marketing strategies;
(v)
Enhance procurement strategies;
(vi) Boost customer confidence; and
(vii) Tighten rapport with local authorities/ clients.
3.7
Summary
The chapter has explained the way study is conducted. Firstly, literature review
has been used as the background of the study.
Statements from the literatures
transformed into variables and segregated into three (3) sections as accordance to the
study objectives. From thereon, questionnaires have been developed and distributed to
the targeted respondents. Questionnaire sheets were then collected after certain period
for compilation, editing, and analysis purposes. In order to obtain the results faster, data
was grouped into indexes. Success Factor Model (SFM) which later designed is to
49
integrate these indexes into three (3) major elements in the model. In determining the
critical success factors (CSFs), Success Factor Index (SFI) is determined. Other than
that, the critical impact, measures and success factors also can be recognized using the
rank-ordered variables. However, SFI is preferred due to results of the study can be
summarized and understood easily. It is summarized that there are only two (2) methods
conducted in the study. The qualitative and non-qualitative methods have provided the
necessary data required in order to proceed with the analysis. It is hoped that data
analysis can be continued from this point.
CHAPTER 4
RESULTS AND FINDINGS
.
4.1
Introduction
This chapter explains the analysis conducted on the data gathered from the
questionnaire survey. Added to this is the comparison between the variables obtained
from the literature review with the results obtained from the survey. Findings are then
derived from the analysis based on the study objectives. Lastly, the obtained results are
summarized in the final sub-chapter, discussion.
Once the survey period ended, all the questionnaires are gathered for the purpose
of data compilation. The process of inputting pooled data into Microsoft Excel takes
only few weeks. This process pursued with editing, coding, reviewing and correcting.
Following this is the data analysis which was done starting from 28th December to 31st
December 2009.
51
4.2
Respondent Distribution and Background
To ensure adequate samples were collected for this study, an extra 10 per cent of
the questionnaires were distributed to other acquaintances.
Thus, a total of 70
questionnaires were distributed and the collected questionnaires were 45. The response
rate was 64 per cent. Questionnaires which contained 30 per cent incomplete answers
were discarded from the sample. Thus, the actual sample size in this study is 30.
Table 4.1 presents frequency distribution of respondent employment position
demographics with the majority of responses indicating engineer (46.67%).
Table 4.1
Respondent employment position demographic
Position
Percentage
No.
Mean
Coordinator
10.00%
3
0.10
Engineer
46.67%
14
0.47
Executive
16.67%
5
0.17
Foreman
3.33%
1
0.03
Manager
10.00%
3
0.10
Quantity Surveyor
3.33%
1
0.03
Site Agent
3.33%
1
0.03
Supervisor
6.67%
2
0.07
100.00%
30
0.13
Total
52
Distribution of respondents position by percentage
6.67%
Employment position
Supervisor
Site Agent
3.33%
Quantity Surveyor
3.33%
10.00%
Manager
3.33%
Foreman
16.67%
Executive
46.67%
Engineer
10.00%
Coordinator
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Percentage
Figure 4.1
The distribution of sample based on employment position
Table 4.2 presents the frequency distribution of respondent organization type
demographics. The respondent demographic profile is considered representative of the
contracting organizations with the majority of responses indicating contractor (63.33%).
Table 4.2
Respondent organization type demographic
Type
Percentage
No.
Mean
Consultant
6.67%
2
0.07
Contractor
63.33%
19
0.63
Developer
10.00%
3
0.10
Local authorities
6.67%
2
0.07
Supply chain
13.33%
4
0.13
100.00%
30
0.20
Total
53
Distribution of organization types by percentage
13.33%
Supply chain
6.67%
Organization type
Local authorities
10.00%
Developer
63.33%
Contractor
6.67%
Consultant
0%
10%
20%
30%
40%
50%
60%
70%
Percentage
Figure 4.2
4.3
The distribution of sample based on organization type
Results and Findings
Table 4.3 represents the results of a rank order distribution of the recession
impact to the contracting organization scores. Given a scale coding and interpretation of
Strongly Agree (5), Agree (4) and Slightly Agree (3), a three or greater rank order break
in agreement occurs between impacts ranked 21 and 22 producing 21 impacts in
agreement and only three not in agreement or in general disagreement. A score of one
(1) and two (2) is coded and interpreted as strongly disagree and disagree respectively.
The belief that “difficult to win any project” scored the highest level of response
agreement (3.63). This could be interpreted as representing general and consistent
contracting organizations support of the most obvious impact due to recession. The
belief that “quality and safety is no longer a concern” scored the lowest level of
54
agreement (2.30). This could be interpreted as indicating contracting organization belief
that quality and safety concern should not be ignored based on market condition and
therefore representing the awareness on safety and health is presents amongst the
involved parties in construction.
Additional interpretations include the observation that contracting organizations
agree (scoring 3.0 or higher) that the impacts of recession are: (2) more attention is given
to project management tools; (3) change of bidding behavior and pattern; (4) tendency to
look for cost-cutting methods; (5) application of acceleration programs; (6) cancellation
and delays of capital investment; (7) skill shortage due to resignation of professionals
and skilled staffs; (8) competition amongst contractors increase; (9) number of bidders in
a project increase; (10) restructuring of part or whole organization; (11) low bonuses and
increment; (12) cutting down of resources; (13) tender bids is lower from the estimated
project cost; (14) unpaid or slow overtime claims; (15) insolvencies; (16) centralizations
of part or whole organization; (17) employee termination or deployment; (18) number of
projects awarded lessen; (19) merger; (20) labor and staff wages cut off; and (21)
decreasing demand of project.
Table 4.3
Rank ordered impact of recession to the contracting organization scores
RANK-ORDERED IMPACT VARIABLES
Rank
Code
Description
Mean Score
1
8
Difficult to win new project
3.63
2
15
More attention is given to project management tools
3.60
3
4
Change of bidding behavior & pattern
3.57
4
22
Tendency to look for cost containment methods
3.53
5
1
Application of acceleration programs
3.50
6
2
Cancellation and delays of capital investment
3.50
7
21
Skill shortage due to employee resignation
3.47
8
5
Competition amongst contractors increase
3.43
9
17
Numbers of bidders increase in a bided project
3.43
10
20
Restructuring of part or whole organization structure
3.43
55
11
13
Low bonuses and increment
3.40
12
19
Cutting down of resources
3.40
13
23
Tender bids is lower compared to the estimated cost
3.33
14
24
Unpaid or slow overtime claims
3.33
15
9
Insolvencies increase
3.27
16
3
Centralizations of part or organization structure
3.23
17
7
Employee termination and deployment
3.23
18
11
Number of projects awarded to the company is lessen
3.23
19
14
Merge of part or whole organization structure
3.20
20
10
Employee wages slashed
3.07
21
16
Less or zero demands for project at a time
3.07
22
6
Employee attitude revolutionize
2.90
23
12
Lose project to foreign company
2.83
24
18
Quality and safety is no longer a concern
2.30
Other impacts also have been presented by the respondents which are not
included in the questionnaire: (1) non-availability of certain construction resources; (2)
changes in the prices after bidding compares to what has been projected; (3) fraud cases
increase; (4) multiple tasks assigned to a staff; (5) relocation of financial resources from
a project to another; (6) lag; (7) expedition; (8) more government projects entrust to
PWD for cost cutting purposes; and (9) changes in the priority level.
Figure 4.3 shows that the highest mean score for the Impact Index (II) is interorganization, 3.32 and the alpha reliability for this six-item measure is 0.9607. As for
intra-organization, the mean score is 3.28 and the alpha reliability for this nineteen-item
measure is 0.9576. The mean score for sub-index is not much difference from each
other. However, both scored below 4.00.
56
Impact index (II)
3.33
3.32
m 3.32
e
a 3.31
n
3.30
s
c
o
r
e
3.29
3.28
3.28
3.27
3.26
inter-organization
intra-organization
Sub-indexes
Figure 4.3
Figure shows the mean score for sub-indexes in Impact Index (II)
component.
Table 4.4 presents the results of a rank order distribution of the critical success
factors based on the respondents’ opinion scores. Given a scale coding and interpretation
of Strongly Agree (5), Agree (4) and Slightly Agree (3), no rank order break occurs
producing all factors, 15 in agreement. A score of one (1) and two (2) is coded and
interpreted as strongly disagree and disagree respectively. No factors are ordered in
these two ranks. As expected, the belief that “company with strong financial status”
scored the highest level of response agreement (4.13). This could be interpreted as
representing general and consistent contracting organizations support on the important
concern in order to success during recession. The belief that “fewer bidders involve in a
project” scored the lowest level of agreement (3.30). This could be interpreted that
number of bidders is not a major factor to determine victory in bidding.
57
Additional interpretations include the observation that contracting organizations
agree (scoring 3.0 or higher) in order to success: (2) company must meet clients’ client’s
expectation; (3) company with proven track record; (4) company that keep track with
global trends; (5) planning and expenses within project budget; (6) bidding strategies
that suits market condition; (7) negotiation and partnering; (8) marketing strategies that
fit the market weather; (9) good rapport with the local authorities and clients; (10) beatvalue procurement; (11) equipped with knowledge on economy; (12) management with
optimist mindset; (13) nature of product that meets end-user demand; (14) involvement
with the public; and (15) fewer bidder involve in a project.
Table 4.4 Rank ordered Critical Success Factors (CSF) scores
RANK-OREDERED AIM VARIABLES
Rank
Code
Description
Mean Score
1
6
Strong financial status
4.13
2
4
Meeting clients' expectation
4.10
3
5
Proven track record
4.07
4
3
Keeping track with global trends
4.00
5
14
Planned and actual expenses within allocated budget
3.93
6
2
Bidding strategies that suits market condition
3.87
7
13
Negotiation and partnering/ Outsourcing
3.87
8
11
Marketing strategies that fit market weather
3.83
9
15
Tighten rapport with local authorities and clients
3.83
10
1
Best-value procurement
3.80
11
8
Awareness on the financial and economy
3.67
12
10
Optimistic leadership
3.53
13
12
Nature of product that meets end-user demand
3.53
14
7
Public involvement/ CSR
3.47
15
9
Bid for project that has less number of bidders
3.30
Other success factors also have been presented by the respondents which are not
included in the questionnaire: (1) government policies; (2) low interest loan from
financial institutions; (3) government support on the economical investment and
58
pumping of resources into the market; and (4) recognition for competitive industry
players.
Figure 4.3 shows that the highest mean for the Aim Index (AI) is background
sub-index, which scored 4.10 and alpha reliability for this two-item measure is 0.9298.
This is followed by product, 3.88 (alpha reliability for this three-item measure is 0.9298)
and the third is strategies, 3.79 (alpha reliability for this six-item measures is 0.9327).
Next is attitude, 3.68 (alpha reliability for this two-item measure is 0.9386), knowledge,
3.67 (alpha reliability for this one-item measure is 0.9474) and lastly external, 3.30
(alpha reliability for this one-item measure is 0.9298). The mean score for each subindex scored below within the range of 3.01 to 4.00.
Aim Index (AI)
3.68
3.88
product
s
c
o
r
e
3.67
strategies
m
e 3.50
a 3.00
n
2.50
3.79
attitude
4.00
knowledge
4.50
4.10
3.30
2.00
1.50
1.00
0.50
background
external
0.00
Sub-indexes
Figure 4.4
component.
Figure shows the mean score for sub-indexes in Aim Index (AI)
59
Table 4.5 presents the rank ordered results of approach taken during recession
scores for contracting organizations. Given a scale coding and interpretation of Strongly
Agree (5), Agree (4) and Slightly Agree (3), a three or greater rank order break in
agreement occurs between approach number twelve and thirteen producing twelve
measures in agreement and only one not in agreement or in general disagreement. A
score of one (1) and two (2) is coded and interpreted as strongly disagree and disagree
respectively. The belief that “tightens rapport with the local authorities and clients”
scored the highest level of agreement (4.00). The lowest mean score in opinion for the
contracting organizations were associated with whether or not their company would be
at an advantage to hire economic experts or advisors during recessionary period.
Additional interpretations include the measures of which
contracting
organizations agree (scoring 3.0 or higher) with are (2) competitive and strategic
management; (3) enhance risk response and contingency plan; (4) appliance of costcutting method; (5) Improvising investment strategies; (6) mitigation of insolvencies; (7)
bidding strategies; (8) improvising marketing strategies; (9) revenue increasing steps;
(10) improvising procurement strategies; (11) more attention is given to customers’
feedback; and (12) more training and development programs.
Table 4.5 Rank ordered contracting organization approach during recession scores
RANK-ORDERED MEASURES VARIABLES
Rank
Code
Description
Mean Score
1
13
Tighten rapport with local authorities and clients
4.00
2
11
Competitive and strategic management
3.90
3
3
Enhance risk response and contingency plan
3.87
4
1
Cost containment
3.80
5
5
Enhance investment strategies
3.80
6
8
Mitigation of insolvencies
3.70
7
2
Bidding strategies
3.67
8
6
Enhance marketing strategies
3.67
9
12
Revenue increasing steps
3.63
60
10
7
Enhance procurement strategies
3.53
11
9
Boost customer confidence
3.50
12
10
More in-house training and development programme
3.43
13
4
Employ economic expert and advisor
2.77
Figure 4.5 shows that the highest mean score for the Measures Index (MI) is
management, 3.72 (alpha reliability for this six-item measure is 0.9184) while for
strategies is 3.56 (alpha reliability for this seven-item measure is 0.9271).
The
difference of these two sub-indexes is 0.16. However, both scored within 3.01 to 4.00.
Measures Index (MI)
3.75
3.72
m 3.70
e
a 3.65
n
s
c
o
r
e
3.60
3.56
3.55
3.50
3.45
strategies
management
Sub-indexes
Figure 4.5
Figure shows the mean score for sub-indexes in Measures Index (MI)
component.
Figure 4.6 shows the distribution of SFI while Table 4.1 represents the
distribution of scores for each component index, namely II, AI, and MI. the respondents
61
were categorized into four groups: 1.00 – 2.00, 2.01 – 3.00, 3.01 – 4.00, and 4.01 – 5.00.
Figure 4.4 showed that for SFI, majority of the respondents belonged to the group
contained 3.01 – 4.00. This group contained 86.54 per cent of the total respondents.
The group scores of 2.01 – 3.00 was the second largest group, with a percentage of 7.69
per cent, which is considered very low compared to the first group. The difference
between first and second largest is 78.85 per cent. Only 5.77 per cent of the respondents
scored above 4.01. As for score range 1.00 – 2.00, 0.00 per cent encountered. Table 4.1
clearly shows for each sub-indexes, majority of the respondents were grouped in the
category of scores from 3.01 – 4.00.
Success Factors Index (SFI)
100.00%
86.54%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
7.69%
10.00%
5.77%
0.00%
0.00%
1.00 - 2.00
Figure 4.6
2.01 - 3.00
Score
3.01 - 4.00
4.01 - 5.00
Means score and percentage for Success Factors Index (SFI)
62
Table 4.6 Component Index
Score
II (%)
AI (%)
MI (%)
1.00 – 2.00
0.00
0.00
0.00
2.01 – 3.00
12.50
0.00
7.69
3.01 – 4.00
87.50
80.00
92.31
4.01 – 5.00
0.00
20.00
0.00
Total
100.00
100.00
100.00
Table 4.7 shows the average scores for the SFI, SFI components and subindexes. Over a scale of 1 to 5 (1 refers to the lowest agreement while 5 refers to the
highest agreement), the average level of success factor was 3.56.
Majority of the
respondents scored below 4.00 for the component and sub-indexes.
Table 4.7
Distribution of SFI, Component and Sub-Indexes
N
Min
Max
Mean (µ)
Std. Dev. (σ)
Success Factor Index (SFI)
30
1.89
4.90
3.56
0.76
Impact Index (II)
30
1.45
4.78
3.30
0.86
Intra-organization
30
1.22
4.72
3.28
0.87
Inter-organization
30
1.67
4.83
3.32
0.85
Aim Index (AI)
30
2.09
4.93
3.64
0.72
Management
30
2.17
2.17
3.72
0.70
Strategies
30
2.00
2.00
3.56
0.73
Measures Index (MI)
30
2.14
5.00
3.74
0.70
Attitude
30
2.00
5.00
3.68
0.73
Background
30
2.50
5.00
4.10
0.57
External
30
1.00
5.00
3.30
0.92
Knowledge
30
3.00
5.00
3.67
0.71
Product
30
2.00
5.00
3.88
0.67
Strategies
30
2.33
5.00
3.79
0.60
63
Figure 4.7 illustrates that, in general, contracting organizations in Malaysia are at
stage of taking measures in solving issues caused by recession but are still sheathing
behind in terms of understanding the impact and the importance of setting business aims
in order to success. The average impact index, aim and measure indexes were II = 3.29,
AI = 3.64 and MI = 3.80, respectively, indicating an increasing awareness once moving
up the transformation ladder.
3.80
3.8
3.7
3.64
3.6
3.5
3.4
3.29
3.3
3.2
3.1
3
Impact
Aim
Measure
Figure 4.7
4.4
Distributions of Impact Index, Aim Index and Measure Index
Discussions
In general, Impact Index (II) in this paper measured by variables inclusive of
what happens within a contracting organization and to the activities of which they
involved in outside the contracting organization. The alpha reliability for II is 0.9592
which means the items have relatively high internal consistency and acceptable
64
reliability coefficient. Impact Index is considered as the most reliable scale among the
three (3) indexes.
The findings explain the enormous impact occurs outside the
contracting organization. It is generally accepted that number of project tender, tender
price, competition and number of competitors play a significant role in determining
contracting organizations’ to success.
Sadly, these issues often out of contracting
organization control. For instance, those who involved in contracting are more aware
and more ready to accept the impact of recession compared to other parties involved in
construction industry. The most important variable in intra-organization sub-index is
more attention is given to the project management tool. Mean score for this variable is
the highest among others which is 3.60.
This means contracting organization is
becoming more organized and particular on the planning and scheduling. On the other
hand, majority of the respondents agreed that chances of getting project are smaller.
Contracting organization finds it is difficult to win new project during recessionary
period.
Further discussion made on Aim Index (AI). The variables represent general
aspect of consideration made by contracting organization when establishing business
objectives. This index comprises attitude, background, external, knowledge, product,
and strategies. The alpha reliability for AI is 0.9347 which means the items have
relatively high internal consistency and acceptable reliability coefficient. However,
Aims Index is considered as less reliable scale compared to Impact Index. The result
shows that background of a contracting organization incorporate a major position in
organizations’ aim list. Thus, the managers feel it is the utmost essential part to grow
the business to a certain level before taking other matters into account. This discovery is
supported by the highest mean score of a variable in the background sub-index. Most of
the respondents were in the perception that in order to success, a contracting
organization must have strong financial status despite recession.
This shows that
construction industry in nature is depending mostly on availability of fund. Strong
financial ability means funding issue is not the major hindrance to bid for a project.
Mean score for this variable is 4.13.
65
Added to this discussion is Measure Index (MI), which measured by variables
encompassing of how a contracting organization managing the business and what
strategies taken during recession. The alpha reliability for MI is 0.9228 which means the
items have relatively high internal consistency and acceptable reliability coefficient.
However, Measure Index is considered as the least reliable scale among the three (3)
indexes. The results from this study demonstrate that business strategy is favored more
than management during recession. It also shows that contracting organization generally
improving strategy in term of investment, marketing, procurement, bidding, and
corporate relations. The highest mean score for a variable in strategies sub-index is
4.00. Most of the respondents in the perception of tightening rapport with the local
authorities and clients may improve the chance of winning bids during recession. How
the relationship tightens however not detailed out in this study. In contrary, the second
highest mean score obtained in management sub-index. The variable is competitive and
strategic management with the mean score of 3.90. The score shows that as competition
is getting higher in recession, management opted for a more competitive decision.
Different from independent and specific approach in strategies sub-index, contracting
organization generally accept managerial decisions and actions that determines the long
run performance and competitive at the same time. In light of this measure, the upper
manager is therefore more focused on monitoring and evaluating performance during
recessionary period.
4.5
Summary
This chapter has successfully analyzed the data based on the methodology opted.
The findings show that the highest sub-index mean scored for Impact Index (II) is inter-
66
organization.
As for Aim Index (AI), the highest mean score for its sub-index is
background. Finally is Measure Index (MI), whereby the highest mean score for its subindex is management. These elements were grouped and later contributed to the Success
Factors Index (SFI) which overall percentage of mean score is 86.54 per cent within the
range of 3.01 to 4.00. Among these three (3) elements, the highest mean score is
Measure Index (MI), 3.80. This is followed by Aim Index (AI), 3.64, and at last is
Impact Index (II), 3.29. On the other hand, the rank-ordered variables also showing
same results, however not in specific detail. Nevertheless, data analysis conducted in the
chapter shows that the relativity index and average weighting method is the suitable
method for this research.
CHAPTER 5
CONCLUSIONS AND RECOMMENDATION
5.1
Introduction
In this chapter, all results and findings are summarized. The question of whether
the aim and objectives are achieved is revealed. Finally at the end of this chapter is the
recommendation for future research is discussed.
5.2
Conclusion
First of all, aim of this research has been successfully attained. The Critical
Success Factors (CSFs) for contracting organization during recessionary period is
determined through survey and analysis. From the overall study, average score of
Measure Index (MI) is higher than Aims Index (AI) and Impact Index (II) with the
Impact Index having the lowest score. In brief, there is significant relativity between
68
measures taken by the contracting organization with the critical success factors. This is
followed by business aims and at last is the impact itself. The following paragraphs
conclude the findings based on the three (3) objectives.
First objective in this study that is to identify critical impact has been discussed
in the previous chapter.
From the findings indicated that the objective has been
successfully achieved. The most obvious impact is difficult to obtain new project was
recognized. By looking at the detail analysis, the study shows that the average scores of
the Success Factor Index (SFI) in Malaysia is 3.56 as well as component and sub-index
are 4.00 on a scale of 5.00, which is considered low in readiness and adaptability in
changes. Thus, efforts are needed to improve contracting organization readiness and
adaptability to the changes while surviving through recession so that such difficulty is no
longer considered an obstacle.
Next is the second objective which is to identify the most common approach
undertaken by contracting organization during recessionary period, has been
successfully achieved. The most agreeable approach is to tighten corporate relations
with the local authorities and clients. In contrary, the new concept of strategic and
competitive management is widely accepted by most contracting organizations. By
enhancing the management ways of thinking and internal policy, monitoring and setting
up of in-house practice is in fact second most opted by the contracting organization.
Focus on inter-organization relations somehow has been proved to increase efficiency in
any operation. Other than that, risk response and contingency plan scored third highest
rank in measures/ aims list. The importance of disaster recovery plan as the primary
back-up during financial crisis becomes one of the priorities during recession.
The third objective and the last, which is to identify the critical success factor
during recession also has been successfully achieved. In contrary, the objective also is
69
to determine the most agreeable success factor. It is analyzed that the majority of
contracting organization accepts, critical success factor is to establish strong financial
status before focusing on how to obtain new projects. However, business aims may have
been established long ago but it needs enduring effort to achieve such as in term of
financial. Most of the contracting organizations believe that by transforming business
aim into measures might support their intention to winning. This perception actually can
be achieved if the upper leaders decide to strategize business according to world
economic weather.
5.3
Recommendation
This study builds on the success factors index to assess the contracting
organization readiness towards a success through changes during recession that is
currently affecting construction industry. This study is essential as the development of a
successful contracting organization. For future research, it is recommended that a study
should be done to identify what is obstructing the contracting organizations from
adapting the Critical Success Factors (CSFs) during recession. From thereon, a set of
Management by Objective (MBO) or Key Performance Indicator (KPI) can be
developed specially to go through recessionary period. Other than that, another study
can be done specifically to the contracting organization approach in tightening rapport
with the local authorities and clients.
The results can actually be used for many
improvement purposes. It is hoped that the chapter bring the lights to the construction
industry and help to improve the contracting organization performance at the time of
recession.
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APPENDIX A
Questionnaire Survey Form
78
Universiti Teknologi Malaysia | Faculty of Civil Engineering
Questionnaire Survey Form
Masters project for the award of the degree in
Master of Science (Construction Management)
Title
Critical Success Factors for Contracting Organization during Recession
Supervisor
Professor Dr. Muhd. Zaimi bin Abd. Majid
Prepared by
Azlinda binti Mat Lazim | MA 081506
This research is mainly conducted for academic purposes only. All data obtained will be
kept strictly confidential. This questionnaire is divided into four sections and each
section may represent an objective. Please respond and complete all sections.
79
Section A
This section is purposed to gather general information on the survey participant and the
company he/she represents.
Your name (optional) :
_______________________________________________
Position
_______________________________________________
:
Company name & address : _______________________________________________
_______________________________________________
Contact number (optional) : _______________________________________________
Section B
In this section, survey participant is required to choose the impact which is affecting
her/his company during recession using the preference indicator ( 1=Strongly disagree |
1
Application of acceleration programs
2
Cancellation and delays of capital
investments
3
Centralizations of part or whole organization
structure
4
Change of bidding behavior and
pattern
agree
Strongly
Agree
agree
Slightly
Disagree
Impacts
Disagree
No.
Strongly
2=Disagree | 3=Slightly agree | 4=Agree | 5=Strongly agree ).
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
80
5
Competition amongst contractors increase
1
2
3
4
5
6
Employee attitude revolutionize
1
2
3
4
5
7
Employee termination and deployment
1
2
3
4
5
8
Difficult to win new project
1
2
3
4
5
9
Insolvencies increased
1
2
3
4
5
10
Employee wages slashed
1
2
3
4
5
11
Number of projects awarded to the company
1
2
3
4
5
is lessen
12
Lose project to foreign company
1
2
3
4
5
13
Low bonuses and increment
1
2
3
4
5
14
Mergers of part or whole organization
1
2
3
4
5
1
2
3
4
5
structure
15
More attention is given to project
management tools
16
Less or zero demands for project at a time
1
2
3
4
5
17
Number of bidders increase in a bided project
1
2
3
4
5
18
Quality and safety is no longer a concern
1
2
3
4
5
19
Cutting down of resources
1
2
3
4
5
20
Restructuring of part or whole organization
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
structure
21
Skill shortage due to employee resignation
22
Tendency to look for cost containment
methods
23
Tender bids is lower compared to the
estimated cost
24
Unpaid or slow overtime claims
81
Please state other impact that you may have noticed:
_______________________________________________________________________
_______________________________________________________________________
Section C
In this section, survey participant is required to choose the his/ her company approach |
method in addressing with financial constraint using the preference indicator (
agree
Strongly
Agree
agree
Slightly
Disagree
Approach/ Measures
Disagree
No.
Strongly
1=Strongly disagree | 2=Disagree | 3=Slightly agree | 4=Agree | 5=Strongly agree ).
1
Cost containment
1
2
3
4
5
2
Bidding strategies
1
2
3
4
5
3
Enhance risk response and contingency plan
1
2
3
4
5
4
Employ economic experts and advisors
1
2
3
4
5
5
Enhance investment strategies
1
2
3
4
5
6
Enhance marketing strategies
1
2
3
4
5
7
Enhance procurement strategies
1
2
3
4
5
8
Mitigation of insolvencies
1
2
3
4
5
9
Boost customer confidence
1
2
3
4
5
10
More in-house training and development
1
2
3
4
5
1
2
3
4
5
programme
11
Competitive and strategic management
82
12
Revenue increasing steps (i.e. new project
extension etc.)
13
Tighten rapport with the local authorities and
clients
1
2
3
4
5
1
2
3
4
5
Please state other methods that you may have noticed:
_______________________________________________________________________
_______________________________________________________________________
Section D
In this section, survey participant is required to choose the success factors which able to
influence the chances of any company to win bid during economic downturn (recession)
using the preference indicator ( 1=Strongly disagree | 2=Disagree | 3=Slightly agree |
agree
Strongly
Agree
agree
Slightly
Disagree
Success factors
Disagree
No.
Strongly
4=Agree | 5=Strongly agree ).
1
Best-value procurement
1
2
3
4
5
2
Bidding strategies that suits market condition
1
2
3
4
5
3
Keeping track with global trends
1
2
3
4
5
4
Meeting clients’ expectation
1
2
3
4
5
5
Proven track record
1
2
3
4
5
6
Strong financial status
1
2
3
4
5
7
Public involvement/ CSR
1
2
3
4
5
83
8
Awareness on the financial and economy
9
Bid for project that has less number of
bidders
10
Optimistic leadership
11
Marketing strategies that fit the market
weather
12
Nature of product that meets end-user
demand
13
Negotiation and partnering/ outsourcing
14
Planned and actual expenses within the
allocated budget
15
Tighten rapport with local authorities and
clients
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
Please state other success factors that you may have noticed:
_______________________________________________________________________
_______________________________________________________________________
“Thank you for your willingness to involve in this survey”