Create Construction company- Spend 20millions

• Deal only with environmentally sustainable building/construction development; • Meet the standards and obligations desired by the society in which the company operates; • Comply with modern corporate social, environmental and sustainability responsibilities.

4. Company Organisational Structures The choices of managerial organisation most suited for the company are many and depend upon many factors such as size, geographical location, type of work done, managerial/technical skills available and extent of subcontracted work/outsourced supplies. Noticeably, in contrast to selling enterprises, with the attendant need for a complex management structure to penetrate markets wholesale, the construction-only function dictates a relatively flat arrangement with few levels of management. And, unlike manufacturers with sole responsibility for a product, contractors rarely need comprehensive in-house design capacity, so in effect rendering even the international contractor’s structure, at least at head office, relatively uncomplicated.

However, on a very large scheme the complex tiers of management commonplace in the factory or production plant may be partly evident at site. Furthermore, as more design-and-build work develops, firms are upgrading business- development departments in particular and strengthening organisational mechanisms for coordinating design partners similar to the project-management arrangements described in Fig. 8.9, where, for example, teams are established to oversee projects from inception to completion. Structures are also evolving to manage more intense quality-assurance procedures and better control of subcontractors and external suppliers through strengthened management of the purchasing function all linked to a greater emphasis on health, safety and environmental issues in the more stringent climate governed by the Construction Design and Management (CDM) regulations and corporate-social-responsibility issues.

4.1 Small Company The simple form of organisational structure divided by functions is common to the smaller company with construction interests limited to a few specialties’ only, for example:

• Concrete structures; • Steel erection; • House building;

• Earthmoving; • Pipe lying.

It is also well suited to the small and medium-sized local construction company, where technical specialisms are few, departments controlled by a single manager and all the contracts handled from head office, with perhaps only a general foreman/supervisor on site.

Such companies are usually headed by the major and controlling shareholder appointed as managing director (broadly, president in US terminology) whose duties typically embrace the following responsibilities:

Make policy and provide strategic guidance;

• Manage the company in compliance with the stated objectives and articles; • Coordinate the activities of the various business departments; • Establish staff functions’ procedures; • Define and implement the health, safety and social responsibilities’ policy of the company; • Develop and standardize cost-effective procedures for departments; • Develop the company’s business, revenue base and profitability; • Foster a customer-oriented culture; • Establish sound working relations with clients and shareholders; • Promote the company’s identity; • Direct and improve operations and management systems.

4.2 Medium-Sized Company As a company increases the volume of its turnover, the contracts undertaken tend to become more complex and extra skills need to be recruited. The head-office structure, therefore, not only expands but also subdivides into separately managed elements. The structure begins to take on the form with the major functions typically led by salaried senior managers, sometimes having director status. A director is an officer of the company entitled to a modest fee for services rendered and as a member of the board of directors is collectively responsible for running the company as set out in the articles of

association. Posts such as the managing director or finance director are usually contracted to carry out specified additional duties in a salaried executive capacity. Some directors could be major shareholders.

Administration subdivided into elements

Services subdivided into elements

Accounts subdivided into elements

4.3 Large Private Company The underlying principle of the simple form of structure is retained but commonly decentralised into specialist divisions, units and departments, for example, civil engineering, building, housing, groundworks, international construction, geographical regions, general contracting, management/design and build, special products, etc., executed through the board of directors (vice-presidents), led by the managing director However, the appropriate degree of autonomy of functions or units, particularly services and administration departments, depends upon the market, geographical spread, supply chain, communication demands, etc. Indeed, for diversified group holdings, variants of the matrix-type organisation may be more appropriate for achieving a lean cost base.

The large company generally undertakes contracts of many types and sizes, which demands considerable resources and a variety of skills, especially competent directors, managers, staff, workforce and suppliers. The mechanisms needed to bring about expansion vary in relation to market opportunities, coupled with the ability of the organisation to secure work at competitive prices delivered to budget, on time and to the client’s satisfaction. Since inherent growth is restrictive in an industry overburdened with competitors, raising market share is more commonly sought through takeovers and diversification into different commercial interests. But for the private firm, opportunities are limited as an accurate valuation of the company to be acquired needs to be assessed, owners persuaded to sell and sufficient funds obtained to secure the controlling proportion of shares in the new subsidiary.

Investigations suggest that such strategies have in general failed to produce better balance-sheet results than firms not pursuing growth by acquisition. Growth, nevertheless, helps build up assets paramount as collateral in gaining access to major construction work such as Design Build Finance Operate (DBFO) and Build Own Operate Transfer (BOOT) projects where financial support from the banks and financial houses is essential in raising capital to finance the significant long-term investments involved.

Holdings of a group of companies

Notably, the proportion of individual long-term shareholders and institutional investors such as pension funds is gradually losing voting strength to professional fund managers whose investment interests are often short-term, related to company share and the stock market index performance.

5. Board of Directors The board of directors, who may be shareholders, varies according to need, for example, salaried or contracted officers comprising the Chief Executive Officer (CEO), Chief Operating Officer (COO), Chief Financial Officer (CFO), responsible for oversight of major strategic segments, plus other key functional officers and invited non-executive directors (ostensibly independent and the majority in US corporations) paid a fee to serve on the main board. Usually, the Chief Executive Officer is a salaried employee (and also commonly a director) contracted, or fired when necessary, by the board to steer the enterprise and delegated with power of management and authority. Investigations suggest that the most successful companies recruit the CEO from experienced, dynamic, internal candidates. But in order to contain excessive independent action of the CEO, a very senior director is sometimes nominated as chairperson to preside over business affairs, represent the company externally and internationally, act as its senior ambassador and deal with stakeholders and outside bodies. Directors are approved and appointed, or removed, subject to breach of contract, by the shareholder(s) at a general meeting, but the board may independently fill vacancies and engage additional directors. Consequently, in practice, shareholders have limited influence, as resolutions and board membership nominations for the annual general meeting (AGM) are largely the board’s prerogative. Likewise, proxy votes delegated to the chair provide the board further poll advantage, although a majority of shareholder(s) can call an extraordinary general meeting (EGM) to vote in a completely new board of liking if necessary. Divisional MDs (vice-presidents) usually sit on an operational board at secondary level, typically headed by the COO and responsible to the main board. In some European Union states, the main board is split into a supervisory board of independent/non-executive directors (including worker or union and shareholder representatives), tasked with strategic oversight and governance and a management board of executive directors (appointed by, and responsible to, the former), separately concentrating on company operational management. Non-Executive Directors: The main role of the non-executive directors is to offer specific expertise emanating from influence in banking, politics, the legal profession, business development, shareholder interests, etc. Such knowledge and contacts can be invaluable when defending against hostile takeover bids, particularly with mechanisms such as ‘poison pills’, ‘white knights’, staggered boards and other legal impediments. The independents also usually chair the senior appointments, remuneration and audit committees, to ensure that good governance structures are in place to maximize shareholder value. Indeed, good governance and corporate social responsibilities are becoming more onerous tasks for the public company, notably, monitoring of: ethical standards; formalized executive responsibilities for the published accounts and non-executive directors’ responsibilities for the audit, remuneration, compensation, nominations and data-security committees; appraisals of board members; the appointment of consultants and advisers; shareholder and employee democracy; the role of trade unions on the company board; and environmental policy.

Proposed EU regulations require an independent triennial evaluation of the board of directors involving assessment of both the performance of each individual board member and their effective working as a team. Appointment of an independent chairperson and a good mix of long-serving and new directors may become the standard expectation, with the non-executives appointed independent of the Chief Executive (CEO) and having relevant qualifications.

6. Acquisition Integration Options Acquisitions by various means are normally undertaken to open up a fresh route to the market, a new product or an innovative technology. For example: (1) The vertically (or backwards) integrated company acquires firms in the same category of business but at a different production-process stage, for example, the contractor with a supply chain comprising mostly subcontractors under ownership. (2) Horizontal integration represents mergers or takeovers of companies in both the same line of business and production- process stage, for example, a house builder buying a competitor to increase market share. (3) A conglomerate is merely a diverse holding of unrelated businesses, usually acquired to diversify income and profit sources.

7. The Span of Control A company needs to grow; otherwise, the resulting stagnation may eventually lead to absolute decline. With expansion, organisational structures tend to develop as shown above, necessitating differing levels of management. The task of coordinating the various activities then soon exceeds the capacity of the individual, requiring management to delegate responsibility, coupled with some authority, to subordinates. Practice suggests that a manager can cope with between five and eight subordinates; indeed, construction companies typically allocate on average one contracts manager to about five site managers. Clearly, therefore, the extent of a flat or tiered management structure appropriate for the business requires careful consideration.

8. Pattern of Communications The pattern of communication and control in the industry is much the same as that used by the military, with direct lines of command between manager and assistants in each department. In most companies, however, service functions are necessary. The usual procedure is for the service manager to communicate through the head of the department that is receiving the service, for example, formwork designs may be undertaken at head office for implementation on site. Officially, head office only provides a service and will have no authority on site, but in practice considerable authority is vested by virtue of specialist skills. Such relationships are called functional ones, and their success depends very much upon cooperation between individuals. Managers at similar levels of responsibility in the organisation, who report to the same superior, or to a different superior at a common level, need to cooperate with one another on a lateral basis. Since much communication is at this level, workable relationships are thus of the utmost importance if the company is to operate successfully. Typically, the important lateral relationships below directorate level are business development, construction operations, engineering services, administration and finance.

While many companies lay down a formal management structure in the form of a ‘family tree’, in practice many informal relationships are demanded by the organisation; hence, the newly appointed manager is well advised to settle in slowly and understand these lines of communication before making many decisions.

9. Matrix Organisation In a business engaged in total-package contracts and/or operating globally, the matrix management structure offers resources- allocation advantages, by combining both functional and project-management structures. For example, in the engineering-type organisation , specialist/expert functional managers heading mechanical, electrical engineering departments, etc. coordinate with individual project managers responsible for delivering the products on site, by providing the required information and specialist resources’ support. Importantly, centralized communication is essential to effectively coordinate, monitor and control the disparate elements involved. Hence, for construction work in particular, the paramount pressure to ensure tight end results for an individual project favours lead responsibility being placed with the project manager, who in effect ‘buys in’ the required services.

Clearly, the balance of responsibilities between functional heads and project managers will vary depending on the nature of the end product. For example, in business development, the marketing department might more effectively take the lead role. (See Chapter 8 for a more detailed description of project procurement and project management.)

10. Market Planning and Development

The business-development function is primarily concerned with marketing, particularly developing growth by identifying and seeking out new opportunities, promoting the firm’s products and services, including responsibility for technical appraisals and supply of advice to customers on all aspects of the firm’s business from procurement to final delivery. With demanding clients increasingly emphasizing improved value for money and better quality in the provision of their construction requirements, the function now extends beyond mere selling or simply tendering for workload to embracing the key elements needed to operate successfully in the expanding markets for design-and-build work, partnering, management contracting, etc. Consequently, for the larger concern, all the major technical and managerial elements required to draw clients into meaningful contracts are essential. Indeed, to some degree, a well-founded department would contain a wide variety of the company’s expertise, acting independently in a business-development role and embracing capital-sourcing expertise, scope/feasibility design services, cost planning, estimating, construction planning, buying, legal and contractual services, etc. As the function develops in importance, the mechanisms for apportioning its costs in the company will need to be carefully evaluated so as not to overburden the allocations made to conventionally generated turnover.

11. Public Relations (PR) The public-relations function is commonly sought externally from consulting firms able to provide a professional service of supplying the press and public with prompt and accurate information concerning subjects about corporate activities of value and interest, but also offering advice to senior management, for example, in development of productive relationships with NGOs, special-interest and activist groups, etc. While the role has tended to rival marketing and advertising departments, the latter are increasingly taking up PR responsibilities by making use of the rapidly expanding opportunities available through web-based social networks to

develop their ‘reputation management’ image as the ‘trusted’ influencer between the company and potential clients and customers.

12. Construction Operations 1. Production: Once a contract is secured, the site manager responsible for the efficient execution of construction is fairly

independent of the rest of the company, relying on service departments only when necessary. Overall authority is exercised through a contracts manager based at head office, which can generally make specific demands on service managers, although the official relationship is only lateral. Indeed, with the trend towards more subcontracting and associated supply-chain management, coordination of the latter functions, particularly planning, purchasing, BIM, cost control and IT, is becoming a stronger feature of the production responsibility needing director-level leadership.

2. Subcontractors and Suppliers: Few contractors are sufficiently vertically integrated with subsidiary companies able to supply all the materials, equipment, components and technical-installation expertise needed for a given project and consequently rely on specialist subcontractors. Unfortunately, the ready availability and willingness of many to undertake work, particularly labour-only subcontractors, have hindered progress in providing clients with guaranteed quality. The introduction of Quality Standards such as ISO 9000 is an attempt to improve performance in this respect with the more enlightened clients and contractors increasingly requiring all suppliers and subcontractors to have secured approved quality-assurance procedures.

3. Construction Site Management: the precise project arrangements will vary depending upon the degree of the contractors’ involvement in actual construction, for example in the case of general contractors, subcontractors and similar, the functions shown are all likely to be present. While in other types of contracting such as management contracts, the site labour force responsibilities are largely eliminated, conversely, there will be a need for strengthened design, planning and cost-management teams to work closely with the client’s advisers because design tends to continue alongside construction and works/subcontractors have to be carefully coordinated.

Notwithstanding these differences, the contracts manager, usually head-office based on all but the very large project, is responsible to the board for the overall successful management of the project(s), particularly the financial and legal aspects, together with dealings with client or the representative. The site manager oversees the day-to-day control of the processes conducted on site including liaison with the architect/civil engineer regarding instructions, payments, progress