CEng 572 – Construction Management Lecture Notes

CHAPETR V
ORGAINAZION MANAGMENT

5.1. Introduction

An organization is a deliberately established social unit composed of people who coordinate

their activities to achieve a common objective.

Small organizations may require no specialization beyond distinguishing one individual’s job
from another’s. However as organizations become larger and involve more diverse activities,
it becomes necessary to divide major tacks into depart mental responsibilities thus leading to
some kind of structure.
Dividing the work of the organizations into basic departmental responsibilities potentially
contributes to effective management in several ways. The Potential benefits include:
™ clarifying responsibility and authority within the organization,
™ facilitate communication and control,
™ improve decision making;
™ differentiate among activities,
Properties of an organization:

The main properties of an organization of any form are:

™ Distinct internal processing based on division of labor

™ A hierarchy of authority
™ A system of coordination and control
™ A collective identity (team work)

5.2. Organization Theory and Organization Management in Ethiopia

Organization Theory
It becomes a well known fact that Economic and Governmental activities by large dominate
large organizations in their operations. This creates major thought on:
- views of organizations,
- organizational concepts and their assumptions based upon, and

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- theories and ideas on how organizations can best bring the integration of social
collectives to the organizations.

Theories of organizations:

The theories of organizations so far developed can be summarized as (Lee G. Bolman and
Terrence E. Deal):
1. Rational System theory – The Structural Frame,
2. Human Resources theory – The human resources frame,
3. Political theory – The Political Frame,
4. Symbolic theory – The Symbolic Frame, and
5. Systems Theory.

Organization Management in Ethiopia

The organization management in Ethiopia can be better explained by assessing the different
contextual realities.

Table 5.1. Assessment of Construction Organizations Management in Ethiopia

Descriptions Ethiopian Construction Organizations
Central issues Scarce resources – vital budgeting principle

System High uncertainty – Not easy to forecast any situation

Problem arises When one realizes some thing is wrong with the performance of the
organization.

Problem solving Often removing the manager with out reliable evidence. They do not
mechanisms look into that there is a possible management problem but the individual
leader.

Organization Often organizations are structured to fulfill those preferences and

design and interests of coalitions. They think only if this is exercised that the
structure structure will fit to its objective

Decision making Pre determined often to fit the coalitions.

Power Ideally decentralized but practically semi-centralized.

Meetings Usually formal but comes out with nothing.

Coordination Poor, formal and informal.

Goals/ roles Pre determined by authorities.

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Conflict An inherent character but results in often being non-solvable. Because

only the power that matters.

Planning Often considered as strategies to set objectives and coordinate activities

but usually insufficient time is allocated.

Reorganizing Often not practiced. Recently restructuring of all Ethiopian organizations

occurred due to Government change.

Motivating This is almost an overlooked aspect of management.

Evaluation Used for sanction to exercise power. Often evaluations are strictly carried
out when there is a need to remove somebody in the form of camouflage.

From the above table one can easily place the construction organizations in Ethiopia under
two frames of the theories of organizations: Political in conjugation with Structural frame.
This indicates that the construction industry is at its infant stage towards organization
management.

5.3. Strategic Management

5.3.1. Brief History

Strategic planning has its roots in the military. Accordingly the Webster's New World
Dictionary define , strategy as "the science of planning and directing large-scale military
operations, of maneuvering forces into the most advantageous position prior to actual
engagement with the enemy". Although understanding of strategy as applied in management
has been transformed, one element remains key: aim to achieve competitive advantage.

Subsequently individual definitions of strategy vary between authors, traditionally; theorists

have considered planning an essential part of organizational strategy.

Strategic planning outside of the context of military was first employed in the business arena.
The process was very popular and wide spread between mid-1960s to mid-1970s, when then
people believed it was the answer for all problems. The concept of strategic planning revived
after almost twenty years, this time modified as, contextual strategic planning , a "process
with particular benefits in particular contexts" (Mintzberg, 1994).

There are generations of models of strategic planning. SWOT analysis model dominated
strategic planning of the 1950s.The 1960s brought qualitative and quantitative models of

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strategy. During the early 1980s, the shareholder value model and the Porter model became
the standard.

Subsequent newer models of strategic planning were focused on adaptability to change,

flexibility, and importance of strategic thinking and organizational learning. "Strategic
alertness" is becoming more important than the strategy itself, because the organization's
ability to succeed "has more to do with its ability to transform itself, continuously, than
whether it has the right strategy. Being strategically agile enables organizations to transform
their strategy depending on the changes in their environment" (Gouillart, 1995).

5.3.2. Strategic Management

What is Strategic Management?

To understand strategic management, one must understand the concept of organizational

strategy. Organizational strategies are the approaches adopted by organizations to ensure
successful performance in the market place. These approaches are typically set forth in
comprehensive document called the strategic plan.

Strategic management is management that bases all actions, activities and decisions on what is
most likely –with in an ethical frame work –to ensure successful performance in the market
place.

Components of Strategic Management

Strategic management consists of two interrelated activities

A) Strategic planning and
B) Strategic execution.

A. Strategic Planning

Strategic Planning is the process by which an organization answers the following questions:-
™ Who are we?
™ What are our strength & weaknesses?
™ Where are we going?
™ What are the opportunities and threats in our business?
™ How will we get there?
™ What do we hope to accomplish?

Strategic planning involves developing a written plan that has the following components:

An organizational vision,
Organizational mission,

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Guiding principles,
Broad strategic objectives, and
Specific tactics or activities for achieving the broad objectives.

A typical strategic planning out put can be presented as follows:

What is the primary goal of our

mission
organization ?

vision What do we want to achieve?

Strategy and objectives How are we going to achieve it ?

What the most important factors

Success factors
that determine the success or
failure ?

Performace indicators What do we need to measure to

be able to steer and report
progress ?

B. Strategic Execution

Strategic Execution involves implementing strategies set forth in strategic planning,

monitoring progress toward their achievement, and adjusting as necessary. Strategic
execution is implementation that achieves maximum efficiency and effectiveness.

5.4. Organization Structure

Organization is the process in which work is arranged, subunit is established and authority
relationships are designated. Thus, an organizational structure is prepared. It consists of:
• job descriptions
• statements indicating the functions
• official delegations
• policies delegations
• financial procedures

Several traditional (basic) types of structures are distinguishable, these are:

I. Functional Organization Structures ( U-form organization )
II. Product Organization Structures ( H – form organization )

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III. Territorial Organization Structures

IV. Client Centered Organization Structures
V. Matrix Organization Structures
VI. Multiple structures
The Functional, Product and Matrix Organization structures with their advantages and
disadvantages will be covered as these types of structure are usually used in the construction
industry.
I) Functional/Line Organization Structure (U –form organization)
The functional organization structure (Fig.5.1) divides the units so that each has a dissimilar
set of duties and responsibilities. Typically, in a manufacturing firm, this would mean that
engineering, manufacturing and sales would be separate departments each one dealing with
the entire firm's product, these is often used for single product strategy. This structure is also
called the U – form where the U in u-form stands for unity.
Functional organization structures, by orienting people toward a special activity, concentrate
competence in particularly effective ways,

General Manager

Manufacturing Engineering Sales

Fig. 5.1. Functional Structure

In a manufacturing firm, for example, the engineers are encouraged to think and work in the
distinctive way they need to think and work at, say, long -range research of product design.
The salespeople in the same firm are encouraged to think and act in the ways they need to for
making short- run sales quotas.

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Advantages:
A research on firms performing technologically complex tasks has shown that functional
structures tended to produce superior products. This implies that if product superiority is
critical to the firm’s strategy, then the functional structure commends itself.
Evidence also suggests that stable environmental conditions favor functional organizations. In
general, when the work done in an organization is best accomplished by a specialized task or
a sequence of specialized tasks, then a functional structure of departments can work well. But
it will work well only as long as the environment remains relatively stable. If the
environment begins to change rapidly, necessitating a substantial increase in the number and
diversity of products or services, the functional structure can show serious disadvantages.
Disadvantages:
Functional structures tend to deemphasize interdepartmental cooperation by creating
boundaries between departments. And where job might urgently require cooperation
between departments, the boundaries can seem like the Berlin Wall.
This happens because top management sets standards of performance and budgets for the
individual departments, and in a functional structure, top management is usually inclined to
judge each department on how well it meets standards and budgets. Managers of department
realize this and focus on meeting these requirements, rather than responding to requests from
someone in another department whose authority over they is ambiguous.
The more that strategy, technology and environment demand interdepartmental cooperation,
the more of an obstruction the functional structure can become. When problems arise that
don't exactly fit within any one department, managers find them difficult to solve and the
problems remain unresolved and they float up between the departmental boundaries to the
attention of the top management. Top management thus becomes overloaded with problems
that should most likely have been attended to at lower levels.
In sum, functional organization structure has both advantages and disadvantages. Where
circumstances are relatively stable and dictate a high level of specialization, functional
structures are well suited to concentrating technical expertise, and such concentrations can
lead to superior products. On the other hand, where circumstances are relatively unstable,
functional structures will not be useful as they lack flexibility. This is true in part because

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they give no particular incentive to interdepartmental cooperation or to having an overall

business-oriented view of the department's output of a unit of product or service.
II) Product Organization Structure (H –form organization)
The product organization structure (Fig.5.2) divides the units on the basis of products,
projects, or programs. The car and truck divisions of General Motors, for example, are Buick,
Cadillac, Chevrolet, Oldsmobile, Pontiac, and GMC Truck and Coach. The terms project or
program organization are commonly used on the aerospace industry to describe the same
pattern as in product organization. This type of organizational structural is also called the H-
Form where the H- in H -form stands for hybrid.

General Manager

Product A Product B Product C

Fig 5.2. Product Structure.

The product structure fixes responsibility in the department manager for a sort of one
product, or product-line, mini company. The manager is judged by the one-product
company's success. The result is that the product department manager is oriented toward the
basic targets of product costs, schedules, and profits more so than the functional department
manager, who does the same for a specific activity of the department.
Advantages
Studies have shown that although functional structures were associated with technically
superior products, product structures were associated with a better record of meeting
schedules and controlling cots.
Another advantage of product structures is that they facilitate innovation. Innovation
requires the close cooperation and communication of various groups contributing to the
product. Product structure enables the formation of product-centered cooperation. Thus

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product structure is highly advantages to companies having a strategy of growth through

diversifying products. A major consideration appears to be that the product structure shapes a
pattern of management decision making that helps the firm's better stay in touch and respond
quickly to the numerous product markets in which they operate.
Product organization also offers potential advantages when it comes to coping with unstable
environments. These advantages include inducing greater cooperation between specialists and
focusing their combined efforts upon the profitability of a product. They are also flexible, that
is product organizational units can be added and dropped as necessary within the overall
organizations to respond to changing conditions.
Thus, product organizations may be preferred for their virtue of profitability than for their
response to changing environmental conditions, e.g. the automobile industry or for their
flexibility and capacity to provide a special purpose mini-company for short life cycle
products and non-continuous demands, e.g. the aerospace industry.
Disadvantages:-
Because of the flexible nature of product structures, there will be a human problem that is
subordinates in product structures tend to become more insecure about possible
unemployment, career retardation, and personal development. They are also more frustrated
by ambiguity, conflict, and multiple levels of management, and they feel less loyal to their
organizations than do subordinates in functional organizations.
Product structures also fail to concentrate expertise in essential ways. It disperses specialists
into subgroups oriented around particular products and since specialists competence is often
nurtured by interaction with similar professionals, functional expertise may be weakened by
a product structure.
In sum, where circumstances are relatively dynamic and where there is move reason to
emphasize the ''business" rather than the "technical" excellence of the product, product
structure may be superior. But the price of realizing the advantages of product structures
included incurring its disadvantages which appear to include possible increased employee
insecurity and weakened technical excellence in various functional specialties. There have
been other structures which try to avoid the disadvantages of the product structures; one is
the M- Form organization.

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The M-Form organization – which is also called a divisional design, uses the departmentation
based on specialization on particular industry products. Because the units in this form are in
related industries, they can share some resources such as information, staff functions, and
transportation facilities. The opportunities for synergy between units have made the M –
form an effective design when the organization can use the flexibility of autonomous
divisions and effectively evaluate divisional performance and allocated resources.
On the negative side of this form is the organization can easily lose the delicate balance
between divisional autonomy and central control. And it can add divisions which are not
wisely managed and affect the flexibility of the autonomous divisions.
III) Matrix Organization Structure.

Matrix organization is a result of efforts to combine both functional and product (or client or
territorial) structures into a new form. It begins with a functional structure with different
functional units. Next, another structure organized by product or client, is overlaid upon the
original structure. The result is that employees are assigned to a basic functional department
and at the same time, they are assigned to work on a particular product or for a particular
client. Figure 5.3 illustrates a matrix structure.

It is to be recalled that both the functional and the product structures had weakness. The
functional structure often proved weak in emphasizing business results and in providing
coordination, but it was good at enabling specialists to interact and strive for technical
excellence. The product structure often proved weaker at inducing technical excellence, but
stronger at inducing coordination between functions, at adhering to schedules, and
controlling costs.

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General Manager

Functional Functional Functional

Department A Department B Department C
Manager Manager Manger

Product or
client
Department 1
Manager

Product or
client
Department 2
Manager

Product or client
Department 3
Manager

Product or client Department 1, by drawing expertise of functional

departments A, B, and C

Fig. 5.5 Matrix Structure

Matrix structures have been used in the following kinds of organizations as shown in Table
5.2.

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Tabel 5.2. Organizations using Matrix Structure

Type of organizations

Manufacturing Service Professional Non profit

Examples:- -Aerospace -Banking -Accounting -City, state and

federal agencies
-Chemicals -Brokerage -Advertising -Hospitals
-Electronics -Construction -Consulting -United Nations
-Heavy Equipment -Insurance -Law Firms -Universities
-Industrial -Retailing
products
-Pharmaceuticals

The matrix structure has been devised to respond to three conditions. First is to respond to
two different and conflicting environmental pressures. These environments are one of the
needs to have technical excellence in products and the other from the need to meet unique
customer requirements which include schedule and cost constraints.
Second, is the requirement to improve the inadequate communication capacity among
individuals and groups. Environmental uncertainty, the complexity of the work, and
interdependence of persons and departments can increase greatly as a firm diversities its
products, territories, and markets.
This communication shouldn't to be to merely keep more people informed. Managers need to
communicate in ways that reflect the new dual focus on function and product, client or
territory. They need to be reoriented by their organization structure so that it becomes
rational for them to share information and think about problems and decisions that serve, not
their sole functional department, but the best interest of the whole and to stand ready to be
judged by the eventual results.
Third, to cater the need for better and flexible use of human, financial, and physical
resources. Even successful firms can afford to acquire only so much talent and equipment.
They also find it necessary to use these human and physical resources by reasonably
efficiency.

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Simply lodging the resources in one functional department or project group which proceeds
to monopolize the scarce resource and underutilize it can block the firm from achieving the
advantages of economies of scale that come from both having the best resource and deploying
them effectively. Traditional departments tend to resist the rapid shifting of people in and
out. They also tend to view internal resources as their property.
Problems:-
It is obvious that matrix design isn't a panacea (structure that will solve all the problems of an
organization). Reports of several organizations' experience with matrix structures revealed
the following problems:
I. Tendencies toward anarchy-confusion about who reports to whom and a resulting sense of
reporting to no one.
II. Excessive power struggles-functional and product managers striving for dominance.
III. Groupitis-too many meetings and too much group decision making to the point of
involving participants in details they don't care about or are too ignorant of to be helpful.
Even with this, Matrix structure has become increasingly popular as organizations seek to
cope with rapidly changing, complex and uncertain conditions.
Assignment: - Figure 5.6. Shows the Organizational Structure of Faculty of Technology
(Source: Draft proposal for Governance of Technology Faculties). Identify the type of
structure used and the possible problems of the structure. Develop your own organizational
structure for the Faculty which you believe will solve the problems of the faculty.

5.5. Types of Construction and Consultancy Firms

Persons may involve on a permanent and professional manner in any economic activities
with the purpose of making profit or gain. These activities may include manufacturing,
distribution, service rendering commercial activities or any other economic activity. Physical
or juridical persons may undertake economic activities for gain.

Below are mentioned juridical persons that can carry out economic activities:

1. Public Enterprises - such enterprises are wholly owned by the state.

2. Business Organizations - Such organizations carry out same kinds of economic activities
as traders. They run business for the purpose of making profit. They are formed on the
basis of the commercial code of Ethiopia (Art. 210).

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Figure 5.6. AAU Faculty of Technology – Organization Structure

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AAU, FoT, Department of Civil Engineering Instructor: Abraham Assefa
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There are six forms of Business Organizations under the Commercial Code of Ethiopia:

A. Ordinary Partnership:
- Involved in non-commercial activities.
- Properties: - Liability, no. of members
B. General Partnership:
- involved in commercial activities.
C. Limited Partnership
D. Joint Venture - In law the term Joint Venture denotes two concepts of organizations
engaged in business for the purpose of which is to work for gain or profit.
E. Private Limited Company
- Commercial Code – Art. 5 -10
- There should be a min of two members and max of fifty.
- Min. Capital for PLC is 15,000.00 ETB.
- It is not possible to transfer share to other company
- Liability is limited.
F. Share Company
- There should be a min of five members.
- Min. Capital for PLC is 50,000.00 ETB.
- Share can be easily transferred.
- Liability is respected to respected shareholders.

In Ethiopia the following categories are used to classify construction and consultancy firms
by the Ministry of Works and Urban Development.

5.5.1. Types of Construction Firms

Construction firms are broadly classified based on trend of work as follows:
A. General Contractors
B. Building Contractors
C. Road Contractors
D. Specialized Contractors

The first three categories are again divided into ten grades with different resource
requirements. The Ministry has placed the basic human and equipment requirements to
attain the different licenses with different grades. Refer to the annexed material.

According to a data on 2007, there are 2,818 contractors on a federal level out of which only
54 are grade one with different specialties. There are 27 Grade One General Contractors.

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5.5.2. Types of Consultancy Firms

Consultancy firms are broadly classified as follows:
A. CA – Consultancy Architects
B. CAE – Consultancy Architects and Engineers
C. HBC – Consultancy Highway and Bridge
D. CE – Consultancy Engineers
E. SC – Specialized Consultancy
All of the above categories are divided into six grades with different resource requirements.

According to a data on 2007, there are 80 consultants in the capital out of which only 2 are
grade one with CAE license.

The above numbers clearly indicate that the number of construction and consultancy firms
for a country with 1.1 million km2 area and population of 75 million are quite small.

5.6. Project or Site Organizations

Different forms of organizational structures are used in the construction industry. The
organizational structures can be classified into two:
A. Parent or Head Office Organization
B. Project or Site Organization

A. Parent or Head Office Organization

As the name implies this organization structure is relatively stable and shall be carefully
structured.

B. Project or Site Organization

On any given project site the main bodies involved in the construction activity are the
contractor and the consultant. Thus, the organizational structure for a contractor in a high
way project is as shown in Figure 5.7 and for a consultant is as shown in Figure 5.8.

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Figure 5.7. Contractor Site Organization Chart – Highway Project

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Figure 5.8. Consultant Site Organization Chart – Highway Project

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