Hard times

A friend of mine asked me to write something about the impact of the current financial crisis on the construction sector. What follows are my personal impressions about the threats and opportunities currently confronting the sector.

Since the beginning of the financial crisis, things have panned out in a somewhat strange way. First, the impact on the construction sector was a long time coming. There were many public sector projects already in progress, which was part of the government's problem at the time. They had continued to spend on major public sector projects at considerable rate, and all those major projects in the pipeline kept construction companies in work, though at a more relaxed rate until well after the labour government was unseated in a coalition of conservatives and liberal democrats, when there was no outright majority in the 2010 general election. The new government soon discovered that the adventurous public spending by the previous administration had all but exhausted the countries reserves, so a comprehensive public spending review soon put paid to many planned construction projects. As work for the construction sector finally dried up, new major projects were announced, and the tap of public sector investment was quickly turned on again, to try to avoid too many insolvencies and consequent redundancies. Thus, while there is not a lot of work about, the public sector investment programme has maintained a low level of work that seems to have provided a buffer. But the private sector has slowed significanctly, largely through the disappearance of capital markets. Once  the full impact started to hit the construction sector, insolvencies were seen to rise much higher in the construction sector than in others, with a 20% increase in some quarters, compared with the previous year. But most of the time we seem to be seeing insolvencies running at about 10-15% higher than the previous year. Of course, these headline figures are increases, not the proportion of companies disappearing. Headline grabbers are great for creating disquiet. Normally, I would expect construction insolvencies to run at the same rate as all business sectors (contrary to popular belief). But construction insolvencies are always slightly higher in recessionary periods, as they are now. But, still,the vast majority of businesses are continuing to trade, although they would prefer to be busier.

Few developers can raise capital from banks, because the banks do not have any. Clearly, this is a very lean period for the construction sector.  Construction workers are being laid off and a proportion of business are disappearing. Since most work is sub-contracted, the sector is very resilient. Those contractors and suppliers with workflow are now in an odd situation, becaue if they are making profits, there is a real problem in terms of what to do with their reserves. Contractors typically manage their projects so that there is a positive cash flow, ensuring that payments out are always some weeks behind payments received. Few people seem to notice that this means contractors do not need to invest in projects; their clients do. This positive cash flow means that contractors with projects have surplus cash to invest, typically in developments of their own. But in such an austere period, the markets into which they sell their own developments are somewhat moribund. Since this is often quite lucrative, times are hard. Moreover, trade contractors who design and manufacture the things that they install are reliant on investment in their processes, in a way that others in the sector may not be. And they are also hit with the double problem of very competitive pricing levels and nowhere to invest surpluses. Since the banks are not lending, there is not much happening in the private sector capital markets. So those with surpluses appear to be  shepherding their money for now, to see them through continuing lean patches. What development there is, is relying on capital, rather than debt financing. 

In the longer term, locally and globally, I feel that there is chance the construction sector might be able to finally move away from being a cash cow. If we are to make this into a 21st century business sector, it is essential that we abandon the Victorian business models and ideals that have served us so well throughout the 20th century. I sense that there is an opportunity for businesses to take more of a stake in the things that they are producing. If we can get contractors and trade contractors to invest in the things that they make, and take a greater proportion of their payment after completion, then we shall see greater incentives and rewards for innovative (and, perhaps, sustainable) products and practices. And what better time than now to enable large, successful companies to pump-prime their clients' developments with cash? Many more contractors are establishing capital arms to invest in their own and their clients' projects. This is interesting. If it continues, we could see the end of a business sector based on large volumes of cash being pumped around construction sites, and the growth of significant investment-driven construction companies which will be able to weather financial storms as successfully as any other business sector.

So, who knows what will happen? Even in this difficult time, there are great opportunities. One thing is for sure, as someone once said, "if you always do what you have always done, you'll always get what you've always got".

Complex, commercial, contractual relations

It is interesting how much research in our field is predicated on the assumption that good process leads to good buildings. If this were so, surely there would be few poor quality buildings by now? After all, we are surrounded on all sides by advice and guidance on processes of all kinds. There are British Standards, International Standards, Codes of Practice, Guidance Documents of all kinds. Yet still we produce poor quality buildings. Clearly, we are dealing with a level of complexity in construction that is difficult and uncertain. Perhaps the idea that good process leads to good buildings would form a useful basis on which to critique a lot of the research that has been published in construction management? After all, it has long been accepted in organizational theory circles that there is more to an effective organization than its structure. So much so, that organizational structure is a rare breed of research paper. Or perhaps they have just changed their vocabulary so that I don't notice what passes these days for organizational structure!

The complexity in construction is not necessarily technical, but organizational. Because of the way that the processes are organized, there is a need for diverse skills, and it is important for the purposes of continuity of work and the development of specialized skills that these diverse disciplines are typically found in different firms. To bring a team together means that contracts are important, because each different group of skills comes from a different business. And we are talking about business, therefore commercial interests play an important role in colouring the behaviour of the parties, even if they are exercising professionalized roles. Finally, because the planning, design, construction and occupation of a building occupy many years, the continuity of relationships can be very important. Thus, the kind of organisational problems we face are characterized as complex, commercial, contractual relations.

Anyhow, today's realization was that buildings are just buildings and not, in themselves, good or bad. Good and bad are judgements that reside in people, not characteristics that reside in buildings. More important, in my view, is that when we judge something to be good or bad, successful or unsuccessful, we are typically comparing what we can observe to our expectation. If our expectations are met, then we are more likely to be satisfied. I have long been aware that this is why marketing is so important for business; good marketing is designed to adjust and deal with our expectations, so that we are more likely to be satisfied with certain products, despite their qualities and characteristics, rather than because of them. So if expectations are the important thing, then clear communication is essential. Within the construction sector, we are used to problems of conflict and dispute. Perhaps these, too, can be laid at the door of inadequate communication leading to unmet expectations? Information asymmetry is an important idea that underpins this. It is inevitable in a complex commercial environment that one party will have more information and knowledge about the transaction than the other. Often, the supply side has the upper hand when it comes to information asymmetry, but if the demand side employ professional consultants and design what is to be fabricated, then perhaps the result would be that the demand side has more information than the supply side about important aspects of the job.

Perhaps the purpose of communication in complex, commercial, contractual relations is to reduce information asymmetry and ensure that expectations on both sides are reasonable. This would lead to a hypothesis that information symmetry should lead to greater satisfaction. Businesses expend lots of effort in precisely this area. Conflict flows from dissatisfaction and it is expensive and destructive.

Above all, in construction the transaction is very difficult because the demand side basically requires space, whereas the supply side can only provide boundaries to space. I think this is the interface between architecture and building. We buy buildings because we want space, not because we want walls. No wonder there is information asymmetry, when we have to buy something other than what we want in order to get what we want!

Noisy trees?

Reading this week's New Scientist, I came across the phrase "an objective reality that exists independently of our beliefs" in relation to the stupidity of the idea that the world was ever flat (Feedback, New Scientist. 211(2829), 64). It got me thinking. My world used to be flat when I was quite young. That "model" became useless when I learned a bit more, and better explanations made sense as my childish observations and experience grew. It struck me that there may be scientists, particularly in the Natural Sciences, who may claim to believe in an objective reality, even though they themselves contribute to emergent explanations that help to make sense of increasingly contradictory or complex observations. Social scientists seem more ready to acknowledge that there are no objective facts; merely a provisional, negotiated consensus. This reminded me of that old philosophical chestnut, "if a tree falls in the forest, and there is no one there to hear it, does it make a noise?" The article made me realize that I now have a view on that. It doesn't; because noise is an experience and a perception. Those who think it does, perhaps, believe in objective reality that exists independently of beliefs.

Twitter

Am I going to regret this? I have singed up for Twitter. As if there weren't enough online services to keep updating...
Find me at @arjibarj

Construction Management and Economics

There are so many networking tools to choose from these days, it is bewildering. I have been in Facebook for a long time, since very early in its life, and it is best for keeping up with family and friends, I have decided. I tried to set up a Facebook page for the journal, Construction Management and Economics, but the nature of FB interaction seemed to trivialize everything. Too many people simply clicked that they "Liked" it, and moved on. There was no sense of engagement. So now I am trying to disengage gracefully without losing those people who liked that kind of connection.

Episode 2 in trying to get a Social Networking is to set up a WordPress blog kind of forum. This looks very nice and was relatively easy to configure so that it looks professional and enables the kind of content that I had in mind - forthcoming events (including those that do not get published in the list in the journal), free download papers (one per issue), ideas and suggestions for improving the quality of submitted papers and of reviews, and so on. Much of this material has already appeared here in Blogspot, so there is a danger of recycling old stuff. On the other hand, there is a danger that the material is too dissipated across different sites, so I need to collect it in a more focused way.

One interesting thing that worries me is how little people really engage with these things. After a couple of weeks of the WordPress site being live, only a handful of people have signed up to receive updates from the site, despite the number of people looking at the site being in the hundreds. I have received encouraging emails from colleagues who have browsed it and see it as valuable, but they have not signed up to have current content pushed to their email boxes. WordPress will compile a weekly digest, but few people seem to want to make this tiny level of commitment. Also, there is only one post, so far, from someone other than me. What is holding people back? Why so shy?

If you are interested in encouraging sites like the new WordPress site, I think you should take part. Think about it; have a look and see what you can contribute. Even if you simply sign up for email updates, it will make it seem more worthwhile.

I guess, though, that if you are already connected to me through LinkedIn or Facebook, you will already get notifications every time anything is posted there, so perhaps I am worrying too much! LinkedIn, particularly, should help to garner a lot more interest in the journal. Yesterday I passed the threshold of being connected to 1000 contacts in LinkedIn, so that means that everything I post in WordPress is immediately notified to all of those people. Managing these things requires a bit of attention, but hopefully not too much. It is very telling that I could only set all this up in August, when things in the day-job are slightly quieter.

And what are we to make of Google+? Yet another social networking opportunity. Do we really need another one?

Case study research

I was quite pleased to hear about the new edition of The Sage Handbook of Qualitative Research. In particular, there is a chapter in there by Bent Flyvberg on Case Study research, which should be quite helpful, as it dispels many myths about case study research:

1. First misunderstanding: General, theoretical knowledge is more valuable than concrete case knowledge.
2. Second misunderstanding: One cannot generalize on the basis of an individual case; therefore, the case study cannot contribute to scientific development.
3. Third misunderstanding: The case study is most useful for generating hypotheses; that is, in the first stage of a total research process,
while other methods are more suitable for hypotheses testing and theory building.
4. Fourth misunderstanding: The case study contains a bias toward verification, that is, a tendency to confirm the researcher’s preconceived notions.
5. Fifth misunderstanding: It is often difficult to summarize and develop general propositions and theories on the basis of specific case studies.

If you are contemplating research that might benefit from a case study approach, then I recommend this book most strongly. Further details by clicking on the link:
The SAGE Handbook of Qualitative Research

Reviewing research papers

There are several posts in this blog about reviewing research papers, and it is a theme that constantly crops up, both in relation to refereeing a journal paper for an editor of a journal, an in relation to building up the elemental parts of a literature review. As I have said before, these are two distinctive activities.

Many students struggle to make critical evaluations of published papers, and there are many reasons why they might find this difficult at first. One way of approaching the task could be to try to focus on whether a paper is making an interesting and useful contribution to our collective understanding. I think that what we are looking for is signs that author of a paper is clever enough to provide a persuasive case. What I mean by this is to look for evidence in a paper that the author is knowledgeable, has a good understanding of the issues, can put together an argument and can make judgements.

In order to be convinced that an author is knowledgeable, I would look for evidence that he/she knows about the generalities and specifics of the topic. To be convinced that the author has an understanding, I would try to find evidence of different views being weighed in the balance and ideas being applied to examples, especially I would look for the use of metaphors and analogies. In thinking about whether the paper has a strong argument, I would look for the use of logic and the sequence of ideas. The language of argument is interesting, and this is closely related to grammar, vocabulary and logic. I do not find the use of jargon or inflated diction particularly compelling. But plain language in straightforward words is often an element of a good argument. It should be clear. Finally, in looking to see whether an author is making judgements, there should be evidence of discrimination in the kind of sources being relied on to form the foundations for the work, and judgement in the nature of the conclusions as well as the all of the choices about what to include and what to exclude in putting the paper together.

Some common errors frequently reveal weak papers and unclear thinking. Papers typically follow this structure:

• Abstract - summarizing the whole paper including the specific findings
• Introduction - explaining what the paper is about
• Literature review - dealing with what we collectively already know, specifically, but not exclusively, in terms of past research
• Possibly some empirical work - not all papers fit into the category of empirically-based research
• Analysis and/or discussion - empirically-based papers would separate the analysis from the data, then all papers would include discussion of what all this leads us to
• Conclusions - explaining what this all means, perhaps with an outline of the parameters of the research and how that restricts the application of the findings, and usually with suggestions about what certain groups of people might do differently as a result of this research, whether these groups are scholars, practitioners or policy-makers

In weak papers authors often get the sections mixed up, probably because a weak paper will not really lead to any conclusions. Thus, I often find that the conclusions only really summarize the paper, the abstract introduces, rather than summarizes, and the introduction jumps straight into a general literature review before the detailed and focused part of the literature. As a result, in my editorial capacity, I often suggest to authors that they should move the introduction section to the literature review, move the abstract to the introduction, move the conclusions to the abstract, and then try to write some proper conclusions that convey something about what all this means. If they cannot do that, then the work is not really good enough to be called research, I would venture to suggest.

It might be an interesting exercise to see if you can find a paper where the sections are mixed up in this way. It would certainly give new researchers the confidence to take a critical stance when it comes to reviewing papers for their literature review!