THE MODERN CONSTRUCTION FIRM Also by Patricia M. Hillebrandt and Jacqueline Cannon THE CONSTRUCTION COMPANY IN-AND-OUT OF RECESSION (co-author with Peter Lansley) THE MANAGEMENT OF CONSTRUCTION FIRMS: Aspects of Theory Also by Patricia Hillebrandt ANALYSIS OF THE BRITISH CONSTRUCTION INDUSTRY ECONOMIC THEORY AND THE CONSTRUCTION INDUSTRY The Modern Construction Firm Patricia Hillebrandt and Jacqueline Cannon Foreword by W. D. Biggs M MACMILLAN ©The University of Reading 1990 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London WIP 9HE. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First edition 1990 Reprinted (with minor corrections) 1994 Published by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world ISBN 978-0-333-62762-4 ISBN 978-1-349-13628-5 (eBook) DOI 10.1007/978-1-349-13628-5 A catalogue record for this book is available from the British Library. To our children Contents List of Figures vm List of Tables ix Preface to the 1994 Reprint x Foreword by W. D. Biggs XI Acknowledgements xiii Abbreviations and Acronyms xiv Introduction xv PART! BACKGROUND 1 1 The Industry Yesterday and Today 3 PART II OVERALL STRATEGY OF LARGE FIRMS 15 2 Objectives and Strategy of Firms 17 3 Growth and Diversification 34 4 Financial Policy 48 PART III IMPLEMENTATION OF STRATEGY 61 5 Marketing and Bidding Policy 63 6 International Policy 78 7 Structure and Organisation 91 PART IV HUMAN RESOURCES 113 8 The Management Resource 115 9 Manpower Management and Subcontracting 137 PART V CONCLUSIONS 151 10 Conclusions 153 Glossary 164 Appendix: Principal Contents of the Companion Volume, 'The Management of Construction Firms: Aspects of Theory' 165 Subject Index 166 Index of Names 171 vii List of Figures 1.1 Construction output by sector 8 5.1 Economic models and building contracts 71 viii List of Tables 1.1 Number of firms and value of work done in 1987, analysed by 'size of firm 4 1.2 Thirty-five construction companies with turnover in excess of £100 million in years 1986 to 1988 5 1.3 Diversification by selected construction companies 6 1.4 Estimated value of new orders of over £2m (1986 prices) received by contractors in 1977 and 1986 9 4.1 Finance required by various types of business 51 4.2 Relation of various financial factors to debt/equity ratio 53 4.3 Comparison of theoretical statements with comments from contractors interviewed 58 6.1 Value of construction work by British firms overseas 1982/3 to 1987 79 ix Preface to the 1994 Reprint In 1986 and 1987 when most of the work was carried out for the two books: The Management of the Construction Firm: Aspects of Theory and The Modern Construction Firm, the environment in which contractors were operating was one of expanding markets and rising profits. Contractors were increasing their turnover in response to boom conditions, banks were anxious to lend money, most con struction companies were involved in property and housing and diversifying into other businesses in the UK and abroad, and all were optimistic about the future. A third book in the series, The Construction Company in-and-out of Recession, which deals with the changes in the environment and the way in which companies have reacted to the worst recession in the construction industry since the Second World War, is to be published. Interviews conducted at the end of 1993 confirmed that companies had shrunk, were retreating into their 'core' businesses and in a few cases were concerned with whether they could survive at all over the period 1994 to 1995. The strategies of the companies in this recessionary environment contrast sharply with those of the earlier period. However, with hindsight it is clear that the seeds of some of the current problems were sown already in 1986 and 1987. The books together provide a unique insight into the dynamics of major construction firms. X