The commercial construction industry is the largest component of construction industry in United States. The business started to gain popularity in the 1990’s as the strong economic growth lead to strong demand toward the services in the industry. Companies worked within the industry vary from small contractors who have annual revenue of $1 million, until the multinational corporations whose profits exceeded $1 billion each year. The industry is a little different with other components in the construction industry.
For example, commercial construction cannot rely on shrinking interest rates to prevent the downside of an economic surge in the early 21st century. As people started spend less on new construction works, the industry degraded. Commercial construction is a competitive industry. Contractors generally employ sub-contractors, which can be divided into two types, “group-up work” subcontractors and finish-out work” subcontractors. With stricter regulations and more specific demands from the consumers, business becomes more challenging for everyone.
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Projects become more complex and time constraints become more demanding. All of which lead to considerably smaller profit margin in the end. Dealing with these challenges, players in the commercial construction industry are desperate for a radical solution, one that will deliver them competitive advantages to survive the all the challenging demands. In this paper, I am providing two alternatives of solution for the commercial construction industry. The first alternative is Total Quality Management (TQM) and the second is Business Process Reengineering (BPR).
Both of these alternatives are worldwide known managerial concepts designed to improve the quality of corporate processes. II. Challenges in Commercial Construction Industry Before we discuss how TQM and BPR could help companies improve their processes, I will elaborate some of the challenges in commercial construction industry that need to be addressed. II. 1. Highly Cyclical Demands The commercial construction business is highly affected by the health of US economy. Surges and downturns have direct contribution toward the increase or decrease in revenues, expenses and profits.
Economic trends also define the direction of the business. Some commercial construction companies try to tackle the issue by developing multiple specialties. However, the fixed cost invested in all of the specialties is nevertheless burdening the business. Furthermore, by having multiple specialties, companies have to manage costs more carefully to maintain profit in each one. II. 2. Uneven Revenues and Expenses Contractors of commercial construction are demanded to have considerable amount of working capital at their disposal at all times. This is important due to two reasons. First, the price of raw materials fluctuates constantly.
Second, clients of the business could decide to pay at random intervals, without considerations of contractors’ requirements. In large projects, the cash flow is even larger and thus created the need for careful cost management. II. 3. Availability of Skilled Personnel Personnel availability has always been an issue in the construction industry. This is due to the poor image of construction workers all over the globe. Nevertheless, with the increasing complexities of construction work and the need for more skilful construction workers, the issue of personnel availability has never been so important.
Management cannot afford to use unskilled labor to fulfill complex demands from clients. Thus, training periods and becoming more important and also cost management to perform quality training sessions. II. 4. Consolidation of Projects With the increasingly high competitive pressure, many contractors decide to submit to consolidation process, and other contractors fall into the role of sub-contractors. This created an unexpected risk. As construction contracts becomes fewer and larger, cash flow management of each project becomes a lot harder to manage and financial risks of each project also increases.
Today, many commercial construction companies depend of only several annual contracts for most portions of their revenues. II. 5. High Insurance Costs The commercial construction business is characterized by high insurance cost. Contractors are demanded to pay high premiums for many insurance policies, including general liability, workers insurance, etc. This insurance problem is worsen by the material and installation defects issues and unqualified workers. Thus management cannot afford to have poor bookkeeping and cost management. II. 6. Investment in Technology
To serve the increasing demand for unique and modern feature of constructions, contractors in the commercial construction business must invest more heavily in high technology. This poses as another challenge for contractors because prices of equipment are also become more expensive and more vary. Contractors would need to make more capital investment management more diligently and more carefully. (“Industry Overview”, 2006) III. Total Quality Management Total Quality Management is a company-wide approach to quality improvement in corporate processes and activities.
The concept has become a way of doing business for companies in various industries all over the globe to improve the quality of corporate processes in all departments and functional areas. Despite to the large nature of differences in corporate processes in different industries, Total Quality Management defines several functions that have become common features of all managerial structure. These defined corporate functions will then become the focus of process improvements. The common functions that become the center of attention in TQM are: 1. Serving customers
The focus of all companies whether they are manufacturing or services companies is to aim for their customers’ satisfaction. In the basis of this principle, management must understand that categorizing business into manufacturing and service are actually senseless. The more important thing to achieve is clearly identifying specific customers of the corporation and also their needs and preferences. TQM invites corporate managers to revitalize focus on this particular activity through market researches, surveys and other studies. Management must constantly learn about their customers 2.
Top Management Role in Quality Improvement All business reforms started with the top managers and can only be maintained by constant and sufficient participation from the top managers. This includes quality management efforts. Top managers have the key function of providing direction and motivation for their subordinates. Employees will only participate when they already understand the importance of performing improvements. TQM invites managers to understand the crucial nature of their actions in quality improvements and thus, making the necessary adjustments to achieve the defined targets.
3. Employee Participation After ensuring top management are doing their part in the quality improvement process, TQM takes us to focus on employees and how they have participate in support of the effort. Employees are the final station where products and services are still in the organization’s control. Thus, if they have sufficient commitment not to allow the spread of poor quality products and services, then there would be little chances that customers will ever discover unsatisfied products or services delivered to them. 4. Identifying Quality Issues and Developing Solutions
Every company has a system designed to discover poor quality. The system is generally built from a cross section of various functions within the organizations so that their combined attention will be able to identify quality defects more diligently and furthermore, suggest possible solutions. TQM invites managers to take advantage of the system and focus on developing their potential into maximum. In the new quality system, top management must also take part in defining quality defects, discovering existing opportunities for improvements and formulate possible solutions. 5.
Employee Training and Employee Management Even the most highly automated companies require skilful and highly motivated employees to run their processes. TQM bring focus on employee management processes to increase the quality of corporate operations as a whole. First, management should develop their employee training process as corporate targets changes. Second, organizations should provide continuous educational support even to the longer-time employees. Third, organizations should design a working environment where employees would have a sense of pride when they are doing a good job.
Fourth, management must ensure that the compensation system is bringing sufficient motivation to attract creativity and fresh ideas from employees. (Hammer, 1993) The perspectives of TQM elaborated above will assist managers within the Commercial Construction business to deal with the challenges of their environment. For instance: ? The first perspective of customer service can realign managers’ perspective in the commercial construction business in how to do their job. Managers of the commercial construction business could begin to see that all their construction work are but means to satisfy clients.
Thus, they will begin to involve client more actively in their decision making processes. ? The second perspective of TQM, which is improving top management involvement in business processes, can develop managerial sensitivity on employees’ workload. If managers can understand their employees better, they will be more considerate in making consolidation decisions and technology investments ? The third perspective of TQM will help managers in the commercial construction industry to better integrate with their employees in performing business processes.
Employees must be informed of the corporate targets and goals so they can be more motivated in performing their work, knowing that they will make meaningful contribution for the organization as a whole. ? The fourth perspective or TQM can help management in discovering cost reduction opportunities in the midst of the more demanding business environments, especially when consolidation projects are extensively performed. ? The fifth perspective of TQM aligns perfectly with managerial sentiments of the commercial construction business to enhance training and education to ensure that each process is managed by highly qualified personnel.
As complexity level enhances, this focus becomes more vital. IV. Business Process Reengineering IV. 1. Definition Business Process Reengineering (BPR) is a quality improvement system, the same as Total Quality Management (TQM). It is a management approach to improve the quality of processes by focusing on efficiency and effectiveness of the process that exist across the organization. Many find difficulties in differentiating between TQM and BPR, but in most articles regarding BPR, it is always elaborated that BPR has a more radical view about business processes and its core necessities.
According to BPR, business should define their core processes and focus solely on those activities. Other activities that do not add value to products or services being produced are considered waste. IV. 2. The need for BPR Oneil (1999) identified that there are actually three kinds of BPR causes. These causes can be explained by the conditions in which the organization finds itself: ? First, companies invite BPR concept and its implementation because they have no choice.
These companies find themselves in deep trouble and they have no choice but to design changes in a depth and magnitude level that some would call radical. This is why the concept is referred to as Business Process Reengineering. ? Second, companies are not in trouble yet but they perceived clearly that the future would be problematic. ? Third, the company is actually in its peak position, but they see opportunities to develop a competitive edge over their competitors III. 3. Implementation of BPR A short model of implementing BPR will be described in this subchapter: 2.
Define mission and vision statement that contains the unique value of the organization in comparison with others 3. Build clear business strategy based on this mission and vision statement thus generating project objectives 4. Define core processes that will help the organization in achieving these project objectives 5. Producing key performance measures to measure cost-benefit relationship of the processes 6. Improving effectiveness and efficiency of the processes using the performance measures At a glance, these steps seem to be similar to other process development stages.
In BPR however, the strong focus is on how to radically improve effectiveness and efficiency by driving out all costs and activities that do not constitute the vital necessities of the processes (Chan, 1997). III. 4. Role of Information Technology in BPR BPR experts argued that BRP is different then TQM and other process improvement concepts because of its strong focus over the efficiency of the core processes. One of the well-known sentiments of BPR is that information technology should not be used unless it produces efficiency improvement toward corporate processes.
BPR experts stated that in the midst of modern business environment, organizations sometimes implement IT system because of its popularity, failing to recognize the advantages produced by the IT system for organizational processes. BPR fight against those practices in the modern business environment (Davenport, 1990) III. 5. Critics In some literatures, BPR is also criticized due to its radical nature. For instance, most of the companies implementing BPR are discovered performing massive layoffs to enhance their process efficiencies.
Observers believed that implementing BPR without other balancing concepts will lead to only short term benefits because BPR focus mostly on the financial factor of value production. The use of other concepts like the Balance Score Card should enhance BPR’s benefits toward organizations. III. 6. Benefits for Commercial Construction Business The use of BPR is perceived to be very much suitable for the construction industry due to the ‘hard’ and highly competitive nature of the environment. Furthermore, it has been stated that the BRP concept is suitable for organizations in desperate need for radical cost reduction and process development.
One of the supporting factors is that the construction industry usually employs workers on the basis of short term contract. Thus, using the BRP concept, managers could increase the efficiency of their processes without having to worry about laying-off long-term employees. The construction industry is also complex with hundreds of types of material and service costs that can be evaluated through the BPR concept. With the recent development of consolidations and usage of Information Technology, BPR will also assist managers in evaluating which costs are really beneficial and which should be considered waste.
V. Conclusion The commercial construction business is the most competitive sector of the construction industry. Lately, the business sector is faced with serious challenges that require management’s attention. These challenges threaten the survival of organizations within the business sector. In order to face those challenges, we suggest that companies within the sector turn to Total Quality Management and Business Process Engineering. These are quality improvement concepts designed to enhance efficiency and effectiveness of organizational processes throughout the organization.
TQM and BPR are rooted from the same idea, but they focus on different pressure points. BPR has a more urgent sense within it steps. It is a concept practiced by companies in need of a radical change in their business processes, in order to survive upcoming challenges. It focuses on the financial aspect of core business processes and driving-out costs other than vital ones. Some believed the concept to be harsh and insensitive to other aspects like maintaining pleasant working environment, etc. Nevertheless, its contribution is undeniable to modern companies today.
TQM on the other hand, is a concept developed by the Japanese, along with the JIT and kaizen concept. It focuses on continuous process improvements which stronger sense of long-term orientations. Applied together, these concepts will assist managers of the commercial construction business in improving their operational processes and facing their challenges in the form of increasing business complexities. Bibliography Chan, S. L. , C. F. Choi, 1997. “A conceptual and analytical framework for business process reengineering”, International Journal Production Economics, vol.
50, p. 211 – 223. Davenport, Thomas & Short, J. (1990), The New Industrial Engineering: Information Technology and Business Process Redesign, in: Sloan Management Review, Summer 1990, pp 11-27 Hammer, Carter, Usry. 1994. ‘Cost Accounting’. SouthWestern. ‘Industry Overview’. 2006. MSG. Retrieved August 12, 2008 from http://www. msgcpa. com/general. php? category=Industry+Library&headline=Construction+-+Commercial O’Neill, P. , and A. S. Sohal, 1999. “Business Process Reengineering A review of recent literature”, Technovation, vol. 19, p. 571–581.
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