University News Last updated 23 October 2012
Results of a recent study by a leading academic at Birmingham City University, highlights core reasons underpinning failure among construction businesses today.
Professor Gary Holt, from the Centre for Business Innovation and Enterprise at Birmingham City Business School, will have his study published in the highly acclaimed international Journal of Construction Innovation (published by Emerald) early next year. His research focuses on several generic business failure agents – of which management ‘inaction’ was highlighted a key factor. “It’s what construction business owners and strategic managers ultimately do – but equally as important don’t do – that helps them either militate against or succumb to failure,” said Professor Holt.
“This means ‘not doing’ things like bidding for work at low or negative margins; or taking on new types of work for which they have limited previous experience, simply to chase cash flow. While this sounds logical, unfortunately, such practice frequents the construction sector. For similar reasons, managers should not expand operations into uncharted geographical areas or over too large catchments; which can stretch company resources and ability to control work profitably. Managers should also avoid ‘reactive’, ‘egotistical’ or ‘rash’ decisions, even when tempted to do so given immediate market and financial pressures.”
Wealth of research
Within the sector a lack of working capital and problems of liquidity commonly over-influence managerial decisions but according to Professor Holt’s recent study; to pursue cash flow without adequate strategic thought for other business objectives, will more than likely yield detriment to company health.
Despite a wealth of research in this field over the last 50 years, Professor Holt observed that much of that has tended to assess whether struggling businesses will ultimately fail or not, rather than getting down to the core reasons underpinning failure. “Construction businesses operate in a sector recognised for its ardent competition, poor profitability and adverse economic conditions – so the key to their survival really does come down to management strategy,” he added.
“In construction, young companies need to acquire a degree of organisational learning over time, before their probability of business failure reduces. I hope that this research will help entrepreneurs and new businesses look at the way they manage their affairs, specifically, as a means to encourage survival. It will also offer a structured model for more empirical studies in the field henceforth.”
Professor Gary Holt serves on many international conferences’ advisory, editorial and reviewing panels and he is an active peer referee for 25 international construction and business sector academic journals. He has provided expert reviews for the European Framework series; the Engineering and Physical Sciences Research Council; the Institution of Occupational Safety and Health; and the Health and Safety Executive. He has acted as an external examiner to Loughborough University, UMIST and the University of Bolton; and has provided consultant services to several English universities, public sector authorities and blue-chip companies. Gary is Associate Editor of The Journal of Financial Management of Property and Construction.