The Impact of Organisational Structure on Project

Performance

BU YINGHUI and GAN CHEONG ENG

School of Building & Real Estate
National University of Singapore
Singapore

Abstract

Construction projects possess high complexity and diversity and the volume of work in a project fluctuates
as the period of contract progresses. These are patterns of growth and decline of activities which the
construction management team would have to oversee. To assist in this work, the team organizes itself to
perform well. The organizational structure is the management framework adopted to oversee the various
activities of construction work to their efficient and effective conclusions.

This paper examines how the features of organizational structure are affected by the characteristics of the
project. Its findings would guide team structuring so that construction projects could be managed to attain
higher performance.

Keywords: Organisation; structure, features, project; characteristic.

INTRODUCTION

The level of competition in the construction industry has risen in the past decade and it will be more intense
in the new millenium. This is due to the opening of markets for international competition and the use of
new technology by the competitors. As a project-driven industry, survival in the construction industry is
through project success. To achieve project success, a project management team is required to attain high
performance in order to overcome the fluid construction market environment and the different peculiarities
of different projects which are diverse and complex.

The site organizational structure is the management framework adopted to oversee the various activities of
construction work. A suitable site organizational structure assists the project management team to achieve
high performance in the project through gains in efficiency and effectiveness.

OBJECTIVE

The objectives of this paper are:

(a) to determine the basis of using certain organization structures in construction projects by using
prevalent theories of structures to test their validity;
(b) to examine the relationships between the characteristics of a construction project and the features of its
site organisational structure; and
(c) to provide a guide for the project manager to establish and fine-tune a site organization structure to fit
the requirements of different project characteristics.
PAST WORK

Theories of Structures

Theories on organisational structures started with the identification of organizing as a distinct managerial
function. They took formal shapes upon results from studies on organizational structures which covered
many widely different industries. They included studies on the manufacturing industry (Lawrence and
Lorsch, 1967), administrative organization (Blau and Schoenherr, 1980), investment banks (Eccles and
Crane, 1988) and multi-national organization (Ghoshal and Nohoria, 1989). With the emergence of the
systems and contingency theories, the importance of the organizational structure as a critical component of
a formal organization had finally gained position in research.

Basic research on organisational structures that are relevant to the objectives of this paper are those of
Lawrence and Lorsch (1967), Drazin and Van de Ven (1985) and Mintzberg (1989). In a research on the
organization structures in six enterprises, Lawrence and Lorsch (1967) summarized the features of the
organization structure to be the span of control, number of levels to a shared superior, time span of review
of departmental performance, specificity of review of departmental performance and importance of formal
rules. Drazin and Van de Ven (1985) defined the organizational structure in terms of specification,
standardization, discretion and personnel expertise. They agreed with Lawrence and Lorsh on the feature of
specialization. Mintzberg (1989) studied seven types of organizations, namely, entrepreneurial, machine,
professional, diversified, innovative, missionary and political. He found them to be based on key parts of
the organization, type of decentralization and their co-ordinating mechanism. All these authors identified
the structure of organisation as characterized by not only specialised parts but also their horizontal and
vertical relationships.

Applied research on organisational structures in construction companies developed further when many
researchers applied basic research results on organizational theory in other fields. Lansley (1994) indicated
that strong linkage existed among different organizational models and advocated using them for the
reconciliation of conflicts. Mukalula (1996) studied three aspects of a construction firm’s structure:
namely, organizational complexity, formalization, centralization and decentralization of authority. Sunkuk
(1997) adopted five among the seven types of organizations presented by Mintzberg (1989) to examine
which managerial environment will best reflect that of the construction industry. Applied research
extended the study of organisations beyond organizational features to relationships with the operating
environment.

Among the basic and applied research studies, there is agreement on the following:

(a) The structure of an organization is important to the performance of the organisation. This would
mean that the project management team’s structure would certainly affect its performance.
(b) Two basic features of a structure of an organisation are its width as indicated by spans of control,
and its height as indicated by the levels of decentralisation.

Models of Structures

From the above observations, researchers theorize that the change in the organizational structure, through
its shape in terms of width and height, would affect organizational performance, and even vice versa.

Theoretically, researchers and theorists presented two extremes for possible models of structures. They are
the organic structure and mechanistic structure. The model of an organic structure would be a flat and
cross-functional team, with low formalization, possessing comprehensive information and relying on
participative decision making. The model of mechanistic structure would be the opposite and would be
characterized by extensive departmentalisation, high formalisation, limited information and centralisation.
(Robbins, 1996). Thus the organic model of structure would have the maximum width (span) but the
minimum height (level), while the mechanistic model or structure would have the reverse, minimum width
and maximum height. These are illustrated in Figure 1.

Organic structure

Mechanistic Structure
Characteristics of Projects
Figure 1: Models of Structures

Although applied research on organisational structures has continued in the construction industry, the main
barrier is attributed to the highly diverse characteristics of construction projects and high uncertainties
inherent in construction processes. These factors made it very difficult to establish a persuasive model
which will reflect all diversities and uncertainties. As a result, the site organization, in particular, did not
gain much attention from researchers.

Two items can be considered as basic characteristics of a construction project. They are the Contract
Amount, and Project Duration. Seen three dimensionally, the contract amount would indicate the two
dimensions of size and complexity of the project while the project duration would express the third
dimension of time though which changes in the project take place.

HYPOTHESES

This paper examines the relationship of a construction organization’s structure with its environment. The
structure under study is the site team structure. The immediate environment would be the construction
project. In this paper, features of the structure studied would focus on the span and level while the
characteristics of the project would be limited to amount and duration.

Even though prevailing structural and contingency theories on organizations indicated that there is no ideal
rigid structure suitable for all situations, i.e. projects, this paper would attempt to examine which structure
would be more appropriate for which project. Prima facie, the large contract amount and the long
construction period of large projects will require wide span of control to cope with the volume of activities
and small number of levels to deal with the complexities. Large projects seem to require organic structures.
The main hypothesis to be tested would be that the structure will tend to be more organic for large projects
whereas the mechanistic structure would be more appropriate for small projects.

METHODOLOGY

A sample of forty cases was studied for this paper. The sample was randomly selected. All the projects
studied are building projects and structures studied are those of site teams of main contractors. Eight
measures were taken, three items for characteristics of the project and five for features of structure. For
project characteristics, they are Contract Amount, Project Duration and Completed Amount Per Day. For
structural features, they are Total Number of Supervisors, Number of Divisions/Departments, Maximum
Number of Span of Control, Maximum Number of Supervision Levels and Shape.

The completed amount per day was added because production strongly affects the structure. The larger the
amount completed per day means more management effort was required and this surely would impact on
the structure. The number of supervisors and departments were added as the number of supervisors is an
indicator of organisation size and the number of divisions reflects the extent of work differentiation or
specialisation. The measure of Shape is calculated as Division divided by Level.
The above measures are coded as follows in the tables and figures.

Amount Contract Amount for Each Project

Duration Construction Duration
Pday Completed Amount per day = Amount/Duration
Supno Total Number of Supervisors in the Site Team
Division The Number of Divisions in the Site Team
Maxlevel The Maximum Number of Total Level in the Site Team
Shape The Shape of organisation = Division/Max level
Socmax The Maximum Number of Span of Control in the Site Team

ANALYSIS

Table 1 shows the composition of the sample of 40 cases taken randomly among building projects of main
contractors. Table 2 shows the correlations found among the characteristics of the projects, with features
for structure.

Project Characteristics and Team Structures

The correlations listed in Table 2 strongly indicate that Contract Amount (Amount) is a very important
characteristic of the project for it affects nearly all the features of the site team structure. All the structural
features listed, except the shape, have significant correlation with the contract amount at 0.01 level (2-
tailed).

Table 1: Composition of Sample

Unit N Minimum Maximum Mean Std. Deviation
Amount S$( in million) 40 2.80 1500.00 99.86 250.37
Duration Days 25 300.00 2970.00 716.40 506.56
Pday S$/per day 25 5555.56 370370.37 74081.68 70350.91
Supno No. 40 3.00 93.00 21.30 20.06
Socmax No. 40 2.00 9.00 4.40 1.52
Maxlevel No. 40 3.00 10.00 5.13 1.95
Division No. 40 1.00 9.00 3.50 1.75
Shape 40 0.60 4.00 1.79 0.91

The significant correlation between Amount and Socmax (0.549 at 0.000 level) is also revealing as it shows
that in a large project there would be a wide span of control. This supported the hypothesis that large
projects will have organic structures.

On the other hand, if size is reflected by construction duration (Duration), it was found that this
characteristic does not influence the structure. None of the features of structure has significant correlation
with duration, even at 0.05 level. It is understandable as large projects would require long construction
periods because of the large quantity of work, but small projects may also take a longer time due to poor
supervision and low productivity. The characteristic of large project that would cause its structure to be
more organic is contract amount rather than construction duration.

Projects Irrespective of Size

Figure 1 shows a strong relationship between Supno and Pday. The completed amount per day (Pday) is
another important project characteristic studied. Pday indicates the rate of production. It combines the
influences of amount and duration. Pday displays an amazingly strong correlation with the number of
supervisors in the site team (Supno) with a value of 0.894. This supports the argument for increasing the
number of supervisors for production level increases. Pday also correlates with the maximum number of
levels in the site team (Maxlevel) at 0.006 level with a value of 0.531. This indicates a limit whereby
changes in the number of levels of the structure would have little impact on productivity on the project.

Table 2: Correlation of Project Characteristics and Structural Features

Amount Duration Pday Supno Socmax Maxlevel Division Shape
Amount Correlation 1.000 .225 .958** .605** .549** .487** .509** -.094
Sig. (2-tailed) . 0.280 0.000 0.000 0.000 0.001 0.001 0.562
N 40 25 25 40 40 40 40 40
Duration Correlation .225 1.000 .038 .152 -.075 .162 .149 -.168
Sig. (2-tailed) 0.280 . 0.858 0.469 0.723 0.440 0.476 0.422
N 25 25 25 25 25 25 25 25
Pday Correlation .958** .038 1.000 .894** .374 .531** .422* -.235
Sig. (2-tailed) 0.000 0.858 . 0.000 0.065 0.006 0.036 0.258
N 25 25 25 25 25 25 25 25
Supno Correlation .605** .152 .894** 1.000 .529** .763** .466** -.035
Sig. (2-tailed) 0.000 0.469 0.000 . 0.000 0.000 0.002 0.830
N 40 25 25 40 40 40 40 40
Socmax Correlation .549** -.075 .374 .529** 1.000 .494** .752** -.371*
Sig. (2-tailed) 0.000 0.723 0.065 0.000 . 0.001 0.000 0.018
N 40 25 25 40 40 40 40 40
Maxlevel Correlation .487** .162 .531** .763** .494** 1.000 .498** .050
Sig. (2-tailed) 0.001 0.440 0.006 0.000 0.001 0.001 0.758
N 40 25 25 40 40 40 40 40
Division Correlation .509** .149 .422* .466** .752** .498** 1.000 -.733**
Sig. (2-tailed) 0.001 0.476 0.036 0.002 0.000 0.001 0.000
N 40 25 25 40 40 40 40 40
Shape Correlation -.094 -.168 -.235 -.035 -.371* .050 -.733** 1.000
Sig. (2-tailed) 0.562 0.422 0.258 0.83 0.018 0.758 0.000 .
N 40 25 25 40 40 40 40 40
Notes:**Correlation is significant at the 0.01 level (2-tailed)
*Correlation is significant at the 0.05 level (2-tailed)

Figure 2 is a scatter diagram of contract amount (Amount) and number of supervisors (Supno). It shows a
bunching of projects in a range of amount of $20mil. to $90mil. The bunching based on contract amount
distinguishes common size from large size projects. Similarly, the bunching based on the number of
supervisors ranging between 4 to 18 shows the effective team size for common size projects.

Figure 3 shows that a logarithmic curve (R square=0.534) fits better than a linear relation (R square=0.367).
The logarithmic curve shows an ascending slope, much steeper at the earlier stage before a turning point is
reached, and a much gentler descending slope after passing this point. This point shows that although the
increase in the contract amount would normally require more supervisors, there would come a size where an
increse in the poject amount would not necessarily demand more supervisors. Such a size as $400mil. would
allow radical structural and managerial measures which would render the increase of supervisors unnecessary.
 Chart 1: Scatter Diagram of Supno vs. Pday
100

80

60

40

20
Supno

0
0 100 200 300 400

Pday
(S$ in thousand)

Chart 2: Scatter Diagram of Supno vs. Amount

100

80

60

40

20
Supno

0
-200 0 200 400 600 800 1000 1200 1400 1600

Amount
(S$ in million)

Together, Figures 2 and 3 suggest that there is a limit to the effective number of supervisors required in a
site team. This means that the team size need not be endlessly enlarged as the size of contract amount
increases.
 Chart 3: Linear and Logarithmic Relations of Supno vs. Amount
100

80

60

40

20

Observed
0
Linear

-20 Logarithmic
-200 0 200 400 600 800 1000 1200 1400 1600

Amount

Projects of Common Size

Further analysis was carried on projects with contract amount less than S$90mil. to detail the correlation
between Pday and Supno for common size projects. The $90million line was based on the earlier scatter
diagrams where the limiting line could be drawn.

Chart 4: Scatter Diagram of Supno vs. Pday

50

40

30

20

10
Supno

0
0 20 40 60 80 100 120 140 160

Pday (in thousand)

In Chart 4, the scatter diagram shows that the number of supervisors (Supno) to stay relatively constant at
10 persons for the completed amount per day (Pday) of less than $60,000. In Chart 5, the predicted linear
regression with 95% mean prediction interval within this range is: Supno= 8.73 + 0.01 x Pday with
correlation value of 0.00.
The relatively flat slope (0.01) proves the consistency of the number of supervisors when the completed
amount per day (Pday) is less than $60,000. Meanwhile, the intercept (b0) = 8.73 (approximately 9 persons)
presented the basic number of members in the site team. Relative low correlation (0.00) indicates that the
relation is very weak between Pday and Supno in this range

As the completed amount per day exceeds $60,000, the number of supervisors (Supno) increases rapidly as
the amount completed per day (Pday) increases. Further details are shown in Chart 6. The predicted linear
regression within this range becomes: Supno = 7.17 + 0.14 x Pday with correlation value of 0.10.

The relatively high slope (0.14) indicates that the number of supervisors will increase significantly as the
completed amount per day (Pday) exceeded 60 thousand, although the correlation is relatively low because
of small number of samples.

It could also be noticed that, as this linear relation was summarized from practice, it indicates that most
general contractors prefer a relatively fixed number of site team members for a relatively small completed
amount (when less than $60,000 per day), a characteristic of mechanistic structure. As the completed
amount increases, the number of supervisors becomes relatively flexible and this leads to a tendency
towards an organic structure. Based on these observations, it could be concluded that the rate of
productivity would dramatically affect the site team structure.
CONCLUSION

This paper has shown that the structure of the site team will tend to be more organic as projects increase in
size in terms of contract amount and not in terms of project duration. It also shows that the site team needs
to increase in size in terms of number of supervisors as the production rate in terms of contract amount per
day increases. However, a limit would be reached whereby any further increase in the production does not
necessarily demand an enlargement of the site team. At this stage, neither would changes in the levels of
the team structure have an impact on productivity.

This paper determined the distinction between common and large size projects to be at $90mil. Up to this
limit, team size ranges up to 18 with a mean of 10 members. This indicates the span required of the team
leader. Beyond the size of $90mil., project characteristics display little effect on structural features. It is also
found that the team size is more stable below than above the production rate of $60,000 per day.

Overall, the paper observes that all of the structural features are closely intercorrelated with each other as well.
A variation in one structural feature will cause the changes in the others. The only exception is the shape,
which possesses strong correlation with only two features of structure. As the shape has a strong correlation
with the maximum of span of control, shallow shapes strongly correlate with larger span of control, consistent
with the characteristics of the organic model.
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