Organizational Development of the Construction Industry
Dave Carlson - July 19, 2006
This article discusses the evolution of construction industry management in the United States during the first half of the 20th century. It focuses on organizational understanding, people management, industry complexity, and use of scientific theory in management. Development of complex projects required development of complex methods to manage those projects. Examples of complex projects completed during the period are the Panama Canal, Hoover Dam, and Golden Gate Bridge. Creating a one-of-a-kind marvel of modern technology is different than mass producing widgets. Consequently, the construction industry did not progress along the same path as other industries. It evolved far beyond the ability of a single master craftsman to manage a complex project and created innovative solutions to unique management challenges.
Organizational Development of the Construction Industry
Organisms, organizations, and industries undergo changes during their growth. The focus of this paper is to discuss a brief history of the evolution of construction industry management in the United States during the first half of the 20th century. It will highlight three major projects (Panama Canal, Hoover Dam, and Golden Gate Bridge) and a specific trade skill (bricklaying) as representative samples of the period to illustrate management evolution. It will discuss four areas of organizational development: organizational understanding, project management complexity, people management, and the application of scientific theory of management.
Winch (2003) characterized construction as a “backward industry” and claimed that it failed “to innovate in comparison to other sectors” (p. 651). While technology moved at a lightning pace during the first half of the 20th century, organizational development and management capability of the construction industry may have struggled to keep pace.
The charge against construction is that from its heyday in the nineteenth century, when it was a quintessentially modern industry with its symbolic achievements . . . failed to transform itself into a 20th century industry. While other sectors modernized through the introduction of interchangeable parts, then assembly lines, and then automation, construction retained its craft method of operation and fell further and further behind the rest of the manufacturing industry in terms of productivity, quality, and hence, value for money. In a word, it did not innovate. (Winch, 2003, p. 651)
Expansion of the railroad industry nurtured the construction industry. Chandler (1995) observed that “the railroad experience brought the large contracting company quickly into urban construction” (p. 332), but “they were not yet full-fledged modern business enterprises” (p. 332).
At least until well after the rise of big business, construction firms did not exhibit the key characteristics of American capitalism, such as the existence of an elaborate managerial hierarchy, dependence on the coordinating role of professional middle managers, the clear demarcation of ownership and administration, and an emphasis on mass production and mass distribution. (Tassava, 2003, p.3)
Construction firms did not evolve in the same manner as companies in other industries because many of the early projects were one-of-a-kind creations. There was little value for the industry to use assembly line production or develop interchangeable parts. Although, breaking projects into smaller sub-projects and components that could be shared between projects may be the construction industry’s equivalent of interchangeable parts.
The Hoover Dam created a new challenge for the construction industry—the project was too large for any single company. The solution was the creation of an organization type new to the industry. The Utah Construction Company and Morrison-Knudsen Corporation allied with six other firms to create a syndicate, headquartered in San Francisco, to bring together enough resources for this project.
Needing a name under which to make the bid, the eight partners demonstrated a perverse sense of humor in choosing Six Companies, Incorporated, a name that not only defied arithmetic but that also had originally been applied to a quasi-judicial institution for resolving disputes within Chinese crime families in San Francisco. (Tassava, 2003, p. 5)
During the project, Six Companies added two more partners to bring their total number to ten partner companies. This unique organization faced a unique management challenge, since major management decisions were made by the senior partner, “Dad” Bechtel (Tassava, 2003). Eager to start making money, the Six Companies partners used their capital to push the project as far as possible in the first year, clearing a path to the sizable bonus for beating the overall project deadline. By 1933, in fact, Bechtel and Kaiser both had recouped $5 million of working capital and begun collecting pure profit.
That early progress began slowing after "Dad" Bechtel died suddenly on a trip to the Soviet Union and the surviving partners began meddling in daily operations at the dam. Unhappy with the now confused lines of authority, the project superintendent demanded a change, and the directors named four of their own, including "Dad" Bechtel's son Stephen and, as chairman, Henry Kaiser, to a function-oriented executive committee positioned between the superintendent and the other partners. (Tassava, 2003, p. 6)
“Though successful, the Hoover Dam project did not meld the partners into a single organization. In fact, the eight firms never again worked all together on a single project” (Tassava, 2003, p. 9). Even though this new organization did not survive, its lessons learned created a foundation upon which future construction syndicates would thrive.
Another unique organizational structure created by the construction industry in the first half of the 20th century was the formation of the Panama Canal Company following construction of the Panama Canal. “For most of its history the Governor of the Canal Zone was a Major General from the US Army Corps of Engineers. During a governor's tenure in the Canal Zone he wore civilian clothes and was not in the normal military chain of command” (CZBrats, 1997, ¶ 1). This hybrid military-civilian organization is an example of the industry’s innovative management practices.
Project Management Complexity
To appreciate the complexity of construction industry management, one must understand the complexity of its products. Creating a one-of-a-kind marvel of modern technology is not the same as mass producing widgets. How did they do that? is a question heard frequently when people gaze upon amazing man-made engineering marvels like the Panama Canal, Hoover Dam, or Golden Gate Bridge. Along with complex technology came a requirement for increasing complexity in methods to manage projects employing new technologies. “The growth of project management has come about more through necessity than through desire” (Kerzner, 1995, p. 22). Many times, managers resist change. Kerzner (1995) noted that “an inherent fear of the unknown acted as a detent for those managers wishing to change over” (p. 22).
Early construction companies “maintained an informal method for managing projects” (Kerzner, 1995, p. 23) and did not implement a formal method for managing their projects. “Most projects were handled by functional managers and stayed in one or two functional lines, and formal communications were either unnecessary or handled informally because of the good working relationships between line managers” (Kerzner, 1995, p. 23).
Three complex projects completed during the first half of the 20th century were the Panama Canal (1880-1914), Hoover Dam (1931-1935), and Golden Gate Bridge (1933-1937).
Panama Canal construction began January 10th, 1880 (Panama Canal Authority, 2001a, ¶ 1). The canal opened for business on August 15, 1914 (Panama Canal Authority, 2001b, ¶ 3). While this project was not in the United States, was begun by a French construction company, and included firms from other countries, it was a significant project completed by U.S. construction efforts.
“The Panama Canal was, is, and shall remain a marvel of the 20th century. Never before nor since has any project accomplished the feats of mastering the elements, of engineering and construction, or of future planning as has been done at Panama” (American Public Works, n.d.b, ¶ 7). The fact that the project “came in under budget, ahead of schedule, and without hint of financial scandal or corruption” (American Public Works, n.d.c, ¶ 6) attests to successful management techniques. No project as massive in scope and magnitude as the Panama Canal could have achieved such a feat without effective management.
Construction on the Hoover Dam (see Figure 1) began April 20, 1931 (Bureau of Reclamation, 2004, ¶ 16) and was completed May 29, 1935 (Bureau of Reclamation, 2004, ¶ 20). "Built during the Depression years and engineered with a slide rule, this structure still serves the American West today, some 65-plus years after its construction" (Koehler, 2000, p. 33).
Figure 1. Hoover Dam upstream face, 1935.
(Lower Colorado Regional Photo Lab, 2004)
“Today, Hoover Dam stands as one of the most successful public works projects and one of the greatest engineering achievements of the modern era” (American Public Works, n.d.b, ¶ 7). “In addition to being a National Historic Landmark, it is a National Historic Civil Engineering Landmark and one of America's Seven Modern Civil Engineering Wonders” (American Public Works, n.d.b, ¶ 3). Swichtenberg (2002) adds his opinion that "the building of Hoover Dam is one of the greatest engineering projects ever to take place" (p. 5).
Golden Gate Bridge
Construction of the Golden Gate Bridge began in January 1933 and was completed April 1937 (Golden Gate Bridge, 2006a, ¶ 1).
The Golden Gate Bridge is the best known, most internationally recognized, and most frequently visited suspension bridge in the world. . . . Completed in May 1937, the Golden Gate Bridge is most notably the best example of incorporating architectural styling to state-of-the-art engineering capabilities. . . .
The Golden Gate Bridge began as “the Bridge that couldn't be built” and faced a number of daunting obstacles, both natural and man-made, that heighten the achievement embodied in the finished project. Today, it stands not only as a major transportation artery and an engine of economic vitality, but as a living symbol of what can be achieved against the odds. (American Public Works, n.d.a, ¶¶ 1-4)
How did they do that? They did it by breaking the main projects into sub-projects and effectively managing components of the complex projects following principles of the scientific theory of management.
Managing people can be difficult. It is a delicate balance between art and science. This section will discuss the development of three areas of people management in the construction industry: labor relations, safety compliance, and employee retention. Successful organizations understand the importance of taking care of their people (both employees and customers).
Henry Ford, founder of Ford Motor Company, said, "You can take my factories, burn up my building, but give me my people, and I'll build the business right back again." General Robert E. Wood, former president of Sears, Roebuck & Company, said, "Put your personnel work first, because it is the most important." (Taylor, 2005, p. 24)
“Henry C. Turner founded Turner Construction Company in 1902. Throughout his career, Henry Turner referred to his clients as ‘respected friends.’ The company quickly built a reputation for integrity, teamwork and commitment” (Turner, n.d., ¶ 1). The Turner Construction Company ensured the people they hired shared the same customer service philosophy.
"It took much more than a clever engineer and a relentless promoter to build the Golden Gate Bridge. The bridge effort enlisted men by the hundreds to do the filthy, back-breaking, and routinely dangerous labor" (Public Broadcasting Service, 2004, ¶ 1). The Golden Gate Bridge project was the first large project to use union labor exclusively. "Hiring was handled entirely through the ironworkers' union, local 377" (Public Broadcasting Service, 2004, ¶ 3).
Dealing with unions on a large scale was a new management challenge for the construction industry. Managers now needed to consider the ideas of union representatives in policy decisions and open their meetings to those union representatives. The representatives then shared the information they gathered with union membership. This undoubtedly changed the manner in which management discussed business and made policy decisions, since their meetings were now open to the workers.
"The 1930s have been regarded as a pivotal period in the development of a modern organized labor movement in the United States" (Tomlins, 1979, p. 1021). Labor relations in the construction industry followed a different path than other industries, because “the institutional setting of the construction industry differs from that of manufacturing and mining in a number of ways" (Allen, 1984, p. 251). Allen (1984) lists three ways the industry differs:
- "Jobs in the construction industry are generally of short duration because of both technical and economic factors" (p. 251).
- "The actual crews employed are seldom the same from one week to the next" (p. 251).
- "Market demand fluctuates considerably over time because of (1) seasonality in some types of work and (2) cyclicality resulting from the effect of credit conditions on the demand for housing and industrial capacity" (p. 251).
Organizing workers in a factory was easy: everyone joined the textile worker’s union. The construction industry was more complicated. Workers organized under various craft unions.
Craft unionism is perhaps best exemplified by many of the construction unions that formed the backbone of the old American Federation of Labor (which later merged with the industrial unions of the Congress of Industrial Organizations to form the AFL-CIO). Under this approach, each union is organized according to the craft, or specific work function, of its members. For example, in the building trades, all carpenters belong to the carpenters' union, the plasterers join the plasterers' union, and the painters belong to the painters' union. Each craft union has its own administration, its own policies, its own collective bargaining agreements and its own union halls. The primary goal of craft unionism is the betterment of the members of the particular group and the reservation of job opportunities to members of the union and those workers allowed to seek work through the union's hiring hall.
This distinction between craft and industrial unionism was a hotly contested issue in the first four decades of the twentieth century, as the craft unions that held sway in the American Federation of Labor sought to block other unions from organizing on an industrial basis in the steel and other mass production industries. The dispute ultimately led to the formation of the Congress of Industrial Organizations, which split from the AFL to establish itself as a rival organization. The distinction between craft and industrial unions persists today, but no longer has the political significance it once had. (Wikipedia, June 2006, ¶¶ 2-3)
“At the height of the depression of the 1930s, poverty-stricken workers on the dam [Hoover Dam], earning just a few dollars a day, died from horrific explosions, carbon monoxide poisoning and heat exhaustion as it slowly came to fruition” (Cadbury, 2003, ¶ 3). An urban legend surrounding the construction of the Hoover Dam is that there are worker’s bodies entombed in the mammoth structure.
At first blush it might appear reasonable that a dead man would have been left where he fell on a project this big, but structural integrity of the dam had to be maintained at all costs if it was to withstand pressure later. Engineers would not have permitted even a 4-inch block of wood to be left in a pour, much less anything as large as a workman, because of the danger of creating a weak spot in the structure. (Mikkelson, 1999, ¶ 5)
MacCollum (1995), a safety proponent , asserts that "there has been real progress since the building of the Hover Dam in the 1930s, which was a big improvement over the building of the Panama Canal in the early 1900s" (p. 2). Even if safety practices did continue to improve, the industry took a step backward during construction of the Hoover Dam. DuTemple (2003) explains that "the work [on the Hoover Dam] was grueling and hazardous. Six Companies [the company responsible for construction] demanded that the crews work quickly. ... Speed was more important than safety. With so many people unemployed, if someone objected to the unsafe conditions or didn't want to do a specific job, he would be fired immediately" (p. 38). “Agreement on the exact body count is hard to come by. The most common figure given is an official count of 96 and an unofficial one of 112” (Mikkelson, 1999, ¶ 4).
In contrast to the Hoover Dam project, the Golden Gate Bridge’s safety record is impressive.
A unique aspect of the bridge's construction was the safety net set up beneath it, significantly reducing the expected number of deaths for such a project. 11 men were killed from falls during construction, and approximately 19 men were saved by the safety net. 10 of the deaths occurred near completion, when the net itself failed under the stress of a scaffold fall. The 19 workers whose lives were saved by the safety nets became proud members of the (informal) Halfway to Hell Club. (Wikipedia, July 2006, ¶ 7)
“Until February 17, 1937, there had been only one fatality, setting a new all-time record in a field where one man killed for every million dollars spent had been the norm” (Golden Gate Bridge, 2006b, ¶ 17). Comparing the Hoover Dam and the Golden Gate Bridge projects, a 90 percent reduction of fatalities indicates a significant improvement in worker safety management.
“One study of the period 1913-1919, commissioned by the U.S. Bureau of Labor Statistics, determined that modern employment practices reduced labor turnover, thus reducing training and other costs while also providing employees with more stable employment, especially in larger firms” (Wren 2005, pp. 189-190). “Labor turnover carried a high cost, both for the employee and the employer, and scientific management sought to reduce that waste of resources” (Wren, 2005, p. 241).
A major effort for the construction industry to retain employees during the first half of the 20th century was to keep them alive. Managers responsible for building the Panama Canal (1880-1914) expended a great deal of effort looking after the health of their workers, something that had not been done previously in the industry to such a large scale.
One of the greatest challenges facing the builders of the Panama Canal was dealing with the tropical diseases rife in the area. The eventual success of the project is owed substantially to the health measures taken during construction. These included general health care, the provision of an extensive health infrastructure, and a major program to eradicate disease-carrying mosquitos [sic] from the area. These efforts were a great success, and contributed significantly to the overall success of the canal project. (Wikipedia, May 2006, ¶ 1)
Senior management was held accountable to ensure workers followed health directives. “The chiefs of divisions were held responsible for keeping of the doors and windows of the rooms of their employees properly screened. Guards were stationed around to see that screening orders were obeyed and office doors kept closed” (Bennett, 1915a, ¶ 9).
Keeping workers alive and healthy was a primary emphasis of the builders of the Panama Canal. That was not enough, however, to retain workers. “During the first two years over ninety per cent of the Americans returned home each year” (Bennett, 1915b, ¶ 3). “It was perceived that if the work was to be success the government itself would have to provide amusements for the men” (Bennett, 1915b, ¶ 4), so the government built clubs and established activities in which the workers could participate during non-duty hours. “It was a difficult task in the beginning, but every effort was made to ensure adequate living standards, in accordance with standards of the time, for canal workers” (Panama Canal Authority, 2001c, ¶ 4). Even with the efforts to provide for the needs of workers, “fifty per cent of the Americans still grew weary of the heat and the stress of the big task every year and went back to the States” (Bennett, 1915b, ¶ 18). Considering the turn-over was reduced from ninety per cent to fifty per cent, it appears the industry’s retention efforts, at least for the Panama Canal project, were somewhat successful.
Scientific Theory of Management
Departing from the specifics of the three complex projects used as examples in this paper, this section will discuss examples of application of the scientific theory of management in the construction industry. “As engineers were vital to developing and installing advances in technology and power, it was natural that they became a prime source of information about management practices” (Wren, 2005, p. 121). Early management schools taught the scientific management principles of planning, organizing, staffing, controlling, and directing (Kerzner, 1995). Because of the length constraints of this article, the following discussion will focus only on the last two principles (controlling and directing).
“Controlling is a three-step process of measuring progress toward an objective, evaluating what remains to be done, and taking the necessary corrective action to achieve or exceed the objectives” (Kerzner, 1995, p. 234). The three steps of controlling are:
- Measuring: determining through formal and informal reports the degree to which progress toward objectives is being made.
- Evaluating: determining cause of and possible ways to act on significant deviations from planned performance.
- Correcting: taking control action to correct an unfavorable trend or to take advantage of an unusually favorable trend. (Kerzner, 1995, p. 235)
Effective control methods must adjust to the situation and communicate new expectations to those who are tasked to execute the job. “Regardless of the circumstances, control depends on the communication of information, both for gathering data and for implementing the desired corrective action” (U.S. Army, 1994, p. 1-12).
Early construction projects were controlled by master craftsmen (Cottrell, 1993). They would determine through informal reports if their apprentices were proceeding as expected (measuring). When the apprentice completed the work, the master would examine the work and determine if it met the standards (evaluating). If there was a problem, the master explained the problem and had the apprentice repeat the work until he or she mastered the task (correcting).
Winch (2003) observed “construction retained its craft method of operation and fell further and further behind the rest of the manufacturing industry” (p. 651). However, the construction industry quickly embraced innovative graphical methods to chart progress. This gave project managers a big-picture view, previously unavailable to individual master craftsman.
Henry L. Gantt (1861-1919) “became one of the first successful management consultants” (Wren, 2005, p. 155). In 1917 he developed a chart concept. “The essence of the Gantt chart concept was to show how work was routed and scheduled through various operations to its completion” (Wren, 2005, p. 159). Gantt’s “graphic aids to management planning and controlling were revolutionary for this period in management thought” (Wren, 2005, p. 160). In a single graphic representation (see Figure 2), “management could see how plans were progressing and take whatever action necessary to keep projects on time or within budget” (Wren, 2005, p. 160). Gantt’s chart concept was not exclusive to the construction industry, but the industry quickly embraced and exploited this new innovative control method.
Figure 2. Typical Gantt Chart.
“Directing is the implementing and carrying out (through others) of those approved plans that are necessary to achieve or exceed objectives” (Kerzner, 1995, p. 235). Some or the steps involved in directing are:
- Staffing: seeing that a qualified person is selected for each position.
- Training: teaching individuals and groups how to fulfill their duties and responsibilities.
- Supervising: giving others day-to-day instruction, guidance, and discipline as required so they can fulfill their duties and responsibilities.
- Delegating: assigning work, responsibility, and authority so others can make maximum utilization of their abilities.
- Motivating: encouraging others to perform by fulfilling or appealing to their needs.
- Counseling: holding private discussions with another about how he might do better work, solve a personal problem, or realize his ambitions.
- Coordinating: seeing that activities are carried out in relation to their importance and with a minimum of conflict. (Kerzner, 1995, pp. 235-236)
“Directing embraces the practical problems in getting personnel to work as a team to accomplish the unit objective” (U.S. Army, 1994, p. 1-11).
Staffing in the early construction industry was a continuously changing challenge because of the fluctuating nature of the industry. Construction managers did not have the luxury, enjoyed by their contemporaries in manufacturing, of relying on a consistent work force. Frank Bunker Gilbreth (1868-1924) introduced a white-list card used as “an early appraisal form for workers, which the supervisor filled out on both desirables and undesirables” (Wren, 2005, p. 165).
In an intermittent, transient trade such as construction, the Gilbreth white list became a valuable source of information for employers. Though this advice was quite detailed and applicable to construction, it was indicative of Gilbreth’s desire to rationalize the workplace and is illustrative of what the whole scientific management movement was attempting. (Wren, 2005, p. 165)
One of Gilbreth’s best known examples of training was his Bricklaying System, which involved studying various bricklaying techniques and methods to determine the best method of laying bricks in specific situations. Gilbreth “insisted that the emphasis be placed on learning the right way before maximum output was expected of the new worker” (Wren, 2005, p. 165). Gilbreth “demonstrated early the need for worker involvement in making improvements, including incentives to do so, an emphasis on training, and finally, the need to systematize without accelerating the worker’s pace” (Wren, 2005, p. 165).
[Gilbreth] stressed economy of effort, not speed, and sought to show how to improve productivity with no greater physical exertion. The result of his extensive analysis of bricklaying showed that the number of motions could be reduced from eighteen to four and that workers could increase their output from 1,000 to 2,700 bricks laid per day without increasing their effort. (Wren, 2005, p. 165)
One of Gilbreth’s contributions to motivating was The Concrete System that “contained detailed advice to concrete contractors” (Wren, 2005, p. 165). The basis of the system was to divide the workers into even groups which would compete to see who could finish a wall or build concrete pillars the quickest. Gilbreth felt the “spirit of competition in completing the job” (Wren, 2005, p. 165) was a good thing. Gilbreth also “established a suggestion system, including a $10 first prize each month for the best idea on how to improve work, give better service to customers, or secure additional construction jobs” (Wren, 2005, p. 165). This proved to be a successful motivation technique, which still exists today in many organizations.
The characterization of the construction industry as a “backward industry” (Winch, 2003, p. 651), is not deserved. Even though the construction industry did not progress along the same path as most other industries during the first half of the 20th century, it did evolve to meet its unique management demands. The assertion that the industry failed to innovate is not valid. The industry continually found innovative effective solutions to unique management challenges.
During the first half of the 20th century, the construction industry evolved far beyond the ability of a single master craftsman to manage a complex project. Training experienced workers in new techniques, exploiting cutting-edge technology, coordinating with unions, functioning in matrix organizations, charting project progress, identifying talented workers, and encouraging workers to share good ideas all contributed to construction industry management evolution. Applying principles of the Scientific Theory of Management greatly aided construction industry leaders to meet new expanding management challenges.
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