Crisis management in Turkish construction industry

Building and Environment 41 (2006) 1498 1503 www.elsevier.com/locate/buildenv Crisis management in Turkish construction industry Emin O cal a, Emel Laptali Oral b,, Ercan Erdis c a Assoc. Prof., C- ukurova Üniversitesi, Ins-aat Mühendisliǧi Bölümü, Mühendislik Mimarlık Fakültesi, Balcalı, Adana, Turkey b Assoc. Prof., Mustafa Kemal Üniversitesi, Ins-aat Mühendisliǧi Bölümü, Mühendislik Mimarlık Fakültesi, Tayfur Sökmen Kampüsü, Antakya 31034, Hatay, Turkey c Dr., Mustafa Kemal Üniversitesi, Ins-aat Mühendisliǧi Bölümü, Mühendislik Mimarlık Fakültesi, Tayfur Sökmen Kampüsü, Serinyol, Antakya 31034, Hatay, Turkey Received 5 November 2004; received in revised form 23 May 2005; accepted 26 May 2005 Abstract Various economical crises have affected Turkish economy during the last decade and construction industry has always been among the hardest hit; giving the idea that a comprehensive approach to crisis management is unavoidable. However, literature showed no findings related with crisis management applications by construction companies. Thus, a questionnaire survey was undertaken by the top management of 120 construction companies to investigate the degree of crisis management applications throughout the industry, mainly focusing on the outcomes during the economical crisis in 2001. Frequency analysis, Likert scale of comparison, Thurstone s paired comparisons, Pearson s chi-square test and Fisher s exact test were used to evaluate the results. The results showed that government policies and instable market conditions were the most important causes of crisis for Turkish construction companies. Meanwhile, only a small number of the companies utilized a systematic crisis management and the extent of crisis management applications varied depending on the size and the structure of the companies. Consequently, panic and powerlessness were the common feelings shared throughout the industry during the economical crisis in 2001. Despite, it was still encouraging that the managers utilized contemporary decision-making methods to get out of the crisis and their final decisions were generally in favour of strategically repositioning themselves. r 2005 Elsevier Ltd. All rights reserved. Keywords: Crisis; Crisis management; Construction industry 1. Introduction A crisis is a situation faced by an individual, a group or an organization, which they are unable to cope with, by the use of normal routine procedures and, in which stress is created by sudden change Booth [1]. Various authors like Fink [2] and Heath [3] also describe crisis as a period of sudden change during which a totally new system is formed; stressing on the fact that the meaning of crisis does not only cover risk, uncertainty, threat, conflict, accident, and instability but also covers opportunity. Corresponding author. Fax: +903262455499. E-mail address: emellaptalioral@yahoo.com (E.L. Oral). Crisis may be abrupt or cumulative. An abrupt crisis is a sudden impact of internal or external disturbances that is generally more specific, but less predictable, than a cumulative one. A cumulative crisis, on the other hand, can be foreseen although it also breaks suddenly [4]. Turkish economy has been facing various cumulative crises during the last decade and, the latest one in 2001 has been dominating the economy since then. Although almost every industry in the country has been affected by these crises to some degree, construction has always been one of the hardest hit; giving the idea that a comprehensive approach to crisis management is essential. Thus, the aim of the research that is the subject of this article was to investigate the degree of 0360-1323/$ - see front matter r 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.buildenv.2005.05.042

E. Öcal et al. / Building and Environment 41 (2006) 1498 1503 1499 crisis management applications by Turkish construction companies. The findings are not only important for the future applications by Turkish construction companies but also important for construction related research in general, as literature mainly focus on the project level applications and lack applications at the organizational level. 2. Crisis management Crisis management is a dynamic and continuous process that includes both proactive and reactive actions with the aim of identifying the crisis, planning a response to the crisis, confronting the crisis, and resolving the crisis. Crisis management process constitutes three main periods that are before, during and after the crisis. 2.1. Management before the crisis Crisis management before the crisis focuses on two main issues. These are 1. Issues analysis: According to Kash and Darling [5], one reason so many companies fail to take steps to proactively plan for crises, is that they fail to recognize the possibility of any crisis occurring. Accordingly, first step of crisis management is issues analysis, which includes recognizing potential causes of crises. Potential causes of crises can be environmental, organizational and interaction of the two [6,7]. Environmental causes of crises are those that companies have no or very little control over. These are generally related with economical, political, legal, natural and rivalry conditions, clients expectations and technological developments [1,3]. Organizational causes, on the other hand, are those that companies have direct control over and are generally related with the management of the organization s own resources. Interaction between the environment and the organization usually cause crises due to the problems related with the information flow and decision-making process. 2. Early warning systems: An early warning system provides the company a continuous review of financial, organizational and managerial performance of both the industry and the company with respect to the past. Any changes that may result in a crisis are then recognized and if the crisis cannot be prevented, threats and opportunities of the potential crisis are assessed. Such an assessment results in the overview of the company s values, mission and policies. If required, various organizational changes related with the management system, management approach and organizational structure are undertaken. Additionally crises plans that include crises scenarios and case studies are prepared in order to show how the company should react to crises [8 10]. As Maynard [11] states, decisions during crises are more rational and crises are of shorter duration, for companies who prepare proactive crises plans. 2.2. Management during the crisis Management during the crisis starts with the preparation of a management plan in order to guide both the management and the employees on what should be done to get the crisis under control with minimum loss [9]. Decisions at this stage are undertaken under pressure, uncertainty and little time. Thus, use of teamwork and decision-making techniques like; brain storming, Delphi method, decision trees are essential for objective decision-making. Besides managing the crisis plan, the management should focus on increasing the productivity and the motivation of employees. At this stage, any action like firing employees should be avoided, as these would affect employee morale [12]. 2.3. Management after the crisis Activities after the crisis should start with the analysis of the current position of the company. New directions of the organization should be decided by analysing the affects of crisis on the organization. Feedback on managerial, financial and organizational performance should be used to create new mission and policies of the organization [8]. Thus, strategic repositioning in the product/market position combined with a series of holistic changes in the structure, systems, processes need to be undertaken in order to be successful especially, in case of cumulative crises [4]. 3. Research methodology A questionnaire survey was undertaken with the top management of 120 construction companies that are the members of Turkish International Contractors Organization. Questionnaires were delivered to the companies by hand. The questionnaire included 25 questions, which mainly focused on three main issues. These were the perception of managers of crisis, environmental and organizational factors that are potential sources of economical crises, and crisis management practices of the companies. Frequency tables, scale analyses and hypotheses tests were undertaken in order to arrive at results.

1500 ARTICLE IN PRESS E. Öcal et al. / Building and Environment 41 (2006) 1498 1503 Scaling questions were arranged in two different groups. First group of questions were related with scaling the relative importance of each choice with respect to the others in that particular question. The scale scores of the choices were compared by Thurstone coefficient (TC) values. TC value of each choice is the number of standard deviations of the average score of that choice from the calculated mean value of scores of the set of choices [13]. Likert scaling was used for the second group of scaling questions. Respondents were asked to express agreement or disagreement of the choices of answers to a particular question on a fivepoint scale, from 1 to 5 (1 being not important and 5 being very important). Thus, mean ðx m Þ and variation coefficient (V) values were calculated from all the responses in order to get the general tendency and the variations. Hypotheses were analyzed by using either Pearson s chi-square ðw 2 Þ or Fisher s exact tests by considering 95% confidence interval. Pearson s w 2 test is based on the assumption that the sample data follows w 2 distribution and is used when sample size is larger than 20. Fisher s exact test, alternatively, is used for the cases where the sample size is less than 20 or where the contingency table that is formed to test the hypothesis has 0 value at least at one of its cells. Later was the reason to use Fisher s exact test during this research. Results of the hypotheses tests were analyzed by comparing the calculated probability (p) values with the significance level of 0.05 for 95% confidence interval. Null (Ho) hypotheses were rejected when p values were smaller or equal to 0.05. 4. Results and discussion Construction is described as an industry in crisis due to various complex and crisis-prone activities in projects [7,14]. However, results in Table 1 and Table 2 show that environmental factors like government policies (x m ¼ 4:27, V ¼ 0:27) and instable market conditions ðx m ¼ 3:83; V ¼ 0:32Þ causing uncertainty (60%), risk (53%) and instability (53%) were more critical for Turkish construction companies than organizational or project-based factors. The most important organizational causes of crises, on the other hand, were related with inadequacy and insensitivity of human resources and inadequate organizational structures (Table 1). Meanwhile, the opinion of the managers on the importance of sabotages, industrial accidents and strikes Table 1 Environmental and organizational factors that may lead to crises Factor Mean Standard deviation Variation coefficient ðx m Þ ðs m Þ ðv ¼ s m =x m Þ 1. Government policies 4.27 1.16 0.27 2. Instable market conditions 3.83 1.22 0.32 3. Lack of financial support 3.77 1.22 0.32 4. Inadequacy of human resources 3.55 1.33 0.38 5. Insensitivity of company members towards company objectives 3.49 1.27 0.36 6. High costs of energy 3.47 1.36 0.39 7. Inadequate organizational structure 3.39 1.28 0.38 8. Hostile approach of clients 3.38 1.30 0.39 9. Inadequate risk management applications 3.33 1.34 0.40 10. Inadequate feedback systems 3.16 1.35 0.43 11. Decreasing power of customers 3.15 1.51 0.48 12. Inadequate perception of top management about problems 3.08 1.51 0.49 13. Wrong and inadequate information through grapevine 3.05 1.22 0.40 14. Too much centralization 3.05 1.34 0.44 15. Inadequate support towards socio-physiological needs of employees 3.02 1.18 0.39 16. Too much confidence on surviving any crisis 2.96 1.36 0.46 17. Inadequate information systems 2.93 1.26 0.43 18. Problems during production 2.93 1.37 0.47 19. Resistance of employees towards change 2.93 1.44 0.49 20. Lack of trust between company members 2.93 1.44 0.49 21. Changes in project teams 2.91 1.23 0.42 22. Managers leaving the project 2.73 1.40 0.48 23. Design related problems 2.73 1.31 0.48 24. Sabotages 2.66 1.49 0.56 25. Industrial accidents 2.56 1.41 0.55 26. Strikes 2.40 1.37 0.57 27. Technological developments 2.37 1.16 0.49 28. Cultural problems 2.00 1.02 0.51

E. Öcal et al. / Building and Environment 41 (2006) 1498 1503 1501 varied considerably (V ¼ 0:56, 0.55, 0.57, respectively in Table 1) depending on their company s own experiences. The results in Table 2 show that most of the managers did not recognize that a crisis could turn out to be an opportunity, if managed properly. Thus, it was not unexpected to find out that 45% of the companies did not have any proactive crisis management efforts, and 40% utilized a proactive crisis management approach only for a number of potential crises. Meanwhile, 35% of the companies utilized a comprehensive crisis management process that included issues analysis, early warning systems and crises plans. Literature shows that companies tend to adopt their organizational structures according to the extent of their crisis management actions [4]. This was proved to be the case for Turkish construction companies, as a relationship was determined between the extent of the companies crisis management applications and their organizational structures (p ¼ 0:005 by using the data in Table 3). Through the comparison of the efficiency ratio (ER) values in Table 3, it was additionally found out that organizations, which utilized a partial or a comprehensive crisis management process preferred functional organizational structures and, basic organizational structures were preferred by the organizations with no crisis management applications. It was additionally found that most of the companies with basic Table 2 Perception of crisis Description of crisis Frequency % a 1. Uncertainty 72 60 2. Risk 64 53 3. Instability 63 53 4. Stagnancy 41 34 5. Opportunity 19 16 6. Chaos 16 13 7. Problem 14 12 8. Threat 12 10 9. Disaster 6 5 Total no. of respondents 120 100 a Percentage of each category calculated from a total of 100%. organizational structures stated that inadequate organizational structure was a very important cause of crisis for their companies (rating either 4 or 5 in Table 1). A relationship between the companies crisis management applications and the top management behaviour during the economical crisis in 2001 was also proved (p ¼ 0:001 by using the data in Table 4). ER values of 0.69, 0.28 and 0.03 additionally supported the fact that the companies without any crisis management applications experienced chaos more than the others. It was then observed that 14 of the companies which had comprehensive crisis management applications and did not experience any effects of the crisis were large construction companies with crisis management teams. Thus, a relationship was found between the size of the companies and the companies having a crisis management team (p ¼ 0:022 by using the data in Table 5). When the managers were asked their preferences in getting over the economical crisis in 2001, nearly all of the respondents stated that they preferred to change their organizational structures and to diversify into new markets (with TC values of 3.180 and 2.788 in Table 6). Most of the respondents also stated that they undertook these decisions by not only through their intuitions but also by employing techniques like brain storming, scenarios analysis and decision conferences. However, they still faced various problems during both the decision-making and the implementation stages due to the employees /managers resistance to change (x m ¼ 3:03; V ¼ 0:45), insufficient data/information ðx m ¼ 2:89; V ¼ 0:47Þ, concerns about relationships with the clients/stakeholders or public ðx m ¼ 2:67; V ¼ 0:51Þ, unclear apportionment of risks ðx m ¼ 2:63; V ¼ 0:55Þ and ineffective communication ðx m ¼ 2:39; V ¼ 0:66Þ (Table 7). Meanwhile, low mean values with high variation coefficient values of the results presented in Table 7 show that there was not a full agreement on the importance of these problems throughout the industry. The importance of these problems changed from company to company depending on various factors like the size, the structure, the culture and the extent of the crisis management applications of the company. Table 3 Relationship between the organizational structure and the extent of the crisis management applications Extent of crisis management applications Efficiency ratio (ER) None Partial Comprehensive Total None Partial Comprehensive (N) (P) (C) (T) (N/T) (P/T) (C/T) Basic Org. Str. 20 10 5 35 0.57 0.28 0.15 Matrix Org. Str. 15 8 11 34 0.44 0.24 0.32 Functional Org. Str. 10 22 19 51 0.19 0.43 0.37 Total no. of resp. 45 40 35 120

1502 ARTICLE IN PRESS E. Öcal et al. / Building and Environment 41 (2006) 1498 1503 Table 4 Relationship between the management behaviour during the economical crisis in 2001 and the extent of the crisis management applications Extent of crisis management applications Efficiency ratio (ER) None Partial Comprehensive Total None Partial Comprehensive (N) (P) (C) (T) (N/T) (P/T) (C/T) Chaos causing feelings of 20 8 1 29 0.69 0.28 0.03 panic and powerlessness Changes in perceptions 17 24 20 61 0.28 0.39 0.33 Did not experience any effects of crisis 8 8 14 30 0.27 0.27 0.46 Total no. of resp. 45 40 35 120 Table 5 Relationship between having a crisis management team and the size of the company Size of the company Frequency % of respondents Large Small-medium Has a crisis management team 26 0 26 22 Does not have a crisis management team 78 16 94 78 Total no. of respondents 104 16 120 100 Table 6 Managerial reactions to get over the economical crisis in 2001 Reaction Finally, while 76% of the respondents stated that they learned their company s strengths and weaknesses after the crisis, only 58% stated that they had feedback mechanisms in order to improve their systems via the lessons learned during the crisis. 5. Conclusions Thurstone coefficient (TC) Change the organization 3.180 99.9 structure Diversify to new markets 2.788 99.7 Give paid /unpaid leaves to 0.763 77.6 employees Employ a crisis manager or 0.130 55.1 consultant Decrease employees working 0.469 32.0 hours Fire some of the employees 2.416 0.8 Change the top management 3.976 0.0 %of respondents Turkish economy has faced various economical crises during the last decade and construction has been one of the most affected industries. Literature shows that it is possible to recognize crises ahead of time through a systematic approach of crisis management. Thus, the aim of this article was to investigate the extent of crisis management applications by Turkish construction companies, mainly focusing on the outcomes during the economical crisis in 2001. It was discouraging to find out that systematic crisis management applications were limited only to a number of large construction companies. Lack of systematic approach was mainly because most of the managers did not recognize that a crisis could turn out to be an opportunity if managed properly. Consequently, most of the companies experienced chaos and feelings of powerlessness and panic during the economical crisis in 2001. However, it was unexpectedly encouraging that the managers made decisions through utilizing contemporary methods like brain storming, scenarios analysis and decision conferences and their reactive actions against the crisis mainly focused on repositioning their companies. Depending on the above findings, primary focus of further research is proposed to be the introduction of issues analysis and early warning systems into the industry. Thus, a new research project has been initiated by the authors to carry out financial analysis of various construction companies in order provide case studies related with the detection, interpretation and utilization of early financial warnings.

E. Öcal et al. / Building and Environment 41 (2006) 1498 1503 1503 Table 7 Factors affecting both the decisions and the implementation of the decisions during the economical crisis in 2001 Factor Mean Standard deviation Variation coefficient ðx m Þ ðs m Þ ðv ¼ s m =x m Þ Employees /managers resistance to change 3.03 1.35 0.45 Insufficient data/information 2.89 1.37 0.47 Concerns about the relationships with 2.67 1.36 0.51 clients/stakeholders or public Unclear apportionment of risks 2.63 1.45 0.55 Ineffective communication 2.39 1.35 0.56 References [1] Booth SA. Crisis management strategy competition and change in modern enterprises. London: Routledge; 1993. [2] Fink S. Crises management: planning for the inevitable. New York; 1986. [3] Heath R. Working under pressure: crisis management, pressure groups and the media. Safety Science 1998;30:209 21. [4] Hwang P, Lichtenthal JD. Anatomy of organizational crises. Journal of Contingencies and Crisis Management 2000;8(3): 129 40. [5] Kash TB, Darling JR. Crisis management: prevention diagnosis and intervention. Leadership and Organization Development Journal 1998;19(4):179 86. [6] Mittroff I, Harrington L, Eric K. Thinking about the unthinkable. Across the Board 1996:44 8. [7] Molnar JM. Leadership and management, the solution to the construction industry crisis. Storming media Report number A212763: 1999. 127. [8] Loosemore M. Crisis management in construction projects. ASCE; 2000. [9] Tu z VM. Kriz veis-letme yo netimi. İstanbul: Alfa Yayıncılık; 2001. [10] Otluoǧlu F. Kriz yo netimi el kitabı, http://www.yenibir.com.; 2003. [11] Maynard R. Handling a crisis effectively. Nation s Business 1993;81(12):54 5. [12] Baltas Z. Krizde firsatlari go rmek. Remzi Kitabevi; 2002. [13] Oral E, Mıstıkoglu G, Erdis E. JIT in developing countries a case study of the Turkish prefabrication sector. Building and Environment 2003;38:853 60. [14] Loosemore M. Reactive crisis management in construction projects patterns of communication and behaviour. Journal of Contingencies and Crisis Management 1998;6(1):23 34.