Competition by Effective Management of Cultural ...

Int. Studies ofMgt. & Org., Vol. 22. No. 4, pp. 81-92 M.E. Sharpe. Inc.. 1992

HossEiN

DADFAR AND PETER GUSTAVSSON

Competition by Effective Management of Cultural Diversity The Case of Intemational Construction Projects Many of the multinational construction firms working in developing countries and in the Middle East in particular have been facing serious problems managing and carrying out their assignments. Many project managers have returned home from their Middle East assignments with strange stories about sociocultural mishaps that had resulted from misinterpretations, frustrations, and conflicts. For example, project managers experience a cultural shock when appointments are not met, a delay of two hours is not unusual, workers stop work twice a day for prayers (religion has influence in all aspects of life) and intertribal conflicts lead to intergroup conflicts on the work site. These problems have most often resulted not only in wastage of valuable resources but also in delay in completion of the projects. The decade of the 1970s was a booming period for the construction business in the Middle Eastern oil-rich countries, and it created a lucrative market for multinational construction firms, including firms based in Sweden. This was due to the huge oil revenues, the massive and ambitious investment programs in infrastructure, and the lack of local qualified constructors. However, decline in oil revenues turned the propitious into tough competition. As a result of price competition, shortage of a local labor force, and the high cost of Swedish labor, in some countries the construction firms hired labor from Thailand and Pakistan that was several times cheaper than that from Sweden. Furthermore, the consulting engineers came from different countries such as Japan and Britain. Such cultural differences appeared as an important issue in all aspects of project management—^from the tendering and negotiation phase to construction operations. The question was, then, how to manage such culturally diversified groups effectively. The authors are Assistant Professors of Industrial Marketing and Business Administration at Department of Management and Economics. LinkBping University. They wish to thank Professor Ove Brandes and Professor Clas Wahlbin for their comments on an early version of this paper. The authors wish also to thank the Swedish Council for Building Research for their financial assistance and encouragement. 81

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Although the importance of cultural awareness and human behavior aspects has been emphasized by earlier writers (e.g., Cleland, 1988; Harrison, 1981; Stallworthy and Kharbanda, 1983) and the effective management of cultural diversity has received attention in recent years (e.g.. Cox and Blake, 1991; Jackson, 1989), to our best knowledge, there is still a lack of systematic and scientific studies on management of multicultural groups in construction projects. This is, perhaps, due to the complexity of the "construction jungle" (Stallworthy and Kharbanda, 1983) and of the concept of "culture." In addition, the earlier researchers on project management, coming mainly from industrial engineering, have concentrated on technical aspects and showed less interest in the social aspects of project management Therefore, the issues of cultural management have not been seriously tackled in project management studies. The problem becomes more complicated when it concems intemational constmction projects involving various actors with different cultural backgrounds. The intention of this article is twofold: (1) to call attention to the importance of cultural influences on performance of project management, and (2) to discuss some aspects of effective management of cultural diversity in the case of construction projects. Background In Sweden, the building sector plays an important role in the country's economy. Over half a million workers are directly engaged in this sector. Furthermore, it accounts for a large portion of GNP (around 15 percent). After the Second World War end until 1970, it was a booming situation for this sector. There was a substantial increase in housing consumpUon per capita, measured either by quality or quantity standards. The demand for housing was affected mainly by the growth of the population, from 6.7 million to 8.3 billion inhabitants, and by urbanization. However, in the 1970s, the situation changed. Demand for housing declined and building costs doubled due to the rising costs of wages and materials as well as norms and regulations that increased the cost of construction projects. As a result, the structure of the industry changed. The number of medium-size companies (50-499 employees) decreased by nearly one-half during the 1970s and the large companies enlarged their operations outside Sweden. For example, construction abroad increased from 1 billion SEK in 1972 to 5 billion in 1980. The two largest companies had 25 percent of their construction activities abroad. A research project called SIMBA' was initiated to explore strategic changes and strategic behavior of the Swedish building industries (Dadfar et al., 1986, 1987; Bonora et a l , 1990). As a part of this ongoing project, the intemationalization of building industries and the problems of Swedish firms in their overseas operations were included in our concems. At the early stage of the study we discovered that some companies did not continue with intemational projects and

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retumed to their domestic market, while others were able to increase their activities. This, encouraged us to undertake a further examination of the firms' operations at the project management level. Framework The views on effective management of diversity in general, and cultural diversity in particular, are scattered and it is hard to find a common line of agreement among the earlier writers. In one stream, there are writers arguing that a culturally mixed work force holds a potential competitive advantage for organizations (e.g.. Cox and Blake, 1991; Mandrell and Kohler-Gray, 1990). In another stream are the writers who stress that similarity helps to develop cohesion which, in tum, is related to the success of a group (Shepard, 1964). There are some other authors whose position lies in the middle of these streams (e.g., Adler, 1986). However, there seems to be a general agreement that if diversity is managed well it can be an asset to performance and if the diversity is overlooked or misconducted it may diminish the performance. Among others. Cox and Blake (1991) stressed that cultural diversity creates competitive advantages. The authors highlight six areas where the "sound" management of cultural diversity can create a competitive advantage. These areas are: cost, resource acquisition, marketing, creativity, problem solving, and organizational flexibility. However, the authors did not specify the criteria for "sound" management. Nevertheless, the previous views are still at the abstract level and their application to intemational constmction project management is not yet examined. Therefore, a framework for studying the effective management of culturally diversified groups in constmction projects has still to be developed. A construction project is a complex entity that can be conceived as a system. Accordingly, the system approach has been used as a point of departure to tackle this complexity. This approach has been adopted by several authors in studying various aspects of management for constmction projects (see, e.g.. Walker and Hughes, 1986). Besides, being inspired by Thompson (1967), a project can be conceived as a sociotechnical system. Both social and technical systems are important. However, as Harrison (1981) stressed, "people problems" are much more difficult to solve than technical problems in the short lifespan of a project. Thus, for alleviating these problems, skills in managing people are critical. For this purpose we are focusing here on the social aspects of the Project Management System (PMS). We have also assumed that communication is central to the management of the social system, and that culture is a vehicle for this communication. Conceming culture, several perspectives have been developed within organization theory (Smircich, 1983), sociology, and anthropology (Keesing, 1974). In spite of such growing interest, industrial engineering and project management are far behind other fields in incorporating cultural perspectives. This is perhaps

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because the field of project management is dominated by views from industrial engineering which are based on the assumption of a "rational behavior" that largely disregards the cultural context within which the behavior is shaped. Instead, a comprehensive framework should cover the "cultural reality" of the PMS as well. Theories of culture are reviewed elsewhere (Dadfar, 1990). The conceptual confusion surrounding culture is due to the differences in the usage of the concept between sociologists and anthropologists, as well as the objective and subjective aspects of the culture. After all, three aspects of culture can be delineated. First, central to the concept of culture is the notion of system. Second, central to both anthropological and sociological uses of the term is the integrative concept of custom, that is, traditional and regular ways of doing things. Third, a distinction can be made between material or objective culture, and ideational or subjective (nonmaterial) culture. The material culture refers to the artifacts and material products of society, such as technology, art, science, or literature. By contrast, the ideational culture is a cultural group's characteristic way of perceiving the man-made parts of its environment (perception, values, beliefs, morals, ideas, rules and conventions about behavior). From an observational point of view, the elements of any culture can be classified into two groups: (1) observable elements that constitute "surface culture," and (2) hidden elements called "deep culture." The surface culture includes easily observable elements such as customs, dressing, eating, technology, arts, behavior, and the like. The deep culture iticludes elements that are not easily observable such as values, beliefs, and systems of thinking, but manifestation of these elements can be observed in the surface culture. Both material and nonmaterial elements of culture as well as surface and deep aspects of culture are important in this study. A project as an open system has interrelationships and interaction with its surrounding environment. In this respect, interorganizational theories (e.g., Negandhi, 1980) have some contribution to make to our theoretical framework. We looked at a construction project as a focal organization in an organization set (Aldrich and Whetten, 1981; Evan, 1966) consisting of those actors with which a PMS has direct links. In this respect, cultural factors appear at three levels: (1) as intemal forces when it concerns the project personnel and work groups; (2) as external forces when it concerns adaptation to the cultural environment of the host country and interaction with other actors involving in the project; and (3) as organizational culture when it concerns the PMS relationship with the headquarters and as a product of the construction firm. Methodology Since the nature of the study is exploratory, the case study approach was adopted. We focused on the PMS in the context of its operating environment

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rather than in the context ofthe finn's organization. By this concentration, we chose a "project center approach," which led us to explore the internal and external factors, including cultural factors, that impact on performance of the PMS. This approach seemed to be appropriate in this case since the management of cultural diversity in construction projects appears to be insufficiently searched. A detailed case study was carried out on a sample of six intemational construction projects during 1986. The main criteria for choosing the projects were that they should have been completed within the last five years or that they were currently being implemented by a Swedish construction firm. Five clusters of variables—including project characteristics, project management, project organization, composition of work force, the actors involving in the project, and project performance—^were studied in detail. Project characteristics were examined in terms of project type, complexity, size, cost, and duration (urgency). Project management was characterized by the background and composition of the management team—^in terms of cultural and professional background, training, and experience in intemational project management. The project organization was examined with respect to structure or pattem of responsibility and authority, number of sites, and the interrelationship among them. The composition of the work force was studied in terms of diversity in cultural backgrounds and skills. The external actors were studied regarding their roles and objectives in the projects as well as their (national) background. For the purpose of simplification, cultural diversity was analyzed in terms of national diversity, and the emphasis was put on the work-related elements of the culture. Project performance was assessed on the basis of cost, time, and quality. The effectiveness of project management was examined in terms of its success in getting the project implemented on time, on budget (optimum cost), and with the right quality and client satisfaction. Group productivity was measured in terms of construction/function rate. This was expressed as a ratio between construction/function cost and time. Information and data were collected by in-depth interviews with managers (project manager, assistant project managers, personnel managers, site managers, and even supervisors) as well as consultants and the clients' representatives and other public authorities involved in the projects. The presentation of each case in detail is beyond the capacity of this article. However, a short description of each case provides an overview of the project managers' issues. Case 1. After a long negotiation process—^much longer than Europeans are used to—the contract for building a hospital, commissioned by the Saudi govemment, was signed with a Swedish contractor. The project cost was about $15 million, with a duration of 26 months. The constructor went directly to negotiate the project on a turnkey basis, which was the most favorable delivery system for the constmctor. The project was simple in terms of

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technical complexity and rather small in terms of cost. The project organization was also not complicated. A five-member diversified project management team consisting of a project manager and assistants with different nationalities (three Swedes, one Arab, and one British) managed the project. The workers were of Arab and Pakistani nationalities arranged in homogeneous groups supervised by foremen of the same nationalities. Negotiation, conflict resolution, raising productivity, and delay in releasing funds were the major managerial issues. Case 2. A major harbor and road construction project costing more than $500 million was commissioned by the Saudi govemment. The project was complex and urgency was an important factor; the project duration was forty months. The project delivery system was general contracting. The consulting engineers were from Britain and the United States, and the client was Arab, while the work force were of different nationalities. A diversified project management team headed by a Swedish project manager was arranged. The constructor used an intensive construction technique. The scrapers (grader bulldozers) perfomied more than 70 percent of the earth-moving operation. The piling for bridges and the road surfacing were also highly mechanized. An increasing number of non-Swedes took part in the organization of the projects. More skilled workers were involved in the project, working in more than twenty sites. More than 1,000 Thai and Pakistani workers were hired for the project. The funds were released based on the project performance. At the early stages the project overran in terms of time and cost. The main managerial issues were to speed up the construction work, to optimize the labor cost by leaming how to evoke pride in workers, giving multiskill training, and creating competition (rivalry) among the work groups. Cases 3 and 4. These two cases represent simple construction projects including a hospital project in Qatar and a commercial building in the United Arab Emirates. The projects were not complex in terms of building technique and were small (each about $10 million). They were both general contracting, but the managerial issues were different. In case 3, the project management changed twice and the project overran in both cost and time but within accepted limits. In case 4, cost and speed were not outside the constraints, but it proved tougher to work with a Swedish consultant than with the other Europeans. Workers in both projects were Pakistanis and Indians. Examples of the managerial issues in this projects were: high tumover of labor, lack of consistency in project management, and the importance of getting undemeath the culture. Case 5. Heavy civil engineering construction is the type of project in which Swedish contractors are most interested. After many attempts and each time facing Japanese competition in one way or another, a Swedish contractor won the tender for the construction of a hydropower plant in Thailand. The project

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involved complex civil engineering with a cost of over $100 million. The project management team was composed of Swedes and Thais, while the workers were only Thais. Although the project managers had experience working with Thais, the main issue appeared to be that the workers were not as productive in their home country as they were abroad. Therefore group productivity—the ratio between construction/function cost and time—^was lower than on similar projects. Case 6. This case also represents a complex project of civil engineering work (tunnel construction) in Hong Kong. The constructor acquired a local company which one year later won the contract for the project, costing over $50 million. The project management were Chinese and Swedish. The work force were Chinese with some Thai engineers and technicians. Management of cultural diversity was left mainly to the local company. However, it was the project management's experience that a democratic management (the Swedish way) did not seem to work in Hong Kong. Discussion The cases studied revealed that cultural impacts on project management are likely to be evident from the very early days in the project process. This impact is felt even before the formal process starts. For example, a project manager stationed in the Middle East said: "Social relations in the Middle East are very important; if not for anything else, it is vital for getting information. In order to know very early that a project is proceeding, you must have a network of relations to be informed . . . they must know you and trust you as a person first, and then trust your company." It is impossible to build such interpersonal relations without cultural awareness. Indeed, the problems associated with cultural differences are by no means limited to the construction site or project organization. They extend to the negotiating table, to the interaction between the project management team and other involved actors in the project. Following the framework, the cultural impacts on project management and project performance can be distinguished at three levels, as presented in the following sections. 1. Culturat impacts on PMS at the organization-set levet As the cases illustrate, the actors involved in a construction project may vary from one project to another, depending on the project delivery system (e.g., turnkey, general contracting, and management contracting) as well as the project size. There are usually fewer actors involved in turnkey than in general contracting projects. The common actors having direct interaction with PMS are: the operator or the user, the owner, the consultants, the prime contractor, the subcontractors, the local partner, and, in some cases, the observer.

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As an illustration, in a hospital project, the operator is the regional Department of Health and Medical Care that is going to operate the hospital. The owner is the Ministry of Health and Medical Care that is financing the project. A construction project may have one or more consultants, depending on the complexity of the project The consultants, in tum, may include architectural engineering, mechanical engineering, electrical engineering, and so on. Suhcontractors are also involved in many projects, most often in tumkey projects. In Saudi Arabia, for example, according to law, foreign contractors must assign at least 25 percent of the total contract to a local subcontractor. Effective management of cultural diversity at project (organization-set) level is an art. For example, negotiation with Arabs requires a degree of patience that few Westem project managers have ever had to practice. Many of the problems are solved informally, in social meetings, based on interpersonal relationships. To quote a project manager in the Middle East: "There exists a su-ong and direct positive relationship between project performance and the project management interpersonal relations with other actors involved in the project... delays can be avoided and much time and resources saved." The problems associated with cultural differences between the Arabs and Swedes were found to be very sensitive. In addition to differences in religion, and value and belief systems, the concepts of contract, time, and planning as well as philosophies of business were found to be different in the parties' cultural context. Arabs prefer to do business based on interpersonal relationships, they do not plan for a long-term future; to them verbal and written agreements have equal value; and they are not aware of technical and practical problems. "They contract a project today and want it to be delivered yesterday," said a project manager. Unexpectedly, it was discovered that having the same nationality as another actor is not always an advantage. Although this greatly improves communication and minimizes misunderstandings and misinterpretations, such effectiveness lies largely in the actors' working values and culture. For example, the Swedish contractors found it more comfortable to work with British consultants than with the consultants of their own nationality. This was found to be rooted in the Swedish working culture, because they do not want to convey the impression of doing a favor for their own citizens, "we have to check them strictly so that the client does not get the impression that we are favoring each other," said a Swedish consultant. The situation was different when Japanese were involved. The Japanese contractors worked best with Japanese consultants. This meant fewer opportunities for the Swedish firms to work with Japanese ones. A Swedish manager stressed that very often there is a Japanese company doing a feasibility study, a Japanese company as consultant, and a Japanese company as contractor. There may be a local company just to "save face." This is, perhaps, rooted in Japanese technocultural characteristics, the manner of developing specifications, and better communication when working together.

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In order to overcome the problems discussed above. Swedish managers obtained training at home and used their local partner for developing interpersonal relationships. They became accustomed to delays in appointments and formulated more flexible but detailed plans. They also learned that they should not tackle the elements of the Arabs' deep culture, such as their belief system. They learned to respect Islamic values and even, in one case where the project manager was not permitted to enter the holy city in Saudi Arabia, the company used closed circuit TV to control the performance of the project from kilometers outside the city. They built a diversified project management team and included different nationalities to be more creative and flexible and to improve appreciation of. and relationship with, their counterparts. For example, a project manager said that "our influential Arab member paves the road for better interpersonal relations . . . perhaps we should include a Japanese in our team when interacting with Japanese firms." 2. PMS at wortc-group tevel At the group level, project management and project performance were influenced by culture in areas such as arranging work groups, evoking pride in workers, improving productivity, avoiding conflicts, and changing working traditions. The majority of site managers (about 70 percent) believed that managers/supervisors are less effective when managing a work group composed of several nationalities. This is because language was regarded as a major obstacle to effective communication among workers of different nationalities. Furthermore, since the workers are usually less educated, there tends to be a bias for their traditions, religions, etc. This attitude often leads to a conflict within a work group. Thus, as far as possible, the attempt was made to build culturally homogeneous work groups consisting of only one nationality—that is. one group, one nationality. At the same time, building various culturally homogeneous work groups based on different nationalities to work in parallel with each other was found to have positive effects on project performance. This creates competition (rivalry) among the groups. A Pakistani foreman addressing his group said, "if you don't stay overtime, there is a Thai group behind you who will." When a working group was made up of Arab workers, however, the problems of tribal conflict in their homeland could sometimes be extended to the working site. As a site manager said: "It seems that conflict is an integral element of Arab culture; perhaps it is rooted in tribal traditions and intertribal conflicts." This means that building an Arab work group does not necessarily create the advantage of cohesion. The Arabs of Somalia, Egypt, Lebanon, Palestine, even Arabs of different tribes, may differ in elements of their deep culture. Furthermore, being Arabic-speaking, after a short time they felt at home and were less loyal to the project compared with the other nationalities.

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Surprisingly, in the Thailand case, it was revealed that the Thai workers, who had been working for the same construction company in similar projects in other countries, were less productive at home. Increases in absenteeism and a decline in productivity were found to be due to the lack of any competitive group of another nationality and in lack of pride in their work. This finding reinforces the foregoing discussion that different but homogeneous work groups are effective for improving project management performance. Building various homogeneous work groups based upon their cultural background, in addition to creating competition, can provide the project managers with flexibility in different situations. For instance, where the non-Muslim workers were not permitted to enter the holy cities, the Muslim work groups could carry out the task. In addition, the Muslim workers, due to their practice of moming prayer which is conducted before sun-rise, proved that it was best to start early in the moming; this also provided the project management with flexibility. When a culturally mixed work group was unavoidable, the attempt was made to fmd out the common elements of the composed cultures and their differences. Emphasis was put upon the common and shared elements, while differences were minimized. This was done by making the members of the group aware of each others' culture in order to avoid cultural conflict.

3. At Organizational Culture Level In simple terms, a construction project is the product of several organizational cultures. It is a focal point where several (different) cultures meet, interact, and are mixed to produce a physical entity such as a hospital, harbor, dam, tunnel, or building. These organizations, as explained before, are the main actors in an intemational construction project. The client puts forward its own ambitions, objectives, and desires. The designers and consultants use their knowledge and backgrounds to visualize (e.g., in the form of drawings) the client's objectives; while the constructors use their expertise to organize the process and to create the physical reality. Needless to say, the project has its own organizational culture, which can differ from that of the headquarters. This cultural diversity also impacts the perfonnance of the project. Failure to manage this diversity soundly may lead to frequent changes of project management, which, in tum, can substantially delay completion of the project and incur substantially higher costs than were originally planned. The intemational construction companies are aware of the problem. They often choose a flexible organization to ease efficient communication between the project management teams and headquarters. For example, they have a foreign division with many regional managers who are selected from previous project managers who are aware of the situations in the host countries.

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4. Summary and Conclusions This study has tackled the management of cultural diversity in intemational construction projects—an important but to a large extent unresearched aspect of project management At the level of the project management team, it confirms the view that cultural diversity can be a competitive advantage (e.g.. Cox and Blake, 1991). This view was not applicable, however, at the work-group level, nor was the view that national-group similarity develops cohesion. The results of the study suggest that project managers, by arranging culturally homogeneous groups of different cultures, can create competition among the groups and evoke pride in work that improves performance. The study also shows that successftil managers used "bicultural"^ people to bridge the cultural gap between the work teams and the local authorities/consultants to the Swedish culture. We call this phenomenon a "cultural-pin."^ Finally, it was argued that a construction project is a result of several cultures. This cultural reality of construction projects requires effective management of cultural differences of the headquarters and project management at the construction site. This finding encourages the incorporation of cultural dimensions in future studies of subsidiaries/branches and headquarters in multinational firms. Notes 1. Simulation of Building Sector Actors, a research project sponsored by the Swedish Council for Building Research. 2. "Bicultural" characterizes someone who has grown up in or experienced two cultures and has to some extent adopted the values from both cultures. 3. "Cultural-pin" here refers to the key person who links two different cultures. This person is most often bicultural and acts as foreman/supervisor of a work team, mediating between workers and management.

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