Colas Group Assessment of Environmental Complexity



Colas Group Assessment of Environmental Complexity Jon McVayUniversity of Alaska-FairbanksAbstractColas Group appears to understand its complex and turbulent environment and strives to maintain efficiency and effectiveness. The Group’s strengths reside in the following driving forces: strong footholds in long-term, high potential markets; vertical integration; a network of 800 construction units and 2,000 material production units; a decentralized organization; human capital; a technical innovation policy; recognized technical, legal, and financial expertise in managing complex contracts; development capacities via both external and internal growth; solid financial structure.Keywords: road construction, infrastructure, organization design.Colas Group Assessment of Environmental ComplexityAccording to the Colas Group (Colas) website, it is involved in every aspect of construction and maintenance for roads and for other transportation infrastructure. Roads and infrastructure programs experienced funding declines over the past five years, which appear to be bottoming out for recovery and improvement over the next five years (U.S. Transportation).#1Several elements affect Colas. These factors very in intensity and scope based on the relative position of inquisition. This assessment is from a United States perspective and addresses the fringe elements of the international sectors.IndustryDespite Colas’ international reach, it competes at the local level. In this case, each location has a similar environment with different names associated with the local. The state of Alaska, for example, possesses a common population of small, regional, and national companies that compete for the same work. A review of the Alaska Navigator website revealed the following competitors: Granite Construction, Quality Asphalt Paving (QAP), HC Contractors, Exclusive Paving, SECON, Neeser Construction, Inc., Brice Inc., Dawson Construction, Scarsella Brothers, Knik Construction, Tutka, LLC, Hamilton Construction, and Wolverine Supply, Inc. Granite Construction and Colaska, a subsidiary of Colas Group, manage approximately seventy-fiver percent of the projects. These two companies are both international entities. It is important to note that the following companies are owned by Colaska: QAP, Exclusive Paving, and SECON. The remaining companies are small (Tutka, Wolverine), mid-sized regional (HC Contractors, Dawson Construction, Scarsella Brothers, Brice Inc.), and large regional contractors (Neeser, Knik).The road construction business strives to return profits between thee percent and six percent. However, recent upticks in competition have resulted in 3 percent representing a solid project. Personal experience with the competitive environment in Alaska may be indicative of the environment elsewhere. Net margins are down several points as competition is willing to acquire work for at or less than cost. Additionally, the home range of local and regional contractors is increasing when contracts are scarce. The penetration by outside companies, scarce contract opportunities, and cost conscious customers yield unfavorable competitive environments for profit.Raw MaterialsThe predictability of raw material costs affects the ability to win contracts and ultimately make money. A key component to asphalt is oil, which has been extremely volatile (Amadeo). As contracts become increasingly awarded purely on cost, the ability to manage that volatility is integral to short term and long term success. Oil, gravel, and Portland cement represent the majority of raw materials that are converted to asphalt and or concrete.In addition to those raw materials, heavy equipment, tractor trailers and dump trucks, pickup trucks, and cranes are necessary to build the projects. It appears that equipment sales growth is anticipated by that sector which should maintain current price indices (Hill).Since road construction businesses are typically onsite, real estate is not a critical element for success. That is, cheap property for temporary storage is obtained and equipment is transported to the job site. Property distance from the job site can influence competition.Human ResourcesThe mix of professional and skilled human resources varies in the industry based on a particular model. In Alaska, the season is typical compressed into the summer months. Based on personal experience, companies retain project managers and estimators through the winter to compete for work. Field labor positions like superintendents, foreman, truck drivers, laborers, and operators are typically seasonal employees. The predicted growth in the equipment operator (Construction Operators) and laborer (Construction Laborers) occupations are anticipated to be 12% -- faster than average – in the United States (Bureau of Labor Statistics). Field labor is most often union labor to allow for rapid expansion and contraction to support sporadic project work. Professional labor like engineers and project managers are integral for successful project execution. Recruiting interns through various universities is a frequent technique to augment fulltime employees with educated assistance while also initiating an introduction of the industry to potential fulltime employees of the future.Financial ResourcesThere are several techniques to fund organizations in this industry. Most projects must be bonded by reputable sureties, which often forces competition for larger projects away from small and mid-size companies. Banks are often the source for financing of small and family owned businesses. Limits are correlated to smart algorithms and essentially tied to the company assets and recent history of performance. Based on personal experience, larger contractors require both a bond and a letter of credit. These documents prove to the client that there is sufficient history and support to maintain cash-flow through a typical construction period. In these cases, costs range from $25,000 to $100,000 per day. Payment terms are generally no sooner than 30 days and a subcontractor may wait 120 days for payment.MarketThe customers for this industry are typically Government entities (local, state, and federal). Therefore, funding for infrastructure programs are based on taxes, royalties, and bonds. In Alaska, almost all of these funding sources are tied to the price of oil.TechnologyThe horizontal construction business maintains technological improvements in several ways. First is the technological sophistication of heavy equipment and trucks. Telematics are becoming more integral to vertical control and grade. Personal experience reveals that other IT-related technologies are better quantifying utilization of equipment, down time, fuel consumption, etc. These technologies offer potential advantage as it enters acceptance with the contractor community.Other technology advancements have spread beyond those economies in the west, from improved traffic technology and solar roadways (Ashoka) to paperless site management and drone surveys (Hesegawa). The spread of acceptance offers new customers and an eagerness to accept efficiency innovations once resisted.Economic ConditionsRecent improvements in the global economy, primarily moved by influence from the U.S., may offer additional public spending (speculation based on Brusuelas and U.S. Transportation). Using the U.S. as a leading indicator, major transportation construction activity is forecasted to maintain an upward trend through 2021 (U.S. Transportation).GovernmentColas employs a regional, state, and local organization structure (Colas 2017). The local entities offer a firm understanding of the governing laws and regulations. SocioculturalColas employs a regional, state, and local organization structure (Colas 2017). The local entities maintain a strong grasp on the local sociocultural variables. InternationalColas employs a regional, state, and local organization structure (Colas 2017). With existing international reach, it appears that it has systems in place to handle various foreign customs, regulations, and exchange rates (Built to last). #2Yes, Colas is internationally diversified. The Colas workforce of approximately 55,000 employees, 800 construction units, and 2,000 material sites contribute to urban development and recreational facilities. Colas has two operational segments: roads (civil engineering and construction) and specialty activities (railways, road safety and signaling, pipelines and waterproofing). The roads segment represents approximately 80% of Colas revenue (Colas).As a worldwide construction business, Colas is challenged with balancing flexibility and control. It employs a regional hierarchy with the following regions: Mainland France, Europe, North America, and the rest of the world. Europe and the rest of the world are further broken out (Colas 2017). Using Colaska as an example, the company then has sub-entities by district or state, the sub-entities by local geography (QAP, Exclusive Paving, SECON, etc.). Each local geography typically maintains a company-owned gravel mine, plants, etc. (Colaska). Colas strives to invest in locations that appear to have robust infrastructure plans and commensurate funding (Colas). Recent recession and infrastructure downturns may present opportunity for acquisition of appropriately located companies in the active geography. Timing the acquisition in the near term may present excellent competitive advantage in the middle to long term given the expected economic growth of 4% in 2018 (Brusuelas). In addition, construction spending in key geographies is expected to slow in 2018 and begin growth in 2019 (U.S. Construction).Colas practices vertical integration. For example, a Colas company might own and produce material for its source in the quarry, to crushing to meet contact specification, hauling, and placement. If it owns a quarry near where significant work is planned, the control of efficiently producing (or mining) materials from the quarry reduces or eliminates waste associated with the potential inefficiency of purchasing the materials from another entity. Crushing the rock then offers responsibility for meeting specifications by producing aggregate output with the least amount of waste and the fewest number of re-runs (the need to put the same raw materials back into the processing system). A Colas-owned fleet of trucks then hauls the material to a Colas-owned asphalt plant. In each of these cases, increasing productivity while decreasing variability improves efficiency of the output – a ton of asphalt placed and paved. Local growth may be organic, but regional growth is likely to be the mergers and acquisitions.Despite Colas’ international reach, it competes at the local level. In this case, each location has a similar environment with different names associated with the local. The state of Alaska, for example, possesses a common population of small, regional, and national companies that compete for the same work. A review of the Alaska Navigator website revealed the following competitors: Granite Construction, Quality Asphalt Paving (QAP), HC Contractors, Exclusive Paving, SECON, Neeser Construction, Inc., Brice Inc., Dawson Construction, Scarsella Brothers, Knik Construction, Tutka, LLC, Hamilton Construction, and Wolverine Supply, Inc. Granite Construction and Colaska, a subsidiary of Colas Group, manage approximately seventy-fiver percent of the projects. These two companies are both international entities. It is important to note that the following companies are owned by Colaska: QAP, Exclusive Paving, and SECON. The remaining companies are small (Tutka, Wolverine), mid-sized regional (HC Contractors, Dawson Construction, Scarsella Brothers, Brice Inc.), and large regional contractors (Neeser, Knik).The road construction business strives to return profits between thee percent and six percent. However, recent upticks in competition have resulted in 3 percent representing a solid project. Personal experience with the competitive environment in Alaska may be indicative of the environment elsewhere. Net margins are down several points as competition is willing to acquire work for at or less than cost. Additionally, the home range of local and regional contractors is increasing when contracts are scarce. The penetration by outside companies, scarce contract opportunities, and cost conscious customers yield unfavorable competitive environments for profit.#3As one evaluates the Colas Group from the international form, the organization is complex and unpredictable. For example, sociocultural variation from the top, there are scores of factors to consider. However, as one goes to the local entity and the relatively small geography, quantifying environmental factors, predicting and influencing outcomes becomes a simpler endeavor. For example, QAP focuses on Southcentral Alaska while SECON focuses on Southeast Alaska, and Exclusive Paving focuses on Interior Alaska. These geographies allow for location specific interpretation of the complexities and increase predictability. Notwithstanding the simplification by geography, the home range of local and regional contractors is increasing when contracts are scarce. The penetration by outside companies, scarce contract opportunities, and cost conscious customers yield unfavorable competitive environments for profit. #4The Colas Group maintains a strategy consistent with the turbulent environment (Colas 2017). It diversifies locations based on expected need and funding levels. Colas also continues to conduct research and development to maintain industry leadership competencies. It contributed to a paving solution not seen before for the Calgary Airport in 2015 (Croteau). It maintains the Colas Campus for Science and Techniques where it developed Wattway, a solar pavement panel (Press Kit, 2015). Colas Campus provides for the technical and technological expertise under organization authority. This strength offers confidence to customers looking for leading edge technologies and techniques within the appropriate competitive environment. Exhibit 1 presents the environment, strategy types, and organizational goals.Exhibit 1Type 1Type 2Type 3Type 4EnvironmentCalm VariedLocally stormyTurbulentStrategy TypesReactorDefenderProspectorAnalyzer with InnovationOrganizational GoalsNeitherEfficiencyEffectivenessEfficiency and Effectiveness#5The Colas Group aligned appropriately across Environment, Strategy Type, and Organizational Goals. Colas strives for improvement. This endeavor is supported by the organization that is designed horizontally to emphasize learning and local control (Colas). Additionally, the continued practice to collect and analyze performance in several key areas indicates the desire for improvement. The Colas Group maintains and organization structure that balances flexibility and learning with centralized control and efficiency. It has decentralized organization that has strong roots in the local communities, and is able to respond to market needs flexibly, quickly and effectively (Colas). Colas states on its website that it is a “leader in the construction and maintenance of transport infrastructure” and that the Group’s strengths reside in the following driving forces: strong footholds in long-term, high potential markets; vertical integration; a network of 800 construction units and 2,000 material production units; a decentralized organization; human capital; a technical innovation policy; recognized technical, legal, and financial expertise in managing complex contracts; development capacities via both external and internal growth; solid financial structure.ReferencesAlaska Navigator. (n.d.) Amadeo, K. (n.d.). How High Will Oil Prices Rise in 2018? Retrieved February 04, 2018, from Ashoka. (2014, May 22). 4 Innovation Trends That Could Change The Way We Design Roads By 2020. Retrieved February 04, 2018, from Brusuelas, J. (n.d.). 2018 global economic outlook. Retrieved February 04, 2018, from Built to last, general counsel, Colas. (2011, August 8). 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Retrieved February 04, 2018, from Hill, C. (2017, March 07). Worldwide equipment sales forecast up 7% for 2017; North America to grow by 6%. Retrieved February 11, 2018, from Implementing ISO 9001 Quality Management. (n.d.). Retrieved February 04, 2018, from , R. (2017, December 08). Top 4 Challenges Facing The Construction Industry. Retrieved February 11, 2018, from Marilyn M. Helms, Judy Nixon,?(2010)?"Exploring SWOT analysis – where are we now?: A review of academic research from the last decade",?Journal of Strategy and Management,?Vol. 3?Issue: 3,?pp.215-251,?, A. (2015, January 04). Top 10 construction companies in the world. Retrieved January 28, 2018, from Kit: Watt Way. (2015). Retrieved February 4, 2018 from Telematics in Heavy Equipment Market - Global Industry Analysis, Size, Share, Growth, Trends, and Forecast 2017 - 2025. (2017, November 20). Retrieved February 11, 2018, from U.S. Transportation Construction Market Forecast 2017. (n.d.). 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