Market Structure and Organizational Performance of Construction Organizations

Abstract

The structure of a market can be described by how the market is composed of firms of different sizes and how these firms are diversified into different subsectors. In construction, few empirical studies exist on organizational performance at the industry level considering market structure. This paper presents a study investigating the market structure of the construction industry and the organizational performance of large contractors and design firms, focusing on size, growth rate, business stability, and market diversification. The study performs an empirical analysis using publicly available U.S. construction industry data. Four hypotheses were tested to determine relationships among strategic management issues and organizational performance. The study identifies particular patterns and similarities and differences in market structure between contractors and design firms and provides a new finding on market diversification—the existence of certain thresholds at which a firm’s diversification level significantly changes as the firm grows. An analysis on organizational performance concludes that firm growth is independent of firm size, whereas market diversification contributes to a firm’s business stability but not significantly to firm growth.