Business Diversification: Strategies & Structure in Construction

This essay discusses the strategies and organizational structures of construction companies, focusing on factors influencing an existing Australian construction company's business diversification into new endeavors. It examines various ownership models and organizational structures, such as functional, divisional, and matrix structures, and highlights the importance of adopting appropriate strategies for market entry. Using ADCO Construction Private Limited as a case study, the essay suggests that a divisional organizational structure and a cost leadership strategy, combined with a broad market approach, would be beneficial for diversifying into residential and engineering constructions. The analysis emphasizes the potential for growth in the Australian housing market and the advantages of geographical differentiation and resource sharing across different construction locations.

Running head: CONSTRUCTED ENVIRONMENT
The Constructed Environment
Name of the Student:
Name of the University:
Author note:

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Introduction
Construction industry is of utmost importance to any society and economy, including
Australia. This industry is responsible for building the infrastructure of an economy. The major
area of activity of the construction industry is to develop the residential and non-residential
buildings and engineering constructions, namely, roads, bridges, mines, water facilities,
sewerage etc. (Greenhalgh and Squires 2011). Both the public and private sector companies
operate in the construction industry in Australia. The history of this industry goes back thousands
of years when the civilizations started to develop across the world. In the initial period, like in
any other business activities, construction businesses were also based on families. Over time, the
business activities spread into different sections of the society and the construction businesses
started to include groups or partnerships other than the families (Crespin-Mazet, Havenvid and
Linné 2015). In the following essay, the strategies and organizational structures of the
construction companies will be discussed to highlight on the factors that influence the strategies
and structures to be undertaken by an existing construction company in Australia while
diversifying their business into different endeavors in the immediate locality or distant regions.
Organizational structure and strategies for business diversification
A family owned construction business usually adopts one of the five following ownership
models, namely, owner/operator, distributed, partnership, public and nested (Neubauer and Lank
2016). In the owner/operator model, the family gets to decide which member would be the best
successor of the business to keep the control in one member. In the distributed model, the owners
in the family make the arrangements to pass on the control to the next generation (Sharma,
Chrisman and Chua 2012). In the partnership, few members become partners to run the business

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and distribute the profits equally. In the nested ownership model, different family branches come
together to own some of the assets jointly and rest of the assets separately. Lastly, in the public
ownership model, a part of the shares of the company are publicly traded, the owners play a
minimal role in running the company and it is run by professional managers (Baron and
Lachenauer 2016). Among all these types of ownership models, the most commonly used model
was distributed model, which helped the business to keep in the family only, followed by the
partnership model. However, with time, the public ownership model was adopted by other
groups of people who did not belong to a single family.
The family construction firms which followed the partnership model often faced the
challenges of passing the ownership to the next generation in the family. In these firms, flatarchy
organizational structure was usually followed. The companies encouraged internal growth by
creating flat teams within the organization. However, in the long run, it often created problems,
especially during the business expansion or diversification. The construction companies adopted
other types of organizational structures, namely, functional, divisional and matrix (Jones, George
and Langton 2013). The division between public and private sector also emerged in the
construction industry, leading to the divisions in the types of construction works.
ADCO Construction Private Limited is one of the top 50 private construction companies
of Australia, located in Sydney. It was established in 1972 and by 2017, the company has
completed around 3500 highly valued construction projects across the nation
(Adcoconstruct.com.au 2018). It is not a family construction business, only a group of people
came together to form this private limited company. The company has contributed in the
development of the society by constructing various types of buildings, such as, commercial,
community, education, aged care, industrial, retail, interiors, health, aviation, leisure and aquatic,

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student and short term accommodation, green buildings and many more. However, it has been
found that the company is not involved in engineering and residential construction. Thus, it has
the scope for diversifying its business into these two areas of construction.
Currently, going by the profile of ADCO, it can be inferred that, the company follows the
functional organizational structure. It has a CEO along with the Board of Directors and smaller
teams for specific roles. There is an organizational hierarchy, with each of the department having
a manager, reporting to an executive, one layer up in the hierarchy, supervising multiple
departments. The employees are usually grouped based on their skill set and functions, and are
focused on achieving specific goals of the company. One of the major challenges in this structure
is the communication gap between different departments, which could create problems while
handling different types of projects.
If the company decides to expand and diversify its business into residential and
engineering constructions, it should follow the divisional organizational structure. Under this
organizational structure, the company would be able to operate across various horizontal
objectives with more autonomy and independence (Wilson and Post 2013). Divisional structure
allows each division of the company to act as a separate company with its own hierarchy. Since,
ADCO would diversify its business into other types, such as, the residential and engineering
constructions, divisional organizational structure would be beneficial for it as all the divisions
would work autonomously.
If ADCO wants to diversify its business into different endeavors, such as, in the
residential construction or public engineering constructions, in the immediate locality or distant
region, it might want to apply a new market entry strategy. As the markets for residential and

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public construction are already established, hence, to diversify its business, ADCO will face
competitions. The company might adopt the cost leadership strategy to enter the new markets.
Since, it is an established company in the non-residential, that is, commercial construction, it
would be able to provide competition in lower cost. Under cost leadership strategy, ADCO has to
sell its products either below the average prices of the industry for gaining the market share, or it
has to keep the average price level for earning a profit level higher than the rivals (Yan and Liu
2017). If ADCO is able to provide an acceptable value to the clients by maintaining its
profitability, then it would be able to deliver a superior performance and capture a significant
market share. As stated by Valipour, Birjandi and Honarbakhsh (2012), the preferential access to
the raw materials, economies of scale and proprietary technology form the potential competitive
advantage for a construction company, which help it to adopt the cost leadership strategy. As
ADCO is one of the market leaders in the commercial construction in Australia, it already has
economies of scale, lower labor cost, lower equipment and overhead costs, technology and
access to the sources of raw materials. This would help the company to enjoy cost advantage
even in the new markets and become the low-cost leader to capture the market share. As the
company has already been working across Australia, it can start investing in any suitable location
based on the needs, be it an immediate locality or any distant region. For the residential or public
engineering construction, the lower valued projects are more accepted and to enter into an
established market, ADCO must adopt the cost leadership strategy.
Along with the cost-leadership, the company might also adopt the geographical
differentiation strategy to focus on the needs of the immediate locality or any distant region. In
the business diversification endeavors, ADCO might opt for a broad market approach. With this,
they can exploit the economies of scale and also share the resources in different construction

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locations along with spreading the risks across various different markets and reducing the
vulnerability significantly against the market fluctuations (Acharya, Engle and Richardson
2012). With globalization and economic growth of Australia, the market for residential housing
is expanding significantly. The housing bubble has been affecting the Australian economy for the
past few years, and ADCO has a good opportunity to capture a market share if adopts a broad
market approach along with cost leadership strategy. Establishing the business in new
geographical region would help the company to grow its network, which could be facilitated by
broad market approach by ADCO.
Conclusion
Thus, from the above discussion, it can be concluded that, ADCO is a big name in the
commercial construction industry of Australia. The company is not a family based business;
rather it’s a private limited company. If the company wishes to diversify into different endeavors,
it could enter into the market for residential and engineering constructions. For that, the
divisional organizational structure would be beneficial for ADCO. It would help the company to
have different autonomous sections overlooking the existing and the new business. The company
should adopt the cost leadership strategy along with broad market approach to capture the share
of the new markets.

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