Jagafa, K and Wood, GD
A turn-around model for construction company rescue : failure to success
, in: Working Paper Proceedings: Engineering Project Organizations Conference, 10-12 July 2012, Rheden, The Netherlands.
Research works on the causes of business failure as well as tools on the predictability of business failure has received considerable attention in finance literature due to the 2007 recession. In 2009, the UK insolvency rate hit a record high of 270,000 i.e. 11.9% death rate. The Office of National Statistics (ONS) reports that, this is the first time business deaths have outnumbered business births since the year 2000. Across industries, the construction industry in 2009 recorded the highest number of business deaths in a single year with over 44,000
company bankruptcies. The aim of this research is to develop a model that gives construction companies in distress a likelihood of success at recovery. Based on a literature review, 52 factors were found to be the causes of business failure in the construction industry. However, the Input and Output model suggests that, while some factors are determinants, others are indicators or symptoms of business failure. It was found that the top seven determinants of business failure in the construction industry are; "Management Incompetence", "Insufficient Capital", "Lack of Business Knowledge", "Fraud", "Industry Weakness", "Poor Technical and Technological Capacity", and "Poor Relations with Clients and Government", while,"Inadequate Profit" and "Inadequate Sales" are the top two indicators of business failure in construction companies. A transition by implication involves change. It was found that economic down-turn does not necessarily cause business failure but combined with company flaws and bad practice, produces a rough tide for companies to ride on. Most do not survive.
Leadership was also found to be, arguably, the most valuable resource at the stage of company turn-around. Therefore, the conceptual framework was designed with the view that leadership drive the transition process. It is hoped that this model will aid managers of companies in distress narrow their focus on the likely determinants of their company problems. To easily and quickly identify the problem, return to the board, address the problem and turn-around performance towards success.
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