COLAS GROUP ENVIRONMENTAL COMPLEXITY 1

Colas Group Assessment of Environmental Complexity

Jon McVay

University of Alaska-Fairbanks

COLAS GROUP ENVIRONMENTAL COMPLEXITY 2

Abstract

Colas 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 ENVIRONMENTAL COMPLEXITY 3

Colas Group Assessment of Environmental Complexity

According 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).

#1

Several 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.

Industry

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).

COLAS GROUP ENVIRONMENTAL COMPLEXITY 4

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 Materials

The 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 Resources

The 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

COLAS GROUP ENVIRONMENTAL COMPLEXITY 5

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 Resources

There 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.

COLAS GROUP ENVIRONMENTAL COMPLEXITY 6

Market

The 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.

Technology

The 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 Conditions

Recent 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).

Government

Colas employs a regional, state, and local organization structure (Colas 2017). The local

entities offer a firm understanding of the governing laws and regulations.

COLAS GROUP ENVIRONMENTAL COMPLEXITY 7

Sociocultural

Colas employs a regional, state, and local organization structure (Colas 2017). The local

entities maintain a strong grasp on the local sociocultural variables.

International

Colas 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).

#2

Yes, 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

COLAS GROUP ENVIRONMENTAL COMPLEXITY 8

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

COLAS GROUP ENVIRONMENTAL COMPLEXITY 9

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.

#3

As 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

COLAS GROUP ENVIRONMENTAL COMPLEXITY 10

contract opportunities, and cost conscious customers yield unfavorable competitive environments

for profit.

#4

The 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 1

Type 1 Type 2 Type 3 Type 4

Environment Calm Varied Locally stormy TurbulentStrategy Types Reactor Defender Prospector Analyzer with

InnovationOrganizational Goals

Neither Efficiency Effectiveness Efficiency and Effectiveness

#5

The 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

COLAS GROUP ENVIRONMENTAL COMPLEXITY 11

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.

COLAS GROUP ENVIRONMENTAL COMPLEXITY 12

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