The Effect of Environmental Factors

and Institutional Pressures

on Construction Firms’ Performance:
A Proposed Model

Hassan Fehan and Osaro Aigbogun

Abstract Purpose—As the construction industry evolves, a higher requirement is

set on construction firms to improve their accountability to customers’ specifica-
tions by executing their projects based on specified criteria (time, cost, quality).
However, several factors prevent effective and efficient performance management
in construction firms. Efforts aimed towards understanding the impacts of these
factors, such as environmental factors and institutional pressures on the performance
outcomes of the construction firm, have led to empirical and theoretical controversy
in mainstream construction management research. Design/methodology/approach—
The study’s objectives were to examine the reliability and the validity of the adapted
instrument’s construct measures in the ongoing study and develop a conceptual model
comprising antecedent factors affecting Syrian construction firms’ performance.
Primary data were collected from 197 respondents using a structured questionnaire,
and data analysis was done using Smart-PLS 3.0 to assess the PLS-SEM measurement
model. Findings—The findings show that the instrument is reliable and indicates
strong rational validity proof. Originality/value—The research is of great signifi-
cance because it explored the impact that vital environmental factors together with
institutional pressures have on the performance outcomes of construction firms, and
this is critical to improving effective performance management systems in construc-
tion firms. Moreover, the validation of the instrument will aid subsequent explorations
of the subject matter.

Keywords Transportation safety systems · Construction firms · Environmental

factors · Performance measures · Institutional pressures · Reliability · Validity ·
Smart PLS

H. Fehan (B)
Binary University of Management and Entrepreneurship, No 1, IOI Business Park, Bandar
Puchong Jaya, 47100 Puchong, Selangor, Malaysia
e-mail: hassanfehan747@gmail.com
O. Aigbogun
Curtin University Malaysia, CDT 250, 98009 Miri, Sarawak, Malaysia

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 1293
A. Guda (ed.), Networked Control Systems for Connected and Automated Vehicles,
Lecture Notes in Networks and Systems 510,
https://doi.org/10.1007/978-3-031-11051-1_131
1294 H. Fehan and O. Aigbogun

1 Introduction and Background

Due to its importance in economic growth and its critical position in a countries
development plan, over the past few years, both scholars and professionals have
emphasized the constraints faced by the construction industry [1]. The construction
industry is regarded as a fractured and complicated field that faces relentless obsta-
cles and tremendous demands. Therefore, to improve their competitive advantage
and outperform their rivals, construction firms need to be more customer-oriented,
flexible, and effective [2].
In order to stay relevant in the business environment that is both hyper-competitive,
as well as, ever-changing, it is crucial that firms in the construction industry constantly
enhance their performance [3]. For construction firms to identify best practices, an
essential initial step is to carry out periodic performance evaluations and compare
previous performance to recognize performance gaps and benchmark their stand-
ings relative to competitors. Despite the fact that there are significant evidences of
awareness of performance management practices within the construction industry,
there are significant problems relating to the rationale and model, implementation as
well as application of these practices, and the transmission of non-adaptive effects
compared to those expected in various countries [4]. Presently, construction organiza-
tions need viable information across a wide range of activities beyond that which the
conventional measures of performance have the capabilities to provide; concurrently,
decision-makers are supposed to select the policy which increases their expected
utility over all possible outcomes [5]. Critiques such as [6] suggest that the role of
performance management is not yet well known, at least in the rapidly evolving
construction industry, and maybe subtly influenced by factors that are presently not
fully described.
Though the outcomes of performance, especially immediately after measurement,
provide several benefits to those who utilize it for such purposes as evaluation, control,
and the advancement of business operations; the factors which influence performance
are, as yet, still being studied and examined inadequately at the organizational level.
These factors can be implemented in order to improve the firm’s performance and
place it on a higher level [7]. Drawing on institutional arguments, research scholars
have debated the different factors that influence firm performance and have increased
attention in their inquiries to explain heterogeneous performance outcomes [8].
On the one hand, several scholars have concluded that pressures such as environ-
mental factors, either internal (under control the firms) or external (beyond control
the firm), have a powerful impact on firm performance [9]. [10], drawing from his
study on the Nigerian construction industry, stated that the political environment
is the most crucial factor affecting local (medium and large) contractors’ perfor-
mance, and the influence of social and political environmental variables impact on
a construction project is primarily high. The empirical investigation of [11] further
affirms that the economic environment is an external factor that positively influ-
ences construction firm performance outcomes. [12] observed that the technology
The Effect of Environmental Factors and Institutional Pressures … 1295

environment, as an external factor, significantly and positively influences construc-

tion firms’ performance outcomes. Besides, [13] indicated that construction orga-
nizations’ performance is positively affected by their socio-cultural environment.
In their study on leadership orientation in South African construction firms, [14]
concluded that there are gaps in the perceived functions of leaders in implementing
the fourth industrial revolution in South African construction firms, which affects
their performance improvement efforts. [15] highlighted the existence of a positive
relationship between human capital and construction firms’ performance outcomes.
[16] empirical investigation assured that communication culture positively influences
construction firms’ performance outcomes.
On the other hand, the institutional pressures under which these firms have to work
and adjust their organizational structure and actions are vital to their continued exis-
tence and legitimacy to achieve high performance [17]. Therefore, this study argues
that construction firms react to institutional pressures and environmental factors
differently depending on how they understand it as external pressures influence the
performance outcomes. Their response to these pressures reflects their impact on
firms’ performance.
The construction industry in Syria is not an exception, as previous research has
offered considerable attention to construction projects’ performance [18]. Though, to
some extent, many of these reports are founded upon evidences which are sketchy, as
enough attention has not been devoted to the exploration of the manner in which envi-
ronmental factors or institutional pressures influence the outcomes of performance
of construction firms so as to drive home most of these perceptions. Therefore, the
impact of these environmental factors, whether internal or external, and institutional
pressures on the performance of construction firms presents a potentially missing
piece of the puzzle; hence it must be examined to depict performance outcomes
better and highlight the importance of institutional pressures. To fulfill this argu-
ment, the model of this study model incorporates factors that are responsible for
the heterogeneity of performance (environmental factors—institutional pressures),
referred to as explanatory or predictive variables, and performance (the outcome vari-
able). This model suggests that the organization’s superior performance is contingent
upon external environmental factors and institutional pressures.

2 Conceptual Model

The amount of research and studies that have been carried out within the construc-
tion industry context that explores empirically, the possible effect of environmental
factors as well as institutional pressures on the performance of firms, are insuffi-
cient. Hence, this study conceptualized a model that incorporates factors that are
responsible for the heterogeneity of performance, including internal environmental
factors (leadership, human capital, communication culture), as well as external envi-
ronmental factors (political environment, economic environment, technology envi-
ronment, socio-cultural environment), as the independent (predictor) variables. In
1296 H. Fehan and O. Aigbogun

Institutional Pressures

Political Environment

Economic Environment

Technology Environment
Environment ors
Construction Firm
Socio-cultural Environment Performance

Communication Cultural

Human Capital

Leadership

Fig. 1 Conceptual framework

contrast, the dependent variable is the performance of the construction firm. More-
over, institutional pressures were adopted to examine their effect as a mediator on the
relation between internal and external environmental factors and the performance of
the construction firm. The proposed model for this study is shown in Fig. 1.

3 Methodology

A cross-sectional, quantitative method using a deductive approach was conducted

through a field survey, and the data were gathered with the use of a structured ques-
tionnaire that was anchored on a five-point Likert scale. All of the responses were
arranged and aggregated in order to present a single response of the firm that synchro-
nizes with the unit of analysis (construction firm). Simultaneously, the respondents,
which are the unit of observation, were recruited from the strategic and operational
levels of various construction firms. A total of 197 valid survey responses were
received using a snowball sampling technique. Thus, the response rate was approx-
imately 78.8%, which shows the effectiveness of the survey. Data were subjected to
inferential statistical analysis using structural equation modeling partial least square
(SEM-PLS) by Smart PLS 3.0.
The Effect of Environmental Factors and Institutional Pressures … 1297

3.1 Instrument Design

To assure the variables’ measurements, the study items were adapted from several
sources so as to produce a peculiar pool of item and content validity, as shown in
Table 1:

4 Data Analysis and Results

PLS-SEM (using Smart PLS 3.0) was utilized in the data analysis in the prelimi-
nary study [19–25]. According to [26], PLS-SEM is a popular data analytic tech-
nique, mainly utilized because of its ability to adequately analyze sample sizes which
are relatively small when compared to other co-variance-based Structural Equation
Modeling techniques such as LISTREL or AMOS. Thus, because of the small sample
size of the study, PLS-SEM is deemed appropriate; Fig. 2 illustrates the research
model.

Table 1 Source of the questionnaire measures

S/N Constructs Dimensions Source
1 Firm performance Financial performance (FP) Luu et al. [19], Jin and Deng
measures Customer satisfaction (CS) [20], Ali et al. [4]
Internal business processes
(IBP)
Environmental performance
(EP)
2 External environmental Political environment (PE) Sun and Meng [21], Akanni
factors Economic environment (EE) et al. [11], Funmilayo [22],
Masadeh et al. [23], Mugo
Technology environment and Moronge [16]
(TE)
Socio-cultural environment
(SE)
Internal environmental Leadership (LS)
factors Human capital (HC)
Communication culture (CC)
3 Institutional pressures Coercive pressures Dubey et al. [24]
Normative pressures Iliya Nyahas et al. [25]
Mimetic pressures
1298 H. Fehan and O. Aigbogun

Fig. 2 Research model

4.1 Reliability and Validity Assessment

The measurement model accuracy assessment attempts to quantify the manifest vari-
ables’ reliability and validity and their objects to justify their use in the path model’s
suitability. Validity defines the precision with which a construct represents the item
it is to measure, while reliability refers to the level of consistency of the instrument’s
accuracy over time, as well as across different scale objects [27]. Based on this and
due to our reflective model, the evaluation was carried out by two main steps as
follows:
1. Assessing the reliability by evaluating internal consistency (composite relia-
bility).
2. Assessing convergent validity by examining average variance extracted (AVE);
discriminant validity by examining the heterotrait-monotrait ratio of correlations
(HTMT).
Construct reliability is carried out by examining the outer model seen from the
numerical values of composite reliability. Values that are equal or greater than 0.6,
show the reliability of the scale [28]. The results of composite reliability (Table 2),
are above 0.6. These results indicate adequate internal consistency.
Moreover, Average Variance Extracted (AVE) was utilized in examining the
convergent validity. According to [29], AVE has a threshold value of 0.5, showing that
The Effect of Environmental Factors and Institutional Pressures … 1299

Table 2 Results of measurement model-convergent validity

Constructs AVE CR
Financial performance 0.629 0.91
Customer satisfaction 0.681 0.895
Internal business processes 0.701 0.954
Environmental performance 0.66 0.933
Political environment 0.8 0.941
Economic environment 0.848 0.957
Technology environment 0.859 0.948
Socio-cultural environment 0.652 0.849
Leadership 0.85 0.919
Human capital 0.675 0.912
Communication culture 0.791 0.883
Institutional pressures 0.562 0.92

the construct explaining the variance is higher than the measurement error. Accord-
ingly, all AVE values depicted in Table 2 are above 0.5, with 0.562 being the lowest
value, demonstrating adequate convergent validity.
Additionally, the discriminant validity acts such that measures are unable to be
associated with each other; in literal fact, they are genuinely distinct from other
constructs. Henseler et al. [30] illustrate via a simulation analysis and based on the
multitrait-multimethod matrix, an alternative approach to evaluate the discriminant
validity, which is the technique of using the heterotrait-monotrait ratio of correlations
(HTMT). This method depicts superior performance utilizing a Monte Carlo simu-
lation study. They suggested that if the value of HTMT is smaller than 0.9, there will
be discriminant validity among two reflective constructs. As shown in Table 3, all
the values of HTMT of the latent constructs were less than 0.9. Hence, it assures that
the measurements of the latent construct were discriminating towards one another.

5 Discussion

Based on the result of the analysis of the measurement of the proposed model, it
can be concisely stated that all the integrated constructs of the internal and external
environmental factors, institutional pressures, and outcomes of performance of the
construction firms are all valid and reliable based on their factor estimations. The
results indicate the PLS model utilized in this research was reasonably well defined
in terms of its reliability as the composite reliability values were higher than 0.6.
AVE values showed the mean commonality for each latent in the reflective model
with coefficients values that were greater than 0.5. Moreover, all the HTMT values
of the latent constructs were below 0.9, and this validated that in each construct,
1300 H. Fehan and O. Aigbogun

Table 3 Results of HTMT discriminant criteria

CS CC EE EP FP IBP IP LS SE PE HC TE
CS
CC 0.533
EE 0.243 0.133
EP 0.728 0.769 0.206
FP 0.423 0.679 0.327 0.44
IBP 0.768 0.821 0.272 0.967 0.56
IP 0.41 0.771 0.362 0.764 0.907 0.694
LS 0.327 0.514 0.593 0.408 0.567 0.396 0.824
SE 0.634 0.56 0.576 0.929 0.716 0.791 0.892 0.628
PE 0.292 0.212 0.951 0.35 0.456 0.394 0.551 0.488 0.726
HC 0.281 0.554 0.501 0.682 0.616 0.556 0.901 0.797 0.945 0.593
TE 0.246 0.563 0.472 0.798 0.397 0.736 0.69 0.543 0.812 0.574 0.735

the manifest variables represented the allocated latent variable whilst confirming the
discriminant validity of the model. Consequently, the measurement model established
adequate reliability and validity standard that can be appropriate for data analysis in
the related research area. Lastly, this paper reports notable findings and results with
respect to the management of construction companies. Primarily, it broadly alludes to
the institutional theory. Prior studies on the management of construction companies,
based on institutional theory, have majorly approached outcomes of performance as
isomorphic processes, especially at the project level. This paper, however, took the
manner of approach of an inter-organizational matter towards performance outcomes,
thus allowing the researchers to pay close attention to the institutional mechanisms
which are at play within a complex organization at the organizational level.

6 Conclusion

This study examined a conceptual model derived from a literature review to fulfill
the acceptable requirements of the analyses for both reliability and validity with
the use of Smart-PLS. The results indicated that all items correctly measure their
respective constructs and assure the ability of the collected data to produce results
that are both consistent and reproducible. However, this study was limited to the
construction industry’s performance management practices’ environmental steward-
ship aspect. Therefore, future researchers are advised to empirically validate the struc-
tural model in order to determine the capability of the model to predict one or more
target constructs by adding another environmental perspective. As a result, this will
provide an in-depth understanding for academicians and practitioners on the effect of
environmental factors and institutional pressures on the performance of construction
The Effect of Environmental Factors and Institutional Pressures … 1301

firms and enable policymakers to enhance the performance of construction firms and
manage their projects effectively.

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