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Construction and development firms are going through major reorganizations in trying to define a profitable structure – including deciding whether to include construction operations as part of the firm or to outsource it. This paper aims to analyze the relationship between firm size, construction management strategy and performance.

The paper reviews relevant strategic management literature and reports the results of an empirical survey research study of 80 US real estate developers.

The results showed that there was no significant performance difference between firms that performed construction activities in‐house as opposed to those that outsourced it. However, the impact of construction strategy on performance may occur through its effect on size and size was negatively associated with performance. In addition, among the smaller firms, the ones that outsourced construction outperformed those that did construction in‐house.

The results are in line with the findings of similar studies from other industries. In order to add to the generalizability of these findings, future studies should include larger samples and non‐US firms.

The study links the general strategic management literature to organizational issues of construction and development firms. Findings suggest that the scale of operation of the industry is such that even large development firms have too small a market share to take advantage of vertical integration of construction.