3 Big Challenges Unique to Construction Innovation
Think digital innovation has impacted all industries equally? Not so fast.
For those of us who pay attention to construction, a lot of online ink and in-person conferences have been spent on: 1) the size of the industry’s productivity gap; and 2) a huge opportunity for technology disruption to generate $1.6 trillion in new value.
A study by McKinsey Global Institute shows that the construction industry ranked second-to-last in digitization — ranking lower than over a dozen other industries and especially poorly on usage which measures actual implementation of digital tools in core business processes.
For a study that took a very broad look at multiple industries, the authors did a great job highlighting a truth that many of us experience daily: construction sites look very similar to the construction sites from a decade ago.
There’s still a lot of legacy systems and sweat-stained paper floating around our jobsites.
So what gives?
Over the last several years, I’ve helped build innovation programs inside large construction companies, working across the industry’s many sectors and at all levels of the business from C-suite to the workface.
There’s a prevailing sense in these companies that the industry is turning a corner. They’re identifying pain points and not taking accepted business processes for granted.
There’s also a number of headwinds that innovative construction companies are addressing early on.
Some of these are extensions of corporate challenges felt more broadly. For example, large contractors cannot escape their own big company dynamics and the fact that transformations are just plain hard.
But these headwinds are magnified by traits unique to construction. Understanding these challenges early on has allowed construction companies to manage their transformations better.
It’s a race and the construction companies that navigate these transformations most effectively are the ones that will be around in ten years.
On the other side, construction technology start-ups who recognize these challenges will be better positioned to hone their propositions and empower their product teams with the knowledge to avoid common mistakes in customer engagements.
#1. The construction industry is fragmented.
Construction is not like other markets: it’s much more fragmented when measured by the market share of its Top 50 players.
Using a common metric called concentration ratio, construction is at least three times less concentrated than similarly-sized industries.
This is great for competition and at keeping management costs low.
But it also requires certainty in outcomes and encourages an “if it ain’t broke don’t fix it” mentality. Construction professionals have their way of executing on projects and that’s just how it’s done. Period.
Related to this school of thought is the belief that investment in technology or innovation departments will cut into already slim margins (they don’t).
Most construction companies that dominate today honed their project delivery operations over 20 to 30 years. They’re managing projects as they’ve historically done and competition adds to that pressure by asking that they not rock the boat too much.
Whether it’s in telecommunications or healthcare or infrastructure services, these contractors have a keen sense of their customer’s needs — they’ve found their niche and they bring project management skills that deliver in ways that historically profit them.
This fragmentation of the market can also lead to a misunderstanding of the industry by outsiders. It’s not the monolithic “Construction Industry” as much as it is the many different builders addressing many different customer needs.
Plus, there’s a multi-billion dollar supply-chain built around each of these sectors.
For every dollar spent on actual construction, many dollars are spent on the various tools and material and engineering hours to make it happen. Each dollar has its own unique flavor depending on the sector.
This is especially important for innovation efforts: the pain point you’re addressing is very specific to one part of the construction business and/or supply-chain and is not scalable everywhere (and that’s OK).
I always recommend that construction innovation efforts start by developing an ideal customer profile as a first-order task.
Ask yourself: who in the construction value chain am I addressing?
The time spent understanding your part of the industry will pay dividends in the form of less distraction down the road.
#2. Construction delivery is diverse.
Imagine IKEA delivering a piece of furniture that’s highly customized to your unique needs, involves hundreds of manhours to design, is white glove assembled at your house, and in the end is perfectly suited to you and you alone.
Now imagine IKEA doing that at scale... You’re right, it wouldn’t be done.
But that’s essentially what building contractors do when bidding and winning new work. Their project delivery machine is constantly broken down and then reassembled for each new project.
Furthermore, each of the many disciplines and vendors within that delivery machine is optimizing around their own limited scope. It’s not the project as a whole that they’re delivering — it’s a little piece of it.
So rather than measuring efficiency by looking at actual throughput of product, like a manufacturer would, construction project managers are measuring performance at one step of that overall process and then effectively daisy-chaining each activity into a master schedule.
There’s a lot of added complexity simply due to the way that construction projects are historically delivered.
This presents opportunities: customers and construction project executives are warming up to new models like integrated project delivery and start-ups are borrowing from manufacturing to create more efficient processes like modular building.
But overall, these functional silos exist at least culturally if not operationally on nearly all construction sites.
It’s important to recognize the delivery methods that your customers use when embarking on innovation initiatives.
You need to constantly ask yourself:
- Which part of the construction lifecycle am I addressing?
- Who are my primary end users?
- Who are my secondary stakeholders?
- How are these stakeholders related?
As an example: Let’s say you’re building a new tool that addresses on-site quality inspections at the end of installation. Your product promises to decrease quality mistakes and improve the client’s quality assurance.
Your end user might be the field engineer who’s tasked with doing this type of quality inspection. Secondary stakeholders might be an engineer of record who approves the design and a site superintendent who oversees day-to-day operations.
But in the world of construction, things are never that simple because the engineer of record might be subcontracted to someone other than the general contractor. There might be an owner’s engineer who does these inspections. Or there might not be a field engineer at all because the contractor relies on foremen to do the inspection.
Those are all very different personas!
Depending on how construction project managers break down and rebuild their construction delivery machines, you could be dealing with one or all of the above.
Obviously, if your product does what it’s intended to do and provides value then you’re more than halfway there.
But as an innovator in construction, you need to continually assess and reassess how your product’s being used — not just by one customer but by all of your potential customers in your ideal customer profile.
The good thing about construction project silos is that they’re generally consistent within a single contractor’s operations.
It’s an extra step that’s often overlooked: construction start-ups should be continuously assessing their end user roles in project delivery, and corporate innovation groups should be intimately aware of how their projects are contracted and staffed.
#3. Change agents are prevalent but on the move.
Technology alone will not address poor productivity in construction. In many cases, fundamental culture change is needed alongside an improvement in systems and processes. Most crucially, this needs to happen in the field.
My own work on organizational networks reveals how, what I’ve called, Field Influencers in large construction companies have an oversized role in innovation. Field Influencers are often the consumers of internal innovation programs and if not a buyer then at least a loud voice in enterprise sales.
The challenge with construction goes back to the way that people talent is moved around each time the project delivery machine is broken down and reassembled.
It’s not uncommon to have people who have been on dozens of projects throughout their career.
This isn’t job rotation in the normal sense of career development. Project rotation is part of the business in construction and it can lead to isolation from previous networks as people move onto new projects.
One client I’ve consulted for has a piece of its business at the whim of the seasons, moving south to north as the weather changes. The team is basically nomadic for at least eight months of the year and physically removed from day-to-day interaction with other parts of the business.
This is a reality in construction: so long as there’s a built environment, people will need to go to where the building happens.
The decision makers are often in the home office. The Field Influencers are moving around in the field.
It’s a tension that slows down innovation because the disconnect gives implementation at most a two year shelf life (typical duration of a project) at which point the product loses its user and product feedback is lost.
Start-ups and innovation groups are along for the ride every time the project delivery machine gets rebooted.
But it’s the Field Influencers that are the common thread.
Construction innovation groups should make it their top priority to identify Field Influencers. These aren’t a handful of first-degree connections that leaders think they know. These are the hidden change agents who are dispersed across projects and project silos.
Start-ups should work with corporate innovation groups to get insight into who these Field Influencers are in the business. These are the 10X’ers of the innovation game and will be a huge ally in making any of your start-up pilots a success.
Nate Fuller is a passionate and accomplished construction technology leader with a diverse background in corporate innovation, construction technology, and entrepreneurship.
His proven track record defining strategy and directing change management in construction has helped North America’s largest construction contractors build and scale effective technology programs.
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