Crossing the Digital Construction Chasm
Surviving the age of digital disruption isn’t easy; but, crossing the chasm is critical for those hoping to avoid extinction.
The term ‘digital disruption’ arrived overnight and hit construction like a meteor. Some teams have embraced the change; they are diligently working to adopt new technologies and augment their existing ways of working. Others have shied away, seemingly hoping that the digital age passes quickly as another fads within our typically technology-averse industry. These laggards aren’t only behind the curve; they may be consumed by it.
Digital construction is shifting project delivery models as we have historically known them; in turn, digitization is generating a competitive edge for those firms who understand the potential and are embedding digital workflows in their execution processes. Many slow-moving late adopters will cease to exist while progressive organizations rise to the occasion as the expectations for digital project delivery become more standardized across clients. It’s not a matter of when it’ll happen; it’s happening now. How we assess our positions and the immediate actions we take will determine what side of history we fall on. This is an Extinction Level Event (ELE) for old-school construction project delivery models.
In 1958, companies listed on the S&P 500 had an average organizational age of 61 years; since 1955, 90% of them have vanished . Two-thirds of C-suite executives surveyed believe that 40% of Fortune 500 companies will face extinction in 10 years due to digital disruption . Being a large established company is no longer a competitive advantage in the age of fast-moving start-ups and rapid innovation. So, the question is, if we have the foresight to predict the demise of those organizations that fail to adapt to the rapid market shifts, is extinction preventable? Better yet, what do we do to stay alive?
Let’s consider the engineering and construction firms that made the S&P 500 list in the last two years, of which there were 8. 1 of them fell off the list last year; 1 was just acquired by another. This leaves just 6 engineering and construction firms listed. 2 of the 6 reported an average gain in profits of 3.45% and 4 reported an average loss in profit to the tune of 55.42% .
Interestingly, 5 of the 6 listed companies rose in the rankings even though 4 of them reported major profit losses . How could that be? The answer is simple. Where you end up on the S&P 500 list, or anywhere else in business for that matter, is not solely determined by how well you perform as an organization. How poorly your competitors are performing matters, and some of them are in serious trouble.
BTW, “The average age of today’s Fortune 500 companies is less than 20 years” .
How Long Do We Have?
Digital disruption in construction has been occurring for decades; but, just recently the magnitude of disruption in our industry has made it difficult to measure or predict the impacts on existing firms. As a result, tech-savvy entrepreneurs are flocking to the industry with new tools, techniques, and innovations. Venture capitalists are investing billions in new industry startups that show promise in helping teams overcome the project delivery challenges that have plagued the industry for decades.
In the past, organizations had time to evaluate market shifts and explore technology solutions to determine long-term returns. This is no longer the case. The automated teller machine introduced in 1967 didn’t become commonplace until the 1980s. Compare that with newer technology applications such as Uber and AirB&B, whom collectively rocked their industries overnight.
Who’s at risk? Digital disruption is occurring in every industry and in every home; there is no denying or avoiding it. In our industry, those that hesitate or choose to ignore it will soon be sitting in front of their rotary phone wondering where they went wrong.
In a review of 365 oil and gas mega-projects globally, two important statistics were published by Ernst & Young in a recent report .
· 64% of projects faced cost overruns
· 73% of projects faced schedule overruns
Poor performance on construction projects is no longer an anomaly; it’s expected and almost accepted. Yet, many teams continue along the same path, confident that ‘this project’ will be different. This deja vu approach to project delivery is what makes construction such a target for digital innovation. The tried and true methods aren’t working. Something must shift if we are to pull ourselves out of this recursive cycle.
The 4th Annual JBKnowledge Construction Technology Report asserts that, “out of 19 industries, construction allocates the least amount of revenue for technology. All of this means that the construction industry under-spends cross-industry averages by 60% to 70% — a staggering number.”
The only major industry that spends less than construction on technology is agriculture. Tech companies are about to change that.
When asked about what limits their adoption of technology, contractors responding to the 2015 Construction Technology survey identified these Top 5 :
- Budget: 39%
- Lack of support staff: 34%
- Management hesitance: 31%
- Lack of knowledge about what’s available: 28%
- Employee hesitance: 25%
One would think that considering the massive failure rates in construction, and the prospect of organizational extinction, there would be a greater sense of urgency in technology adoption. Yet, the industry trudges forward at a snail’s pace. For many, the above 5 reasons illustrate a series of excuses to avoid digitization rather than a legitimate set of barriers.
Tools; Not Toys
The term Digital Disruption might have been better named to soften the appearance of something that sounds dangerous. The term disruption is a turn-off for most. It signals change, which many fear. It’s also highly overused, prompting eye rolls at the boardroom table. Yet, it’s still an accurate descriptor of the rapid shifts taking place in the construction industry.
The influx of digital tools in our industry, in some cases, has been more happenstance than tactical. Teams scramble to purchase and deploy the latest hardware and software to demonstrate their innovative potential and market-leading digital capabilities. The outcomes are usually commensurate with the level of effort invested in program development and deployment. Technology expenditures don’t directly correlate with return on investment. This is a lesson that too many have learned the through experience.
Disruption is happening in construction; there’s no avoiding it. But, those that are getting the greatest gains aren’t leading with toys; they’re leading with tools. To begin the digital journey, teams must optimize their workflows by refining their processes. If your process is failing, technology won’t help you improve performance; in fact, it will yield the opposite result. Rather than performing tasks more efficiently, you will execute your failing process faster.
Disruptive processes force companies to change how they do business to remain competitive rather than irrelevant. Once processes are established, innovative technology is implemented to augment those processes, improving efficiency, speed, and quality of performance. Effective processes are the foundation for digital organizational advancement. To gain an edge on your competition, you need tools, not toys.
Making the Shift
The problem with change is that 70% of change initiatives fail. Construction teams are averse to change because by our very nature we’ve not been forced into rapid change, until now. In most instances, we’ve rebuked disruptors and their fancy new toys. Organizations can no longer afford to take that stance. The first thing needed to survive the next 10 years is a change in culture.
C-Suite executives, if they themselves are to remain in those positions, must evoke change in how employees think and act, before anything else; but remember, not every company will be there at the finish line. The naysayers who resist the improvements offered by new technology can, and will, close the doors. Teams must be converted or excused, and fast, for the sake of company survival.
To begin your digital journey, start with education. For your digital initiative to be successful, stakeholders must understand why the change is being implemented. Information on digital best practices is available and affordable. Investment in training management and supervision is the foundation of any worthwhile program. Continue with communication. Broadcast the message throughout the firm to ensure the culture of the company is informed and aligned with the plan.
Existing firms must increase their adoption of innovation and automation, which includes investment in technology. Several companies have positioned themselves by the early adoption of practices, policies and procedures coupled with software that caters to the construction lifecycle. Concentrating on a holistic solution that serves the corporate structure and strategy, with hard emphasis on project delivery transparency, accountability, and agile delivery is a winning formula. Current and viable solutions are on the market and available. The Construction Industry Institute (CII), the Construction Owners Association of Alberta (COAA), and the Lean Construction Institute (LCI), have several studies that have led to best practices with proven results.
Join your local construction organization and participate. It’s better to become part of the solution and support improvement than to sit back and drown in the chaos. Many regional associations have sponsored communities of practice that are assisting organizations in navigating the new wave of technology in our industry.
Finish with continuous checks and balances that include audits and evaluations on return on investment. New programs fail when not stewarded to. Continuous audits help ensure that team members are stewarding to tool use and not simply reverting to old ways of working. Further, for tools to add value they must generate a return on investment. Don’t just deploy new solutions and hope they improve performance; make sure they do. Remember, no plan survives first contact with the enemy.
Don’t want to be disrupted? Consider moving to the head of the pack and becoming the disruptor. Those that lead the way don’t risk falling behind the digital adoption curve.
Don’t be Fooled
A word of advice to those who are considering the move to new technology adoption: proceeding correctly is as important as proceeding quickly. Many of the innovations are new to the industry, and so are the players. Don’t be swooned by slick sales teams. Dig in and understand what tools you need to improve your processes. Remember, you need tools, not toys.
Beware of those who use anecdotal quotations and catch phrases that sound too good to be true; they probably are. Your performance potential and return on investment depend on your organization alone, and not on perceived benefit or statistics based on what others in the industry may have realized in the past.
Beware of sales personnel who offer ‘magic pills’. There are no cookie cutter solutions that fit every team. Your organization is unique and requires a unique solution. You’re already a market player and good at what you do. You’re likely in need of fine adjustments and process augmentation that helps you do those things better.
Beware of consultants; Vet, vet, and vet is the rule. The best digitization consultants take the time to understand your organization before they offer a solution. If you’re being pushed to immediately onboard support staff and invest heavily in tools, you’re probably working with the wrong consulting group.
The very near future will bring about drastic change in the construction industry, spearheaded by firms with rapid decision-making ability, technology second to none, and lean methods. The digitization of project delivery is at construction’s doorstep and knocking hard. Firms that rapidly adopt and deploy the right tools will have the best chance to survive, albeit in an atmosphere with new, innovative players merging into the market. Those who are most at risk are the dinosaurs who are buried in red tape and stuck in the past. A new market place with the emergence of green energy, demanding facility owners, and the entrance of tech-friendly construction firms will reshape the landscape for everyone.