The engineering and construction industries are experiencing a revolution in the areas of design, planning, and project execution. VDC and BIM leaders like you are facing the challenge of increasing project profitability and efficiency, while at the same time improving collaboration and up-skilling your employees. You’re faced with a strategic choice: follow the status quo and head towards a default future, or escape the current paradigm and build a competitive advantage that pays off exponentially in the long run.
1. What Is Your Company’s Default Future
The term ‘default future’ was first introduced by Steve Zaffron and Dave Logan in their best-selling book, The Three Laws of Performance. It refers to what is likely to happen in the future if nothing unexpected comes along to disrupt the established, beaten path. In the construction industry, the default future coincides with reaching the productivity frontier—the maximum amount of value a company can create, given the best available resources and technologies.
This productivity boundary is where enterprises who fail to imagine a better version of themselves end up. Why, then, do so many enterprises end up on this trajectory? To an outside observer, the cost of lost opportunities might seem obvious, given the momentous changes taking place in E&C. Studies show that first movers are already reaping the benefits in terms of cost and time savings, as well as asset lifecycle expenses. These productivity gains amount to more than $1.6 trillion, based on a 2016 McKinsey report.
However, for many organizations, the urgency in changing course and implementing organizational change at scale is not immediately apparent, and neither is the strategic understanding of what to change and how to prioritize what needs to change first. A 4-year study of 62 corporate transformations revealed that without a clear understanding of the catalyst for the transformation and the organization’s underlying quest, and lacking the leadership needed to see it through, organizations fail to move past a default future or implement any lasting change that would result in a competitive advantage.
To raise the stakes even higher, it is a long-established fact that in the construction industry, profitability performance is typically linked to the decision-making of top management. Essentially, it is a reflection of the vision and choices made by the company leadership team. This means that top executives in your organization are the driving force behind shifting away from a default future and carving a new path towards the desired, intended future.
By implementing the right changes early on, the construction players of the future are moving beyond the boundaries of the productivity frontier, building new, game-changing value models using innovative technologies that improve efficiency and offer strategic, long-term competitive advantages.
2. Operational Efficiency Versus Strategic Positioning
Let’s reexamine the current status quo in construction: companies continue to operate at current productivity and efficiency levels. The fact is, construction productivity has remained flat over the past decades, with overall costs continuing to increase, driven in part by a shortage of labor and higher materials costs. This is the current paradigm under which all construction leaders operate.
To start moving away from this industry norm and surpass the productivity frontier, leaders must ask themselves fundamental questions about the intended future. How can you escape market competition and choose to run a different race? How do you build a value proposition that renders competition irrelevant?
It comes down to the distinction between operational efficiency and strategic positioning. In economic terms, operational efficiency is achieved by performing the same activities as your competitors, only in a more efficient way. By contrast, according to Michael Porter in "What Is Strategy," strategic positioning implies “performing different activities from rivals or performing similar activities in different ways.” Over the past decades, construction leaders faced with rising costs, labor shortages, and ever-increasing timelines for development projects have tried to answer these challenges by finding ways to improve operational efficiency through cost-saving measures and task reallocation. The goal was to come as close as possible to the productivity frontier—the default future.
In recent years, however, innovative technologies reshaping the construction landscape are generating new sources of competitive advantages and providing opportunities for strategic positioning. Augmented reality (AR) is one of the most promising construction technologies that empowers construction companies to get better performance from apprentices and drive the overall average up, match the continuous tendency for increased safety on the jobsites, and deliver actionable BIM data to the field in a matter of seconds.
Delivering actionable BIM data to the field using Spectar’s AR ecosystem is a strategic positioning choice that creates a unique and sustainable competitive advantage by:
- Increasing efficiency in communications
- Allowing for end-to-end collaboration
- Increasing interoperability
- Developing hassle-free, flexible operations and processes
- Improving documentation and collaboration
- Up-skilling employees
- Creating a company track record of growth and innovation
3. Why Field-First: Profit Centers and Cost Centers in Construction
In economic terms, a cost center is defined as “a department or function within an organization that does not directly add to profit but still costs the organization money to operate” while a profit center, on the other hand, is “a branch or division of a company that directly adds or is expected to add to the bottom-line profitability of the entire organization.”
For construction contractors, the units that generate and maximize revenue are the journeymen in the field. Therefore, we can say that the journeyman is essentially the profit center of any construction organization. In construction as in other fields, investments in profit centers (areas that add directly to the bottom line profit) typically result in much more significant improvements for overall profitability, than investing in cost centers. By implementing AR in the field, construction organizations contribute directly to revenue-generating activities, using technology that is reshaping an entire industry.
4. The Way Forward: Rewriting the Future of Your Organization
So, what is the smallest step your organization can take today to start moving away from a default future, and into the intended, or invented future? What would such a step mean for your organization's value in five or seven years? What about 20 years? Competitive advantages stack up exponentially over time, and COVID-19 is expected to accelerate change that is already occurring at scale.
To survive and grow in this rapidly changing landscape, construction companies must shift from adjusting operations to instead developing a strategic positioning that takes advantage of the industry disruption. Spectar works with construction organizations to develop 100-Day VDC Strategy Plans to improve the productivity of the field by introducing construction technology.
Rewriting the future is just a set of small steps to ensure a successful transformation:
- Step 1: Secure commitment from your team of directors
- Step 2: Assess barriers to implementing construction technology
- Step 3: Develop a comprehensive plan of all the possible VDC technologies
- Step 4: Generate clear communication from execs to the rest of the company about your actions and goals
- Step 5: Engage your field, as they will be the primary users of the new technology
- Step 6: Create employee incentives around tech implementation
The case for innovation is clear: the construction industry is adopting technology at a never-before-seen pace, and AR is directly addressing the profit center. Those slow to adapt are left behind. Seeing these opportunities, however, does not equate to seizing them. Whether your organization surpasses the productivity frontier is entirely your strategic choice; certainly, doing nothing to push past this boundary is also an option. One thing is certain: construction enterprises that move quickly and are able to create strategic advantages that outperform their competitors stand to increase value, gain market share, and reach valuations similar to unicorn start-ups.
Resource and Reference Links
The New Age of Engineering and Construction - McKinsey
Decoding Digital Transformation in Construction - McKinsey
Reinventing Construction through a Productivity Revolution – McKinsey
The Profitable Contractor - Gerald Popovec and Henry Rossi
The Construction Productivity Imperative – McKinsey
Nikolai Suvorov is the CEO of Spectar. With over 15 years of construction industry experience in leadership positions, Nikolai has a deep understanding of the construction landscape and the productivity challenges faced by industry players. His pragmatic approach to driving technology in construction focuses on the economics of construction tech to create measurable ROI for customers by leveraging technology in the field. Nikolai holds a bachelor’s degree in Economics, and an MBA from the USC Marshall School of Business.