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Construction’s Innovation Trap

Construction is a service industry. We build things for other people, and the goal is to build what the client needs in the most cost-effective, time efficient manner possible. If we can respond to client need with enough capacity, skill, expertise, and efficiency, then we enable client success. If we cannot, then we limit client success.

That is why innovation and productivity in construction are so important. They unlock growth. It is also why we should be so concerned with the serious lagging of productivity and innovation adoption across the construction industry. If we fail to unlock innovation in construction, we doom ourselves to lower productivity across the spectrum of industries that construction serves.

The Productivity Gap

Construction’s productivity gap is a well-acknowledged and researched challenge. Over the past several decades, construction’s global labour productivity growth has averaged about one per cent a year, which is just over a third of what the total global economy has achieved. A report from McKinsey, a consultancy, indicates that less than 25 per cent of construction firms achieve the average productivity growth of the economies in which they operate. This lagging productivity drags the whole economy down, slowing overall growth, delaying the delivery of projects, and driving up construction costs.

So, why does productivity and innovation lag in construction? There are several factors at play, and I will highlight four that are problematic in my mind.

Industry Fragmentation

The construction industry consists primarily of small businesses, with more than 94 per cent of construction companies in Saskatchewan having fewer than 20 employees. It is also a highly specialized industry, where skillsets as an electrician are not transferrable to a plumber, a painter, or a drywaller. As a result, it is not unusual to see more than 20 different specialized trade companies working on any given job site. Each company has their own procedures, policies, and work experience. Then, the next time a job is done, a whole new set of companies is assembled—meaning that any lessons learned from one job are seldom transferred to the next one.

This fragmentation means that onsite working relationships need to be developed anew on every job site, and valuable time is lost as workers become familiar with new requirements on each job. At the same time, fragmentation makes workflow management more challenging as one slow trade can cause critical path delays across the project.

Design and Planning Investment

Construction is expensive, and most project owners are always looking for ways to reduce costs. Unfortunately, one area frequently cut is project design and planning. Owners easily understand the importance of investing in the tangible costs of material and building labour, but struggle to understand the value of project planning, too often perceiving it as waste.

The truth is that well-designed and planned projects that engage more of the fragmented construction team earlier on, will be able to overcome most of the productivity challenges and help streamline project deliverables.

Poor Contracts

An excellent way to achieve productivity and innovation is to incent it through contracts that properly align risks and rewards. However, in construction, owners seek to download as much risk onto contractors as possible while providing as few rewards as possible. As construction sites often see layers of contracts to bind all the fragmented businesses working on the site, this pattern repeats itself in contracts between general contractors and trade contractors. It all leads to a culture that seeks to pass off risk, avoid transparency, and that can turn contentious quickly when things go wrong.

Getting better productivity from construction companies requires contracts that effectively share risk. There is no one-size fits all answer here. Contracts need to reflect the procurement methodology used as well as the complexity of the job in question. However, better contracts begin with a collaborative mindset that seeks to appropriately reward the desired behaviours and seeks to balance risk across all parties.

Investment in Innovation

According to The Economist, construction’s profit margins are the lowest of any industry except for retail. As a highly cyclical industry, construction needs to weather lots of slow times, which can often last for prolonged periods. These two factors lead to an outcome where companies manage cash cautiously and rarely invest in technology or innovation that is not well proven and nor demanded from clients. Simply put, few companies believe they can absorb the financial risk of investing in the possibility of future success.

Meanwhile, the fragmentation of the industry becomes a problem here again. Every company may have their own digital platform and their own suite of tech programs. There are new tech market entrants every day, and there is no universally accepted integrated platform for the management of construction projects. If you are a small trade contractor, where would you even begin? How could you choose between a variety of platforms, having no idea what your clients may expect of you from one job to the next?

The Fix

We know that innovation and productivity in the construction sector is vitally important to our whole economy. We know it is lagging. We know some of the reasons for why. Now we should explore a few things that can be done to fix this problem.

A great place to start is to make sure that project owners understand the value of investing in project design and planning. Evidence is clear that spending more upfront reduces costs later. It is the best way to overcome issues like fragmentation, contract misalignment, and productivity delays.

The “best value” procurement approach embraced by the Government of Saskatchewan is a great way when coupled with contracts that appropriately assign risk, to really unlock opportunities for innovation. “Best Value” means that the contract is not awarded just to the lowest priced bidder, but to the bidder who offers the best overall value to the project. Just considering additional value factors means that more time has been spent up front on planning and understanding project needs. Adding a collaborative contractual approach to this procurement will ensure that the contractor is properly incented to achieve the highest level of productivity and innovation possible on any given job.

We need to get better at learning lessons on a construction job site, capturing those lessons, and sharing them with others. Knowledge transfer is a major challenge, and the industry fragmentation coupled with a strongly competitive approach between companies, makes this more challenging.

Government can play a role here by supporting a role for organizations like the Applied Research department at Saskatchewan Polytechnic to support knowledge capture and transfer innovation to the sector.

At the Saskatchewan Construction Association, we are mindful that our members are on the front lines of growth in our province. We want to make sure that they can continue to contribute to a growing economy and help their clients unlock all their potential. Ensuring a construction industry that can lead the way when it comes to innovation and productivity will help us all get there.

Innovation and Technology: A Case Study

The Flynn Group of Companies, a North American company with offices in Saskatchewan, has embraced technology to improve productivity. Flynn has an in-house team dedicated to innovative technology and have made impressive strides with their proprietary apps.

In the Flynn Service division, an app was created to reduce the time from an initial customer call for service to the work being completed. “Our app allows our field technicians to be dispatched when a customer is having a problem—such as a leak. Our staff can see the problem and perform a temporary repair. Then, we provide a report, invoice and follow-up quote within three days through the service app,” says Alan Zych, director, mobile and web applications at Flynn. “With standardization of process and the introduction of digital tools we’ve become more responsive to customers. We were always good at getting out to fix a leak but we needed to improve our follow-up. We’ve gone from 30 days to under three days, and improved customer service at the same time.” Today, the app handles tens of thousands of service calls a year and has greatly improved overall productivity.

Flynn also introduced an app to track daily production—the Field Reports App—that allows site foremen to upload information and photos directly from a tablet or mobile phone. Photos are uploaded to a central site, and accessible easily when needed. The app also tracks the weather to allow for better planning for adverse weather conditions. “We can now adapt better to the weather, for example during high winds. With our app, we can address safety issues and secure people and equipment far sooner than before.”

Flynn’s innovative technology has the following goals in mind: improving customer service and reducing the amount of non-billable, non-productive time while providing better information to everyone who needs it on the job. Meeting those goals leads to increased sales, greater revenue, and happy customers. “Every efficiency we find through technology is better for everyone—the company, the team and most importantly our customers,” says Zych.

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