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Construction needs a systemic change

Author: Otto Alhava
Published: 11.11.2020

There have been plenty of attempts to fix construction. First, we believed in BIM, then, in alliances and now, the latest, in digitalization. We have moved on to using 3D designs just like other industries. We use a wealth of different mobile applications for different purposes, from safety observations to quality errors or flaws. Paper printouts are being replaced with the digital. Lean thinking and methodologies have been implemented, provably, since 1994. But the behavior of people remains unchanged, processes haven’t improved much, and the profitability hasn’t exactly skyrocketed.

It’s typical for a systemic problem that no single change or company – not even two – can fix it alone. Also, there is no silver bullet, no magic application that you can just implement to make you more profitable. The problem is in the underlying structures, and fixing it requires an industry-level change that we can only reach together, in phases, to cause a transformation from the current, prevalent operational models to new standards. Transformation also inevitably comes with creative destruction. Therefore, it’s logical to assume that it is us, no one else, who can systemically fix construction, together. This is also supported by the observation that the pace of the change in our industry has accelerated. The alliance model took 4 to 5 years to digest and now takt production is becoming a new normal after only a few years.

Construction is complex per se, and projects challenging by nature. What are the root causes of our systemic problem, what are the effects, or just issues that surface because of the underlying problem? What are the systemic layers within which we should examine our operations? What do we see when looking at the company level and business models, or the process level?

Has construction regressed into a zero-sum game where I earn more only if you earn less?

At the company level, we look at the business models in the construction industry, and how they’re lacking development. First of all, companies don’t invest in developing construction, apart from some marginal efforts. Don’t we have competition, a true possibility for growth, and add to the overall pot that we share? In other words, has construction regressed into a zero-sum game where I earn more only if you earn less?

We builders often get blaimed for how easy it is to enter the industry – hands and a man tend to make a handcraftsman – but what is this a sign of? The industry has made resourcing as efficient as possible by dividing builders into two divisions: main contractors and subcontractors. This allows moving workers efficiently from site to site. There may be issues that roadblock a craftsman on one site, but the works can continue on another. It’s logical that the prevailing business model of subcontractors is overbooking the resources because they’re forced to by how main contractors operate, that is, by the weaknesses in schedule management in projects. Now the business model of resource overbooking sets our eyes away from how efficiently a single worker can do his or her work, that is, the pace. It’s more important to organize workers between various sites by time-slots than focus on enabling each single worker completing their tasks efficiently, in a systemic manner – let alone ensuring that projects progress efficiently.

Otto Alhava at a construction site

This business model solution also has two effects that impact the entire industry: subcontractors have no guarantee for the works to continue in the same manner even on different sites of the same main contractor. In addition, the prevailing model to divide a cost-modeled entity into procurement packages and purchase it from subcontractors with materials included, adds to the contractor dependency. In practice, main contractors purchase a black box and try to delegate the quantity, quality, cost and schedule risks to the subcontractor, which then raises the question of value creation or purpose of the main contractor in the value chain. The black box purchasing comes with many negative side-effects, even if it really should actualize the market force: the best subcontractors should flourish and specialization should improve profitability and value of work. In reality, however, the profitability has been flat whereas throughput times have gotten longer. Logistics hasn’t significantly improved, tolerances aren’t managed, level of pre-construction hasn’t grown, and so on. This is all to say that the market force is not working as we could expect, from the business model viewpoint, between the main contractors and subcontractors.

It is us who can systemically fix construction, together.

What keeps the main contractor from offering a better interface, from the business model viewpoint, for its subcontractors or the pre-construction industry? On the process level, we can see at least three root causes to this in concrete construction: status of designs and plans is ambiguous, pre-construction quality and sloppy tolerances cause issues and the transaction costs of the production phase are high.

By opening these three root causes, we shed some more light to our systemic problem. We, as an industry, lack a standard or a method to measure the level of details in our designs. Of course, there can always be errors in designs, but now, there are often shortages in details to start with that must then be solved on the site. Imprecise designs and plans inevitably increase the need for on-site improvisation but the current building processes fail to inform the main contractor, let alone designers, about this. It doesn’t get any easier with the fact that precast elements often come with quality defects that are difficult to notice on the site on time. And noticing isn’t made any easier with the fact that the prefabrication and installation tolerances of the elements are wide compared to the indoor phases and the requirements there. We don’t have a cost efficient way to measure the erected frames, so we don’t actually know how many measurement defects they contain. Getting that information, in turn, is next to impossible due to the fact that construction comes with high transaction costs, that is, the cost of procuring, delivering and placing materials or work – as we all know, running around the site is not cheap. In addition to these, we also have a 4th problem, earning paradigm cost by the business model level, which keeps us from efficiently solving especially the problem with the transaction costs – but this is a whole different topic which I’ll spare for later.

Takt production enables us to end the negative circle. First, in takt production, we are first and foremost interested in allowing subcontractors to start their works exactly when planned and agreed, and the subcontractor can have their whole team working on the site at that time. Reduced batch sizes force us to immediately solve design shortages or unclarities on whether a floor or an area is free for works to start. Takt production also solves the transaction cost issue, since real-time situational data becomes a precondition for management, and it can’t be reached without digitalization and mobile tools. Digital takt production makes the design shortages and the improvisation needed on the sites visible. It changes the process to produce information, learnings, that helps us make designs that are easier to build.

We must start investing on developing construction, in a shared manner, and understand that a strategic behavioral change on construction sites is not optional. The fast digitalization that has already started on sites enables also the next step, that is, managing the delivery chain with the help of digitalization. For that, however, we need common industry efforts, as it requires us to implement a suitable, shared standard, such as GS1. A company can digitize its sites but only inside it’s safety fences. The supply chain is already a part of the construction ecosystem, forming a network of companies. As a network, we will also find our success – together.

Otto Alhava - author - Construction 2.0

About the author

Fira CTO Otto Alhava knows the challenges of the construction industry, as well as the ins and outs of Lean thinking, BIM and mobile tryouts, but instead of focusing on them he comes with a passion for developing the productivity of work and an in-built need to not just understand but also solve the productivity problem of the construction industry – systemically. His background in software and telecommunication businesses give him great basis for this, since the issues faced there are systemic in nature, as well.

Otto has a vision on solving the building productivity issue in collaboration, making construction sites of tomorrow a valued work environment and buildings valuable for their users, all with a reduced carbon footprint.

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