As customer preferences evolve and change, businesses across all industries are faced with the pressure to innovate and offer the next best thing. Within the construction industry, we have watched the pace of production and innovation increase minimally over the years, which raises concern as to whether our industry is ripe for disruption.
First, let’s define disruption. “Disruptive Innovation” was first coined by one of the most influential business theorists in modern history, Clayton Christensen. Christensen defines the phrase as… “a product or service that takes root initially in simple applications at the bottom of a market, and then relentlessly moves up market, eventually displacing established competitors”.
This sounds really complicated. In practice, disruption of industries is the result of innovation which creates a new market or value proposition and displaces traditional and existing industry leaders and brands. Another point Christensen notes is that disruption generally comes from outside the industry. Interesting.
Take Blockbuster and Netflix for example. Blockbuster, worth $5 billion in 2002, stuck with their brick-and-mortar business model of renting video tapes rather than adapting to other entertainment delivery methods, causing them to file for bankruptcy in 2010. On the other hand, Netflix, once a mail-order video rental model, adapted by using evolving technology to stream its content to consumers. By the way, Netflix is now worth $147 billion.
So, what factors could cause this same type of disruption within the construction industry?
There are a number of factors that could contribute to disruption within our industry. A major one is the continuous shortage of skilled labor. However, this has been a popular topic of discussion since I started in this business, so why is it different this time? First, the supply of immigrant labor is slowing. Our industry has been held up by hard working immigrant labor for many generations from all over the world, from Irish and other European, Asian and African ethnicities and more recently to Hispanics. Without immigrant labor to back fill the aging construction workforce, where will we turn? Note that surveys of high school students show that construction generally ranks very near the bottom of the list of desired careers.
Another factor is the lack of productivity gains within our industry. Despite better products, tools and equipment, production gains have been nearly non-existent for decades. This may be caused by increased regulation coupled with poorly trained workers resulting in lower personnel skill levels, and overall fragmentation of the industry. This lack of increase in productivity gains could make our industry interesting to technology companies and Wall Street looking for an investment opportunity.
Finally, BIM (Building Information Modeling) / Virtual Design has finally made it possible to convert the thousands of pages of documents it may require to build one building, into a single model. If all participants in the building process, including Architects, Engineers, Contractors, Subcontractors, Suppliers and Interior Designers, are working from the same file, clashes will be detected, conflicts will be eliminated, and change orders will be left to varying site conditions or changes to owner desires. Most importantly, this will allow for much more off-site manufacturing of pre-fabricated building components. Think Ikea.
So, do I think our industry will be disrupted? Will the traditional players be largely eliminated?
No. But I do think that if companies don’t dramatically increase their focus on innovation, they will likely become irrelevant.
At Bozzuto, we are investing heavily in Virtual Design and refining an internal process that will make project outcomes much more predictable, reducing waste, changes and uncertainties while saving costs. More to come on this and other ways we can innovate the construction process in the future…