The Garrison Report #2009-11


Trends Impacting the Industry

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Gary Hamel and C. K. Prahalad wrote in Competing for the Future, "If a top management team cannot clearly articulate the five or six fundamental industry trends that most threaten its firm's continued success, it is not in control of the firm's destiny." No one has a crystal ball to predict the future, but that's not the point. One must recognize the trends and understand the impact they are having on the industry because only in this way can companies hope to develop appropriate strategies. There is no magic bullet to deal with all trends. Each company will be impacted differently and will, therefore, have different options. The aim of this report is not to explain how you should address these critical trends, but merely to identify and explain them.

Increased emphasis on value

There is a growing interest in performing life-cycle cost analysis for building designs. Due to the rising costs of energy and the fact that a building's energy consumption cost represents more than 25 percent of its lifetime cost, the movement toward energy conservation is certainly gaining momentum. The opportunities in this area to provide value to clients are almost endless. For example, it could be as simple as the direction the building faces, the type of building materials used or use of power-generating solar panels.

However, life-cycle costs are influenced by more than energy consumption even though it is the largest single cost factor. Maintenance and alterations account for almost 50 percent of the lifetime cost of a building. Therefore, using building materials that are relatively maintenance free can reduce life-cycle costs, and creating designs that more readily adapt to the client's changing needs can reduce alteration costs. Construction costs represent only about 11 percent of the total lifetime costs, compared to the other lifetime costs of energy consumption, maintenance, and alternations, which total approximately 75 percent of a building's lifetime cost. It's a mistake to focus on only the front-end construction costs because reducing life-cycle costs can save the equivalent of the construction costs over the life of the building.

Outsourcing

Outsourcing has been a general trend in all industry for decades as companies focus more and more on their core functions. The construction industry is no different, but one significant addition is the shift to more predesign outsourced planning. The result has been the growth of program management. This isn't another layer of supervision over the contractor, but is a process where an owner who has an ongoing building program can standardize the process instead of dealing with each project as a separate entity. By standardizing the building designs and equipment, the owner can realize substantial savings. Southwest Airlines has become famous for the cost savings it has accrued from standardizing its fleet of aircraft. Building owners can learn from Southwest's experience and take a more strategic approach to their construction planning.

This process is changing the conventional roles of the various stakeholders. For example, the construction industry may be required to provide the funding source for the projects it constructs. In the public section, the use of private-public-partnerships appears to growing due to the shrinking availability of government funding.

Proactive leadership

Unfortunately too many people think that leadership is about controlling, influencing, motivating, or changing others. In reality, leadership is about perception. It's the ability to examine existing conditions, including the capabilities of resources, anticipate what that means for the future and align those resources to achieve the maximum results possible. Jim Collins referred to this in Good to Great as getting the right people on the bus in the right seats. Clients are trending toward demanding more and more perception by their construction team. Simply stated, clients want their construction team to look ahead to avoid claims, disputes and problems. This will place a premium on experience and the ability to perform effective project risk analyses.

Collaboration

Business experts such as Tom Peters and Peter Drucker have been arguing for years that business needed to remove the walls between activities to avoid working in silos. The construction industry is finally beginning to see the light. The typical design-bid-build approach to construction maximizes the silo effect, but the increasing reliance on integrated project delivery methods is shifting the industry toward greater collaboration. The emphasis during this approach is to work together to maximize innovation and value to the client. Those companies that still have the mentality that they can win at the expense of others will find the new world a difficult place to survive. There is no such thing as win-lose because it will eventually morph into lose-lose. The only truly sustainable option is to create a win-win environment.

Technology

Technology is here to stay. BIM and real-time estimating systems are providing increasing benefits to the industry. These tools are essential to deliver the maximum value to clients. However, maximizing the benefits from these and tomorrow's technological advances will require collaboration among all the stakeholders.

Clearly all of the above trends are related. Successful contractors of the future are not going to be able to cherry-pick those they want to pursue, but they are going to have to adapt to the new world of Construction 3.0. The benefit is that these trends can help create a better industry where performance is improved with better value to the client and fair profit for the construction team.

 

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