The Case of Digital Adoption in Construction
“While many US sectors including agriculture and manufacturing have increased productivity 10- 15 times since the 1950s, the productivity of construction remains stuck at the same level as 80 years ago. Current measurements find that there has been a consistent decline in the industry’s productivity since the late 1960s” (quoted in Slowey 2017).
If construction labor productivity were to catch up with the progress made by other sectors over the past 20 years or with the total economy (and we show that it can), we estimate that this could increase the construction industry’s value added by $1.6 trillion a year. This is equivalent to the GDP of Canada, or meeting half of global infrastructure needs, or boosting global GDP by 2 percent a year” (Cowin 2017 & Barbosa et al. 2017).
Construction is an enormous industry, yet is still somehow completely broken: considering that you will be hard pressed to find an entrepreneur or investor these days who doesn’t comprehend how significant the opportunity is.
“Industries that are both highly labor-intensive and localized, such as construction, leisure, and hospitality, also tend to rank lower in usage, notably in the way they conduct customer transactions” (Manyika 2015).
Why is digital adoption in construction so low?
We have great companies that are laser-focused on solving problems in construction who have built outstanding products that are thoughtfully designed based on direct customer feedback.
Mobile technology is ubiquitous, in every pocket on a construction site and in every site office. Nearly all solutions are built with simplicity and usability as a priority.
“Below the “enterprise” part of the market, tech penetration is still low, especially at the field level” (Prepared Mind Construction Technology 2018).
At Harbr, we believe in order to solve adoption and engagement of the construction industry at scale the value must apply equally to the entire ecosystem, not each segment separately.
The construction ecosystem is a complex and fluid network of interconnected businesses that all rely on each other to be successful. So why do we silo off each partner into their own black-box?
“The major approaches in unlocking supply in these regulated industries include:
1/ Making discovery of licensed providers easier
2/ Hiring and managing existing providers to maintain quality
3/ Expanding or augmenting the licensed supply pool
4/ Utilizing unlicensed supply
5/ Automation and AI” (Li & Chen 2019).
We can go into detail on each of these great points but the one we are most focused on is “expanding or augmenting the licensed supply pool”, with a vision towards “automation and artificial intelligence (AI)” (Li & Chen 2019).
What is most significant in commercial general construction is that its operators are highly localized. With about 750,000 construction companies in the US 121 of the top 400 operate exclusively in general construction, with just 7 in the top 100 breaking $1BN in total revenue (Engineering News-Record 2018).
The top performing GC with $2.9BN in total revenue from exclusively general construction did so by taking on 5,014 new contracts. That’s an average contract value of $578,380. In contrast the two closest competitors (by revenue) with $2.9BN and $2.6BN, did so by taking on 2,118 new contracts with 68% in general construction, and 63.5 new contracts total with 0% in general construction respectively.
In terms of operating exclusively in general construction this GC’s closest competitor took on 1,000 new contracts and generated $1.6BN in total revenue.
With $1.3TR in new construction put in place in the US each year, and more specifically $434BN in non-residential private construction (a subsector that almost exclusively relies on local operators but executes at scale across many locations), marketplaces are created at each service intersection, by each service provider, generally in the form of pre-qualification and invitation to bid mechanics.
This is all just to say that discovery in commercial construction is spotty at best.
“Over time, nearly all independent professionals and their clients will conduct business through the market network of their industry. We’re just seeing the beginning of it now” (Currier 2019).
However, in construction, these marketplaces are slow to form, rarely expand or iterate, and are almost completely void of any quantitative performance data.
Interconnected with other analogous services (like architects, of which there are about 110,000 according to the National Council of Architectural Registration Boards) fluid collaboration is critical to achieve the goals of the client. Interestingly enough, architects are getting better at providing their highly regulated service through mobility tools (National Council of Architectural Registration Boards 2017).
“For most complex services, multiple professionals collaborate among themselves—and with a client—over a period of time. The SaaS at the center of market networks focuses the action on a project that can take days or years to complete” (Currier 2019).
Each sector across Architecture, Engineering, and Construction (AEC), and all of the other critical providers, vendors, consultants, and suppliers absolutely need specialized SaaS that help make their internal operations, collaboration, and CRM more efficient.
There’s a proliferation of ERP in construction which makes internal planning efficient, but the uniqueness of construction is that there are many partners involved in the project.
It is our perspective that these silo’d efficiencies may win the battle but not the war. The war is won when every partner on the project is able to leverage each other’s efficiencies, and none more so than the owners themselves.
Expanding or augmenting the licensed supply pool, considering the network effects of highly interconnected and massively clustered industries and sub-sectors, with leveraged efficiencies is what we believe to be the catalyst of digital adoption across the construction landscape at scale.
Stay tuned as we further decompress barriers in construction productivity and technology. If you’d like to dig into this in more detail please find me at email@example.com.
Barbosa et al. (2017). MGI Reinventing Construction: A Route to Higher Productivity. Retrieved from: https://www.mckinsey.com/~/media/McKinsey/Industries/Capital%20Projects%20and%20Infrastructure/Our%20Insights/Reinventing%20construction%20through%20a%20productivity%20revolution/MGI-Reinventing-construction-A-route-to-higher-productivity-Full-report.ashx.
Cowin, Laurie (2017). Construction by the numbers in 2017. Construction Dive. Retrieved from: https://www.constructiondive.com/news/construction-by-the-numbers-in-2017/513743/.
Currier, J. (2019). The Next 10 Years Will Be About “Market Networks”. Retrieved from: https://www.nfx.com/post/10-years-about-market-networks.
Engineering News-Record (2018) ENR 2018 Top 400 Contractors 1-100. Retrieved from: https://www.enr.com/toplists/2018-Top-400-Contractors1.
Li, J & Chen, A. (2019). What’s Next for Marketplace Startups? Retrieved from: https://a16z.com/2018/11/27/services-marketplaces-service-economy-evolution-whats-next/.
Manyika (2015). Digital America: A Tale of the Haves and Have-Mores. Retrieved from https://www.mckinsey.com/~/media/McKinsey/Industries/High%20Tech/Our%20Insights/Digital%20America%20A%20tale%20of%20the%20haves%20and%20have%20mores/Digital%20America%20Full%20Report%20December%202015.ashx.
National Council of Architectural Registration Boards (2017). Number of U.S. Architects Holds Steady, While Professional Mobility Increases. Retrieved from: https://www.ncarb.org/press/number-us-architects-2016.
Prepared Mind Construction Technology (2018): Base 10. Retrieved from: https://base10.vc/wp-content/uploads/2018/09/Base10_Prepared-Mind-Construction-Technology_vF.pdf.
Slowey, Kim (2017). Weak productivity crippling global construction industry growth. Retrieved from: https://www.constructiondive.com/news/weak-productivity-crippling-global-construction-industry-growth/437249/.
Also published on Medium.
Also published on Medium.