Building (Together in) the Future - The Coming Inflection Point
The clear signal at the recent Calgary Real Estate Forum is that the burgeoning cost of construction continues to hamper growth in the industry. Yet, few in the industry are adjusting their strategies to thrive in a rapidly changing world that is very different from the past. Here is why.
Context and history matter this time around. Using high interest rates to combat inflation is nothing new. However, the present context and underlying causes are crucial to seeing that we are in for a big wake up call. Here are two that would be on a top 10 list:
Productivity in the industry has been in decline for decades (indicative of a terminal illness) and increasing costs just adds more fuel to the inflationary cycle; if productivity increased say 10% it would be a good start at creating a hedge against inflation and likely help quell escalation.
The industry is more fragmented and heavily siloed than ever before. 99.90% of companies with fewer than 50 employees deliver 80% ($8 Trillion USD) of the market value. That leaves 0.10% with more than 50 employees delivering the remaining 20% ($2 Trillion USD).
We are now fast approaching an inflection point. The Design & Construction Industrial Complex is heading into unchartered territory. The inflection will be driven by a dense maelstrom including lenders (rightly) digging their heels in with borrowing conditions never seen in decades and likely not to ease up any time soon and the blinkered viewpoint that we will just get through another trough to crest again no different than the last 200 years.
Not this time.
At that inflection point we will reach a euphemistic “fork in the road” with two choices; we can either maintain (and go in decline) or disrupt (develop completely new business strategies) the status quo but we cannot ignore the need for a wholesale industry digital transition. The industry must fully internalize an unequivocal digital transition without delay and then externalize that transition to successfully plug into interdependencies such as the IoT, AI and Fintech. Change is never linear, and it won’t be perfect. But it is better to be generally right and move ahead, than prescriptively correct and go nowhere. In doing so, we can go from silos of failure to cylinders of excellence.
Design + Construction companies that had not implemented digital transitions prior to 2019 are having profound challenges here in 2023. They likely find themselves struggling with both lagging underlying IT/ OT technology stacks and pandemic-driven cash constraints making it difficult to catch up to early disrupters. Rapid and massive technological breakthroughs are imminent. While this may not seem negative - sudden, and unexpected breakthroughs (think Moore’s Law being applied here) both internal and external to the industry will disrupt traditional Design + Construction practices in ways never imagined. This will leave the door wide open for introducing new, unconventional ideas or actions to challenge and alter the current situation and dismantle the existing archaic 200-year-old system. This will involve reforming processes, systems, procurement, payments and/or practices to bring about true innovation (not incremental) and meaningful progress to reduce the cost and time to create infrastructure globally.
It could be posited that market forces both internal and external to this industry will create the groundswell for a major tectonic shift that releases a tsunami. So, ask yourself; will you head to the hills, or will you hang around and gather the fish?
Many industries have disappeared, or significantly declined in the past (travel agents, bookstores and DVD rentals), and the lesson here is that economic conditions, technological advancements, and consumer preferences constantly evolving are the prima facie on the industry and not the other way around. This should not be lost on the Design + Construction industry, for, we will not recognize this industry a decade from now.
“Most evolving lineages, human or otherwise, when threatened with extinction, don't do anything special to avoid it” (George C. Williams). We can avoid extinction if we make the right choice in wasting no time in developing completely new business strategies. Be vigilant and be ready for the inflection point coming for Design + Construction. You can choose to develop tools for survival or have those same tools used against you to create your demise. The choice is clear - disrupt the status quo because we cannot afford to do otherwise.
Until next time,
Allan Partridge
