The construction industry is massive and complex but ironically the fact that it is made of mostly small, simple businesses may be its achilles heel.
I've been thinking a lot about this, and really enjoyed this episode of Freakonomics, and although the episode was titled “Why Is It So Hard (and Expensive) to Build Anything in America?” it could just as easily be Australia. The podcast inspired me to delve deeper.
So what does Freakonomics say about Construction Productivity? The episode suggested that the construction industry's lagging productivity can be distilled into the following key factors:
Industry Fragmentation
The dominance of small firms leads to inefficiencies and makes it hard to adopt new technologies on a large scale. This fragmentation results in a lack of standardisation and difficulties in implementing innovative construction methods industry-wide.
Regulatory Constraints
Strict and varied local regulations on zoning, building codes, and land-use significantly hamper the ability to introduce and scale productive technologies and methods, such as modular construction, that could enhance efficiency.
Dependence on Manual Labour
The industry's reliance on traditional, labour-intensive construction methods limits opportunities for productivity improvements. This approach is vulnerable to delays and increased costs due to external factors like weather conditions.
Low R&D Investment
Compared to other sectors, construction invests minimally in research and development, slowing the pace of innovation and the adoption of technologies that could revolutionize productivity.
Cultural Resistance to Change
A deep-seated aversion to new practices and technologies pervades the industry. The perceived high risks associated with deviating from traditional methods deter experimentation and adoption of potentially more efficient alternatives.
Why is construction the only industry going backwards? It's a complicated industry stubbornly hard to systemise, hard to prefabricate and wound up in layers of red tape.
Here is my take on the things that are a huge drag on the industry and cause systemic and persistent lack of productivity
Generally I agree and can relate to a lot of the things in the episode - the thing I have never found any evidence that there is any more resistance to change in construction than any other comparable industry, sure when you compare construction to the tech industry it does seem backwards but when you compare construction to legal, accounting, medicine - it’s not clear that it is any more resistance to change or innovation. I have always thought that it was the technology made available to it rather than the people that were the problem.
Misaligned Technology: A Square Peg in a Round Hole
The construction landscape is predominantly made up of small companies, with 56% of the sector's revenue and two-thirds of its workforce residing in these enterprises. The hope that advanced technology, successful in larger corporations, will naturally trickle down to these smaller entities is a slow and inconsistent process. While tools like CAD have made their way down, they're not without their challenges, including steep learning curves and complexity, underscoring a broader issue: much of the technology isn’t tailored for the smaller scale and unique needs of the majority within the industry.
The Standardisation Stalemate
A glaring void in the industry is the absence of uniform standards. Even basic terminologies—carpentry or woodwork, plasterboard or gyprock—lack consensus. Although standard methods of measurement exist, their complexity and impracticality lead to widespread disregard. This lack of standardisation and systematisation breeds inefficiency, complicating collaboration and innovation.
Chasing Misguided Innovation
The industry is dazzled by innovations that, while exciting, offer limited practical utility for small building companies. Ventures into VR, AR, robotics, and prefabrication capture the imagination but fail to address the pressing productivity needs of the broader industry. Innovation, often spearheaded by larger companies, tends to gravitate towards "shiny" technologies rather than focusing on universally accessible productivity enhancements.
Innovation Funding: The Enterprise Bias
Innovation funding and incentives are disproportionately aligned with the interests and capabilities of large enterprises. These entities not only have the resources to innovate but also to navigate the complexities of government grants and tax incentives. This creates a technological divide, where solutions designed for teams within larger organisations fall short for solo practitioners or smaller teams, further exacerbating the productivity gap.
Regulatory and System Complexity: The User-Unfriendly Maze
The construction industry is ensnared in a web of regulations and systems that, while intended to address societal concerns, often overlook the needs of its primary users. Designed by committees and administered by bureaucrats, these frameworks add layers of complexity without enhancing efficiency or productivity. The result is an environment where the rules are more about compliance than facilitation, hindering rather than helping those on the ground.
A Path Forward
The path forward is to implement a productivity commission style approach to construction. The only thing is that the productivity commission like a lot of analysts and tech businesses will privately admit: “We really don’t understand construction”
My own contribution is to build a solution for small building companies, the people and segments I know very very well. Buttress BuildOS is set to provide a simple, standardised operating system for small building companies. Built from scratch to address their needs and finally taking an evidence based approach to small building company systems. Please sign up for the mailing list here.