The construction productivity paradox

Construction must adapt to technology and embrace new business models if it is to drive up its productivity  says Simon Murray.

Simon Murray
12 July 2015

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Productivity

Business

Productivity is the output the economy generates for every unit of labour it uses and it is causing concern for the new Government.  For many years productivity in the UK economy grew at a steady rate of 1.8% a year. 

Then in 2008 the growth stopped and has remained flat ever since.  Productivity drives growth in the economy and when it stops improving, the obvious way to sustain growth is to import labour through immigration.  Which is another matter concerning the new Government.

"If we all relied on our procurement managers to buy books and DVDs for us, Amazon would surely have failed."

An article on the NBS website (Ref.1) uses data from the Office for National Statistics to compare productivity in the construction sector with that in the UK economy.  It concludes that “the construction industry hasn’t seen any significant growth in productivity in the last 20 years” and goes on to suggest how the industry might use new technologies like BIM to improve productivity in future. 

Whilst this is helpful, it doesn’t explain why construction has lagged behind the rest of the UK economy for so long.  We have access to the same skilled people, technologies and capital.  Why haven’t we performed like the most productive sectors in the economy?

The answer to this question might be found in a recently published book (Ref.2) by US academics Erik Brynjolfsson and Andrew McAfee who work at the Center for Digital Business at MIT.  The book is about the impacts that digital technologies have on growth, employment and incomes.  And buried away in Chapter 7 is an interesting analysis of the way in which general purpose technologies (GPTs) like the steam engine or electricity influence productivity.

"Our existing institutions, organisations and project management practices are so entrenched that they have been able to resist change and adapt the new technologies to the current business model."

The evidence suggests that it can take ten or more years for the effects of a new GPT to be felt in the economy.  This is because it takes time for companies to integrate the GPT with other technologies and develop new, more efficient business processes. 

When electricity became available in the late 1890s factory owners initially replaced their steam engines with large electric motors.  It took another twenty years for them to build new factories laid out to take full advantage of the ease with which electrical power can be distributed.  And when that happened productivity more than doubled as new production methods were developed.

The Internet has been the dominant GPT of our age.  When it became available in the early 1990s it was mostly used by academics and businesses to communicate through email and to share text files.  It wasn’t until the 2000s when broadband replaced dial-up modems and ordinary people could access brochures and order products online that the full impact of the Internet was felt.  Since then it has transformed productivity in businesses from retailing and publishing to banking and insurance. 

And there is no sign of these improvements slowing down any time soon.

"We have access to the same skilled people, technologies and capital.  Why haven’t we performed like the most productive sectors in the economy?"

So why haven’t the Internet and digital media transformed business processes and improved productivity in the construction industry?  The reason is that our existing institutions, organisations and project management practices are so entrenched that they have been able to resist change and adapt the new technologies to the current business model. 

Commercial managers that once sent suppliers threatening letters now send them threatening emails.  And designers still use technologies like BIM to produce traditional drawings rather than to collaborate online with suppliers.

At the centre of this barrier to change are our established procurement practices.  As long as procurement managers persist in inviting contractors to tender to provide a pre-designed and specified solution, it will be almost impossible for innovative companies to offer alternative products that could provide a better solution at lower cost.  If we all relied on our procurement managers to buy books and DVDs for us, Amazon would surely have failed.

The article on the NBS website is right to point out that Level 3 BIM offers us a route out of this situation into a new era of improving productivity in construction.  But for this to happen, we first have to embrace change and accept that technology should determine how we work together – not the other way round.                    

References

1. https://www.thenbs.com/topics/practiceManagement/articles/uk-productivity_how-the-construction-industry-can-help.asp
2. The Second Machine Age.  Work, Progress and Prosperity in a Time of Brilliant Technologies.  Erik Brynjolfsson and Andrew McAfee.  W W Norton & Co. 2014. 

Simon Murray is a member of Acumen7 and former chairman of contractor Osborne