Facing Declining Productivity, Engineering & Construction CEOs Look to Tackle the Industry’s Innovation Paradox

As everyone in the industry by now knows, Construction has a productivity problem. The bad news is that it may be worse than people in the industry generally think. Potentially worse for the industry, others in the broader economy are starting to notice and to view the industry as a bottleneck to achieving broader economic and societal goals. Whether the industry receives that broader scrutiny as positive or negative remains to be seen.  Last spring, Austan Goolsbee, a man under consideration to be the next vice chair of the Federal Reserve, along with his colleague, Chad Syverson, presented a paper entitled “The Strange and Awful Path of Productivity in the US Construction Sector” at a National Bureau of Economic Research Conference. In it, he argued that, not only has productivity in the construction industry stagnated since the 1950s in the United States as well as in other parts of the world, but it has likely actually declined – and not by a small amount but by as much as 40%. He points out that this is a staggering figure, considering how much productivity has climbed in the rest of the economy during that period. It isn’t as though the industry hasn’t been trying. In the past decade we have cataloged billions of dollars invested in the development of new technology, techniques, and materials designed to improve the industry’s performance. Despite the billions of dollars of investment and all the new positions created to support the adoption of those new solutions, it appears that the industry’s results are, at best, stagnant. This is what we are referring to as the Construction Industry’s Innovation Paradox, and it will be the subject of much debate when we convene the industry’s leading CEOs in Chicago next week for the BuiltWorlds Industry CEOs Forum.

Economists Continue to Look for the Roots of the Industry’s Productivity Decline

There have been many theories about the roots of productivity challenges in the industry. Mssrs. Gooslbee and Syverson pointed to and largely debunked theories of measurement problems and  lack of capital investment. They also touched on questions of the industry’s possible lack of IP relative to other industries.  In the end, they drew no clear conclusions. So what about the actual industry’s leadership? Where do they see the bottlenecks? Many of the engineering and construction industry’s most technology and innovation forward CEOs are preparing to gather in Chicago this month for the BuiltWorlds CEO Forum, and we have been asking them ahead of the event, what they think.

Meantime, the Pressure to Find Solutions Continues to Mount

Arguably, the pressure to address the industry’s productivity challenge has never been higher.  Even as industry leaders continue to pour money into emerging technologies and other innovations and seems poised even to increase spending, the headwinds to adoption in the industry are strong, and we see evidence of frustration and fatigue within the ranks of the industry’s organizations. At our E&C Tech Adoption Leaders Forum meeting last month during our Venture Conference, we heard discussions about how both industry adopters and solution providers were struggling to figure out how best to test all the technology coming into the market.  On the one hand, there is a concern that the industry may have too much technology that just is not mature enough for the industry to adopt, while on the other hand, there is concern that the industry is just not equipped for the task. Persistent labor shortages and dismal demographics only exacerbate the challenge.  At the same time, the industry must convince both clients and suppliers to embrace change which can also be a challenge because some changes in approach require clients to assume added risk and buy-in from an entire project team of designers, specialty contractors, and suppliers that may not ever work together again after one project.  At the same time, in the broader economy, influential people like Goolsbee are noting that the industry, accounting for more than 4% of GDP, is key drag on the overall economy. 

Are We Just Throwing Money At The Problem? Industry’s Leadership Confront the Paradox of Mounting Investment with Diminishing Results

So the industry’s leadership, and the industry, itself, faces a paradox and a dilemma. While insisting that the industry’s productivity has been in secular decline for decades, economists seem at a loss to explain why.  This means that all the investment that has been made in trying to improve productivity over the past decades may not actually be achieving its goals. It is possible that it may even be counterproductive.  At the same time, seeing the deepening crisis in productivity, industry leaders are only more committed to invest more in new technologies and approaches. Will these added investments finally be enough to break the industry’s productivity logjam, or does the industry need something else to address its productivity decline?  In the words of Mr Goolsbee as he finished his address, “further research is needed.”