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How Construction Avoids the Innovator’s Dilemma and Improves Productivity

Large organizations have enormous productivity potential at their disposal, but they deliver only a small fraction of that potential. The amount and type of productivity impact that a company achieves directly relates to how the organization approaches friction and the way it fosters, selects and funds innovation.

Thought leaders in the construction industry are complementing the time-proven model of top-down execution with a new brand of entrepreneurism that focuses on teams, empowerment and accessibility of information.

Historically, industries such as manufacturing and technology transformed with radical change in an attempt to tackle The Innovator’s Dilemma. Author Clayton M. Christensen describes the challenges that established companies and industry leaders face when adapting to change over time.

The construction industry can easily relate. As a company grows in size and market stature, keeping existing projects competitive and satisfying customers’ needs can easily consume all of its resources, leaving the door wide open for competitors with disruptive offerings. The dilemma Christensen poses is more than just a possibility—it is the most likely outcome for most businesses. Large organizations across every industry frequently get stuck reinforcing the behaviors that made them great, instead of investing in new ideas that keep them competitive.

Many of the core ideas that helped industries outside of construction thrive were derived from the concept of continuous improvement made popular by the American engineer, W. Edwards Deming. His philosophy of empowering teams to make changes to their work environment and process have had a significant effect on companies such as Toyota, Google and many others.

These ideas are beginning to see new life with lean construction practices and researchers like Lauri Koskela from the Lean Construction Institute. The largest study conducted in the past decade in the United States highlighted significant budget and change order savings when applying a lean strategy. Deming’s approach and offshoots share a belief that the best way to remain competitive over the long term is to promote, foster and invest in entrepreneurial productivity in all areas of the company. Construction companies are recognizing that productivity is not limited to a select few senior leaders at the top—it is open to all employees.

The concept of productivity potential is a critical, but often overlooked, element in answering the questions on how to improve it. Productivity potential within companies can be defined as the combination of its human, intellectual, physical, market, leveraged and financial resources. As a company scales, its productivity potential grows along with it and, more often than not, so does its need for innovation and change. Figure 1 shows two different execution models starting from exactly the same productivity potential, but it produces dramatically different subsets of actual improvement because cultural, organizational, technical beliefs and practices result in various models.

Figure 1 also shows that no matter what model is used for execution, the actual impact is usually less than the potential. Friction can be traced back to several factors in construction: regulatory complexities, contractual frameworks, inefficient supply chains, lack of automation and prefabrication and human elements. Inefficient processes, lack of clear metrics, information and communication asymmetry, project complexity and a scarcity of skilled workers are some of the costs associated with friction on the jobsite.

Workers are simultaneously the group with the largest friction in an organization and the group with the lowest barrier for immediate progress. It’s estimated that as much as 40 percent of a company’s productive power is lost to organizational drag.

Look to Toyota and Google for Inspiration

Take a deeper look at the two companies that credit Deming’s concept of continuous improvement. For Toyota, the most important part of its digital transformation started in the 1960s when it struggled with a top-down management style that resulted in poor vehicle quality and low productivity of teams. To become competitive and increase productivity, Toyota placed “Kaizen” (continual improvement) in the heart of the Toyota Production System. This empowered all employees to participate in defining and adjusting their process, but this approach was counter to contemporary wisdom.

At a time when most of Detroit was running on a top-down approach to quality control, Toyota encouraged workers to “take ownership of issues.” This allowed machinists to stop the assembly line, fix the core problem, change the process to work together across teams to improve efficiency, use a shared set of company metrics, and to reduce the complexity of the overall system. These small refinements compounded and they achieved incredible success over the next 50 years to become one of the world’s highest quality automobile manufacturer by focusing on people and process.

Similarly, Google went through an equivalent transformation as it scaled from a small start-up to a massive technology innovator. Google is organized and managed like most other companies—departments such as engineering, finance, human resources, operations, product management and sales. Within each group are vice presidents, directors, managers, project leads and so on. But that is where the similarities end. New employees at Google tend to notice on their first day that the company has a very flat management hierarchy. While Google has a traditional job ladder with familiar titles, it has always tried to keep the ratio of engineers and other individual contributors to managers as high as possible. In addition, the key role of managers at Google is to guide and connect, not control. As one senior executive put it, “I am a very expensive e-mail router.”

The most notable effect of Google’s flat management hierarchy is that there is a high level of autonomy to “do the right thing” provided to all employees. Since they are not dependent on the hierarchy to make decisions, teams are expected to operate semi-autonomously across teams and to use metrics and information to make decisions. Importantly, this culture of self-reliance is supplemented with a foundation of tools, data and process that are used fairly consistently in all departments. The combination of data and empowerment allows for productivity and innovation to emerge from within the organization.

Both Toyota and Google were able to tackle large business challenges by creating an atmosphere of entrepreneurial productivity. In both cases, putting the model into practice required significant commitment, investment and participation from all functions and areas of the company. The ongoing stream of improvements to process, better analytics and metrics, reduced project complexity, and empowerment of employees directly result from entrepreneurial productivity and demonstrates that the model works. Quantifying the costs and benefits more precisely might be possible, but it would be difficult—and perhaps pointless.

The key takeaway is that a large amount of productivity gain is addressable by separating the friction caused by “human factors” and addressing it with techniques mastered by other industries. Given the sheer pace of digital innovation, progressive construction companies need to inaugurate a new era of agility within their business to avoid the pitfalls of the Innovator’s Dilemma. Construction firms that implement entrepreneurial productivity will be the catalysts for change that the industry needs to disrupt traditional workflows and become more efficient builders.

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