Disruption is a word that is overused in Silicon Valley, and elsewhere in the tech world. The idea is that sometimes a new player comes along with an approach to doing things in such a radically different way that it disrupts the entire industry.
With advancements such as building information modeling (BIM), virtual/augmented reality (VR/AR), semi-private cloud-sharing of information, drone photography, the Internet of Things (IoT), prefabrication and/or modular construction, 3D printing, robotics, artificial intelligence (AI), and so on and so forth… — the construction industry of the next couple decades will look absolutely nothing like the previous couple decades.
The analysts as Strategy &, formerly known as Price Waterhouse Cooper (PwC), recently prepared their 2017 report on the engineering and construction industry. With such significant disruption taking place, what can company leaders take action on to remain competitive?
Survival Tactic #1: Focus On Capabilities
Focus on the capabilities needed to succeed in the new market dynamic. As the shift to LSTK [lump-sum, turnkey] contracts continues, firms need to build stronger capabilities in areas such as estimation, cost controls, and procurement. Rather than simply tracking costs and passing them along to clients, they need to become proactive about identifying bloated costs and reducing them.
For this to happen, firms will need to be in a position to effectively mine the so-called Big Data that is likely hidden away on outdated servers accessible only through antiquated interfaces.
Survival Tactic #2: Understand Market Position
Understand their market position — and identify opportunities to build scale. Management teams need to understand their position in the market, and specifically whether they have the scale needed to keep costs down and remain competitive. For those that need to make deals, sensing the market is critical. The oil and gas sector is likely to be dynamic over the next few years, and the most promising segments in construction will shift as well. The ability to assess and accurately value potential targets faster than the competition will be critical. For example, some E&C firms are considering buying operations and maintenance (O&M) companies as a means of stabilizing their revenue. However, now that a few high-profile O&M deals have closed in the last several years, prices for those companies are significantly higher, skewing the potential advantages of such an acquisition.
This is very much related to the old Gretzky adage — you skate to where the puck is headed, not where it is now.
Survival Tactic #3: Reevaluate Cost Structure
Take a close look at their cost structure. The last — and most important — strategic priority for E&C firms is to continue to scrutinize their costs. In our experience, many legacy, monolithic E&C firms still struggle to understand the importance of the cost issue. Executives who have worked in the industry for a long time may be too accustomed to the old ways. They need to recognize that technology is changing the design, procurement, and construction of projects to make processes more efficient and less expensive.
Failing to adapt cost structures to the changing reality of the marketplace will — in my opinion — be responsible for the death of more architecture, engineering and construction firms than any other factor whatsoever.
What’s the Point?
As they say in HBO’s hit show Game of Thrones, “winter is coming.” Some firms in the A/E/C industry see the handwriting on the wall and are actively investing resources in preparing for the coming disruption.
Most however, are content to do things the way they’ve always done them.
How will you respond?
Image courtesy Wikimedia