Is “Construction Industry Innovation” an Oxymoron?

If you are an executive at a medium to large construction or engineering firm, you probably are excited to see the momentum towards investing in infrastructure. You are probably also aware that there is an existential movement to a hyperconnected world. You may have executives alongside you in the organization that are champions of embracing digital and cyber-physical transformation. It’s the new world, and we’ll all have to get there, right?

Perhaps, but this migration may not be so straightforward. The magnitude of the need itself is probably in question, and the benefits to the company are possibly in question as well. It is somewhat like your doctor telling you to live a healthy lifestyle. What does that really mean? Similarly, you hear about your need to embrace digital transformation, but what does that really mean? You still operate under colossal margin pressure and have schedules to meet. You also still have shareholders and earnings considerations at the forefront of how you know you must operate—and you know how to operate.

If you are a leader today in the global construction industry, you follow in the steps of five to six generations. You are most likely from the boomers’ generation and have been there for 30 years, give or take a decade. For the most part, you and your peers oversee decision-making, expenditures, and overall company operations. As long as that remains in place, the inclination to lean into digital transformation is probably non-existent. You need and insist on results. What you may not need, and in fact, in a perfect world would not want to tolerate, is some 29-year-old transplant from Google alongside an ambitious young executive talking about how you need to turn the company upside down. Yet, deep down, you know you need to be doing something. So, you do.

And if you are like many of your executive peers, it probably looks something like this:

  • First, you proclaim that digital transformation, sustainability, net-zero, and diversity are all significant because you either (hopefully) believe it, or at least you know people expect you to say it. Regardless of your motivation, you say it.
  • Next, a key executive is assigned to ensure it is a part of what you are doing.
  • Then, the leaders get serious about it. They set up intrapreneurial programs and appoint someone they trust from the leadership team to help run the program. They hire (or become) the Chief Innovation Officer, the Chief Strategy Officer, or both. There may also be a Chief Diversity Officer or Chief Sustainability Officer.
  • Finally, they all set up programs and push an innovation agenda.

All of this, in and of itself, can be good. It can achieve the desired outcomes (assuming it was defined). However, in most cases, it doesn’t.

Why is that?

There are two main reasons. The first is that the organization’s DNA of a focus on execution has been in place for years and has little tolerance for deviating from what has worked and how it has worked. The time and money spent on this new stuff take away from execution focus, and it is a distraction to the core business. And worst of all, it deploys capital with little to no immediate expectation of return, so it has the net effect of hurting earnings. How unappealing is that?

The second reason is that most of the efforts associated with such a transformation are not native to the organization, so the current team, however well-intentioned, may not know how to proceed. Herein lies the bigger problem. You don’t train pilots with people who have never been pilots. You don’t train chefs with people who have never been chefs. And you don’t start new businesses, even inside the organization, with people who have never been entrepreneurs.

Most organizations reward key players by reassigning them to head innovation, even starting intrapreneurship programs. And that’s OK, provided that person is not flying the plane alone. The innovation programs need to be led by a combination of leadership with institutional knowledge that has an instinct for knowing and understanding what to do in solving problems for their core market and even in new but related adjacent markets—but knowing what and knowing how is different. Here is where the problem, however nuanced, manifests itself and is why so many corporate innovation programs struggle.

Most of the focus is on the fantastic idea. This is the what. There are demo days, hackathons, relationships with incubators and accelerators, and pilots that all speak to developing a solution. That is not bad; it is a vital part of the process. The issue is that this is where the overwhelming majority of the focus of the programs lie. But if you step back and ask why you are investing in innovation, then the answer should always be to grow and adapt the business in a meaningful way against a backdrop of a changing world. You want better outcomes.

The trick is to pay attention to the existential considerations that will define the market needs and then adapt significant innovation as a viable business in a scalable and repeatable manner. Blockbuster went out of business, while Netflix became a household name after nearly selling to Blockbuster, and currently worth $190 billion. Critical is both recognizing meaningful innovation and then curating it to become a scalable, repeatable, viable commercial business. The execution part is stage two entrepreneurism; however, most innovation resources focus on stage one—getting from the idea to the launch point. Companies at this stage have a minimal viable product (MVP), a business plan and investor deck, and a few initial customers. Claiming success here is like spiking the ball on your own 45-yard line.

Infrastructure, especially large-scale construction and engineering, is ripe for meaningful innovation. A recent McKinsey study showed how construction productivity in the US has stayed relatively flat since WWII while every other industry has seen significant gains and improvements in productivity. This is crazy, as the global construction industry represents about 13 percent of global GDP.  The study says that the adoption of technology and digital solutions represents the most significant improvement lever to be pulled!

There are countless examples today, a few being:

  • From worker safety to asset tracking and theft reduction.
  • From tighter coordination resulting in better scheduling, on-time completion and lower project costs.
  • From increased labor savings and the ability to address labor shortages.

And there will be much more tomorrow proving that innovation can make a meaningful difference in achieving better outcomes.

There is a clear link between the desire to see results and the role of innovation in enhancing results. And still, most startups fail in the execution phase (not the initial phase), and most corporate innovation programs fall far short of their most meager goals. This speaks to leadership. The imperative, often overlooked, is to staff these programs with the right combination of institutional and entrepreneurial leadership and focus more holistically on the ideas and the execution, not just the ideas.

Evidence shows that the companies that have gone through or are going through a digital transformation have realized significant benefits already, and laggards will find themselves way behind in a short period. Some of the firms in this industry will be the Netflix equivalents. You don’t want to be Blockbuster, and that’s easier said than done because it certainly feels awkward and antithetical to what you have successfully done for years. However uncomfortable, it will define the winners and losers in pretty short order.


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Don DeLoach

Don DeLoach is an entrepreneur, author, board member, and a leading industry evangelist for the Internet of Things. He is Co-founder and Managing Partner of Rocket Wagon Venture Studios, creating innovative startups for the cyber-physical world. He co-founded the Midwest IoT Council, where he served as co-chair from 2015 – 2020. Don is a serial entrepreneur, serving as CEO for three companies, Youcentric, Aleri, and Infobright, spanning the last 20 years. He serves or has served as an outside director or advisor for multiple companies. He also serves on the executive committee of the Array of Things (US DOE smart cities project), the Illinois Autonomous Vehicle Association, and as a director on the Juvenile Protective Association. He is the principal driver of the "First Receiver" IoT architectural thesis addressed in his book "The Future of IoT", which he co-authored with Gartner analyst Emil Berthelsen and Hitachi/Pentaho executive Wael Elrifai, which was published in June of 2017. He is an Industrial Engineering graduate of Ga. Tech.

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