Surpassing the Productivity Frontier in Construction

How to Gain a Competitive Advantage with AR

By NIKOLAI SUVOROV, Spectar CEO

Surpassing the Productivity Frontier in Construction - How to Gain a Competitive Advantage with AR

About the Author: Nikolai Suvorov is the CEO of Spectar. With over 15 years of construction industry experience in leadership positions globally at companies providing construction solutions, Nikolai has a deep understanding of the construction landscape and the productivity challenges faced by industry players. His pragmatic approach to driving technology in construction focuses on the economics of Construction Tech to create measurable ROI for customers by leveraging technology in the field. Nikolai holds a BA in Economics from Youngstown University, and an MBA from the prestigious USC Marshall School of Business, and has been a guest of industry podcasts such as the AR Show with Jason McDowall. 

 

Take a moment to reflect upon your organization’s future. As the leader of your construction enterprise, you’re faced with meeting the demands of today, while simultaneously creating long-term value for shareholders. It’s no small feat. Steering your organization means the decisions you make have vast implications in both the short term and particularly in the long run. As you reflect upon your vision and compare it with the current state, ask yourself the following:

  • Is your team currently innovating?
  • Are your employees expecting a future with no vision?
  • Are you becoming complacent in searching for new ways to gain a competitive advantage?
  • How much market share have you lost in the last 24 months?
 

Leaders like you are facing an undeniable challenge as the engineering and construction industries are experiencing a revolution in areas of design, planning, and project execution. You’re faced with a strategic choice: follow the status quo and head towards a default future, or escape the current paradigm and build a competitive advantage that pays off exponentially in the long-run.

 

1. What is Your Company’s Default Future?

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The term “Default Future” was first introduced by Steve Zaffron and Dave Logan in their best-selling book, The Three Laws of Performance.  It refers to what is likely to happen in the future if nothing unexpected comes along to disrupt the established, beaten path. In the construction industry, the default future coincides with reaching the productivity frontier - the maximum amount of value a company can create, given the best available resources and technologies. This productivity boundary is where enterprises who fail to imagine a better version of themselves end up. 

Why, then, do so many enterprises end up on this trajectory? To an outside observer, the cost of lost opportunities might seem obvious, given the momentous changes taking place in E&C. Studies show that first movers are already reaping the benefits in terms of cost and time savings, as well as asset lifecycle expenses. These productivity gains amount to more than $1.6 trillion, based on a 2016 McKinsey report.

However, for many organizations, the urgency in changing course and implementing organizational change at scale is not immediately apparent, and neither is the strategic understanding of what to change and how to prioritize what needs to change first. A four-year study of 62 corporate transformations revealed that without a clear understanding of the catalyst for the transformation and the organization’s underlying quest, and lacking the leadership needed to see it through, organizations fail to move past a default future or implement any lasting change that would result in a competitive advantage.

To raise the stakes even higher, it is a long established fact that in the construction industry, profitability performance is typically linked to the decision-making of top management. Essentially, it is a reflection of the vision and choices made by the company CEO and the leadership team. This means that top executives in the organization are the driving force behind shifting away from a default future and carving a new path towards the desired, intended future. 

By implementing the right changes early on, the construction players of the future are moving beyond the boundaries of the productivity frontier, building new, game-changing value models using innovative technologies that improve efficiency and offer strategic, long-term competitive advantages. Should you be one of them? 

 

2. Operational Efficiency vs. Strategic Positioning

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Let’s re-examine the current status quo in construction: companies continue to operate at current productivity and efficiency levels. The fact is, construction productivity has remained flat over the past decades, with overall costs continuing to increase, driven in part by a shortage of labor and higher materials costs. This is the current paradigm under which all construction leaders operate. To start moving away from this industry norm and surpass the productivity frontier, leaders must ask themselves fundamental questions about the intended future. How can you escape market competition and choose to run a different race? How do you build a value proposition that renders competition irrelevant? 

It comes down to the distinction between operational efficiency and strategic positioning. In economic terms, operational efficiency is achieved by performing the same activities as your competitors, only in a more efficient way. By contrast, strategic positioning implies “performing different activities from rivals or performing similar activities in different ways” - Michael Porter, What Is Strategy

Over the past decades, construction leaders faced with rising costs, labor shortages, and ever-increasing timelines for development projects, have tried to answer these challenges by finding ways to improve operational efficiency through cost-saving measures and task reallocation. The goal was to come as close as possible to the productivity frontier - the default future.

In recent years, however, innovative technologies re-shaping the construction landscape are generating new sources of competitive advantages and provide opportunities for strategic positioning. Augmented Reality is one of the most promising construction technologies that empowers construction companies to:

  1. Get better performance from Apprentices and drive the overall average up,
  2. Match the continuous tendency for increased safety on the jobsites,
  3. Deliver actionable BIM data to Field in a matter of seconds.
 

Delivering actionable BIM data to the field using Spectar’s AR ecosystem is a strategic positioning choice that creates a unique and sustainable competitive advantage.

The reason Spectar provides such competitive advantages is simple: it relies on investments made in the profit center of a construction enterprise - the professional craftsmen in the field.

 

3. Profit Centers and Cost Centers in Construction

 

In economic terms, a cost center is defined as “a department or function within an organization that does not directly add to profit but still costs the organization money to operate” while a profit center, on the other hand, is “a branch or division of a company that directly adds or is expected to add to the bottom-line profitability of the entire organization.” 

For construction contractors, the units that generate and maximize revenue are the journeymen in the field - therefore, we can say that the journeyman is essentially the profit center of any construction organization. Examples of cost centers include HR, IT, Engineering departments - they support the profit center, but do not directly create additional revenue.

In construction as in other fields, investments in profit centers - areas that add directly to the bottom line profit - typically result in much more significant improvements for overall profitability, than investing in cost centers. By implementing AR in the field, construction organizations contribute directly to revenue-generating activities, using technology that is reshaping an entire industry. 

 

Field productivity

4. The Way Forward - Rewriting the Future of Your Organization


Ask yourself: what is the smallest step you can take today to start moving away from a default future, and into the intended, or invented future? What would such a step mean for your organization's value in 5 or 7 years? What about 20 years? Competitive advantages stack up exponentially over time, and COVID-19 is expected to accelerate change that is already occurring at scale. 

To survive and grow in this rapidly changing landscape, construction companies must shift from adjusting operations to instead developing a strategic positioning that takes advantage of the industry disruption. Spectar works with construction organizations to develop 100-Day VDC Strategy Plans to improve the productivity of the field by introducing construction technology. 

VDC stands for Virtual Design and Construction - and it is a term first introduced in 2001 by Stanford professors John Kunz and Martin Fischer as part of the mission and methods of CIFE (Center for Integrated Facility Engineering) at Stanford. Their Working Paper titled “Virtual Design and Construction: Themes, Case Studies and Implementation Suggestions” further expands on the study of VDC and its applications. According to Kunz and Fischer, VDC is defined as “the use of integrated multi-disciplinary performance models of design-construction projects to support explicit and public business objectives”. Simply put, VDC is a method of working that involves the management of “integrated multi-disciplinary performance models” - it involves the strategy of integrating technology and resources in a collaborative way across the lifecycle of a construction project. 

Spectar’s 100-Day VDC Strategy approach ensures the leadership vision is implemented in small steps in order to achieve the desired outcome of improving the productivity of the field in a measurable and timely way.

Our strategic blueprint requires some initial prerequisites, and outlines the steps needed to reach the intended outcome - think of these as “minimum viable steps”. 

Of all the prerequisites, none is more important executive commitment and the ability to drive technology adoption. Without strong dedication from top leadership, organizations will be unable to implement lasting change. Other requirements include a clear understanding of top and bottom 3 applications in terms of profitability from the team, a belief that technology is an essential component of the profitability of your enterprise, knowledge of the financial impact of technology implementation, and knowledge of the role of culture in dramatically improving productivity. 

The 100-Day VDC Strategy Plan requires a set of small steps to ensure a successful implementation: 

  • Step 1: Secure commitment from your team of Directors
  • Step 2: Assess barriers to implementing construction technology
  • Step 3: Develop a comprehensive plan of all the possible VDC technologies
  • Step 4: Generate clear communication from Execs to the rest of the company about your actions and goals
  • Step 5: Engage your field as they will be the primary users of the new technology
  • Step 6: Create employee incentives around tech implementation

 

5. Bringing It All Together

 

Whether your organization surpasses the productivity frontier is entirely your strategic choice; certainly, doing nothing to push past this boundary is also an option. One thing is certain: construction enterprises that move quickly and are able to create strategic advantages that outperform their competitors stand to increase value, gain market share, and reach valuations similar to unicorn start-ups. 

The case for innovation is clear: the construction industry is adopting technology at a never-before-seen pace, and AR is directly addressing the profit center. Those slow to adapt are left behind. Seeing these opportunities, however, does not equate to seizing them. 

Take the first step towards surpassing the productivity frontier in your market by bringing Spectar to the field for MEP, Wall and Ceiling, and GC, start your 100-Day VDC Strategy Plan with Spectar.

 

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