Charles Darwin’s revolutionary science of evolution never talked about “survival of the fittest”. His insights into “natural selection” were popularized by the phrase “survival of the fittest”. Darwin’s work, however, presented a more nuanced view of natural selection.
On an island in the Panama Canal in 1982, a team of Princeton researchers led by Stephen Hubbell explored a simple but very important question: When a tree falls in the forest and a gap forms in the canopy, allowing sunlight to penetrate to the forest floor, which plants capture that resource of energy?
Here is what they found: Instead of the “fittest” plants (the most competitive plants) getting the sunlight space, it turns out that another mechanism clearly controlled who the winner would be. The plant that won its place in the sun was the plant that was ready, at that moment, to access the opportunity. Readiness to respond was by far the most powerful factor in determining the winner.
When applied to corporations, Darwin’s theory implies that when change sweeps through an industry, as it always does following the rules of natural selection, once great firms that are unwilling to change eventually disappear. They are either gobbled up by more versatile foes, sink into oblivion as a shell of their former selves, or become defunct.
Former tech heavyweights such as Digital Equipment, Compaq and Silicon Graphics are great examples of corporate Darwinism. DEC and Compaq were absorbed by other firms, and Silicon Graphics is merely a shell of its former self. At the heart of it all is the lack of innovation. Sustained innovation is the key to maintaining a competitive edge and corporate relevance.
Over the next decade, Construction Today predicts that 50% or more privately held businesses will consolidate. New technologies and wide access to information have demystified the processes of estimating, organizing and producing the contractor’s work. Construction has become increasingly standardized with efficiency and productivity the major differentiators among competitors.
Currently in the construction industry standardization is digital disruption. For example:
- 3D printing and robotics require 30 to 60 percent less building materials and products can be completed 50 to 80 percent faster.
- The market for portable and modular buildings is growing as digital technology powers faster completion rates.
- The internet of things is powering new efficiencies and smarter asset utilization.
- From supply chain to workforce planning, there are tremendous opportunities to streamline business processes in construction. Lean processes, perfected in the industrial industry, are providing a framework for optimization and reduced waste.
- Today’s business networks power seamless communication of information on a global scale. The World Economic Forum estimates that lean principles and methods could reduce completion times by 30 percent and cut costs by 15 percent.
An effect of standardization within any industry is a reduction in profit margins, and lower margins restrict resources making it harder for small and mid-size businesses to invest in increased efficiencies. Adapting business models to these technologies is a costly process and one that smaller construction companies simply cannot afford.
The result: companies begin to see consolidation, mergers and acquisitions as a means to remain competitive in the current marketplace. Typically, when an industry consolidates, profitable more efficient mid-size companies merge or are absorbed by larger organizations while under-performing mid-size organizations struggle to complete.
Historic Resistance to Consolidation in the Construction Industry
I’ve heard it said that all you need to be a contractor is a pickup truck, a cast-iron stomach, a forgiving wife, and a bad temper.
The talents, aptitudes, and temperament of the traditional successful contractor generally fit the mold of the determined entrepreneur who loves to lead and hates to follow—which partly explains why the industry has remained fractional for so long.
Traditionally, success demanded a rare combination of talents, including the abilities to muster resources to build a project; putting an accurate price on the work in advance; managing labor, subcontractors, vendors and designers through a long and arduous process; and tolerating a high degree of risk. Contractors of this breed had great success as long as their methods of bidding were closely guarded secrets, and as long as their production of complex projects remained a mystery.
Ready to Respond
The construction industry is at an inflection point, analogous to the move from landline telephones to cellular technology. Digital technologies are disrupting the industry, providing new opportunities to address the challenges of poor profitability/productivity, project performance, skilled labor shortages, and sustainability concerns. Managers of mid-size and small firms must be alert to this changing environment and be “ready to respond”.