Fractured Incentives: How Tech Can Connect and Realign Construction’s Stakeholders
Reimagining Construction as a Connected Industry
In construction, it sometimes feels like stakeholders put as much effort into shoring themselves up against lawsuits as they do designing and constructing. It’s not that people in the industry don’t want to closely collaborate— they do. People from across the industry collaborate on a daily basis. But the fact remains that the structure of the construction industry works against stakeholders working together effectively. The industry is fractured into so many tiny pieces that the incentive alignment is often out of whack.
It’s a problem that we believe can be meaningfully addressed with the aid of the right technology.
First, let’s lay out the scope of the problem. Construction is a gigantic industry, accounting for 4.2% of the United States GDP and generating more than $2.6 trillion annually. But unlike other industries of similar size, it’s highly fragmented. The top four firms in the U.S. construction sector control just 6% of the market, whereas the top four in retail control 14%, and in petrochemical refining control 42%.
Doing work in the built world requires coordination and collaboration with a number of different stakeholders: developers, architects, engineers, general contractors, subcontractors, lenders, and owners. Often these various stakeholders are at odds with each other, trying to offload their risk. As a result, individual incentives don’t always push stakeholders towards transparency with one another and efficiency as a whole suffers.
But the challenges don’t end there, because even when different stakeholders want to share information, it’s difficult to do so because the data is trapped in digital silos or, even worse, paper-based documents. As a result, a lot of work is unnecessarily duplicated by different stakeholders because they cannot … or will not … share information.
Plus, for complex reasons that we explore in more detail in our post on AI and Automation, the construction industry as a whole has historically been reluctant to adopt new technologies, resulting with projects worth tens of millions of dollars relying on paper-driven processes and general purpose software such as email and spreadsheets. Given the limited specialized tooling, information gets buried in endless email threads, and spreadsheets grow into complicated monsters that only a few select specialists within the organization can understand, much less share with others.
Technology as a Bridge
Fragmentation won’t go away any time soon, but that doesn’t mean the industry can’t become more transparent and efficient. If you can unlock and share clean, useful data between stakeholders, collaboration and efficiency will increase. This means not only that the industry should replace paper-based processes with digital ones, but that data needs to be reliable, normalized, and readily available across applications.
Connecting our industry will reduce the amount of manual data entry, which will both reduce cost and increase accuracy. The ability to easily share information will also reduce the duplication of work. And, perhaps most importantly, the ability to share information easily will help align stakeholders along the vertical process chain. From architects to contractors, engineers, and owners, it needs to be easier and less risky to work together efficiently and effectively to create the built world. The industry desperately needs technologies that facilitate working together to overcome challenges.
Suffolk Tech sees technology as a bridge to get the industry to more transparency. We’re investing in platforms that help realign incentives, make it simple to share data to create a single version of the truth and ultimately, encourage closer collaboration and transparency among all stakeholders in construction. Specifically, here are the primary technologies we believe will improve collaboration and transparency in the industry:
Data layers provide an efficient means of establishing and propagating a single version of the truth, enabling everyone to be on the same page about the state of a project.
Marketplaces provide transparency so stakeholders can compare price, quality, and availability to make purchasing more efficient, less expensive and more effective.
Fintech solutions help simplify the process of financing work in the built world, managing the high levels of complexity and risk. Technologies that make the process easier and more transparent will enable projects to get started faster and stakeholders to get paid sooner.
Automation of workflows, data entry, and other tasks can eliminate much of the duplicate work that wastes so much time and effort.
IoT is a mature technology that can measure the built world in real time and in exquisite detail to provide clear data to stakeholders across the value chain.
Companies that are Connecting the Industry
Here are two examples of the kinds of companies realigning incentives, increasing transparency, and connecting the built world.
Kojo makes a procurement platform for construction, starting with mechanical, electrical, and plumbing trades. Typically, construction organizations source and purchase materials via the phone and over email, often relying on paper-based invoices and payment systems. All of this is typically tracked in giant spreadsheets. With Kojo, organizations can plan, purchase, track, receive and pay for materials from a single platform, comparing many different vendors to get the best price and quality.
Pulley addresses a different issue that’s a huge headache throughout construction, permitting. It’s a huge bottleneck, because each local government has a different set of processes and requirements to obtain the proper permits to start work on a project. Information is not simple to find, and multiple stakeholders typically have to collaborate on applications. Pulley builds thousands of local permit requirements into workflows that serve up the required tasks to the right people across stakeholders. It automates task assignments, streamlines submissions, and enables organizations to manage documents. As a result, governments, architects, developers and other stakeholders can effectively collaborate to expedite permitting, because everyone knows exactly what’s required of them to move the process forward.
Given the broad scope of our industry, construction will always be fragmented to some degree. But the current state of the industry’s poorly aligned incentives and fragmented workflows are facing tremendous pressure to change. Technology is the future, because it can increase transparency, make information sharing effortless, automate workflows and, ultimately, help align incentives so stakeholders can work together more effectively and efficiently. We for one are looking forward to welcoming this new reality soon.
If you’re building a startup that addresses these or other pressing issues in the built environment, please reach out to our team.
As always, great takeaways form the Suffolk Team.