There has been much written about how the Internet might redefine organizations in the future, including our definition of “work.” This “revolution” is radically changing where, when, and how we work.
In May of 2000, I participated in an AEC conference in San Francisco, during which I had the opportunity to visit with a variety of industry practitioners and dot.com executives. One could unmistakably sense the fear throughout the speakers and attendees alike. On the one hand, practitioners worried over their lack of understanding of various Internet-enabled technologies, which would supposedly redefine their businesses, if not eliminate them entirely. On the other, dot.com executives knew that, without achieving sufficient market penetration and scale within short investment horizons – as defined by venture capitalists’ expectations – they would be simply a footnote in history.
However, everything changed on April 14, 2001 as tech stocks disintegrated. And while many of the AEC practitioners are still alive, most of the dot.coms serving the AEC industry have failed, burning through, by some estimates, over $1.3 billion in capital. In most cases, their value propositions were insufficient to drive economic efficiency throughout a highly fragmented, low margin industry which still remains highly wasteful in its delivery process. They relied upon business models which exploited new internet technologies to enable faster communication and better organization of information – a much needed contribution to the industry, but not of significant value. The speed of communication, with better organized information, is not the critical issue. Just because the pipeline gets bigger, permitting more uncoordinated information to flow through it faster, does not mean that the value gained within the process has increased significantly, nor are the individual participants necessarily any better off. In fact, by improving the efficiency of communication between the disciplines, designers and engineers are potentially motivated to provide less complete and coordinated information to contractors, knowing that issues can be resolved later using sophisticated communication technology with subcontractors in the field – precisely the point where resolution is the most expensive. Why would designers absorb the cost of fully developing their drawings in advance, only to revise their documents during construction when more precise information becomes available?
There has been much written about how the Internet might redefine organizations in the future, including our definition of “work.” However, it is increasingly apparent that the Internet is only the most prominent facet of an “Information Revolution” in which the costs of computing, data storage, and communication are rapidly approaching zero, due largely to both technological innovations and a tremendous investment in fiber capacity during the boom of the 1990’s. This “revolution” is radically changing where, when, and how we work.
One might compare the information revolution to the impact of technologies in a prior age when rail, steam, and, ultimately, electricity redefined manufacturing and reshaped the “organization.” As transportation costs declined, manufacturers increasingly located their plants near the best available labor sources. Electricity afforded manufacturers the opportunity to optimize the location of equipment rather than having to centralize around a waterwheel. The same kind of redefinition of where, when, and how we work is occurring today, as talent chooses where it wants to live (regardless of “the place of employment”), when it wants to work (24/7), and how it chooses to do so, (utilizing sophisticated computing, data storage, and communications networks). This phenomenon is driving the growth of “ex-urbia” in America where talent can live, work, and play without wasting time commuting. The rise of the knowledge-based economy has caused significant transformations, but we still struggle with the question: “What will the AEC organization of the future look like?”
The Barriers to Change
Before suggesting what the future might hold for the industry, we must first try to understand its challenges today. Engineering News Record, the Construction Industry Institute, the Lean Construction Institute, and a variety of other industry publications and associations have documented much data substantiating the magnitude of waste inherent in the traditional AEC delivery process. We’re not speaking of one to five percent issues here, but rather a twenty to forty percent waste in the time and cost required to deliver projects using conventional methods (For a more detailed discussion of the causes of such waste and the barriers to eliminating them, please refer to “The AEC Dilemma: Exploring the Barriers to Change”, Design Intelligence, Focus on the Future. March, 2001; www.di.net). A fragmented industry, low margins precluding meaningful investment, a lack of integration in a zero-sum contractual model, and optimizing returns within the silos of each discipline despite the impact on project costs, are a few of the many barriers to removing waste within the industry.
Perhaps the greatest barrier to change, however, results from our motivations as participants. We have all been rationally trained to believe that if something can be done better, then the improvement should and will be implemented. Nothing could be farther from the truth. As Steve Hindman so effectively articulated in his article, “Hitting A Nerve” (Context Magazine, July 2002), it is the painful nerve within a system that gets tended to first, regardless of the magnitude of the benefit derived from any other changes. In other words, just because something is better, faster, and/or cheaper doesn’t mean it will be implemented, unless an individual or commonly motivated group of individuals (the enterprise) realizes a direct benefit.
Consequently, improvements in a fragmented industry are slow to come and particularly difficult to implement. Witness the retail industry in the 1970’s. Independent, small retailers were reluctant to invest in credit card reading technology which would have substantially reduced transaction costs, across the entire system, by eliminating the need for checks; banks, not retailers, would have realized most of the benefits. It wasn’t until the implementation of bar code technology, which reduces inventory-tracking costs at the retail level, did retailers purchase new equipment, incorporating the card reading technology that dramatically reduced transaction costs throughout the entire payment system.
The AEC industry offers many such examples of potential industry advances that are never realized because the “investor” receives no benefit. One such example is the time and cost associated with completing the project design before construction commences, thereby avoiding substantial costs associated with rework in the field. Architects, general contractors (GC’s), subcontractors, and fabricators collectively devote considerable man-hours passing shop drawings and other forms of poorly coordinated submittals back and forth, adding significant time and costs to both the design and construction of a project. This dysfunctional and costly process is partially a result of 1) the customization of components to the nth degree, 2) insufficient tools to intelligently and accurately model buildings in three dimensions, 3) inadequate design and engineering fees to cover the cost of completing the design before construction commences, and 4) the lack of clarity within the supply-chain, particularly between designers and fabricators/subcontractors – the latter having the detailed information about the building components, while the former specifies much of the design.
This dilemma is rooted in the continued adoption of historical practices which limit opportunities for significant improvements. When buildings were relatively simple, a design-bid-build system seemed to work fairly well. The move to this approach was due, in part, to the push for specialization arising from the Industrial Revolution. Both bidding and increased design complexity drove the industry towards specialization within the design disciplines and the trades.
Fifty years ago, GCs self-performed much of their work. Today, most such work is subcontracted to specialists, with the lowest bid, even in a collaborative environment in which the GC and architect work together from the outset. Most often, it is the subcontractor or fabricator who knows the most about the design details, but they are rarely engaged early enough in design to have much impact because the bidding process requires partially completed documents by which to compare bidders. Amazingly, many owners are unaware of the waste of their investment dollars simply because it is so hard to measure. In addition, much of the industry has a vested interest in current practices. Most owners who do understand the problem are reluctant to fight the battle with their purchasing or auditing departments; they are rarely encouraged to experiment with alternative contractual models which might motivate participants to improve any aspect of the delivery process.
Even greater waste in cost and time occurs, after the bidding process, during the actual construction of the building. For example, the cost of fire suppression systems could be reduced by at least thirty percent if the subcontractor knew the final location of the lighting and HVAC distribution systems before performing his work. But, all of the benefits derived through a bid process would pass on to the project owner. Designers and engineers could not possibly afford to sufficiently coordinate the lighting and HVAC designs in advance of bidding the fire sprinkler system, so the design is completed by the sprinkler contractor during construction with many on-site changes – a highly wasteful practice. Similar waste occurs in many other trades for similar reasons.
The bottom-line is that this industry is slow to adopt innovative practices because participants are not rewarded for doing so in a high-risk environment. It is not a function of a lack of talent or some errant behavior which make builders and owners change-averse, as some might imply. An owner’s representatives may fail because a project runs over, but they can hardly be a hero for bringing projects in on time and within budget, since that is what is expected of them. As we learned from our retail example in the 1970’s, just because something is better, faster, or cheaper from a total-system viewpoint does not mean that the industry will adopt it.
Collaboration vs. Integration
All work processes usually involve some combination of four types of “work” which can be thought about as a continuum. At one end of the continuum is the entirely independent effort of the individual to produce a product or service as pioneers built homes using tools they fashioned themselves from natural resources. The next type consists of dependent work wherein one applies some level of effort using someone else’s product or service much like one would use milled lumber to manufacture furniture. Further along the continuum, participants must interactively share information across disciplines in order to achieve their mutual objective. At this level, no one person or entity contains sufficient knowledge to independently accomplish a complex task. This is directly analogous to collaboration between team members in the AEC environment, where information is shared across disciplines throughout the delivery process. Finally, at the other end of the continuum, there is the integration of knowledge acquired through specialists in a range of disciplines enabling the team to optimize the work to be performed.
Let’s focus on those activities which are dominated by either collaboration or integration – two distinctly different concepts which can occur simultaneously but are often misused interchangeably. Collaboration is a data-centric activity wherein each discipline contributes data information to other disciplines for processing to achieve common objectives. In the AEC world, we refer to this as the team approach wherein a negotiated contractual arrangement is used to engage the GC, architect, and engineer early in the design process, with the hope of designing the best building for the budget. Information is passed back and forth between disciplines with little concurrent processing based on shared knowledge. A great example of collaboration is an engineer designing the building structure based on a 30-day old set of architectural drawings while the architect continues making design changes, thus causing coordination problems and costly rework during fabrication and construction.
By contrast, integration is a knowledge-centric activity wherein each discipline contributes knowledge in the form of rules, algorithms, and proprietary practices – an approach not followed since the master builder dominated the industry during the 19th century, when building design was substantially simpler and one person could hold most of the necessary knowledge in their head. Unlike collaboration, integration relies on participants sharing their knowledge, perhaps by encoding it in object-based technologies to model the building (commonly referred to as the Building Information Model, or BIM) – a daunting thought to the many practitioners whose livelihoods depend upon their knowledge of a discipline.
One of the fundamental differences between data-centric and knowledge-centric environments is that the former requires identification of a specific project before work can begin, applying the knowledge within disciplines and sharing data between them, while an integrated environment entails the sharing and encoding of rules, algorithms, and other proprietary knowledge and practices before any project is considered. In an integrated environment, once a project is identified, only project specific data must be processed, thereby significantly reducing processing time and costs while substantially improving the coordination and completeness of design information and radically reducing waste in the field. With new, and better, design tools, such an integrated approach offers the opportunity to evaluate many more options in a virtual environment, at far lower costs, before irrevocably committing within a physical environment.
Consider one of many simple examples. Structural engineers in a collaborative environment design each concrete or steel beam in a building only after the architect has provided a substantial amount of project specific design information about the expected use, building outline, layouts, etc. Any thorough value-engineering effort to reduce costs through significant redesign is prohibitively expensive, even if sufficient time were available. However, using an integrated approach, the engineering formulas, code requirements, and other rules which influence the design of structural beams are embedded within intelligent objects in advance of any project being considered, much like the technology used in the automotive and aviation manufacturing industries.
After a project is identified, only project-specific information is inserted to create a unique model. In addition, multiple evaluations of the model are easily performed, in a short period of time and at little cost, by adjusting the project-specific criteria to evaluate the effects on structural design, building costs, etc. Again, the primary difference between approaches is that collaboration entails the constant reuse of rules, etc., by professionals for each unique project while integration encodes the professional’s knowledge within a rule-driven tool which others may modify to evaluate and optimize their own design input much more efficiently.
Driving Change Within the AEC Industry
Let’s look at some remarkable results derived from integrating knowledge across various disciplines and/or professions. Are there some common characteristics in the AEC industry from which we can learn?
Up until the recent Afghan war, US bombers were assigned objectives by spotters informing Pentagon attack planners of potential targets. After evaluation, these attack planners transmitted orders to planes which then required several hours to reach their targets. This worked great for stationary targets, but mobile targets disappeared long before the planes could spot them. Remember, during the initial stages of the Afghan war, political pressure on the Department of Defense grew rapidly as the bombing campaigns appeared to be ineffective against a highly mobile enemy. The targeting process quickly evolved to spotters, using wireless technology, communicating directly with pilots who maintained their flights over periods of time in target-rich zones (Business 2.0, Oct. 2002). Moving vehicles now became viable targets and results improved dramatically. Off the record, some Air Force officials suggested that the new process would not be used again because of uncontrolled access to data – or were they really worried about their future roles in the process?
A floundering gold company in the Red Lake district of Ontario, as a last ditch effort to save their gold mining operations, shared their (proprietary) metallurgical data on the web, over the objections of their geologists. Using the best recommendations from mining experts world-wide, the company increased production nearly ten times while reducing costs by 85 percent (Fast Company, June 2002). Interestingly, the winning suggestion was submitted by a 3-D modeling consortium which had the technology to evaluate the data more effectively, as object-based design tools may do for the AEC industry.
Along with the retail industry’s check processing example referred to earlier, what do these process improvements (and so many others) hold in common? First, there usually exists a particularly inefficient or wasteful process upon which all participants rely to accomplish a complex task. Secondly, a new tool (often referred to as a technology, until it becomes widely accepted) is introduced which enables the process to be improved. Finally, there exists a driver for change resulting from some participant’s intense pain which motivates that participant to modify their behavior and dispense with accepted rules. (For a much richer understanding of some of these ideas, refer to The Only Sustainable Edge by John Hagel III and John Seely Brown; Harvard Business School Press.). Are these three characteristics inherent in the AEC industry today?
Clearly, the industry is plagued by inefficient and wasteful processes, and many participants are feeling the pain. Every discipline is being “commoditized” resulting in anemic margins, while customers are often frustrated with unexpected outcomes. The necessary technologies are increasingly available to radically improve current processes by integrating knowledge through encoded rules and algorithms – Revit, Archicad, and MicroStation are emerging examples of such tools and interest in these technologies is unquestionably growing. Most importantly, practitioners increasingly realize that some better form of knowledge integration between the disciplines will be required to use these tools. So what are we missing?
It’s the driver! As alternative delivery methods are better understood, owners will insist that processes be improved to achieve increasingly possible results. Already some large users, like the GSA and British Airport Authority, are insisting on some form of integration including a common Building Information Model for all to develop and share. As the data increasingly demonstrates better designs at lower costs with faster schedules, we can expect other customers to demand similar results derived from shared knowledge. The only remaining questions are: how long will this revolution take; and to what extent will AEC participants help mold it for the benefit of all instead of avoiding the issue.
The answer to the first question requires a crystal ball. But the second is up to us. As practitioners, we need to lead this revolution instead of letting construction managers, brokers, and the like define our future for us. We must start by admitting to ourselves that we do waste significant time and money employing conventional methods. Second, we must put aside our fear of the unknown and experiment with new risks, emerging technologies, alternative business models, and unfamiliar new roles. As architects, engineers, contractors, etc., we must jointly share both the authority and responsibility for design, means and methods, costs, and delivery schedules by sharing contract risks on a project-by-project basis and/or integrating our respective disciplines within the same firm.
Most of us are reluctant to do so, but then, we can’t complain about becoming a commodity or losing control of the process. This is all about regaining control (thereby reducing risk), improving margins, and contributing to a better built environment which we owe to our clients, our communities, and ourselves. Yes, many of our clients are not asking for it, but then I don’t remember anyone initially asking for the fax machine, computer, or cell phone. That crystal ball may reflect a future much closer than we think – so what’s your choice?
Peter Beck is Managing Director of The Beck Group, a full-service builder engaged in the development, design, and construction of commercial projects across the U.S. and Mexico. He is a board member and Senior Fellow of the Design Futures Council.