I just wrote a guest post for the lovely blog "Starting up an Engine[er]"; A Structural Engineering Blog on how to become a business owner and not to lose your mind doing it. Glen is really on to something in modern engineering consultancy business. Keep an out of for his progress, good people. Anyways, here is my post. You'll find it here, too.
When The Revolution Comes, Everything Will Be Beautiful
Change agents of the World, unite! We need to restructure our industry.
Looking around in our sector, it becomes clear to me that we are in trouble. We are not too far off the situation that the struggling – dying – traditional audiovisual industry is in. They are facing a paradigm shift in technology and client habits with existing business models. They are marketing products (discs) when clients increasingly are asking for services (streaming). The old business and organizational models in our industry are also put under such strain that we need to rethink the way we do business. I am not suggesting we throw everything out as if our mature industry were a greenfield to build a brave new world on. But I am arguing (as strenuously as I am able) that we need to develop and implement a new logic to our work. Sooner rather than later, we need to fundamentally change. Let’s call it our own version of Perestroika, the effort to restructuring of the stagnating Soviet Union. One major difference though. We need to succeed.
Let me motivate this rather startling call-to-arms with a look at my own hunting grounds – the Swedish housing industry. If the number of apartments built is the main indicator of the success of national and local politics in my country, the cost development of multi-storey housing has become the main indicator of the success of our construction industry. And maybe you’re already seeing where this is going.
Since the mid-80s, the number of apartments in one/two-family dwellings and in multi-storey buildings respectively has developed surprisingly similarly (reference). This development seems to be changing. Now, roughly speaking, 7 out of 10 newly started apartments are located in multi-storey housing (reference). According to Statistics Sweden, during the first nine months of 2011, construction of a total of 16,046 apartments were started in Sweden. This is down from the 18,570 apartments during the same time in 2010.
When it comes to the key metric, the cost development, how are we doing? It is not too far-fetched to use the Retailer Price Index (RPI) as an indicator of the purchasing power of our clients. Let’s map that against the Construction Price Index (CPI) of multi-storey housing over time (reference). Let’s start in 1968, i.e. the early days of the major housing projects. A graph of these cost statistics is certainly not a pretty sight. Since the mid-90s, production costs have sky-rocketed compared to the purchasing power of our clients.
Part of the explanation is of course that the building codes require us to build with increasingly technical quality, so the graph in a way compares apples and pears. For example, during the time period in question, we have moved costs from the service-life (say heating) to the investment in production (better building envelopes). But having an explanation for the disparity does not help us. What matters is the gap between the the one graph, the one that indicates the funds available to clients, and the other one, the one that indicates what they can expect to pay for their apartment. Sometime soon, people will not be able to afford to buy apartments in the houses we build. Even the dip during the mid-90s had very little to do with our own development; it was due to a major recession when the government switched from subsidizing the housing market to making it their cash cow.
The striking graphical impact of the graph stands. We. Are. Failing. That is why we need Construction Perestroika. Sweden too has had our share of Latham Reports and Rethinking Construction reports. I now call for action, of the implementing of the findings in real business. The one main change that we need to make is simple to describe but very hard to pull off: changing from project-based logic to product-based logic. In my book, that’s our Perestroika in a nutshell.
We need to stop giving clients wish-lists for every project and start preparing clients offers where that is possible. Develop systems-building. Learn from manufacturing, with concepts like Lean (focusing completely on client value), Mass customization (combining volume with client choice) and incremental improvement (articulating our methods and processes and letting hands-on workers decide how they should be improved). This involves keeping our value-chain together, built on interactive business trust, and making substantial investments in work between projects, which is something we normally just do not do.
We’ve developed building products in the small scale (like the sports hall we’ve developed at my company) but we have a whole sector to change; from the brief and contracts of clients to the design, production and supply-chain. It will be a very long haul to bring our existing structures to bear on these new ideas and new business. Imagine for example that we reengineer the revenue streams for professional services so that they reflect the value created for the clients. Clients seriously do not care how many hours we put in.
Substituting metrics for real value for the time-sheet is logical, doable and necessary. But it affects our business to the core. Are we up to it? Arguably, the Perestroika of the Soviet Union brought out the hidden conflicts between the republics and made the union impossible to hold together. Like the audiovisual industry, clients will soon push on to Construction Perestroika – строительство перестройка for the flavour of it. When it takes off it will soon separate the early adopters that will survive and the hard-of-hearing ones that will not. If the old structures cannot adapt to new client requirements (read: “we’ve had it”) then new players will enter that can.
When The Revolution Comes, Everything Will Be Beautiful.
Note: When The Revolution Comes, Everything Will Be Beautiful is a powerful album by the United Sons of Toil from Madison, Wisconsin, available for the price you are willing to pay at http://music.unitedsonsoftoil.com/.