The demise of ISG: where do we go from here? (part 2)

Author: Tom Haley

In last week’s article I shared some of the themes arising from my post in which I questioned, following ISG’s demise, whether the traditional main contractor role is still viable. In this second article, I will share some of my own thoughts and reflections about construction industry changes that might lead us to a more prosperous and sustainable future.

These ideas are intended to spark debate about why things are the way they are and question whether they should be that way. For some, the answer is to keep banging the drum that demands a fairer construction industry, with the primary solution being a request for clients to play fair with contractors. Is that the answer, or do we need to look wider at the problem?

Value-Based Pricing

Could you imagine a situation where you walk into an Apple store looking to buy the new iPhone model. The store assistant approaches you, and you enquire about the price of the new iPhone. You state your preferred specification, and the store assistant confirms that the price is ￡1,500.

You consider that is far too much, and you demand a breakdown of Apple’s costs. You question why the ohp percentage is so much higher than 'market norms’, why so many staff are needed to manage the business and deliver the product, why it’s subcontract and supply costs are so expensive, and why you as the customer must pay for costs associated with risks that Apple should have managed better.

No, I can’t imagine that happening either. Yet in the construction industry, this is very normal and plays out time and time again.

I sometimes wonder why the cost-plus margin method of sales pricing in the construction industry is so common whereas most, if not all, other industries operate a value-based pricing model. What I mean by this is that the price is set at the amount that the customer is willing to pay and is driven by less tangible factors, which include the perceived value of something and the strength of the brand selling it.

I then wonder whether, in an industry full of professionals who have science-based qualifications (engineers, QS's, etc), this is because we struggle to define the value we create, which means we cannot sell it effectively, leading decision-making to a default lowest price wins model.

Would things be different if we had the marketing minds that the likes of Apple tap into? Then again, we are back into the low margins, leading to a lack of investment possibilities—it feels like a cycle we cannot break.

Productivity Data

Productivity: the perennial problem in the construction industry and one I have covered in previous articles (‘The great construction productivity conundrum’ , ‘Construction productivity: measuring the unmeasurable’ , and ‘Rethinking the currency of construction productivity').

One thing that I have often wondered is whether productivity might be improved if the entire construction industry went open source with its productivity data. Tesla did this with its intellectual property, and it did so to challenge the entire car industry. Now, putting aside for one minute the fact that Elon Musk is, or appears to be, an eccentric individual, leading me to question his true motive for making his intellectual property open source, it is a very intriguing concept.

It would be radical. There is no doubt about that. It would, for good or for bad, show who is doing it well and who is doing it not so well. It would lead to conversations about different approaches, different metrics, and different definitions and may lead to collaboration within industry about standardisation. The data would allow macro analysis on the industry’s issues and help identify improvement which the whole industry can work towards achieving. That improvement would be data driven.

It is too easy to blame clients, blame macroeconomic or geopolitical issues, or put financial issues down to ‘one bad legacy project’, but there needs to be more open acknowledgement of the fact that contractors do not build productively. This is causing costs to be incurred, which, if eliminated, would lead to improved margins.

I’m not sure I can see this happening in my lifetime, but if we want to build a better UK and a more sustainable construction industry, then maybe this is the kind of brave, bold step we need to take. It only takes one company to take the step and others will follow, eventually.

Final Reflections

When I reflect on these last two articles, I can't help but feel disheartened by the 'clients need to treat us fairer rhetoric'. Yes, that is an issue, no doubt, but given the extent of financial failure in the construction industry, do we need to change this to "We need to be more productive". Would this open up the possibility for industry transformation and improved margins?

For those who are very much in the "clients need to treat us fairer camp", maybe think on these quotes:

Albert Ellis (psychologist and psychotherapist)

"The best years of your life are the ones in which you decide your problems are your own. You do not blame them on your mother, the ecology, or the president. You realize that you control your own destiny."

Mel Robbins (motivational speaker and author)

"Nobody is coming to save you. You have to save yourself. No one is going to get up every day and fight for your dreams, health, and happiness like you can. So take responsibility for your life and make it happen."

Maybe there is more that we could and should be doing to create a more prosperous and sustainable construction industry, but we are trying to answer the wrong question. Just a thought.

Next week, I will resume the business-as-usual articles and kick-off the design matters series.

Keep an eye out for that and, in the meantime, enjoy the rest of your week!