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VIEWPOINT: Engineering-Construction Needs a New Model

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The life-cycle costs of the facilities we design and build are under pressure as our clients face more global competition, key resources—such as skilled labor, water, energy and materials—grow scarce and government support dwindles. To address such challenges, engineering and construction participants must step outside our day-to-day frame ofreference and question whether our current paradigm allows us to develop needed solutions. Is our business model broken?

Engineering and construction (E&C) is one of the world's largest industry sectors. It accounts for 9% of U.S. gross domestic product and more than 11% globally. Today's projects are larger and more complex than ever, yet, compared to other sectors, construction productivity has lagged since 1970. Cost overruns, unanticipated risks and schedule slippages are still too common. Why is this, and what can be done to change it?

In many ways, the current industry model was established after World War II. Its structure is industrial in nature and based on the "serial specialization" that existed in manufacturing at that time.

But the century we're now in is not the same as the last one. The experiences of other industry sectors have shown that significant productivity gains are linked to industry models that facilitate "systemic" innovation.

 

Prieto
Prieto
Construction researchers John E. Taylor and Raymond Levitt define systemic innovation as that form of innovation requiring "multiple specialist firms to change their process in a coordinated fashion." It differs from so-called incremental innovation, which can be accomplished within the context of a single company or project.

In fact, we have seen examples of systemic innovation in engineering and construction: integrated supply-chain management, prefabrication of building systems, building information modeling, public-private partnerships and modularization, to name just a few that already have delivered huge benefits to firms and their clients.

Innovation is critical to the renewal of industries, but productivity gains are greatest when that innovation is systemic. E&C is on par with manufacturing in incremental innovation—for example, minor changes in product—but it lags in systemic innovation when multiple firms must change their processes.

Simply put, engineering and construction has an innovation deficit. We continue to harvest largely from past efforts and to sow very few new seeds.

Key traits of industries strong in systemic innovation include relational stability, which is a tendency to use a small number of firms per specialty; networked corporate interests; boundaries that facilitate redistribution of work; and strong network-level agents for change.

These are not the hallmarks of engineering and construction, where a wide variety of project teams come together, driven by owner preference to preserve the industrial era's serial specialization model or by a sole focus on first costs.

Rigid trade or corporate structures, together with limited flexibility in redistributing work across the project team, also act to limit opportunities for systemic innovation and real productivity improvement. While we will continue to achieve meaningful incremental improvement, does our model essentially preclude opportunity for broad and meaningful systemic improvement?

Potentials, Not Deliverables

Innovation that is systemic and sustainable needs patience. It is about potentials, not deliverables. It will involve failure, likely multiple failures, which are a hallmark of a true breakthrough and systemic change.

The need for innovation should cause us to reconsider how we conduct our research and rethink how products and applications are developed. Can the current E&C model support this transformation or is it a barrier?

Engineering and construction is an important industry sector—in many ways, it is the foundation of the global economy. We must reignite the creative spirit that defined the sector's former master builders. Where will that leadership come from? This is a question to answer—and soon.

Robert Prieto is a senior vice president of Fluor Corp, Irving, Texas, responsible for strategy in its industrial and infrastructure group. He focuses on development and delivery of large, complex global projects and can be reached at Bob.Prieto@fluor.com or at 609-919-6376.

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