technology

Why are firms losing money in a building boom? It's all about scale

In this period of record demand, there are construction companies winning work, growing revenue – and yet still not making money. 

They’re growing, but they’re not scaling. Why are they not achieving sustainable margins from their sales? 

I believe the problem here is a doomed construction business model. It is ‘mandraulic’, built on high levels of manual labour input.

In Australia and New Zealand the construction business model relies on the competence and ability of project managers, supervisors and foremen to drive productivity, quality and margin. 

For many businesses, the approach to meeting growth is either working these staff harder or trying to find more of them – which, in a constrained labour market, is near impossible. 

And when one of these staff members goes, they leave a huge knowledge and capability gap.

Construction businesses in New Zealand have historically been built on hard work, grit and force of personality. When a job has been done well the approach is to use staff knowledge and experience to replicate it, rather than document or systemise it.

Systems and processes, along with effective training and communication, enable even the newest, or most junior member of staff, to understand how a job should be done. This provides a platform for quality and consistency that isn’t dependent on the capability or capacity of the person who’s managing them.  

When an ambitious business is winning work and growing its revenue base, it needs the systems to ensure that the experience its 100th client receives is consistent with, and as good as, the first. It needs the processes to understand and manage risk so it doesn’t take on work at a price it can’t profitably deliver. The investment in these systems and processes, including technology and data-led solutions, pays off when sales revenue grows at a greater rate than its costs. That is scaling. 

Our company has worked with dozens of businesses of all sizes. An inability to scale seems to be due to one or more of the following factors: 

  • A fundamental lack of good processes and systems in client (and supplier) organisations to manage quality, programme, compliance, financial and commercial outputs and risks. 
  • A misguided growth strategy that seeks to blindly dominate a market as opposed to pursuing the products/services that customers have the best results with – and where the business makes the best recurring profitable revenue
  • A lack of training and investment in project management capability and systems
  • A lack of governance around understanding the commercial commitment, risk and cash flow.  

I recently re-read the “E-Myth” by Michael Gerber about why most small businesses fail. It looks at industries where businesses have successfully grown and scaled their business models in a labour-constrained market – including airlines and complex manufacturing. 

These models are characterised by measures including: providing consistent values to your customers, employees, suppliers and lenders; providing a uniformly predictable level of service; able to be operated by people with the lowest possible levels of skill; and being impeccably ordered and documented. 

There is a big opportunity here for contractors to learn from other industries, and be sustainable for themselves, their clients and the public – through the good times and the rough. 

 

Warner Cowin, CEO Height

 

*So what are the firms that we’ve worked with who are scaling and making sustainable profits in New Zealand doing right?


  • Investing in systems and processes (for both suppliers and contractors)
  • Making growth part of a considered strategy – built on focusing on opportunities where you can make sustainable profits, not just on winning for the sake of winning
  • Setting and reinforcing clear expectations of values and associated behaviours for all staff and suppliers – organisational culture is key
  • Using live performance data and measurement
  • Putting a committed focus on contract transition from bid to delivery - ensuring that all systems, processes, resources and people are in place
  • The discipline of accurate and regular reporting of customer feedback, programme, financials and risk
  • Innovation: modularisation of construction processes and standardisation of solutions.

Infrastructure and Maintenance in 2027

What will the industry look like in 2027? Will we still have large contracts? Or will there be a mass unbundling of services?

Will I even have a business in 2027?!

Self-driving cars and beyond

Self-driving cars and beyond

What Uber and Airbnb have done to disrupt and radically change the taxi and hotel industries is sending a clear sign that technology is changing the way customers buy and suppliers deliver.

So what does it all mean for physical works contractors, engineers and asset owners who manage or deliver contracts for major public assets like roads, water, facilities and open spaces?

Here are my top 8 predictions for how our world will change by 2027:

  1. The end of reactive maintenance (and customer complaints?) From the door hinge at the library through to the length of grass at the park, remote sensors will deliver continuous real-time asset condition and performance data. This will be crunched using AI to predict when an asset is about to fail so that a request for service is issued before a customer complains.
  2. End of the multiple asset owner. The platforms and integration of asset data across multiple asset types could mean a truly integrated delivery of services that it could be feasible that facilities, water, roading and open spaces asset owners could all be integrated into one asset owner and management function. Thus reducing the need for multiple government operational departments and contract delivery options.
  3. Unbundling of big contracts (Maybe the end of the big contractor). Future IT and Artificial Intelligence platforms, coupled with sensors on everything, will be able to manage asset data and coordinate work planning at a micro level. This will give asset owners real-time optimised data down to a micro level in which they will be able to predict and issue work orders for the smallest of faults. Coupled with the flexibility to create an Uber-type queuing system for jobs, means that even small tasks could get issued directly to pre-approved local suppliers for quoting. There may no longer be a need for contractors with large internal workforces who currently perform these types of jobs as part of major contracts.
  4. Driverless autonomous maintenance. Assets maintenance shifts towards being completely autonomous and remote, without the need for operators or supervision. Plant will locate to various sites around the network and be in operation 24/7. It is not hard to imagine solar-powered remote mowers maintaining parks or pipe root-cutting robots working day and night.
  5. The future maintenance worker will be more of a generalist.  We are likely to move towards 3D printing of replacement parts on-board an autonomous vehicle en route to a site.  Diagnosis will be automated. This means that the technician of the future will be a generalist who effectively swaps different assets or replacement parts in and out.
  6. You won’t need as much plant, assets, spare parts or personnel. With plant being solar powered and working autonomously, there will be no need for large pools of operatives, plant, corporate offices and yards. The real-time collection of asset condition and performance data will also mean that the traditional contract and asset management staff roles will no longer exist.
  7. There will always be a need for that personal touch. I believe customers will still want that human touch to deal with issues and for site liaison. Maybe I am being naive but the concept of automated machine-based empathy doesn’t work for me yet.
  8. Price, margin and budgets. In theory, a net reduction in plant, labour and hard infrastructure should mean a reduction in those costs. However, this may be offset with an increase in technology-based costs to support the new normal. I suppose the question for suppliers is not one of profit or revenue but more fundamental: how do I change the way I do business to prepare for the future?

At Height we help our clients prepare for the future by understanding trends in their industries and markets and helping them develop innovation strategies. Please get in touch to discuss how we can help your business.

Warner Cowin, Height CEO

An Engineer’s Guide to Working with Creative People – It Isn’t That Scary!

As an engineer, I have often seen myself and my colleagues struggle to maximise the opportunity to achieve innovative, game-changing outcomes through working collaboratively with creative people such as graphic designers, architects, fresh young minds or even big thinkers. Maybe it’s something in the engineer’s DNA that leads us to see only the constraints in other ways of thinking.

I used to worry that working with creative people would mean relinquishing control – something that could possibly spell disaster. Now on reflection, I realise our biggest achievements at Height have resulted from letting the creative juices flow, without allowing the engineering side to micro-manage the whole solution.

Since starting Height in 2013, I’ve built a team of engineers and creative people who successfully work together to develop world-class bids and procurement solutions for clients in New Zealand and overseas. Here are some of the things I’ve learnt about working with creative people:

Height's unique approach to tendering and procurement

Height's unique approach to tendering and procurement

  • Don’t assume you know what the creative solution already is – 101 stuff really but how often have we as engineers (technically competent as we are), come prepared with the solution already in our heads and effectively used our team as an extension of ourselves to document and create what we think is right? Be open minded, creative colleagues can provide a fresh perspective and clever solutions you may not have even considered.
  • Provide context, not look and feel – this is the challenge and where we often slip into predetermining the outcome. The trick here is to describe the broad outcome that you want to ultimately achieve in the context of the audience, key messages, emotions, risks, etc. Being too prescriptive in the early stage will frustrate your creatives and limit their ability to make something new and exciting.
  • Let creative people be creative – this is often where the magic happens, so once briefed, I find that if I give my creatives some space and a chance to work up a concept without my meddling, it gives them the opportunity to explore their full creative and innovative thinking. If they need any more detail or information from you - they’ll ask.
  • Understand that creativity is an iterative and interactive process – the power of working up an initial concept provides a starting point for everyone to work from. Its ok for it not to be right first time, it will likely take some refinement and reworking.
  • Review with the end audience in mind – this is where we can undo all the good creative work and revert to our original predetermined solution. Try to put yourself in the end users’ shoes (they may not be engineers) and use your wider team to challenge, review and update the creative solution.

So, engineers, have faith and a little trust in those creative colleagues. Relinquish some control and you might be surprised to see what game-changing or profitable solutions may come from it.

Warner Cowin

CEO at Height and Engineer

“Australasia’s Leading Technical Tendering and Procurement Specialists”