PlanGrid Construction Productivity Blog
Razor thin margins make construction ripe for innovation

Razor thin margins make construction ripe for innovation

By Ryan Sutton-Gee, COO and PlanGrid cofounder

Between my past life working for a general contractor, my two degrees in construction management, and working with all of our customers here at PlanGrid, it’s no secret that I really love the construction industry. The industry employs tons of great people, the work is fun and varied, and unlike other more abstract industries (say finance), when you finish a project and get to walk through your building, you feel a sense of true and lasting accomplishment.

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Despite all that, it’s not exactly the most profitable industry. It’s also not exactly thought of as a hotbed of innovation. Sure, the tools get better and the bulldozers get fancier, but profits are low, and who has the time or money to spend on software?

In actuality, however, razor thin margins — often between 1%-3% — are the perfect catalyst for incentivizing innovation. Let’s take a look at some of the largest companies as an example: If Fluor (the worlds largest publicly traded construction company) could increase overall productivity by even 1%, their profit margin would increase from 1.64% to 2.64% — a 60% increase in their overall profitability. If KBR (another giant in the industry) could do the same, they would increase overall profits by 55%. When you can build a big business by riding the razor’s edge, even small efficiency improvements can mean huge amounts of money.

That said, innovation is hard and finding technologies that really improve the bottom line is difficult. People make a lot of promises, but how can you really evaluate their claims? Luckily, since most construction companies are organized into many independent project teams, it’s pretty trivial to run small experiments on individual projects before betting the farm on any one solution. Rolling out some experimental software company wide may be too big of a big risk, but piloting technologies on individual projects is doable by even smaller construction companies. Much like how individual US states can try out bold new policies before we decide to roll them out nationwide, construction companies can afford to (and should) take risks on individual projects in order to realize large benefits on their entire portfolio of work.

To get us grounded back in reality, I’d like to give my favorite example of a company that does this well: DPR. DPR is an innovative construction company based in Redwood City that is very good at running small, risky experiments on individual projects and then spreading positive results company-wide. They do this by having a dedicated innovation group whose only job is to find and try new technologies, implement them on individual projects, find out what works, and then spread it across the whole company. It’s been part of their core value system since their founding, and so it’s not surprising that they were one of the first companies to give PlanGrid a shot even when we were just 4 people working out of our living room. This strategy is working out well for them: they’ve been growing like crazy and were recently chosen by two of the most innovative companies in the world to build their big new campuses.

Any construction company can do the same thing. All you have to do is pick out some interesting new technologies, identify a few pilot projects, and then start measuring.

Originally posted June 2013

Ryan Sutton-Gee

About the author: Ryan is the COO of PlanGrid, and one of the four founders. Ryan has an MS in Civil Engineering from Stanford, and worked at ITSI Gilbane Company for several years before founding PlanGrid.