The construction industry is broken, and the five facts below represent why the industry needs to change:
1. If it takes six months to build a house, then 85 percent of the time is spent on two activities: waiting on the next trade to show up and fixing mistakes.
2. Clemson's Professor Roger Liska conducted an analysis of productivity on the construction industry and found that the average construction worker operates at only 40 percent efficiency.
3. Critical shortages exist in qualified, skilled workers and labor issue futurist Roger Herman predicts the situation is only going to get worse.
4. Business Week's 2007 Investment Outlook Report indicates the return on equity (ROE) for all U.S. industries is 17.9 percent, while the ROE for the construction industry is a mere 9.7 percent, despite the recent construction boom.
5. Industry customers are frustrated with poor quality, confrontation, excessive change orders in quantity and dollar value, scheduling delays and litigation.
The dire conditions described above may actually be a blessing because it usually takes dire conditions to implement radical change. Therefore, the essential convergence of interests may have reached a point within the construction industry for the necessary revolution to take place.
Rosabeth Moss Kanter, in a Harvard Business Review article entitled "Leadership and the Psychology of Turnarounds," declared that for a company to make a successful turnaround the company must improve its collaboration, communication and mutual respect. These same traits are also needed to turn around an industry.
Lean construction provides a solution that works for all three groups-the owner, the contractor and the worker-because it's founded on collaboration, communication and mutual respect. Not only does the conventional design-bid-build environment not produce the best results for any of the three groups, it actually pits each of them against each other and creates a downward spiral of lose-lose. Lean construction works because it focuses on maximizing value and eliminating waste.
Peter Drucker wrote, "The most important work of the executive is to identify the changes that have already happened." In our case, construction industry executives must recognize the significant impacts that lean production has had on manufacturing. In the 1950s, tiny Toyota decided it needed a different strategy to compete with the automotive giants in the United States. Based on the teachings of Edwards Deming and Philip Crosby, Toyota developed what is now known as lean production. Toyota doubled productivity while substantially improving quality. For Toyota's insights, it was handsomely rewarded. Today Toyota is the largest and most profitable automotive company in the world. In the past quarter, Ford lost more than $6 billion, while Toyota recorded its highest profits ever.
This is not a fluke, because virtually every manufacturer that has properly implemented lean production has seen similar results. It works because lean production, or in our case, lean construction, focuses on those two critical concepts: maximizing value and eliminating waste.
How does this impact the complaints of owners, the declining profit margins of contractors and the shortage of skilled workers? We'll look at each problem, but let's place the entire discussion in perspective. First, the discussion is about the industry overall, not individual companies. Obviously some companies are bucking the trends of the industry because in comparison to their competitors they are doing more things right. But at what level are they excelling? If a super star high school athlete was dropped into a professional league, most fans would probably comment that the player wasn't very good. So are you excelling because you are a man or woman playing with boys and girls, or are you excelling in an all-star game with the world's best?
Before you answer, consider that Jim Collins, in his book, Good to Great, identified only eleven great companies in the United States and none were contractors. No matter how good the contractor is, he/she can be better. Tiger Woods is the world's best golfer, yet he
