Permanence - A Comparison of Construction And IT Value

By John G. Voeller, P.E.

Over the past century, the last three generations have overseen the industrial revolution from infancy to its declared death caused by the injection of the next revolution, the information revolution. One can agree with that historical description at any level from abject discount to enamored enthusiasm, but we certainly have undergone a massive series of changes. The obvious elements of this transformation include massive use of computers, injection of computers into every device, and the reduction of human intellectual content in everyday actions such as manufacturing steps. These elements parallel what we have seen in the perceptions of the value of certain jobs. It has created perceptions of value that should be carefully considered as we move to the next century with its next revolutions. In fact, perhaps the next revolution is the value revolution. Intrinsic to such a value revolution will be a new level of examination of different businesses and how they contribute to the economics of society. One of the most interesting comparisons will come from looking at two branches of technology.

In today's market, there are many careers that did not exist even a year ago and many that have disappeared forever in a similar timeframe. To many, the most valuable skillsets in the world today are those involving the creation, delivery, and support of information technology. Never in history has any subculture garnered such lavish attention and generated such angst as the "IT warrior" in it's many shapes and forms. In an era where so much of the population still performs a relatively menial task for an even more menial wage, this group has developed not just a following, but a "groupie" style impact on management planning, behavior and decisions. Few are willing to question that the information empires we have built and become so dependent upon need to be fed and improved, but have we missed one aspect in how we view this subculture in comparison to other creator cultures in our society. That aspect is value permanence; the total life cycle of the product during which it produces a positive value for its owner.

In the realm of consumer goods in general, our society concluded some time ago that planned obsolescence and a presumed usage life much shorter than an item's operating life was acceptable.

In information technology, we have extrapolated this to its highest intensity.

We have either decided or accepted as principal the concept that it is reasonable to discard software or hardware as little as a dozen months after its acquisition. We have accepted the burden of the tools of creation and delivery of technology changing at a similar rate with all their attendant losses incurred in restarting up a new learning curve every fifteen months. In other words, we have accepted the guarantee that every aspect of information technology will start at the bottom of its learning curve and never rise up that curve any significant amount before being replaced by a new system and its learning curve.

It would be great if each new system was upward compatible. This would help negate this phenomenon. However, the fundamental requirement of todays IT business is high margins and increasing market share and this cannot come from simple upgrades. It must come from either wholly new products for new purposes or wholly new products for the same purpose as those they replace. It is this fundamental process that drives IT and that suggests a rationale for paying those involved in what many see as a disproportionate way.

We should ask why this same rationale does not call for combat pay for the user community impacted by this same churning effect.

One does not have to go far to find experts who can verify the churning effect as real and intentional. Nathan Myhrvold, the head of R&D at Microsoft stated last year that "no Microsoft product will ever reach industrial maturity". In other words, we are paying the highest conceivable premium for a product with the shortest useful life, the steepest learning curve, and therefore the lowest likelihood of real value extraction in its brief time of residence. In construction, this would be equivalent to saying that one would build a factory with the purposeful intent that we would demolish it before we learned how to properly make a product, coordinate the processes or train the people.

In contrast, those that design and construct large capital facilities enable enormous business propositions that last for decades, generate billions in revenue, and millions in profit with none of that value ever returned in any form to those constructing them. This is largely due not only to the lack of recognition of life cycle value in general, but more so because those that own and operate such a facility work off of one balance sheet and those that contract and pay constructors work from another. Value received from a facility and its products rarely if ever gets redirected even in small measure to the betterment of the construction or constructor.

Many would believe that accomplishing construction is nothing more than repeatedly performing the same processes, a commodity worthy of minimal reward. In reality, many of the same risks and learning curves of constantly changing tools and techniques have parallels in construction. New materials, a myriad of application variations from different owner companies, regulatory bodies and venues that are also constantly changing, and many other aspects that starkly differentiate construction from the practiced repetition of product manufacturing.

Finally, in examining these two ends of the technology value spectrum, it is interesting to examine another point; quality. Those very well heeled IT consultants and those increasingly wealthy software providers have now reached a stage where they have abdicated quality as a selling point. The presumption of their market is that several false starts, late releases, and dozens of "service packs", a fancy name for huge collections of bug fixes in a bundle, are normal and expected. Even more interesting is the fact that only a percentage of the known errors in software are ever corrected because the entire system is often replaced completely before all corrections can be found or applied.

Imagine if we built facilities with the assumption of having to update the steel or concrete or pipe because we did not get the right design in place on time, so we threw something together to appease the owner until we could come around again with a "facility service pack".

We should consider the extreme short-term benefits of the use of IT technology and the limited return on investment for such a brief usage life. This is coupled with the common industry attitude of acquiring technology in advance of any concrete proof of its value compared to total life costs. We should then compare this to constructors that create a facility that must be strong enough to withstand environmental, economic, and operational degradation while producing profit and jobs and having extremely concrete and predictable returns on investment. A quality facility must be up on time, do what was intended correctly, and allow an organization to start a learning curve they can scale to its zenith and stay there for years.

All corollaries to this in IT are forcibly thwarted.

As we watch the profits of the companies that own facilities grow and the stock market reach new levels, there are a few fundamental observations all parties should consider. The first is that those that are uniquely qualified to provide these people with the facilities they need at the quality they want and in the timeframe their market demands are now faced with shrinking margins. These margins make their stocks invisible, prevent any level of R&D to improve the industry and themselves, and force them to make decisions that would be better made if margin pressure was relaxed.

Second, the complexities of building facilities will continue to increase.

This will require that those who create these facilities must move from using only practiced, proven technologies in their execution to methods and systems involving new levels of research and simulation, as well as a whole new level of risk and benefit analysis.

In order to meet this collision of value head-on, the owners and their constructors need to come up with a completely new view of how to assemble a life cycle reward model for tomorrow's facilities. It is actually a relatively simple restructuring of the current relationship that has already begun in another context. Progressive owners are already moving aggressively to understanding the balance between decisions made during design and construction that can positively affect operation, maintenance, and decommissioning. This same total life cycle view must now be applied to the relationship between constructor and the remainder of the life cycle and its benefactors. Put simply, the enablers must participate more equitably in the life cycle value proposition of the facilities they provide or they must seek better zones of return.

How serious is this concern?

We know of two major engineering firms who are now shifting their strategic and investment plans away from engineering and toward other more lucrative ventures with a massive attendant loss of intellectual capital and execution capacity. One of these is one of the largest construction firms in the world. Their head of strategic development stated last July that they were "tired of the lousy margins of engineering and we are channeling our capital into building new IT firms and selling them".

It is one thing when a legend in an industry dies off, but that is not the case here. In this case, the legend is very smart and is tired of the balance they are seeing in the owner-constructor sharing of the total life cycle value and looking elsewhere. The owner industries must work with the constructors to correct this soon by thinking beyond simple incentives and looking at the bigger picture. This is likely to be exacerbated by the increasing consolidation of private firms into larger public firms that must reward shareholders rather than just a few private owner/partners.

I must add one other sign that perhaps this thesis is reasonable from an unusual source.

For the past seven years, I have been privileged to talk to the top high school students in several area districts who have chosen a technical college program. When I started, the ratio of engineering to IT was 80-20 respectively. Last year, the ratio was 25-75, engineering to IT. The students reasons for their choice were much more one of pay, opportunity, and social perception. The loss of our most precious resource compounds the technology and business problems significantly.

Making construction a third class industry and its purveyors into commodity providers will guarantee a future of troubled delivery of complex facilities. We must halt this imbalance soon. Suggesting that constructors be better recruiters is foolish. Asking that construction learn as many new technologies, regulations, and risk scenarios as well as unique proprietary methodologies for each customer without substantial added margins from which to reinvest is equally absurd. Its time for a new balance of owner and constructor in the spectrum of total life cycle and total life value.

About the author : John G. Voeller, P.E., is Senior Vice President , Chief Knowledge Officer and Chief Technology Officer of Black & Vetch, a large international engineering firm. He can be reached at voellerjg@bv.com.

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©  Copyright 2007, The Construction Sciences Research Foundation, Inc.  Updated January 12, 2007.