Industry Analysis

The construction industry will shortly need to meet the developing challenges and opportunitiesof globalization, sustainability, information technologies, new business arrangements and demographic changes. The industry has historically suffered from inconsistent profitability, invested too little in capital and, mainly due to its fragmented structure, it has invested too little in human resources and R&D. Real R&D expenditures have actually fallen over the past two decades and, to a large extent, the industry continues to rely on 1970’s technologies. Many of the industry’s clients are not satisfied with the overall value of its products and the quality of its services.

Innovation in the construction industry is a complex activity. While, a single firm can champion an innovation, broader adoption usually requires the involvement of many external parties and stakeholders. Single firms are very limited in their ability to innovate without the co-operation and alignment of the ‘construction community’. Typically, an innovation will only receive wide acceptance and dissemination if it is acceptable to a variety of stakeholders including regulatory, standards, legal, contractual, labour, safety, and environmental authorities. This is in addition to dealing with the basic business case issues. It is important that this ‘innovation system’ should work smoothly and not produce inadvertent barriers to innovation. In order to make progress, an industry-wide approach is needed.

The Canadian construction industry, as a whole, faces several fundamental and interrelated chronic problems:

• The procurement system is driven by low initial cost versus quality and life-cycle value;
• The cyclical nature of the industry leads to survival strategies that do not support a long-term innovation culture.
• An unusual supply/demand/price behaviour; minimal price variations regardless of demand makes it difficult for companies to gain from investing in innovation and consistently low and unpredictable profit margins leave little capacity for funding innovation;
• Driven by the pressures of time, cost and schedule rather than quality and value in the delivery of its products and services.
• Risk allocation does not support innovation. High risk/low reward for designers; low risk/high reward for end client;
• Many procurers and tenants are technically unsophisticated and are thus unable to recognize improved value that can flow from innovative practices. There is a heavy reliance on low-bid contracting systems.
• Skilled labour shortage is a worsening crisis.
• Industry’s image affects its ability to attract the best employees.
• Innovation occurs incrementally with a spread rate that is slow compared to other industries. Closer to the ‘trailing edge’ than the leading or bleeding edges of innovation.
• At less than 0.1% of revenue, R&D investments are very low compared with virtually any other industry.
• Construction is virtually invisible to Canadian governments; there are few coherent government policies for the industry. The construction industry has not been a federal government priority.
• The industry is deeply fragmented and geographically dispersed. Governance arrangements are poorly integrated. There is no effective platform at which the private/public sectors can meet to discuss and resolve systemic industry-wide issues.

Many in the industry acknowledge these problems and a national discussion on how to ameliorate the situation is developing.

The CCIC will co-ordinate this discussion.