If you could point to one thing in the commercial construction industry that drives all the motivations, it would be the conflict between the cost of a project and its value. The building’s owner will assign a value that can be measured in a combination of its usefulness, design aesthetics and monetary payback.
That value can seem a little nebulous. Owners often fail to articulate it properly, throwing the construction team into dysfunctional fits, but even at its most clearly stated, the value is variable. What isn’t variable and certainly isn’t nebulous is the cost of construction, and by extension, the price of the building.
That means every contractor, subcontractor, product manufacturer, architect and engineer is focused on controlling costs. For contractors, that means you are always competing on price. Guess what? There is always going to be someone cheaper than you. If you are competing on price, you are in a race for the bottom.
This focus on competing on price instead of value has varied consequences. It means that it’s easier to sell your product or service at a discount. The first analysis of any project is almost always price. Contractors are always bidding, which means they are always competing on price rather than the value of their services.
We end up in this kind of cost-based competitive environment because it’s incredibly difficult to compete on value. When I ask contractors how they differentiate themselves, they commonly offer value-based descriptions. They may include attention to detail, great service and excellent workmanship.
But people hearing those differentiators aren’t really hearing specific values. They just hear common platitudes of value. It’s hard to compete on value because we struggle to articulate what the value we offer is and we strain to show it in a way that our buyers will believe it. Sorry, but we live in a cynical world, especially construction, and there is a long history of distrust that pervades our industry. Talk value and people arch an eyebrow.
Why are we competing on price? There are a lot of reasons, of course, but I think the major reason is that the industry has traditionally been a boom-and-bust industry. If you are in danger of failing every few years because the economy turns south, you are reluctant to invest in the kind of value-building mechanisms you need to differentiate your business. Chief among those is labor.
I often hear of contractors who have field staff with long tenures, and they are rightfully proud of that because that kind of experience gives them efficiencies and access to greater sophistication than contractors with high turnover have. That is a real value differentiator. But full-time employees are expensive and carry costs that are hard to shed when the industry turns south. So, we subcontract all our trade work to pass the burden of employment along to others and keep our flexibility should we get caught in a bust cycle.
Improved labor relationships are one way to compete on value, but they’re not the only way. The corporation with the highest market value in the world is Apple Inc. It did not achieve that by being the low-cost alternative. Apple has successfully branded itself as a quality manufacturer and convinced consumers to spend more for its products. That means all the other computer manufacturers are faced with competing on price.
Why can’t contractors achieve such notability? Everybody knows that Frank Gehry designed the Walt Disney Concert Hall in Los Angeles, but how many people know that M.A. Mortenson, Minneapolis, was the general contractor on a project some deemed “unbuildable.” And that Permasteelisa Group, Treviso, Italy, installed the iconic metal wall paneling.
I’m not certain it is possible for contractors to achieve the level of branding that Apple and bigname architects do. I think the boom-and-bust cycle of the industry prevents those kinds of valuebased opportunities, although you do see it with smaller, boutique-type contractors who seem to control their own local market. But I do think it’s possible for contractors to improve their ability to compete on value rather than price, and by doing that, improve their margins, decrease their cost of sale, and attract the very best and brightest in the industry.
