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The Productivity Paradox

Productivity growth in the U.S. has reached historic heights in recent years, helping fuel the country's economic recovery. In the 2001-2004 period, productivity growth across all industries averaged 3.8%, including a 12-month burst of 5.5% during 2003-2004. Some companies have realized gains of more than 25% in a single year. Facing unprecedented global competition, American industry seems to be permeated with a mindset of "No matter how good it is, it can be done better."

Meanwhile, the design/construction industry seems to be sitting on the sidelines in this regard. While good productivity data for our profession is hard to come by, there is ample evidence that we are not keeping pace with other industrial sectors:

• Paul Teicholz, civil engineering professor emeritus from Stanford University, conducted an often-cited study that found that the industry's productivity from 1964 to 1998 (as measured in by constant contract dollars per field-work hour) actually declined by an average of nearly 0.5% per year. During the same period, labor productivity in other non-farm industries increased 1.7% annually. "A building that took 1,000 hours to construct in 1964," Teicholz wrote in 1999, "would have required just 552 hours in 1998 had the industry achieved the same productivity as the rest of the non-farm sector. Instead, that building would have taken more than twice as many hours: 1,185."

• Engineering News Record (ENR) projected that delays and project overruns may approach $200 billion of the $700 billion U.S. commercial construction market.

• More specific to technical consulting and design firms, various internal surveys suggest that rework may constitute as much as 20-25% of our project budgets. One large design firm found that project managers spent 50-70% of their time checking, fixing, and documenting problems associated with their projects.

• The mere fact that very few technical consulting and design firms even attempt to measure productivity is telling. Admittedly, productivity trends are more difficult to track in our industry. The two methods most often cited—man-hours per drawing sheet and net revenue per employee—have  shortcomings in accurately measuring productivity across the firm. But a combination of metrics could nonetheless provide adequate information for firms interested in improving productivity.

Why are we not driven to improve productivity like other industries? Undoubtedly, our history of doing predominantly hourly work has provided little incentive to improve. But this is changing with lump sum contracts becoming increasingly common. Some of our indifference is probably related to the difficulty of measuring productivity. And since we don't measure it, many firms probably mistakenly assume that productivity gains in certain functions (e.g., converting field data) have translated to similar improvement overall.

Teased by Technology

That latter example illustrates perhaps the most deceptive aspect of the problem: Most firms have invested enormous sums of money on technologies that were supposed to improve productivity. We may simply assume that productivity has increased without tracking the actual results. In fact, research suggests that there is no correlation between how much firms spend on computer technology and productivity.

How can this be? My research and experience point to the following primary reasons:

• Failure to change work processes. For technology to yield real productivity gains usually requires that people change the way they work—and such change is hard to come by. Erik Brynjolfsson, director of MIT's Center for eBusiness writes that "innovation in IT alone is insufficient. Companies also need innovation in organizational practices to reap the promised boost in productivity growth." 

• Inefficient use of the technology. Employees often are slow to learn and adopt functions of new technology that can have the greatest productivity impact. This is particularly true of firm-wide IT or communications applications. In some cases, new technologies may even lead to less efficient practices. For example, design software appears to have encouraged many designers in our profession to perform more iterations than ever before, so that little of the anticipated shortening of design schedules has been realized.

• Costly upgrades with poor ROI. When vendors produce newer versions of hardware or software, firms may feel obligated for competitive reasons to upgrade even if it provides little meaningful improvement in capability.

• Investing in new technology too early. Some firms seek a competitive advantage through being among the first to adopt emerging technologies. But this strategy can backfire, in large part due to the first two reasons listed above. New technology is also costlier. Firms that wait often pay substantially less. Clients usually aren't inclined to pay more to firms that are early technology adopters, regardless of any competitive edge they might temporarily hold. Early adopters are also more likely to invest in the wrong technology.

This is not to suggest that technology doesn't contribute to productivity gain. It does. But the benefits are often oversold. The real potential for productivity growth still lies in people working more efficiently. Technology can be a tremendous tool in increasing efficiency, but it must be used appropriately.

Why Productivity Is Important

You might wonder whether productivity improvement is that important to our business. After all, if it was, wouldn't we be giving it more attention? Does productivity growth really deliver to the bottom line? Those are fair questions. Let me briefly suggest some reasons why I think this issue is becoming increasingly important:

• We're doing more lump sum work. There is clearly incentive for increasing efficiency under lump sum contracts. It's money straight to the bottom line.

• Clients are expecting faster delivery. Delivery cycles in almost every other industry have shortened dramatically. Why should our clients expect less? For most clients, time is money. The desire for quicker turnaround is undoubtedly one of the factors driving the increase in design-build.

• We're facing tighter budgets. Price competitions are increasingly common, and with them come project budgets that are only marginally adequate. Increased productivity is one way to fight back.

• More efficient processes deliver better value and quality. Some may debate this point, but my experience bears this out. Productivity improvement in our business isn't just about doing more with less, but doing it better.

• Productivity improvement provides better return on technology investments. Given the massive expenditures we've made on information, design, and other technologies, we should expect to see a better return on that investment.  

Strategies for Productivity Improvement

I'm convinced that productivity improvement—leading to faster delivery time and better value and quality—represents an important and largely unexploited competitive advantage in our industry. If you agree, let me suggest some key strategies:

u Focus first on more efficient project delivery. Most firms have ample opportunities for improvement in this area. There are clearly  bottom-line benefits—fewer project write-offs, more profitability, greater client satisfaction, and reduced liability. More efficient work processes are needed, but this will involve significant effort for most firms. You can't simply redesign procedures; you must lead people through the process of behavioral change. This can be difficult, but the benefits are worth the effort. See the article "Improving Project Management" for more on this topic.

u Provide appropriate training, coaching, and support. Single training events rarely influence behavior change, which is at the heart of productivity improvement. On-the-job training and coaching over a period of time is better, combined with appropriate tools, policies, and other support. Substantial productivity growth involves a change process, not just training. Your training should be integrated with the overall process of changing how people work. For more on training strategy, please refer to the article "The Training (Non)Solution."

u Cultivate a culture of continuous improvement. The companies that have enjoyed the most significant gains in productivity are those engaged in an ongoing, comprehensive improvement process. They are constantly evaluating and tweaking their organizational practices and delivery systems. This is not a commitment that many technical consulting and design firms have made. To succeed at it requires a cultural shift in most firms, which involves developing new "work habits." As a starting point, I recommend adopting three key practices: (1) a formal process for collecting performance feedback from your clients, (2) regular (usually monthly) project reviews, and (3) routine project closure debriefings to evaluate how you did and what can be done better next time. What you learn from these activities sets the agenda for performance and productivity improvements.

u Prioritize IT investments on vulnerabilities rather than opportunities. IT may not give us a competitive advantage, but it has become crucial to our normal business functions. Malfunctions and mistakes can cripple our operations. Your first line of investment should focus on safeguarding your firm against such problems. Some firms place too much emphasis on being the first to acquire new systems or programs, shortcutting efforts to minimize the liabilities of what they've already invested in. The first spending priority should be making your current infrastructural technology as foolproof as possible—as well as maximizing its benefits through better utilization of it.

u Follow, don't lead in making technology investments. This is the advice of Nicholas Carr, author of the book Does IT Matter? Technology and the Corrosion of Competitive Advantage. "The longer you wait to make an IT purchase, the more you'll get for your money," he said in an interview with ZweigWhite, "And waiting will decrease your risk of buying something technologically flawed or doomed to rapid obsolescence." This strategy would seem worthy of consideration when thinking of buying other types of technologies as well—including new design and modeling packages. I don't mean to disparage such purchases, only to urge caution. The apparent edge in being among the first to buy new technologies has turned out to be a costly mirage for many a firm in our business.

u Seek more lump sum contracts. While lump sum is becoming increasingly common, many clients and consultants still have some misgivings about this type of contract. Clients may feel that lump sum makes them vulnerable to paying too much, compared to time and materials. Consultants may consider it more risky. The data, however, suggest the contrary of both perspectives. PSMJ has found that the risk of going over budget is significantly higher on T&M contracts (with a cap, and there is always a cap, whether explicitly established or not). Why? Because the consultant is financially incentivized to get as close to the cap as possible, which makes going over the cap more likely. This also explains why firms rarely spend much less than the cap. Under a lump sum contract, by contrast, the financial incentive is to get as far under the cap as possible, making an overrun less likely. Lump sum also encourages firms to improve productivity, as noted earlier, which I believe benefits both client and consultant.

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