The construction industry’s productivity problems are well known. The now-notorious McKinsey report in 2017, and its follow up in 2020, laid out construction’s poor performance in improving productivity over the last several decades and managed to put its finger on some of the root causes as well. But in the analysis, much of the industry’s pains boil down to one problem: a lack of transparency.

In this context, "transparent" should be understood as “easy to perceive or understand.” The key question is: transparent to whom? It is not an issue, for example, that to a layperson, construction projects are largely a black box. The transparency problem currently holding the industry back is internal, and of a different type; in fact, of three different types.

1. On a project of any complexity, the team running said project does not have a complete understanding of the goings on at any point in time.
2. There is the fragmented nature of construction companies, which results in an inability for corporate leaders at large general contractors to understand their performance across projects.
3. There is the often-intentional opaqueness in how information is presented to an owner or developer by a general contractor.

For the sake of clarity, this article will refer to each type as project transparency, organizational transparency and stakeholder transparency, respectively, going forward.

Project Transparency

Major construction projects are massive and exceedingly complex. Because of that, no one person typically has a complete understanding of a project at any given point in time. Each stakeholder sees only a fraction of the total picture. And yet, it is that same complexity that demands a unified and complete picture exist. Without it, coordination and decision making are slowed and dispute resolution becomes next to impossible.

But scale and complexity are not unique to construction. Other industries have solved this problem by implementing a single source of truth (SSOT) model for their data. In practice, it means one system or software where all data can be aggregated, reconciled if necessary, and accessed.

The question then becomes why the SSOT practice hasn’t caught on in construction. The answer to that question is somewhat multifaceted. One key underlying issue is the lack of data standards. Even in single project teams there is often a maddening lack of standards on how data should be structured. For example, there may not be a shared work breakdown structure or even a common taxonomy for the project. The schedule may get only so detailed as to have a line item for “plumbing” while the cost estimate may operate at a much more granular level, breaking a trade into its constituent systems. All of this makes it exceedingly difficult to reconcile information from different sources.

There is also the lack of input to contend with. Without constant documentation of the project, any data entered into the system will constantly be out of date and inaccurate. Given the demands already placed on an ever-tightening labor force, adding additional data input responsibilities seems far-fetched.

There are steps that can be taken to address these problems, though. In many respects, the lack of data standardization is itself a symptom of the organizational siloing that is endemic to so many general contractors. It is rare that cost managers and schedulers, to take one example, even know one another, let alone actively coordinate their efforts on a project. This is a cultural phenomenon that can change and can be addressed, at least to start, at the project level.

As regards the data input problem, AI tools are available today that can relieve project staff of much of the documentation and data entry burden. There is no substitute for a complete and accurate data set and investments in the right technology are going to be necessary to push the industry forward.

Organizational Transparency

As one might expect, the lack of data standards that starts at the project level ultimately boils up to the corporate level as well. Just as individual projects lack a standard way to structure their data across functions and teams, those same teams fail to standardize their data across projects. In some respects, this problem is even more impactful at the corporate level than at the project scale. As Peter Drucker famously said, “you can’t improve what you can’t measure.” Without a standard set of units or common data structure, managers can’t improve much of anything. They have no way to measure the performance of their teams (outside of profit) and are therefore largely unable to make data-based decisions or intentionally innovate. Perhaps most disturbing is how opaque the bidding process continues to be. Given standardized data, a general contractor could easily track and benchmark performance of the various subcontractors it employs, but in the current data environment, that is simply impossible.

The reasons for this lack of transparency are many, but certainly one major factor can be identified. General contractors are typically highly decentralized, with each project executive the king of his or her own castle and responsible only for their own P&L. This makes it functionally impossible to mandate any sort of standardization across projects. And winning voluntary buy-in is notoriously difficult given the notably independent culture common to construction workers at large.

But with challenges come opportunities. As the skilled labor force continues to shrink via retirement, there is an opportunity to generate a new culture—one that prides efficiency and excellence over a retrograde resentment of any form of supervision. In fact, consciously curating company culture is imperative, not just to drive transparency, but to attract the skilled technical labor that will actually enable construction companies to survive beyond the next 10 years.

Stakeholder Transparency

Legacy culture may also largely be the underlying cause for the third transparency deficiency plaguing the industry. Owners frequently do not have a clear view on the cost or performance of projects. In many cases this is due to the operational overhead associated with providing the necessary information to owners. Unfortunately, other times it is the result of intentional obfuscation. Too many general contractors still prefer to leverage the information asymmetries between owners and themselves and make their profit on claims and change orders rather than through efficiency and productivity gains.

Of course, it doesn’t help that incentives are often misaligned and that most contractual structures today shift a vast majority of the risk on to contractors, reinforcing a mutually antagonistic relationship between owners and general contractors.

But this will change. As technology and better management practices are brought to bear, the transparency problems discussed above will begin to dissolve. Better and more complete understanding of projects will enable general contractors to consciously take on more risk, and with the ability to manage and take on risk comes the associated profit.

The construction industry is currently experiencing significant disruption. Between labor shortages, supply chain issues and the ongoing pandemic, pressure is creating change. In other industries that have encountered similar sets of challenges, companies that actively adjusted to the new realities often came to dominate their industries as a winner-take-most dynamic emerged. Transparency is the future of construction. The only question that remains is who will be leading the pack and who will be picking up the rear.