NEWS

Industry margin growth – can it be found in building trust and working together? 

In “Modernise or Die” Mark Farmer’s 2016 report he highlights serious flaws in the construction industry.  We’ve seen advances in several aspects, with MMC garnering government attention, but little serious change since.  The report said the industry is riven by a debilitating “survivalist” culture and a lack of alignment with clients.

Margins of low single digits must be heavily defended, understandably.  But the effects of uncertain cashflow through the supply chain, undermines investment and therefore innovation and improvement.  Technology – Blockchain, for instance – offer ways which may offer some future solutions here.

It seems however that there is high potential low hanging fruit.  That is to work together.  An example model is Kate Vitasek’s work with the Vested Way.  In 2019 Nobel Prize Winner, Oliver Hart argued in “A New Approach to Contracts” in HBR for this different kind of contractual relationship.  It offers a win-win outcome for both parties working together, where there is a shared common goal and where both parties can win! This model relates to outsourcing, including in real estate, but could this vision and its mechanisms apply to construction supply chain relationships?

Kate and her co-authors advise that you first must find people you can trust then work from there.  It demands you put in place a formal peer structure between the parties to prevent drift and commit to never use your position to undermine the relationship.  It’s been transformative for many commercial relationships, and they are more profitable!

Rather than treating the supply chain as the dust chute for risk, is it time to start investing in it?  Find people who you can trust and build from there.  If guided clearly and honestly harnessed, might there be a percentage or two of margin in working together?