The Cloud Will Change Everything

Three developments will have profound implications for the construction industry.

1. The availability of cloud based applications that contain all of the functionality of traditional office software but can be purchased on an as needed basis and accessed anywhere on the web.

2. The emergence and prevalence of social and professional networks that allow labor to be identified, organized and mobilized easily and rapidly.

3. The development of new contract models for the aec industry that redefine the relationship between service providers and clients.

The convergence of these three key developments will essentially redefine the construction industry in the very near term. The biggest result of this will be that the cost for aec services will come down. This does not necessarily mean that service providers will necessarily lose either- in fact it is entirely possible that cost can come down even as salaries rise. I'll explore why I think so in just a minute. But for now, lets take a quick look at each development on its own.

1. Cloud Applications

Earlier this year, Autodesk released a new product called AutoCAD WS. WS is a product that ostensibly is being marketed to tablet users and the sound bite on that is that it is the first autocad application for theApple I-pad. But take a closer look and you will find something even more startling- WS is the first drafting application that I know of that can be run completely over the internet and then accessed when needed.

This is a pretty huge story. Obviously WS isn't completely ready, but the implications for this application and others like it are enormous for aec firms. With cloud applications, in house overhead for I.T. gives way to a pay for use model. All of the costs of acquiring, maintaining and upgrading applications and hardware is shifted over to the cloud data center where it is managed at scales that rival that of utilities- with redundancies and safety systems that individual firms could only dream of previously.

Then there is the drastically improved portability of the information that is being generated and maintained on the cloud. Where firms had to manage the transmission of information during the design and construction process, the very fact that the any of the data is in the cloud means that all of the traditional issues and costs surrounding transmission of information also disappear. In the context of a construction job, this is extremely important, since so much of the effort expended in construction administration is simply about acquiring and maintaining current information on a construction site.

The cloud means that you get the best available technology and information anywhere to anyone for a very low price relative to what you were paying before in equivalent cost to generate, store and transmit a piece of information.

2. Social and Professional Networks

The potential for linked networks of individuals to radically redefine how service providers are organized is still largely untapped. Where the cloud allows us to forego the technological infrastructure that traditional firms provided, social networks will render the very organization of firms a thing of the past. The networks themselves will become the organization.

The value of firms in the market place has traditionally been their ability to recruit, train, and mobilize talent and labor and to provide armature for the delivery of services by individuals within the organization. The problem with firms is that, relative to a social or professional network on the internet, they are inherently less efficient and effective in doing the very thing that they are created to do.

The applicant pool even a well connected firm can draw simply can't compete with the breadth and width of the social network on the internet. Traditional firms are constrained geographically in who they recruit- but they are also constrained by time. The individuals within a firm who can most easily identify and recruit the right people for the job are the very ones whose time is most constrained within the organization. So what you end up with at best is either a very contracted hiring window or an HR Manager or VP who generally doesn't really know what they are looking at when evaluating an applicant pool. But by aggregating and consolidating information about individuals within a given sector or area, social networks can provide a far more efficient platform for identifying and mobilizing talent available for a construction project.

3. Single Purpose Entity Contracting

In 2008 the AIA introduced the integrated project delivery suite of contracts including the AIA C195-2008 which proposes a single purpose entity contracting (SPE) model. Under the SPE contract, the three main participants of a construction project agree to form a new company whose sole purpose is to complete a construction project. The owner capitalizes the project as a partner and then the process is developed collaboratively with architect and contractor engaged on an open book basis as equal partners where risk and reward is shared by all counterparties.

The idea behind the SPE is that everybody gets skin in the game. With a relationship that is based more on mutual benefit and reward, everyone on the team can focus on achieving the greatest amount of value for the owner for the lowest possible cost. By setting up the collaboration at the earliest point in the process, all of the value opportunities can be identified by the team for the lowest price. Sounds great right? But the industry doesn't yet seem to be buying it.

One of the factors preventing a more widespread adoption of SPE contracts is that it asks three distinct entities- three firms, each with their own culture and structure to pretend that they are one firm. My contention is that you generally can't overlay three existing organizational structure with a contract and then somehow pretend that that you've created a new organization. In order to deliver a new contracting model, the very structure of the services market has to change. You really have to atomize the market down to its constituent parts, the individuals that actually provide the service and produce value, and start there- otherwise you are trying to fit a square peg (the architecture or contracting firm) into a round hole (the SPE).

The payoff for restructuring the construction services market, however, is huge. With a market that is built not on firms, but on individuals, talented people who act as free agents, mobilizing and re mobilizing for projects as needed, you get a highly dynamic marketplace where the best talent is able to collaborate laterally to bring higher quality, higher value buildings at lower costs. All of the overhead and waste that is inherent in any firm with its legacy costs and overhead, gets contained on a project by project basis. Would some project be less successful than others? Naturally, but in an SPE model, the cost of that failure would be borne by those who are responsible for it. What we have now is a model where the costs of failure are shifted and spread across an industry- if one project fails within a firm then those costs are borne by all of the other clients with successful projects- an arrangement that should really be unacceptable to most clients. SPE's could give the industry the opportunity for true cost containment- which reduces the risk and the cost to the market as a whole.