Change is difficult. It can be slow and there is often much resistance, but the one thing about change is that it’s constant. There’s no holding it back. A great example of technological change is how tallow candles and whale-oil lights gave way to kerosene and then gas lighting, before electricity ultimately illuminated our homes and cities.
Despite numerous project management and work process improvements in recent years, the construction industry is still hidebound. In terms of the core management science and our approaches to contracting, the industry remains largely unchanged since the middle of the last century.
Why might this be?
Hesitation is natural. We often stick with what we’re used to because it works, even if it doesn’t work as well as it could. Consider getting paid on time in the construction industry. Some argue that getting paid slowly has very little to do with the contractor and more to do with the terms in the contract they accepted. It’s a simple choice: accept the terms or don’t do business.
One might say, “It’s just the way things are done.” However, habit is often a brake on progress. This particular habit undervalues the negative impact of late payments on a subcontractor’s cash flow, and the knock-on effects on project costs – which ultimately are passed on to the owner. Moreover, the technology to help improve cash flow timing already exists in the form of Smart Contracts.
There’s a fundamental difference in having payment executed in hours or even minutes, not weeks or months, and with a level of friction removed from the process. Entire “accounts payables” and “accounts receivables” work processes are streamlined. Not utilizing this capability is like continuing with the smoky and smelly tallow candle when there’s an electric switch right there on the wall.
Some might say that size matters. Big companies and governments dictate their terms and ERP systems and doing business with them means following their rules. However, these rules may be the brakes on our collective progress. Do you turn down a multi-million dollar job, or do you build the cost of capital into the quote? Contractors better build the cost of capital in their pricing – or they will not stay in business very long.
The key to breaking this cycle is in accepting that blockchain ledger technology – the electric lightbulb compared to the whale-oil lamp – is changing everything. Blockchain provides a significant reduction in transaction costs and a level of governance and control that old methods cannot approach. Blockchain allows granularity of payments and micro-incentives to be leveraged into new business models. Previous ways of working will slip away entirely — going the way of the oil lamp.
Automating the future
The most inefficient industries will change the quickest. But blockchain payments are not only about payment speed. They’re about “absolute” governance and control that only verified, automated payments with immutable properties can provide.
It’s the difference between a dim, flickering glow and instant, brilliant light. The same sort of difference between “digitization,” where you use digital technology to speed up a traditional, paper-based process, and “digitalization,” where you use the power of technology to completely re-engineer a process and eliminate significant waste.
Most of today’s ERP and P2P technologies are just automating inefficient work processes. They can’t deliver the step-change improvements offered by blockchain-enabled Smart Contracts. The good news is that Smart Contracts can leverage these existing tools. There’s no need to “rip and replace” current systems. The price of entry is low and cost savings accrue immediately once you launch the Smart Contract. Just like flipping the switch.
PrairieDog and its partners are redesigning the business model to eliminate the vast majority of the 40% transactional waste found in today’s capital projects. We believe that Smart Contracts and blockchain are foundational – building blocks upon which we can deliver many other necessary and transformative improvements.