What Can Construction Industry Learn From Thomas Cook’s Collapse?
On September 23rd, 2019 the 178-year-old tours and travel company Thomas Cook collapsed. It left around 150,000 passengers stranded around the world and the UK government had to launch the biggest peacetime repatriation operation — Operation Matterhorn — to bring everyone home safely.
Digging a little deeper into the case, it is obvious that the collapse of Thomas Cook was inevitable and predicted months ago.
The company had around 550+ high street, brick and mortar stores, 19 million customers a year and around 22,000 employees at the time of its collapse. And it’s revenue in 2018 was around 9.6 billion Pounds (~12.07 billion USD).
Compare this to Expedia, a tech company in the tours and travel industry. It was founded in 1996. It survived the dot com bubble and grew exponentially for years. Gross bookings on Expedia in 2018 were close to 100 billion USD and its revenue was 11.2 billion USD in the same year.
The reason for this comparison is that experts had been pointing out the lack of digital transformation in Thomas Cook for years. But for some reason, Thomas Cook’s digital strategy failed to deliver in time and it stayed a brick and mortar company even when companies like Expedia started to disrupt the tours and travel market almost 23 years ago. Today most people prefer booking travel online and like to stay at an Airbnb. Thomas Cook did not pick on the pulse of the changing customer behavior and technology trends in time and collapsed.
Now how does it all relate to the construction industry? Looking at the studies published by HBR and Mckinsey, which are pointing out the lack of digitization and digital leadership in the construction industry, it is likely that many companies in the construction industry may also face a similar fate.
Construction is one of the least digitized industries and it is one of the least productive industry as well. There are still companies in the ENR 400 Contractors list that are prospering without digitally transforming their businesses. The reason for their prosperity is the growing demand for infrastructure and housing and their experience in delivering the projects using the traditional project delivery approach, but that may not last for very long.
Some of the key reasons highlighted by experts for Thomas Cook’s collapse were the unexpected heatwaves and economic anxieties due to Brexit that kept the European travelers from vacationing. Meaning as soon as the demand slowed down, the company collapsed. There was no resilience. We never know when the next recession will hit and force a bunch of construction companies to collapse as well.
There are several companies that are still waiting for others to try things out and jump on the bandwagon at some later stage. These companies also seem to be unaware of the ongoing disruption of the housing industry by startups like Katerra and Plant Prefab and the advances made by companies like Airbnb, Amazon, IKEA, and Google in the housing industry.
Some companies like Skanska and DPR have realized this shift and started their own technology-enabled industrialized construction spin-offs — Digital Construction Components and BoKlok.
Skanska and DPR were already at the forefront of the digital transformation of customer experience and operations components of their businesses and they have started these new spin-offs, with completely new business models, to compete with new startups like Katerra that are disrupting the building construction industry by using state of the art technologies and streamlined supply chains.
But let me tell you that there is still time and the construction industry has a strategic advantage. The incumbents can still transform their businesses by learning from other industries.
Learning from other industries will be inexpensive too. Because companies in the other industries have failed a lot in their digital transformations and there are plenty of lessons learned and best practices that the construction industry can learn from before embarking on their own digital transformation journeys.
However, they will also need to be mindful that this transformation will not happen bottom-up (which is a common misconception in our industry), the transformation will happen top-down.
According to the researchers from MIT, out of 391 companies (revenue 500+ million USD) that they surveyed for their research on digital transformation, none of the successful digital transformations happened bottom-up, the successful transformations only happened top-down.
If they have not already done so, executives and board members of ENR 400 companies (and all other builders too) need to start thinking about their companies’ digital transformations today. If they don’t do it soon enough, they will be disrupted and become irrelevant in the next ten-to-twenty years.
Here are the lessons that all construction companies can learn from Thomas Cook’s Collapse:
Lesson 1: Start your digital transformation journey now (if you haven’t already)
Lesson 2: Think digital strategy as opposed to tools and technologies
Lesson 3: If something can be automated as a result of digitization, it will be automated
Lesson 4: Digital enables real disruption and every company needs to prioritize digital strategy in their board meetings
Lesson 5: The change needs to come from the top
Lesson 6: Invest in R&D and Innovation
